Globalization and its discontents
By Henry A. Kissinger
Published: May 29,
2008http://www.iht.com/articles/2008/05/29/opinion/edkissinger.php
For the first time in history, a genuinely
global economic system has come into being with prospects of heretofore
unimagined well-being. At the same time - paradoxically - the process of
globalization tempts a nationalism that threatens its fulfillment.
The basic premise of globalization is that
competition will sort out the most efficient, a process that, by definition,
involves winners and losers. If there are perennial losers, they will turn to
their familiar political institutions for relief. They will not be mollified by
the valid proposition that the benefits of global growth far outstrip
its costs.
Moreover, to remain competitive, many
countries are obliged to abridge their social legislation - a task bound to
generate domestic protests. In periods of economic distress, these trends are
magnified. The debate over trade policy in the U.S.presidential campaign is a
case
in point.
In industrialized countries, globalization
impacts domestic politics in two ways: Improved productivity generates the
paradox of enhanced well-being, accompanied by higher unemployment. At the same
time, there occurs a migration away from menial jobs, which are then filled by
workers from abroad. A clash of cultures and a nationalism advocating exclusion
develop. Variations of protectionism thereby acquire a domestic base.
That trend takes place even within the
productive sector of the industrialized world. Connected by the Internet to
similar industrial and financial institutions around the world, transnational
enterprises operate in the global marketplace served by staffs that often have
longer tenure than those of governments and fewer restrictions on
their analyses.
Enterprises that remain dependent on the
national economy generally do not have the same opportunities. On the whole,
they employ the labor force with the lowest wages and bleakest prospects. They
tend to rely on more limited markets and on national political processes. The
transnational companies advocate free trade and free movement of capital; the
national companies (and trade unions) often push for protectionism.
Economic crises obviously magnify these
tendencies. And the globalized financial system has produced periodic crises
almost as predictably as its sustained growth: in Latin Americain the 1980s, in
Mexicoin 1994, in Asiain 1997, in Russiain 1998, in the United Statesin 2001
and then again starting
in 2007.
While each crisis had a different trigger,
their common features have been profligate speculation and systemic
under-appreciation of risk.
With each decade, the role of speculative
capital has magnified. For speculative capital, nimbleness is the essential
attribute. Rushing in when it sees an opportunity and heading for the exit at
the first sign of trouble, speculative capital has too often turned upswings
into bubbles and downward cycles into crises.
The strategic impact of globalization raises
perhaps the most important issues on two levels: Are there industries
indispensable for national security in which foreign investment should be
limited or even precluded? Second, what industries must be kept from collapsing
to maintain America's defense capability? The answers to these
questions clearly lend themselves to abuse. But this is not an excuse for
avoiding what the national interest dictates must be faced.
The international system thus faces a
paradox. Its prosperity is dependent on the success of globalization, but that
process produces a dialectic that can work counter to its aspiration. The
managers of globalization have few occasions to manage its political processes.
The managers of the political process have incentives not necessarily congruent
with the economic managers. This gap must be eliminated or at
least narrowed.
As a start, I offer the
following prescriptives:
The first imperative is to recognize that
these problems are the blemishes of great success. Debate about shortcomings of
the process should not degenerate into attacks on its basic conceptual
framework, as has happened too frequently in the U.S.presidential campaign.
Political leaders
must avoid - not encourage - the protectionism that led to disaster in
the 1930s.
The parameters of the national security
limits to globalization should be established on a national basis rather than
left to pressure groups, lobbyists and electoral politics. In the United
States, the next administration should establish a
bipartisan commission at the highest level to study what constitutes an
indispensable strategic U.S.industrial and technological base and the
measures to preserve it. High among its priorities must be a hard look at an
educational system that creates too few engineers and technologists in
comparison with our competitors. The criterion should be what is essential for
national security, not to shield enterprises from the competition essential for
global growth. That line will not be easy to draw, and the effort risks
political manipulation. But the problem will not go away and at some point will
become unmanageable.
International economic institutions need to
be made relevant to current challenges. The annual Group of Eight summit
originated in 1975 as a meeting of six industrial democracies to chart their
economic and social futures during the first energy crisis. (Canada was added
in 1976; Russia in 1998.)
At the first meeting in Rambouillet, France, each country was allowed only three
participants, including the president, to facilitate frank discussion. Since
then, the meetings have degenerated into large assemblies serving essentially
political functions.
They should be restored to their original
purpose, devoted primarily to issues affecting the long-term health of the
global economy, including giving opportunities to societies that have been left
behind to participate in global growth. In that process, India, Chinaand
potentially Brazilshould be included.
The original Group of Seven industrial
democracies should continue to meet at the level of finance ministers during
the G-8 meetings. This G-7 should be charged, above all, with addressing the
domestic and social distortions caused by globalization.
The International Monetary Fund as presently
constituted is an anachronism. It has been a bystander in the financial crises
of the 21st century, which have been produced by practices within the private
sectors. The IMF has sought to adapt, but too slowly; it needs to
be reformed.
The lending practices that produced the U.S.economic crisis require urgent
attention
and greater international cooperation. Profligate and obscurantist practices
were evident long before the crisis struck. They were made possible by the
invention
of financial instruments that encouraged speculation while obscuring the nature
of obligations. In the subprime mortgage debacle, lenders lost the ability to
estimate the extent of their obligations and the indebted to understand the
implications of their commitments.
Moral hazard needs to be faced. There is an
inherent contradiction when financial entities are permitted to reap
extraordinary profits and manage vast assets and then, when conditions change,
are declared too large to be permitted to fail, requiring taxpayer bailouts.
Financial institutions, whether investment banks or hedge funds, need oversight
in a way that protects the taxpayer's interest.
In sum, if the gap between the economic and
political orders is not substantially narrowed, the two structures will wind up
weakening each other.
** Henry A. Kissinger heads
the consulting firm Kissinger & Associates. Distributed by Tribune
Media Services.
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