Why the World Isn't Flat

Globalization has bound people, countries, and markets closer than ever, rendering national borders relics of a bygone era -- or so we're told. But a close look at the data reveals a world that's just a fraction as integrated as the one we thought we knew. In fact, more than 90 percent of all phone calls, Web traffic, and investment is local. What’s more, even this small level of globalization could still slip away.

Ideas will spread faster, leaping borders. Poor countries will have immediate access to information that was once restricted to the industrial world and traveled only slowly, if at all, beyond it. Entire electorates will learn things that once only a few bureaucrats knew. Small companies will offer services that previously only giants could provide. In all these ways, the communications revolution is profoundly democratic and liberating, leveling the imbalance between large and small, rich and poor." The global vision that Frances Cairncross predicted in her Death of Distance appears to be upon us. We seem to live in a world that is no longer a collection of isolated, "local" nations, effectively separated by high tariff walls, poor communications networks, and mutual suspicion. It's a world that, if you believe the most prominent proponents of globalization, is increasingly wired, informed, and, well, "flat."

It's an attractive idea. And if publishing trends are any indication, globalization is more than just a powerful economic and political transformation; it's a booming cottage industry. According to the U.S. Library of Congress’s catalog, in the 1990s, about 500 books were published on globalization. Between 2000 and 2004, there were more than 4,000. In fact, between the mid-1990s and 2003, the rate of increase in globalization-related titles more than doubled every 18 months.

Amid all this clutter, several books on the subject have managed to attract significant attention. During a recent TV interview, the first question I was asked -- quite earnestly -- was why I still thought the world was round. The interviewer was referring of course to the thesis of New York Times columnist Thomas L. Friedman's bestselling book The World Is Flat. Friedman asserts that 10 forces -- most of which enable connectivity and collaboration at a distance -- are "flattening" the Earth and leveling a playing field of global competitiveness, the likes of which the world has never before seen.

It sounds compelling enough. But Friedman's assertions are simply the latest in a series of exaggerated visions that also include the “end of history” and the "convergence of tastes." Some writers in this vein view globalization as a good thing -- an escape from the ancient tribal rifts that have divided humans, or an opportunity to sell the same thing to everyone on Earth. Others lament its cancerous spread, a process at the end of which everyone will be eating the same fast food. Their arguments are mostly characterized by emotional rather than cerebral appeals, a reliance on prophecy, semiotic arousal (that is, treating everything as a sign), a focus on technology as the driver of change, an emphasis on education that creates "new" people, and perhaps above all, a clamor for attention. But they all have one thing in common: They're wrong.

In truth, the world is not nearly as connected as these writers would have us believe. Despite talk of a new, wired world where information, ideas, money, and people can move around the planet faster than ever before, just a fraction of what we consider globalization actually exists. The portrait that emerges from a hard look at the way companies, people, and states interact is a world that’s only beginning to realize the potential of true global integration. And what these trend's backers won’t tell you is that globalization’s future is more fragile than you know.


The few cities that dominate international financial activity -- Frankfurt, Hong Kong, London, New York -- are at the height of modern global integration; which is to say, they are all relatively well connected with one another. But when you examine the numbers, the picture is one of extreme connectivity at the local level, not a flat world. What do such statistics reveal? Most types of economic activity that could be conducted either within or across borders turn out to still be quite domestically concentrated.

One favorite mantra from globalization champions is how "investment knows no boundaries." But how much of all the capital being invested around the world is conducted by companies outside of their home countries? The fact is, the total amount of the world's capital formation that is generated from foreign direct investment (FDI) has been less than 10 percent for the last three years for which data are available (2003–05). In other words, more than 90 percent of the fixed investment around the world is still domestic. And though merger waves can push the ratio higher, it has never reached 20 percent. In a thoroughly globalized environment, one would expect this number to be much higher -- about 90 percent, by my calculation. And FDI isn't an odd or unrepresentative example.

The levels of internationalization associated with cross-border migration, telephone calls, management research and education, private charitable giving, patenting, stock investment, and trade, as a fraction of gross domestic product (GDP), all stand much closer to 10 percent than 100 percent. The biggest exception in absolute terms -- the trade-to-GDP ratio shown at the bottom of the chart -- recedes most of the way back down toward 20 percent if you adjust for certain kinds of double-counting. So if someone asked me to guess the internationalization level of some activity about which I had no particular information, I would guess it to be much closer to 10 percent -- the average for the nine categories of data in the chart -- than to 100 percent. I call this the "10 Percent Presumption."

More broadly, these and other data on cross-border integration suggest a semiglobalized world, in which neither the bridges nor the barriers between countries can be ignored. From this perspective, the most astonishing aspect of various writings on globalization is the extent of exaggeration involved. In short, the levels of internationalization in the world today are roughly an order of magnitude lower than those implied by globalization proponents.


If you buy into the more extreme views of the globalization triumphalists, you would expect to see a world where national borders are irrelevant, and where citizens increasingly view themselves as members of ever broader political entities. True, communications technologies have improved dramatically during the past 100 years. The cost of a three-minute telephone call from New York to London fell from $350 in 1930 to about 40 cents in 1999, and it is now approaching zero for voice-over-Internet telephony. And the Internet itself is just one of many newer forms of connectivity that have progressed several times faster than plain old telephone service. This pace of improvement has inspired excited proclamations about the pace of global integration. But it's a huge leap to go from predicting such changes to asserting that declining communication costs will obliterate the effects of distance. Although the barriers at borders have declined significantly, they haven't disappeared.

