Jakarta, IO – History shows that competition is inherent in human nature, where individuals or countries compete for power in every domain. This basic nature underpins the thoughts of classical economists. For example, Adam Smith’s theory on capitalism, where owners of capital assets are in control of economic resources and free trade (laissez-faire), and where a government does not discriminate against imports or interfere with exports by imposing tariffs or subsidies.
Another classical economist, David Ricardo, attempts to discuss competition in international trade. The theory he put forward, one which is still widely cited in the study of economics, is defined as “comparative advantage”. This theory argues that a country should focus on making the goods they can produce more efficiently, in terms of time and cost. This underlies the assumption that every country will be interdependent.
Over time, this theory has been largely discredited. Today, at any given time, a number of countries will be competing directly with one another to produce the same goods as their trade partners. This has eventually resulted in the hegemony of one or two countries. At the beginning of the 20th century, we witnessed the emergence of two economic, military and technology powers – the United States of America (USA) and the Union of Soviet Socialist Republics (USSR). The fierce competition engendered between the two great powers is commonly known as the “Cold War”.
The superpowers were also competing to influence other countries ideologically (in both economic and political spheres). The US promoted capitalism, centered on trade globalization, popularly known as “free-enterprise markets”. Against this, the USSR was propagating the socialist theory of Karl Marx. This fundamental opposition gave rise to two blocs: a Western bloc led by the US and the Eastern Bloc, most prominently led by the USSR.
The rivalry between the two superpowers finally terminated with the collapse of the Soviet Union in 1991, and the subsequent disintegration of the Eastern Bloc. The US became the world’s sole superpower. Viewed through the prism of competition theory, the global economy is a tight oligopoly. The United States seemed to have a free hand with its newly-gained economic dominance, after the USSR fell apart.
However, the US superiority is currently being disrupted by the emergence of new powers. In the new millennium, the global economy became increasingly competitive, as US dominance was challenged. Russia, the successor state of the USSR, expedited its business and industrial development. The European Union started to show more potential. And most significantly, the People’s Republic of China was able to dethrone Japan as the Asian economic powerhouse. These countries or groups of countries become serious contenders challenging US economic hegemony.
Such economic dominance seemed to have lost its legitimacy in 2008-09, when it was shaken by a subprime mortgage financial crisis – loans had been granted lavishly, to individuals with poor credit scores who wouldn’t qualify for conventional mortgages). The crisis sparked capital flight from the US to emerging economies, with China being a major destination. The crisis also caused the economies of several EU countries to collapse, the hardest hit being Greece. Another impact was the drastic fall in the prices of oil and gas, as supply outran demand. This greatly affected Russia, as one of the world’s major energy producers. The specter of a 1930-style Great Depression loomed large.
The near collapse of two major powers – the EU and Russia – resulted in a shift of economic preponderance to China and the United States. They would later intensely compete with each other in every sphere, most notably in the economy.