[INTERVIEW] No dramatic escalation of confrontation in G-Zero world: economist

By Lim Chang-won Posted : March 7, 2018, 13:24 Updated : March 7, 2018, 13:24

[Alexandre Kateb]


SEOUL -- The world's major economic powerhouses are locking their horns for a trade war after U.S. President Donald Trump threatened high tariffs on imports, fueling concerns that the G-Zero era is breaking up a global order.

China and the European Union are mulling retaliatory steps that could escalate conflicts in trade and other fields. However, Trump seems adamant to push ahead with protectionism, casting doubt about American leadership and the role of international bodies.

Since the ill-conceived and wasteful wars in Iraq and Afghanistan, and even more since the 2008 financial crisis, there has been a growing sense among American elites that the burden is too heavy to lift and that America should focus on its own problems, Alexandre Kateb, a Paris-based economist, said in an e-mail interview.

China's rise coincided with an American economic decline as is witnessed in social and racial inequalities, crumbling infrastructure and stagnant wages that reinforced an isolationist stance among American elites and grassroots alike, he said.

"In this sense, the G-Zero world seems irresistible," said Kateb who founded COMPETENCE FINANCE, a strategic consultancy focused on delivering financial, macroeconomic and political analysis and advisory to governments, financial institutions and corporates.

Following the 2008 financial crisis, there was a widespread belief that the world major powers will enhance their cooperation, but it became clear that, after a few years, the G20 lost its momentum and that narrowly-defined national interests came back to the center stage.

The G-Zero world, which refers to an emerging vacuum of power in international politics, is a recognition of this reality that national interests prevail over the collective interests embodied in the G-20 and in a broader sense, the multilateral order established at the end of World War II, the economist said.

No order means uncertainty, which is detrimental to the pursuit of shared stability and prosperity at the global level, and conflicts may become harder to solve if the multilateral system which allowed countries to resolve disputes through peaceful ways is impaired, he said.

However, the economist was optimistic, saying the G-Zero world is a transitory state stemming from an isolationist trend in the United States and some other countries where the transition to a post-Western world generated public anxiety. "The lessons of the G-Zero era is that no single nation can fill a leadership vacuum."

The global order is linked to economic, technological and geopolitical factors, and the future will largely be defined by their interaction, distribution and dissemination within and across different nations, Kateb said, predicting a new balance of power in the technological arena, which, in turn, will determine the new military and economic balance of power.

"What is important is that this rebalancing occurs in an orderly fashion," he said. "After all, the resources of the planet are limited, and there will be a need to cooperate in order to ensure a sustainable and equitable use of these resources. There is no other alternative."

The economist ruled out any dramatic escalation of confrontation or a second Cold War between the United States and China, saying the two superpowers will learn to coexist in a world where no single country can claim undisputed domination.

Unlike the former Soviet Union, which was locked in an ideological war with the United States and fierce propaganda based on a centrally planned Marxist economy, China has adopted a market economy, he said. "In that sense, the experience of the Cold War was unique and is not replicable."

"The stakes are too high for the Chinese and American leaders, to let their occasional disputes, over the control of resources or over influence on other countries, to degenerate into a full-blown conflict, or even into indirect wars through some proxies."

With Chinese President Xi Jinping starting his second five-year term, China aims to take a big leap forward this year, but Kateb said China would not try to fill any leadership vacuum in the G-Zero world.

As the result of its unique history forged through five thousand years of "quasi-uninterrupted statehood", China's political philosophy is very different from any other nation, built on values such as stability and order, he said. "Throughout its long history, China has not tried to coerce other nations into a Chinese-led world or civilization."

Kateb said the 2008 crisis prompted efforts to make systemic financial institutions more resilient by reinforcing corporate governance, realigning compensation incentives as opposed to the prevailing "trader mentality" of privatizing short-term gains, mutualizing eventual losses and improving risk management practices.

"However, this effort has stopped after a few years and we can hear some voices, in the US and elsewhere, pushing toward a deregulation of the financial sector," he said, adding the so-called "shadow finance" such as hedge funds, dark pools, crowdfunding schemes and investment platforms and cryptocurrencies can escape regulations.

"It is almost impossible to prevent a new financial crisis from happening," he warned, suggesting right safeguards should be built to limit the damage from a new financial crisis.

"A G-zero world complicates this task but does not make it impossible to achieve," the economist said, calling for interdependence and dialogue between the elites and social constituencies from the United States, China and other countries to prevent the escalation of conflicts above a certain level in the G-Zero era.

The G-Zero world is a transitory state stemming from an isolationist trend but this does not mean the values in this new world will be different as no single nation can fill a leadership vacuum, Kateb said, adding the shift toward protectionism on the international level is often the result of an internal political and social power shift within the most important economies.

In many cases, protectionism represents legitimate social concerns that did not find other ways to express themselves, he said. "Therefore, the priority at the international level is not to fight protectionism as such but to reconcile the divergent interests of social groups within and across countries."

"This supposes an extensive and multidimensional dialogue at the global stage that goes well beyond governments."

This interview was arranged by Park Sae-jin, an Aju Business Daily writer.
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