To see why, consider the Indian software industry -- a favorite of Friedman and others. Friedman cites Nandan Nilekani, the CEO of the second-largest such firm, Infosys, as his muse for the notion of a flat world. But what Nilekani has pointed out privately is that while Indian software programmers can now serve the United States from India, access is assured, in part, by U.S. capital being invested -- quite literally -- in that outcome. In other words, the success of the Indian IT industry is not exempt from political and geographic constraints. The country of origin matters -- even for capital, which is often considered stateless.

Or consider the largest Indian software firm, Tata Consultancy Services (TCS). Friedman has written at least two columns in the New York Times on TCS's Latin American operations: "[I]n today's world, having an Indian company led by a Hungarian-Uruguayan servicing American banks with Montevidean engineers managed by Indian technologists who have learned to eat Uruguayan veggie is just the new normal," Friedman writes. Perhaps. But the real question is why the company established those operations in the first place. Having worked as a strategy advisor to TCS since 2000, I can testify that reasons related to the tyranny of time zones, languages, and the need for proximity to clients' local operations loomed large in that decision. This is a far cry from globalization proponents' oft-cited world in which geography, language, and distance don't matter.

Trade flows certainly bear that theory out. Consider Canadian-U.S. trade, the largest bilateral relationship of its kind in the world. In 1988, before the North American Free Trade Agreement (NAFTA) took effect, merchandise trade levels between Canadian provinces -- that is, within the country -- were estimated to be 20 times as large as their trade with similarly sized and similarly distant U.S. states. In other words, there was a built-in "home bias." Although NAFTA helped reduce this ratio of domestic to international trade -- the home bias -- to 10 to 1 by the mid-1990s, it still exceeds 5 to 1 today. And these ratios are just for merchandise; for services, the ratio is still several times larger. Clearly, the borders in our seemingly "borderless world" still matter to most people.

Geographical boundaries are so pervasive, they even extend to cyberspace. If there were one realm in which borders should be rendered meaningless and the globalization proponents should be correct in their overly optimistic models, it should be the Internet. Yet Web traffic within countries and regions has increased far faster than traffic between them. Just as in the real world, Internet links decay with distance. People across the world may be getting more connected, but they aren't connecting with each other. The average South Korean Web user may be spending several hours a day online -- connected to the rest of the world in theory -- but he is probably chatting with friends across town and e-mailing family across the country rather than meeting a fellow surfer in Los Angeles. We're more wired, but no more "global."

Just look at Google, which boasts of supporting more than 100 languages and, partly as a result, has recently been rated the most globalized Web site. But Google's operation in Russia (cofounder Sergey Brin’s native country) reaches only 28 percent of the market there, versus 64 percent for the Russian market leader in search services, Yandex, and 53 percent for Rambler.

Indeed, these two local competitors account for 91 percent of the Russian market for online ads linked to Web searches. What has stymied Google's expansion into the Russian market? The biggest reason is the difficulty of designing a search engine to handle the linguistic complexities of the Russian language. In addition, these local competitors are more in tune with the Russian market, for example, developing payment methods through traditional banks to compensate for the dearth of credit cards. And, though Google has doubled its reach since 2003, it’s had to set up a Moscow office in Russia and hire Russian software engineers, underlining the continued importance of physical location. Even now, borders between countries define -- and constrain -- our movements more than globalization breaks them down.


If globalization is an inadequate term for the current state of integration, there's an obvious rejoinder: Even if the world isn’t quite flat today, it will be tomorrow. To respond, we have to look at trends, rather than levels of integration at one point in time. The results are telling. Along a few dimensions, integration reached its all-time high many years ago. For example, rough calculations suggest that the number of long-term international migrants amounted to 3 percent of the world's population in 1900 -- the high-water mark of an earlier era of migration -- versus 2.9 percent in 2005.

Along other dimensions, it's true that new records are being set. But this growth has happened only relatively recently, and only after long periods of stagnation and reversal. For example, FDI stocks divided by GDP peaked before World War I and didn’t return to that level until the 1990s. Several economists have argued that the most remarkable development over the long term was the declining level of internationalization between the two World Wars. And despite the records being set, the current level of trade intensity falls far short of completeness, as the Canadian-U.S. trade data suggest. In fact, when trade economists look at these figures, they are amazed not at how much trade there is, but how little.

It's also useful to examine the considerable momentum that globalization proponents attribute to the constellation of policy changes that led many countries -- particularly China, India, and the former Soviet Union -- to engage more extensively with the international economy. One of the better-researched descriptions of these policy changes and their implications is provided by economists Jeffrey Sachs and Andrew Warner:

"The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995, one dominant global economic system is emerging."

