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Obama and the Rise of the Rest

A South Korean woman watches an election broadcast on TV on November 5, 2008 in Seoul. (Chung Sun-Jun/Getty Images)
by Stephanie Valera
5 November 2008

by Zachary Karabell

NEW YORK, November 5, 2008 - Elections in the United States usually
produce a brief period of euphoria; the public sense of renewal, of the
possibilities of the future, and the periodic affirmation of democracy
act as a shot of adrenaline, though of course the effect is much
diminished for those whose candidates lost.

year, however, the palpable relief and celebration will be tempered by
the widely shared sense that all is not well in America. The economic
data is almost uniformly bleak and will not get better soon, and while
national security issues appear less pressing just now, they have
hardly disappeared given the tenuous situation in Afghanistan and
Pakistan and the unanswered problems in Iraq, Iran, and North Korea.
And unlike earlier decades when the world was in flux and the new
president was faced with deep challenges, the power of the president,
and of the United States, has undergone dramatic shifts in the past few

Until recently, it was possible to speak of
the rise of the rest without forecasting a decrease of American power.
Now, however, with the U.S. military at its limit in Iraq and
Afghanistan and the U.S. fiscal position weakening, the United States
is confronted with choices that it must make. That is an unfamiliar
position for a new U.S. president. Even in the darker years after
Vietnam in the late 1970s and early 1980s, there was a sense that
America could still make its economic choices without much reference to
the world at large. That was the privilege of having the largest, most
dynamic economy that acted as a world creditor. No more.

is no small irony in the fact that on November 15 the outgoing
president, George Bush the unilateralist, is hosting a multilateral
conference in his lame duck period to discuss reshaping the global
economic system. It also speaks to the relative position of the United
States that even the less-than-organized ministers of the European
Union acted more quickly to create a floor for the financial crisis
than did the president and congress in the United States. And it speaks
volumes to the changing world that as panic recedes and the wreckage is
revealed, Asia in general and China in particular are emerging as clear

The credit crisis exposed the flimsy
foundations of the sustained growth in the United States and Europe
during the past four to five years. While many had noted the
extraordinary wealth transfer to both oil producing states and to
China, the implications of that were not fully appreciated until now.
It isn’t just that the United States has become a debtor nation; it’s
that large pools of capital and liquidity now reside in places like the
Gulf region and China with no sign of that trend reversing. In fact,
the current crisis has even put Japan, which has spent nearly two
decades in the doldrums, in a position of relative strength given it
large currency reserves and the cleaned-up balance sheets of its major

There was a brief period in the 1970s
when a similar transfer took place. But unlike then, the countries that
are accumulating the capital are spending it not on consumption –
remember the endless picture of Saudi princes buying up real estate on
the Riviera – but on investment, infrastructure, education. Yes, there
are bubbles here and there, whether it is real estate in Shanghai and
Dubai or stocks in Mumbai, but there has also been serious long-range
planning that is likely to position these countries in a strong
position for years to come. Even China, which is trying to shift its
economy more toward consumption to be less dependent on capital
spending, has put in place an infrastructure of roads, power grids,
ports, and railways that will serve its domestic economy for decades
even as it can use it $2 trillion of reserves as a cushion when the
U.S. and global economy sag. China may slow as its exports to the U.S.
and Europe weaken, but it is less dependent on those for growth than
most people assume.

The talk now is of a global
recession that will be steep and prolonged. Perhaps, but the more
likely scenario is continued stagnation in the United States and Europe
and a more accelerated shift towards Asia. Few parts of Asia are
structurally exposed to the credit implosion, and the balance sheets of
Asian banks and companies are on the whole cleaner than their
counterparts elsewhere in the world. Yes, many companies took on too
much debt, and some countries, such as Korea, are more compromised than
others. But China, which is the anchor, is not, and in a world where
everyone else is falling down, the one left standing is that much

The United States will remain a powerful
part of a global system, but the task of the new president is to
recognize lasting strengths and accept new limitations. President-elect
Obama has shown pragmatism and realism, and seems to understand that
acceptance of limitations isn’t weakness; refusal to acknowledge
reality is. Let us hope that he can retain that wisdom as he and the
country are plunged into the hard work that lies ahead.

Zachary Karabell is the president of River Twice Research and and associate fellow at Asia Societ.

Copyright: Project Syndicate/Asia Society