February 20th 2010

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Articles from this issue:

COVER STORY: Lord Monckton interviewed on global warming and the ETS

CANBERRA OBSERVED: Kevin Rudd grows cooler on global warming

EDITORIAL: Obama: from euphoria to nightmare in 12 months …

CHINA: Three economic events that will change the world

FOREIGN DEBT: The unacknowledged elephant in the room

NATIONAL AFFAIRS: Rudd and Henry politicise Intergenerational Report

OPINION: Can Abbott rescue Liberals from 'Ruddbullism'?

INTERNATIONAL POLITICS: In the global power shift, whither Australia?

MEDICAL ETHICS: Euthanasia laws - coming to a state near you

MEDICAL SCIENCE: Abortion laws: seeing what we kill

UNITED KINGDOM: Britain's lords vote for liberty

CIVIC VALUES: Consumerism's destructive impact on faith and family

TECHNOLOGY: Computers, TV and a shrinking attention span

Global conning (letter)

Fundamental cause of population shortfall (letter)

Julia Gillard vs. Tony Abbott (letter)

AS THE WORLD TURNS: Christian teacher forced out over Muslim pupil misbehaviour; Adult-child cultural reversal; Decline of the stiff upper lip

BOOK REVIEW: DIVERSITY: The Invention of a Concept, by Peter Wood

Books promotion page

In the global power shift, whither Australia?

by Patrick J. Byrne

News Weekly, February 20, 2010
For two centuries, the world's dominant powers, first the United Kingdom, then the United States and its Western alliance, gave the world democracy, human rights and a market economic system.

However, as world economic power began to shift from the West to the East, James F. Hoge Jnr, editor of the distinguished Foreign Affairs journal (published by the US Council on Foreign Relations), warned: "Global power shifts happen rarely and are even less often peaceful. ... Only a century ago, the failure of the imperial order to adjust to the aspiring ambitions of Germany and Japan resulted in conflicts that devastated the globe." (Foreign Affairs, July/August 2004).

The chaos of those two conflicts was only resolved after the formation of the Western alliance around the dominant economic and military power of the US. Order was established in the world economy and the Western alliance strengthened through the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade (now the World Trade Organisation).


China's sudden rise as an economic power is at the epicentre of the global power shift today. As strategic power follows economic power, soon China's strategic reach will inevitably stretch far beyond its Cold War boundaries. This will have profound consequences for Australia.

China's new-found influence in world affairs was demonstrated at the Copenhagen climate conference last December, where it sank the Western-led attempt to set fixed greenhouse emissions reduction targets for all nations. Its new influence was also demonstrated when the G20 group of nations - which include the Western nations, China, Russia, Brazil and others - recently took over from the G7 advanced economies the role of steering the world economy through the global financial crisis.

Some commentators predict that the global financial crisis will soon catch up with China, that its economy may stumble because of its growing asset bubble.

Perhaps it will stumble, but it has $US2.4 trillion in foreign reserves and more in domestic savings. Last year alone, in the middle of the worst global crisis since the 1930s Great Depression, its foreign reserves grew over $450 billion, more than the total accumulated foreign reserves of any other nation except Japan.

Juxtaposed with China's rapid growth has been the relative weakening of the US and Western economies, after two decades of repeated boom-and-bust crises.

Before that, the post-World War II ordering of exchange rates had kept trade roughly in balance.

But the deregulation of the international financial system, and the practice of countries like China manipulating their currencies to exploit the free trade policies of the West, generated huge trade imbalances and equally large capital flows across the world financial system between countries. These capital flows, combined with financial-sector-leveraged debt and casino-style speculation have been at the heart of the financial crises, which have weakened the West.

Each time, governments reacted by pumping money into the financial system in the hope of staving off a wider collapse, with some degree of success. Each time, the regulators and financial institutions declared that the lessons had been learned.

This time, the bail-out of the US and European banks from the latest financial crisis has involved that largest taxpayer subsidy in history, about US$9 trillion - that is, nine thousand billon dollars - or one-sixth of the world's total income.

Today, the world's banks and financial system remain as fragile as glass. The banks may take many years to run down their debts and "de-leverage". This means they are likely to restrict their lending for years to come, which will cut economic growth and see unemployment stay high in many countries.

Governments could take a generation to reduce their massive debts, meaning that taxes must inevitably rise. Lenders will factor in higher risk with debtor nations and big-spending governments, meaning that interest rates too will rise.

Next crisis

Reflecting on the failure of political will to address the fundamental causes of these crises, John Kay, a leading Scottish-born economist who has held chairs at Oxford and the London School of Economics and who writes for the UK Financial Times, says that this leaves the world economy in a precarious state: "The recent crisis taxed ... to the full the resources of world governments and their citizens. Even if there is the will to respond to the next crisis, the capacity to do so may not be there." (Financial Times, January 5, 2010).

Kay also says: "When the next crisis hits, and it will, that frustrated public is likely to turn, not just on politicians who have been negligently lavish with public funds, or on the bankers, but on the market system. What is at stake now may not just be the future of finance, but the future of capitalism." (Financial Times, October 27, 2009).

Leading economics commentator of the Financial Times, Martin Wolf, has described the strategic implications of the global financial crisis. He says that the US and the West overall have suffered a "disastrous loss of authority. ... The rest of the world was inclined to believe that the West, whatever its faults, knew what it was doing, particularly where running a market economy was concerned. ... [But] the chaos that followed the wars in Iraq and Afghanistan and, far more, the financial crisis have destroyed the West's reputation for competence." (Financial Times, December 23, 2009).

America's loss of hegemony on the world stage with the changing balance of power is closely reflected in US President Obama's reorientation of American foreign policy towards a new accommodation with China and others.

