Terra Instabilis

From the Arab Spring and the Great Recession to the Eurozone Crisis and Chinese Inflation: Are We Headed toward a New World Disorder?

In 1848 Europe was convulsed by revolution, the so-called “springtime of the peoples.” In 1968 unrest swept through most of the developed world, from Prague to Paris, from Berkeley to Mexico City. These revolutionary outbreaks were once-in-a-century events brought on by political discontents.

Now, a new revolutionary storm, almost worldwide in scope, appears to be brewing. Its origins, outwardly political, are in fact traceable to economic and social disparities that have been building up over the past five or six decades. To address these disparities in a constructive manner will be a difficult if not impossible task. Political reform by itself is a relatively simple matter, given a modicum of goodwill. Broadening the franchise can be achieved through legislation. Free and fair elections can be guaranteed by admitting international observers who have access to the world media. Major economic and social reforms, on the other hand, require changes in both behavior and outcome at all levels of a society. Such reform almost never occurs without violence. And all too often violence results in nothing save the accession of new oppressors to power.

The so-called Arab Spring, playing out over a vast area stretching from Morocco to the Persian Gulf, appears, on its face, to be a political phenomenon. It’s true that the cry in the Arab street is for liberation from corrupt and despotic governments. But a closer look reveals a more nuanced and distressing picture.

The narrative being presented to Western publics by their governments and media alike is one of Arab peoples yearning for free institutions similar to those in the West. But this goal motivates only a small minority of the protestors, mainly young people from middle-class families. These young people often speak Western languages and accept, to a large degree, Western political and social values. As such, they become the focus for the Western media in telling an apparently straightforward story that’s easy for Western publics to understand. But this narrative is, at best, a sideshow to the real play of events in the Arab world.

The revolution that began in Tunisia in December 2010 is above all the consequence of economic distress and despair. Unemployment and soaring food prices, not political liberalization per se, are the motivating forces behind the mass protests, violence, and bloodshed we continue to witness. A massive youth bulge exists throughout the Arab world, and governments have shown no capacity to address the problems that come with it. In truth, the economic record of Arab regimes since independence has been largely one of stagnation. Even in oil-rich countries the economy remains in the hands of elites who have shown little inclination to foster individual initiative and entrepreneurship among the citizenry. Now these elites find themselves riding a tiger, as economic pain has provoked the masses to revolutionary violence.

Egypt, the most important and advanced nation in the Arab world, has so far escaped without major bloodshed, thanks in part to U.S. pressure that helped to force out the dictator there. But for Egypt all the big challenges remain—establishing a working democracy, eradicating corruption, and providing enough work and bread to keep the great mass of the people (40 percent of whom live on less than two dollars a day) content, or at least quiet. The history of modern Egypt provides no indication that the country will master these challenges. On the contrary, there is every reason to believe that at some point in the future a more radical revolutionary outbreak will occur, leading either to the establishment of an Islamic state, or a return to military rule, with the latter possibly degenerating, as before, into despotism.

Far too little reporting has been done on the real strength and goals of the Islamic Brotherhood in Egypt. When in February 2011 the virulently anti-American and anti-Israeli cleric Sheik Yusuf al-Qaradawi addressed an adoring crowd estimated at 1 million strong in Tahrir Square, Cairo, the New York Times gave it passing mention, while cable and network news ignored the occasion almost completely. The possibility of a radical outcome in Egypt should not be discounted, while elsewhere in the region the rise of radicalism is perhaps even more likely. Simply put, when large numbers of young men are without work, without prospects for marriage, and without any outlet for their social and political grievances, violence occurs and the fabric of society begins to disintegrate. At that point religious fanaticism comes to the fore, and the “solutions” it offers find new adherents. Witness Iran in the early 1980s.

Although Europe does not face the challenge of a youth bulge, there as well we’re beginning to see a breakdown in social cohesion caused by economic distress. The protests over budget cuts in Britain that began last year and the riots this past summer are merely the overture to a crisis that is spreading across the continent. The revelation that Greece is an economic basket case, and that its citizens’ standard of living must inevitably decline, has led to violence in the streets of Athens. Similar violence has occurred in Spain, where unemployment stands at over 20 percent.

The Eurozone crisis is not amenable to any solution based on a one-currency political economy. Germany and the other northern states are simply too productive; Greece and the rest of the South can’t keep up. Bailouts and austerity programs kick the can down the road, but won’t resolve the problem. Greece and probably the Iberian countries will suffer bankruptcy in one form or another, and will eventually have to detach themselves, or be detached, from the rest of the Eurozone. The German taxpayer will not subsidize southern Europe indefinitely, and the Greeks, Spaniards, and Portuguese won’t starve to keep the euro afloat. Yet obvious as this conclusion appears to be, there is tremendous resistance to acknowledging its reality. The international financial ramifications are of course potentially enormous, especially as no one is sure just what exposure the major European banks have to Greek, Spanish, Portuguese, and Italian debt. The derivatives crisis of 2008 nearly brought down the U.S. economy, and might possibly have destroyed capitalism itself. That danger was averted by the great bank bailout, otherwise known as the Troubled Asset Relief Program (TARP), which was imposed on the U.S. Congress by the Treasury in October 2008. A similar crisis may be building in Europe today. In 2010 the EU bailed out its southern economies to the tune of 750 million euros (equivalent to about $1 trillion). To believe that the printing press will once again save capitalism from the abyss is the height of optimism. To believe that it can do so indefinitely is absurd.

