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Wednesday, January 31, 2007

The "Davos Dilemma"

Can the divide between the world's political and economic forces be bridged? Martin Wolf has some possibilities:

A divided world of economic success and political turmoil, by Martin Wolf, Commentary, Financial Times: The world's economy is in excellent shape, but its politics is disturbing. ..-. The question is whether and how this divergence might end. ...

One possible outcome might be the exact opposite of conventional wisdom: economic disappointment and political stability. ... Today, the underpricing of risk and the combination of low interest rates with fast growth almost invite economic blunders. Meanwhile, the world's political leaders, aware of the risks of conflict and reliant on their people's prosperity for retaining power, may well continue to muddle through. This surprising outcome is quite possible.

A second alternative is that the economic and political tracks would continue in their separate directions. The reason for this would be that, far from being distinct, the contrasting economics and politics are two faces of just one globalising world. ...

The fact that economics is making our world more interdependent and connected, while politics remains national or local, makes the contrast between economics and politics inevitable. ...

It is plausible, therefore, that political disarray and economic success will continue in tandem, the challenge being to avoid the emergence of too wide a gap between the two. For, as we learned in the first half of the 20th century, a big enough backlash is capable of causing devastation. In a nuclear age, that devastation would be greater still. ...

A third possibility is that the politics overwhelms the economics, as it did between 1914 and 1945 and in the communist "second world" and much of the so-called "third world" for much longer. An attack on Iran - a much-discussed possibility in Davos - would bring far closer the clash of civilisations... feared by so many... In that case, the economic optimism of today would prove unfounded - possibly destroyed by a world of $150-a-barrel oil in the aftermath of the closing of the straits of Hormuz through which so much of the world's oil flows.

Yet there is also a far more comforting possibility: the economics overwhelms the politics. One of the stories of our era is the way in which vast countries such as China and India are orienting their politics around the goal of prosperity. This forces them to seek domestic and global stability and accept international openness and mutual dependence. They see no benefit in international conflict. It is surely possible that this view of national priorities will take hold in more of the world, including the Middle East. ...

In such a world, the issues discussed in Davos - climate change, the Doha round and African development - might be handled successfully. The difficulties of collective action are profound. But ..., the less credible are unilateral approaches to a resolution, the more likely are co-operative ones.

This year's "Davos dilemma" - the contrast between the world's favourable economics and troublesome politics - is clear enough. But its resolution is not. A range of possible outcomes, from the perverse and catastrophic to the uncomfortable and even benign, is conceivable. The outcome is not inevitable. We can choose. ...

    Posted by on Wednesday, January 31, 2007 at 01:21 AM in Economics, International Trade, Politics | Permalink  TrackBack (1)  Comments (4)

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    [Source: Economist's View] quoted: Martin Wolf has some possibilities: A divided world of economic success and political turmoil, by Martin Wolf, Commentary, Financial Times: The world's economy is in excellent shape, but its politics is disturbing. .-. [Read More]

    Tracked on Wednesday, January 31, 2007 at 09:57 PM


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