Re: Doug Henwood/Mark Jones exchange (from LBO-Talk)

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxxxxxx>]

Getting back to the debate on the global economy and the furture of capitalism.

Henry C.K. Liu

        Robert Gilpin's new book

New York Times
April 30, 2000

All the World's a Mall
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A professor looks at the new global economy and finds that it is only as strong
as its political institutions.


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Related Link
* First Chapter: 'The Challenge of Global Capitalism'
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By DAVID E. SANGER
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THE CHALLENGE OF GLOBAL CAPITALISM
The World Economy in the 21st Century.
By Robert Gilpin
with the assistance
of Jean Millis Gilpin.
Illustrated. 373 pp. Princeton, N.J.:
Princeton University Press. $29.95.

Late in the afternoon in early December, on the first day of the
antiglobalization demonstrations in Seattle, I scrambled through the
tear-gas-filled streets, and marveled that a deadly dull meeting of the World
Trade Organization had suddenly turned into a riot of strange bedfellows. Here
were environmentalists dressed in sea-turtle costumes marching arm in arm with
Teamsters, who until now have not been known for their concern about the fate of
tortoises. A few blocks away, self-described anarchists ran circles around a
befuddled police force, kicking out windows in a protest against -- well, they
weren't quite sure just what. (At a coffee bar near the chaos -- this was
Seattle after all -- one of the more aggressive protesters acknowledged to me
that he was not quite sure what the World Trade Organization did, but he was
angry about ''the way rich people run the world.'')

Just as I was taking all this in, my cell phone rang. It was one of this
country's top trade negotiators, locked in a hotel room high above the melee and
barred by the Secret Service from venturing out. ''What's happening down
there?'' he inquired. I filled in the details. ''You think that's chaos?'' he
said. ''The Pakistanis just told us, 'We will blow up the negotiations,' and the
Indians, who are usually talking about blowing up the Pakistanis, say they are
going to help.'' Indeed, to many in the developing world, the whole effort to
start a new round of global trade talks was part of a plot by the United States
to set rules that would make the developing world's economy more expensive --
under the guise of preventing child labor or
stopping pollution. Or, as Youssef Boutros-Ghali, the savvy Egyptian trade
minister, asked at the end of the Seattle debacle, ''Why, all of a sudden, when
third world labor has proved to be competitive, do industrial countries start
feeling concerned about our workers?''

All this calls out for explanation. Robert Gilpin, an emeritus professor of
public and international affairs at Princeton and a man who has written often
about markets and economic institutions, offers a comprehensive take on this new
world of economic conflict. Unfortunately, he finished ''The Challenge of Global
Capitalism'' before all those emotions erupted in Seattle. But he understands,
at least intuitively, that the wheels may be coming off the post-cold-war roller
coaster that the United States rode to great heights in the 1990's.

Like many economists, though, Gilpin appears a bit perplexed about how to handle
the politics of it all both at home and abroad. And the battle over who gets
gored by the consequences of economic globalization is, after all, entirely
about politics. It is about whether the rules of free trade should protect
tortoises and set minimum wages, even if that means that the World Trade
Organization overrules the governments of India or Egypt or even the United
States. It is about who sets those rules and about brewing resentments among
winners and losers. Wander anywhere abroad, from Malaysia to Japan to France,
and it does not take long to find raw resentment that the world economy is now
run by ''international standards'' that look and feel suspiciously American.
After all, isn't it Washington that pulls the strings of the International
Monetary Fund? Isn't it the United States that is using the Internet to spread
American-style capitalism? And aren't global trade talks an effort to rig the
rules to benefit the most technologically advanced and the most competitive?


