Thursday, March 27, 2008

The New World Order

Confronted with the uncomfortable and unprecedented reality of oil breaching the $100-per barrel mark, the average Filipino's thoughts will no doubt revolve with concern around higher tricycle fares and more expensive foodstuffs from the public market. These are legitimate worries and such a reaction is one bred over countless decades of impotence to global market forces.

And yet: oil at $100 (and possibly even $200 or $300) has far-reaching significance that goes beyond our usual parochial home economics. It represents a milestone in the changing world order, a warning post of upheavals waiting to jump us around the corner. Consider, for a moment, what it truly means and ponder the future in store for the Filipino.

Why has oil surpassed the century mark? Because, more than ever, it's a scarce resource. It's not scarce in the way that it was in the 1970s when everyone thought it would eventually run out; it's scarce because of higher demand from rapidly industrializing countries like China and India. Growth means more construction and more cars, all of which require more oil.

Oil prices are determined by oil supply, the main output of which the OPEC oil cartel controls. OPEC could reduce world prices by producing more oil, but as a policy they aim for price stability. The approach is not altogether unreasonable: with global demand far outstripping supply, the increased output may not necessarily bring down the prices; only a reduction in the demand side will produce that effect.

Another reason for high oil prices is the weak US dollar. Oil has traditionally been pegged to the greenback. A lower exchange rate for the price of a resource whose demand remains the same or continues to grow simply means that the corresponding price shoots up.

Why has the almighty dollar fallen so low? For a number of reasons, but two in particular stand out: the recent subprime financial crisis, when many depositors defaulted on their loans; and the War on Terror, now five years running with no end in sight, a heavy drain on lives and on the national coffers.

In the meantime, let's not forget that the War on Terror is merely a politically acceptable euphemism for the American war against Islamic fundamentalism. These two ideologies, diametrically opposed, have no hope of reconciliation; and yet ironically, many of the OPEC countries are also Islamic states.

Assuming that no nuclear weapons explode in the process (one fervently hopes), America and Islamic fundamentalism will be locked in mortal combat for many more years to come. Islamic fundamentalists have proven resilient; and the United States, for all its recent troubles, still holds military superiority. Even if America pulls out of Iraq, the conflict will merely shift elsewhere.

So we have the America, the global superpower and the vanguard of Western Civilization, in decline, its energies preoccupied with fighting a shadowy enemy; and vying to take its place, slowly expanding their influence first within their own spheres but surely with larger spoils in mind, China and India.

The reasons are not purely economic; in fact, the underlying drivers are cultural. Therefore, they are more primal and more powerful. China and India both have long and proud histories. Both feel that their destinies have been thwarted by western colonial imperialism. Both have largely succeeded in the benchmarks set within the western framework. Both feel that it is now time to take their place in the sun.

Look at the world we live in now. We Filipinos may think that we're competing with China and India for outsourcing jobs but the reality is muc more painful and dire than we realize. More than half of the world's goods are made in China and just about as much in information systems are built by Indians. China is hosting the Olympics in August this year, and more than a sporting event, it also doubles as the country's coming-out party. As I write this, CNN reports that Tata, India's largest conglomerate, has for $2.3-B just bought out Jaguar and Land Rover, two prominent British carmakers. Do you see the historic irony?

Further to our East, we also have the resurgence of Russian nationalism, starting to flex its muscles under Vladimir Putin.

So this is the new world order as it looks for the foreseeable future: America and Western Europe, Arab/Islam, China, India, and though we don't feel it yet, Russia. It is different from the previous world order dominated by democracy and communism.

What role will Filipinos play in this new world order? More importantly, will this new world order have room for us?