Yes, such policy openings are important. But to paint them as a sea change is inaccurate at best. Remember the 10 Percent Presumption, and that integration is only beginning. The policies that we fickle humans enact are surprisingly reversible. Thus, Francis Fukuyama’s The End of History, in which liberal democracy and technologically driven capitalism were supposed to have triumphed over other ideologies, seems quite quaint today. In the wake of Sept. 11, 2001, Samuel Huntington's Clash of Civilizations looks at least a bit more prescient. But even if you stay on the economic plane, as Sachs and Warner mostly do, you quickly see counterevidence to the supposed decisiveness of policy openings. The so-called Washington Consensus around market-friendly policies ran up against the 1997 Asian currency crisis and has since frayed substantially -- for example, in the swing toward neopopulism across much of Latin America. In terms of economic outcomes, the number of countries -- in Latin America, coastal Africa, and the former Soviet Union -- that have dropped out of the "convergence club" (defined in terms of narrowing productivity and structural gaps vis-à-vis the advanced industrialized countries) is at least as impressive as the number of countries that have joined the club. At a multilateral level, the suspension of the Doha round of trade talks in the summer of 2006 -- prompting The Economist to run a cover titled "The Future of Globalization" and depicting a beached wreck -- is no promising omen. In addition, the recent wave of cross-border mergers and acquisitions seems to be encountering more protectionism, in a broader range of countries, than did the previous wave in the late 1990s.

Of course, given that sentiments in these respects have shifted in the past 10 years or so, there is a fair chance that they may shift yet again in the next decade. The point is, it’s not only possible to turn back the clock on globalization-friendly policies, it's relatively easy to imagine it happening. Specifically, we have to entertain the possibility that deep international economic integration may be inherently incompatible with national sovereignty -- especially given the tendency of voters in many countries, including advanced ones, to support more protectionism, rather than less. As Jeff Immelt, CEO of GE, put it in late 2006, "If you put globalization to a popular vote in the U.S., it would lose." And even if cross-border integration continues on its upward path, the road from here to there is unlikely to be either smooth or straight. There will be shocks and cycles, in all likelihood, and maybe even another period of stagnation or reversal that will endure for decades. It wouldn't be unprecedented.

The champions of globalization are describing a world that doesn't exist. It's a fine strategy to sell books and even describe a potential environment that may someday exist. Because such episodes of mass delusion tend to be relatively short-lived even when they do achieve broad currency, one might simply be tempted to wait this one out as well. But the stakes are far too high for that. Governments that buy into the flat world are likely to pay too much attention to the "golden straitjacket" that Friedman emphasized in his earlier book, The Lexus and the Olive Tree, which is supposed to ensure that economics matters more and more and politics less and less. Buying into this version of an integrated world -- or worse, using it as a basis for policymaking -- is not only unproductive. It is dangerous.


Who Wins in Iraq?

Newspaper headlines consistently remind us of the failures coming out of Iraq. The number of U.S. soldiers who have lost their lives continues to climb. The deaths of Iraqi civilians far exceed what almost anyone expected. And insurgent attacks are growing stronger and more deadly. But, if wars always produce losers, it is also true that most wars have a fair share of winners, too. So, we would like to ask, four years into the fighting, what institutions, countries, ideas, or individuals are better off because of the war? Who, in essence, are Iraq's winners? Plus, a special essay by Iraqi President Jalal Talabani.

1. Iran

The new Iraq was supposed to be a model for the Middle East and a threat to Iran’s theocracy. Instead, Iran has emerged as the biggest winner of the United States’ war. There is little stability or democracy in Iraq to impress Iranians. Conjuring more fear than hope, the war did nothing to loosen the grip of clerical rule over the country. Iranians rejoiced in the fall of Saddam, who fought an eight-year war against their country that killed hundreds of thousands of people, many by chemical weapons. For Iran, the war in Iraq turned out to be a strategic windfall, uprooting Baathism and pacifying a nemesis that had been a thorn in its side for much of the 20th century. Iraq's new Shiite -- and in good measure, Kurdish -- masters enjoy friendly ties with Iran. It was no coincidence that Iran was the first of Iraq’s neighbors to recognize its new government and to encourage Iraqis to participate in the political process introduced by the United States.

In the political vacuum that followed Saddam's fall, Iranian influence quickly spread into southern Iraq on the back of commercial connections -- driven by a growing volume of trade and a massive flow of Iranian pilgrims into shrine cities of Iraq -- and burgeoning intelligence and political ties. Iran's influence quickly extended to every level of Iraq's bureaucracy, Shiite clerical and tribal establishments, and security and political apparatuses. The war turned a large part of Iraq into an Iranian sphere of influence, and equally important, paved the way for Iranian hegemony in the Persian Gulf. With the Iraqi Army gone, there is no military bulwark in the Persian Gulf to contain Iran’s expansionist ambitions.

Iraq also changed the context for U.S.-Iran relations. The Bush administration, having named Iran as part of an "Axis of Evil," categorically ruled out dealing with it -- even after the two countries successfully collaborated over the fate of Afghanistan after the fall of the Taliban in 2001. Regime change in Tehran was Washington’s mantra in 2002. Yet, since the war in Iraq began four years ago, Washington has balked at seriously engaging Iran -- despite the impasse over the nuclear issue, Iran's support for Hezbollah and Hamas, and virulent attacks against Israel. Instead, the United States has decided that the path to regional stability lies in confrontation and rolling back Iran’s regional influence. However, growing anti-Americanism in the Arab world, combined with the expanding U.S. military commitment to Iraq, will make it difficult for Washington to contain Iran easily. In short, Iraq has strengthened Iran and weakened the United States.

