2013 WORLD PEACE FORUM
“CONCEPTUAL INNOVATION FOR MAINTAINING
Dr. Subramanian Swamy
Presented at the
“International Security in a Changing World: Innovation, Coordination & Development”
Tsinghua University, Beijing, China
Ministry of Foreign Affairs’ Chinese People’s
Institute of Foreign Affairs, Beijing, China
At Main Building, Tsinghua University
on June 27 & 28, 2013
CONCEPTUAL INNOVATION TO MAINTAIN INTERNATIONAL SECURITY
There are no two opinions on the view that the perception of the world power has changed since the end of World War II in 1945, and will change further in the 21st century.
In fact each of the past major changes in the structure of world power, and consequently in the global social, political and economic order, has been closely correlated with technological innovations such as the steam engines, Bessemer blast furnaces, electricity and wireless in the 19th century, and television, telephones, aeroplanes and jet engines in the 20th century, and now the internet in the first decade of the 21st century.
Each of these changes, in perception has made the world into a smaller place in terms of reach and travel time, consequently in speed of communication, enabling thereby the process of unprecedented globalization.
Perception of power has also changed from a one dimensional metric of military power to a multi-dimensional concept of military strength, economic growth, political stability, democracy, quality of life, ideological appeal, capacity for communication, and the sophistication of intelligence gathering.
In other words, today we have not only the old concept of hard power but a new additional concept of soft power, such as of communication, ideology, capacity for disinformation, etc. This has made necessary for strategic affairs thinkers to move from the simple metric of hard power– quantitatively measurable military power– to a composite index of hard and soft power measuring hard quantitative power and the soft qualitative soft power.
Such an index today would be the conceptual innovation required to measure the ability of nations singly or collectively to maintain international security. But the index cannot be uniquely determined, and would require a consensus to choose which index will be best suited. This is not an easy task.
With globalization process in full swing in the 21st century, economic “globalization” has taken place, i.e., purely national economic issues are beginning to impinge globally and multi-dimensionally on international security and vice versa. For example, local economic issues, such monetary policy of a nation, are becoming crucial for global financial stability and hence of international security, because every country’s economic system is becoming increasingly interdependent with other national economies not only for resources through foreign portfolio and direct investment, but also because of outsourcing, and thus increased vulnerability to internal destabilization by movements in international factors of production, and global financial flows.
After eight years of international negotiations [the Uruguay Rounds] since 1986, the GATT-II with 28 sectoral Agreements came into being, which Agreements now are ratified by 159 countries, enforced by an unprecedented conceptual innovation called the World Trade Organisation in 1994. Several of these Agreements such as TRIPS and TRIMS call for international commitments on purely domestic and international issues of policy.
But that however, was insufficient to block a triggered financial crisis of 1997 that spread across a continent through “contagion”, and which was not foreseen. The unexpected financial crisis in East Asia in 1997 was suddenly triggered by reverse flow of the “hot money” due to a rise in the Bond rate in the New York Stock Market.
In 1997-99, thus several of the most dynamic and fast growing East Asian economies unexpectedly suffered a severe financial crisis that devastated them from the “contagion” spreading from one East Asian nation to another. It revealed that growing economies could not sustain high growth rates with a weak or opaque financial system, and were open to de-stabilization by unconnected domestic or internal economic policies of other nations.
This became even more clearly evident in the 2008-09 global melt-down triggered by collapse caused by weak internal and domestic banking norms for sub-prime loans in US, and lack of effective regulations by the use of derivatives of some US-owned Investments Banks.
It is thus now accepted that even purely internal sectoral economic issues can de-stabilize the entire global economic system. This adds a new dimension to global security.
The IMF-World Bank sponsored Tokyo Conference of the international financial institutions in 2000 thus led to framing norms for a Financial Architecture and perhaps this could lead in this decade to setting up of the World Financial Organization to monitor and stabilize the global financial architecture in the future.
Hence, for the maintenance of global economic security today, the collective commitment to stabilization of every nation’s financial system has become essential, for which some new conceptual innovation in the form of global financial architecture of prudential norms and institutional structures have come into being.
