A Future Perfect: The Challenge and Promise of Globalization

by John Micklethwait

  The first edition of this book appeared at a dangerously heady time for supporters of globalization, particularly in the United States. The stock market continued to defy gravity. The standard indicators of globalization pointed skyward: The volume of global trade increased steadily in the decade through 2000, and foreign direct investment flows topped $1.3 trillion. Economists speculated about the birth of a “new economy” that had banished recessions for good. Gurus speculated about “Dow 36,000”—or whatever other number they plucked out of their hats. This was a time when Silicon Valley and Wall Street minted new millionaires every single day; when business-school graduates confidently expected to retire at forty and begin a new career in philanthropy; and when the first signs of liberalization seemed to be awakening parts of the third world. India and China were booming after decades of state-imposed stagnation.

  Of course, there were serpents in this paradise, no less than there were in the world of Keynes’s Londoner. Too many people in the developing world lived in grinding poverty. Too many people in the rich world were worried about losing their jobs. The antiglobalization movement won a huge propaganda victory when a hundred-thousand-strong army of trade unionists and students succeeded in turning the 1999 meeting of the WTO into a farce. But most people found it easy to dismiss the Seattle protests (and its successors in Washington, D.C., and Genoa) as a sideshow—cheap entertainment for students with too much money and too much time on their hands. Thousands of people might have turned out to protest against globalp. xixization. But hundreds of millions of people voted for governments that supported it.

  A Definition of Globalization

  How much of a reversal for globalization was September 11? To answer that question, we need to start by defining the term globalization. One reason for the general confusion that surrounds this subject is that people have started to use the word as shorthand for their entire philosophy of life. For highfliers in Wall Street and Silicon Valley, it is a synonym for modernity; for French intellectuals (as for bin Laden), it means American domination; for Ralph Nader and Pat Buchanan, it means exactly the opposite, the emasculation of their country.

  Our definition of globalization is rooted in freedom. Globalization is the freer movement of goods, services, ideas, and people around the world. Two things about this definition are worth stressing. First, globalization is about more than just business; it is about culture and people. The Guggenheim in Bilbao is as much a symbol of globalization as DaimlerChrysler; so are the Albanian “asylum seekers” flocking into Britain. Globalization is certainly about the ratio of exports to gross domestic product. Yet it is also about the nonchalant way in which people under thirty make an international call, the cafés in Shanghai where you can get a decent cappuccino (and sometimes surf the Internet), the way that Chinese teenagers can recognize Arnold Schwarzenegger and Michael Jordan, the clothes people wear, or even the fact that in the Himalayan hamlet of Lukla people setting off for Everest are given French toast and Swiss muesli for breakfast, with American soft toilet paper to stuff in their pockets.

  Second, globalization is a process rather than a fact or a structure. The forces driving globalization—the digitalization of information, falling trade barriers, even the spread of pop music—are real enough. But they have left behind an economy that is much less integrated than either the proponents or the critics of globalization admit. In some cases, observers have ignored what might be called “the undertow”: the way in which the tide that seems to be bringing people together can also divide them into ever smaller groups. For instance, multichannel television has spawned not only global networks such as CNN and MTV but also countless small local “community” stations. The ease with which big-city newspapers can produce different editions for different local markets usually means that they must cut back foreign news.

  People who talk excitedly about an unprecedented era of globalization p. xx should read more history. By some measures, the world is not much more integrated than it was before Princip stepped out of the crowd in Sarajevo. Much of the final quarter of the twentieth century was spent merely recovering ground lost in the previous seventy-five years—and today’s “global village” still effectively excludes billions of people. Most of the world’s citizens live on less than ten dollars a day; most don’t have access to phones; four out of every five have never traveled further than one hundred miles from their home.

  Even when you look at trade among rich countries, many markets for products still stop at national borders. A Canadian province trades twelve times as many goods and forty times as many services with another Canadian province as it does with an American state of similar size and proximity.[3] In the supposedly open European Union, people are still six times more likely to trade with their countrymen than with people of other European countries. Industries are deeply rooted in certain bits of the globe: There are plenty of cheaper places to locate a film industry than Hollywood, but none that has the same collection of people. A surprising number of the most humdrum products come from local sources. Nearly all of America’s lightbulbs are still made in the U.S.A., largely because transport costs are too high to justify moving the factories elsewhere.

  The uneven nature of globalization helps to explain why it is often a cruel process. Much of this book is devoted to looking at those who have lost out as a result of globalization: the car workers in Flint, Michigan, the people of South Korea and Russia in the wake of the “Asian contagion,” the wretchedly poor Gobetti family in a favela in São Paulo, Brazil. But these casualties do not stop globalization from being a process worth defending.

  By any economic measure yet invented, globalization has enriched the world. Far more people suffer from too little globalization than from too much (not least because of the barriers that the first world erects against third world products). Once again the central issue is freedom: Any process that increases the number of legal choices that are open to people (even if those choices are as mundane as the right to drink Coca-Cola or surf the Internet) should command support. Indeed, it is precisely those sort of mundane freedoms that people like bin Laden detest most.

  The Bin Laden Effect

  Osama bin Laden changed the debate about globalization in three important ways. First, the attacks on the World Trade Center and the Pentagon rep. xxivealed the soft underbelly of globalization—the way that the very tools of globalization can be turned against it. The passenger jet, which had hitherto been celebrated for bringing the world together, became a horrific weapon of destruction. Towers that were built to glorify both world trade and American power were destroyed in less than an hour; now pictures of them symbolize American insecurity. Bin Laden even bastardized some of the language of globalization. “Networks” and “cells” used to be the stuff of trendy management theories. Now they have a more ominous ring.

