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. Last Updated: 07/27/2016

U. S. policy agenda: Economics on the rise

For the past five years, there really has not been an American foreign policy. The world's only superpower has been floundering about its role in the world ever since Georgy Arbatov first made his prescient warning from his office at Moscow's old U. S. A. and -Canada Institute.

"We are going to do the worst thing we possibly can to America - we are going to take away their enemy", Arbatov forecast back in 1986. So it happened. The main organizing principle of American policy, opposition to the Soviet Union, slowly disappeared.

Since then, we have heard vague talk of President George Bush's New World Order, which now seems to be a phrase looking around vaguely for a policy. In the Gulf, it meant collective international action against aggression, led by America. In what was Yugoslavia, the New World Order did not seem to mean anything at all.

But a new idea has replaced it. The first signs came from Harvard Professor Robert Reich, the main economic

adviser of the Democratic Party presidential candidate Bill Clinton. He suggested that with the Cold War over, the National Security Council, the president's own private think tank and coordinating office for global affairs, had lost its point.

Reich says the old NSC should be wound up, and replaced by a new and similar office which goes to the heart of America's top international priority for the 1990s - to be called the National Economic Security Council. Reich's idea is that trade and economic policy is now so crucial that it needs to take over from the Cold War itself at the heart of U. S. strategic concerns.

Now the American establishment itself is coming round. The Carnegie Endowment last year brought together a commission to draft a new policy on "America and the New World". Just published, its first principle echoes Reich: "Our foreign policy must be founded on a renewal of our domestic strength; rebuilding our economic base is now our highest priority".

"To advance our interests abroad we must get our own house in order. An American that lacks economic strength and social cohesion will lose respect abroad", it warns. "Greater economic parity among North America, East Asia and Europe has caused a sea change in world trade and finance. We have no choice but to move from what was formerly the hegemony of a

single country to collective management by the industrial democracies".

Sitting on the commission were former defence secretary Frank Carlucci, former chairman of the joint chiefs of staff Admiral William Crowe, Barber Conable, the last head of the World Bank, and a group of former assistant secretaries of state, senators, congressmen and bankers, and Tom Donahue, secretary-treasurer of the AFL-CIO, the main trade-union organization.

The Carnegie Commission has two main proposals, which also echo the thinking among Bill Clinton's advisers. The first is that the G-7 group of leading industrial nations should become the G-3, of the United States, Japan and the European Community.

The second suggestion, which echoes a lot of the new thinking at the EC headquarters in Brussels, is worth quoting at length. It calls for:

"A renewed commitment to develop operating principles of international monetary cooperation, exchange-rate management and policy coordination, especially in light of the possible evolution of a European currency. An agreement on exchange-rate undertakings, perhaps target zones for key currencies, or fixed but adjustable parities, would be based on commitments to growth, price stability and avoidance of unsustainable external imbalances".

This sounds like Bretton Woods, the 1944-45 conference at which Britain and the United States laid out the post-war economic order, based on the dollar and the pound sterling as the international reserve currencies at fixed exchange rates. The new focus on the G-3 makes it clear that the new world economic order will be based on the dollar, the yen and the Ecu (or deutsche mark).

When we think of the early years of the Cold War, we tend to think of security organizations like NATO and the Warsaw Pact. But the main reason why the West prevailed was economic, the growth that came from the financial systems established back in the 1940s like the World Bank and IMF, and the Organization for Economic Cooperation and Development.

The Soviet Union paid a heavy price for its exclusion from world trade and finance during the Cold War. and because of its economic weakness, Russia is now faced with exclusion from the new system that is beginning to emerge.