The Incredible Shrinking Davos Man

Last week’s annual Davos meeting of the World Economic Forum was conspicuous by how little it seemed to matter to anyone — the event passed with hardly a nod from the mainstream media, which had more important things to worry about. But as I wrote on TIME.com, it wasn’t simply that Davos was eclipsed in the news cycle by global stock market wobbles and by Hamas in Gaza wiping the floor with its dunderheaded adversaries (dutifully gathered at Davos, in the persons of Condi Rice, Tony Blair, the Israeli government and the leaders of Fatah). On fronts as different as financial markets and the geopolitics of the Middle East, it has become plain that the political and economic elites of the West have seen a sharp decline in their ability to dictate events.

The decline of Davos Man is not simply related to a credit crunch or a U.S. election year. Even if America elects a new Administration dedicated to reversing the mistakes of the Bush team, it is unlikely to restore U.S. and Western primacy such as it existed in the golden years of Davos. The policy failures of the Bush years may have accelerated the decline of U.S. influence, but they are not its sole cause. In the years during which the U.S. became distracted by the “global war on terror,” China’s economy has grown to twice the size it was when President Bush first took office. It is to China — guarantor, by virtue of the trillion dollars and growing line of credit it makes available to the American consumer, of the American way of life — that U.S. investment banks turn for help when confronted by their losses in the subprime loan crisis. The very success of capitalism in developing and former socialist countries has inevitably weakened the grip of the West on the global political economy.

Today, market analysts contemplate whether the best hope for the global economy avoiding being dragged into the vortex of recession by the U.S . slowdown may be the “decoupling” from the U.S. economy that some believe could allow economies such as China and India to continue growing by virtue of momentum in their own economies. It’s a theory, untested in crisis — and clearly the wobbles hitting India’s stock market this week suggest its own investors are not convinced. Still, China has already become the key trading and investment partner in both Africa and in some key Latin American countries, offering a model of development quite different from the “Washington consensus” on issues of governance and economic management that might, as easily, have been dubbed the “Davos consensus.” China is certainly not going to take direction from its debtors, and global energy prices have transformed Russia from obedient supplicant to swaggering challenger to the West.

The U.S. and its allies remain immensely powerful, but the limits of their ability to influence events have been laid bare in Iraq. Today, long-term traditional U.S. allies in Asia, Africa, Latin America, the Middle East and Europe can no longer be counted on to follow Washington’s lead. At the same time, the Davos crowd has lost its near-monopoly on global political and economic power, which is increasingly being diffused across a variety of different power centers with shifting alliances. French foreign policy intellectuals of the 1990s, fearful of what they called the American “hyperpower,” fantasized about a “multipolar world” where power was balanced across a variety of different power centers and interests. While economic “decoupling” remains an untested hypothesis, geopolitical “multipolarity” is today increasingly plain to see.

But a far more extensive and interesting development of this argument can be found in Parag Khanna‘s must-read New York Times magazine piece, Waving Goodbye to Hegemony. Khanna begins with the present distribution of power, noting that the presidential candidate in the U.S. sound almost quaint as they discuss their plans for managing the world. “At best, America’s unipolar moment lasted through the 1990s, but that was also a decade adrift,” he writes. “The post-cold-war ‘peace dividend’ was never converted into a global liberal order under American leadership. So now, rather than bestriding the globe, we are competing — and losing — in a geopolitical marketplace alongside the world’s other superpowers: the European Union and China. This is geopolitics in the 21st century: the new Big Three. Not Russia, an increasingly depopulated expanse run by Gazprom.gov; not an incoherent Islam embroiled in internal wars; and not India, lagging decades behind China in both development and strategic appetite. The Big Three make the rules — their own rules — without any one of them dominating. And the others are left to choose their suitors in this post-American world.”

He has interesting thoughts on why Russia won’t make it as a major power in its own right, and will be forced to align either with Europe or with China. (It’s population continues to rapidly diminish.) He makes the case that the geopolitics of the next century will be contested by three main hemispheric power blocs led by the U.S., Europe and China, and that the outcome of their battles will be determined largely by the choices of what he calls “second world swing states” — countries with substantial economic or political weight, such as Turkey, Iran and Brazil, with no fixed allegiance to any of the Big Three.

The key second-world countries in Eastern Europe, Central Asia, South America, the Middle East and Southeast Asia are more than just “emerging markets.” If you include China, they hold a majority of the world’s foreign-exchange reserves and savings, and their spending power is making them the global economy’s most important new consumer markets and thus engines of global growth — not replacing the United States but not dependent on it either. I.P.O.’s from the so-called BRIC countries (Brazil, Russia, India, China) alone accounted for 39 percent of the volume raised globally in 2007, just one indicator of second-world countries’ rising importance in corporate finance — even after you subtract China. When Tata of India is vying to buy Jaguar, you know the landscape of power has changed. Second-world countries are also fast becoming hubs for oil and timber, manufacturing and services, airlines and infrastructure — all this in a geopolitical marketplace that puts their loyalty up for grabs to any of the Big Three, and increasingly to all of them at the same time. Second-world states won’t be subdued: in the age of network power, they won’t settle for being mere export markets. Rather, they are the places where the Big Three must invest heavily and to which they must relocate productive assets to maintain influence….

Second-world countries are distinguished from the third world by their potential: the likelihood that they will capitalize on a valuable commodity, a charismatic leader or a generous patron. Each and every second-world country matters in its own right, for its economic, strategic or diplomatic weight, and its decision to tilt toward the United States, the E.U. or China has a strong influence on what others in its region decide to do. Will an American nuclear deal with India push Pakistan even deeper into military dependence on China? Will the next set of Arab monarchs lean East or West? The second world will shape the world’s balance of power as much as the superpowers themselves will.

The starting point of a new American leadership looking to remain competitive in the new geopolitics (the idea of restoring American primacy is already an anachronism, he argues), will be to pursue what President Bush promised during his first presidential campaign — a humble foreign policy. One based on a consultative and cooperative relationship with new and emerging power centers of a sort quite unimaginable to those currently in charge. It may be a sign of Davos’s own decline as a showcase of global influence that the conference was opened by Condi Rice and chaired in many key sessions by Tony Blair. Why would you want to listen to the unrepentant cranks who screwed things up over the past decade when trying to figure out how to manage the next one?