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The Future of Globalization
In an essay for the July/August 2009 issue of Foreign Affairs, former U.S. Deputy Treasury Secretary, and now CEO of Evercore Partners, Roger C. Altman, talks of globalization in retreat. This is the second in a series of comments from Mr. Altman and I earlier had excerpts from a January/February ’09 essay in the same publication. Following are some further thoughts of his.
“First, the era of laissez-faire economics has ended. For 30 years, the Anglo-Saxon model of free-market capitalism spread across the globe. The role of the state was diminishing, and deregulation, privatization, and the openness of borders to capital and trade were rising. Much of central and eastern Europe adopted this model, as did swaths of East Asia and diverse nations from Ireland to Mexico.
“This movement reflected the economic primacy of the United States. Its growth, soaring standards of living, and conservative economic policies were widely admired. Countless societies preferred this model and supported governments that espoused it. The state-centered models, such as the French and German ones, were in retreat.
“Now, a page has been turned. The Anglo-Saxon financial system is seen as having failed. The global downturn, and all its human devastation, is being attributed to that failure. Throughout the world, including in the United States, this has turned the political tide in a new direction. The role of the state is expanding again, together with a reregulation of markets. This is evident in the United States, where President Obama has moved toward more activist and bigger government. The quasi nationalization of the banking and automotive industries, as well as the pending reform of the financial system, makes this clear. It is also clear in Ireland, the United Kingdom, and elsewhere, where nationalizations have gone even further. And it is clear in statements made by such leaders as French President Nicolas Sarkozy, who recently celebrated ‘the return of the state’ and ‘the end of the ideology of public powerlessness.’
“Second, globalization is in retreat, both in concept and in practice. Much of the world now sees it as harmful. Those nations, especially developing ones, that embraced increased capital flows and open trade have been particularly injured. Those that insulated themselves, such as India, have been less scarred. The global spread of goods, capital, and jobs is reversing. Global exports are falling sharply. The World Bank reports that exports from China, Japan, Mexico, Russia, and the United States fell by 25 percent or more in the year leading up to February 2009. Capital flows are plunging, too. Emerging markets are projected to receive only $165 billion in net positive capital inflows this year, down from $461 billion in 2008. Furthermore, financial and trade protectionism are spreading….
“Third, the world may be entering a new global phase marked by less leadership, less coordination, and less coherence….The United States has turned inward, preoccupied with severe unemployment and fiscal pressures….
“Other nations have been rising, especially China. [Ed. But U.S. leadership is still critical, like in Pakistan]….
“Fourth, this crisis likely will increase geopolitical instability. Dennis Blair, the U.S. director of national intelligence, has asserted that the downturn already has produced low-level instability in a quarter of the world. The IMF has warned that millions will be pushed into unemployment, poverty, rising social unrest, or even war. [Ed. i.e., Iran and Russia]….
“Only China has prevailed. China’s growth did diminish but now may be picking up again. Recently, electricity consumption, freight shipments, and car sales in China have all increased. Its financial system is insulated and relatively unleveraged – and has thus been largely unharmed. This has allowed China to direct a recent surge in lending for stimulus purposes. Beijing’s unique capitalist-communist model appears to be helping China through this crisis effectively. And measured by its estimated $2.3 trillion in foreign exchange reserves, no nation is wealthier.
“All of this is enhancing China’s geopolitical standing. The West is experiencing a severe economic crisis, seen as its own making, whereas China is not. The Chinese leadership is well aware of this relative advantage, even though its priorities are always domestic. Apart from its coal supplies, China is resource poor. But it has recently been making offshore investments in natural resources of a kind that others no longer can make – such as securing future oil supplies from Russia and Venezuela.
“It is increasingly clear that the U.S.-Chinese relationship will emerge as the most important bilateral one in the world. The two nations have similar geopolitical interests. Neither wants Iran to acquire nuclear weapons, North Korea to be destabilized, or Pakistan to become a failed state. There is no reason, therefore, why their relationship cannot be a cooperative and globally stabilizing one.
“This economic crisis is a seismic global event. Free-market capitalism, globalization, and deregulation have been rising across the globe for 30 years; that era has now ended, and a new one is at hand. Global economic and financial integration are reversing. The role of the state, together with financial and trade protectionism, is ascending.”