Global Leadership Challenges: A Missing Link in the Scenario Planning

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A Missing Dimension

It should not be a surprise that the project we undertook to develop 20-year scenarios for an art form – something apparently never previously attempted – has led to discoveries beyond what we learned through more than a year of preparatory research. The first 11 papers listed at the end of each of the scenario papers in this Knowledge Base have taken us 90% of the way, and we hoped from the way our work had evolved in paper #11 ( A First Set of Music Sector Scenarios ) to proceed with a statistical model of the music sector for 2015. That would then allow us to put real numbers on the four scenarios up to 2035 in a final paper in the series.

Subsequent analysis has revealed an important flaw, addressed in the present paper. We have always stressed in this project, and the Music Trust generally, that Australian music does not exist in a vacuum – on the contrary, it is truly international. We need to be more specific about the links to the geopolitical and global economic forces which influence it. Otherwise we cannot define it.

The flaw is that we have largely omitted the crucial set of variables that will drive the basic international relationships over the long period of the scenarios – what may happen as the international power balances keep shifting, especially between the superpower that emerged during and after World War 2 (the United States) and the current Chinese ascendancy.

Such power shifts have profound effects on international business and international financial relations – effects which cannot be predicted accurately but can be incorporated into each of our four music scenarios, from the best-case “Culture reigns” to “Sliding inexorably”. There may be more challenges in this than meet the eye because they go beyond economic impact to possible cultural shifts as the global power balance keeps changing.

This paper simplifies the issues to the extent that China is seen as the only real rival power to America, though there others may be waiting in the wings though not at this stage seen as potential superpowers. In 2015, China is engaged in a gigantic task to keep building its economy, jumping some very large hurdles on the way. It is also asserting a right to several small islands and reefs in the South China Sea which are already subject to overlapping claims by surrounding nations –– China wants to sail within the 12-mile maritime limit that another sovereign state controls, and use landfill and put down airstrips and garrisons. The South China Sea is a thoroughfare for much of the world’s seaborne trade, so the issue is global, not limited to the neighbouring countries.

Even if we bypass other vital parts of the global economy in this investigation, such as the European Union, India, Southeast Asia and Latin America, it cannot be ignored that Russia, under Vladimir Putin, is currently asserting power on the world stage by intervening in Syria’s conflict – its first such move outside the former Soviet Union since the end of the Cold War. Readers hardly need any reminder that Russia’s annexation of the Crimea in 2014 and subsequent invasion of eastern Ukraine have geopolitical implications. Nevertheless, the focus of this paper is on China and America.

The Economist comments in a recent leading article:[1]

Nobody should wonder that America’s pre-eminence is being contested. After the Soviet collapse the absolute global supremacy of the United States sometimes began to seem normal. In fact, its dominance reached such heights only because Russia was reeling and China was emerging from the chaos and depredations that had so diminished it in the 20th century. Even today, America remains the only country able to project power right across the globe. (As we have recently argued, its sway over the financial system is still growing.)[2]

This Paper

In the interest of achieving reasonable simplicity despite the great complexity of this subject, we concentrate on a minimum of sources (and make frequent use of footnotes to simplify the main narrative):

  1. The main source is a 16-page special report on The World Economy in The Economist by Patrick Foulis, The Economist's New York bureau chief and US business editor (see “America and China” below, where the report is referenced as Foulis 2015 for brevity). Dated 3 October 2015, it provides an authoritative view of how Sino-American relations may develop over the next 20 years. The Economist’s report refers to a book on China’s ascendancy published in 2011 by Arvind Subramanian who became India’s chief economic adviser in 2014, following the election victory of Prime Minister Narendra Modi.
  2. Joseph Nye is a prominent American political scientist who developed the concept of “soft power” (separate section below). A report from the British Institute of Government captures the essential components through its annual soft power index. An article in The Atlantic Magazine (2013) provides some added insights into the past and current role of American presidents in shaping foreign policy.
  3. Our own scenario paper #10 ( Some Big Possible Positives - Or? ) raised the possibility of three major influences that may alleviate the worst-case scenario for Australian music, including greater access to quality universities (the others are a “greening Asia” and effective action against climate change). Tertiary education is an essential factor in any country’s cultural development, which motivated us to do some statistical research into the reputation of top universities on a global basis (last section before the conclusions). The research shows separate data for Australia, showing it to be in quite a strong position.

America and China

Subramanian forecast.jpg

Arvind Subramanian’s book on this subject[3] was published near the peak of China’s boom in 2011. He notes that the world has seen successive dominating countries, illustrated by the graph to the left which shows the estimated share of global economic power from the 19th to 21st century.[4]

In the 19th century, represented in the chart as “1870”, the world economy was dominated by Britain followed by France and Germany. Eighty years later, following World War 2, the British share had declined dramatically and war-torn continental Europe, while gaining importance and gearing up for what is today the European Union led by Germany, was no longer seen as globally dominant in the sense captured by Subramanian’s index, which gives share of world GDP, trade and net capital exports weights of 0.6, 0.35 and 0.05, respectively. America had more than taken Britain’s and mainland Europe’s 19th century place by 1950. Japan appeared as a major force in the 1970s and remains so despite some decline.