II. THE NEED FOR A NEW CONCEPTUAL INNOVATION: TWO FACTORS
After the unravelling of the USSR in 1991, the spread of economic development based on adoption of a transparently regulated market system, the almost unfettered international trade and financial flows, which was enabled by the successful conclusion of the Uruguay Round in 1994, and facilitated by the internet, the world today is in need of a new conceptual innovation to maintain international security especially since de-stabilization of peace through cyber warfare and terror has come within the reach of even discontented informal groups. This is a new situation.
Another new situation is that India and China today together represent a large fraction of the world’s young population and a growing share of the world GDP. By current international standards, both China and India have impressive macroeconomic fundamentals such as a high trend growth rate in the range of 8 to 10 percent per year, a relatively low sovereign debt levels, a foreign exchange reserve level exceeding 10 months of imports, and a declining headcount ratio of poverty.
Thus, there is a need recognize a new paradigm emerging from these two new situations in the global power structure.
The perception today is thus that both economies are going strong, with a stable polity, and will fuel global growth in the future. And the two countries of each more than a billion people will be the second and third largest economies judged by the size of the GDP in purchasing power parity prices.
While today’s popular perception of China and India may be optimistic, it is also important to remember that economic history is full of such favourable perceptions evaporating before the reality that unexpectedly dawns with a bang. There are vivid examples of this reality as noted below.
At one stage in the nineteenth century, many countries of Latin America were considered wealthier than North America. Now, the exact opposite is true. In the 1960s, these countries were considered as the new developed countries to be. But that too evaporated. Latin America suffered financial crisis and fell behind. In the 1980s, it was widely perceived that Japan would overtake the US. In fact Japanese business had begun to buy up prized US real estate, and became owners of major corporations in North American mainland. That trend has now been completely reversed after the completely unforeseen 1997-98 East Asian Financial Crisis.
In the case of the ‘Asian Tigers’, the World Bank had published with a volume titled The East Asia Miracle in 1994 which was an unabashed prescriptive advocacy of the export-led free trade strategy of East Asian economies. The “celebrated” World Bank remark that these economies had got their “basics right”, by implication other developing countries which did not match the growth performance of the “tigers”, had not got these basics right, came back to haunt the World Bank after the 1997 financial crisis.
To salvage its reputation, the World Bank published another volume in 2000 in an attempted damage limitation titled Rethinking East Asia’s Miracle. The institution’s credibility was hit hard because, on the contrary the very area where the East Asian countries had got their basics quite wrong was in the financial system, to monitor which under the 1944 Bretton Woods Charter, the World Bank and IMF were set up in the first place. Incidentally East Asia, especially Japan, has yet to fully recover from that crisis.
In China and India the current favourable macroeconomic fundamentals have been secured basically by milking the financial system, without nurturing it by more reforms, and by sweeping the malaise in the system under the carpet. That is, macroeconomic fundamentals had been ensured in both countries increasingly at the cost of deteriorating structural parameters and institutional quality of the financial system, although relatively India’s position in this regard is better.
As a consequence, now in 2013, the structural parameters in the banking and fiscal sectors indicate that the institutional quality of the financial system of the two countries is out of sync with the needs of increasing globalization, because even today Soviet–vintage prudential norms and opacity in transactions are present in the system. This is reflected particularly in the banking sector in China and in the National Budget in India.
The financial systems of the two countries moreover are bank and budget centric respectively because their capital markets are still under developed, and prone to insider trading, rigging and scandal. Their respective bond markets are in its infancy.
Nevertheless, as of now and of foreseeable contingencies, China and India have sufficient institutional and social resilience to meet these challenges and move ahead. This is apparent from the data for the period from 2008-2010 , when developed nations were in a financial crisis.
III. THE NEW GLOBAL POWER PARADIGM
Today after being cognizant of the ifs and buts, it is nevertheless essential to recognize that globally the US, China, and India together constitute 37% of the global population, and with US, account for 43% of world population, being the three most populous, with the three biggest GDP in PPP rates of exchange, and three largest armed forces. This scenario is vastly different from the one that prevailed just post World War II, and prevailed for about four decades since then.
