US and us

These small signs portend a big, frightening possibility for a country like India. Russia, Iran, Venezuela are hydrocarbon-rich nations ruled by illiberal, anti-democratic or faux democratic regimes who want to invest their oil and gas money to increase their clout. In itself this is not shocking. Money is the most basic source of power and nations who can command resources have always projected power. The question is: what kind of power?

Geopolitics is complex, as strategic experts keep telling us. But it lends itself to a few simple rules of thumb. One of them is that power-projecting rich democracies with strong and independent private sectors are a better bet than power-projecting quasi-dictatorships where the state has ten fingers in every economic pie. It’s a question of what powerful nations want to export — the second group has nasty regimes that want to export nasty ideas and are able to nationalise economic resources in that pursuit.

Actually, this should be obvious. But in India and around the world, it isn’t. Say, you are a well-informed, politically and economically left-of-centre Indian who dislikes George Bush and think the Iraq war is a grotesque abuse of power. Would you therefore want a nuclear-armed, unrestrained Iran ready and able to export its ideas? Would you want an uber-nationalistic “Putinised” Russia to act as the bully boy? Would you want a Latin American military strongman to define the rules of engagement with the West?

These regimes, if they can, will use their hydrocarbon advantage ruthlessly and a country like India will suffer. India needs energy to grow and it needs a reasonably stable international environment for energy cost to be bearable and for energy supply to not be erratic. India doesn’t have the power to guarantee this, far from it. This can only be guaranteed if the world, bluntly put, is policed by a major democratic power. Western Europe can’t police it because it

doesn’t have the political architecture. That leaves America. A liberal democracy like India engaged in upgrading its capitalism but as yet unable to influence others’ actions should want another capitalist liberal democracy with enough power to act as the guarantor of minimum order.

Notice that the case for India to want an America not weakened by the financial crisis can be made without bringing China into the equation. Bring China in, and it becomes an absolute no-brainer. But many people in India’s thinking classes still don’t get it. Thankfully, two successive prime ministers from two different parties got it. Parenthetically, let’s observe this is one of the reasons India must have a government that’s either Congress-led or BJP-led.

What kind of an America will India’s next government (hopefully a Congress-led or a BJP-led one) deal with? Barack Obama and John McCain have no plans on giving up America’s primacy. But whoever gets elected will have to understand that the first trick to keeping America’s geopolitical influence intact will be keep the confidence of the world in America’s financial system.

America has been able to run two deficits, in its budget and trade accounts, because governments and private investors around the world have kept their faith in the quality of America’s financial assets and their confidence in America’s currency. The dollar, remarkably, hasn’t been battered as America suffered a financial crisis. This is in part self-interest on the part of non-American economic agents who hold dollars — no one flush with dollars wants to start a run on the dollar. But in part it reflects a vote of confidence in America’s ability to deal with the crisis.

Note, in this context, that other major economic players have been equally or more affected by the financial crisis. Much has been said about American banks’ mad risk taking. But European banks on average lent 1.4 euro for every euro they had as deposits. American banks lent 96 cents of every dollar they had as deposits. That’s just one statistic among many that explain why Europe is seeing bigger and more numerous bank failures than America. And Europe has a problem — the euro area is not politically or administratively structured to arrange for a full coverage bailout. Efforts to put together an American-style euro area bailout have failed for now and European nations are arranging separate rescue packages, which may be less efficient and which in any case will weaken the idea of Europe as an effective economic entity. Note, too, that Russia’s and China’s stock markets have fallen by more than America’s since the crisis deepened over the last month and a half.

So we may see a rough repeat of what happened after the oil shock led the West into stagflation in the 1970s: America is affected by the crisis, but other major players are affected probably even more, and their capacity for remedial action seems less than America’s. In relative terms, America emerged stronger geopolitically after the oil shock. The same may happen this time. Certainly, shifting confidence from the dollar to the euro when euro-nations are bickering in the midst of a crisis seems an odd choice.

So chances are that post-crisis America will emerge with its geopolitical pole position intact. Indians don’t have to love Bush or America to wish for that. They only need to love their country.

saubhik.chakrabarti@expressindia.com