A great global transformation is going on. When the Cold War ended, people everywhere expected that globalism would take root, bringing political stability and economic growth, and making progress in social welfare. Instead, risks are now mounting in many aspects.
First, governance risks are rising in international politics. Serious confrontation is continuing between Western countries and Russia over the Ukraine issue while no solution is in sight for the problems of Syria and the Islamic State group among parties concerned, including surrounding countries like Turkey.
The United States, Japan, South Korea and China reached a compromise over a long-range rocket launched this year by North Korea and its nuclear and missile development programs, leading to the United Nations Security Council’s adoption of a resolution on new sanctions against Pyongyang. But the impact of the sanctions is unpredictable.
In the Islamic world, the confrontation between Iran and Saudi Arabia is causing grave concern. Sectarian frictions persist and terrorist activities are prevalent elsewhere in the region.
The global leadership of the U.S., which in the past assumed a pivotal role in ensuring international order, has declined while the U.N.’s ability to enable the world’s security system to work adequately has weakened. No calls have been made by U.S. presidential candidates for America to play a leading role in maintaining world order and sentiment in favor of a return to isolationism appears to be on the rise.
Russian President Vladimir Putin is showing no attitude of changing his hard-line stance against Western countries. Concerns are even being expressed over the possibility of the advent of a new cold war. Under the circumstances, the international community must evoke the spirit of the U.N. Charter and intensify efforts to establish globalism.
Second, the world’s growth potential is declining. The International Monetary Fund has lowered its economic growth projections successively with its latest estimate going down to 3.4 percent. After the turn of the year, stock markets became bearish and foreign exchange markets started to widely fluctuate. Factors lying behind these developments include the slumping of oil markets, the stagnation of European economies, the burden of accepting refugees, fears about the so-called China risk and the sputtering of the U.S. economy. The impact of the agreement reached at the Group of Twenty conference held Feb. 27 has yet to be seen.
The chief factor responsible for this situation is the waning of discipline in the economic management of leading countries. As seen in the U.S.’ Lehman Brothers shock and the European crisis, the economic management of major countries has tended to go for expansion through fiscal and monetary measures under mounting pressure of populism. As a result, excessive liquidity has been injected into markets and speculative tendencies have increased. Thus traditional stimulus measures have been unable to produce the desired effects. The world economy is now at a crossroads and must find a new growth model.
The Bank of Japan has been forced to introduce a negative interest rate as the economy in the fourth quarter of 2015 suffered a 0.4 percent decline from the previous quarter. The Abenomics strategy is facing its greatest test because consumption as well as housing and equipment investments have not grown as expected.
Third, general interest in the World Trade Organization has waned and moves toward mega free trade agreements are gaining momentum. Typical mega FTA examples are the European Union and the North American Free Trade Agreement. The ASEAN Economic Community was inaugurated at the end of last year. Agreement was reached for establishing the Trans-Pacific Partnership last October.
The TPP is an epochal free trade agreement since it represents about 40 percent of the world’s gross domestic product and covers a wide range of fields from trade to standards and labor. If this partnership expands, the liberalization of the world economy will be greatly promoted. But there exist some worries as to whether the U.S. and other nations will smoothly ratify the pact.
The Transatlantic Trade and Investment Partnership between the U.S. and the EU, the Japan-China-South Korea FTA and the Regional Comprehensive Economic Partnership (RCEP), which includes ASEAN plus the six countries with which it has free trade agreements, are also under negotiation. All these partnerships are designed to promote free trade. But because of their different mechanisms regarding origin certification, state trading, and standards and conformity assessment, there is a fear that they might fall into regionalism unless those mechanisms are standardized and unified.
Fourth, as a positive development, rising trends of seeking innovations are worthy of strong attention. Thanks to the revolutionary progress of information and communication technology, cloud computing and big data processing are being increasingly put into practical use, bringing about major changes in the economy, industry, politics and society. It is encouraging that Industry 4.0, the Internet of Things and artificial intelligence are drawing attention from the business community. The question is whether mankind can gather its wisdom and achieve the fourth industrial revolution by utilizing those technologies to pave the way for new growth.
Fifth, also encouraging is the fact that the Asian economy is continuing to maintain its growth potential. The fundamental conditions of the Asian economy are stable despite some concerns about the China risk, declining oil prices and the confusion in stock markets. Since the Chinese government is well aware of the seriousness of the problems it is facing and is strongly promoting structural reforms, it will be able to find a way to achieve stable growth before long.
In the Asian region, value chains for processing industry are being widely established. Contributing Asian values such as diligence, discipline and economizing are being soundly maintained. TPP members including Japan, Singapore and Vietnam will surely play a leading role in promoting these values and growth will be accelerated with the expansion of the TPP and the creation of the RCEP. In this connection, China’s cooperation is important.
As mentioned, negative and positive factors are mixed together in the world. If positive factors could be increased and negative ones rectified, we will be able to lay the foundation of a new age. The wisdom of humanity is being tested.
Shinji Fukukawa, a former vice minister in the Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) and president of Dentsu Research Institute, is currently senior adviser to the Global Industrial and Social Progress Research Institute.