This reorientation was analysed by Pulitzer prize-winning US commentator, Charles Krauthammer, in a recent Heritage Foundation lecture. He asked: "What is the essence of Obama's foreign policy? There are many places where it can be found - the Cairo speech, the other legs of the apology tour - but the essence was succinctly expressed in his centrepiece address to the UN General Assembly in which he laid out his understanding of what animates the international system."

Obama doctrine

President Obama said: "In an era when our destiny is shared, power is no longer a zero-sum game. No one nation can or should try to dominate another nation. No world order that elevates one nation or group of people over another will succeed.

"... [A]lignments of nations rooted in the cleavages of a long-gone Cold War ... make no sense in an interconnected world."

Analysing Obama's speech, Krauthammer asks, "Where does one begin? Power is no longer a zero-sum game? Tell that to the demonstrators in the streets of Tehran. Tell that to the Tamil Tigers or to the newly liberated Baltic States.

"No nation should try to dominate another? Perhaps, but that's merely adolescent utopianism. The world is a Hobbsian state of nature in which the struggle for domination is the very essence of international life.

"No nation can dominate another? This is simple nonsense. How can a man of such intelligence - and a president of the United States - even allow himself to utter those words?

"But most disturbing is the notion that what he called 'the cleavages of a long-gone Cold War' are obsolete and senseless. These cleavages were actually the dividing line between free and unfree, between democratic and Communist, between the West and an Evil Empire that had stamped out the face of freedom in half of Europe and in an archipelago of far-flung colonies from Vietnam to Cuba to Nicaragua.

"This was no accidental dividing line. Yet in place of this so-called cleavage, Obama wants to bring about a new 21st-century world of universal understanding and accommodation. ...

"At the heart of this internationalist fantasy is the very notion that a 'community of nations' with its common norms is ultimately determinative of the course of history ... Unfortunately, it is a fiction. There is no such thing.

"The international community is a Hobbesian state of nature with no universally recognised norms. Anarchy is kept in check not by some bureaucracy on the East River [the United Nations], not by some inchoate expression of world opinion, not by parchment promises adorned with disingenuous signatures, but by the will and the power of the Great Powers and, most important in our time, the one remaining superpower: namely the United States."

Krauthammer goes on to point out that Obama's internationalist agenda has involved accommodation of America's enemies, China, Russia, Iran and Syria. He said: "The basic critique of this foreign policy is not just that it is naïve and unseemly - a stain on America's tradition of supporting democratic forces - but that, worst of all, it's been a failure.

"We chose Russia over Eastern Europe, and what do we get in return? Co-operation on Iran? Nothing. And from China? In fact, we received explicit statements that they would oppose sanctions on Iran in the [UN] Security Council. ...

"This is only the beginning. In his first year, we have only begun to see the fruits of Obama's internationalism. But the signs are unmistakable. Should this policy continue for the next three years, let alone for the next seven, it will have profound consequences throughout the world.

"It would constitute a gradual American retreat ... and it will have inexorable consequences, easily stated: When erstwhile allies see the American umbrella being withdrawn, they will have to accommodate themselves to those countries we were protecting them from."

Krauthammer concludes: "Maybe this kind of illusory foreign policy can persist indefinitely. Perhaps Obama will prove himself impervious to empirical evidence and to experience. In which case, all these accommodations, the weakening of alliances, the strengthening of centres of adversarial power in Moscow, Beijing, Tehran, Caracas and elsewhere will continue apace - until some cataclysm wakes us up." [Charles Krauthammer, "The Age of Obama: Anno Domini 2", Heritage Lectures (Heritage Foundation, Washington DC), No. 1143, February 2, 2010].

Krauthammer's analysis depicts the erosion of America's place in the world, including in Australia's area of the world.

The efforts by Chinese corporations, which are effectively economic arms of the Beijing regime, to take ownership of coal and iron-ore mines in Australia are occurring in a totally different strategic environment to the time when, as part of the Western alliance, Japanese companies make major investments in Australian resources.

Today, China is set to become the dominant power in the Asian region, and for Beijing, economic, political and strategic power are inseparable.

The risk to Australia was succinctly described by US investor and commentator Warren Buffet. Today we are witnessing new form of dominance. Countries that excessively depend on foreign borrowing, he said, risk losing their sovereignty, being "colonised by purchase rather than conquest". (Fortune magazine, October 26, 2003).

Patrick J. Byrne is vice-president of the National Civic Council.


Warren E Buffett, Fortune magazine, October 26, 2003.

James F. Hoge, Jr, "A global power shift in the making", Foreign Affairs (Council on Foreign Relations, New York), Vol. 38, No. 4, July/August 2004.
Website: www.foreignaffairs.com

John Kay, "'Too big to fail' is too dumb an idea to keep", Financial Times, October 27, 2009.
URL: www.ft.com/cms/s/0/375f4528-c330-11de-8eca-00144feab49a.html

John Kay, "The cause of our crises has not gone away", Financial Times, January 5, 2010.
URL: www.ft.com/cms/s/0/1959f72c-fa2f-11de-beed-00144feab49a.html

Peter Westmore and Patrick J. Byrne, "The global power shift: defending Australia's independence", National Observer (Melbourne), No. 78, Spring 2008, pp.41-52.
Website: www.nationalobserver.net

Martin Wolf, "How the noughties were a hinge of history", Financial Times (UK), December 23, 2009.
URL: www.ft.com/cms/s/0/1161315a-effa-11de-833d-00144feab49a.html

All you need to know about
the wider impact of transgenderism on society.
TRANSGENDER: one shade of grey, 353pp, $39.99

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