After Pax Americana: A 'Diversified Global Community'

Signs are popping up everywhere that the global economy may have hit bottom. If so, how will the world have changed after the crisis? Most notably, the era of Pax Americana that began with the fall of the Berlin Wall in 1989 will most likely come to an end, replaced by a truly diversified global community.

This change has been, for the most part, brought on by the U.S. itself. The eight years of the Bush Administration forfeited the U.S. of much of the moral and political leadership that buttressed the Pax Americana regime. For example, the U.S. invaded Iraq only to find no weapons of mass destruction, the primary justification for the invasion. Washington, with no legitimate excuse, broke off the Kyoto Protocol on climate change, already globally agreed upon, and also went so far as to authorize torture of prisoners in Guantanamo Bay.

The loss of economic leadership is ever more apparent with the eruption of the current worldwide economic crisis. Wall Street, which so shamelessly and for so long indulged in the excesses of misguided neoliberalism, undoubtedly triggered this crisis.

Even without the current recession, the American economy falls far short of one expected of the world leader. The consumption-driven lifestyle—financed mostly by debt—enjoyed for so long by the American people has for all practical purposes deprived America of its economic independence. The U.S., which has had the world's lowest savings rate along with the largest trade and fiscal deficit, cannot survive without the support of foreign countries continuously buying its government bonds. Significant global powers, including China, currently hold some $3 trillion worth of U.S. government bonds.

Increased Leverage for China As this crisis comes to an end, the American people are spending less and saving more, a trend President Barack Obama vows will continue. Investment banking activities, brought under more stringent regulation and scrutiny, will most likely shrink, decreasing the flow of monies. This, combined with increased savings on the part of American consumers, will considerably temper the vigor of the American economy, making it very difficult for it to continue as the "economic black hole" absorbing products from all over the world.

What would all this mean to the U.S.? Simply put, it is no longer in a position to call all the shots. Its status as the sole world leader, or the era of Pax Americana, has come to an end. The emptied space will be filled mostly by China maintaining a daunting foreign exchange reserve amounting to some $2 trillion; those reserves seem to be giving Beijing enough political leverage to counterbalance the entire nuclear arsenal held by the U.S. The growing economic clout of China, Russia, India, and Brazil is shifting the crux of power away from a world centering on the U.S. to a new world.

Adding to this momentum is the growing movement of ASEAN countries becoming closer to each other and to other Asian economic powers such as China, India, Japan, and South Korea, which together would further counterbalance the influence of the U.S. in Asia. The new diplomatic initiatives expected to be taken by Prime Minister Hatoyama in Japan to move further away from the U.S. and closer to Asia would certainly accelerate this process.

As a region, Asia is starting to realize that America, which looked so invincible for so long, may no longer be a reliable guide to its future. In fact, many of these countries are wondering whether Mahathir Mohamed, the former Malaysian Prime Minister who so vehemently warned against unquestioning adoption of the so-called American standard, may have in fact been right.

A New Paradigm The G-20 summits in London earlier this year and recently in Pittsburgh were testament to this slow but evident reshaping of the global power dynamics. The President of the U.S. was no longer the undisputed leader of the world; Obama was more a coordinator and consensus builder than a leader in both cities, as shown by the evidently conspicuous efforts on his part to listen rather than to speak, and to find and sponsor a common denominator for the interests of all participants. The award of the Nobel Peace Prize to him may well be as much a recognition of his successful efforts to mold a new model of the role of the U.S. in this new diversified world as anything else.

We are facing a new paradigm on the global scene. Discussions of how to end the economic crisis at the meeting of the G-20 nations—which together account for 80% of the world's gross domestic product, 66% of the global population, and 90% of world trade—symbolized the beginning of this new paradigm. The world is rapidly approaching the status of a "diversified global community" in the most genuine sense of the term.

America, are you ready to play under this new paradigm? Asia, are you ready to play a bigger and more independent role in this diversified world?

Before it's here, it's on the Bloomberg Terminal.