The Second World

How Emerging Powers Are Redefining Global Competition in the Twenty-first Century

by Parag Khanna

Randomhouse Trade Paperbacks, 2009, paperback

EU expansion is a gamble more expensive than America's war in Iraq - but one that is actually paying off. "We purposely make the EU poorer each time we expand," a sprightly Eurocrat from Lithuania" explained in a Brussels pub crowded with multilingual Europhiles. "But the stability we spread can hardly be measured."

EU Commission official

We don't admit it, but [EU] expansion stabilizes our population decline while increasing the labor pool.

Because Latin America's resources have always served the developed world, its own underdevelopment was integral to the rise of world capitalism.

Theodore Roosevelt

Peace cannot be had until the civilized nations have expanded in some shape over the barbarous nations.

None of the forty governments America has overthrown in Latin America since 1898 became democratic - quite simply because the plan was to implant democracy in form only. In the tension between opening markets and spreading democracy, imperialism always won.

John Foster Dulles

Do nothing to offend the dictators [in Latin America]. They are the only people we can depend on.

Within its population of close to two hundred million, Brazil maintains the Southern Hemisphere's melting pot. It is at once the largest African country after Nigeria (with African descendants centered in coastal Bahia), the largest Lebanese country after Lebanon, the largest Italian country after Italy, and the largest Japanese country after Japan.

China portrays African states as its partners, not as mercy cases, and many Arab and African governments enthusiastically speak of a "China model" of closed regimes with open economies... China's comprehensive packages of assistance, investment, professional training, and doctors dispatched throughout Africa demonstrate a fraternal spirit of "doing what it can," as opposed to the Western-style economic "shock therapy." China has canceled most African nations' debts, provided soft loans, and increased imports from Africa by a factor often, moves that compete with and undermine Western aid policies that are increasingly perceived as ineffective. Billions of dollars in Western aid have failed to build a railway network in Nigeria or power grids in the Horn of Africa as quickly as China did. When Western agencies pulled out of the Horn of Africa during the Eritrea-Ethiopia war in the 1990s, China built Ethiopia's Takazee Dam on the headwaters of the Blue Nile; it now generates hydropower for the region.

By 2005, Israel had quietly become China's second-largest provider of weapons behind Russia, including antiradar drones and air-to-air missiles- - even though China in turn sells missiles to Iran, ironically boosting their target range to include Israel. China, in return, is investing in expanding Israel's ports to become its hub for export across the Mediterranean into Europe.

Tiny Qatar, which controls a nearly eternal supply of natural gas, serves as the forward headquarters of America's Central Command (CENTCOM) and has even abolished its own military forces to emphasize its reliance on the United States. The longest military runway outside the United States points directly at Iran.

The minuscule island monarchy of Bahrain ... now hosts America's Fifth Fleet.

Thousands of burly ex-military security contractors ... patrol [Persian] Gulf installations like a network of praetorian guards. Their exorbitant fees are, for the sheikhs at least, merely incidental. If the United States were to want to depose any of its new micro-allies, it would ironically have to pay off these Americans first to get to them.

Both Europe and China have quietly moved into the [Persian] Gulf through energy markets and investment deals. Europe has established a free trade area with the Gulf Cooperation Council, while Arabs increasingly deposit their oil wealth in European banks (and price it in Euros), list their companies in London instead of New York, and buy Airbus aircraft for top-rated airlines such as Emirates and Gulf Air.

Asians consume far more Gulf oil (which meets 70 percent of their demand) than North Americans.

Saudi Arabia, Bahrain, and Qatar together account for close to 70 percent of OPEC oil production.

WTO rules on money laundering are conveniently neglected to keep the [Dubai] real estate market soaring with cash from Russia, Iran, and the Afghan drug trade. More recently, it has also become a transit zone for antiquities stolen from Lebanon and Iraq.

Dubai represents the union of the first and third worlds at their geographical meeting point: the knowledge and technology of Europe combined with the limitless labor pool of Asia. With virtually free labor, billions of dollars of fresh and recycled money, and unclaimed desert spaces, Dubai is set to triple in size by 2015.

A half million citizens of Dubai live at arm's length from the rest, with intermarriage with foreign nationals considered taboo; hundreds of thousands of expatriate professionals from Ireland to India are law-abiding residents; and over a million guest workers are a case study in postmodern slavery for the globalization era.

America has ruled the waves since its seizure of the Philippines from Spain a century ago, and its Pacific Command (PACOM) is by far its largest military force, greater than all of the others combined and capable of sinking all the rest of the world's navies simultaneously.

