The World Economic Forum, which holds its annual meeting every winter in Davos, Switzerland, is a symbol of the global community. On January 23, the first day of this year's meeting, the prominent investor George Soros published a comment in the Financial Times titled "The Worst Market Crisis in 60 Years." Soros declares that this crisis "marks the end of an era of credit expansion based on the dollar as the international reserve currency." He sees it likely that the crisis will lead to "a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world." And he warns of the danger that this will lead to a rise in US protectionism, which "may disrupt the global economy and plunge the world into recession or worse." This is a truly bleak scenario.
Another argument that we face a major shift came from the French capitalist Jean-Louis Beffa (chairman of Saint-Gobain) and economist Xavier Ragot in an article titled "The Fall of the Financial Model of Capitalism," Financial Times, February 22. They argue: "Recent changes mark the end of the present standard model of financial capitalism, built up over the last decade or so. In this model, financial stability is mainly based on the self-regulation of the financial sector, which alone assesses the risks produced by its financial innovations." The fall of the financial model creates a critical situation in the relationship between markets and governments. Beffa and Ragot opine that three of the world's richest nations have become "de facto neo-mercantilist, setting sights on trade surpluses." The three countries in question are China, Japan, and Germany. They also note the problem posed by "less democratic economies that use market mechanisms for political ends." Though they do not say so explicitly, clearly they are referring to the issue of how to deal with the sovereign wealth funds of countries like China and Russia. They seem to be suggesting that the neoliberal international economic system has ironically led to the rise of state-dominated economies.
Turning the tables on former colonial masters
In an article in the New Republic, a middle-of-the-road US journal that sometimes shows a neoconservative bent, the French intellectual Bernard-Henri Lévy writes in an ironic tone that the paradigm shift now underway is not a mere matter of a US decline or the beginning of the end, so to speak; in fact, he suggests, America is for sale ("They're Coming," New Republic, February 27). In the past, the United States and other advanced Western countries used their capital and means of production to turn out manufactured goods, and they looked to the developing world to provide markets for these goods. But now the tables have turned. China makes manufactured goods, accumulates capital, and looks to the United States and other developed countries as markets. SWFs from the Middle East and China have started to snap up even such crown jewels of American capitalism as Morgan Stanley, Citibank, and Merrill Lynch. It will not be surprising if the dollar continues to decline to the point where Chinese firms do not merely sell their wares in the United States but start setting up US plants to make goods using cheap American labor. At that point, what will the labor unions that have been complaining about jobs lost to China have to say? In Lévy's view, this all represents the "New Deal" of the global age.In a related vein, an article in the February 18 international edition of Newsweek titled "Jewels in Their Crown" discusses investments by Indian firms in Britain, India's former colonial master. Over the past three years, Indian investment in Britain has doubled, surpassing British investment in India. Indian steelmaker Tata has acquired Corus, one of the final fragments of British Steel, and it is on its way to buying the iconic carmaking operations of Jaguar and Land Rover from Ford. The tables have turned from the days of the British Empire.
Increasing doubts about free trade
It would be a fine thing if the process of globalization were leading to a global-scale redistribution of wealth worthy of the name "New Deal." But the actual situation is not so simple. We may be seeing a New Deal among nations, but as we noted in the first installment of this monthly series of reports (November 2007), at the level of ordinary citizens we find widening disparities between those who are able to ride the wave of globalization and those who are not. This gives rise to the danger of developments like a turn to protectionism by the United States (as in the warning from George Soros that we cited above). This is also one of the topics of the presidential election campaign now underway in the United States.In an article published in the International Herald Tribune on January 23, Philip Blond, who teaches theology and philosophy at the University of Cumbria in Britain, writes on "The Failure of Neo-liberalism," addressing the dark side of globalization with some hard numbers. For example, even among the top 13 countries of the Organization for Economic Cooperation and Development, which amounts to a club of the world's rich countries, real wage increases have been below the rate of inflation since around 1970. In the United States, meanwhile, he notes that "between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent." This is the reality of the new age of globalization, and neither the left nor the right has the answer for how to deal with it. Blond suggests the option of "a general and widely distributed ownership and use of assets, credit and capital." I do not know what he means in concrete terms, but it sounds like the reemergence of radical thinking.
A recent article in BusinessWeek reports that "something momentous is happening" as economists who up to now have always argued in favor of free trade start to reconsider their position. "Doubts are creeping in," it reported in the article "Economists Rethink Free Trade" in its February 11 issue.
According to one set of estimates, "trade and investment liberalization over the past decades have added $500 billion to $1 trillion to annual income in the U.S." But there are concerns that the benefits are going to a small group of rich people at the top, leaving the broad middle class—the backbone of American society—with little or no income growth. It was not supposed to be this way under the free trade system. There is a danger that unless something is done to help those who have fallen behind, a protectionist backlash may emerge.
Among the economists cited in the BusinessWeek article as representative of those expressing doubts about free trade are Princeton University's Alan Blinder and Dartmouth University's Matthew Slaughter, whose opinions we have cited in previous installments of this series. Blinder is a former vice-chairman of the Federal Reserve Board and served on the Council of Economic Advisers under President Bill Clinton. Slaughter was formerly on President George W. Bush's CEA. Both have up to now been promoting the free-trade cause.
The emergence of doubts about free trade has been affecting the presidential campaign. As reported by David Ranson in "The Candidates and Trade," Wall Street Journal, February 6, Hillary Clinton and Barack Obama have been arguing about revision of the North Atlantic Free Trade Agreement, for example. And the above BusinessWeek article notes that Clinton's economic adviser Gene Sperling has written, "The question of whether spreading globalization and information technology are strengthening or hollowing out our middle class may be the most paramount economic issue of our time."
One often hears the complaint that "globalization" actually means "Americanization." But ever since the subprime mortgage meltdown in the United States, doubts and criticisms regarding globalization have emerged to an unprecedented degree there. The presidential race has further accentuated this tendency.
The weakening of the nation-state
Questions about globalization are not limited to the economic sphere. In a recent article ("What People Will Die For," Newsweek, January 14), Fareed Zakaria considers the conflicting trends highlighted by election-related strife in Kenya and Pakistan and the exacerbation of divisions resulting from the elections in Iraq: "Globalization and democratization are the broad trends of the day, and both have the effect of empowering small groups within countries and weakening the nation-state." He observes that old, subnational identities predating the emergence of the nation-state have come to dominate politics in many countries, even in the advanced world, citing the example of Belgium, where the rivalry between French speakers and Flemish speakers made it impossible to form a government for a period of six months last year.The United States is seeking "change" as a theme of this year's presidential election campaign. Is this part of a paradigm shift demanded by globalization? And what sort of world lies beyond? The debate is sure to continue.