Still, Iran’s gains are matched by new challenges. Tehran may no longer have much to fear from those who rule Baghdad, but the chaos brewing within Iraq’s borders makes Iranian rulers nervous. A failed Iraq -- or worse, a warring Iraq infested with radical ideologies and ruled by violent militias -- threatens Iran's stability. Kurdish autonomy or independence could disturb Iran’s own delicate Kurdish situation. Arab capitals are abuzz with talk of the Iranian threat, raising the specter of an anti-Iranian regional alignment. The war in Iraq has turned Iran into the bugbear of the region. But that is ultimately a price Iran is willing to pay for winning in Iraq. - Vali Nasr

Vali Nasr is professor at the Naval Postgraduate School and adjunct senior fellow at the Council on Foreign Relations. He is author of The Shia Revival: How Conflicts Within Islam Will Shape the Future (New York: W.W. Norton, 2006).

2. Moqtada al-Sadr

The badly lit, helter-skelter video of Saddam Hussein’s execution said it all: "Moqtada! Moqtada! Moqtada!" a voice cried as the hangmen tightened the noose around Saddam's neck. Seconds later, the deposed dictator dropped through the floor.

Four years into the American occupation of Iraq, tens of thousands of people are dead and a nation is imploding. And Moqtada al-Sadr, the young, rabble-rousing cleric few people had even heard of when the invasion began, can now plausibly claim to be the most powerful man in the country. Sadr's power covers the whole spectrum of political possibility: He commands as many allies in the Iraqi Parliament as any single party; and his armed followers permeate Iraq’s security forces, control the streets throughout eastern Baghdad and the Shiite south, and fill the ranks of many of the death squads that terrorize the country’s Sunni minority. The Americans would like to see Moqtada off the scene; many moderate Shiite leaders would like to see him dead. Yet Sadr, still in his 30s, appears unassailable. Indeed, he seems the person most likely to benefit should Iraq sink further into chaos.

Sadr's rise was less a determined climb than a bubbling up. He ascended on the hopes of his supporters, the millions of downtrodden Shiites who had once looked to his father, Ayatollah Muhammad Sadiq al-Sadr, a scholar and cleric who, along with two other sons, was murdered by Saddam’s gunmen in 1999. The surviving Sadr does not have his father’s learning; at times he seems to be riding his movement rather than directing it. But like any born demagogue, Sadr possesses an uncanny sense of timing.

In 2003 and 2004, Sadr capitalized on the growing disenchantment with the American occupation -- and the growing ferocity of the Sunni insurgency, which the Americans were unable to stop. On any Friday afternoon, you can go to the open-air Al Mohsen Mosque in Sadr City and watch 25,000 men kneel in the street and chant "Moqtada! Moqtada! Moqtada!" It's an unsettling thing to witness, a demonstration of where power in the new Iraq really resides.

I saw him just once, and only for a second. It was August 2004 in Najaf. For weeks, Sadr's men had occupied the Imam Ali shrine, one of the holiest of Shiite sites, and the Americans, with the tacit blessing of Ayatollah Ali al-Sistani and the mainstream Shiite religious leadership, had fought their way into the city to force Sadr’s Mahdi Army out of the shrine. The Americans killed hundreds of them, leaving it to the moderate clerics around Sistani to broker a cease-fire. Late one evening, the clerics summoned a group of reporters to a nearby house to listen to their announcement. I was late in arriving, and as I approached, in the corner of my eye, I saw Moqtada scuttling out a side door. What an image: The young rebel who made so much trouble slipped out as the adults cleaned up his mess.

It's a measure of how much Iraq has changed since then that it is impossible to imagine anything like that happening now. Sadr is more powerful than any of the clerics who put up with him two years ago. Next time, he won’t be going out the side door; the stage is now his. -Dexter Filkins

Dexter Filkins was Baghdad correspondent for the New York Times from March 2003 to August 2006. He is a 2007 Nieman fellow at Harvard University.

3. Al Qaeda

"The Americans are between two fires," declared Osama bin Laden’s deputy Ayman al-Zawahiri in 2004. "If they remain [in Iraq] they will bleed to death, and if they withdraw they will have lost everything." Zawahiri's grim prediction has proven correct. As the United States and its Iraqi allies falter, bin Laden and the broader jihadist movement are emerging victorious.

Before the United States invaded Iraq, al Qaeda was on the ropes. The United States and its coalition partners had rousted it from Afghanistan and toppled the Taliban, while a global manhunt was steadily shutting down jihadist cells from Morocco to Malaysia. Perhaps equally important, many Islamists, including fellow jihadists, harshly criticized bin Laden for having rashly attacked a superpower and, in doing so, causing the defeat of the Taliban, the only "true" Islamic regime in the eyes of many radicals.

Then the invasion of Iraq breathed new life into the organization. On an operational level, the United States chose to divert troops to Iraq rather than consolidate its victory in Afghanistan and increase its chances of hunting down bin Laden. Today, al Qaeda is reconstituting itself in the tribal areas of Pakistan. Politically, Iraq vindicated bin Laden’s argument that the primary enemy of the Muslim world was not the local Muslim autocrats, but the "faraway enemy," the United States.

The Iraq invasion has inspired a new generation of young Muslims around the world. The war outraged Muslim militants, many of whom embrace bin Laden’s form of violence. Iraq itself witnessed the most dramatic revival. Saddam had crushed the jihadists in Iraq with his iron fisted rule, but today the country is full of them, with foreign fighters increasingly playing second fiddle to domestic jihadists.

