SPECIAL REPORT: Seeking a New World : 1: For the Strong, a New Dynamic of Power : The Cold War is over and old alliances are being replaced by partnerships based on economic interests and regional conflicts.

Every Tuesday morning, a computer screen on the third floor of the Pentagon lights up with a row of figures, white against a dark background: $250,000,000.00.

“Our weekly check,” one official wryly describes it. Each computer entry is an installment on the emir of Kuwait’s $2.5-billion contribution to the U.S.-led effort to free his oil-rich nation.

President Bush hailed the emir’s contribution, along with similar funds from Japan and elsewhere, as a heartening sign of “a new world order,” a grand alliance against a common threat from Iraq.

It is also the first time in history that a U.S. military operation has been subsidized by foreign governments. As such, the novel arrangement--like the crisis that spawned it--reflects profound changes in the way the United States and other nations exercise power in a new era.


The Persian Gulf crisis has shown clearly that the United States stands alone as a world leader; no other nation approaches its combination of military might, economic muscle and political sway. Yet never before in what was once called the “American Century” has Washington’s freedom to flex its muscles been so circumscribed, so dependent on the political and financial cooperation of allies.

Once, America could send hundreds of thousands of troops into foreign combat largely at its own discretion. Today, as a practical matter, Bush can resort to military force only with the support of others--from the emir of Kuwait to the leader of the Soviet Union, in the case of the gulf crisis. And what is true for George Bush is truer still for the leaders of the other developed nations of the world.

From Washington and London to Tokyo and Bonn, world leaders are struggling to cope with two sweeping changes in the realities of power.

The ending of the Cold War means that the age of the nuclear superpowers, in which every nation had to define itself in terms of the titanic East-West struggle, is over. Its passing lifts the threat of Armageddon, but it also dissolves the political structures that gave the world a generation of stability. And it removes those structures at a time when smaller countries, many still in conflict with their neighbors, are amassing ever more destructive weaponry.

“The control that used to be imposed by the Soviet Union and the United States will disappear,” warned Gen. Hiroomi Kurisu, a former chairman of Japan’s joint chiefs of staff, “and the national interests of all countries will come increasingly into conflict.”

At the same time, the globalization of the world economy has changed the concept of national power. “Economic power, as a base for political power and a political voice, has grown because the danger of a big war has receded,” said former Japanese Prime Minister Yasuhiro Nakasone.

“For stability and confidence-building, political and economic power--not military power--is important,” he said.

“The period which we call the Cold War was a period entirely dominated by military issues,” agreed Valery Giscard d’Estaing, the former president of France. “We lived in the expectation of war. . . . But economic issues are now taking the lead.”


Globalization has forced every nation to refocus its energies on an international competition for markets and profits. “Markets are becoming more important than countries,” said Israel’s former finance minister Shimon Peres. “Economics is beginning to be as important as strategy.”

French President Francois Mitterrand put it even more simply last spring when he offered his countrymen a modern-day summons to greatness. “The French must have a conquering mentality,” he said. “The French must learn to sell.”

To do that, national governments are finding that they must cede increasingly significant portions of their authority “upward” to regional institutions such as the European Community and “outward” to international financial entities such as global credit markets.

This increased focus on economic competition has not eliminated the importance of military power, as the gulf crisis attests, but it has made military adventures appear more costly. Both the United States and the Soviet Union have drawn a major lesson from the stunning economic success of Japan, which forswore offensive armament after World War II: The “national security” the old superpowers built out of missiles and guns was sapping their economic strength.


Moreover, as economic competition sharpens in the 1990s and beyond, some countries will be left behind--a circumstance that will increase the potential for conflict between the generally prosperous Northern Hemisphere and the generally struggling Southern Hemisphere.

Finally, the globalization process will not eliminate tension among the advanced industrial nations themselves. Indeed, it may well sharpen them. Even as increased trade and financial flows make countries more interdependent, they provoke political and cultural backlashes that may become the seeds of serious conflict. As one result, by the end of the 1990s, the world could be divided into three rival trading blocs grouped around the United States, Japan and the German-led European Community--the industrial powers that some are already calling the “Big Three.”

The Western alliance against the Soviet Union served for 40 years not only to contain East-West tensions but to submerge economic, political and military tensions among the Big Three.

During the 1950s and 1960s, the United States often gave its allies the benefit of the doubt on trade issues, because it was U.S. policy to rebuild their economies as bulwarks against Soviet expansion. During the 1970s and 1980s, Japan and Europe sometimes gave the United States the benefit of the doubt, because they needed American good will on political and military questions. Now those reasons for flexibility are gone.


