Russian giants Lukoil and Gazprom have been expanding their operations in Europe.

Earlier this month, Serbian President Boris Tadic narrowly won re-election, emerging the victor after a hard-fought battle with a radical nationalist challenger, Tomislav Nikolic. The race not only reflected the deep political divide within Serbia, but also provided another example of the competition among international powers for influence over the Balkan country.

Nikolic’s campaign advocated closer ties with Russia, which has backed Serbia in the diplomatic fight over Kosovo. Meanwhile, the pro-Western Tadic may have been helped by the EU holding out the promise of visa liberalization and a new interim agreement with the bloc. The race, in effect, became a referendum on Serbia’s international alignment.

Similar contests for influence may be expected in the region in the years ahead. By virtue of its geographic location, the Balkan peninsula inhabits a geopolitical divide between East and West. That divide is no longer underpinned by a clash between different economic systems -- that is, capitalism versus communism. Rather, in the emerging era it is increasingly a contest among different models of capitalism, not all of which imply political democracy.
Talk of competition within the capitalist world is not new. It has been going on since the end of the Cold War. French economist Michel Albert and others contrasted an Anglo-Saxon model (exemplified by Britain and the United States) with a continental one (France, Germany). Others saw "Fortress Europe" reducing productivity gaps vis-à-vis the US economy, and even overtaking it in some fields. Looking beyond the West, MIT Professor Lester Thurow envisaged a tripolar world economy, with Japan as the third pole.

More recently, the scope of discussion has broadened further to take into account the rise of China and India. Their economies are highly vital, as measured by growth rates, export expansion, size of forex reserves, and the absorption -- as well as, increasingly, the generation of modern technologies.

Along with the tectonic economic shifts come geopolitical ones. Both countries have experienced some success in reshaping the institutional setup that has ordered international affairs since the World War II.

Major Chinese and Indian companies have a global reach, acquiring stakes in firms around the world. China, India and Brazil are increasingly present in the global competition for scarce, exhaustible resources such as oil and gas. China provides economic aid as a means to bolster its credentials in poor countries that have major natural resources -- in Africa, for example.

The economic and technological progress of China and other Asian countries is likely to continue at a fast pace over the next couple of decades. [Getty Images]
Resources have also fueled Russia's comeback on the international scene. While Western economies reel from higher energy prices, the Russian giants Lukoil and Gazprom have been expanding their operations in Europe. In January, Gazprom secured a deal to buy a majority stake in Serbia’s gas and oil monopoly, NIS. The terms include giving Serbia a role in gas shipments to Western Europe.

Significant trends have also been seen in the financial sector. Following the subprime crisis that threw banking into turmoil on both sides of the Atlantic, for instance, top-notch financial groups such as Citigroup and Morgan Stanley looked to Sovereign Wealth Funds (SWFs) as a vehicle for offsetting huge losses. More than a few SWFs belong to countries which have been ideological adversaries of the West during the past century. China and Russia, whose foreign exchange reserves as of late 2007 exceeded $1,400 billion and $400 billion respectively, have both set up SWFs with large endowments.
As worldwide competitive hierarchies are modified, the West faces challenges to its ability to set the rules of the game in the global marketplace. The pressures of globalization have not created a "flat world economy", but rather a redistribution of world economic power. In addition, zero sum games are becoming common, especially during periods of rapid and frantic change, as adjustment costs vary enormously among countries.

Liberal democracies themselves are feeling the pull of authoritarian temptations -- or at least of direct state involvement in social and economic issues -- because of the threats facing the world today, including terrorism, the need to secure energy supplies, and the effects of global warming. Both the United States and the EU have seen heated debates over whether, or to what extent, civil liberties should be balanced against the need for security. The rise of economic nationalism can be seen in this context.

Western countries will remain the most powerful economic and military force in the world for the foreseeable future. However, both the United States and the EU have difficult issues to address. The United States faces external deficits and military overstretch. The EU has had problems managing its organisational complexity and must deal with internal institutional and policy incoherence. Meanwhile, the economic and technological progress of China and other Asian countries is likely to continue at a fast pace over the next couple of decades, and Russia will continue to flex its muscles.

Capitalism has won the Cold War; it has defeated the communist system. But the world we are heading to does not automatically entail the supremacy of liberal democracy. Furthermore, the relative power of the EU and the United States in the world economy – as measured by global GDP, industrial production, exports and other indicators -- seems almost certain to decline in the coming decades.
However, this comparative decline can be accompanied by a rise of soft power around the world, especially if new countries join the family of liberal democracies. Western countries can take the lead in addressing global issues such as climate change and international trade. They can also seek to engage the emerging powers, such as China and India, in managing global "hot spots" and other issues of urgency.

At the same time, reforms that will bring more vitality to Western economies are of great significance; the Lisbon Agenda is a self-explanatory policy response from the EU. Whether liberal democracies are able to fight terrorism without allowing an erosion of their institutional and moral underpinnings will also make a difference.

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By Daniel Daianu for Southeast European Times in Bucharest -- Published: 11 February 2008