The current development, needless to say, is centred on China, entering with a 12% share of world economic power by 2010 and projected to add to this share through the subsequent two decades. Subramanian expects the American share to decline further between 2010 and 2030. He also forecasts that India will emerge as a leading world economic power in the 2020s (green bar shown for 2030).

As far as forecasting is concerned, we have stated repeatedly in this series of papers that scenario planning was introduced to go beyond single projections as the future becomes increasingly unpredictable, especially since 1970. Scenarios are stories of alternative futures. The trends revealed by Subramanian’s chart may well happen with profound continued impacts on all sorts of economic, social and cultural activities. By outlining a range of plausible “what if” situations the scenarios provide opportunities at all levels from global to local to plan against adverse developments and encourage positive ones.

What is virtually certain, however, is that the ebbs and flows of global economic power will continue, as they have from the dawn of history.

To gain further insight into the large-scale mechanisms that govern the international economic order, we need to point to Foulis’s statement (p 8): The three pillars of the world’s economic architecture, the IMF, the World Bank and the World Trade Organisation, are all in bad repair. America’s actions during the 2007-08 financial crisis contributed to this impasse, especially as far as the International Monetary Fund is concerned, by stepping in with large-scale financial assistance to stricken nations which would have been IMF’s domain if it had been better funded. This set in train the huge monetary movements which are a key issue in current international relations because they are not properly controlled by a supranational organisation.

Subsequent efforts by the Obama administration to put the IMF’s finances on a sounder footing and increase its legitimacy with emerging economies were unsuccessful because Congress failed to approve the reforms on four occasions since 2010.[5]

Subramanian in his 2011 book made many important points, some of which were taken up by the Foulis report four years later. In Chapter 4, he noted that long-term projections are driven by “economic convergence”, whereby poorer countries catch up with richer ones, and by “gravity” (trade between countries) which is determined by their GDPs. He found that convergence has quickened – becoming broader in scope and faster in pace. We note, however, that the inequality remains huge between first and third world nations, which is likely to cause added tension as emerging countries keep converging and become ever more knowledgeable and communicative (through the social media as well as better education).

In his Chapter 7, Subramanian assumes that China’s growth will slow to 6% in purchasing power parity (PPP) terms over next 20 years, which in 2011 was down 40% on recent years.[6] This could still happen despite the subsequent setbacks of Chinese business activity. In an article in India’s leading business journal, also dated 2011, Subramanian[7] elaborates on his views on China’s growth strategy compared to India, which he forecasts will become the next contender as a major economic power:

For almost a decade now [2011], China has followed a mercantilist growth strategy, which has involved maintaining a deliberately cheap exchange rate to boost exports and growth. Crucial to this policy has been China's choice to keep the economy relatively closed to foreign financial flows. Had it not done so, foreign capital chasing the high returns in China would have put upward pressure on the Chinese exchange rate and undercut its ability to export.
India, on the other hand, is steadily if stealthily dismantling its capital controls, foregoing the ability to emulate the Chinese growth strategy. Why so?
For reasons still unclear, the world, and hence Indian policymakers, are in thrall to the narrative of “imbalance” surrounding Chinese mercantilism. In this view, mercantilism has been a problem for China, creating distortions and reducing welfare, and a problem for the world. Now, Chinese mercantilism has not been costless, and these costs may well be rising … . But this imbalance narrative has obscured the first-order and potentially paradigm-shifting lesson about Chinese mercantilism: it promoted unprecedented growth, raised consumption dramatically, reduced vulnerability to risk, and facilitated China's rise as an economic superpower.

Subramanian noted in his book (2011a) that China was internationalising the yuan, which coupled with the relative ineffectiveness of the IMF as a forum for international cooperation makes it likely that engagement – and the scope for friction – between China and the other large economies will relate more to trade than macroeconomic issues. China in effect was compromising its mercantilism, which will make the World Trade Organisation rather than the IMF the key forum for operation between China and these countries.

The Economist’s special report on the world economy (Foulis 2015) called the current international financial regime “dominant and dangerous”. It also identified China as the main challenger of America’s dominance. The key issue is that America’s economic supremacy during the 70 years since the end of World War 2 is fading, but the American dollar still reigns supreme as “the superpower of the financial and monetary system” – the primacy of the greenback is unchallenged despite the growing imbalance that is caused by the rise of China as a rival superpower. One crucial aspect of this is whether the dollar will retain its role as the reserve currency of the world or whether this role will be contested, or shared, by the Chinese yuan.

Changing Patterns of Dominance

America’s has lost trade but its dominance of international finance and the world monetary system has risen. In The Economist’s review of the world economy, Foulis (2015) calls America “the sticky superpower” whose capacity to influence the world economy will linger and even strengthen in some respects, despite loss of merchandise exports. In 1994, it was the leading exporter to 44 countries and China to only two. By 2014, America was the leading exporter to 32 countries, and China to 43, equivalent to America’s leadership in 1994.

Globalisation has caused America’s monetary footprint not to shrink though its trade footprint has. Since the 2007-08 global crisis, trillions of dollars follow the Federal Reserve around the world when it changes course. America’s indifference towards the IMF and World Bank, institutions it created to govern the system and over which it has vetoes, is criticised for reflecting power through neglect.

