Asia's problem a thorn in American global power

Asia's problem a thorn in American global power

By John Gray

LONDON: Asia's gathering depression is opening up widening
cracks in American global power. Wall Street views Asia's crisis
as the fire sale of the century -- a once-in-a-lifetime
opportunity to buy up sizable chunks of its economies. It expects
the crisis to end with the spread of the free market throughout
Asia and a continuation of America's spectacular boom.

In reality, the U.S. is deeply vulnerable to worsening
economic conditions in Asia and control of events is shifting to
the Asian countries themselves. Far from inaugurating an era of
American hegemony, the Asian depression may come to be seen as
heralding its close.

The shift in relative power is well illustrated by President
Clinton's current nine-day visit to China. Many purposes have
been advertised for Clinton's trip, but its overriding objective
must now be to forestall another devaluation of the Chinese
currency.

Such a move by the Chinese government would have incalculably
destabilising implications for the world economy. It could plunge
the rest of Asia into a vortex of competitive devaluation and
trigger a protectionist backlash in the U.S. Yet, though it
appears to have succeeded in extracting an assurance from the
Chinese government that it will not devalue, there is in truth
very little the U.S. can do to stop it.

If China devalues it will be in order to stave off the risk of
domestic unrest. China's rulers must have watched events in
Indonesia with considerable interest and not a little foreboding.
The fall of the Soeharto regime has shown them that even a long-
standing authoritarian regime can be toppled suddenly by economic
crisis.

With the privatization of state enterprises about to result in
a shake-out of tens of millions of workers and the economy
showing ominous signs of deflation, China's government will do
everything in its power to prevent the numbers of jobless
spiraling out of control.

No inducement that President Clinton can offer as he arrives
bearing tributes in Beijing can match the threat to the survival
of its rulers posed by rising unemployment.

The U.S. lacks the means to prevent a Chinese devaluation. But
this is only a particular example of a more general truth.
America can no longer dictate the policies of other sovereign
states as it and the USSR did, with varying success, during the
cold war.

The international system has become too anarchic for any state
to be able to act as a superpower. Despite President Clinton's
anguished pleas and the threat of economic sanctions, the U.S.
has not been able to stop nuclear proliferation on the Indian
subcontinent. Even America's leverage over economic policy in
Japan is quite limited. If China devalues there will be little
the U.S. can do to stop Japan letting the yen slide.

Asia's crisis shows how narrow are the limits of American
power. Yet these limits are largely not noticed, or denied, in
the U.S. American public opinion has not yet perceived any threat
to the country's prosperity in the Asian meltdown.

Led by Wall Street, it sees Asia's crisis as proof of
America's triumph. Indeed it is partly this faith that sustains
America's booming markets. Wall Street's sky-high share prices
have come to embody the American faith that the U.S. is exempt
from history.

When that illusion is punctured by the knock-on effect of
depression in Asia, American markets could suffer an historic
rout.

Where does this leave Britain? Waning American power points
towards deeper British integration in Europe. In stabler times
Britain's dithering about EMU might be defensible. When the world
economy is at risk it is reckless. The next leg of the Asian
crisis could have a sharply recessionary impact on the British
economy.

To wait on events is not sensible. The British government
should make an unequivocal declaration of its intention to join
the single currency. The euro zone faces some formidable problems
and it cannot hope to insulate itself from global markets. But it
will be a safer place to be when the U.S. bubble bursts.

-- Observer News Service