Mergers and Acquisitions

June 1, 2005 Tags: Islamism

Mergers and Acquisitions

The balance of power may make this transition easier. If the new leader of the system confronts a series of like-minded balancers, the difference in power between the top two states may not be all-important even though no new mergers take place. Short of mergers, a counterbalancing coalition may link India and Japan with the United States. China's growth will affect those nations as directly as it will America. Thus, Chinese primacy may not translate into the power to expand regionally or internationally.

The need to formally balance China's relative strength may not arise, however. An American merger with Europe would create an unbreakable combination that provides similar size and scale as corporate mergers do today. If China becomes the Wal-Mart of world politics, the United States and Europe can do better than Sears and K-Mart. Their union would overshadow Chinese growth and size, and it would accommodate other rising nations as well. For the United States to find a merger partner to offset China, America must deepen its ties to Europe. As former Federal Reserve Chairman Paul Volcker recommended, a first step might be to establish bands of allowable currency fluctuation among the dollar, the euro and the yen. This would help to institutionalize relationships already established in the Plaza and Louvre accords of the 1980s. If the Doha Round of WTO negotiations does not reach early agreement, there could be a new transatlantic free trade relationship (TAFTA), laying the foundations for a U.S.-European merger. Such a step would acknowledge that episodic bilateralism is insufficient to deal with the problem of China. Only a growing combination of the United States and Europe would be sufficient to offset the dynamic power of China over the long term. By themselves, neither the American nor the European growth rate will match China's. Corporations would know what to do in such circumstances, but states are only now becoming aware of the need for combination.

China will not remain immobile as Europe and the United States begin to merge their foreign policy fortunes. Beijing will turn to neighboring states for support, perhaps negotiating a special trade bloc with Japan, Korea and Southeast Asian states. Beijing might seek to fashion a new currency link among the renminbi, the yen and the won to prevent the dollar's slide from exporting inflation into Far Eastern economies. As China sells more to its own consumers and less to the outside world, a fixed relationship to the U.S. dollar will in any event be less important. At some point China will raise the value of the renminbi to take the economic pressure off its trade relationship with the United States and Europe.

If Beijing seeks a merger with Far Eastern nations, it will find that partner countries do not wish to form a permanent connection with an authoritarian and therefore unpredictable regime. What could happen if a future China undergoes massive political change? On June 4, 1989, the democracy movement failed at Tiananmen Square, but the protesters represented an elite in waiting. Educated youth espousing democracy have until now been the perpetual bridesmaids in Chinese politics, but that doesn't mean that their generation is not planning to exert political influence as the Communist Party wanes or loses legitimacy. Moreover, the Chinese movement for democracy is able to sustain itself in the more independent incubator of Hong Kong. China's present hesitant elite may not realize that without democratization, Beijing cannot form structural--which is to say, constitutional--ties with others. Mergers are impossible. In this sense the most powerful weapon in the hands of China's elite is not economic growth or military preparedness, but political transformation. A democratic China would be a far more potent factor in international politics than the conflicted and cautious regime of the moment. Such a China would also likely be constrained by its democratic character from attacking other democracies.

A New Partnership?

A particular synergy would animate a merger between the United States and Europe. They have similar democratic political systems, but complementary, not identical economies. The United States is a buying power, a powerhouse of consumption. Europe is a selling power, a powerhouse of savings and investment. U.S. development over the long term will depend upon heavy European investment. Europe's ability to sell abroad, meanwhile, will depend upon investment and production overseas, particularly in the United States. Both powers depend upon investments in high technology, information technology and biotechnology, and the development of a Euro-American common market will stimulate these. Without markets in the United States, Europe will slow down. Without European capital, the United States will decelerate. They are fitted, hand-in-glove, for each other. In addition, the United States provides a more decisive form of foreign policy leadership when new crises emerge. The EU excels in long-term strategies, the United States in prompt rejoinders to immediate threats, and at least at this time, the United States possesses the logistics and lift capabilities needed to intervene in crisis regions when necessary. Again, the combination of the United States and Europe is stronger than either taken separately.

This does not mean that the United States or Europe can simply count on a merger combination to solve problems for them. Domestic economic progress and democracy are the two factors that attract emulation by other nations and therefore provide merger momentum. America and Europe must maintain economic momentum and democratic stability. Nor will such mergers create "superstates" designed to overawe China through military prowess or expansion. Merged combinations--confederations--operate slowly because they have to achieve consensus among existing as well as potential members. Slow, deliberative and consultative policies should not create an insuperable barrier to a common position on China, because Beijing also views international matters from a long-term, even glacial perspective. Mergers may be slow and long term, but the spread of democratic institutions and values will help forge among partners a common point of view toward the outside world. Brussels, Washington and Beijing already look at problems of terrorism and rogue states from a similar standpoint. Under such circumstances, the very definition of "power" may begin to undergo change. The greatest power is not military; it is social. It involves, as George Kennan noted, the replication and extension of one's free society through international adoption of its usages. Merged societies create institutions and values that others can employ themselves. This is the true meaning of "soft power" as depicted by Joseph Nye. Thus, while it is true that mergers may involve ponderous decision-making, they also evoke emulation by other nations.

In addition, mergers may attract others, possibly even the Russian Federation. While Vladimir Putin focuses on raw-materials links with Beijing, with Moscow providing much needed oil and minerals to China, a much closer U.S.-European association would raise questions about Russia's long-term strategic response. An America domesticated by Europe would be much more attractive to Russia than the U.S. "lone wolf" of Bush's first term. Russia will never be able to sell anything but raw materials to China. But a Russia more closely linked to Europe and more attuned to Western legal systems would offer an inviting prospect for industrial investment from both Europe and the United States. Given its educated population, Russia's software competence could become a useful accompaniment to Western industry.

The United States will always need a powerful military establishment. There are certain tasks that, as President Bush saw in his 2002 strategy statement, require pre-emption to succeed. But in dealing with other major powers, pre-emption is neither feasible nor justified. Even in occupying third world nations, a largely unilateral invasion should not be the strategy of choice. After early apparent success, the dilemma of the victor's inheritance continues to confront both America and a successor Iraqi regime. In the face of domestic opposition, continued occupation is a very costly project. Much more effective over the long term is successful and additive merger with other nations which creates emulation by nearby countries. History has not been written on such subjects, but it is worth asking whether the European Union's prospective admission of Turkey may not have greater long-term effect on international politics than the U.S. invasion of Iraq. But most important, mergers are the only practical antidote to China's growth strategy. The United States can neither attack nor occupy China. Nor can the United States or Europe grow quickly enough to offset Chinese economic gains between now and 2030. Like that of industrial corporations, the appropriate recourse of the two Western power blocs is successful merger with each other.

Essay Types: Essay