The paradigm difference today contrasted with that post World War II situation, therefore requires a conceptual innovation, to move from the post War 1945 global power structure ossified presently in the five permanent members of the UN Security Council, each holding a Veto to meet the exigencies of the pre-1945 international issues of conventional warfare, to a new dispensation of international power structure in which China and India, more particularly the latter, have to be recognized for the new status as emergent economies of global reach.
Till recently, with the reality of the nuclear weapon, a weapon of unimaginable mass destruction of which the world got a peep in Hiroshima and Nagasaki, in the post-World War II period beginning 1945 till the opening up of the Soviet Union in 1991, the conceptual innovation was the doctrine of Mutually Assured Destruction which kept an uneasy world equilibrium between the two then Super powers paradigm— of the USSR, and the United States, and thereby this doctrine restricted major wars to limited war aims and purposes, and duration, thus maintain international security.
But today the globalization and globalization of economies, with vastly quicker or almost instant communication, needs a new conceptual innovation to maintain international security. In this context, two developments have made necessary a new conceptual innovation to maintain international security. First, the rapid economic development of China and India due to the adoption of economic reforms, and by benefiting from the increase in foreign trade and investments, enabled by the new GATT-II and the conceptual innovation of 1990s — the World Trade Organization, China and India more than any other two nations, are accepted—with the usual caveats on their contributions—as drivers of global economic growth, along with United States.
The second factor that requires a new paradigm in partnership of nations, is the rise of religion–based terrorism dominated by radical religion-driven forces and which is facilitated by cyber technology, particularly computer websites, and internet banking. Few nations today are unaffected by terrorism, and most often than not, it is radical Islam-driven variety.
Nuclear weapons are no more a deterrent for this type of destruction or cross-border intervention. The only effective strategy today as a consequence, to deter terrorism, not so much confronting terrorists wherever they are, but to defeat the political goals of the masters of these terrorists, and to rubbish them by counter-terrorist action [see Subramanian Swamy: Terrorism in India : A Strategy of Deterrence for India’s National Security, Har-Anand Publications Pvt Ltd, New Delhi 2006]..
How is that strategy to be structured? In an well argued research paper published by Robert Trager and Dessislava Zagorcheva [“Deterring Terrorism” International Security, vol. 30, No.3, Winter 2005/06, pp. 87-123], the general principles to structure such a strategy has been explained.
But it is clear that in order to meet this grave threat to international security such a deterrence against terrorism can be effective only if there is a new conceptual innovation that effectively partners nations to enable the marshalling of resources and especially manpower to be deployed globally, to nullify the goals that the terror chiefs set themselves, wherever they are.
IV. A NEW CONCEPTUAL INNOVATION
A new conceptual innovation to meet this new situation in the 21st century, I therefore propose here that to maintain international security, the strategic triangle [and ultimately a strategic triumvirate] of India, China and US, because of their sheer size and level of development, come into being.
In this triangle, the US importance in this triangle is the crux of the “strategic distance” that the US will keep vis-à-vis India and China respectively resting on two factors:
(1) Neither India nor China would want the US to tilt to the other country since Indo-US and Sino-US relations will be for the foreseeable future, qualitatively and strategically, more crucial than the bilateral India-China relations. For example, for India to deal effectively with terrorist insurgencies emanating from Pakistan, a Sino-US compact against India would be deleterious
(2) To keep the Sino-Indian economic distance from widening (in case of India), or narrowing (in case of China), both India and China will need access to US’ markets and also more importantly to advanced technology, and the R & D–produced innovations in the US.
This scenario, of course, is dependent on US retaining its will to maintain its global reach, as also ensuring that its relatively young but skewed demographic structure remains-with intelligent immigration policies—to continue to be the world’s leader in scientific, technological and institutional innovations.
In an address to the Women’s Foreign Policy Group Annual Luncheon held in Washington D.G (December 10, 2007), the then US Secretary of State, Dr.Condoleeza Rice had however, stated:
“The mood of decline in US today hangs over some …. about the rise of China and India, the coming Asian century”
Rather than this pessimistic mood, it is imperative for global stability and order, that US restructure its foreign policy to recognize the India-China-US Triangle, and share with India and China the global strategic responsibility and consequent burden.
