Of course, the purpose of the workshop as far as Cantor and I were concerned was to explore the inescapable reality that Developing Asia was going to need a lot of money to finance a doubling of its energy demand in a mere generation’s time. This was the second workshop in the New Rule Sets Project. The first was on energy, and we billed that one as the “motive,” as in, “Asia’s gotta have it!” This second workshop would be about “opportunity,” as in, “Who’s gonna pony up the money?” The third event would be about the “crime” of all the environmental damage that might result. Motive, opportunity, and crime all coming together in a neat little package. We made no assumptions about China’s bad intentions one way or the other, but we knew, to borrow a phrase from West Side Story, that if China ended up acting “depraved” it would be “on account of being deprived.” So nothing personal, strictly business. China had needs, and we wanted to see those needs met, because we knew how hard it might be for them—and by extension us—if those efforts fell short.
Naturally, not everyone felt the same way about China in my business as the new century dawned. In fact, the entire Pentagon strategic planning community was refocusing most of its vast energy to contemplating and preparing for war with China in some distant future scenario. We were hiring China experts by the barrelful. All our war games pretty much had to involve some unnamed large Asian land power with an unhealthy interest in a small island nation off its coast, otherwise they wouldn’t get approved. Hard thought was being given to reconfiguring our military presence in Asia to counter rising China’s influence. The Defense Department may have been very circumspect in its official documents about that unidentified “peer competitor,” but inside the Pentagon they were deep into planning the next Cold War.◈
Every Pentagon review was saying the same thing: the future of war would be Asia, and America would need a new generation of long-range weapons to counter China’s military power.◈ This push started under the Clinton Administration and picked up speed only when the transformation advocates of the Bush Administration took control of the Pentagon. The new Defense Secretary, Donald Rumsfeld, had participated in recent blue-ribbon panels on the future of space warfare and missile threats, and he knew exactly where America needed to refocus its strategic military planning: Asia. You want to know about the “intelligence failure” of 9/11? There was none. We simply were focused on the wrong part of the world, on the wrong type of conflict, and the wrong enemy. The intelligence community was doing exactly what the political leadership in both the White House and Congress wanted—find us a familiar enemy. So the Company sent three spies to watch our workshop on the future of investment in Asia.
These guys probably weren’t spies in any real sense, just analysts who obviously worked some very hush-hush subjects. But their “I was never here” shtick posed some problems for my little gathering atop World Trade Center One. Bud Flanagan and Phil Ginsberg of Cantor Fitzgerald always had a hard time convincing Wall Street executives to show up for these events, because these guys are more secretive than the CIA about their future plans, and most were more than a bit uncomfortable having Pentagon strategists and Langley intelligence officers in the room while they discussed strategy. As one CEO put it to me over drinks after the workshop, “I’m not looking to provide these guys with future targets, because that’s an awful lot of my money going into that facility in China.”
Of course, the whole point of the workshop wasn’t to generate target lists but to get two very different cultures in the same room, discussing the same subject. Both the Pentagon and Wall Street had China in their sights in the year 2000, they were just thinking about projecting different sorts of power into the region. While the Pentagon dreamed of long-distance push-button missile wars with China, Wall Street fretted over long-term foreign direct investment triggering rule-set wars with China. Both, quite logically, were concerned about the same downstream outcome: China on the outside of the emerging global system, looking in. The Pentagon assumed that China would never be able to adjust its rule sets enough to truly integrate with the Core, and even if it did, that Beijing’s Communist leaders would only pursue that outcome to grow their military capabilities for the seemingly inevitable clash of civilizations. Wall Street, however, viewed China as running a juggernaut of rapid economic development that either would pull them dramatically into globalization’s Core or spin them out of that rule set into some universe of their own, like “capitalism with Chinese characteristics,” or “the Asian way.” Wall Street was, in its own way, just as concerned as the Pentagon about China pursuing a separate path, because they feared an opportunity for expanding globalization immensely might be lost in the process. The Pentagon, not surprisingly, saw its opportunity materializing just as Wall Street’s would disappear.
Cantor Fitzgerald, in particular, was concerned that Asia hadn’t cleaned up its act following the Asian Flu of 1997-98, when the region’s penchant for cronyism and cozy banking relationships between the government and private sector was revealed as a major weakness in the financial order there. In this regard, fellow Old Core member Japan was more part of the problem than of the solution. Bud and Phil’s point going into the workshop was that Asia tended to self-supply its foreign direct investment to a high degree, meaning Asian investments mostly stayed home in the global economy. Because the Asian nations mostly invested in one another, no outside rule set challenged the crony capitalism rife there.
