Today, only the most ideologically committed, old-school liberal internationalist would hold that we have not moved out of the world of the “rules-based international order,” in which countries were all meant to obey a set of common rules — rules established by Western powers during the Cold War and thought to be triumphant after that war’s end.
As Julien Barnes-Dacey and Jeremy Shapiro, both of the European Council on Foreign Relations, wrote in Foreign Policy:
[T]he West has embraced a comforting illusion about a liberal rules-based order . . . International law could tame war, defend sovereignty, and protect human rights, all the same time.
It was a wonderful vision, but it never had a chance. The temptations of power meant that the West repeatedly violated its own rules. Western actors invaded countries when they felt the need (Iraq), hired fancy lawyers to exempt themselves from the laws they expected others to follow (Kosovo), preached human rights while cutting deals with authoritarian regimes (Saudi Arabia), and set up an International Criminal Court to try African leaders (including those from Sudan) while refusing to recognize its jurisdiction over themselves (the United States). For the less powerful countries, the rules-based order based was always little more than hypocrisy on a global scale . . . [and they] have become increasingly vocal in their frustration about the hypocrisy at the core of the global order.
They have taken particular issue with the West’s demand that they sacrifice core material interests in defense of this so-called order, a step that the West has always been wholly unwilling to do itself. So U.S. and European entreaties that global states cut financial and energy ties to Russia following the invasion of Ukraine have fallen on deaf ears, while Western attempts to rally international support behind Israel have faltered.
A key point that is now fully evident — as discussed in a recent post on the SIGnal blog (see “The Pulling Apart,” 1 November 2023) — is that we cannot even agree what the rules might be for a rules-based international order. And it has become clear that many of us do not really want to agree, because different rules reflect different identities. In effect, they say :“I am different from you, I don’t believe what you believe, and I don’t follow your rules.”
So if we have moved de facto if not yet entirely de jure out of the rules-based order, then what have we moved into?
We now live in a multi-polar world, with two superpowers, possibly two other major powers (Russia and the EU), and many more middle powers — countries such as Turkey, India and Brazil, with powerful economies and sometimes powerful militaries. Most of these are in no mood, and see no need going forward, to kowtow to Western interests, policies or rules. We have moved into a world that is fragmented and continues to splinter, very probably with more transitory international alliances based on the practical or Realpolitik needs of the moment — a world, unfortunately, of more conflict between states, among states and non-state actors, and within states themselves.
It is also a world in which economic factors will probably not move nearly as much in tandem. In a de-globalized world, what is sauce for the goose is not necessarily sauce for the gander. Events that significantly disadvantage one region or nation have always had the potential to significantly advantage another region or nation. The tightly coupled globalized order has to some extent dampened this effect. The dampening is now likely to decrease or even end.
Climate change and related resource challenges will exacerbate this “performance decoupling” and will do so in ways that are largely unpredictable. Expanded geopolitical conflict — related to all the factors mentioned above — will add fuel to the fire. Finally, these and other factors are rife with feedback loops that can intensify effects, again, in ways that are often not detectable until they are manifest in events.
All of this means that the performance of economies and of investments in different places — and in different sectors in different places — are likely to be far more variable, discontinuous and uncoupled than has been the norm during the past 30 years.
This brings both risk and opportunity. Investors who keep their eyes on the ball can take advantage of opportunities related to performance discontinuities, arbitrage and the like. In other words, they can bet on different horses. Nevertheless, we will not be living in the simpler environment of the past few decades, a time when stable trends could be projected to drive overall macro performance. Change closes off old possibilities and opens up new ones. We need to think differently to maximize them.