Asia has the oldest cultures, the most people, and, by certain measures, the most money of any region in the world. Asia is shaping the world's destiny - and exposing the flaws of the grand narrative of Western civilization in the process.

East Asians' cultural proclivities called for high savings rates and good education. Their ability to protect domestic sectors with export-led growth created enormous wealth and provided an alternative style of capitalism that appealed to the next wave of Asian dynamos, including China, Malaysia, and Vietnam... Previously denigrated as tantamount to Marxism, government interference in the economy is viewed as an important counterpoint to laissez-faire economics in East Asia. Since the 1997-98 financial crisis, the Asians' explicit goal has been to shun the IMF, whose onerous conditionality made it a tool of the U.S. Treasury." After the crisis, Asians rebounded by adopting fiscal discipline and global market standards-but without sacrificing the centrality of government. While in the West government is seen as stifling innovation, East Asian governments today are heavily reinvesting their massive capital liquidity in innovation.

China and Japan, often viewed as eternal antagonists, are in fact East Asia's economic co-pilots. Together with Singapore and South Korea, they hold over two-thirds of the world's foreign-exchange reserves, valued at over $2 trillion (held mostly in U.S. dollars).

Since the 1950s, Tokyo, Taipei, Seoul, and Shanghai have also become global cities, annually channeling billions of dollars of investment inward into their respective countries and around the region. Each is so powerful that they are better understood as "region-states," cities that operate like business units, as connected to the global economy as their own countries, while increasingly linked into a growing Asian network of economic nodes irrespective of political and cultural distinctions.

The "Asian values" of unified leadership, consensus, and social harmony could hardly be more discredited than American democracy, capitalism, and individualism today, multiplying the alternate models that exist for the rest of the second world. China is so confident in America's lack of appeal that U.S. presidential elections are televised live, perhaps for entertainment. An American Idol-style program for Chinese youth rewards know edge of English idioms with miniature Statue-of-Liberty torches-without even a hint of irony. China doesn't bother to release political prisoners to appease the United States anymore. "We see how materialism has led to overconsumption and the erosion of American democracy," a Chinese student leader of a Party youth organization argued. "What we want is governance by consent and the rule of law." The West's democratization efforts have hit a wall even higher in East Asia than they have in the Arab world. Western scholars predict that economic openness will lead to democratization, but not only do Asian governments collude with elites to prevent any challenge to their control over public goods and the law, but democracy is even less in demand because many Asian countries actually have good leaders who do not want to become the prince of a Confucian maxim who is wrong but not contradicted, thus bringing ruin to his country.

The "Asian compact" features open societies but closed polities, restoring democracy to its place as a means to an end - not the highest virtue, but just one agenda item among many. It is ironic that the West's great rival should come from a Confucian-based meritocracy of elites, since this idea is firmly rooted in Plato's Republic, which calls for rule by wise philosopher kings. Singapore and Malaysia's liberalizing quasi-democracy is the preferred East Asian model today. There are opposition parties and elections, but not for the highest office. Succession proceeds by selection, not election. This collective egocentrism prevents the state from being hijacked by majority ethnic group interests, which would lead to the unraveling of multiethnic states like Malaysia. Single-party leadership has made the governments of Malaysia and Singapore far more accountable and responsive to their people than that of the Philippines, where each week brings fresh coup rumors against the democratically elected but illiberal government. From Thailand to Taiwan, democracy has resulted in winner-take-all systems with constant extralegal maneuvering, impeachments, and coups. Thailand's democracy is like its boxing, in which fists, feet, knees, and elbows are all fair game, and democratic Indonesia's political instability and corruption hardly make its system admirable to others. "Western democracy is a waste of our time," spat a Malaysian diplomat.

East Asian communitarian traditions also challenge American notions of human rights by prioritizing social and economic rights over civic and political rights, justifying the denial of constitutional protections of individual liberty and free speech. The early Confucian, scholar Mencius argued that violating the right to food and material well-being is a greater crime than denying political rights. Humility, and compassion ... not flamboyance and egoism, are the cherished virtues. In Confucian cultures, the family name comes first, then the given name. Filial piety is a cherished and legally enforced principle in numerous East Asian countries, and many believe that the ideal society is structured like a family rather than based on individuals."' Children are much more a center of family attention as well. "Because of the one-child policy in China, the child is synonymous with hope for the future," explained a Beijing intellectual, highlighting the effort he puts into managing well-rounded social, musical, and athletic activities for his only son. Like Europeans, East Asians focus more on subsistence and economic equality, rights that are far more enshrined in the European legal tradition than in the American. The German constitution, with provisions for health care and education, was the template for Korea. Lifetime employment is still taken very seriously and is cherished across East Asia; for the region's migrant workers, employment is far more important than citizenship. State-sponsored poverty eradication funds demonstrate a commitment to the redistribution of wealth. Asians want to use globalization to build a middle class, not to erode it, as is happening in the United States. They board the globalization plane, but with their seatbelts on. And on that plane, they often practice tai chi stretches together, hundreds of hands moving in synchronization all through the cabin, sharing the joys of flying.