Global capital flows, larger than any time in history, move in rhythm with the volatility of America’s stock markets. The position of the dollar, widely seen as a pillar of soft power, has strengthened. America can borrow more cheaply, and it earns profits from issuing bank notes around the world. There is less currency risk for American firms. America is the safe haven to which investors rush, and foreigners accumulate dollars as a safety buffer. It can cut hostile states off, like Iran and Burma. “The threat of this sanction has given America an enhanced extra-territorial reach.” (p 5)

America’s clout has also increased due to technology. Economic activity has shifted towards intangible globalised services such as cloud computing and computerised financial trading. It dominates new generations of technology based on e-commerce, social media and the sharing economy. These products go global faster and penetrate more deeply into people’s minds and jobs than anything Silicon Valley has invented before. America, despite some challenge, also maintains a lead in other areas such as R&D, technology equipment such as smartphones, and consumer brands.

In other areas, America shines with a disproportionate share of the world’s research universities at the very top (see section on top universities). The US Food and Drug Administration (FDA) is the global benchmark for the efficacy of new medicine. Patents issues in America are far ahead of Shanghai’s on credibility.

Facebook and Google do their main business abroad, and the share is rising. US firms host 61% of social media users, and undertake 91% of searches. China is not in the race here. Generally, China’s aura of confidence has been damaged by its economic troubles, though perhaps only temporarily.

World Trade and Finance Have Grown Precipitously

Today’s world relies on a vastly bigger edifice of trade. “But it is important to be clear-headed about the long-term choices. America cannot expect effortlessly to dominate global finance and technology even as its share of world trade and GDP declines and it becomes ever more inward-looking.” (p 6) The world’s monetary system will be more prone to crises and America will not be able to isolate itself from their potential costs. Other countries led by China will create their own defence and could introduce more localised ("balkanised") rules of technology, trade and finance.

The challenge to create an architecture that can cope with America’s status as a sticky superpower has also become more difficult because of its internal policies, which makes economic diplomacy harder. This may be a temporary blip, but the US Congress has always been tricky to handle. Along with the intensification of US partisan policies, fallout from the financial crisis has exacerbated the nation's mistrust of globalisation and Americans worry more about stagnant middle-class incomes and shrinking blue-collar jobs.

The Global Monetary System is a Perennial Headache

The gold standard dissolved into depression and chaos in the 1930s. The Bretton Woods system of fixed exchange rates introduced in the 1940s collapsed in the 1970s to be replaced by a free-wheeling system of floating currencies and mobile capital, which suffers today from three related problems:

  1. How to resolve the imbalances between countries without hurting economic growth, such as the European Union's dilemma with current-account surplus states to the north and deficit states to the south.
  2. The size of gross capital flows “sloshing around the world” is a newer and more dangerous problem. After two decades of financial globalisation, capital flows dwarf current-account imbalances. Since the 2007-08 crisis very low interest rates have encouraged large-scale speculation, with capital flowing into emerging countries.
  3. The world depends on the greenback. It reigns supreme by every yardstick for an international currency: as a medium of exchange, a unit of account, a store of value and a reserve asset held by central banks. The euro and the yen are no longer in the race, and the “redback” yuan “is in nappies” (p 9). The de facto dollar zone is estimated at 60% of the world population and 60% of global GDP. It consists of America, the countries whose currencies float in sympathy with the dollar, and countries with dollar pegs such as China.

“China had its own variation [to building dollar reserves and minimising current-account deficits], pegging its currency [within a narrow band] but at a cheap rate to the dollar that generated vast current-account surpluses which the government heaped into an ever-growing pile of American Treasury bonds.” (p 10)

Trade flows and some debts are in internationally needed dollars, but there is no guaranteed lender of last resort. “The Fed lends money to foreigners on ad hoc terms. The IMF has insufficient money and legitimacy to play this role. Instead, many countries have built up enormous safety buffers of dollar resources in the form of Treasury bonds.” (p 10)

Those vast capital flows tend to move to America’s financial system, and all nations are affected, whether they floated their currency or pegged it to the American dollar.[8] "Floaters" find that large capital items can cause crises even if your house is in order, rolling local economy bond markets and interest rates. Just because you don’t borrow in dollars doesn’t mean you are immune to “jittery foreigners’ antics”. China and other relatively “fixed peggers” find that if America raises interest rates, the dollar soars and so do their currencies, hurting exports. Moreover, the value of these huge reserves appear to be periodically at risk from a falling dollar, inflation, or even default.

It is wishful thinking that the global system will heal itself naturally (p 11). The sheer scale of the global financial system will ensure that it remains big and violent. Governments still have a strong incentive to run current-account surpluses and build up huge reserves if they can.

Foulis finds that it would be a lot harder than last time for the Fed to save the day (p 12). The offshore dollar system is almost twice as big as it was in 2007 and is growing fast, so any rescue would have to be at a much larger scale. The Economist review includes a scenario for “2023” suggesting that the consequences could be dire.