Investment flows from the United States and Europe, as best as could be estimated, represented no more than a quarter of the money behind the Asian miracle of the last twenty years—crucial, but not decisive in changing rule sets. If Asia was going to double its energy consumption in the next twenty years, it would need a ton of Western money to pull it off. That necessary flow would dramatically increase the influence of European and American financial houses in encouraging better economic rule sets throughout the region. In our workshop, participants estimated that the combined U.S.-European share of FDI going into Asia in coming years should logically double from its current level of 20 to 25 percent to at least 40 to 45 percent.◈ So the opportunity, in Bud and Phil’s vision, was to cement China’s membership in the Core by satisfying its insatiable demand for energy over the coming years. Naturally, that sort of vision appealed less to Pentagon strategists, because if China was truly integrated, they would lose their much-hyped near-peer competitor.
Why is foreign direct investment so important in this regard? Unlike commercial bank loans or financial flows in or out of stock markets, FDI is real ownership signaling long-term commitment. It involves foreign ownership coming into a national economy and, by assuming equity control over firms they either buy or generate from scratch, importing new rules that basically say, “This is how we conduct business.” By its very nature, FDI involves a clash of cultures, but instead of the massive strategic exchange of arms envisioned by some Pentagon strategists, this clash is played out over countless business deals, planning meetings, and regulations issued.
Foreign direct investment is Wall Street’s way of saying “China belongs on our map, not the Pentagon’s.” In return, all the Pentagon needs to do is focus on deterring any near- or mid-term scenario that could destroy the investment climate, so, yes, we do need to pay attention to India and Pakistan, China and Taiwan, and the Koreas.
Let’s talk some numbers.◈ The cumulative flow of foreign direct investment around the world over the course of Globalization II (1950-1980) and Globalization III (1980 and counting) has been on the order of $7 trillion. But rather than talk actual dollar amounts by region, it is more revealing to speak about the percentage spread, as in “Who’s attracted the most money over time?” and “Who’s sent the most money over time?”
When we talk about where the money has gone over the decades, it has flowed primarily to the regions lying outside the Gap, as North America (24 percent), Europe (39 percent), and South and East Asia (21 percent) have attracted over four-fifths of the long-term in
vestment. In contrast, the long-disconnected Soviet bloc has attracted a mere 3 percent (almost all since 1990), but even that small amount puts it ahead of the Middle East and Africa (2 percent for each). Latin America has attracted the rest (9 percent), with the vast bulk going to Core members Argentina, Brazil, and Chile. Put in Core-Gap terms, around one-third of the population (the Gap) has had to get by on barely one-twentieth of the money made available by the global economy for long-term investment.
When you examine the flip side of that flow, or who has money available for investment outside its borders, the Core-Gap distinction gets even more profound. Three key pillars control the vast bulk of long-term investments. Not surprisingly, these three constitute the Old Core of Globalization II: the United States, the (now) European Union, and Japan. This relatively small slice of the global population (approximately one-eighth) controls over four-fifths of the money. If you want to join the Core, you must be able to access that money—plain and simple.
That fundamental reality of the global economy explains why we won’t be going to war with China. The Pentagon can plan for it all it wants, but it does so purely within the sterile logic of war, and not with any logical reference to the larger flows of globalization. Simply put, those flows continue to reshape the international security environment that the Defense Department often imagines it manages all by its lonesome.
Let me paint you the same basic picture I love to draw each time I give my brief to Pentagon strategists and, by doing so, give you a realistic sense of what China would be up against if it chose to challenge the United States-led globalization process using military means.
China has to double its energy consumption in a generation if all the growth it is planning is actually going to occur. We know where the Chinese have to go for the energy: Russia, Central Asia, and the Gulf. That’s a lot of new friends to make and one significant past enemy to romance (Moscow). But Beijing will pull it off, because they have no choice. To make all that energy happen, China has to build an amazing amount of infrastructure to import it, process it, generate the needed energy products, and deliver it to buildings and vehicles all over the country (though mostly along the coast). That infrastructure will cost a lot, and it’s common when talking to development experts to hear the “T” word—as in “trillions”—casually tossed around. Where is China going to go for all that money? Certainly, it will do what it can on its own, thanks to its booming exports. Certainly, it will tap its biggest trade partner, Japan, for all it can. But when it really wants to tap the big sources of money, there are only two financial communities that can handle that sort of request: Wall Street and the European Union. So when you add it all up, for China to get its way on development, it needs to be friends with the Americans, the Europeans, the Muslims, and the Slavs. Doesn’t exactly leave a lot of civilizations to clash with, does it?
The importance of this momentous but ongoing historical achievement cannot be overstated: the shift from Globalization II to Globalization III is a shift from a small minority of the world (basically one-tenth) enjoying globalization’s benefits to roughly two-thirds of the planet joining the party.
So tell me, if you are a George Kennan, or any one of the other wise men from that time long ago, and you were smart enough back in the late 1940s to target Europe and Japan for integration into a revived global economy, whom would you target today? Half the world’s population in Developing Asia, where economies are growing rapidly and energy demands are skyrocketing? Or would you work to keep such potential “peer competitors” at arm’s length?
And that, my friends, is how you make a roomful of Cold Warriors cry.