In any case, a decline in the standard of living throughout much of Europe, which is clearly in the cards, would be unprecedented in the post-World War II era, and will undoubtedly provoke a combination of violence and malaise, a phenomenon we are already witnessing on a small scale. If conditions worsen, is a return to the 1930s possible? History doesn’t literally repeat itself: one cannot envision Europe once again under the shadow of the swastika. But a breakdown of the liberal order in Europe would create a moral and intellectual vacuum. It’s hard to predict precisely what would follow from this. The more severe the economic decline, the more likely it is that radical solutions will find favor with those who are suffering. Such at least is the evidence of history.

Clearly, both Europe and the Middle East are in crisis. But they’re not alone. If we look eastward to China, we see economic and social problems building there as well. Here the difficulty is not, as in the Arab world, stagnation and the stifling of any initiative generated from below. Nor is it a case of deep regional disparities in wealth and productivity, as in Europe. The dangers China faces are those that occur when rapid growth threatens to overwhelm a still-developing political economy.

The Chinese economy has been growing at a double-digit pace for years. Such a boom breeds inflation, as new wealth chases goods and services, causing prices to spiral. In an attempt to stem inflation, China’s central bank raised interest rates five times between late 2010 and the summer of 2011. Further increases are expected. In addition, the Chinese have raised bank reserve requirements, an action that drains money from the economy and puts a brake on any tendencies toward speculative excess. Despite these moves, inflation in China has been running as high as 6 percent per month recently, and Chinese officials have described this as a potential threat to social stability. This is not alarmism. The 1989 Tiananmen Square uprising is remembered in the West as a failed attempt to achieve democracy. In fact, Tiananmen was as much, if not more, about rising food prices as it was about any desire for political pluralism.

Protests on a small scale are happening in China today. Major unrest could occur again if inflationary pressures persist, particularly if the price of necessities like food and fuel exceeds the ability of the average citizen to pay. Centrifugal forces, long dormant in China, might then reappear. Unrest among the Muslim Uighurs in Xinjiang, and among the Tibetans, could flare up and spread to the Han Chinese homeland. Whether the current Chinese regime is nimble enough to manage such a crisis without severe repressive measures is very much in doubt. Nor is it certain that repression will work in this age of interconnectedness and social networking; the example of the Arab uprisings must give pause to every government and ruling class.

Looking further eastward from China, we come to the United States. The world’s sole superpower is in deep trouble. Here the problems are fiscal and economic, but also political and attitudinal. The fiscal issues are palpable and well understood in political and financial circles. (The average citizen is another matter: polling data indicates, for example, that a plurality of Americans believe that ending foreign aid would bring the federal budget into balance.) The Federal debt is now approximately equal to GDP. Federal budget deficits running into the hundreds of billions of dollars annually are projected to continue for years, perhaps decades. Entitlement spending, particularly for Medicare, is out of control. Defense spending, currently about $700 billion per annum (but with ancillary costs included probably more like $1 trillion or more), continues to eat up enormous financial resources at a time when no major military threat to the United States exists. And yet, no serious effort is being made by the political class to deal with these problems that will eventually bankrupt the nation.

It would seem that the U.S. economy, rich and productive as it once was, is in deep decline. Structural unemployment is likely here to stay: companies can’t find enough highly skilled workers to fill openings, even with unemployment high, while at the same time low-skill jobs have disappeared overseas. The official unemployment rate of around 9 percent will probably come down over time, but the real unemployment-underemployment rate (including those who have given up looking for work and those part-time workers who would like to be working full-time), currently about 17 percent, will almost certainly remain in double digits indefinitely. Add to this the tremendous amount of debt that exists at all levels of government and among households, and it appears unlikely that the United States will be able to grow its way back to financial health and a broad-based prosperity. Economic disparity between classes has been increasing in America since the early 1970s. Commodity prices—oil, metals, food—must, despite market fluctuations, trend higher, given the demands imposed by a growing world population and the economic dynamism of countries like China, India, and Brazil. In retrospect, we can see that the boom times of the 1980s and ’90s in the United States were debt-fueled and lacked substance—they were, in other words, fundamentally different from the real, solid economic expansions that came before. The last of these true expansions began during the Second World War and ended in the early 1970s.

Sluggish growth, high unemployment, and increasing income disparity playing out against the background of a mounting fiscal crisis means, surely, that a perfect economic storm is brewing—a storm unlike anything seen in America since the 1930s. Add to this the fact that emerging economies unburdened by anything like the fiscal drag the United States suffers from are competing with us for both resources and markets, and you have, it would seem, a recipe for economic—and therefore social and political—disaster.

