Walter T. Molano | From within, from without

Historians, sociologists, political scientists and economists will have a lot to analyse when they examine the past 30 years.

The turn of the millennium marked a confluence of factors and changes in the forms of global organisation. The collapse of the Soviet Union, starting in 1991, marked the end of the bipolar global order that had reigned for the latter part of the 20th century.

Although the post-war period marked an era of relative prosperity for both sides, high defence spending, the rigidities of a planned economy, the costs of maintaining a constellation of satellite states and the collapse of oil prices during the late 1980s brought the Soviet Union to its knees.

In the aftermath, the United States emerged as the hegemonic military and economic power, but internal and external forces would eventually lead to serious problems.

To begin with, instead of creating a confederation of satellite states, as Moscow had done, Washington decided to stitch together a network of political, economic and diplomatic organisations. From the International Monetary Fund to NATO to the World Bank to the United Nations, to the World Trade Organization, these organisations promoted US interests. In return, Washington subsidised them, either directly, through budgetary mechanisms, or indirectly, through favourable trade deals, tariffs and quotas.

The benefit of the system was its ability to keep the Soviets at bay. However, the USSR’s demise left the US bearing the cost, without reaping any of the benefits. The expenditures associated with being the world’s policeman, coupled with the debilitating costs of its Middle East engagements, soon became a point of rancour for the country’s electorate – something that the US allies failed to appreciate. On top of that, the favourable trade concessions made by Washington led to a relative rise in prosperity for a wide range of countries, many of them former foes, which soon became unpalatable for the many Americans who were left behind.

Misguided attempts to smooth the situation through the use of extremely loose monetary policy by the Fed, or ridiculous tax cuts for US corporations, only made matters worse. It culminated in the financial crisis of 2008 and the subsequent deterioration of income distribution.

As a result, the cost of maintaining the post-war system that had been established to check the expansion of the Soviet Union was one of the main culprits for its own demise. However, not all of the problems were internal. There was plenty of help from outside.

The poor treatment of Russia in the aftermath of the collapse of the Soviet Union was a serious mistake, which only led to rancour, enmity and a need for revenge. Instead of being treated as the prodigal son who had returned to the fold after seeing the fallacy of communism, the country’s corporate assets and natural wealth was picked apart by ‘economic consultants’ from ivy-league institutions and the leading investment banks that were ‘trying’ to modernise it.

While verbal promises were made not to expand NATO or the European Union eastward, the once shackled states begged for inclusion under the western umbrella. No attempt was ever made to include Moscow in the privileged club. President Obama even went as far as disparagingly insulting Russia as nothing more than a regional power with global ambitions.

However, Russia should never have been dismissed. A land mass that stretches 11 time zones, with an incredibly well-educated elite, brimming with the commodity windfall of the last two decades and a serious score to settle, it is no surprise that a former KGB officer would make it his mission to strike revenge.

Moscow has systematically exploited all of the West’s weaknesses, from the growing class divisions across the globe due to decades of unrestrained capitalism, to the simmering rancour in the US about globalisation, to the inherent xenophobia in Europe, to the natural propensity of populism in democratic systems, and to the security weaknesses of social media.

Armed with battalions of trolls, Moscow was able to pick apart the West’s postwar institutional network. Although their fingerprints were in plain view, the fights decayed into partisan divisions that had always lingered below the surface.

In the space of three decades, the global order has sequenced through a bipolar, then to a hegemonic and now a multipolar form of organisation. Fortunately, the global economy has held up, so far. However, the expansion is reaching an apogee and it is only a matter of time until it reverses. It could be this year or maybe next.

Nevertheless, we are in for a major economic convulsion that will mirror the general state of instability in the global order.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.wmolano@bcpsecurities.com