This Triangle is what I visualize as the new conceptual innovation to maintain international security.
Although India-China relations are not without problems, there has been since the last one decade increasing consultations on non-bilateral issues, including recently on cross-border terrorist activity emanating from third countries.
It is likely in the near-term therefore that whatever bilateral conflict there is between India and China, it will be more of a jockeying for economic and political influence in the South and Southeast Asian region and in the continent of Africa rather than in classical military confrontation that we saw in October 1962.
It may remembered that India-China relations go back to the Ch’in dynasty in China [circa 700 BCE], and except for 1962, there has never been any military conflict between the two nations. This is in sharp contrast to what happened in Europe in the last millennium.
China and India today both see themselves culturally and historically in Southeast Asia, as dominant players, although when all is said and done, India’s cultural influence in this region has historically been much more pervasive and deeper, even if that influence is dormant today.
At one stage, even Chinese intellectuals themselves spoke of India’s cultural influence on China [e.g., Hu Shih: “The Indianisation of China; A Case of Peaceful Cultural Borrowing” Harvard University Tercentennial Celebrations, 1936]. Of course, China today is much better placed in logistics and reach in Asia.
It would be wise therefore for India to re-awaken this latent consciousness of Southeast Asia, with of course finesse and prudence, to re-establish India’s cultural links with ASEAN nations. As both China and India try to prove themselves in Asia, there may be an intensifying of the battle for spheres of influence in countries ranging from Nepal, Bhutan, and Sri Lanka to nations throughout Southeast Asia. But with understanding such a battle can be productive for ASEAN and SAARC.
Moreover, there are other developments that point to a convergence in the social ideological thinking in India and China, such as in former Chinese President Mr. Hu Jintao’s formulation of Harmonious Society[adopted by CCP Congress in 2007], which in content is the same as India’s Sanatana Dharma. Other Asian societies also subscribe in content and substance to the axioms of these two social philosophies, essentially founded on the premise that material progress must harmonize with spiritual values of a nation to be acceptable. The present globalization is solely material progress-driven.
This convergence, however, will depend on whether in the next two decades, both Chinese and Indian economies will continue to grow as rapidly as over the past three decades. The question can be answered only by watching the future financial system reforms that the two countries carry out, and how the US (and EU) markets are accessed, despite their tariff barriers and subsidies obstacles that stand in the way.
But as of now, as earlier with Latin American and East Asian countries, India and China are vulnerable to a financial blow out, that could set back and slow down the two economies. The question of importance then would be which of the two nations and in what sequence they would recover fully, or if either would as in the case of Japan. India and China could avoid a financial crisis only by undertaking serious financial structural reforms.
The question also is whether the political constraints and compulsions in the two nations would permit such necessary structural reforms? Can the two nations reform their respective financial systems to obviate a financial crisis and also meet the requirement of sustained growth, or are there political constraints that would prohibit the China and India from carrying out these reforms? The moment of truth for both nations is not far, may be in this and the next decade.
It has also be recognized that presently China and India are uncomfortable neighbours, who have had Border conflicts, and still have unresolved claims on large areas which have not been either resolved or forgotten by either country.
India, being a democracy, generally seems to think more loudly about China than China appears to think about India. Indians and Chinese both view their own nation as a rising power that should be treated as a central player in a “polycentric” multi-polar international community.
Yet while the Indians clearly treat China as such, the Chinese do not exhibit the same overt inclination about India, leaving the impression that China does not take seriously the prospect of growing India that could at a future date, become a strategic adversary or an economic competitor.
Both sides have worked to improve relations since the 1980s, through state visits by leaders from each side, various agreements, and improved trade. Despite occasional verbal turbulence, the Border Conflict of 1962 has been relegated to an irritant status in relations.
However of great concern is the ramification on India’s China relations of the friendship between China and Pakistan, although looking to the projected political changes in South Asia following the US-Taliban negotiations on Afghanistan, currently in progress in Qatar, and the political trends in Pakistan following the recent elections, it is a question whether the outcomes from these developments may cause substantive dialogue between India and China to take place and the emergence of a common interest to the forging of a strategic alliance.