The leaders of the Big Three have all pledged to avoid a trade war that would divide the world into hostile blocs, and so far they have succeeded. Nevertheless, tensions over trade and finance are already rising to what officials describe as potentially dangerous levels, especially between the United States and Japan.

“There’s no question that there will be a major struggle . . . over economic organization in the world,” says Brent Scowcroft, President Bush’s national security adviser. “There will probably be a lot more West-West friction . . . (including) with Japan.”

Bumping up against such rude realities will be hard for every country, not least the United States. Yet how well Americans respond to these new realities is likely to determine the extent to which the nation can retain its position of world leadership--and material well-being--at the dawn of the 21st Century.

“The issue is whether (the) three power centers--the United States, Japan and Western Europe--can manage this process of transition and whether we (Americans) can manage the process of not being able to have our own way as often as we used to,” said Deputy Secretary of State Lawrence S. Eagleburger.



A few weeks ago, Sen. Mark O. Hatfield (R-Ore.) attempted a time-honored maneuver of American diplomacy: using foreign aid to influence another government. Hatfield, concerned by the plight of Indochinese refugees, warned an official from Malaysia that his country might lose its U.S. aid if it didn’t allow more “boat people” to land.

Hatfield was dismayed at the Malaysian official’s response. “We might listen to such a threat from Japan (now the world’s largest aid donor),” the diplomat reportedly said, “but not from you; U.S. aid is no longer large enough to give you that kind of pull.”

Hatfield’s encounter reflected one of the basic new realities confronting American leaders: The emerging world order is multipolar, not bipolar, and the relative clout of the old superpowers has shrunk accordingly. Instead of two great alliances formed around the United States and the Soviet Union, the game of world politics is now being played by four or five “great powers"--the United States, Japan, the Soviet Union, the German-led European Community and China, by some reckonings--and a host of lesser states.


In a sense, a multipolar world means a return to the normal pattern; the bipolar structure of the Cold War was virtually unprecedented in history. But this new, multipolar world is different from its predecessors of the 19th Century and before because power is now so broadly distributed; even the great powers can no longer enforce their will.

In Afghanistan, for example, the last proxy war of the East-West confrontation revealed how the superpowers’ sway has diminished. First, Muslim guerrillas equipped with American weapons humiliated the mighty Soviet army and forced it to withdraw; then they turned on their American benefactors and rejected Washington’s advice on a political settlement.

Now Afghanistan, one of the poorest countries on Earth, is under the control of neither superpower. “We can’t deliver our Afghans,” a harried U.S. diplomat said, “and they can’t deliver theirs.”

In other regions torn by conflict, from Lebanon to Cambodia, the great powers have found it difficult to impose peace settlements even when they acted in concert. The confrontation in the Persian Gulf may be the ultimate test: Every major country in the world has joined a grand coalition to demand Iraq’s withdrawal from Kuwait, but after four months the outcome remains very much in doubt.


“The ability of outsiders to influence events is generally declining,” said Richard Haass, a former Harvard professor now on the National Security Council staff. “There are simply too many sources of wealth, technology and arms for either the United States or the Soviet Union to be in a position to dictate local decisions. . . . Denial of military or political support is thus a less credible sanction than it was. So too is the threat to intervene.”

As a result, being “No. 1,” the power whose influence clearly outstrips the rest, no longer means what it used to mean. Even the strongest can seldom act alone to control events or nations. In the Persian Gulf, for example, Bush has had to play chief fund-raiser and diplomatic cajoler as much as commander in chief--as his recent whirlwind trip across Europe and the Middle East demonstrated.

As the superpowers diminish in relative terms, “regional powers” become more important in their parts of the world. One example is Iraq; Saddam Hussein used his eight-year-long war with Iran to assert a claim to leadership in the Arab world, and built the armed forces to back it up.

Another is India, which has built the fourth-largest army and seventh-largest navy in the world, including two aircraft carriers, to assert its influence around the Indian Ocean. “India’s growing reach has us concerned,” said a senior Japanese official--explaining why Tokyo’s navy wants to expand, too.


Unlike the Cold War lineup, this new multipolar balance of power will be unpredictable. Without a single enemy to serve as the focus of joint efforts, the 1990s may see a series of shifting, ad hoc alliances.

“At the moment you have the Iraqi situation, which has called forth an alliance of a certain configuration,” noted Giscard d’Estaing. “But if there’s a crisis in Central America, the alliance will be of another configuration, and if China falls apart it’ll be another.”

Thus the strange international bedfellows of the past year--Syria joining the United States against Iraq; Poland asking Soviet help to fix its border with Germany--are probably only the first of a long series of diplomatic one-night stands.