Asian values too have their flaws. "In some countries, the progress of the few has been used immaturely to mask inadequate improvements in the quality of life for many more," conceded the Malay-Chinese academic. Confucianism has certainly not proved to be a bulwark against Maoism and Marxism either, which from China to Cambodia to Vietnam claimed close to a hundred million lives in the past fifty years alone. Organized criminals operating in China, Taiwan, and Japan are hardly modest: Their ruthlessly efficient drug, weapon, and money-laundering operations make American gangs seem amateurish. And paternalistic privilege in the Asian state-business nexus is widely abused, with rather loose interpretations of the Confucian duty to help family and friends by personal-not professional-means. Yet even these flaws have inspired more confidence in Asians' own process of trial and error. "Now that we have economic growth and social stability, there is no more excuse to not have responsible leaders, police forces, and business executives," he continued. But guided by the Confucian idea of reciprocity between rulers and the ruled, even Western-educated elites in Malaysia, Singapore, and China remain loyal to this hierarchical system, which preserves both stability and their personal interests.

Except for a few segregated twenty-first-century oases of development, India is almost completely third-world, most of its billion-plus people living in poverty.

India's bonanza of IPOs, impressive corporate profits, and billionaires galore show the dynamic potential of its private sector, but its growth will remain spectacularly uneven until the government catches up-perhaps over the next two decades-with its promises of infrastructure development. India's continued high population growth ensures that even with high economic growth it will remain the poorest large country in the world for decades to come. Though agriculture constitutes only 30 percent of the economy, seven hundred million people depend on seasonal monsoons and harvests-yet India's groundwater is depleting rapidly. Unable to pay their debts, many farmers have committed suicide, while indentured servitude continues in many backward areas.

It could be argued that China is a freer country than democratic India: Literacy is far higher, the poverty rate far lower. Also, it takes longer to start a business in India, one-third as many Indians have Internet access, and only one-fifth as many have cell phones. India's democracy may never have experienced a famine, but over half of India's children are malnourished. Because most Indians lack economic freedom, other freedoms are that much more difficult to enjoy. The difference between India and China is thus not just the time lag between the advents of their current economic reform eras but also a fundamental matter of national organizational ability. Even if India rises, it will be according to Chinese rules.

Singapore, Malaysia, and Brunei as the wealthiest partners; Thailand, Indonesia, and Vietnam as economic and strategic assets; and Burma, Cambodia, Laos, and the Philippines as third-world clients. With all of them, China is granting greater market access and sustaining trade deficits (which have brought record profits to ASEAN businesses) in exchange for raw materials, defense agreements, and diplomatic pledges to lean its way.

Mahathir bin Mohamad and his advisers were convinced that globalization was dangerous unless it was steered. During the Asian financial crisis, they bucked the international strictures that ravaged the Thai and Indonesian economies, instead imposing capital controls to keep the Malay ringgit afloat. As second-world leaders increasingly realize that globalization requires strong management to avoid uncontrollably exacerbating existing disparities, they are more likely to emulate Malaysia than Argentina.

Malaysian euphoria over Islamic revolution withered as Iran sank; viewing the Islamic modernism of the Gulf as materialistic and corrosive, they invented Islam Hadhari ("Civilizational Islam"), which emphasizes social development, just leadership, moral integrity, personal freedom, environmental protection, and scientific education.

Mahathir [bin Mohamed] never believed that democracy was worth the price of destabilizing the country's fragile ethnic balance, and most Malays agree, becoming more supportive of a strong state even as they become wealthier.