Those jihadists who come to Iraq are forming a network similar to the one formed in Afghanistan during the anti-Soviet struggle. Some will die there, but not enough, not all of them. Many will survive and return to their home countries with increased fervor, a more coherent ideology, and a Rolodex filled with contacts. These fighters will not necessarily be under bin Laden's control, but they will be part of the broader movement that bin Laden has now succeeded in fostering.

The jihadists are also becoming far more lethal. The improvised explosive devices used in Iraq are of increasing sophistication and will be used in other jihads, whether in Kashmir, Chechnya, or Somalia. So, too, is suicide bombing, which has now become such a common tactic that it no longer draws gasps. Already (and with painful irony), these techniques are regularly showing up in Afghanistan.

Withdrawal carries its own dangers for counter terrorism. Though the United States may leave, many jihadists will stay in Iraq to fight Iraqi foes. The anti-American struggle is widely popular, and jihadist propaganda is creatively stressing their role in undermining the U.S. campaign. The credibility of these fighters will embolden the movement, convincing them that the United States and other foes can be defeated, if only Muslims will continue the fight.

Perhaps most ominously, parts of Iraq might become a new safe haven for the movement. Jihadists based in western Iraq launched the bloody 2005 attacks in Jordan that killed 60 people. Similar attacks are likely as Iraq goes from jihadist front line to a base for the next struggle. -Daniel Byman

Daniel Byman is director of the Center for Peace and Security Studies at Georgetown University’s School of Foreign Service and a nonresident senior fellow at the Saban Center for Middle East Policy at the Brookings Institution.

4. Samuel Huntington

President George W. Bush's speeches on the Iraq war described a skilled and educated population eager to live in freedom as soon as they could be emancipated from the dictator who tyrannized them. He compared Iraq to Germany and Japan -- nations that built decent societies after their dictatorships were overthrown by force. He stressed again and again the universality of democratic ideals and challenged those who doubted whether these ideals could win support in the Arab and Muslim worlds.

Instead, Americans have seen Iraqis divide into warring tribes. They have seen Sunnis rally to al Qaeda’s murderous gangs and Shiites rally to brutal militias. They have seen Iraq's communities wage savage war.

What went wrong? The answer you hear from more and more Americans: The Iraqis went wrong. Democracy promotion now ranks last among Americans' surveyed foreign policy priorities. Between early 2002 and early 2006, the proportion of Americans who described Islam as promoting violence rose from 14 percent to 33 percent. Fifty-eight percent of Americans answered "yes" to the (slightly different) question of whether Islam had more violent followers than other religions. In other words, thanks to the bloody clashes that have exploded in Iraq, more Americans today view Islam as a violent faith than immediately after terrorists killed 3,000 Americans in Islam’s name.

Events appear to have confirmed the worst fears of the great political scientist Samuel Huntington. In his landmark 1993 article, "The Clash of Civilizations," the Harvard professor wrote, "[The] centuries-old military interaction between the West and Islam is unlikely to decline. It could become more virulent." A decade before President Bush argued that democracy promotes peace, Huntington had observed, "In the Arab world... Western democracy strengthens anti-Western political forces."

As they turn against the Iraq war, Americans seem also to have rejected the sunny assumptions about the Middle East upon which it was founded. Bush argued that terrorism was the work of a tiny handful of extremists, repudiated by the vast majority of Middle Easterners. His fellow Americans no longer believe him. More and more are coming to believe that Islam really is inherently hostile to democracy and the West. Civilizations are clashing. Paul Wolfowitz has lost. Sam Huntington has won. -Daniel Frum

David Frum is resident fellow at the American Enterprise Institute and a columnist at the National Review Online. He is the author of The Right Man: The Surprise Presidency of George W. Bush (New York: Random House, 2003).

5. China

If the impressive demonstration of American might during the 2003 invasion of Iraq caused much concern in Beijing, the Bush administration’s mismanagement of the occupation turned out to be a godsend for China. The remarkable transformation of stunning military successes into a quagmire for the U.S. military, the scandals of Abu Ghraib, and the American failure to deliver security and stability, let alone democracy, in post-Saddam Iraq have gravely eroded the international standing and prestige of the United States. The dramatic fall of American soft power from the post-Cold War high reached just after the Kosovo intervention has produced an international environment conducive to China as it projects its own rise as peaceful, benign, and even constructive.

Widely seen as the only credible long-term rival to the United States, the rise of China requires careful finessing if it is to avoid alarming the international community that it may bring about new, destabilizing superpower rivalries. Whether one finds China's advocacy for a "harmonious world order" credible, it stands in sharp contrast to the Bush administration's preference for unilateralism and apparent failure to live up to its democratic and "do good" rhetoric. This contrast, and the perceived U.S. preoccupation with Iraq, has enabled China to build up a positive image in Asia and beyond. The Chinese have already sought to maximize this advantage by hosting the six-party talks over the North Korean nuclear weapons program.