Even more remarkable than the redistribution of power among individual countries, however, is the growing transfer of clout from countries to other institutions. The nation-state, the principle building block of political power of the past 500 years, is no longer the only important player on the international scene. The history of the past five centuries was dominated by the struggle of great nations to extend their sovereignty over ever-larger areas; now, the same great nations are voluntarily surrendering some of that sovereignty--the better to compete in the new global economy.

In Europe, for example, the most important center for economic policy-making is no longer Paris or London or Berlin but Brussels, headquarters of the 12-nation European Community--to the point that the EC may soon have a single, common currency, the Ecu. Britons, Frenchmen and Germans--peoples who have long gloried in their distinctive nationalities--now carry a uniform, burgundy, “European Community” passport.

In North America, the United States and Canada have established not only a free-trade zone but also a binational authority to referee trade disputes.

This year’s treaty on conventional armed forces in Europe commits the Continent’s major powers, as well as the United States, to allow more foreign inspection of their military facilities than ever before.


And globally, the recently signed protocols on chlorofluorocarbons, believed to be the largest single cause of ozone depletion in the atmosphere, bind each nation to phase out CFCs and report their compliance to a supranational monitoring committee--the first time individual nations have ever agreed jointly to end the use of a non-military commodity.

“It is not nation-building but continent-building which is on the agenda of the 21st Century,” said Helmut Wagner of the Free University of Berlin.

Old ideas of sovereignty and nationality are also shaken by the rise of global corporations, which operate in so many countries they can often assert whatever “nationality” suits their purposes.

In 1988, for example, CBS Records asked President Reagan’s trade representative, Clayton K. Yeutter, to press Japan for new regulations to protect American recording rights. It was a normal request--except that the man who asked Yeutter’s help was Akio Morita, chairman of Japan’s Sony Corp., which had just bought CBS.


“Morita said we could put pressure on Tokyo more easily than he could,” a U.S. official recalled. Yeutter and his successor, Carla Anderson Hills, agreed to press CBS’ case, and the regulations were changed.

Rupert Murdoch’s News International Corp. began as an Australian concern, then shifted the focus of its operations to Britain. But after Murdoch bought the Metromedia and Fox television stations in 1985, he became a U.S. citizen, and now lives part of the time in Los Angeles. (Under the law, foreigners may not own American television stations.) Whirlpool Corp., which began as a U.S. appliance maker, now operates in 45 countries and employs more foreigners than Americans.

As the world economy has become globalized, allowing money, goods and services to flow across borders more easily, the nation-state has lost power to another entity: the global market itself.

“The truth is that (the U.S. government’s) main loss of power has been to the market,” said Susan Strange, professor of international relations at the European University Institute in Florence, Italy.


The phenomenon can be seen in the reduced freedom of governments to manage their domestic economies as they please. Once, for example, the Federal Reserve Board could react to the first signs of a recession by lowering interest rates and thus stimulating more economic activity. Today, economists say, the Fed feels less free to push rates down.

“The Fed used to move, and the world would follow,” said Harald B. Malmgren, a former U.S. trade negotiator. “Today it’s paralyzed. If we lower interest rates more than a little, the dollar will fall, we’ll have rapid inflation and capital will move out of the country. . . . It’s no longer possible to manage the dollar as if it were our national currency; it’s been internationalized.”

Former Secretary of State George P. Shultz sees the combined effects of economic globalization and the erosion of even the strongest nations’ freedom of action as “the decline of sovereignty.”

“Borders don’t mean what they used to mean,” he explained. “Stuff goes across borders without the permission of governments. It didn’t used to do so in such quantity: information, ideas, ballistic missiles, drugs, terrorists, people, goods.


“The concept of absolute sovereignty is long gone,” he said. “As national boundaries blur, sovereign power is dispersed, and new players vie for international influence. . . . Sovereignty, statehood and the nation may be becoming disentangled in important ways.”

These changes make international relations an infinitely more complicated game.

“Nation-states have become less important as political units in the sense of being able to control whatever phenomena--economic, social, environmental or technological--take place in the world,” said Francisco Sagasti of the World Bank. “This is hard to get accustomed to, for all our political systems are geared to focus on the nation-state as the locus of power, decision making, and as the main unit of political, social and economic analysis. We have not learned as yet to live with the fact that those phenomena transcend national boundaries.”



For all its promise, the new, global-economy, loss-of-sovereignty world so far seems to be producing nearly as many opportunities for international tension as the old ideologically polarized, arms-race driven Cold War world.

