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September 7, 1998,
U.S. Edition
So
Much for Globalization
We believed
that free markets and democracy would prevail after communism. The turmoil
in Russia has shattered our faith
By
Fareed Zakaria
The post-cold-war world ended last week. We have lived in it comfortably -- complacently -- for almost a decade. Peace and prosperity seemed assured, markets and technology triumphant and American influence unquestioned. But the crisis in Russia may prove to be the high-water mark of the age of globalization, ushering in a world considerably less friendly to American interests and values.
Fittingly this era has come to a close in Moscow, where it began. It was the collapse of the Soviet Union, the discrediting of socialism and the liberation of Eastern Europe that moved countries all over the world to accept, even embrace, the sole surviving superpower and the sole surviving ideology -- democracy and capitalism. And now Russia has become the first major country to move away from this model, placing state controls on its economy and moving toward a fairly old-fashioned Latin-American-type oligarchy, composed of politicians and businessmen.
The familiar figure of Boris Yeltsin has led many to believe that Russia has "stayed the course." In fact, the Russia of the early 1990s is another country altogether. The pro-Western Foreign Minister Andrei Kozyrev has given way to the old communist apparatchik Yevgeny Primakov; the energetic reformer Anatoly Chubais to the oligarch Viktor Chernomyrdin. Seven years ago Russia was debating whether to outlaw the Communist Party. Today the party runs the legislature. All that remains is the ghostly figure of Yeltsin. As the communists in Parliament wrest power from him, as his unpopularity mounts and as his desire for reform evaporates, he survives as a preserved figurehead. One can only hope that he does not become Russia's version of Field Marshal von Hindenburg, the aging World War I hero who presided over Adolf Hitler's rise to power.
The Russian government has defaulted on its foreign debt. As important, it has announced that it will take over SBS-Agro, the country's third largest bank. In two days last week 10 of Russia's 15 largest banks announced plans for merger or government control. Russia's large banks operate at the nexus of its economic and political system -- lending to the state, financing industrial empires and moving money back and forth for favored clients. Thus the effective nationalization of the banking industry cements the connection between Russia's big business interests and its politicians. Who better to lead this new government than Chernomyrdin, himself part politician, part tycoon? Cozying up to the communists in Parliament, he has already called for controls on the market, an industrial policy and a new direction for Russia and then said the opposite one day later to keep the IMF happy.
As all this happened, markets around the world plunged. On the face of it, this is puzzling. Russia, after all, counts for little in the world of money. Its economy is the size of the Netherlands'. The loans it defaulted on probably add up to no more than the value of one new Internet company. After all, Japan, the world's second largest economy, has been in a steep recession for five years, and most Western markets have cheerily ignored it. Why Russia?
The answer lies not in economics but in politics. Japan is an advanced industrial country that can weather a recession, even one as bad as its current slump. Russia's embrace of capitalism and democracy, however, was the cornerstone of the new world order. (And Russia is still the world's second largest nuclear power, spans three continents, is rich in resources and has a veto on the Security Council.) If Russia's experiment with the Western model collapses, efforts in other countries might follow. Already, in response to the Asian crisis, politicians from Venezuela to India to Malaysia have begun clamoring to slow down, even halt, economic reforms. If this new domino effect continues, the benign course of events that governments and markets in the West have assumed might not come to pass. Instead of living in a world of rising wealth and stability in which war seems absurd (or worse, unprofitable!), we might well return to a world in which the Western nations thrive as islands of prosperity in a sea of poverty and turbulence. This might be viable economically, but it is not viable politically. And as last week's tumultuous events remind us, stable politics is the base on which market economics flourish.
Much of this has happened for reasons beyond any one country's power; the world is, after all, a chaotic place. But the United States has been uniquely placed to help stabilize the post-cold-war world. And in many instances it has fallen short. Distracted by televised hot spots of the moment -- Haiti, Somalia, Bosnia -- not to mention more recent distractions, Washington has spent little time, energy and political capital strengthening the central balance of world power upon which global peace and prosperity rest. Its relations with Japan have been consistently poor and with Western Europe unattended. With China it has swung from unnecessary condemnation to premature declarations of partnership. And with Russia, the Clinton administration's most important policy initiative -- undertaken with hallelujahs from congressional Republicans -- was NATO expansion. Far from trying to build a framework into which Russia could fit, we built one specifically designed to exclude it.
It may be too late to change course, and President Clinton seems in no mood or position to take on an ambitious foreign policy. But the costs of not doing so are now clear.