A Rule Based World Order - The End Of The Delusion

05/08/2016 14:40 | Updated 05 August 2016

We had all bought into the idea of a post-war world order. Countries would co-operate to devise a system of 'global governance' where a set of clear rules would be agreed upon, everyone would abide by them and stability and certainty would reign. International institutions - the UN, the IMF, the World Bank, NATO, Bretton Woods, the European Economic Community - were the poster children of the new world order. Globalisation would interlink economies, diminish the chances of conflict and spread prosperity around the globe. The international elite would be in charge and, endowed with superior skills that, they felt, verged on infallibility, would steer the whole globe to peace and prosperity.

It was all a delusion. It has been fraying at the edges for decades but was firmly slapped in the face at the Republican Convention in Cleveland. Donald Trump launched his Presidential campaign making clear his disdain for the elite's world order. And he is not the only one. Why is it all coming apart? There are three main reasons. The first is the fact that the idea of harmonious global co-operation ignored the reality that human relations and relations between countries are ultimately defined by power. The second is that, in any organised system, free riding is impossible to avoid - and eventually will no longer be tolerated. The third is the post-war rise of an important political institution - the multinational corporation.

The post-war world order was devised by the victors. They used their power to create a set of rules that they believed suited them best. Power continued to define both the nature of the world order and its practical implementation. While the powerful imposed and enforced rules on the weak, they felt perfectly entitled to break the rules themselves when it was in their interest to do so. And they did so with impunity. The examples are endless but maybe the most recent is the handling of the Eurozone crisis. Weak countries have to follow the rules; strong ones do not. Maybe the clearest recent example was the spectacle of Wolfgang Schauble lecturing the Greeks during bailout negotiations about the importance of following the rules while simultaneously making up rules as he went along with no basis in the treaties. Everyone around the room was silent - such is the abuse of power and the cowardice of those who dare not challenge it.

The first part of the international system to break down was the Bretton Woods agreement that collapsed in 1971. This was an example of free riding that would no longer be tolerated. For years the Europeans had had a free ride on the back of the US dollar. They had violated both the letter and the spirit of the rules believing that America would keep supporting them. In August 1971, President Nixon had become convinced that enough was enough and it was time to exercise American power. Europe was jettisoned from the dollar zone overnight with Treasury Secretary John Connally stating bluntly to European heads of state "Gentlemen, the dollar is our currency. And from now on it is your problem." Excessive free riding and an overestimation of their power relative to America launched Europe into a massive crisis from which it has not yet recovered.

The final element leading to the breakdown has been the rise of the multinational corporation. Wielding significant economic and political power, multinational corporations never had any interest in harmonious co-operation between countries. Their task was to get the best deals they could for themselves. This was best achieved by playing countries off against one another with investment moving around the globe depending on which countries would offer the best deal. Under such sustained and effective pressure a planned world order was never going to survive. Rather it stimulated competition between countries on taxation, employment conditions, government subsidies and so forth. Multinationals became the new political power undermining any hope of common rules and a new world order.

So we find ourselves where we are today. A US Presidential candidate whose political platform brings these issues into the open. America is strong and will exercise its power. No more free riding even if that means dismantling NATO. And no more tolerance of multinational corporations playing America off against others. Mr Trump may not get elected. Even if he does, he may not be able to live up to his rhetoric. But it would be foolish for anyone to ignore the lessons of the Trump candidacy and what it means for the delusion of a global world order. Pope Alexander VI said that a ruler never hears the truth and ends up by not wanting to hear it. Sadly, so it will be for the global elite.