Like the child who realises that her parents were joking when they said she was their favourite, people all around the world are coming to the life-changing realisation that their nation’s relationship with the United States was not really “special”.
Not Australia, or Canada, or Britain, or France, or Germany, or Japan or the scores of others that for decades believed that they had a unique, protective and lucrative relationship with the “most powerful country ever in recorded history”.
It has come as a shock everywhere, poll after poll reveals that trust in the US has collapsed and leaders are frantically trying to recalibrate.
But to what?
There is no rulebook. Gillian Tett has described the changed approach emanating from the White House as a terrifying game of “revenge politics and the punitive measures and the beggar-thy-neighbor” approach to economics.
Tett is worth listening to. She is the Financial Times commentator who predicted the global financial crisis, and later wrote the bestselling Fool’s Gold about the 2008 collapse that revealed the fractures beneath an economic system based on finance not manufacturing.
That crisis revealed a naked emperor. But in country after country, most of the emperors sitting in their glass towers in financial districts continued as though nothing had happened, without punishment. The system was deemed too big to fail and their companies received generous bailouts.
It was ordinary folk who lost their homes and savings and were forced to endure wrong-headed austerity policies that simply made life harder and further weakened public trust.
Over the following 17 years, a small number of billionaires grew ever richer and more influential. As America strives to become even greater, the threats of another global collapse looms.
Australia managed the 2008 crisis better than most nations, because of forward thinking, targeted intervention by a proactive government and the seemingly insatiable Chinese need for iron ore.
It will be a test to see which countries are the nimblest when it comes to the recalibration that is now needed.
As Tett, who is also the provost of King’s College Cambridge, observes: “Every single person assumes that the intellectual framework they grew up with and built their careers around is natural, normal, inevitable and should be universal. That’s just the nature of being human. And everybody is wrong. Ideas change over time. They go in fashions or cycles.”
The current generation of policymakers and business leaders have grown up with strong faith in the market, in a globalism based on assessments of national comparative advantage and regulation by internationally accepted rules.
So now they throw their hands up in horror and point to established economic theory and expostulate that tariffs don’t work, that government services are essential and point to legal and political theory that demonstrates why a rules-based system has on balance for 80 years served most of us well.
Critics have been pointing to the flaws in the global neoliberal system for years, highlighting the increasing levels of inequality, the hollowing out of economies based on narrow definitions of comparative advantage and environmental destruction.
But efforts to devise a new model have been slow and unproductive, despite increasing public unease. Those who have done best out of this system will not easily give up. Donald Trump’s courtiers were involved in these bubbling discussions, but from a different perspective. They have developed thick skins from being outsiders whose ideas were marginalised and shouted down.
They now have access to power and have pushed the economic discussion into uncharted territory with a president ready to sign another executive order. They are not interested in making the system fairer. Their goal is to make America great, their strategy to reset the global financial and trading system, and their tactics bullying with tariffs, threats and military power.
For the past 150 years America has been a dominant power. Despite only having about 5% of the world’s population, it has consistently accounted for about a quarter of the world’s economic output. Over that time the guiding paradigm of economics and social organisation have changed, as old models imploded, or collapsed with war.
Australia has been adept at responding to changing economic paradigms. It developed a national ethos that moved beyond a colonial mindset at the beginning of the 20th century. Its economists were at the forefront of developing what became known as Keynesianism to use the resources of the state in conjunction with private industry to maximise public benefit, and when this model ossified Australia developed what was referred to as the third way, an approach to deregulation and privatisation that actively balanced interests but has weakened over time.
The question is whether there are the intellectual and capital resources to do so now. Australia is still one of the richest countries in the world but the economy is now one of the least diverse and complex. Our comparative advantage in resources remains but we have not been as attentive as we should to our comparative advantages in education, research, democratic institution building and fostering equality of opportunity and income.
Just like those adult children who discover they were not the favourite find new ways of working together, nations will need to find new ways to collaborate without a manipulative parent in the room.