The economic dilemmas America now faces are politically driven. That is to say, past political choices—to run up massive deficits, to encourage consumption over investment, to impose a free trade regime on a playing field tilted against the United States—have landed the country  in its current economic situation. These choices were made not by a well-informed electorate, but by political leaders acting at the behest of powerful constituencies, i.e., the interests that finance political campaigns and maintain the great lobbying firms on K Street. Solutions to the problems that have been created by the U.S. political system will come, if at all, from that same system. Should we expect this sort of self-correction? Given the record of the past, skepticism on this point seems more than justified.

Consider the two major political parties. The Democratic Party of today responds to interest groups like the trial lawyers and the unions, but its leaders no longer have any real connection to average Americans. Instead, they turn a blind eye to the vital need for fiscal reform; one could hardly be blamed for suspecting that, in their hearts, they subscribe to Keynes’ dictum that “in the long run we are all dead.” But Keynes had no children. In reality, when we are gone, our children and grandchildren will be left with an almost inconceivable amount of debt.

The Republican Party wants to solve the fiscal crisis by “reforming” key components of the welfare state such as Medicare and Social Security. Its conception as regards the former amounts to abolition, despite the fact that very few Americans of retirement age can afford private health insurance. Indeed, Medicare was created in large part because elderly Americans simply could not obtain private insurance. But Republican austerity plans are bound to fail in any case. The elderly, who would be most affected by cuts in entitlements, not only constitute a very large voting bloc, but go to the polls in big numbers. In American terms, austerity is a cul-de-sac.

Both parties adhere slavishly to the current free trade regime, which has devastated U.S. manufacturing and turned a considerable portion of the working class into a new lumpenproletariat. And both parties continue to support foreign and defense policies that reflect not present-day realties, but those of the 1940-1990 period, when the existential threats of Nazism and Communism existed. No such threats exist today, yet we spend almost as much on defense as the rest of the world combined, maintain bases in some 130 countries, and pay 75 percent of the cost of the NATO alliance, even though the European economy is larger than our own. Like other empires before us, we have become overextended both militarily and fiscally. Bankruptcy stares us in the face, while our politicians sleepwalk through history.

Throughout the Northern Hemisphere nations and aggregates of nation-states face seemingly irresolvable contradictions in political economy. There are, in fact, remedies at hand, should we choose to apply them. These range from simple reforms such as restricting speculation in vital commodities like food and oil to companies that actually take delivery of such products, to a global effort to reduce the human population. (Current projections give a world population of about 10 billion in 2100, which would place terrific strains on the oceans, arable land, fresh water supplies, and mineral resources.) But there are no really powerful constituencies in support of such initiatives. The political will simply doesn’t exist in Washington, Brussels, or Beijing. (Granted, Beijing has imposed strict population control on its own people. But there is no impetus from China or anywhere else for a global, enlightened, voluntary campaign to restrict population.) Nor should we expect widespread popular demands for remedies of this kind. Population control, for example, is anathema to billions of religious believers around the world. Yet it is a great mistake to believe, as many people do, that the Green Revolution has proved Malthus wrong. Resources are finite; even the earth’s great bounty has limits. An ever-expanding human population will encounter these limits at some point. And then the human population will shrink whether we will it or not.

It has been made clear for some decades that the era of Western world domination, a period that lasted, roughly, from 1800 to 2000 C.E., is coming to an end. Even more important perhaps is the fact that the post-World War II architecture built up under the aegis of the Pax Americana—NATO, the European Union, and global economic organizations like the World Bank, the International Monetary Fund, and the World Trade Organization—appears to be headed for dissolution. The bases for the stability and relative prosperity of the postwar era are crumbling. A crack-up is probably coming that will make 1848 and 1968 look like child’s play. A future of booming birth rates among the world’s poorest inhabitants, of increasing income disparity between rich and poor, of cutthroat competition for scarce resources, and of political weakness and social confusion will lead, eventually, to violence. “Resource wars” between states (over water, for example) may occur, or states may use war as a means of deflecting internal discontent outwards. But the greatest danger is perhaps violence within states, with the desperate masses striking out against the ruling class and the state apparatus. The state in turn, if it chooses to fight (and most states do), would then unleash its full power upon its own citizens, as happened in China in 1989; as is happening in Syria now. States in disarray rarely roll over and die; the Soviet experience stands almost alone in history. Moreover, in an era lacking a relatively benign hegemon (and we are almost certainly entering such an era, as the United States’ economic decline brings with it a retreat from global responsibilities), violence both within and between states inevitably increases. The period 1914-1945 is instructive; so too is the epoch of Rome’s decline.

We cannot know the future. But it seems clear that economic and social distress is increasing worldwide. At the same time the political and economic dispensations that have prevailed since World War II are failing, with no clear alternatives in sight. Thus the world is made a tinderbox.