Unless there is a dramatic reversal of U.S. fortune in Iraq, its experience there will almost certainly reduce Americans’ political will to engage militarily overseas. It raises the political threshold for the United States to help Taiwan defend itself against China. Such a prospect should help to deter Taiwan from making, from Beijing’s perspective, "provocative" moves. Indeed, in 2003, the administration most supportive of Taipei since Eisenhower became the only one to chastise Taiwan's leader, in public, for the latter’s China policy. Although the Bush administration remains committed to helping defend Taiwan against an unprovoked Chinese attack, it now regularly restrains Taiwan's President Chen Shui-bian from rhetoric and actions deemed too offensive to China.

Finally, commitments in Iraq require the U.S. military to shift its focus and budgetary allocations from preparing to fight a major conventional war to counterinsurgency. It means the U.S. military now has fewer resources to build up the capabilities to win a potential war with China over Taiwan. This is a goal Chinese diplomacy has, on its own, never managed to achieve. Until Iraq. -Steve Tsang

Steve Tsang is Louis Cha fellow in modern Chinese studies at St. Antony’s College, Oxford University.

6. Arab Dictators

The failure of U.S. policy in Iraq has provided autocratic regimes in the Middle East a reprieve from the pressure to democratize, as long as they position themselves clearly on the side of Washington in its looming confrontation with Iran, Syria, and Shiite Islamists. Saudi Arabia and Egypt have been the biggest beneficiaries of the U.S. loss of interest in draining the swamp of autocracy once it was confronted by large alligators such as Iran and its allies. Once again, autocracy is thriving -- and so are the alligators.

Saudi Arabia has historically been a reliable U.S. partner, trading cheap oil for American protection. Egypt, kept at arm’s length during the Nasser years, became a staunch ally after President Anwar Sadat went to Jerusalem and then signed the Camp David Accords with Israel in 1978. The pro-Western stance of Egypt and Saudi Arabia protected them from criticism, until the attacks of Sept. 11, 2001, that is. Almost overnight, the two countries became U.S. enemies, accused of fostering terrorism by denying their citizens democracy and wealth-generating free market policies. Authoritarianism and bad economic policy, according to Washington's new creed, engendered frustrations that found release in terrorism. The antidote was democracy.

For a few years, Egypt and Saudi Arabia thus found themselves in the unaccustomed and uncomfortable position of being lectured on democracy by U.S. officials. Egypt bore the brunt of the criticism because it was obvious what reforms the government needed to introduce to become more democratic. Egyptian officials were repeatedly lectured on competitive elections and constitutional amendments; most seriously, the United States postponed discussion of a free trade agreement after the Egyptian government sentenced a moderate opposition leader to a five-year prison term on charges that were flimsy at best. Saudi Arabia got off more easily, partly because nobody had a blueprint on how to transform that kingdom into a democracy, and partly because of America's dependency on its oil. Nevertheless, the country fell under a pall of suspicion, accused of financing the spread of radical Islam and even terrorist groups. Never again, administration officials and pundits proclaimed, would the United States support authoritarian regimes for the sake of short-run stability. September 11 put an end to that policy. Well, at least for a few years.

As the United States has become mired in bloody chaos in Iraq, Saudi Arabia and Egypt have wound up back in the Bush administration's good graces. But it’s not because they've become more democratic. Saudi Arabia has not changed. The Egyptian regime is backsliding, becoming increasingly intolerant of dissent as it nears the inevitable end of the 25-year rule of President Hosni Mubarak and braces for a difficult succession. Nevertheless, the two countries have been rehabilitated, or at least relabeled: Sadly, they are now what passes for "moderate." As Franklin D. Roosevelt might have put it in more frank language, they are still the same S.O.B.s, but they are once again "our S.O.B.s."

It's back to Cold War politics in the Middle East. The lofty ideals of democracy promotion may still find their way into the administration’s speeches, but when it comes to policy, America’s enemies’ enemies are its friends. The enemy is Iran and, like the Soviet Union of yore, Iran has surrounded itself with dangerous minions -- Hamas, Hezbollah, and Syria. Iran wants to dominate the region, and Washington will support countries that have an interest in resisting such domination. Saudi Arabia and Egypt can be counted upon to do so. That makes them "moderates," and that is good enough.

But Egypt and Saudi Arabia are paying a high price for this reprieve from Washington's pro-democracy zeal. They must contend with an Iran no longer constrained by Iraqi power, with a Shiite revival, with the collapse of Iraq, with a Lebanon that may descend into chaos, and with a Palestine that already has. It is far from clear whether Egypt and Saudi Arabia would not happily trade the problems brought about by the destabilization of the region for renewed pressure to reform. But now, they don’t have a choice. -Marina Ottaway

Marina Ottaway is director of the Middle East program at the Carnegie Endowment for International Peace.

7. The Price of Oil

A popular current joke is that the national bird of economic development is the crane. It is also the national bird of many of the countries in the Arab world that opposed the invasion of Iraq and condemn it still. Yet the truth is that those countries have benefited hugely from the invasion, at least in economic terms. Go to Dubai, Qatar, or any of the city-states of the gulf and the thing that most catches the eye is the amount of construction going on: gleaming skyscrapers, holiday resorts, opulent apartment buildings, desalination plants, and more. The reason for that massive buildup is that the gulf states are enjoying an economic boom. Why? Because George W. Bush invaded Iraq.

