What are the main challenges for the United States vis-à-vis the economic rise of China? Has the American economic model been discredited by the 2008 financial crisis or is it still a credible option? What is the role of the G-20 going forward? These are some of the critical questions facing international economy policymakers and academics looking to the future of global interaction.
These topics were also at the heart of a recent talk at The Fletcher School with one of the country’s foremost experts in the field: Dr. Robert D. Hormats, U.S. Under Secretary of State for Economic Growth, Energy and the Environment.
“If United States economy is to prosper, it will need good relations with China,” explained Dr. Hormats, who is a Fletcher graduate (MA F66, PhD F70). “We are now bound together for economic reasons, and we both have an effect on the global economy.”
The Sino-American relationship has changed dramatically over the past 40 years, going from a limited strategic security relationship aimed at strengthening the United States’ hand in the Vietnam War to a strong and burgeoning coalition rooted in economic interests. According to Dr. Hormats, the main challenge for the United States today is how to deal with the distortions in the relationship.
“We should identify as many areas of Chinese interests as possible that would also benefit us, while still being very robust in addressing our concerns,” Dr. Hormats said.
The talk was moderated by Michael Klein, William L. Clayton Professor of International Economic Affairs at Fletcher, who just returned from a one-and-a-half-year appointment as Chief Economist in the Office of International Affairs of the U.S. Treasury.
During the discussion, Prof. Klein brought up the tendency among the international economy community to amalgamate the BRICS and not distinguish between them.
“They don’t have much in common, except that they’re big markets,” replied Dr. Hormats, pointing to the different economic structures and priorities of each: China is heavily geared towards an industrial system, Brazil is specializing in commodity export, India is focused on services and Russia on raw materials. “What they do have in common is that they all want to play a bigger role in the international economic system.”
What does that mean for the United States? “We have to preserve the economic system that has worked so well since World War II and be steadfast about our principles, but at the same time find some accommodation for these rising powers,” Dr. Hormats suggested.
Still, the 2008 crisis fed concerns about the viability and reliability of increasing financial integration between countries. Isolated nations claimed to have fared relatively well during the global recession, creating a potential obstacle for future integration.
Dr. Hormats acknowledged the effects of the crisis, accepting that some countries might want to build up a defense against global volatility by accumulating additional reserves through trade surpluses and by being more skeptical towards opening borders for trade.
“Other countries may have lost confidence that the United States is the gold standard as far as financial regulation. That means that now we are in competition not only in terms of goods and services but also in terms of economic model,” Dr. Hormats said and noted that the state-centered model that prevails among many rising economic powers may look attractive today, “but will not be very successful in the long-term.”
The event, part of the Charles Francis Adams Lecture series, offered the Fletcher community with an opportunity to hear from one of the most influential and knowledgeable individuals in the United States with respect to the world economic situation. Both faculty and students raised their hands during the question-and-answer session to bring up new topics of discussion or ask for a clarification from the guest speaker.
A professor of international politics in the audience asked about the role of the G-20 in managing the global economic system in the decades ahead.
“The G-20 worked quite effectively during the financial crisis,” acknowledged Dr. Hormats. Going forward, the question is whether it will be as successful at getting countries to subscribe to initiatives in other fields—including the environment, energy and anti-corruption. In other words, whether “it will be able to get as much consensus on medium-term issues that do not appear to be as urgent.”
During the talk, Dr. Hormats expressed his pleasure with being back at Fletcher, where he earned both masters and doctoral degrees.
“Both the human element and the intellectual component of the Fletcher experience are superb. The network is an enormous benefit, both personally and professionally, and a Fletcher education is unparalleled anywhere in this country or the world,” Dr. Hormats said of his alma mater.
The speaker closed by giving career advice to the students in the audience.
“Learn how to work with people. It’s an increasingly interdisciplinary world, and the key to success in both the private and public sectors is being able to harness the integration of expertise, technology and communication to find pragmatic solutions to problems,” Dr. Hormats said. “Government can play a facilitative role—by keeping the internet open, for example—but it’s up to the people around the world to connect and facilitate these synergies.”
-- Elia Boggia, MALD ’13 candidate