
I had recently started a new company at the time, and he wanted to show me what he did. His plan was simple: I was going to sit beside him for several days as he met with some of the world’s top bankers. Keep in mind this was in 1997; the US economy was booming, and the biggest concern in terms of global shock came from unknowns like Y2K. Y2K was the topic of these meetings, and in every meeting I was introduced as his Y2K expert (which was true).
I learned a lot, no question, and many things I learned that week have stuck with me through the years, but there was one 3 hour meeting I attended where those gathered discussed the shift in the late 70s away from the gold standard towards the global economy today, and over time I have come to accept their argument as a quiet truth understood by those on the global side of big money: The Gold Standard was replaced by the proverbial F-16 Standard in 1979 to save the world during a global energy crisis. It was at that time America's debt economy was born.
Because of overwhelming US military power and because the US was willing to use force when necessary to protect interests, it was believed that no competitor to the US dollar would ever emerge until a competitor to the proverbial F-16 emerged first. Keep in mind, these are bankers and strategy consists mostly of risk management in their world. The only safe bet in the emerging global economic order that included many new players participating as resource contributors was the raw power of the United States to back the US currency by force.
After watching the banking crisis of the last few years and the war of the last decade, I frequently wonder if the proverbial F-16 standard even exists in the minds of global bankers anymore.
I thought about this as I read Robert Kaplan this morning in the Financial Times.
The financial world is obsessed with stock market gyrations and bond yields. But the numbers that matter in the long run are those of U.S. warships. Asia has been at the centre of the world economy for decades because security there can be taken for granted, and that is only because of the dominance of the U.S. navy and air force in the western Pacific.The very next statement Kaplan writes in this article is important. Kaplan says "Armies respond to unexpected contingencies, but it is navies and air forces that project power." This is similar to something I believe to be a constant of 21st century national security policy; which is that armies project force, but it is navies and air forces that project power.
Because 90 per cent of all commercial goods traded between continents travel by sea, the U.S. navy, which does more than any other entity to protect these lines of communication, is responsible for globalisation as we know it.
There is no guarantee that this situation will last, however. In the 1980s era of high Reaganism, the U.S. Navy boasted close to 600 warships. In the 1990s, following the collapse of the Berlin Wall, that number fell to about 350. The U.S. Navy’s current strength is 284 warships. In the short term that number may rise to 313 because of the introduction of littoral combat ships. Over time, however, it may fall to about 250, owing to cost overruns, the need to address domestic debt and the decommissioning of ageing warships in the 2020s. Meanwhile, the bipartisan quadrennial defence review last year recommended that the U.S. move toward a 346-ship navy to fulfil its global responsibilities.
There is a big difference between a 346-ship U.S.navy and a 250-ship navy - the difference between one kind of world order and another.
In my opinion, this is where Malcolm Turnbull and Hugh White lack detail in their arguments for strategic balance in East Asia. Both suggest the best and most realistic strategic outcome for East Asia is one in which the major powers are in balance, but the term balance is used in generic terms and without context. Balance does not mean equal, and it is where things aren't equal that matter the most in the strategic balancing equation.
Does a world where China becomes the worlds largest economy strike me as a strategic concern? Honestly, by itself; nope. China is the most important trading partner to the United States today, and I see that achievement for China in alignment with US economic advancement in the 21st century, and economic advancement by the US has historically also driven social and technological advancement for the United States as well. With that said, the brilliant and creative Stan Lee was right - with great power comes great responsibility.
What concerns me much more is if China fails to mature within the liberal global order over the next few decades and simultaneously attempts to achieve primacy of the global oceans through naval power. If indeed the best and most realistic strategic outcome for East Asia is one in which the major powers are in balance, then it must also be stated that the strategic balance Turnbull believes is best cannot be achieved should China achieve primacy over US Naval power, and I would go further to suggest US naval primacy is today the single condition that allows strategic balance between the major powers if/when China achieves primacy in other areas of national power like economy.
As the global economic trade winds shift from the Middle East to Asia, other shifts are taking place as well. With the emergence of alternative energy, the proverbial F-16 standard - once the replacement for the Gold Standard that placed the US dollar at the center of the global energy currency market - is itself slowly being replaced by the proverbial AEGIS Standard that protects the global trade lines-of-communication towards insuring global currencies can exchange in the spirit of commerce in the 21st century market.
To use a simplistic and imperfect historical analogy as bloggers tend to do, I would suggest strategic balance in East Asia is achieved as long as the US emerges as Athens and China emerges as Sparta, and the global security environment and global economy is managed better than it was by the ancient and modern Greeks respectively. If that happens, the 21st century has an opportunity for a prosperous and promising future. However, if China strives to become Athens and US policy continues to be driven by the Spartans in the DoD; Australia, everyone else in the Pacific, and Washington, DC should not only be preparing for, but expecting war.