Musing after the recent IMF/World Bank meetings, Former White house economist and US Treasury secretary Larry Summers said “it’s looking a bit lonely on the right side of history..as others are increasingly banding together in a whole range of structures.”
Summers has form, too much to go into here, but he’s not wrong about what he has noticed. Summers was speaking on the sidelines of the spring meeting of global finance chiefs in Washington,
where the key theme has been a warning about “fragmentation” of the world economy as the US and rich-world allies aim to reshape supply chains away from China and other strategic competitors.
Summers agreed there was a growing acceptance of fragmentation in the world economy and even more troubling for the US, a growing sense that ‘”ours may not be the best fragment to be in.” he tells an anecdote about someone saying to him when China talks to us we get an airport, when the US talks we get a lecture. We refer your values, but we prefer airports to lectures.”
Deepening links between the Middle East and Russia and China — which recently brokered a rapprochement between Saudi Arabia and Iran — are “a symbol of something that I think is a huge challenge for the United States,” Summers said.
“We are on the right side of history — with our commitment to democracy, with our resistance to aggression in Russia,” he said. “But it’s looking a bit lonely on the right side of history, as those who seem much less on the right side of history are increasingly banding together in a whole range of structures.”
Washington will need to consider how to address this new challenge, he added. The structures of the IMF and World Bank will also be a key longer-term issue, he said. “If the Bretton Woods system is not delivering strongly around the world, there are going to be serious challenges and proposed alternatives.”
The issues in question for the IMF and the World Bank are questions of debt and development, and most importantly in the current geopolitical environment, questions of debt relief for countries such as Sri Lanka and Argentina. These issues also surfaced in the discussions, a theme that played out in Washington DC last week during a high-level sovereign debt round-table on the sidelines of the World Bank and International Monetary Fund Spring meetings in Washington.
In a fascinating dialogue between Radhika Desai and Michael Hudson, Desai outlines the key issues relating to world debt:
RADHIKA DESAI: Well I think that the whole issue of debt, world debt in particular, has become a really important issue at this point, and it’s become an important issue because precisely now China is such a large part of the scene.
I remember going back to the earliest days of the pandemic when Third World debt had also figured as a major issue. Already at that point, the key reason why the debt issues were not going to be settled is because the West could not come to terms with the fact that it had to deal with China, and that it had to deal equitably with China.
Because what the West wants to do is precisely to get China to refinance the debt owed to it so that Third World debt repayments go to private lenders.
And China is basically questioning the terms of all of this, because for example China is saying, “Why should the IMF and the World Bank have priority? Why should its debt not be canceled?”
And the West is saying, “But this has always been so.”
And China is saying, “Well, if you don’t want to reform the IMF and the World Bank, then we are not going to accept their priority. If we have to take a haircut, they will also have to take a haircut.”
They simply do not accept that these institutions, the Bretton Woods institutions, have any sort of priority.
And this is part of the undermining, as you were saying. This is one of the biggest changes since the First World War. And part of these changes is that the world made at the end of the Second World War by the imperialist powers, who are still very powerful, is now increasingly disappearing.
This is the challenge that China is presenting to the so-called ‘rules-based order’ based on Bretton Woods arrangements which favour the rich world.
The whole discussion between Radhika Desai and Michael Hudson, one in a series of fascinating conversations, is well worth reading or listening to. Desai had just been in Russia and pertinent to this post mentions how in some discussions economists were describing the geopolitical shift as one to the “majority.” Also pertinent to Summers’ comment, she says:
All the West has to offer is sticks. Whereas China comes loaded with all the carrots that you can imagine. The juiciest carrots that you can imagine.
All the non-Western world, the World Majority, can see these carrots, they are responding to these carrots. And the other interesting thing is that these carrots are not neoliberal carrots. That is very clear.
In a brainstorming session in which the purpose was to say, Russia is not the Third World, Russia is not the developing world, Russia is part of the post-communist world, so how do we conceive of a single entity of which Russia is now a very active part, and where it is going to be one of the leaders, somebody came up with this idea of the World Majority. Increasingly the Russians are thinking of themselves not as being part of the West, whose attractiveness is shrinking and whose borders are also rather small.
The bulk of the GDP and people in the world are outside the West. The West now accounts for about 30% of world GDP, so the rest is 70%. And it’s only going to grow. Meanwhile, the West’s neoliberal policies are accelerating the decline of its share.
Unthinkable even five year ago, massive changes are happening all over the world. The dollar is losing its preeminence as the currency of choice, and the world’s majority prefer co-operation and development to endless war and unpayable debt. New organisations are rising and growing: SCO, EAEU, BRI, BRICS+. OPEC+, RCEP, as well as older ones such as ASEAN. NATO wants to come into our backyard, having just withdrawn precipitately from Afghanistan. That last deserves a separate post.
Grant Robertson attended the World Bank meetings. It will be interesting to hear what he took out of the discussions.
In my opinion we also need to give some thought to which side of history we want to be on. We are lucky in that we still have some choices for our future.
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