Many reasons are cited for why oil prices reached a peak of nearly $80 a barrel in July 2006: strong demand in China, India, and other emerging markets; low investment during the previous two decades in new oil reserves and refining capacity; supply disruptions in other oil-producing countries such as Nigeria; fear of terrorist attacks on oil pipelines and other infrastructure, especially in Saudi Arabia. None is untrue, but even all these reasons together do not amount to a convincing case for why the price rose so sharply. The missing piece of the puzzle is the invasion of Iraq.

Just prior to the invasion, oil cost about $30 a barrel. During the subsequent three years, the price more than doubled. Arab stock markets boomed on the back of that, helped too by the surge of reconstruction spending in Iraq and associated money flowing into the region. Government budgets, which previously were stretched or even in deficit, suddenly moved into surplus thanks to the flood of oil revenues, allowing countries such as Saudi Arabia, worried about unemployment and social discontent, to increase public spending.

The war had a decisive effect on oil in part because it has proved to be such a debacle. Markets that were expecting at least a gradual recovery in the supply of oil from Iraq itself have been disappointed, thanks to the insurgency. The invasion also helped the oil-producers' cartel, OPEC, to unite in limiting their production, relishing the fact that higher prices could be blamed on war and terrorist risks rather than on them. It is true that OPEC had little surplus capacity during this period, but it is also true that the cartel felt no need to hurry in increasing it. It was doing too well from the high price of oil.

Now that virtually every economic forecaster in the world has started to assume that energy prices will stay high indefinitely, they are falling: Today, prices are almost 35 percent below their peak. The unity of OPEC may be cracking, available supply is gradually increasing, and demand for oil is falling in some countries or just growing more slowly in others. But that is not because things look any better in Iraq. Oil producers have that misadventure to thank for three great years. -Bill Emmott

Bill Emmott is writing a book about the future balance of power between China, India, and Japan. In 2006, he stepped down after 13 years as editor of The Economist.

8. The United Nations

Delusions of an invincible superpower have perished in the sands of Mesopotamia. But what will emerge after the fantasy of the unipolar moment perishes? Like it or not -- and many Americans will dislike it intensely -- part of the solution will be the United Nations.

The United States cannot disengage from our rapidly integrating world, however tempting isolationism may now become. It is not only the hub of the global economy, but it has become dependent on imports of essential raw materials, particularly energy. Yet, if the United States cannot escape engagement and is either unable or unwilling to impose its will on the rest of the world, what choice does it have except to act as the leader of a concert of powers? The United States will long remain the world's greatest economic, military, technological, and cultural power. But its position will be one of leadership, rather than unchallenged domination.

How should the United States exercise such leadership? The answer, as always, is to find a sufficient number of willing followers. That can only be achieved, though, if potential followers see that the United States takes due account of their interests, of their sensitivities, and even of their inadequacies. Reaching this level of leadership will require more than the ad hoc diplomacy of the 19th-century balance of power, with its documented capacity for fostering ill will and perpetrating blunders.

A reformed United Nations, particularly an updated Security Council, must be the focus of efforts at finding cooperative solutions to global problems. By working through the United Nations, the United States can obtain greater legitimacy. By accepting the need to listen to other powers, it can make its own power more acceptable. By negotiating in good faith, it can secure the cooperation of other states and so bring more expertise and more resources to bear on the challenges it confronts.

Just as important, the U.N. system brings essential assets to bear on any effort to deal with pressing problems. First and foremost, it has the legitimacy that comes from representing the world as a whole. Second, it possesses vast experience in nation-building, considerable human resources, and, if necessary, the ability to call on more.

Critics will argue that the United Nations was ineffective in supporting the United States in Iraq. True, but this charge accurately reflects the view of much of the world that intervening in Iraq was mission impossible. Critics will also argue that the institution is defective. True, too, but the ineffectiveness of the United States as a solitary nation-builder has also been demonstrated for all to see. A reformed United Nations is at least likely to be more effective than the spasmodic interventions of a solitary and often inattentive superpower, partly because it is more legitimate, and partly because it is more experienced.

The United States will find this path frustrating, of course. But it hardly needs to fear the United Nations, because it will always be able to veto U.N. action. Above all, if it cannot achieve what it wishes on its own, it must cajole others into providing the cooperation it seeks. No alternative exists. That is why the United Nations, for all its glaring faults, is an inevitable winner from America’s humbling experience in Iraq. -Martin Wolf

Martin Wolf is associate editor and chief economics commentator at the Financial Times.

9. Old Europe

In 216 B.C., Hannibal won the Battle of Cannae. The legendary general enveloped the Roman legions, with some 70,000 legionaries, 80 senators, and one consul killed in the course of a single day. But Hannibal had no idea what to do with the power he had so brilliantly acquired. It took Rome a little more than a decade to enact its revenge.

Likewise, history will show that Old Europe won the battle of Baghdad. Four years after U.S. troops marched on Iraq’s capital, Old Europe appears to have vanquished the Bushian legions, scores of neocon centurions, a few Republican senators, and a president. It is a powerful moment for those European powers, led principally by France and Germany, who argued for restraint and warned of the dangers that would follow from a rush to war. But does Europe know how to use its moral victory? Will it lose momentum, like Hannibal's troops enjoying winter holidays at Capua while Rome regrouped?

With the United States running on empty in the Middle East, Old Europe’s ambassadors smoothly crisscross the globe, politely, if somewhat smugly, suggesting in their tailored suits, "Well, we told you so." And Old Europe did tell Washington many things that have proven to be true: There were no weapons of mass destruction, Iraq’s different clans are clashing, and this land will not easily give way to democracy. Old Europe’s diplomats should be forgiven if, having been vindicated in the sands of Iraq, they now believe they are correct about many other things as well.

