Winter 2011

Decline in the West: Down but Not Out

Michael Maclay

When Lord Macartney led a mission on behalf of the East India Company and King George to Emperor Qianlong of the Chinese Qing dynasty at the end of the eighteenth century, he went in a fair-minded and generous spirit. He was steeped in Chinese culture through detailed study of the language and people, as well as the cult of chinoiserie then fashionable in the salons of Europe. He was convinced that commercial exchange could create and deepen a relationship of equals that would bring out the best in European culture as well as Chinese civilization.

Macartney’s mission failed through a total misunderstanding, on both sides, of what Europeans and Chinese could do together. Qianlong could not see how China could benefit from closer understanding of the West, and said in a written communication sent after the visit that China needed nothing from the barbarians’. He also worried – not wholly unjustifiably – about where any concessions to British traders might lead. This set the stage for almost two hundred years of different levels of mistrust, hostility and confrontation.

When the Head of the Eurozone’s bailout fund, Klaus Regling, went to Beijing earlier this year, seeking Chinese help in rescuing Europe’s ailing economies, the balance of forces was somewhat different. But the outcome was remarkably similar. Mr Regling went home empty-handed. As Mark Twain observed, History does not repeat itself. But sometimes it does rhyme.

This historical perspective is necessary to make sense of our economic and political difficulties today. We appear to be seeing an implosion of our Western capitalist model, coinciding dangerously with the collapse of the post-Cold War order that seemed to be growing up following the fall of the Berlin Wall. For barely fifteen years, the world enjoyed a fabulous spurt of growth led by the major Western economies, to a background of pronounced then declining US military hegemony. We in the West were late realising that the process of globalisation opened up by the end of the Cold War was bringing players into the world economy with far greater growth potential than our own mature economies. And we were very bad at making the structural changes that would justify our continuing leadership of the international system.

The Chinese were probably as right to give a cool response to Mr Regling as they were wrong to reject Lord Macartney so brusquely two hundred years ago. Governments in Europe, whether in the Eurozone or not, now have to level with their peoples about the need for a short-term fall in living standards if we are to return to decent rates of growth any time soon. No-one else should have to help us out of our present plight. Yet the greatest difficulty of adjustment might fall to the US. While their economic transition will be less painful than Europe’s, thanks to their more open economy and more youthful population, Americans are finding the new constellation of political forces in the world especially uncomfortable.

President Obama has shown a rather shrewd appreciation of the new limits on American power. Faced with such problems as the Arab Spring, Iran’s nuclear threat, renewed authoritarianism in Russia and possible defeat in Afghanistan, there might not be much the US can do. But his personal diffidence, and apparent inability to stand up for America’s continued leadership in the world, make him strikingly vulnerable at home. Whether or not a serious Republican emerges to challenge him, the US does not appear psychologically well attuned to manage its own relative — if not absolute — decline, in the face of the remorseless rise of China and the bumpier regional ascendancies of powers like Brazil and India.

This does not mean that the BRICs (Brazil, Russia, India, China) themselves embody any sort of coherent world order. The Chinese know their own deficiencies in terms of soft power; only Brazil and India of this group seem to have any exportable assets in this respect. The BRICS are an entirely disparate group, each with financial, economic or political fragilities that could lead to a collapse in growth. There are a number of states coming up behind them with potentially better prospects, and the analysts are already talking up the next wave, the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. Yet this is an even more arbitrary group than the BRICs and hardly represents a new organising principle. As a strong Turkish Prime inister has discovered in trying to intervene with Iran then Syria, national governments are no more likely to bow to the new players, where they believe their vital interests are affected, than they were to the old order.

Does this mean that a more fragile and even anarchic world looms? The answer is probably yes. America’s reduced leverage in the Middle East could well mean that confrontation between Israel and Iran is inevitable. There are no obvious mechanisms for managing dangerous conflicts around the Middle East, East Africa and the Indian subcontinent. China’s peaceful rise’ is not seen in those terms by its immediate neighbours, and tensions around the South China Sea will require a sensitivity that is not always evident in Chinese diplomacy. Some see in China’s brittleness towards Japan and Vietnam the mix of frustration and arrogance that Wilhelmine Germany brought to a much wider range of international disputes at the beginning of the twentieth century. Chinese analysts, and some of their more astute politicians, are pondering aloud how they can exercise their enormous power more sensitively in their own region — as well as in resource-rich regions like Africa and Latin America which are coming to depend on them.

Where does international business fit into this shifting landscape? The opportunities are greater than ever, for those taking the trouble to understand the peculiarities of the very promising and diverse markets taking shape around them. Western corporations, when their technology and productivity is good enough, remain the pacesetters. They have the organisation and the experience — and better liquidity and access to funding than their own governments, which are reaching the limits of taxpayers’ largesse. The rise of serious state and private sector companies in China, India and the other emerging powers offer new prospects for partnership and scaling up, rather than competition that will drive Western companies out of business. But modern Western corporations must have the confidence to drive hard enough bargains on intellectual property and governance to protect their own interests.

Today’s decline of the West could yet turn out to be irreversible. That will ultimately be decided between Western governments and their electorates. But the relative strengths of East and West have always fluctuated. In Macao, an exotic child of Portuguese and Chinese cultures, there is a gleaming whitewashed museum at the water’s edge. Its custodians have their own reasons to depict in marvellous detail, and with complete honesty, the ebb and flow of Chinese and European innovation and prosperity. The scores look roughly even after two thousand years. On the Chinese side of the ledger, the invention of the printing press follows that of paper, the compass, and gunpowder. The Europeans respond with steam power, the bicycle, electricity and the internal combustion engine. More recently, the micro-chip, the internet and the iPad have originated in America or Europe. There is every reason for the West to respond successfully to its current problems, and not just in relation to China.

The Irish poet WB Yeats suggested in the early part of the last century (WB Yeats: The Second Coming 1919) that things were falling apart, and the centre could not hold. Are things falling apart now? Yes. And we do not know whether the present centres of power, influence and international order can hold. But serious governments, and nimble and imaginative companies, will still ride the shock-waves successfully.

Michael Maclay is Executive Chairman of Montrose Associates