The Changing Balance Of World Power

Note to a foreign policy meeting under Chatham House rules, 21 June, 2010.

Keywords: Globalisation & Trade; Political Economy & History;

The central thesis of my paper is that the balance of world economic power is changing dramatically. The shift reflects the world economy shifting back to the pattern of the eighteenth century and earlier where manufacturing activity was located near populations, rather in the privileged locations of Europe and North America as occurred in the nineteenth century and much of the twentieth. The prospect in the twenty-first century is that tradeable activities will be increasingly where the population is. Half the world’s population is in Asia.

While not relevant to today’s seminar, the implications for New Zealand’s economic (and therefore social)  development and direction is likely to be enormous, pushing us back to being a food and fibre supplier to the world and challenging the very foundations of the left’s account of New Zealand.

As far as foreign and trade policy is concerned, since political power ultimately reflects the size of the economic surplus, the balance of political power is changing. But it is not one hegemon replacing another. Rather, we are entering a multipolar world. That provides an enormous challenge to a small country with no obvious patron, such as New Zealand.  That challenge is going to dominate our foreign policy for the next few decades – we have been implicitly working on it for the last few.

The circulated propositions are struggling with these issues. I want to disagree with, or modify, the second. New Zealand’s economic destiny does not lie with Asia. It is certainly true that Asia is going to play a far more important role in the economy than it did the nineteenth and twentieth centuries. But we would be very unwise to rely on a single region or to give up well established markets in Europe, North America and Australia or the promising markets in the rest of the world. Diversification of markets and products will remain an imperative for New Zealand.

However I agree with the rest of the proposition’s sentiment that we need a sophisticated engagement with Asia (and elsewhere). As a footnote we need to avoid being the passive trader we were in the past, dumping commodities into markets. Active trading requires vertical integration into offshore markets, and that involves complex understandings and related links in diplomacy, academic, sporting and culture – an understanding which is not just among the elite but necessary from every citizen.