Throughout human history the great powers have always made sure to get the lion’s share. The “great power” status, whether the source of power lied in the economy or their military strength, turned the countries into more than regional or world leaders, but into targets of constant wooing by small and mid-sized countries that were looking for a financial and/or security sponsor.
But there is no such thing as a free lunch… Conventionally, the great powers would bestow their favors on suitors with something to offer: geographic position, commodities or human resources, the prospect of ideological, economic/military synergies. That fostered a paternalistic attitude by them toward those seeking to work themselves into their favors. At the end of the day, it was a question of demand exceeding the supply and only very few, uniquely positioned countries had any real bargaining power. Therefore, great powers have always adopted a more or less subtle air of condescension toward the rest of the world.
And yet, here we are at a time when great powers need to learn to be humble.
The outbreak of the pandemic created another opportunity for the US to position itself as the world’s leader. Sadly, though, America has been nothing but “great”. Firstly, underestimating the severity of the pandemic caused it to get off to a late start with its pandemic response. Secondly, the mixed and often not evidence-based messages from political leaders who to this day continue to contradict each other as to the strategy of restarting the economy have caused polarization and confusion in the population.
So here we are, in a situation where the death toll in the US in just three months’ time is higher than the American deaths caused by the Vietnam war over two decades. With or without intention, the US has missed out on yet another moment when it could have become a global leader that in the current setting the world actually needed. The initial communication, organization and logistics blunders turned America into anything but a good example.
Meanwhile, the economic impact is set to be devastating. Last week 3.8 million more Americans lost their jobs pushing the total number of unemployed persons up to 30 million in just six weeks. Being able to print the most popular currency in the world will help but it cannot work miracles. And the more you print, the less attractive it becomes.
On the face of it, China is set to emerge as the winner in the fight against the pandemic. Officially, the impact on the public has been significantly lower than in the West and the great Asian power has been professing its superiority on all channels. It may have spoken too soon.
Firstly, many Western companies seeking to minimize operational risks may be leaving the country over the coming months. Secondly, its pet “Belt and Road Initiative” may deliver the country a destabilizing blow.
As of 2013, China has been pumping over USD $700 bn into development projects in over 60 countries. On the record, the objective was the advancement of trade and cooperation. In fact, that was China’s way to expand its clout over a significant number of countries which literally ended up in the Chinese state’s debt.
The problem is that most of them are emerging countries already deeply indebted. The current crisis will push many of them into default and China will be left with either ghost projects terminated early or with governments unable to repay their loans. Just as Financial Times noted, this is already happening, the frontier or emerging countries queuing up to renegotiate repayment terms to the large state-owned Chinese banks. This may pose major financial problem to China, not to mention the reputational one if it starts asking the countries in question for high quality economic assets in exchange.
Central and Eastern European countries have been and continue to be regarded by some governments as the West’s poor brother. Welcomed at the negotiation table but kept away from the influence and power projected by Europe’s powerful states: Germany, France, Great Britain, Spain and Italy. However, they have so far managed to handle the implications of the pandemic far better than Western countries. The outbreak has had limited effects on Poland, Bulgaria, Hungary, the Czech Republic and Romania, a far cry from the havoc wreaked in the great powers’ courtyard.
The reasons why remain unknown and opinions are mixed: genetic differences, a record of consistent immunizations in the communist past, measures taken fast at the outset, or it may well be all of the above. The difference, however, is so stark that a newspaper such as the Wall Street Journal posted the headline “Poorer Nations in Europe’s East Could Teach the West a Lesson on Coronavirus”.
Russia also is having its fair share of trouble which is certainly an invitation to humility. The collapse of fossil fuel consumption and prices across the globe will have a considerable impact on the country’s budget. The price war against Saudi Arabia, coupled with a dip in demand has led to a massive drop in oil prices and related revenue. As I commented in the previous post, “Welcome to 2050!”, fossil fuels are well on the way to becoming a weaker and weaker card up the sleeve of post-crisis economies.
The break-even oil price for Russia’s budget is about $40 a barrel. The longer the price stays below this threshold, the deeper Russia will have to dig into the coffers of its sovereign fund. Now, however, when president Putin is planning a public vote on constitutional changes that would allow him to be reelected in office is bad timing for budget adjustments. The Russian president will have to humbly and hopefully wait for the pandemic to die down quickly and with as fewer human deaths as possible, as his approval rating seems to be plummeting.
All of the above show yet another facet of the economic and geopolitical reconfiguration that is just beginning. We should expect to see the inconceivable become reality at a time when the difference is not made by the most sophisticated weapons, but by the ability to quickly find a vaccine.
Have a nice weekend!
