The U.S., Europe and other states that have shaped the post-war international system  are experiencing a crisis in the availability of jobs that provide a middle-class standard of  living for their citizens, especially their young.  This probably is related  at least  somewhat to growing levels of income inequality in the U.S. and elsewhere.  (More than  24% of U.S. national income is controlled by the top 1 percent of the population; no  matter how extravagantly these people spend their money they cannot produce the  demand necessary to raise employment and wages). The dissatisfaction, angst, and  political turbulence that these trends cause may also be related to the redistribution of manufacturing and other industries (including services) to China, India and other developing countries. The gains in welfare in China, India and other developing  countries are good for humanity as a whole, but many OECD states are not prepared to  help their wage-earning populations to adjust. Many present and potential effects may flow from these economic trends.  The resource base for the governments of the U.S. and Europe will be constrained and citizens and governments will struggle to balance expectations of social welfare with state budgets and debt loads.  In the ensuing struggles over resource allocation, trade-offs will be acute between domestic priorities and international functions, including defense. To the extent that budgets related to national and international security will be squeezed, states will experience internal and international tensions over how to reconcile their interests and objectives with their capacity to pursue them. Economic stress and the perception that structural unemployment will persist can exacerbate animosity towards immigrant communities, which in turn can rebound back against the countries whence they come.  Europe’s struggle to integrate its growing Muslim communities  -- and the ways in which this struggle plays out in political discourse and elections  -- is one example. The phenomenon exists in the U.S., too, directly primarily to Mexico and Central America. Immigration issues are becoming more prominent in Australia, potentially affecting relations with East Asian states and India. The simplistic point is that the immense importance of the economic and employment crises has security implications that go beyond the problem of generating state resources to fund defense capabilities and policies.

The economic crisis that  began in the U.S. financial system in 2008 has persisted and spread. Europe is experiencing it most acutely now.  The emanations from Europe extend back to the U.S. and the rest of the world.   There is nothing more important to the security of the majority of the world’s families and countries than the economy. Economic experts and some political leaders recognize that the challenge is global and that new mechanisms are needed to address it. Older tools and expectations also need to be seriously readjusted.  Among the most important requirements is to integrate China into leadership of the global economic management regime, but the current Western leaders and Japan are wary about this, as are Chinese leaders. Moreover, there is little confidence that leaders of key states will have the knowledge and will (and political support) to cooperatively work out constructive policies and to build new regimes for managing the 21st century economy.  As a simple way to see the challenge, consider that as economic  power shifts further to China and Asia more broadly, the acceptability of the dollar or the euro as the global reserve currency will no longer be defensible.  But nor would the yuan be accepted as a replacement.  Will agreement be possible on an international currency managed by an international body?  What are the alternatives? Failure to inspire confidence in management of the global economy can undermine confidence in international problem-solving in other domains. Pessimism about international problem solving can reinforce nationalistic competition, reversion to a lawof-the-jungle mentality. A vicious circle can be created in which loss of confidence in international regimes produces non-cooperative nationalistic actions which inspire and reinforce the crudest political parties within states. These parties reinforce nationalistic competition and opposition to policies that involve accommodating the interests of other states or the advice of international agencies. This non-cooperation further exacerbates negative conditions, in a reinforcing cycle. Scholars tend to think that effective international regimes depend, at least in the beginning, on a hegemonic power that is willing to pursue not only its narrow national interest but also to underwrite the provision of the general public good. The U.S. has been an example of this sort of benign hegemon. The Bretton Woods institutions, NATO and other regimes are examples of the post-World-War II effort to structure international problem solving.  But the U.S. is no longer a hegemon, and its political situation these days makes it less capable of acting benignly in providing public goods.  Nor does any other state have the combination of wealth and hard and soft power required to make it an effective global hegemon. China’s economic power and savings make it a necessary part of any cooperative approach to manage the global economy, but its economic power is not hegemonic, and the values it projects and the interests it pursues are not seen by many other players as particularly benign.  China lacks soft power. The EU is an indispensable partner in any international effort to manage the economy, but only when it acts as a unit. The difficulties the EU experiences reconciling its internal differences and getting in front of the crisis cascading from Greece shows that a U.S.-EU partnership to take the lead in global economic management is problematic.  This suggests a parallel problem of cohesive leadership in the security domain, as seen in the divergent approaches of NATO states to the Libyan operation.