Monday, 12 September 2011


The end of US hegemony: Legacy of 9/11

On the morning of September 11, 2001, America's prospects appeared as
bright as the clear blue sky over Lower Manhattan. The price of Brent
crude oil was $28 a barrel, the Federal government was running a
budget surplus, the US economy was turning (albeit imperceptibly)
after the dotcom crash. The most powerful nation on earth was at

Ten years on, the oil price hovers around $115 a barrel, the US is
projected to run a budget deficit for 2011 of $1,580bn, the largest
in its history; the economy remains deeply troubled after the
financial crash of 2008; and America's military and intelligence
services remain at war, battling insurgency and radical Islamic
terrorism, from Afghanistan and Pakistan to Niger and Yemen.

Admiral Mike Mullen, outgoing chairman of the Joint Chiefs of Staff,
has described the national debt as the greatest threat to US national
security. Standard & Poor's recent downgrade of America's credit
rating appears to confirm the superpower's steady slippage. And while
there is no linear narrative from the September 2001 attacks to
America's present economic plight, the inflation-adjusted cost of the
ensuing "global war on terror" at more than $2,000bn amounts to twice
the cost of the Vietnam war.

President George W. Bush's response to the assault on the Twin Towers
and the Pentagon was to launch two wars of choice against Afghanistan
and Iraq, a pugnacious unilateralism at the expense of alliances and
international law, and a near evangelical promotion of liberal
democracy in the Middle East. His administration's hard-edged
policies fractured alliances in Europe and triggered a sharp fall in
America's standing abroad.

On the positive side of the ledger, America has so far escaped
another terrorist attack on its own soil. Others have not been so
fortunate. The bombings in Bali (2002), Madrid (2004), and London
(2005) did not match the scale of September 11, but they claimed
several hundred victims. Al-Qaeda is down but not entirely out.
Dozens of computer disks recovered from Osama bin Laden's hideout in
Abbottabad, Pakistan, suggest the al-Qaeda leader, killed last May
during a daring raid by US Navy Seals, was planning another
spectacular outrage, perhaps to coincide with the September 11
anniversary this weekend.

Moreover, this year's Arab awakening has dispelled the notion that
the Middle East - with the exception of Israel - is congenitally
incapable of embracing democracy, One by one, the region's autocrats,
from Zine el-Abidine Ben Ali in Tunisia to Hosni Mubarak in Egypt,
have been toppled by protesters demanding dignity, freedom and jobs.
True, the fall of Muammer Gaddafi in Libya was precipitated by armed
rebellions assisted by Nato warplanes; but President Bashar al-Assad
of Syria may be the next leader to feel the hot breath of the Arab

. . In the aftermath of the attack on the Twin Towers, a geopolitical
re-alignment comparable to those of 1815, 1945 or 1989 appeared to
take shape. The US mustered a coalition against terrorism that
included rivals such as Russia and China, as well as one-time pariahs
such as Cuba, Iran and Sudan.

The military response was equally effective. Having identified the
perpetrators, the US staged a brilliant improvised campaign to topple
the Taliban in Afghanistan. US special forces combined with warlords
and overwhelming air-power to break the Kabul regime within weeks.
Although the leaders, notably Mullah Omar and his proxy Bin-Laden,
slipped away, the al-Qaeda network was relentlessly targeted and

Within a year, the US had lost the moral high ground. Mr Bush's error
was to make clear that regime change in Iraq was only one step for
dealing with what he described as an "axis of evil" including Iran,
North Korea and potentially other adversaries suspected of harbouring
or sponsoring terrorists. Overnight, the US was cast as a rogue

Concerns rose with the publication of a revised national security
doctrine in 2002, which ditched cold war concepts of containment and
deterrence. In their place came a "forward-leaning" strategy of
pre-emptive military action, regime change, and a new kind of warfare
that justified torture and denied the rights of the Geneva Convention
to suspected terrorists.

Thus the Iraq war was fought without the support of traditional
allies such as Canada, France and Germany; without the backing of the
UN Security Council; and without conclusive evidence that Saddam
Hussein possessed weapons of mass destruction posing an immediate
threat to the US. As for allies, Britain's prime minister Tony Blair
provided loyal political cover, though Donald Rumsfeld, US defence
secretary, declared witheringly that UK forces were redundant in
military terms.

Nato, having for the first time invoked article five to commit all
members to collective defence, was similarly sidelined. Washington's
motto was "the mission determines the coalition". But selective
alliances work both ways. By the end of the decade, European allies
were using caveats to opt out of military operations in Afghanistan,
Iraq and Libya. Hence outgoing US defence secretary Robert Gates'
warning this year that Nato was fast becoming irrelevant.

Europe, too, emerged much diminished - and not just during the Libyan
conflict where Germany opted out and Britain and France ran short of
munitions within weeks. At the beginning of the new century, flush
with the success of launching a new monetary union, Europe's leaders
agreed plans to make the European Union the most competitive economic
zone in the world. In retrospect, the much-vaunted Lisbon agenda
marked the summit of ambitions coinciding with the bursting of the
dotcom bubble.

