Stephen Roach (New York)
Previously, I have argued that the 11 September terrorist attacks on
America could turn out to be a real setback for globalization (see my 21
September dispatch, "Globalization at Risk"). My fear was that this was a
transforming event that could result in the functional equivalent of a new
tax on cross-border connectivity. The tax would show up in the form of
heightened national border security, higher shipping costs, increased
insurance rates, and an increased risk premium associated with the
uncertainty over what comes next. That would not only raise the price of
the trade and capital flows that underpin globalization, but it could also
play a key role in crimping the outsourcing strategies that lie at the
heart of increasingly globalized supply chains. To the extent that
financial markets are still priced for further progress on the road to
globalization, investors could be in for a rude awakening.
This wouldn't be the first setback for globalization. The integration
of the Atlantic economy in the 19th century held out the promise of
powerful convergence within Europe and between Europe and the United
States. Yet this seemingly unstoppable trend ultimately sowed the seeds of
its own demise, leading to a geopolitical backlash that culminated in the
Great War of the early 20th century. Yet another wave of globalization
occurred in the inter-war period of the 1920s, only to be brought to an
abrupt end by the Great Depression and a renewed outbreak of worldwide
war.
The historians have done a good job in pinpointing several sources of
instability in these earlier episodes of globalization. In
Globalization and History (MIT Press, 2000), Kevin O'Rourke and
Jeffrey Williamson identify three key characteristics of the globalization
of the Atlantic economy in the 19th century that led to a backlash --
ever-widening cross-border income inequalities, unstable trade and capital
flows, and mounting geopolitical tensions. In The End of
Globalization (Harvard University Press, 2001), Harold James focuses
on the 1920s and adds two additional sources of instability -- systemic
problems in the banking system and a reaction against international
migration. Both studies end with the warning that there is nothing
inevitable about globalization. In the initial rush to convergence, the
trend almost always seems unstoppable. But then it invariably succumbs to
the unintended consequences it has spawned.
Could that be the case today? Quite possibly, inasmuch many of the
preconditions for earlier backlashes against globalization have been
satisfied. For example, there is compelling evidence in support of the
case for widening global income disparities over most of the past century.
That's true of disparities between rich and poor nations, as well as
between income groups within most countries. According to research
conducted by the International Monetary Fund, real income per capital in
many of the world's "poor" countries at the end of the 20th century
remained below income levels prevailing in "rich" countries at the start
of the century. The IMF also found that per-capita income for the upper
quartile of the global population increased more than twice as rapidly as
for the lower quartile. Economic convergence is widely viewed as the
endgame of globalization. Yet at the end of the 20th century, there was
still a large segment of the world's population on the outside looking
in.
The instability of trade and capital flows was another hallmark of the
late 20th century. The volatility of the global trade cycle is without
precedent in recent years. By our estimates, global trade volumes surged
by a record 12.8% in 2000. But this boom has quickly turned to bust; our
forecast of record calls for just a 3% increase in 2001 -- a record
deceleration for any one year. Moreover, there is good reason to believe
that our estimates are biased to the upside. Based on outright declines in
world trade volumes in early 2001, I wouldn't be surprised if there were
an actual contraction for the year as a whole -- the first such occurrence
since 1982. Unusual capital flow volatility was also evident in the final
two decades of the 20th century. The Latin American debt crisis of the
1980s, the Mexican peso crisis of 1994-95, and the Asian financial crisis
of 1997-98 were especially notable milestones in this regard.
And, of course, the shocking events of recent days underscore what now
seems to be the biggest threat of all -- mounting geopolitical tensions.
That, in my view, remains the ultimate irony of the post-Cold War era.
Absent the standoff of two superpowers, there has been a distinct
fragmentation of the world's political struggles. Whether it's the Middle
East, Central Europe, or now Central Asia, internal struggles in each of
these regions have had profound spillovers into the broader global arena.
Global terrorism is both an outgrowth of those struggles and a catalyst
for new struggles. Henry Kissinger has argued that American hegemony can
be turned into a stabilizing force in this Brave New World, provided the
United States "transform(s) its power into moral consensus …[and]
promote(s) its values not by imposition but by their willing acceptance"
elsewhere in the world (see Does America Need a Foreign Policy?,
Simon & Schuster, 2001). Needless to say, such a formidable task
is unfinished business for a United States that is currently grasping for
a post-Cold War foreign policy.
What emerges from this mosaic is an inherent instability in the current
wave of globalization that is strikingly reminiscent of forces that led to
the demise of earlier efforts. Ever-widening income disparities underscore
the plight of those who do not benefit from globalization. Periodic
financial crises put pressure on a similar disenfranchised segment of the
world. These mounting economic tensions between the "haves" and the
"have-nots" are a breeding ground for the social and geopolitical
instability that always seems to have the final say on globalization.
The history of failed efforts at globalization seems especially
haunting in today's world. It's a history that tells us there is nothing
inherently stable about globalization. It's also a history which suggests
that globalization has a real tendency to sow the seeds of its own demise.
The dialectic of this history has left unmistakable footprints over the
past 20 years. The shocking events of 11 September could well bring those
lessons of history to a head. If that history is at all relevant -- and I
suspect it is -- there's understandably a new sense of urgency to the
survival of globalization.
Morgan Stanley |
