The power of nations

By Aaron Friedberg

Philip Zelikow’s interesting posts on the incoming administration’s plans for economic recovery point to another set of issues that is worth thinking about. What is at stake in the current crisis is not only the wealth of nations but their power. When the smoke clears, some countries are likely to find themselves weaker than they might otherwise have been, while others may actually come out stronger.

It’s easy to see a number of ways in which the U.S. position could be weakened by recent events. A prolonged recession may fuel protectionism, strengthen isolationist sentiment, and in general cause us to pull back from the world. This impulse may be strengthened by the fact that huge fiscal deficits and demands for big new domestic programs will put significant downward pressure on defense budgets and foreign aid. While the crisis has boosted demand for the dollar in the short run, in the long run its appeal as the world’s reserve currency is likely to dwindle. Finally, in the "soft power" department, our national reputation for economic competence has obviously been tarnished, and some have suggested that the U.S. model of free-wheeling capitalism has also suffered long-term damage.

Because power is always relative, however, it’s important to look at the other side of the equation. China might appear in certain respects to be the country that stands to gain most from our troubles, but, at least in the near-term, it may face even greater challenges. Plummeting demand for Chinese exports is slowing growth, forcing factory closures and boosting unemployment. Violent protests over lost jobs and unpaid wages, already common, are likely to become even more so. The next few years will test the ability of the Beijing regime to ride out an extended economic downturn without major political instability.

One beneficial, albeit temporary, consequence of the global economic slowdown has been a fall in the demand for, and price of, oil. This could lessen Russia’s ability to flex its muscles and intimidate its neighbors. Ditto for Venezuela.

Most interesting, and perhaps most promising, is the case of Iran. Falling oil prices have hurt its already ailing economy, damaged the political prospects of its present government and may just possibly render it more vulnerable to a coordinated campaign of international pressure to force it to abandon its nuclear program. Ironically, and unexpectedly, the world economic crisis could wind up presenting the United States and its European allies (along with Russia, Japan and China, if they can be brought into line) with their last best chance to stop Iran from getting the bomb. The Obama administration would be well advised to seize this opportunity.