Last summer’s economic summit in Houston, for example, was supposed to be a celebration of Western unity. But by the time it grumbled to an end, the meeting had turned into an unintended demonstration of how yesterday’s allies are headed down diverging paths.

First, Germany’s Helmut Kohl announced that he was sending aid to the Soviet Union, despite misgivings by the United States and Britain. Then Japan’s Toshiki Kaifu announced that he was resuming loans to China, despite the objections of nearly everyone else. And when President Bush asked for a commitment from the others to cut farm subsidies during the worldwide trade talks known as the Uruguay Round, all he got was general sympathy, no binding pledge.

“Two years ago, the agenda of the European leaders would have included a desire to avoid offending the United States too much, because they needed us as a guard dog,” said ex-trade negotiator Malmgren. “Now they don’t need the guard dog any more. Kohl’s attitude is: ‘I’ll call you back when I’m ready.’ It’s subtle, but it makes a big difference on something like trade.”


As the world’s economy becomes a single, global unit, every move toward unity seems to touch off a countermove toward political or cultural localism.

“Very powerful economic forces compel leaders of the business community to think globally and act globally,” noted Sony chairman Morita. “Very powerful electoral pressures force the politicians to think primarily in terms of local constituencies. . . . As the international community has become more integrated, those threatened by internationalism have become more nationalistic.”

* In global trade talks this fall, France’s agriculture minister bluntly declared: “I don’t want a future of eating (American) cornflakes in a Japanese car.”

* In the United States, the percentage of citizens identifying Japan as the nation’s top adversary is rising steadily.


* In Japan, newspaper columns and television talk shows bristle with complaints about America’s “Japan-bashing” and pressure on trade; yet the Cabinet reaffirmed last month that it will maintain its ban on imported rice.

The question for the 1990s, said Scowcroft, is whether “we are going to have an open trading system, or whether we will break down into giant trading blocs--one with Japan as the center, encompassing East Asia; one with the United States, the Western Hemisphere; one centering on Europe, east and west.”

At the moment, the three-sided conflict is still polite, carried on in the genteel confines of worldwide trade talks. But leaders in each of the Big Three can see scenarios that could turn today’s commercial disputes into economic Cold War.

And the friction goes well beyond trade issues. The biggest new battlefield is technology: Who creates, owns and controls the new knowledge that is increasingly the key to industrial success?


For 20 years, Japan has rung up a string of intimidating successes in producing and marketing technologies invented elsewhere, from the automobile to the videocassette and the semiconductor. Now Japan is launching a concerted effort to rise to the top rank of scientific research as well--and leaders in the United States and Europe are beginning to worry about giving knowledge away to the competition. The phenomenon has even spawned a new buzzword: “techno-nationalism.”

U.S. and European industries complain that far more Western technology is open to their Japanese competitors than the other way around; more than 52,000 Japanese researchers have studied technology in the United States, versus only 4,400 American scientists who have studied in Japan. The United States and Japan have also tangled over the control of aerospace technology (Tokyo wanted the blueprints for advanced U.S. fighter planes, but Washington balked) and advanced semiconductors (some U.S. firms complain that Japanese producers keep their newest chips at home, to gain a head start on developing applications).

But the most critical battle is only beginning: the competition over “computer-integrated manufacturing” that is transforming the assembly line into a high-tech marvel.

“The revolution in production technology is going to be a key defining element of the new strategic competition,” predicted Michael Vlahos, author of a major strategic forecast for the State Department. “The old competition over military technology is being replaced by a new competition over production technology. And it is already getting quite fierce.”


Japan’s Ministry of International Trade and Industry, which directed the rise of Japanese industry, attempted this year to launch a $1-billion international consortium for CIM research, but the United States and the EC stalled the plan for fear that it would give Tokyo too much control.

Japanese officials protest no such intent. “We want to avoid techno-nationalism,” said Yukio Honda, director of MITI’s technology policy planning division. “We want techno-globalism, to develop creative technology not only in Japan but in other countries as well.”

But U.S. officials are openly skeptical. “When MITI says techno-globalism,” a U.S. diplomat in Tokyo said, “that means they already see Japan as No. 1.”

With so many grounds for conflict, “it is as if we have re-entered the pre-World War I era,” warned Maseru Yoshitomi, chief of research at Japan’s Economic Planning Agency. “The drive for greater market share by the three big capitalist systems--Germany, France and Britain--led to World War I. Now we have the same situation--but we know the cost of a world war.


“If this were the time before World War I,” he said with a grim smile, “we’d be at war already.”