The global monetary system is unreformed, unstable and possibly unsustainable. What it needs is an engineer to design smart ways to tame capital flows, a policeman to stop beggar-thy-neighbour policies, a nurse to provide a safety net if things go wrong, and a judge to run the global payments system impartially. If America’s political system makes it hard to fill those vacancies, can China do better?” (p 12)

Not for some time according to The Economist. But China does demand a bigger international role and this is backed by economic logic. “A more international China could escape its subordinate role in the dollar zone. Allowing the yuan to float might, in time, help the economy adjust better and bring down trade imbalances. Prising open the capital account would make it easier for foreigners to buy Chinese bonds and shares and help the yuan to become a global currency.” (p 13)

The danger of instability, says Foulis, is pressingly important, especially if China slows down. But China’s growth is still nudging 7%, and even bearish private forecasters think 5% is plausible. China wants to be an economic superpower at its own terms. Trade is still largely in dollar terms but there are indications that although the yuan has only made slight progress so far, it will gradually gain clout. “Foreign firms could be offered discounts or win brownie points if they buy from China using the redback. Samsung, a South Korean colossus, plans to settle flows between its Chinese subsidiaries and its headquarters in yuan.” (p 14)

The articles of the new Asian Infrastructure Investment Bank (AIIB) were signed in Beijing in June 2015 “by 50 countries, including 13 members of NATO as well as such cosy bedfellows as Iran, Israel and Saudi Arabia (the main holdouts are American, Canada, Japan and Mexico). It will have $20 billion of paid-in capital and a further $80 billion of callable capital. China has 26% of the votes, giving it a veto over hiring and firing the bank’s boss, big capital raisings, constitutional changes and booting out members. America may be uneasy about that, but China could point out that it is supplying 30% of the capital and that it is mimicking America’s vetoes at the IMF and the World Bank.” (pp 13-14)

The Economist’s global economic review concludes (p 16):

If China’s economy turns out to be a house of cards, the country’s claim to global economic superpower status will soon be exposed as hollow. If it becomes ever more autocratic, it will need to become ever more closed to guard against capital flight and foreign influences, which will limit its capacity to affect the world economy beyond its borders. But if it manages to keep growing, to open up and reform, then America will have to reach an accommodation with it some day. Why not start now?

Soft Power

Joseph Nye of Harvard University is a leading American political scientist who has long been active in the study of transnational relations and world politics. He developed the concept of “soft power” in the late 1980s and wrote a book on it in 2004.[9] Wikipedia describes soft power as the ability to shape the preferences of others through appeal and attraction; it is non-coercive; and the currency of soft power is culture, political values, and foreign policies. It describes the ability to co-opt rather than coerce, use force or give money as a means of persuasion.

Soft power is widely embraced by today’s world leaders, including President Xi Jinping who announced in 2014 that “we should increase China’s soft power, give a good Chinese narrative and better communicate China’s message to the world.” The Monocle Soft Power Survey[10] found in 2014 that the US currently holds the top spot on soft power, followed by Germany, Great Britain, Japan, France, Switzerland, Australia, Sweden, Denmark and Canada. The Monocle survey ranks the 30 countries which briefly stated “best attract favour from other nations through culture, sport, cuisine, design, diplomacy and beyond”.

Economics according to Nye fits between soft and hard power, the former based on culture, political values and foreign policies (as stated above), the latter on coercion and payment. Seldom in history have economically small or weak nations dominated others. Economics is a key factor in shaping great power status, alone or in combination with other influences. He defends the concept against critics labelling it analytically fuzzy: “Soft power is not a form of idealism or liberalism. It is simply a form of power, one way of getting desired outcomes.”[11]

According to Wikipedia, popular culture and mass media are regularly identified as main sources of soft power. The influence of British culture has manifested itself in three Olympic opening and closing ceremonies in London, the international influence of British broadcasts and print media (like The Economist, the journal that inspired the present paper), and British theatre which has helped for many decades to make London one of the most visited cities in the world. Its schools and universities are popular destinations for foreign students – and a later section of this paper shows that the most prestigious British universities are up with America’s best in quality and excellence (Cambridge and Oxford are third and sixth on the current global list of 800 universities ranked from the top down.)

The Korean wave refers to the growing perception of South Korea’s culture since the late 1990s. International public opinion of the country has been improving steadily, and culture and tradition are accepted as the most important contributing factors. In her inauguration speech in 2013, President Park Geun-Hye said: “In the 21st century, culture is power.”

Tertiary education is an increasingly important expression of national culture, and a tool of soft power. Annual assessments of universities to rank them for quality have been conducted since 2004. This paper presents a statistical comparison of the quality of universities for the 2015-16 academic year, showing Australia in a fairly strong position compared with other English-speaking countries (see last part of this paper).

