Dealing with a variety of world powers

One of the first challenges that President Barack Obama will face is the effect of the ongoing financial crisis, which has called into question the future of American power.

An article in The Far Eastern Economic Review proclaims that "Wall Street's crack-up presages a global tectonic shift: the beginning of the decline of American power."

Russian President Dmitri Medvedev sees the crisis as a sign that America's global leadership is coming to an end, and Venezuelan President Hugo Chavez has declared that Beijing is now much more relevant than New York.

Yet the dollar, a symbol of American financial power, has surged rather than declined. As Kenneth Rogoff, a Harvard professor and former chief economist of the IMF notes, "It is ironic, given that we just messed up big-time, that the response of foreigners is to pour more money into us."

It used to be said that when America sneezed, the rest of the world caught a cold. More recently, many claimed that with the rise of China and the petro-states, an American slowdown could be decoupled from the rest of the world.

But when the US caught the financial flu, others followed. Many foreign leaders quickly switched from schadenfreude to fear - and to the security of US treasury bills.

Game of chess

Crises often refute conventional wisdom, and this one reveals that the underlying strength of the American economy remains impressive.

The poor performance of Wall Street and America regulators has cost America a good deal in terms of the soft power of its economic model's attractiveness, but the blow need not be fatal if, in contrast to Japan in the 1990's, the US manages to absorb the losses and limit the damage.

The World Economic Forum still rates the American economy as the world's most competitive, owing to its labour-market flexibility, higher education, political stability and openness to innovation.

The larger question concerns the long-term future of American power. A new forecast for 2025 being prepared by the US National Intelligence Council projects that American dominance will be "much diminished," and that the one key area of continued American superiority - military power - will be less significant in the competitive world of the future.

This is not so much a question of American decline as "the rise of the rest."

Power always depends on context, and in today's world, it is distributed in a pattern that resembles a complex three-dimensional chess game.

On the top chessboard, military power is largely unipolar and likely to remain so for a while. But on the middle chessboard, economic power is already multi-polar, with the US, Europe, Japan and China as the major players and others gaining in importance.

The bottom chessboard is the realm of transnational relations that cross borders outside government control.

It includes actors as diverse as bankers electronically transferring sums larger than most national budgets, as well as terrorists transferring weapons or hackers disrupting internet operations.

It also includes new challenges like pandemics and climate change. On this bottom board, power is widely dispersed.

Even in the aftermath of the financial crisis, the giddy pace of technological change is likely to continue to drive globalisation, but the political effects will be different for the world of nation-states and the world of non-state actors. In inter-state politics, the most important factor will be the continuing "return of Asia."

In 1750, Asia had three-fifths of the world population and three-fifths of the world's economic output. By 1900, after the industrial revolution in Europe and America, Asia accounted for just one-fifth of world output. By 2040, Asia will be well on its way back to its historical share.

The rise of non-state actors also must be managed. In 2001, a non-state group killed more Americans than Japan killed at Pearl Harbour.

A pandemic spread by birds or travellers on aircraft could kill more people than those who perished in the First and Second World Wars.

The problems of the diffusion of power (away from states) may turn out to be more difficult than shifts in power between states.

The challenge for Barack Obama is that more and more issues and problems are outside the control of even the most powerful state.

Although the US does well on the traditional measures of power, those measures increasingly fail to capture much of what defines world politics, which is changing in a way that prevents Americans from achieving all their international goals by acting alone.

For example, international financial stability is vital to American prosperity, but the US needs the cooperation of others to ensure it.

Global climate change, too, will affect the quality of life, but the US cannot manage the problem alone.

And, in a world where borders are becoming increasingly porous to everything from drugs to infectious diseases to terrorism, America must mobilise international coalitions to address shared threats and challenges.

Joseph S. Nye Jr. is a professor at Harvard's Kennedy School of Government and author most recently of The Powers to Lead.