Early in his book Gilpin notes that ''rejoicing in their own good fortune,
Americans failed to appreciate that the country's prosperity was highly
dependent on the global economy and that, in international economic affairs as
in other aspects of life, no person or country is an island.'' And throughout
the 1990's, he adds, few noticed that ''although global capitalism has indeed
triumphed, the larger global economy was in serious trouble.'' Stranger yet,
even citizens of the countries that have been the biggest winners of economic
globalization are complaining. After all, virtually all of those protesters in
Seattle were Americans, many of them taking time off from jammed docks and
overworked factories. Prosperous times have treated them well but have not
alleviated their sense that the global economy can, in the click of a keyboard,
move a good job in Seattle to Bangalore. The result is more suspicion than ever
about the wisdom of open markets. In fact, it is questionable whether the North
American Free Trade Agreement would pass in Congress today, even though economic
conditions now are far stronger than they were in 1994. And there is doubt that
Congress will agree to normal trade status for China this year, even though the
accord that ushers China into the World Trade Organization requires China to
open its markets, but essentially contains no concessions on the part of the
United States.

''All the political elements that have supported an open global economy have
considerably weakened,'' Gilpin concludes. ''Despite the huge benefits'' of the
system, he argues, ''an open and integrated global economy is neither as
extensive and inexorable nor as irreversible as many assume.'' In other words,
even as nations around the world race to embrace free-market capitalism -- or at
least talk a good game -- their political systems convulse at its ramifications.
The result is a search for a new protectionism. Europe uses dubious science to
keep genetically modified farm products, chiefly from the United States, off its
shelves. China woos investors but at the same time is desperately attempting to
regulate access to the Internet, for fear that the Communist Party will lose
even more control over the country. Japan discovers, to its horror, that years
of sharply limiting foreign investment and immigration to retain control over
its economy have deprived it of both foreign innovation and foreign innovators;
after a lost decade, it cannot bring itself to break old habits. All this has
turned American foreign policy on its head. Negotiating the number of warheads
that the former Soviet Union could keep on top of a missile was a breeze
compared with trying to negotiate an accord among 160 nations about a set of
minimum rights for workers that makes sense in both Brussels and Shanghai.
Gilpin, alas, does relatively little to parse the political complexity.
''Most Western economists are very dubious about making workers' rights a part
of the trade regime, as this would unduly complicate trade negotiations,'' he
writes. It is in this territory where the interests of individual nations come
into direct conflict with America's sense of how the post-cold-war world should
be molded that a whole new world of foreign policy is being created.

Atop that is added another layer of complexity: at what point does the rest of
the world have to step in to save a country from its own failed economic
policies before the infection spreads? This was the question raised by the
Mexican peso crisis and then, in much more urgent terms, by the Asian financial
crisis. Here Gilpin has some stronger insights. He quotes Walter Wriston, the
former Citibank president, who once famously declared that nations ''don't go
bankrupt.'' ''Unfortunately, Wriston was wrong,'' Gilpin writes. The Asian
crisis proved the case. He describes how a series of bad decisions in Thailand
and Indonesia -- from linking their currencies to the dollar, then failing to
supervise their banks, then letting political cronies rule some of the world's
most promising economies -- led to disaster. In came the International Monetary
Fund, followed by the United States Treasury. There was talk of the need to stop
''systemic risk'' -- banker talk for a problem that leaps, like a wildfire, from
one nation to another. On the other hand, Gilpin notes, ''the Clinton
administration did not want to be viewed as rescuing foreign bankers from the
consequences of their own greed and foolishness.''

In the end, Gilpin appears to side with those who believe there was some
American greed and foolishness at play as well. The Treasury, influenced by
American financial interests, used its clout over the years to force open
economies around the world, so that American banks and companies could spread
their wings around the world. ''Unfortunately, the international community,
which had pushed for openness, failed to push for regulation of the financial
sector, and the governments were too inexperienced to appreciate the dangers of
an unregulated financial market,'' Gilpin concludes. The Asia crisis touched off
a debate over whether institutions like the International Monetary Fund and its
biggest shareholder, the United States, should get more deeply involved in the
way countries run their economies or stand back and let the market apply its own
disciplines. No one won that battle -- it was called off as Asia recovered. Even
while the street protests continue, like those in Washington in mid-April, the
whole debate over creating what President Clinton called a ''new
international financial architecture'' has faded. Politicians cannot apparently
sustain interest in the question in the absence of a raging crisis. But
financial crises, like volcanoes, do not stay dormant forever. The problem will
be back -- along with the guys in the tortoise suits.


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David E. Sanger is a White House correspondent for The Times.