An Index of Soft Power

Jonathan McClory has described the composition of the main soft power index he developed with an independent British charity, the Institute for Government.[12] The Institute collaborated with Monocle to develop the index. It notes that soft power has become more influential in the British approach in the UK’s approach to foreign policy. First, it faces significant cuts in public spending, which means there are advantages in leveraging all available resources for influence. Secondly, the changing nature of global affairs has made these more suited to soft power mechanisms – “soft power transcends the elitism of classic diplomacy by putting the increasingly well-informed global public into play.” (p 2)

The British report contains a section called “Towards a softer future?” commenting on the basis of the analysis: “Perhaps the most surprising result of the index is China’s showing as 17th” [out of 26 listed countries]. The top 10 countries in the 2014 survey were much the same that McClure found in 2011, when the ranking was France, UK, USA, Germany, Switzerland, Sweden, Denmark, Australia, Finland and the Netherlands. [13]

Alt=Chart 1

The soft power index is composed of five sub-indices (Chart 1). Each contains several “metrics” detailed in the following list:

  1. Culture: foreign visitors per 1,000 population, reach of state-sponsored TV and radio, number of foreign correspondents, an index of the global power of native language, and number of gold medals in the most recent summer and winter Olympics.
  2. Diplomacy: development aid to other countries relative to GDP, languages spoken by the head of government, visa freedom, strength of Anholt-GfK Roper Nation Brands Index national “brand”, and number of dedicated cultural missions abroad.
  3. Government: the economic, education and health outcomes of the United Nations Human Development Index, the World Bank Governance Index, an index of political freedom and personal liberty, the World Economic Forum (WEF) Trust in Government Index, and an index of subjective well-being measures.[14]
  4. Education: Number of think tanks divided by GDP, number of universities in top 200, number of foreign students.
  5. Business/Innovation: International patents, WEF Business Competitiveness Index, level of corruption, Boston Consulting Group and National Association of Manufacturers innovative index, and Foreign Direct Investment percentage of Gross Fixed Capital.

Subjective expert panel measures include quality of high and popular culture output, cuisine (quality of national food and drink), a measure of cultural icons (exemplified by footballer David Beckham), overall quality of national airline, global effectiveness of head of government, and reputation of embassies and diplomats.

Two comments: First, it seems logical that soft power gets to be measured by a range of “soft” indicators, and it is welcomed as yet another example of the statistical inventiveness that is expanding our understanding of the world. Hard numbers are increasingly seen to have limited scope, and they are often only seemingly accurate. Secondly, the “cultural” indicators in the soft power index appear not just under "culture" but also under diplomacy (cultural missions) and education (all three “metrics” shown above, including top universities which were already a planned part of this paper before we discovered the soft power index). Nor is culture far from the core of the government indicators, and arguably an essential part of innovative activity. It is explicit in the subjective expert panel measures.

Transformational and Transactional Leadership

Broadly defined culture, in short, is an integral part of the understanding of soft power, and this focus is retained when we narrow it to arts-related activities. In effect, music and the other arts are associated with the general theme of this paper, which is the challenge of global leadership. Joseph Nye posed the following question in an article in The Atlantic Magazine in June 2013: 'Do Presidents Really Steer Foreign Policy?'. He found that they do, but to a large extent by doing things that are not what leadership experts and the public want and expect from them. Americans extol the virtues of transformational leaders who set out bold objectives and take risks to change the world. Transactional leaders with more modest goals tend to be downplayed – often unfairly – as managers rather than visionaries.

Transformational leaders such as Franklin D. Roosevelt and Harry Truman made bets on entering World War 2 and subsequently containing the Soviet Union – but both presidents acted only after cautious initial approaches, and America’s actual declaration of war was provoked by Japan’s attack on Pearl Harbor on 7 December 1941. John F. Kennedy and Lyndon Johnson mistakenly bet that Vietnam would prove to be a game of dominoes. George W. Bush aspired to be a transformational leader when he ordered the attack on Iraq, but failed in gaining reputation as such.

Transformational leaders have played a crucial role (just think of Mahatma Gandhi, Martin Luther King, and Nelson Mandela), and FDR and Truman made indelible contributions to the making of the American era which persisted through the 20th century. So did Richard Nixon when he went to China in 1971 (incidentally preceded by Australia’s Gough Whitlam’s visit a month previously – himself a transformational leader in several respects).

But many desisted, like President Eisenhower who in the 1950s refused to follow the military’s recommendations to use nuclear weapons during the Korean War and other crises. What would the world have done, he asked in 1954, if Russia had been destroyed, leaving an unmanageable mess “from the Elbe to Vladivostok” torn up and wrecked?

Nye concludes:

Transformational leaders are important because they make choices that most other leaders would not. But a key question is how much risk a democratic public wants its leaders to take in public policy. The answer very much depends on the context, and that context is enormously complex. … We live in a world of diverse cultures, and we know very little about social engineering and how to “build nations.”
Decline … is a misleading description of the current state of American power – one that President Obama has thankfully rejected. American influence is not in absolute decline, and in relative terms there is a reasonable probability that the country will remain more powerful than any other single state in the coming decades. … No one has a crystal ball, but the National Intelligence Council may be correct in its 2012 projection that although the unipolar moment is over, the US most likely will remain primus inter pares at least until 2030 because of the multifaceted nature of its power and the legacies of its leadership.
All of this suggests that President Obama and his successors should beware of thinking that transformational proclamations are the key to successful adaptation amid these rapidly changing times. American power and leadership will remain crucial to stability and prosperity at home and abroad. But presidents will be better served by remembering their transactional predecessors’ observance of the credo “Above all, do no harm” than by issuing stirring calls for transformational change.

