Copyright 2000 The New York Times Company
December 31, 2000

Globalization Grows Up and Gets Political




George W. Bush's appointments of Colin Powell, Condoleezza Rice and Donald Rumsfeld as secretary of state, national security adviser and defense secretary, respectively, have been met with general acclaim. But some commentators have wondered how this new team, which is better versed in political and military affairs than in economics (though Mr. Rumsfeld has an impressive background in business) will be able to manage American foreign policy in the age of globalization.

You know the argument: The world has been utterly transformed in recent years, globalization is sweeping old models aside, technology is bringing us together faster and more furiously than ever before, markets rule and governments follow. And did I mention the Internet changes everything?

Actually, there's a great deal of truth to these ideas, though they are often expressed with irrational exuberance. Globalization is a revolutionary force, and it is here to stay. But the globalization of the next 10 years is going to be different from that of the last 10. American foreign policy will have to focus less on the economics of globalization than on the politics.

In the 1990's, in the first phase of globalization, economics reigned supreme. After decades of flirtation with statism, countries around the world dismantled economic controls, deregulated industries and liberalized their economies. As capital markets flexed their muscles, governments began to think that they had little power over their own destinies. They were forced into a golden straitjacket, limiting their policy options to propitiate the long bond.

But as we enter the second decade of globalization, countries have come to realize that the constraints of capitalism are not nearly as tight or as predictable as many had believed. In Europe, governments are reforming their economies but have retained their cherished welfare states. And they are doing well, none more than Sweden, where the government spends over 60 percent of the gross domestic product. Several European countries ó Sweden, Britain and Denmark among them ó chose to defy the conventional wisdom and have not adopted the single European currency. Markets have not punished them; indeed, they have been rewarded.

Meanwhile, in negotiations over everything from genetically modified food to cultural affairs, economics is taking a back seat to politics. Europeans have decided that they are willing to pay a price in inefficiency for their political values (no matter how strange those values might seem on this side of the Atlantic).

Ignoring the political dimensions of globalization has already had its costs. Nowhere was this made clearer than in the East Asian economic crisis of the late 90's ó particularly in Indonesia. In the wake of that crisis, the International Monetary Fund and Washington helped topple President Suharto's regime, hoping that radical economic and political reform would follow. Instead, the entire country has been unhinged. Over the last two years, the Indonesian economy has contracted almost 50 percent, wiping out 20 years of economic growth, throwing tens of millions of people below the poverty line and embroiling the country in ethnic violence.

If there is an image that reflects the diplomacy of the 1990's, it is that famous picture of Michael Camdessus, the I.M.F. chief, arms folded, glowering over President Suharto while the old man signed on the dotted line, agreeing to the fund's terms for a bailout. There will be no more such photo-ops.

Consider the contrasting fate of Malaysia, which has recovered from the East Asian crisis as fast as any of his neighbors despite the recalcitrance of its strongman, Mahathir Mohammed. As one Indonesian scholar commented sadly: "Many in my country wish that Suharto had done what Mahathir did ó defied the I.M.F., moved at our own pace ó and we would be better off today."

Or consider trade. Talks over the expansion of global trade are stalled ó and not because of a few hundred latte-sipping protesters dancing outside World Bank meetings, though they are also part of the new politics of globalization. Third world countries believe that without some concessions from the West, these talks have become a one-way street in which they alone open their markets. But Western countries are not about to get rid of domestic subsidies that have powerful constituencies, like European and American farmers, no matter how they distort global markets. Globalization goes only so far.

And then there is the Middle East, where the seductions of globalization have not fared well. President Clinton, Shimon Peres and others painted a picture of a new Middle East, based on cooperation, economic interdependence and growth. But Yasir Arafat understands that in such a world the Palestinian Authority ó and he personally ó would not prosper. Countries like Ireland and Israel benefit greatly from their access to the global economy ó and so they take political risks. But most of the world is governed by political elites who dare not liberalize because to do so would unsettle their own power ó think of Africa, Central Asia and South Asia. To them, globalization is not an opportunity but a threat. If there's no gold to be had, why put on the straitjacket?

Globalization is the dominant force in the world today and a profoundly progressive one. But when Washington advocates economic liberalization, it should bear in mind the political context in which particular countries, and regimes, exist. When it tries to expand free trade, it must broker political compromises to move negotiations forward. In dealing with Europe, for example, it will have to use political persuasion to modify the European Union's views on agriculture, not to mention those on sanctions against Iraq.

Finally there is the underside of globalization. The bloody crossroads of the next decade will be where globalization meets terrorism. All the wondrous developments of the new economy ó falling costs, fewer borders, easy communications ó help international terrorists and criminals as much as they do businessmen. And only well-exercised power ó military, economic and political ó can meet this new threat.

So the challenge faced by the new Bush administration is not the challenge of the 1990's. Recall that the last era of globalization, in the late 19th century, was also fast and furious. It also saw the birth of fantastic new technologies, like electricity, that changed the world. It also raised millions out of poverty. And it was undone not by bad economics but by bad politics ó nationalist rivalries that led to World War I. Today, the economics of globalization are in good shape. The politics are not.

Fareed Zakaria has been appointed editor of Newsweek International.