Nevertheless, due to the absence of significant economic cooperation and political understanding presently between to the two nations, it is the perception that each country holds of the other, that determines the relations today, and will remain so till there is much greater interaction, and direct understanding to replace that perception.
Till then Indo-US and Sino-US relations would be the major determinant in shaping the new conceptual innovation of the strategic triangle of the three nations. Further developments in this conceptual innovation would depend on India-China relations developing as noted above.
The United States, acknowledged today as the sole super power with global reach, if it is to contribute effectively in the post-cold war Asia south of China and in the Sino-Indian interactions, has to substantially accommodate what drives national policies in this region, which as of now, appears blurred in US’ policy vision.
Thus, how China and India will get along ought to be of US’ priority interest in the coming decades of the 21st century because of the fast economic growth of these two Asian neighbours and consequent their combined influence on SAARC, ASEAN & APEC nations.
More importantly, the US’ growing awareness that its reach has structural limitations in a globalized world, ought to motivate search for allies and to ‘outsourcing’ some of its security concerns to Indian and China.
Most Indians believe that the U.S reach in the Asia-Pacific region may not continue to be as effective as it is today. This is one motivation for India in choosing to build up a nuclear arsenal and to resolutely stay out of the global non-proliferation regime.
This also propels many influential persons in India to think of the need to forge a strategic alliance with China within the framework of a Triangle. The mainstream view in India is to engage with China in a substantial and nuanced strategic alliance.
In addition to this mainstream Indian view, however, there are two other fringe schools of Indian thought; the first [mostly of Communist parties] holds that China is no threat, [while the US is], even in the long term. The other [mostly of yester-year jingoists] contends that China is a real and immediate menace. The former school articulates the view that China is ‘rational’, and has no logical reason to threaten India in the future. This school bases its optimism about China on what the Chinese themselves say: that they are not ideologically interested in developing an adversarial relationship with India.
At the other extreme, Indian hawks believe that China has clearly shown animosity toward India through its actions such as in the Border issues or on Tibet, which actions speak louder than the words of its cautious and careful leaders. This school also believes that China purposely supports Pakistan with nuclear-technology transfers so that the India-Pakistan conflict will stay smouldering to keep India strategically occupied, while China is free to compete for influence throughout the rest of South Asia. Of course, the mainstream Indian view is not dismissive of this kind of opinion, but does not treat it is as a defining angle or worthy substantive direction.
India being a democracy, a “working consensus” may however later emerge centered primarily on the mainstream view, but moderated by the Left view on one side that neither country would want to threaten the other without reason, but tempered by the other demand to stand firm against China on issues that concern India’s relations with its South Asian neighbours, i.e., not to acquiesce, capitulate to, or appease China, and to reiterate India’s border claims as also to prepare for that country’s military capability by augmenting India’s adequately].
V. THE US ANGLE IN SINO-INDIAN RELATIONS
China’s strategic acknowledgement of India will however substantially increase if the United States changed its policy and decided to support India as a partner in the military hardware acquisitions to match China in the region. That is why Chinese press has devoted so much space to the Indo-US Defence Framework Agreement of 2005, and joint exercises of US and Indian armed forces held subsequently especially where Japan has also participated.
If the East Asia trade with China, partially or wholly, gets redirected via India in the next decade, then China will have a foreign exchange squeeze despite its present trillion dollar plus reserves today, that could induce a major financial crisis like the 1997 East Asia crisis.
This switch could happen if costs begin to rise or the yuan gets appreciated. Costs have begun to rise according to a survey of companies compiled by the American Chamber of Commerce in Shanghai recently, which expressed concern over China “losing its competitive edge”.
Hence, China which is highly dependent on the US/EU export markets and East Asia for outsourcing and rising foreign exchange reserves, could find itself in a terrible bind, and in an inevitable crisis. India’s growth is much more home grown and consumption driven, and hence not so vulnerable to foreign trade for its continued economic growth. India and China could see this as an opportunity to seize the complementary nature of the two economies.
VI. CONCLUSIONS: TRIANGLE OR TRIUMVIRATE?
US policy formulation in the region will be affected by the impact of its war on terrorism, on both India and China. A question does arise as to what either India or China has to offer the United States in this war effort. Despite all the rhetoric, the war does have subtle implications for the US-India-China dynamic, which needs to be understood.
