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February 11, 2002,
U.S. Edition
The Teflon Global
Economy
Globalization
is going just fine, but it could use a healthy dose of American leadership
By
Fareed Zakaria
This year I hopped onto the subway to get to the World Economic Forum. It's not quite the same as flying to Switzerland, but Davos-at-the-Waldorf has its charms--worse scenery but better food. In one important respect, however, Davos is always the same. The main interest of the conference-goers is globalization. This year the chatter in the hallways suggests that there is a quiet fear that the tide is receding, and that historians will look back on the 1990s as the high-water mark of global capitalism. "September 11 marked the death knell of the simple idea of more and more globalization," one participant remarked.
It's not just September 11 that has Davos men worried. Consider the 18 months that led up to it. The technology industry, which had become the symbol of the future, collapsed in a heap. The roaring U.S. economy suddenly and unpredictably slipped into recession. Developing countries around the world that had embraced free markets--like Brazil, Turkey and Argentina--had wrenching crises. New leaders, like Hugo Chavez of Venezuela, began turning their backs on free-market reforms. And then came Enron, taking the last bit of shine off the 1990s miracle economy.
But there's another way to look at this. If you examine the past several years more closely, what is striking is the sturdiness of the global economy. Globalization has weathered a series of severe shocks, from the East Asian crisis to the Russian default, to the crash of Long-Term Capital Management, to the technology bust, to a synchronized global recession, to September 11. And yet it keeps on ticking. Growth is likely to pick up in America and Europe by the end of this year, and there has been little financial panic or contagion.
Stanley Fischer, until recently the No. 2 person at the International Monetary Fund, points out, "Over the last few years almost every country that has had an economic crisis was advised by powerful domestic forces to stop free-market reforms. And yet after an initial period of doubt, almost all of them--Brazil, Russia, Turkey--came back to the same policy path. Often they have come back with greater resolve."
Sure, there's the odd country here and there that is turning its back on reform, but Hugo Chavez is hardly the wave of the future. "For Venezuela, which wants to opt out, there's China that wants to opt in," says Robert Hormats of Goldman Sachs. Add to this Russia, Brazil and India, and you have the four largest once-closed economies of the world all seeking to integrate into the free-market system. That's the real signpost for the future.
This is not to say that globalization will continue just as before. The exclusive emphasis on economics is yielding to an appreciation of politics. (After all, before free markets can thrive you need political stability.) Technology is still seen as a powerful tool, but one that can have harmful as well as beneficial consequences (as Osama bin Laden has brutally shown). Most important, the global trading system is becoming more democratic, with countries like India, China and Brazil demanding a voice in the shape of trade negotiations. This too could be for the best. If a few concessions and delays mean that the free-trade system will have greater legitimacy in the developing world, it is a price well worth paying.
Even September 11 was, on balance, good for globalization. "It presented the world with a picture of what things could look like, if they spiraled downward," says Mike Moore, the head of the World Trade Organization. Many observers believe that without September 11, the WTO agreement at Doha last November to hold a new round of free-trade negotiations would not have been reached.
The enduring legacy of September 11 could be even more beneficial. In the past four months the world has seen what American political leadership and power can do when it is ambitious, energetic and internationally-minded. It is time for American economic leadership to be similarly active and visionary. Treasury Secretary Paul O'Neill's speech at the forum was an interesting beginning. O'Neill talked about changing the loans-and-grants system to developing countries to help them help themselves. He talked about insisting on internal legal and political reforms. He pointed out that foreign aid rarely works. His critiques of the current system are sharp, but anyone can criticize. The point is to fix things. He should take this opportunity to present a series of broad American initiatives that would broaden and deepen globalization.
Washington should lead the developed world by responding to the legitimate demands of the developing world on trade--that means agriculture and anti-dumping. Hormats argues for a reform of the major international economic groups and institutions. A new system of effective foreign aid could have massive economic and political benefits for the whole world.
In the wake of World War II, the Truman administration set up the global economic institutions that have secured and steered the world economy ever since. Throughout the cold war, America pushed for free trade as part of an overall strategy to combat communism and shore up the free world. Making globalization work better and for more people is not simply smart economics. It is a vital part of a new national-security strategy for America.