Annual Report

Annual Report 2008

Anxiety over global governance

Shinji Fukukawa
Senior Advisor
Global Industrial Social Progress
Research Institute

Today (as of January 2008), the shadow of anxiety looms over global governance.

In politics, first of all, there is a lame duck president sitting as the leader of the United States. More than half of American people disapproves the Bush Administration and considers the Iraqi War unjustified. US’s strategy to prevent nuclear development in Iran is on the deadlock and the global efforts to halt the proliferation of nuclear weapons hardly bear any fruits. Anti-terror war has not made much progress despite the support of European countries and Japan. Rather, it has regressed in recent days. Increasing number of Latin American governments starts to revolt against the US leadership.

Secondly, the configuration of global power balance has changed dramatically, raising concerns over the current system of global order. The rising power of BRICs (Brazil, Russia, India and China) has already drew attentions world-wide. By 2020, the Chinese economy is expected to overtake Japanese one, and will eventually exceed the US economy sometime before 2040, making China the world’s number one economy. In addition, India is likely to surpass Japan in economic scale around 2030. Russia has already learned to use its vast resources as a lever to flex and expand its diplomatic power. Muslim countries, having greater population growth and higher dependency on oil resources, may further expand their presence in the future. In the past, international order was kept mainly by the US, EU and Japan, but the multi-polarizing of the world has shaken the very foundation of the conventional system.

Thirdly, the governments of major countries started to turn their attentions inward and focus more on domestic issues. In 2007, France and UK saw their administrations shifted. Within 2008, the US, Russia, Taiwan, etc. are scheduled to have presidential elections, and Japan may have lower house election in 2008. These countries have witnessed the swelling discontent among their populace, largely due to stagnant economy, widening social gaps, inadequate welfare policies, etc. Such domestic difficulties tend to dampen the aspirations for globalism.

Fourthly, there is a rising tide of resource nationalism. Higher oil prices surpassing 100 USD/barrel have led both the oil-consuming countries and oil-rich nations lean toward resource protectionism. To secure resources, not only China and India, but also many other countries even Middle-East countries started to deploy active diplomacy over the regions endorsed with rich natural resource deposits, such as Central Asia, Africa, and Latin America. Moreover, Russia and Arab oil-producing countries are taking tougher stances in resource diplomacy. The fierce battle to secure resources does not stop at oil and petroleum, but penetrates into iron ore, coals, and rare metals. Even in food industry, the rumors of possible export curtail have been buzzing around the world.

Turning to the economy, the credibility of US dollars as a key currency is fast declining. During the past seven years its values against Euro dropped by about 40%, and devalued also against other currencies except Japanese Yen. Many countries are switching the key currency of their foreign exchange reserves from US dollars to Euro. This may be because the US’s lifestyle of lower saving and greater foreign currency dependency is about to hit the wall.

The sub-prime loan problems started from May 2007 have been much severer and more serious than first thought. Despite various measures adopted, such as the Federal Reserve drastically decreasing their FF rate, and major financial institutes establishing relief funds, there is hardly any light ahead in this long winding tunnel. If the adverse spiral of credit crunch will further exacerbate, the world will go under the tidal waves of lower growth rates and stock price plunges.

Secondly, there are mounting uncertainties in the finance-oriented economy. The adverse effects of excess liquidity in international trade market are becoming more apparent. The dual deficits of the US economy flood the global market with US dollars, and oil dollars further accelerate the trend. Emerging economies such as China accumulated colossal amount of trade surplus, and started to use their vast foreign reserves in international financial market.

Such finance-oriented economy is likely to encourage further speculative moves in the market, with funds floating throughout the world from time to time in search of spectacular speculative profits among the markets of real estates, currency exchanges, stocks, oil, gold, cereals, etc.

Thirdly, there is the rise of global environment issues that deteriorate as the time passes. Symbolizing such deterioration is the increasing incidences of extreme events such as heat wave, drought, and flooding. Humans have developed technologies and industries in search of economic growth and profits, but they might have crossed the threshold of the Earth’s tolerance in material circulation.

What we need now is humans’ wisdom and intelligence in agreeing on the post Kyoto framework to prevent global warming.

Japan is to host Toyako G8 Summit in 2008, which will focus on global environmental issues. The agenda, however, go beyond that. What the Summit needs to address and accomplish is the creation of new global governance. Global risks on governing systems are about to enter the uncharted water where non-action will no longer be tolerated.