Jakarta's armored ministries are the most visible symbol of a military-government nexus that acts as a postcolonial colonizer in its own country. For decades, the strongman Suharto and his nonaligned "New Order" regime focused more on profiteering than sovereignty, placing his children at the helm of numerous military-commercial monopolies. With only 12 percent of the country's budget derived from tax revenue, the military's for-profit ventures (comprised of some fifteen hundred companies) operate with impunity across Indonesia's semi-autonomous regions." Unlike in Thailand, where military rule brought limited modernization and a strong state, since Indonesia's independence the military has been so preoccupied with maintaining its economic stakes that stable civilian government has been an afterthought. It has been difficult enough to remove the military from leadership; extracting it from the country's real estate, timber, and mining industries, to name a few, has proven impossible - not that it has really been tried.

Chinese front companies have raped the forests of Borneo and Kalimantan, which have half-disappeared. Indonesia's very ecosystem is now threatened, home to the highest number of endangered species following Brazil.

Burma (renamed Myanmar by its reigning junta regime) has been an isolated, antiquated, and underdeveloped society for decades, but its location on the Bay of Bengal makes it a crucial strategic littoral for China circumvent the Straits of Malacca. Since 1988, the military-corporatist clique known as the State Law and Order Restoration Council (SLORC) has turned the country's British and then Japanese colonial order into the world's only militant Buddhist state. In 1997, the junta renamed itself the State Peace and Development Council; a decade later, it is hard to tell the difference. In 2007 it unveiled a new capital city halfway between Yangon and Mandalay, allegedly to mark the establishment of its dynasty, as past Burmese kings have done, and yet suffered crippling protests by thousands of monks and citizens due to its absurd economic policy. The SLORC sustains its rule by fueling perceptions of an ongoing external threat, yet the principal threat to Burma's autonomy comes from China, the power the regime welcomes most.

Like Sudan and Uzbeldstanrurma's diplomatic isolation makes it a willing Chinese client state. Drug production and trafficking earn the SLORC hard currency to buy Chinese military hardware, yet what Burma gets in return is not just Chinese diplomatic support but also the Chinese themselves... The untracked seasonal migrations of Chinese into northern Burma via the road, rail, and river channels of the Irrawaddy Corridor have created a minority (in many cases with historical family links) that will be able to make legal claims to rights beyond residency. Intermarriage and Chinese land acquisition have resulted in entire villages in Burma's north becoming Chinese-populated, with all signs in Chinese. In Mandalay, Chinese firms build large, bland hotels-not to prepare for Burma's opening to the world, but for Chinese visitors, whose numbers show no sign of ebbing.' Some already refer to Burma as "Yunnan South" after the once restive southern Chinese province on the Burmese border. Burma is an integral part of China's strategy to help its third-world interior regions such as Yunnan catch up with the booming coast. As part of this strategy, China has virtually economically annexed its southern neighbor. China has bought up most of Burma's timber and pillaged its forests, purchased and plundered its gem deposits, and plans to acquire 6.5 trillion cubic feet of Burmese natural gas over the next thirty years, much of it pumped via pipeline from Sitwe to Yunnan. The border between China and Burma hasn't changed, and no shots have been fired, but Burma has all but become a Chinese province.'

China has easily outmaneuvered ASEAN's pressure on the junta in Burma, which is still a fellow member, and thwarted U.S. and EU sanctions as well. China could potentially suffer blowback in Burma, however. If China doesn't do more to benefit the Burmese themselves, rising resentment could lead even the heartless junta to construe China as a threat rather than a lifeline. Always traveling in tandem,-drugs and disease also flow in greater volumes from Afghanistan through China into the Golden Triangle and back, spreading addiction and AIDS. Southeast Asian youth are now hooked on yaba, a drug that keeps them perpetually alert. The highest AIDS infection rates are also in Thailand, Cambodia, and Burma, the same countries that export the most sex workers to China and elsewhere. For organized smugglers, people and drugs are equally lucrative commodities, and China is no more capable of policing its vast borders than Europe or the United States are. Finally, as if the region's dissipated civil wars did not leave enough small arms, China makes sure there remain enough weapons and ammunition for any criminal or insurgent cause that should arise-guns and grenades that could eventually find their way back onto Chinese streets.

As the source of both South and Southeast Asia's major river systems, China has the luxury of damming the mighty Mekong River for hydroelectric power generation while using it to transport goods downstream to the five hundred million Southeast Asians whose livelihoods depend on its flows. Though Chinese dams dramatically affect the Mekong's and its tributaries' water levels in Burma, Thailand, Laos, Cambodia, and Vietnam, China accepts no criticism for its manipulation of the river.' What remains of the Mekong when it reaches Laos allows for a small dam to generate electricity, which is then sold to Thailand for cash. For the people of Indochina's third-world nations like Burma, being downstream from China doesn't make life any easier.