In summary, there is an important distinction between political leaders who have had the opportunity to introduce successful transformational policies, and leaders who have been largely developing policies within an existing framework. China had a highly transformational leader in Deng Xiaoping who led the country through its far-reaching market-economy reform which determined the subsequent economic success. The current Chinese regime is more transactional despite its current behaviour in the South China Sea. The Obama administration is also largely transactional (as it should be according to Nye), despite current challenges to its economic and financial policies.

Whether the future balance of power will change without either nation (or others) becoming more transformational is a highly complex issue, and will depend on other circumstances which should be captured by the scenarios. It is uncertain whether soft power and the passage of time will be the main factors determining the issue, or whether bolder top-level political decision-making will happen. There are other players in the field that could eventually influence the status of the existing and emerging superpowers, including the European Union, Russia, India and Latin America. MENA (The Middle East and North Africa) is a conundrum that is unlikely to go away in a hurry, and soft power is not the first term that comes to mind in that context.

But China and America will remain the main players for a while.

Top Universities

Universities are a prime expression of a nation’s cultural life, intimately connected with national education policy which is a key dimension of cultural planning, or should be. It gets squeezed by other budgetary priorities and by a host of other political considerations, but its cultural importance should be beyond dispute. We have taken the opportunity to present some statistical evidence which puts Australia and other mainly English-speaking countries into a global perspective.

Since 2004, a British company specialising in education and study abroad, Quacquarelli Symonds (QS), has published annual lists of universities ranked by excellence. [15]

The QS selection criteria and their weights are as follows:

  1. Academic reputation (40%) based on a global survey of 76,300 responses from the international academic community in the current 2015-16 version
  2. Employer reputation (10%), based on a global survey of 44,200 employers’ perceptions of which universities produce the best graduates
  3. Student-to-faculty ratio (20%), a measure of the number of academic staff relative to student enrolments
  4. Citations per faculty (20%), based on Scopus, the world’s largest database of research abstracts and citations, run by Elsevier
  5. International faculty ratio (5%), proportion of academics from other nations
  6. International student ratio (5%), proportion of students from other nations.

Of 4,297 universities on the global list, 400 were given published scores, the next 400 were ranked without the score being shown, and the rest (3,497) were not ranked. The maximum ranking of 100 went to one university only (the Massachusetts Institute of Technology, MIT), the 150 top universities scored from 61.5 to 100, and the 400th university in the ranking scored 35.0. So the quality range is very wide even within the top 400. The ranking for each university can be further examined online for each of 36 subjects, and by faculty, region, and “best student city”.

“Best student city” puts Australia in a remarkably strong position: Melbourne, Sydney, Canberra, Brisbane, Adelaide and Perth are all mentioned in a list of 50 cities, being ranked 9th, 12th, 22nd, 26th, and equal 39th, respectively. These statistics measure four components: student mix, desirability, employer industry and affordability. Only the US has more cities in the top 50, but only one more (seven) despite its population being more than 13 times larger than Australia’s. The UK is in third place with four (though this includes London with the only perfect “100” score as a student city).[16]

Alt=Table 1
Alt=Table 2
Alt=Table 3

The 150 top-ranked universities in Table 1[17] represent only 3.5% of the 4,297 universities in the 2015-16 QS review. This does make them elite institutions but the assessment is skewed because universities have a dual mission as research centres and educating people to take up a professional job rather than becoming academics.

We can safely assume that the research orientation of the top-ranked universities is higher than for those further down the hierarchy, but all universities, whether or not in the top categories, also play a crucial role teaching professional skills for the general workforce.

Table 1 divides the 150 top-ranked universities into six equal groups, from the “deep blue” column showing the 25 at the very top, to the “light blue” group ranked 126-150th. This identifies the US as dominant at the very top with 11 of the 25 universities (44%). All but one of these American universities are part of the historically defined Ivy League.[18] Six British universities belong to the top 25, led by Cambridge and Oxford which as noted are ranked 3rd and 6th. Australia is represented by the Australian National University in Canberra (ranked 19th). Canada also has one in the top group, and the remaining six are located in Asia (Singapore two, China one) and Europe (Switzerland two, France one).[19]

Australian universities are well placed in the ranking (Table 2). Five are ranked below 50th and every mainland state and Canberra becomes included when the University of Adelaide joins as #113 (still a high rank). Both Melbourne and Sydney have two universities at global rank 67 or better. Twenty-one Australian universities receive a formal score as part of the top 400, and 10 others receive a ranking without a score within the first 800.

The 31 universities in Table 2 represent 47% of the total Australian list of 66. Of the 31, NSW leads with nine followed by Victoria with seven, followed by Queensland and Western Australia with four each, South Australia with three, the ACT with two, and Tasmania and the Northern Territory with one each. This is roughly in accordance with population patterns, suggesting that high-quality university education is available in the whole of Australia including the remote north. Queensland has a recognised ranked university in the north, James Cook in Townsville (ranked 387th). It has a campus even further north, in Cairns.

Table 3 shows the full range of universities including the majority that are not ranked. The Ivy League, as we have seen, is in a class of its own, with 80% in the top 50. The situation is vastly different for the mix of other American universities, so the nation has the lowest percentage of universities in the top 50 of any of the five “English-speaking” countries (3.4%). Australia shines with the highest proportion in the top 50 (7.3%), way above Britain and Canada as well.