Ten years on, the original design of European monetary union has
shown itself to be fundamentally flawed. The enforcement mechanisms
for budgetary discipline were ignored by big and smaller members
alike, including Germany; peripheral economies in Greece, Ireland,
Portugal and Spain, which soared on the back of low interest rates,
have been exposed as uncompetitive. Contagion in the bond markets now
threatens to spread to Italy, a "core" eurozone member.

By Mr Bush's second term, abrasive rhetoric gave way to a more
tempered approach. As an occupation force in Afghanistan and Iraq,
the US became sucked into the nation-building that Mr Rumsfeld had
long derided. In a similar confusion, President Barack Obama and
David Cameron, UK prime minister, declared either one or both of
these missions to be militarily vital and then acted as if they were
discretionary by setting a (political) timetable for withdrawal.

The accountants will tot up the collective bill for the Afghan and
Iraq ventures at close to $2,000bn in inflation-adjusted terms; but
Robert Zoellick, president of the World Bank and a former deputy US
secretary of state, argues that a country as rich as the US can well
afford the cost. In 1948, says Mr Zoellick, the average gross
national product per head in the US was one quarter of where it
stands today. Yet Americans readily supported President Truman's
doctrine to prop up democracies in Europe and counter communism
around the world to the tune of billions of dollars.

Whether the seeds of democratic transformation will take root in Iraq
is more debatable. The much-vaunted US military "surge" rescued the
country from chaos and possible break-up, but relations between
Iraq's ethnic groups - Kurds, Sunnis and the majority Shia - remain
precarious. Arguably, the toppling of Saddam Hussein has allowed Iran
to become the dominant regional power, exerting influence through the
Shia government in Baghdad. Meanwhile, Tehran's nuclear ambitions
remain unchecked.

Nor did 9/11 boost efforts to tackle the other serious and unresolved
threat to regional stability: the Israel-Palestinian conflict. Both
Mr Bush and Mr Obama have failed to break the deadlock over the
occupied territories of Gaza and the West Bank, and the status of
Jerusalem. Successive Israeli prime ministers from Ariel Sharon to
Benjamin Netanyahu have turned the war on terror to their own
advantage, arguing that concessions jeopardise Israel's security and
entities such as Hamas - which easily won elections in Gaza in 2005 -
are terrorists masquerading as legitimate representatives of the

Despite the focus on fighting terrorism, the US was still alert to
broader geopolitical trends. The most important breakthrough took
place between the US and India with the signing in 2008 of the"123"
deal on civil nuclear co-operation. The new strategic partnership
between Washington and New Delhi not only offers a counterweight to
the rise of China, but also to nuclear-armed Pakistan, America's
long-time but increasingly unmanageable ally in South Asia.

By contrast, Sino-US relations amount to not much more than an uneasy
accommodation. Beijing sees Washington (at best) as "neither friend
nor enemy", while the US has belatedly woken up to China's challenge
to its dominance in the Pacific. Beijing has grudgingly applied
pressure to its brooding nuclear neighbour in North Korea, but
nationalist fervour means the leadership remains neuralgic over
Taiwan and acutely sensitive to territorial disputes with Japan,
South Korea and Vietnam. . . . In the final resort, the most
significant geopolitical development of the past 10 years took place
not on the battlefield but in the financial system. The global
banking crisis stemmed from flawed regulation and perverse incentives
for banks to sell mortgages to poor Americans with no ability to
repay, as well as gigantic leverage in the financial system. These
distortions were created, in part, by global imbalances driven by
Americans living on cheap credit and Chinese exporters and savers
contributing to a vast current account surplus.

Until the Great Crash of 2008, this financial merry-go-round spun
regardless. Thanks to cheap labour costs, China exported deflation to
the rest of the world. China financed the US current account deficit
by recycling its own surplus into US Treasury bonds. Now, three years
into the financial crisis, the world economy has been turned upside
down. The US is diminished, Europe sidelined, and Asia, for now, in
the ascendant.

Consider the broader historical trend. Developing Asia's share of the
global economy in purchasing power parity terms has risen steadily
from 8 per cent in 1980 to 24 per cent last year. Taken as a whole,
Asian stock markets now account for 31 per cent of global market
capitalisation, ahead of Europe at 25 per cent and within a whisker
of the US at 32 per cent. Last year, China overtook Germany to become
the world's largest exporter. Chinese banks now rank among the
biggest in the world by market capitalisation.

Import numbers are equally revealing: the developing world is
becoming a driver of the global economy. From the consumption of
cement to eggs, China leads the world; it has also just overtaken US
to become the world's largest market for cars.

China's voracious appetite for commodities is creating new trade
routes, especially with emerging powerhouses such as Brazil. Last
year, China surpassed the US as Brazil's biggest trading partner.
Latin America, a region once best known for instability, has emerged
through the crisis virtually unscathed. Poverty is falling, the
middle classes are expanding and asset markets are bubbling.

Condoleezza Rice, Mr Bush's national security adviser and secretary
of state, once described multi-polarity as a theory of rivalry, a
necessary evil. In economic terms, multi-polarity spells a new order
in which interdependence is the norm and the US, while still
overwhelmingly powerful, no longer occupies the role of hegemon.

As for the legacy of 9/11, Gerard Lyons, chief economist of Standard
Chartered Bank, says the three most important words in the past
decade were not "war on terror" but "made in China". On present
trends, he adds, the three most important words of this decade will
be "owned by China".


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