Once our leaders had real power

Academic fights are more brutal than our fights in the real world," Henry Kissinger famously observed, "because the stakes are so low." Watching the strange rituals whereby Western democracies choose their leaders, I begin to wonder if the same is now true of the real world too.

By the "real" world, I mean the political world - the world of presidential elections and party conferences. There was a time when the stakes in this world really were high. In Henry Kissinger's heyday, POTUS (as close friends refer to the President Of The United States) really was a potentate. Like his opposite number, the General Secretary of the Communist Party of the Soviet Union, he had the power to kill tens of millions of people at the touch of a button.

Even the British Prime Minister had real power in the 1980s: the power to send a fleet from Portsmouth to Port Stanley, at the other end of the earth, to expel invaders from the Falkland Islands.

The leaders of the last generation had real economic power as well. Just over 25 years ago, the President of France had the power to nationalise the country's largest banks. The German Chancellor could annex a neighbouring country merely by offering its citizens a fistful of deutschmarks.

It is not that today's leaders are significantly lesser personalities, though it is always tempting to dismiss today's politicians as mere dwarves on the shoulders of giants. Among the leading contenders for the American presidency are in fact some remarkably able people. I can think of at least three (Clinton, Giuliani and McCain) who would make a better president than, say, Jimmy Carter. Gordon Brown is a remarkably intelligent Prime Minister, even if he does seem to be afflicted by Hamlet-like indecisiveness. And Nicolas Sarkozy may prove to be the best French President since de Gaulle.

The problem lies not with the individuals, but with their predicament. Not everyone sees this. Not everyone wants to see it. The news media, in particular, depend for their very existence on the notion that politicians are powerful. The relationship is a symbiotic one. The politicians need the press to publicise their activities. The press need the politicians to provide an interminable human drama, a darker soap opera to run alongside the love lives of the stars and royals.

No one understands this better than Mr Sarkozy, whose entire life has become a performance for the benefit of Paris Match. I take my hat off to the new French President, who is now so ubiquitous in the French media that they call him the "omnipresident".

Wherever he goes, he leaves a trail of shattered shibboleths and broken taboos. He poses the alternatives in the Persian Gulf as "the Iranian bomb or the bombing of Iran". He berates the European Central Bank for paying insufficient attention to the strength of the euro. He prefers having a national industrial policy to the Anglo-Saxon dogma of free competition. He expects his fellow countrymen to work longer hours. He even takes his summer holiday in the United States.

Yet it remains to be seen how much Sarko can really change France, much less the world. The freeing of a few Bulgarian hostages and the merger of two French energy companies hardly add up to that decisive "rupture" with the past he promised in his election campaign.

We are told that Mr Sarkozy is pondering a fundamental realignment of French foreign policy. Perhaps, after more than 40 years of semi-detachment, he will take France back into Nato's integrated command structure. Perhaps, after more than 50 years of attachment, he will loosen the ties between France and Germany. Some people find this kind of thing terribly exciting. They talk grandly of a new Franco-American rapprochement and the end of the Franco-German entente. They wonder if Mr Brown was too stand-offish when he met President Bush at Camp David back in July. Could this be the end of the Special Relationship? Or is Mr Brown wise (in this case) to hesitate, since Mr Bush will be gone within 16 months?

Questions like these were once worth pondering - in the days when politicians had real power. From the mid-17th century until the mid-20th, relations between Britain and France truly were of vital importance to the stability of the world. They were among the five great powers that made up the "pentarchy" of the European state system. Had it not been for Anglo-French conflict, the United States might have been suffocated at birth. Had it not been for Anglo-French cooperation, the German Reich might have conquered Europe.

France, Britain, America: each had its era of hegemony. But now? They collectively account for more than a third of global output, it's true. But by 2050, according to Goldman Sachs, their share could be as little as 15 per cent. Their already trivial share of global population could dwindle further, from 6.5 to 5.9 per cent.

The real problem, however, is that they all belong to the club of developed debtors, with combined current account deficits of $970 billion last year. Other members of this club are Australia, Greece, Iceland, Ireland, Italy, New Zealand, Portugal and Spain. Apart from Iceland, it reads like a list of ex-empires, with the former members of the British Empire (energy-rich Canada excepted) in the lead.

Collectively, the developed debtors had to borrow around $1.3 trillion last year in order to finance the gap between their spending on imported goods and services and their earnings from exports, and the gap between their payments to foreign lenders and their earnings from overseas investments.

On the other side of this great global equation is the club of emerging exporters. According to the International Monetary Fund, more than 40 per cent of the developed debtors' funding requirement last year was met by China, Russia and the Middle East.

The problem for the deficit countries is essentially that their people want to live beyond their means. Accustomed to positions of power, they think the world owes them a living. Their politicians pander to this assumption by making a series of more or less incompatible promises: that expenditure on healthcare and education will always go up; that direct taxation will never go up; and that the assets against which voters borrow will never go down. The only way to fulfil these promises is to pump out ever more pieces of printed paper: banknotes, bills, bonds, shares, asset backed securities, collateralised debt obligations and all the rest. The emerging exporters buy these, not least to prevent their own currencies from appreciating against ours. The net result must be a creeping transfer of financial ownership from West to East.

This process is about to enter a new phase as China establishes its own sovereign wealth fund, to join those already operated by the likes of Kuwait, Abu Dhabi and Singapore. According to Morgan Stanley, SWFs currently manage about $2.6 trillion, more than the $1.7 trillion run by hedge funds. A further $4.4 trillion is held in sovereign pension funds. By 2011, SWF assets under management could exceed the total foreign exchange reserves held by all the world's central banks. And in just 15 years their assets could reach $27 trillion, giving them control of nearly a tenth (9.2 per cent) of total global financial assets.

So the big question for our time is not whether Mr Sarkozy or Mr Brown will rub along better with Mr Bush, but what China's sovereign wealth fund will buy when it embarks on its first investment spree.

By comparison with these new sovereigns, the traditional sovereigns of the political world are starting to look about as powerful as, well, professors. And the really bad news for the current generation of presidents and prime ministers? Not only are the stakes getting lower all the time. but you guys don't even have tenure.

Under these circumstances, no one should expect Western politics to get any less brutal. Indeed, it may even become more entertaining as a spectator sport. Like most such sports, however, it just won't matter very much.

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