Monday, 28 November 2016

Europeans Confront a New, Zero-Sum World

In World Economy News 28/11/2016

Europe is being buffeted by internal and external forces that are calling into question long-held assumptions about the benefits of international cooperation.
Weak growth has encouraged zero-sum thinking inside countries: When economies aren’t growing, more for one group automatically means less for another. With voters’ economic boats no longer rising, many have turned to nationalist politicians.
In international relations, meanwhile, zero-sum attitudes toward Great Power politics appear to hold increasing sway.
For a while after the end of the Cold War, Europe found itself in an unprecedented period of plenty. With conflict with the Soviet Union out of the question, European governments quickly scaled back their spending on defense, generating a “peace dividend” that allowed politicians to avoid making hard decisions about distributing the economic pie.
But since 2008, the zero-sum world returned with a vengeance. The financial crisis hit growth across the West, but the damage lingered longest in Europe. That was also the year Russia invaded the former Soviet republic of Georgia. Since then it has become increasingly clear that Russia’s leadership no longer views—if it ever did—the security of the West as good for the security of Russia.
For a while, Europeans saw Russia’s zero-sum view of its own security as a throwback to an earlier age of Great Power geopolitics and hoped it would pass. Now, Europeans are facing an even more fundamental question over whether the next president of the U.S. sees the world through a similar lens. Some of Donald Trump’s campaign rhetoric has raised questions over the continuation of the liberal global order that the U.S. has created and overseen since World War II.
In comments on trade, where he called for dismantling trade deals and increasing tariffs to reduce the U.S. trade deficit, and on defense, where he has suggested the U.S. security umbrella over European countries is conditional on their spending on defense, Mr. Trump has sounded like a zero-summer.
Mr. Trump’s suggestion that the U.S. trade deficit is a bad thing isn’t held by most modern economists, who see it as a vestige of an age when piling up gold in the king’s coffers was viewed as a measure of national strength.
These days the U.S. finances its deficit by giving foreigners electronic credits denominated in U.S. dollars, so most economists don’t worry too much about it. But Mr. Trump and his followers do.
Simon Tilford, deputy director of the London-based Centre for European Reform, a pro-European Union think tank, says that people voting for Brexit in June’s referendum took for granted that the U.S. would continue to underwrite the global trading and financial systems as well as global security.
These, Mr. Tilford points out, are what economists call global public goods. Among the characteristics of public goods is that the marginal cost of allowing another person to benefit from them is zero. Take a publicly funded bridge. If one person uses it, it doesn’t prevent another from doing so. In fact, both efficiency and welfare are maximized if as many people as can comfortably use it, do so.
The U.S. provides these global goods because it is also a major beneficiary of them. It provides them because successive administrations since World War II, both Democrat and Republican, haven’t seen the global economy, finance and security as zero-sum concepts.
“Trump is no economic liberal and does not appear to understand how global institutions and norms crafted by the U.S. serve its interests,” Mr. Tilford wrote. “He may only last one term in office, but the U.K. cannot afford to assume that Trump’s presidency is just a temporary hiatus before normal service resumes.”
Not only the U.K. The message from Mr. Trump’s election is reverberating more widely across Europe, which has been perhaps the greatest global beneficiary of the U.S. order.
The zero-sum world looks to be closing in on Europe’s political leaders. They may believe that Mr. Trump’s mooted solutions would create worse outcomes for everybody than the problems he has identified. But they should surely prepare for the possibility that he, or a successor, will act on at least some of them.

Source: Wall Street Journal