Of course, India and China both support the United States, to varying degrees, in its fight against terrorism. China’s support is general and a distant but China has tacitly accepted the United State setting up military bases in Central Asia.
India’s support is seems more ambivalent. Of course, India has been outspoken in its condemnation of terrorism targeted against the US, and has in fact offered the use of Indian territory for US airplanes should the United States have a need for it.
But ambivalence of India is rooted in the US policy on the Shia—Sunni theological divide. This divide is manifested in India by a close working relationship between the predominantly large Hindu population and the large Shia community in India, and a historical Hindu-Sunni conflict, a legacy of repeated invasions of India by Sunni marauderers, which in turn has spill over effects on India’s dilemma on Iran and Syria with respect to US policies.
Nevertheless the bottom line is that for economic reasons, and status quo in geo-political issues, India and China in the near future need the US much more than each other. Neither China nor India will in the foreseeable future risk a rupture in, or cooling of the present level of relations with US for a warmer Sino-Indian bilateral relation. Obviously in such a circumstance, a Triad is better than a Triangle.
Although the US government will undoubtedly need to take into account unfolding events in the war on terrorism as well as other international developments, and thus retain its flexibility for action, nevertheless the US understands that any action to potentially interpret US activity in Asia as an attempt to reassert its dominance, by seeking junior partners or ‘deputy sheriffs’, would spark tensions as a result. Neither India nor China, it goes without saying, will ever agree to be a Japan or Australia for the US.
For safeguarding against the emerging Triangle becoming skewed or out of shape, I suggest the following premises constitute the new conceptual innovation for maintaining international security in the 21stcentury:
First, every possibility be explored by China and India, unfettered by any outside influence, to develop leadership in both countries that understand and trust each other, without being blinded by each other, and to develop a harmonious relationship between the two nations. This relationship could easily interact with the US to create a ‘Triad’ instead of the eternal Triangle.
Second, the Sino-Indian relationship will nevertheless be complicated. The implication for the United States is to perceive the complexity of Sino-Indian relations. The United States must see that the most likely scenario in India-China relations will be co-option i.e., competitive relationship with a door always open to cooperation, as we saw in Copenhagen at the World Environment Conference in 2006 and with little likelihood of armed conflict.
Third, at the same time, India and China can profitable cooperate, as in energy and environmental sustainability. India and China are two of the largest, fastest-growing energy consumers in the world. India imports some 75 percent of its oil needs, while China imports about 33 percent of its oil. Their combined demand has helped drive oil prices to record highs, prompting both nations to try to lock down sources of energy around the world. China’s quest for energy has prompted it to strike deals with countries from Africa—it has agreements with Sudan, Nigeria, Angola, and other nations—to Myanmar, Tibet, and Russia. India is also seeking oil in Russia, Kazakhstan, and Sudan, among other nations. In January, 2007, China and India had agreed to a landmark energy cooperation deal that would prevent them from bidding against each other for energy resources. The two countries realized that by very aggressively bidding for the same resources, they were pushing prices up for both of them. Instead with US cooperation in research, the two countries could profitably find crude oil substitutes such as hydrogen fuel cells, use of thorium nuclear fuel, and shale oil.
Fourth, the United States is unlikely to transit to a hostile relationship with China, with whom many common interests do exist. The US approach would therefore be to develop its relationship with each country, China and India, on merits, in non-zero-sum terms, as a search for what is popularly known as a ‘Nash’ equilibrium.
Fifth, the United States welcome India and China developing closer relations with each other, and expand ties recognizing that the chances of Sino-Indian ties leading to an opposing force against the United States in the region are remote, for at least next five decades, because of the US relationship with each will still be better than each country’s relations with the other for a variety of reasons, economic, military, and national security.
The US will remain the global leader in innovations, and both India and China with their land and resource constraints will continually need productivity enhancing innovations to keeping growing at 8 percent plus, for which US will remain the cutting edge provider.
On these premises, I have placed before this august audience a conceptual innovation of the India-China-US Trilateral compact to maintain international security.