The Flow Of Security, Or How America Must Keep Globalization In Balance
There are many different ways a superpower like the United States goes about making other states feel more secure. Sometimes exporting security means training their future military leaders at our schools, like the Naval War College. Other times it means having our ships visit their ports, to let them know—like a cop walking the beat—that we are there when they need us. Still other times, it means setting up shop in their neighborhood, stockpiling some of our equipment and supplies, telling them we are ready to help out if anything really bad happens. Sometimes those really bad things do happen, and then we use all of our influence with the involved countries to deal with the situation as best we can. In this way we stop wars from happening.
That is exporting security. It consists of America giving the world something we have in abundance: a belief in the future. It is a wonderful gift, and frankly, only the United States has either the wherewithal or the generosity to actually provide it. It is one of the best things we provide the planet, and it has changed the course of human history for the better.
This exporting of security is, in large part, nothing more than a by-product of the U.S. military’s continuous worldwide operations. We are the only military in the history of the world to possess a planet-spanning command scheme. But exporting security is also done on a person-to-person basis, across countless exchanges, meetings, and conversations. In short, it’s a people business as much as a platform business—as much face-to-face as aircraft flyovers and carrier port calls. I know this, because I have personally engaged in this sort of business myself over the course of my career, and once that activity took me all the way to the historic port city of Bombay, known today as Mumbai.
I visited Mumbai in spring 2001 to represent the United States along with a vice admiral (Commander, U.S. Seventh Fleet) at the first-ever International Fleet Review held by the Indian Navy. The Indian Navy was fifty years old, and this was basically its coming-out party, because, in the Indian way of looking at time, five decades as a navy was only about halfway to adulthood (i.e., they believed a navy took a good century to mature). The five-day mega-event involved eighty ships from twenty different nations and more parties and concerts than I can remember. It was like being in Washington, D.C., for the bicentennial, because the entire city of Mumbai, which is bigger than New York City, was completely turned on for the celebration.
Before leaving for India, I asked several of my fellow professors to “murder board” my PowerPoint brief, meaning I rehearsed the brief in front of them and they critiqued my performance and content. The advice I got was quite sound, but nonetheless wrong.
My colleagues warned me that my usual briefing style of speaking rapidly and using lots of jargon would go over the heads of the hundred or so admirals in attendance. Virtually all would know English, but my delivery style would confound them. So I prepared to speak more slowly and simplify the brief. But when I ascended the stage weeks later in Mumbai, I got so excited standing there in front of several hundred naval officers from around the world (including twenty chiefs of navies), that I forgot all that advice and gave my usual brief.◈
It seemed to go well, and my Indian hosts declared it the highlight of the symposium. What they especially liked, of course, was that it highlighted India as a crucial military partner of the United States.
I then spent the rest of the five-day event receiving compliments from the heads of all the navies, and here is where I was taught a real lesson. Contrary to my colleagues’ fears, all these foreign naval leaders understood my talk completely, judging by the detailed nature of their praise for the material and their extremely intelligent counterpoints.◈ I was both pleased and quite stunned by the response. How could all these admirals follow my inside-the-Beltway material so well? The answer was simple: Most had studied in the United States, with almost half of them being graduates of the Naval War College. I wasn’t talking to a bunch of foreigners; it was more like a college reunion.
Even more amazing than that were all the conversations I had with those admirals about naval history, or—more specifically—the role of carriers in naval power projection. None of these Gap navies has ever owned any carriers, and yet all these admirals just loved going on and on about the “age of the carriers” as though it were a shared histor
y. Of course, in a way it was a shared history, because the U.S. Navy and its carriers have interacted with friendly and not-so-friendly navies around the world for decades. That’s exporting security: when your military history and their military history are so blended that it is like you are part of the family. You are a known commodity, a trusted friend.
Why is this shared history so important? Most Americans just do not understand what a huge disparity exists between our military capabilities and those of the rest of the world. We really own the only global military, whereas everybody else pretty much has just national or, at best, regional militaries. If we are not out there using our military to export that security, these bonds will simply never be created.
This fundamental reality was made greatly apparent to me when the President and Prime Minister of India conducted their “review of the fleet” in Mumbai harbor, zigzagging past all eighty ships in rapid order on their “presidential yacht,” which was really an Indian Navy frigate gussied up for the event. The bigwigs sat up front on the bow, I sat in the cheap seats at the stern. In such a review, it is impossible not to notice that, compared with the United States, the rest of the world’s navies are simply the equivalent of our Coast Guard. The United States owns the only blue-water navy in the world. The size disparity in ships was so great that when we finally passed by the sole U.S. Navy ship in the review, a mere guided-missile cruiser (one of our smaller surface combatants), I almost fell off my chair. It was substantially more impressive—not to mention simply bigger—than every other ship in the review. It was as if we had been reviewing a line of Coast Guard cutters and then all of a sudden this gleaming bruiser loomed over us. Everyone on board took out cameras at that moment and snapped pictures.
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