A WEEK IN ECONOMICS (18/03/13 – 24/03/13) THE DOMINANT FORCE IN AN EQUAL UNION

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Week-in-Economics

Unity is a poisoned chalice. Idealised and aspired to, it motivates revolutionary zeal; a belief that a common way of thinking can bind people. Inherent in all calls for unity is a feeling of displacement in present surroundings, and a belief that this common way of thinking can remove the feeling. The calls for black supremacy by Marcus Garvey in the 1920s stemmed from being ostracised from white society. Large portions of American society are fulminating at the attack on second amendment laws (Right to Bear Arms) feeling it is a sacred right, and without it, America is not America. Many Muslims in the West think unity can only be under an Islamic state.

The problem for those calling for unity is once unified, how can that union remain intact? Values change over time; different people have different needs; economic conditions can vary drastically. In the preamble of the Treaty of Rome 1957, a treaty that led to the creation of the European Union, it states that the 6 signatory states are “Determined to lay the foundations of an ever-closer union among the peoples of Europe.” These were bold goals, and when finally a European Union was created in 1993, with common markets, and for some, a common currency, unity had been fulfilled. Unfortunately, the European market is unravelling in quite worrying ways. Since 2008,8 out of the 27 European Union countries have had to be bailed out in some form in order to tackle the growing debt.  Arguably, this is an example of solidarity in the face of trial, but in negotiating bailouts, divisions have begun to appear. Commentators have spoken of tensions between Northern Europe (Netherlands and Germany) and the Southern Europe (Spain, Greece and now Cyprus). There are also fractures between long term allies (Germany and France). Moreover, in searching for economic improvement, frustrations are mounting due to growing migration throughout Europe (the UK and Eastern Europe).  In short, unity appears to be crumbling.

In these economically worrying times for Europe, Germany is emerging as a leader dictating terms for nations requesting help. Its commitment to austerity, however, has alienated peoples of other countries. But with German economy stable, countries can only recoil, and accept the terms pushed forth by German leaders, even if it appears to cause more harm than benefit. Countries, like Cyprus, could leave the Euro. They won’t.Greece could have done the same. They did not. Unity remains far more important.

But in the European debacle, a socio-economic principle emerges: the economically powerful will eventually dictate terms according to their own ideas and beliefs even at the expense of other nations. Unity only remains if the weaker nations accept – and more often than not, they will accept. Thus in unity, there will be a dominant force. Earlier this week, the so called Brics bloc (Brazil, Russia, India, China and South Africa) concluded their fifth summit in Durban, with the intention of creating an international development bank to counteract the influence of Bretton Woods institutions, the World Bank and the IMF.  The latter institutions have been criticised for failing to offer solutions that account for economic realities, for remaining with a post World War II mindset, and being dominated by developed nations.

In creation of this new development bank, presumably there is a belief that the founding nations will have a greater understanding of needs of potential donee nations. Yet, even before formulation, there are issues. Firstly, there is no agreement on the fundamentalsof the bank: how much capital should granted to this bank, how much each should pay, where the bank should be based, and what projects should it fund. Secondly, commentators have noticed the economic and political differences between the nations, which could make decision making laboured. The UN Security Council provides a perfect example of large nations disagreeing, and unilateral actions resulting.

Thus while the premise is admirable, the practical implementation of a new development bank remains difficult. In the end, one nation (most likely China) will dominate decision making; just as the US predominates at the World Bank and the IMF (i.e. the Washington Consensus). In fact, in examples of multilateral organisations with lofty aims, one nation predominates.

Consequently, unity can be achieved with acceptance of the rise of one nation. But if that one nation fails to appreciate the needs and context of subordinate nations, then the feeling of displacement will grow, leading to a breakdown. It occurred with Germany and the League of Nations; the Arabs with the Ottoman Empire; the working class with the Russian Czar. The problem with unity is managing differing needs. In the end, if there is not a unity of thinking, then physical unity will be febrile. So as Cyprus accepts the bailout terms, including capital controls, resentment of those who dictated those terms are likely vis a vis Germany. How ironic, and concerning, it is  as we approach the centennial anniversary of the start of World War I, Germany is once again being viewed with anger.

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