At the other end of the scale, New Zealand is actually best represented among these five countries with only 33% unranked universities. Australia is in second position (53% unranked), and Canada in third (63%). More than 70% of American and British universities are unlisted for quality in the full QS list.

Alt=Chart 2

The evidence is summarised in Chart 2. The dark blue and light blue bars to the left represent the top 150 universities with Australia on top at about 12% of all its universities, compared with 9% in the UK, about 8% in Canada and New Zealand, and 7% in the US.

The red bars represent the rest of the 800 ranked universities. New Zealand shows an impressive proportion (58%), leaving only four of the nation’s 12 universities unranked. Consequently New Zealand has the lowest proportion of unranked universities as shown by the yellow bar. We haven’t checked why, but there may be a relatively greater representation of mainstream city universities more likely to obtain a ranking than provincial universities. These five nations all do better than the average for all countries shown by the bottom bar. Globally, as we have noted, the top 150 comprise only 3.5% of the 4,297 universities, half the proportion found for the US and an even smaller proportion for the other countries in Chart 2.[20]

Conclusions

  1. The paper rectifies the omission to include the possible impact of global superpower relationships on the scenarios. The Australian music sector is not immune but internationally related both directly and as part of the Australian economy.
  2. It is unclear at this stage whether America will continue as the sole superpower or whether it will be joined by China — the obvious candidate to mount a challenge.
  3. The crucial uncertainty is associated with the major current imbalance between America losing share of international trade but keeping a stronghold of the global monetary system.
  4. The greenback still reigns supreme in all its roles as a global currency, but the "redback" is starting to gain influence.
  5. The situation will get even more out of balance if China's share of world trade keeps growing, and China finds more ways of asserting its power.
  6. In an increasingly unstable world situation, much will depend on whether the leaders of these nations will favour "steady-as-you-go" management (as is largely the current case), or will begin to take greater risks in an effort to transform the systems.
  7. Any scenario research assumes conflicts will be limited to trade and other economic warfare rather than real warfare — which in any case does not seem likely despite the current tensions.
  8. Increasing use of non-coercive but efficient soft power currently adds to America's ability to retain the upper hand, though China could challenge this.
  9. Culture in several manifestations is an essential component of soft power. America has a great advantage in its elite research universities but Australia has an amazingly good record in tertiary education which is important if we are to retain this country's future artistic expression.
  10. The impact of the alternative geopolitical developments implied by the analysis in this paper is being used to modify the scenario outlines in previous papers. This is now regarded as the last step before the numerical analysis needed to quantify the four scenarios from 2015 to 2035.

Papers in This Series

  1. Putting Numbers on Our Cultural Assets: Not Yet Possible   (27.3.2014)
  2. How to Explore the Cultural Future   (7.4.2014)
  3. Cultural and Creative Activity in Australia   (15.4.2014)
  4. Global Risk Factors and Music in Australia   (17.10.2014)
  5. Scenarios, Virtual History, and Chaos   (20.10.2014)
  6. Ideas from Other Global Scenarios   (8.12.2014)
  7. Four Global Scenarios Set the Stage   (18.12.2014)
  8. Music Sector Structure for Scenarios   (28.2.2015)
  9. Valuing the Invaluable   (5.3.2015)
  10. Some Big Possible Positives - Or?   (20.6.2015)
  11. A First Set of Music Sector Scenarios   (23.6.2015)
  12. Global Leadership Challenges: A Missing Link in the Scenario Planning   (31.10.2015)
  13. Present and Future Changes and Their Role in the Scenarios   (20.12.2015)
  14. Complex Adaptive Systems and Music   (9.1.2016)

Author

Hans Hoegh-Guldberg, 31 October 2015.

