Article

India and the World Order

Pramit Pal Chaudhuri January 22, 2014

A number of foreign policy commentators in India, most notably the National Security Advisor Shiv Shankar Menon, have argued that the open international economic system backed by the US and the West in general has begun to become less open — and that that change is being driven by the West itself. Menon recently bulleted this in a recent speech, but it is something he has said elsewhere over the past several months:

“Strangely this time the impulse for change is not coming from the emerging or rising powers, like China, India, and others, who were the greatest beneficiaries of the decades of globalization and an open international economic order. Unusually, the impulse for change is coming from established power holders who feel that the system and institutions that they built and ran after World War II no longer serve their interests. Attempts such as the negotiations to form a TTP (Trans Pacific Partnership) and a TIPP (Transatlantic Trade and Investment Partnership), and the management and exploitation of new domains of contention like cyber space, are accompanied by fundamental changes in the rules of the game in several spheres — military technologies, the globalization of terrorism and so on.”

How true is this proposition? My sense is that this is exaggerated. Far from being a fundamental shift in attitude towards economic openness, present Western policy is being temporarily colored by the recent global financial crisis and its aftermath, and because it is feeling its way on how to multilateralize the running of cyberspace, something that was never a major concern until the past decade.

New Delhi is becoming excited by the TPP, the TIPP and the third element the EU-Japan trade agreement which, if put together, would effectively replace the World Trade Organization as the standard setter for international commerce. But this is not a new phenomenon. Every time multilateral trade negotiations have run aground, the response has been the rise of new regional trading blocs. The history of the Uruguay Round talks led to the creation of APEC and NAFTA, but the latter two spurred the Round to success. The WTO is stuck in a rut, and so the TPP et al are not a surprising response. India, which has been extremely unconstructive in the Doha round, has helped spur the creation of WTO alternatives. But the TPP and co. do not necessarily represent a closing of the global system. Much of the new ground they are breaking — opening up government procurement, liberating investment policy, tightening intellectual property rights, etc. — were foretold by the WTO agenda years ago.

The United States and, to a lesser extent, the European Union have struggled with implementing the Seoul agreements on restructuring the IMF so that more votes and board seats go to the emerging economies. But the US’s problems have been less about policy resistance to the idea in Washington — they have been endorsed by the Obama Administration and most Beltway policymakers — and more about the battle between Republicans and Democrats over the US budget, healthcare and so on. The IMF restructuring will happen. The World Bank’s shakeup continues. The real problem in both of these is that thanks to India’s disastrous economic performance of the past five years, the benefits of all this will largely go to China.

There is an argument for saying that the security architecture of the postwar era is under stress. That reflects two key clear shifts: a US unwilling to play its policeman role and a rising China which seems extremely prone to unilateral assertiveness. But there is no evidence that the West is turning on the global order it has created. Quite the opposite, it is struggling to find new structures, especially in the Asia Pacific, to match the new shifts in global power. And the model it is using is from after World War II — G-2, Asean + 6, and the like. Old wine in new bottles.

Notably, most of India’s economic thinkers and commentators seem far less concerned about the international economic order in its present form than its foreign policy types do. This may be because the former have a better outlook on the ups and downs of international economic politics, and know that they fluctuate far more than the security system does and do so because of technological and economic forces that are largely outside government control. They also know that the confidence with which a country can handle such economic fluctuations is largely — in fact overwhelmingly — a factor of its domestic economic situation. And this is an area where India’s record has been abysmal.