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Crises breed denial. Whether a crisis concerns an individual’s health, career or marriage, a company’s reputation or market share, or a nation’s place in the global pecking order, powerful incentives exist within the stricken entity to aspire to a return to normalcy — and to proceed as if that result represents the only option. However, as we all know from human experience, some setbacks are irreversible. We believe the recent meltdown suffered by the U.S. and its partners on the liberal side of the global economy is one of them.

Still, many policymakers and economic thinkers in the U.S., Europe and Japan remain shrouded in denial. They assume that after a period of healing, high growth will return and the rules of global capitalism will restore the preeminence of the U.S. economy and the appeal of a chastened (yet only slightly less freewheeling) laissez-faire Anglo-Saxon model.

Such thinking is either dangerously naive or the result of epistemological blindness. A scenario can be charted in which the U.S. and its liberal market adherents not only return to precrisis “potential growth” but even exceed it. But the political, economic, financial and psychological hurdles standing in the way of this scenario suggest it would require divine intervention to make it so. An extended period of anemic, subpar growth is the much more likely scenario as there is a painful deleveraging by households, financial sectors and governments. One cannot even rule out the risk of a double-dip recession in the U.S. and other advanced economies.

Clearer-minded souls understand that the world of the bubbles is gone and that hard work looms ahead if the advanced economies are to emerge from this period with any hope of keeping pace with the developing world. The policymakers of the market liberal bloc — and yes, in this grave new world, that’s how we should think of the old Group of Seven — would need to be willing to take bold action (see “Seven Ways to Save the World”).

Even if there is growth after the current anemic period, the ancien régime (that is, the G-7) is on a trajectory to be overtaken by the rising powers of the emerging world as the century unfolds. Because of this, the U.S. and the rest of the free-market economies must use the political leverage they have today to lock in rational safeguards and agreements that will govern the global economy of tomorrow.

After a few more years of lackluster growth — unavoidable due to the deleveraging needs of households and the business sector — financial institutions and governments will seek a return to growth and even demand that national governments move, or move out of the way, to increase it. This will be a dangerous moment — one that war correspondents refer to as “survivor’s euphoria.” The illusion, of course, is of invulnerability, and too often lessons learned in previous brushes with mortality are cast aside.

One thing the U.S. could do for itself, and for the world, is forgo the seemingly inevitable hand-wringing and political posturing that are already ramping up over the question of the country’s declining influence. It has become increasingly clear to all but the most ideological of analysts over the past several years that U.S. strength is on the wane. Conventional wisdom has it that a U.S.-dominated unipolar global system is giving way to a multipolar order, one in which various emerging powers advance competing ideas for how the world should be run and act to further their agendas. Conventional wisdom has it wrong. The financial crisis and global market meltdown have created conditions for a “nonpolar” order — one in which America’s chief competitors remain much too busy with problems at home and along their borders to bear heavy international burdens.

This trend is most clearly visible in the transition of the past two years, hastened by political and economic upheaval, from a G-7 to a Group of 20 model of international decision making that provides the governments of increasingly influential and deep-pocketed developing countries like Brazil, China, India, Saudi Arabia and the United Arab Emirates with seats at today’s most important international bargaining table. Without these countries, multilateral efforts to solve pressing transnational problems wouldn’t have much credibility. But getting this varied group to agree on anything beyond declarations of vaguely worded principle will be profoundly difficult. And countries like China continue to seek a free ride, not realizing that sitting at the table of global economic and financial governance implies both rights and duties. As the artificial unity imposed in 2008–’09 by a shared sense of crisis continues to erode, this problem will grow.

How could it be otherwise? When the number of negotiators in the room expands from seven to 20, it’s much harder to reach consensus on much of anything. More worrisome still, the G-20 includes countries with sharply diverging views on democracy, the proper role of government in an economy, investment rules, the importance (and meaning) of transparency, and the best way to ensure that institutions like the United Nations, the International Monetary Fund and the World Bank reflect today’s true balance of power. The G-20 could never have forged a “Bretton Woods II,” an absurdly ambitious 21st-century attempt to update the multilateral agreements of 1944 that established the rules and institutions that have governed the international monetary system ever since. In fact, the G-20 will become not so much a second Bretton Woods as a supersized U.N. Security Council: a dysfunctional institution often undermined by irreconcilable differences among veto-wielding members. The recent Toronto G-20 communiqué — which is several times longer than any G-7 declaration and fudges the disagreements over growth and austerity now — is an example of this kind of impasse.

An organization that includes members with such fundamental philosophical differences can produce results only when everyone is afraid of the same thing at the same time, such as during the global economic and financial meltdown of 2008–’09. Given the obvious differences in the ways that American, Brazilian, Chinese, German, Indian, Japanese, Russian and South African officials calculate their interests, solutions to pressing transnational problems like global trade imbalances, nuclear nonproliferation and climate change are unlikely to come in coordinated fashion. Policymakers in different countries will try to tackle these problems on their own or will choose to ignore them. This lack of coordination will exacerbate global economic and financial asymmetries. Reducing global current-account imbalances that were one of the causes of the financial crisis requires overspending countries — the U.S. and other Anglo-Saxon nations, as well as the PIIGS (Portugal, Italy, Ireland, Greece and Spain) — to spend less in the private and public sectors, and oversaving countries like China, Germany and Japan to save less, consume more and let their currencies appreciate.

Governments design stimulus plans to satisfy political and economic demands at home, not to revitalize the global economy. In response to the slowdown among China’s largest trading partners — the European Union, U.S. and Japan, respectively — Chinese officials implemented a program to boost state spending on roads, bridges, ports and energy infrastructure. The main intent was to create jobs that would keep Chinese workers productive and off the streets, reducing the risk of civil unrest and large-scale domestic challenges to the Communist Party’s right to rule. The leaders of developed countries have acted in much the same way. Washington bailed out U.S. automakers to keep thousands of U.S. workers from losing their jobs, and promises made during G-20 meetings to avoid actions that would shield domestic companies from foreign competition weren’t going to stop it.

G-20 heads of state will gather in Seoul in November, and there will be plenty more such summits in years to come. Yet policy responses to transnational problems will continue to be improvised and incomplete. U.S. negotiators will resist any institutional framework that allows foreign leaders to impose binding rules on Washington. China will stoke growth to create new jobs, managing development to try to prevent crises that could provoke the kind of social unrest the state can’t contain. Russian leaders will continue to try to attract foreign investment while extending state control across strategic sectors of the domestic economy and using the country’s energy resources as geopolitical leverage. India will pursue trade liberalization at its own pace. Brazil will try to use its newly discovered offshore oil to enable state-run oil company Petróleo Brasileiro to become an ever-more useful tool of economic policy. Saudi Arabia will use its still-considerable reserves to help manage oil prices and will act as producer and lender of last resort when it finds good value for its money. Efforts to move these governments toward harmonious and effective policy responses to problems that extend beyond the financial crisis — collective security, counterterrorism, climate change and global public health emergencies — will fall short.

Individual governments or coalitions of governments will not have much success in addressing these problems on their own. In the U.S. the Obama administration will have to focus on finding creative ways to spur domestic economic growth and to create jobs in a political environment in which Republicans will demonize continued government spending and resist needed tax increases, with the risk of an eventual fiscal wreck. The U.K. will downsize its foreign policy ambitions as its coalition government works to put the country’s fiscal house in order. Fears for the future of the euro zone will dominate discussion in Brussels. Recent legislative elections hint at more upheaval to come in Japan’s politics.

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