References

  1. ’The new game: American dominance is being challenged’, The Economist 17.10.2015, p 3.
  2. The final bracketed comment refers to the special report that The Economist published on 3.10.2015 which is the main topic in the ”America and China” section of this paper.
  3. Arvind Subramanian (2011a), Eclipse: Living in the Shadow of China’s Economic Dominance, can be purchased online at modest cost from Amazon.
  4. The chart originated as Figure 5.1 in Subramanian (2011a) and was reproduced by Foulis (2015).
  5. Foulis 2015, p 8. He noted (p 11): “The Eurodollar market was at the heart of the 2007-08 crisis. Dollar depositors and bond investors in European banks panicked and refused to carry on funding them, piling into the safe haven of Treasuries instead and causing a run. Interbank rates in London soared relative to American interest rates. The Fed was forced to provide over $1 trillion of liquidity, by lending to foreign banks through their American subsidiaries and by extending swap lines to friendly central banks (in Europe, Mexico, Brazil, Japan, South Korea and Singapore) which in turn made the dollars available to their banks. Even if these swap lines were not used in full, their mere existence calmed the panic.”
  6. PPP modifies economic values between nations by adjusting for price differentials that are not explained by official exchange rates. Poorer nations tend to get more for the equivalent of an American dollar than is the case in richer nations. The “Big Mac index” published by The Economist illustrates the PPP principle applied to a well-known product that is consumed everywhere. In Australia in July 2015, for example, the cost of a Big Mac was $A5.30 which implied an exchange rate of $1.35 with the US dollar, giving a Big Mac price in Australia equivalent to $US3.92 compared with its price in America ($US4.79). The actual market exchange rate was 1.11 Australian dollars per US dollar, indicating that the price of a Big Mac was undervalued by 18.1% in Australia. The Big Mac index was invented by The Economist in 1986 as a light-hearted guide to whether currencies are at their “correct” level (Wikipedia). Despite being based on a single commodity, the Big Mac index is popular and it does illustrate the principles of PPP adjustments which are used increasingly to compare representative baskets of goods and services.
  7. Arvind Subramanian (2011b) ‘Learning from Chinese Mercantilism’, Business Standard, New Delhi, 25.1.2011. Wikipedia defines “neo-mercantilism” as a policy regime that encourages exports, discourages imports, controls capital movement, and unifies currency decisions in the hands of a central government. The objective of these policies is to increase the level of foreign reserves held by the government, allowing more effective monetary and fiscal policy. China, Japan and Singapore are described as neo-mercantilist. The prefix “neo” is added to distinguish it from the protectionist practice that dominated European trade from the 1500s to 1700s.
  8. Foulis calls it the Anna Karenina principle – every country in the dollar system is unhappy in its own way.
  9. Joseph S. Nye Jr., Soft Power: The Means to Success in World Politics (New York, Public Affairs, 2004). Wikipedia has an elaborate up-to-date page on soft power; refer also to its article on Nye himself.
  10. Monocle is a London-based monthly periodical with a track record of covering soft-power issues in international affairs. It advises the Institute for Government, a independent charity organisation, develop the index described below.
  11. Joseph S. Nye (2011), The Future of Power. New York: Public Affairs, p 82.
  12. Jonathan McClory (December 2010, The New Persuaders: An international ranking of soft power. Institute for Government, London, England.
  13. The absences from the 2011 list were Canada and Japan, then in 12th and 15th position, respectively. They had replaced Finland and the Netherlands by 2014.
  14. Adrian G. White (2007), ‘Global Projection of Subjective Well-being: A Challenge to Positive Psychology?’ Psychtalk 56, 17-20. University of Leicester.
  15. QS is the supplier of one of the three most influential university rankings in the world, along with the Times Higher Education World University Rankings and the Shanghai-based Academic Ranking of World Universities. We cannot engage in a comparison and have chosen to present the QS findings which look comprehensive and based on plausible criteria. The other sources are undoubtedly also plausible and may give different results, with different criteria, but are unlikely to be radically different.
  16. Cities qualifying for inclusion as “best student city” must have at least 250,000 residents and at least two universities from the QS list. These criteria were met by 116 cities worldwide in 2015, which is a small fraction of the actual university locations. The definition eliminates most provincial towns, such as Armidale and Bathurst in NSW and Toowoomba and Townsville in Queensland (to mention just a few Australian university towns). Oxford and Cambridge wouldn’t be in the count either. So provincial lifestyle is not an official criterion – the ranking is essentially for big cities which of course is valuable in itself.
  17. The number was chosen as a manageable definition and does tell a significant story, especially when divided into six groups of 25.
  18. The list of 15 Ivy League universities is from Chapter 1 of Michael M. Crow and William B. Dabars, Designing the New American University, Johns Hopkins University Press, Baltimore 2015, which was discussed in Section 4 of another scenario paper, Some Big Possible Positives - Or?. A narrower definition lists eight universities in north-eastern USA but we use the group of 15. Five of these universities (Columbia, Harvard, Pennsylvania, Princeton and Yale) go back to colonial times, five are private institutions (Chicago, Cornell, Johns Hopkins, MIT and Stanford), and five are state universities (California – represented by several campuses with the highest rankings for UC Berkeley and UCLA (26th and 27th) –, Illinois, Michigan, Minnesota and Wisconsin).
    This list is almost incredibly exclusive. Every one of the 10 listed as “colonial” and “private” Ivy League universities is in the top 25 of Table 1. The five state universities are ranked 26th to 123rd. The American “non-Ivy” university in the top 25 is the California Institute of Technology (Caltech), a private research university in Pasadena, CA, founded in 1891. It appears to have all the hallmarks of Ivy League and is one of 18 American Institutes of Technology, which include one other Ivy, MIT.
  19. The Crow and Dabars book mentioned in the previous footnote (Designing the New American University – see Section 4 of Some Big Possible Positives – Or?) describes Michael Crow’s appointment as president of Arizona State University in 2002, after serving at the Ivy League Columbia University. Thirteen years later, ASU is in 249th position globally, suggesting that becoming a new top elite university is time-consuming and possibly limited by its dual objective to become excellent in general education as well as research. Its overall score was 47.5 of 100, boosted by higher citations per faculty (75.1) and academic reputation (60.3), but achieving only 39.9 on international students. Its best global rank for subjects, environmental studies, was excellent (39th).
  20. The 3.5% covers 1.2% in the top 50 and 2.3% ranked 51st to 150th. These were combined on Chart 2 due to lack of space.
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