The British are Doing What the Turks Should Have Done

Güven Sak, PhD

TEPAV

17/03/2015

The highlight of the last week came from beyond the ocean. The headline of the Financial Times last Friday was “US attacks UK’s ‘constant accommodation’ with China.” According to the story, the Americans were disgruntled by the UK’s approach to China.

Nowadays China is pushing to open the Asian Infrastructure Investment Bank (AIIB) to rival the Washington-based World Bank. The UK got involved in the process, along with a number of Asian countries. And that’s why the Americans are angry. Newspapers highlight that more caution is needed in engaging a rising global power. Meanwhile, some Chinese officials were hitting back saying that what Britain did was just a declaration of will for being a founding member of the AIIB and that the final decision would not come until the end of March. My favorite comment came from Li Yunlong, professor at the Central Communist Party School, who wrote on his blog that “the AIIB has actually managed to sow discord between the US and UK,” and that “Britain can no longer be bothered with the US and is using the AIIB to betray its master.” The Chinese are either disregarding Deng’s advice to “hide your brightness, bide your time” or think now is their time. The issue is pretty serious but is it, actually? What is in for Turkey? What is going on with the world?

Let me start with the third question. The economic center of gravity of the world has been moving from the middle of the Atlantic towards the east of Turkey. Soon enough, western China will become the new center of gravity of the world economy. For those interested in this sort of thing, I recommend you read Danny Quah of the London School of Economics. How to rule the world, on the other hand, is still decided by a governance system that was built in the wake of WWII. The United Nations Security Council has five permanent members: the US, France, Russia, China, and the UK. That is what Mr. Erdoğan was referring to in his “the world is larger than five” statement recently. China, as we know, joined the club after 1971. And Russia was accepted after the collapse of the Soviet Union in 1991. China has made its way into the Security Council, but it still does not have a corresponding weight in international organizations such as the World Bank or the IMF. The world’s economic center has been constantly changing since 1945; but the global system of governance is yet to transform to adapt to this change. And that’s where today’s problems mainly lie.

In fact, it wasn’t so long ago. Think about it: it was in 1971 when Henry Kissinger, then the US Secretary of State, made a surprise visit to Beijing during his trip to India. Back then, Beijing did not have a ladder to buckle on Kissinger’s made-in-USA aircraft. They had to arrange something. Zhou Enlai was China’s prime minister and Mao was alive. Then came the Tiananmen massacre. Deng Xiaoping came down to the south. Guangdong emerged as an industrial hub. During the 1990s, China moved 30 million peasants to industry a year, adding a new medium-size industrial country to the world economy per year. The economic center of gravity of the world hence started shifting to the East, and today, China is the world’s second largest economy. It has grown up to rival Germany in industrial exports. The world economy has become even more complex. So a change in global governance is inevitable. The G7 was once enough, but now, we are giving the G20 a chance. As the economic structure has changed, political and administrative structures have to follow.

Reforming the world’s administrative structure was decided years ago under the G20 mechanism. The administrative structures and the voting systems of the World Bank and the IMF, the guardians of the post-war economic system, were supposed to be altered, giving China and its peers a more equal participation in the decision-making processes. But the US Congress went back on its word. In response, China first declared that it will open a BRICS (Brazil, Russia, India, China, and South Africa) Development Bank. After that it came up with the AIIB. Meanwhile, it unveiled the Silk Road Development Fund and invested $40 billion into it.

I listened to this story a billion times in each meeting I attended over the course of the past year. Let me tell you what I saw. First, none of those mentioned were financial institutions, but funds. All seemed to be feasible as long as China was financing them. Second, no single country, including China, has the institutional and administrative capacity to make the AIIB or the BRICS Bank work. Of course the words “Russia” and “administrative capacity” in the same sentence could only be a joke. Third, exactly because of this, none of the projects made sense. It seems to me that China will wash out money in these, just as it did in Venezuela most recently. The east has the money, but the west has the knowledge. I believed that Turkey could have come up with a middle-way solution during its G20 Presidency. I thought the MIKTA (Malaysia, Indonesia, Korea, Turkey, and Australia) project was intended to pave the way. Having read this week’s news coverage however, I am feeling that the British beat us to it.

Does the world’s governance structure keep up with economic change? Yes. Will the US Congress insist on unreasonably obstructing change in the World Bank and the IMF? Yes. Is it wise to take a step to mediate between China and the US? Yes.

I believe that the British are intending to do just that. There is tide in the affairs of men, the poet said. It is tragic how Turkey always talks big but does so little.

Figure 1. A historical account of the changes in world’s economic center of gravity

Güven Sak is Managing Director of TEPAV.

This commentary was published in Dünya Daily on 17.03.2015