Wanted: wisdom to prepare for a new world order

When central bankers in important countries panic in unison, is it time to reach for the tranquilisers? When the central bank of this unimportant country assures you yet again that our, mainly Australian, banking system is sound, do you twitch?

And does it calm you when an important campaigner for Prime Minister tells the Reserve Bank it should cut the official interest rate? Is that “prime ministerial” sure-footedness in crisis? Is that a cue to shift back from smooth guy John Key to tough guy Helen Clark?

When suddenly canny Michael Cullen guarantees all bank deposits, do you start to wonder if those amazing headlines are no longer just about a foreign spectacle but about your job next year — the world crowding in on what you thought was a local recession, something to chastise the government for?

The world is crowding in. And that world is changing. Beyond the election, among the Prime Minister’s pre-eminent tasks will be to position small, open, needy New Zealand well in that changing world.

The real outcome of the world “crisis” is the transfer of financial power. And real power eventually reflects financial power.

For this little nation, that is the most profound change since 1840.

For 500 years Europe, then North America — the North Atlantic nations — have had a near-monopoly of the ideas that have driven science, and so the betterment of life. For 300 years, on the back of the economic and military power generated by science, the North Atlantic nations have made and owned the dominant ideas about how societies, economies and politics should be organised.

The North Atlantic nations have run the world. We have had a nice niche in the North Atlantic sphere of influence.

For some time now, as I have argued here, resurgent Asia, increasingly powered by China, has been readying itself to challenge that dominance of ideas. The transfer of financial power will add impetus. Real power will follow over time, unevenly and in fits and starts, but near-inexorably.

The immediate cause has been a peculiar enthusiasm for debt in North Atlantic societies. As a North Atlantic outpost, we shared that enthusiasm.

Key says we don’t have a debt problem. We do, the worst of any “rich” country, second only to Iceland which has gone bust. The debt is at both the household and country levels and the budget deficits needed to tide us through may give the government a debt problem too.

The North Atlantic binge has been on Asian credit, thanks to Asians’ enthusiasm for saving and their governments’ determination not to put their economies at risk of another late-1990s crisis.

So the evolving new world order has been given a nudge. And the architects of that new order think differently. As Philip Stephens of the Financial Times points out, China and other emerging nations will not be integrating into a world order designed in Washington and Brussels. “The west can no longer assume the global order will be remade in its own image.” The “hegemony” “is ending”.

This is the world in which Prime Ministers of the future will need to put New Zealand’s case. Moreover, whereas the dominant ideas were familiar to us as part of the North Atlantic in-crowd, the ideas of the emerging world will not be. We — most of us — think North Atlantic, not Chinese. And we are moving into the Chinese sphere of influence.

Our free trade agreement with China crystallises that. Managing that agreement will stretch our limited skills and our much more limited cultural understanding.

So conduct of foreign relations is very important. This economy — and so household wellbeing — is critically dependent on other nations for supplies and sales.

Conduct of foreign relations requires a well-resourced ministry with high-quality staff. Right now it is not adequately resourced and, while at the top there are high-quality people, the middle and upper-middle ranks have thinned, not least because of resources.

Offshore, the ministry has too many thin posts. Onshore the ministry is short of strategic capacity.

Moreover, in a changing and uncertain world, dealing with other nations will become more complex, not simpler. A raft of trade negotiations is in train, all fearsomely difficult but potentially lucrative. Managing the spreading tangle of bilateral and plurilateral agreements will require more and highly sophisticated negotiators and top-quality backup in Wellington.

The Budget in May boosted resources. New posts are opening, staffing of understaffed posts is being lifted and strategic backup strengthened.

But last week Cullen nominated foreign affairs as one area to cut back so the Budget deficits don’t skid off the page. English said he would can the whole of the increases after this year (that is, around half) to provide $265 million for his tax cuts.

Both major parties claimed farsighted wisdom at their campaign openings on Sunday. But that claim is thin when it applied to the changing world order.

* Next week: the (in)cohesive society