But if Old Europe was correct about the war, it is hard to see how they have mastered the victory any better than Carthage's most famous general. Today, there is no European solution for the taming of Iran's nuclear ambitions. Where is the European strategic plan to bolster the political fortunes of Palestinian President Mahmoud Abbas or Lebanese Prime Minister Fouad Siniora? Should Gen. David Petraeus withdraw his troops suddenly from Baghdad, would Old Europe offer any ideas or solutions for how to stop the civil war? If anyone calls Brussels for help, will Old Europe answer the phone?

For much of the last four years, Old Europe's ethical advantage over the United States has been broadcast far and wide, bandied about by CNN and echoed over an endless number of Web sites and news portals. But it's the postmodern equivalent of Hannibal resting at Capua’s resorts. Because, as righteous as Old Europe’s diplomats may feel, there is no plan for a Pax Europea, no plan for blue-starred flags flying over Baghdad. Hannibal was a tactical genius fighting for a country with a poor strategy. Old Europe was tactically correct in 2003, but it has yet to unfurl a new global strategy. If it doesn't, Old Europe risks allowing the real winners of Bush’s folly to be Beijing, Moscow, and Tehran. Hannibal knows better than anyone. -Gianni Riotta

Gianni Riotta is a contributing editor at Foreign Policy and editor of TG1, Italy's leading public television news program.

10. Israel

The story of Israel's spoils in Iraq is one of victory over hypotheticals and could-have-beens. Before the war, it was widely -- and wrongly -- believed that Saddam Hussein had embarked on a military nuclear program after he barred U.N. inspectors from entering Iraq in January 1998. The perceived threat was hardly misplaced; Saddam's lieutenants later reported to the Duelfer Iraq Survey Group that they believed their leader was adamant on resuming his military nuclear project once the international embargo was over. Like the Iranian case today, the perception in Israel before the war was that Saddam’s decision-making process was difficult to predict and thus that a nuclear Iraq represented a tremendous danger. At the time, Saddam was one of only two Arab leaders who called for the elimination of the state of Israel, the other one being Muammar el-Qaddafi of Libya.

Luckily for Israel, the Iraq war has proven to have taught Colonel Qaddafi a lesson through intimidation. Although negotiations between Qaddafi and the West had started before the war in Iraq began, there is reason to believe that the removal of Saddam and his henchmen represented a major component in his decision to give up Libya’s nuclear program and rejoin the community of civilized nations. Even the Israeli intelligence at the time was unaware how far Libya was already on its way to owning a small nuclear arsenal. There’s no telling how far Qaddafi would have taken the program, or whether he would have ever attacked the Jewish state with nuclear materials. Thanks to the use of force against Qaddafi’s Iraqi counterpart, Israelis will never have to find out.

They will also not have to wonder what would have happened to an emboldened Saddam were the United States and several of its allies not to have invaded. Before the war, there's no disputing the fact that Saddam's country was weak militarily. But the international embargo was being eroded continuously. Had things moved in the same direction for a few more years, especially in light of the quantum leap in oil prices after 2004, Saddam would have had sufficient illicit financial resources to start re-equipping his armed forces. Considering the heightened tensions between Israel and Hezbollah and Syria since July 2006, and a marked improvement in Iraqi-Syrian relations, Iraq could have played a role on Israel's northeastern front. As in the 1973 war, a reasonably armed Iraqi force could have provided meaningful support for the armed forces of Baathist Syria had a new war emerged.

But instead, the fall of Saddam's regime closed a chapter on Iraqi support for one of the Israeli people’s most threatening foes. Under the Iraqi dictator, Baghdad paid $25,000 to each Palestinian family whose child performed a suicide terrorist operation against Israeli (almost exclusively civilian) targets. It also paid $10,000 for less spectacular attacks. Israelis have seen an end to the official Iraqi encouragement of Palestinian suicide bombings. Now, with a disastrous civil war raging, the suicide bombing mentality Saddam encouraged against Israel has come full circle to haunt Iraq.

Unfortunately for Israel, though, when one threatening neighbor -- or several -- exits the scene, there is always another one lurking around the corner to take its place. Iranian President Mahmoud Ahmadinejad has proved that rule consistently during the past few years. Just as Israel has profited indirectly from the demise of the Baathist regime, so too have Iran's leaders and their radical brand of Shiite Islam cast an ominous pall over their weaker neighbors and the very stability of the region. Iranian influence in the Shiite parts of Iraq and on the Iraqi government has increased as well. But Iran’s main threat to Israel is represented by its nuclear development, not by its influence in Iraq.

Saddam’s removal didn't erase all the threats to Israel’s security. But the fact that nuclear weapons are no longer possible in Saddam’s Iraq or Qaddafi's Libya is a lifesaver for Israel. And it is also -- and no less importantly -- a lifesaver to the Iraqi, Libyan, and Palestinian peoples. And when Iraqis, Israelis, Libyans, and Palestinians have a shared victory, that's certainly cause for celebration. -Amatzia Baram

Amatzia Baram is director of the Meir & Miriam Ezri Center for Iran and Persian Gulf Studies at the University of Haifa.