The world hardly noticed when the 12 countries of the European Community signed an agreement at Luxembourg in 1986 committing themselves to creating a single, integrated market in six years. But as Europe’s target date of 1992 has drawn closer, the momentum of its integration has increased markedly, and the rest of the world is beginning to see the staid old EC as a new economic colossus to be both feared and emulated.

Today, everybody wants to be part of a free trade bloc. Austria, Turkey and most of the former Soviet satellites have asked if they can join the EC. The United States and Canada have concluded a pact; now Mexico, after two centuries of suspicion, is seeking to join its economy to those of its northern neighbors.


Around the world, visionaries and politicians have proposed free trade zones for South America, South Asia and Southern Africa, various pieces of Eastern Europe and bits of the Middle East--everything from a “Black Sea Economic Zone” to a five-nation European pact called the “Alpen-Adria Pentagonal.”

Will the evolution of such trade blocs lead to a wholesale reversal of economic globalization, sealing parts of the world into self-contained compartments? Almost surely not; globalization has already gone too far.

“The losses of moving to real blocs would be fantastic and would affect very important political actors within each of these areas,” said Harvard economist Jeffrey Sachs. “There are lots of pressures from very important sources and very important companies against that kind of thing.”

Moreover, many of those same companies have hedged their bets by increasing their direct investment in Europe--thus ensuring that if protectionist walls go up, they will already be inside. AT&T;, for example, recently bought a 20% stake in Italtel, Italy’s state-owned communications equipment maker. Texas Instruments is sinking some $1.2 billion into calculator and semiconductor plants in Italy. Intel Corp., reacting to stiffened EC local content requirements, is building a $400-million microprocessor plant in Ireland.


The United States government is arguably making the biggest hedge of all--by launching negotiations on a free trade agreement with Mexico. When complete, the North American Free Trade Area (or NAFTA, as some have dubbed it) will be a market of 361 million consumers, more populous than the EC.

NAFTA could have political and social impacts as great as those that are gradually hitting the EC. Will Mexican workers be free to seek jobs in the United States or Canada? Will U.S. manufacturing companies that now build factories in low-wage countries of Asia put them in Monterrey or Tijuana instead?

“In the long term, (Mexican President Carlos de Gortari) Salinas’ decision to integrate the North American economies could have as profound an impact on the United States and the hemisphere as Gorbachev’s decision to declare an end to the Cold War,” said Robert A. Pastor, Emory University professor and one-time Latin American adviser to the Carter White House.

But even if the world does not divide into rigid blocs, the rise of regional trading systems will almost surely increase the political frictions that come from fierce economic competition.


“It doesn’t mean these will be opposing blocs, but their interest will be inward--not inward nationally, but inward regionally,” said former trade negotiator Malmgren. “The impulse in Europe is to focus on European integration.”

The most dangerous tendency, in other words, may not be a deliberate course of conflict--but rather for the former Cold War allies, their political glue dissolved, to move apart without intending to.

“Competing and diverging systems, or blocs, will tend to seek their own ‘good’ as each conceives it,” warned the State Department’s Vlahos.

“The Big Three will surely want to keep things as stable and as open as possible. Yet in the absence of a true global culture, however artificial, by what set of economic values is business to be conducted?” he asked. “The familiar ways American culture does business will no longer be forced on the world. The Big Three will drift.”



All this has statesmen searching for new structures to re-establish lost stability to the world--and musing that the Cold War was not all bad.

But the initial steps in that direction have been halting. In October, Secretary of State James A. Baker III proposed a NATO-like security organization for the Persian Gulf. Congress responded skeptically. So did the gulf countries.

Even in Europe, the progress toward what strategists call “a new architecture” has been slow. Some have argued that the 35-nation Conference on Security and Cooperation in Europe (CSCE) should be the center of a new system to guarantee the Continent’s stability, but others argue that CSCE, which gives tiny nations like San Marino (population 24,000) the same voting weight as the United States is likely to be an unwieldy mechanism.


Others have suggested the European Community should take on a defense and security role; the United States and the Soviet Union both dislike that proposal because it leaves them out.

The official policy of the Bush Administration is that NATO should become the key security institution for Europe, although U.S. officials admit that it may not work. “NATO is undergoing a transformation,” Scowcroft said. “Whether it will be successful or not, I don’t know.”

Some analysts argue that a world devoted to economic competition may not need a formal new security structure at all.

“There’s no self-evident need for one,” asserted Francis Fukuyama of Santa Monica’s RAND Corp. “Maybe you need security organizations to take care of these little things like Iraq, but for the most part more serious countries really aren’t going to bother each other very much.”


The paradoxical result, in the words of a State Department forecast, is “a world with few threats--and fewer real allies.”