Thailand's former prime minister Thaksin Shinawatra

Democracy is just a tool ..... The goal is to give people a good lifestyle, happiness, and national progress.

The United States' share of the world economy has fallen from 50 percent to 25 percent since World War II.

Not only are China and Japan the two largest holders of U.S. dollar reserves, but for the first time in history, the world's main reserve currency belongs to a debtor nation - and one indebted to its rivals.

Though the world has several major currencies, there are three whose value all are constantly watching: the U.S. dollar, the Euro, and the Chinese renminbi. The more countries and investors diversify to the Euro, the less the United States can finance its deficits and costly military ventures.

Because America's debt payments already exceed the investment it receives, it is living beyond the wealth saved for the next generation, actually making the country poorer.

The super-rich live in economic bubbles, contributing as much to other countries' economies as their own, with the top 130,000 individuals earning as much as the bottom 40 percent of the entire population of three hundred million.

America is ceasing to be a middle-class nation, becoming instead a classic second-world combination of extremes. For three decades now, America's working class has seen no increase in its wages in real terms, its share of the economy dwindling even as its numbers swell.

One-fifth of America's children grow up in poverty, with the total poor population close to forty million.

Richard G. Wilkinson, 'The Impact of Inequality: How to Make Sick Societies Healthier'

Societies that tolerate the injustices of great inequality will almost inescapably suffer their social consequences: they will be unfriendly and violent, recognized more for their hostility than their hospitality.

America has the highest incarceration rate in the world with a rising number of life sentences. America, not China, is the world's largest penal colony. And together with Iran, Saudi Arabia, and China, America's death penalty - odious to most of the developed world - contributes to 80 percent of the world's executions.

American democracy appears to work better in theory than in practice. As populist politicians from the South gained political clout in Washington, they imported their aristocratic, dynastic, and underhanded ways, in which name recognition matters above all else.

A two-party system based on coastal versus heartland geographic loyalties ensures that / there is little effort at power-sharing and coalitions; instead, political ' competition results in permanent gridlock and gerrymandering. The parties are fund-raising shells with a veneer of semantics, promoting candidates not as individuals but as agents of their corporate interests, which have an invisible role in writing pivotal laws related to tax, energy, food safety, and other policies.

Like Russia's oligarchs, the financial scandals that have beset corporate America reveal a system of monopolistic capitalism that reduces distinctions between public and private.

America's Patriot Act violates five of the ten cherished amendments of the Bill of Rights: freedom of speech and assembly, protection from unreasonable search and seizure, due process, prompt public trial, and protection from cruel and unusual punishment. Though this act was passed by Congress, the executive branch's classification of secrets demonstrates an evaporating desire to share information with the legislative branch. Even if subsequent administrations reverse these policies, the damage has already been done.

From the glorification of military power to the gladiator culture in sport, what Polybius wrote of Rome applies well to America: Great wealth and extravagance lead to the worst of all governments, namely the mob rule of elites with little motivation other than preventing others from gaining the upper hand.

historian Arnold Toynbee

There is nothing to prevent our Western civilization from following historical precedent, if it chooses, by committing social suicide.

America's foreign policy elite is utterly divorced from citizens' concerns as well. Leaders are keen for the United States to fight more wars, push for free trade, and allow mass immigration, while the majority of Americans want fewer military interventions, less foreign aid, immigration restrictions, and some form of protectionism for American jobs and industries.

America is a first-world country in need of a Marshall Plan... Because Americans are so unfamiliar with the world beyond their shores, however, they continue to believe that their way of life is the de facto standard for the planet. Soon they may wake up to realize that the standard they set is more appropriate for the second world than for the first.

Having lost hundreds of thousands of manufacturing jobs to second- and third-world competitors, America has not built the broader technological base of the EU and Japan to retrain its workforce. The most productive states across Europe and East Asia have rejected the Anglo-Saxon values of individual rights and small government, and by focusing more on high-value labor and technology rather than low-skilled immigration, Europeans have been able to maintain high wages while automating their economies. By contrast, American companies are themselves going on the auction block, to be bought up by Asians and other cash-rich foreign conglomerates.

historian Arnold Toynbee

It is a foregone conclusion that the world is in any event going to be unified politically in the near future.

As America reconnects with Latin America in its search for low-cost, competitive production centers and alternative energy, the EU deepens its economic ties with the Arab world for its energy resources, and China increasingly organizes the trade and diplomatic patterns in the Far East, these pan-regions may harden into a planetary competition among world-islands eerily similar to what Orwell envisioned in 1984.

Globalization watch

Home Page