  Second, September 11 has made it harder for goods, people, and services to cross borders. Air travel has become more bothersome, and airfreight more expensive. America’s airports are currently struggling to install between two thousand and five thousand bomb-detecting devices, each costing about one million dollars.[4] America wants to force importers to “check in” their inbound containers at secure foreign ports, so that they can be cleared before reaching American waters. As for immigrants, America’s system of “don’t ask, don’t tell,” which the terrorists exploited, will surely have to be revised. In Europe, xenophobic politicians are already using September 11 as a further excuse for protesting against immigrants from North Africa and the Middle East.

  The biggest question about September 11, however, is the Sarajevo one. Was the attack on the World Trade Center one of history’s turning points? Are we witnessing the end of a process of global integration that has been gathering pace for decades? Many of globalization’s opponents certainly think so. John Gray, one of the most intelligent globophobes, argued, just a few days after September 11, that “the era of globalization is over. The entire view of the world that sup
ported the market’s faith in globalization has melted down.”[5]

  Consider the case for pessimism. Bin Laden’s timing could not have been better. The year 2001 produced something new in the current era of globalization: “synchronous sinking,” as all the world’s major economies slowed down at the same time and the major indexes of global integration stood still. World trade, which grew by 7 percent a year throughout the 1990s, remained almost stagnant. Foreign direct investment slumped from $1.3 trillion to barely half that. Almost all of this was the result of the business cycle rather than terrorism; but the coincidence was unfortunate.

  The same goes for the economic crisis of 2002, which Alan Binder, a former vice chairman of the Federal Reserve, described as the biggest loss of confidence in the markets since 1929. The collapse of Enron and WorldCom, the revelations about shoddy bookkeeping, the deconstruction of the Orp. xxiiwellian world of stock-market analysis (where “buy” meant “maybe,” “hold” meant “sell,” and “sell” meant “run like hell”): All these things gave people all around the world an excuse to question shareholder capitalism, which many saw as synonymous with globalization, and to jeer at the pampered princes of America’s new economy who had once lorded it over them. Suddenly, an American president, not an Indonesian one, was fending off allegations of crony capitalism. Much of this represented the continuing deflation of the dot-com bubble. But when the market loses more than a trillion dollars in a single month, as it did in July 2002, it is hard not to ask serious questions about the way the system works. And there is no doubt that there were serious weaknesses to be addressed, particularly in the auditing world.

  The pain was not just in the United States. In the mid-1990s, Argentina was hailed as an example of the benefits of global integration, having opened up much of its economy to foreigners. But in December 2001, it defaulted on $155 billion of debt. The country’s collapse into political and economic chaos sent the middle class into the streets banging their pots and pans. By 2002, many of Argentina’s biggest states and cities were printing their own currencies. An economy that had once been one of the world’s most sophisticated was reduced to something akin to medieval barter. Brazil also looked vulnerable. As for Zimbabwe, another erstwhile model, it already seemed to have fallen over the precipice.

  For the pessimist, there is also much to worry about in the political core of globalization—the transatlantic alliance. Europe has yet to warm to George W. Bush, a man who before he entered office had seldom bothered to travel abroad. For his part, the new president initially seemed determined to pursue a unilateral course, shrugging off both the Kyoto Treaty and the Anti-Ballistic Missile Treaty. In the aftermath of September 11, Europe rallied round America, invoking Article Five of the NATO treaty (which holds that an attack on one is an attack on all) for the first time ever. But by 2002, the alliance was feuding over all manner of things, from the reconstruction of Afghanistan to the possible invasion of Iraq. Relations were particularly strained over the Middle East, with Europeans sympathizing with the Palestinians and Americans with Israel. Perhaps these differences can be papered over in the years ahead. But pessimists can still point to the growing strains between two powers that feel they increasingly need each other less. The Pentagon wonders about the usefulness of European troops, with their outdated equipment and “appeasement-minded” political masters; European politicians, newly emboldened by the Euro, wonder about the merits of supp. xxiiiporting a country that refuses to listen to their advice (and that is also, they add quietly, largely to blame for its problems in the Islamic world).

  This divergence is economic as well as political. In 2002, in a blatant attempt to win votes in the rust belt, George W. Bush imposed tariffs on steel imports. This calamitous decision undermined the Doha trade round, provoked threats of retaliation from Europe, and made a mockery of his professed support for free trade. If an American president couldn’t stand up for his principles while his approval ratings were close to record levels, when could he stand up for them? Soon afterward Bush signed a $170 billion agriculture bill that comes close to matching Europe’s Common Agricultural Policy in the harm that it inflicts on trade in general and the developing world in particular. France and Germany duly conspired to extend the CAP—and soon the Bush administration was beginning to stress bilateral trade deals rather than multilateral ones as the way forward. The main victims will be poor farmers in the third world. Despite a quarter century of globalization, the Western world now spends one billion dollars a day on agricultural protection of one sort or another, depriving the poor world of the market that it most craves.

  These are real grounds for worry. Yet there are also reasons for hope. These begin with the fact that September 11 provided a bracing dose of reality. In the heady days of the 1990s, globophiles insisted that the process of globalization was unstoppable. How could people think of resisting the law of comparative advantage? And how could they contemplate putting the genie of technological advance back in the bottle? Too many Americans believed in a simplified version of Francis Fukuyama’s thesis of the end of history: that the triumph of Western liberalism is inevitable; that politics no longer matters; that all they need to do to produce utopia is tend to their stock portfolios. After September 11, the Afghan campaign, and the Bali bombing, people have a renewed appreciation of nation-states and their armies and policemen. The hidden hand sometimes needs the help of the chain-mailed fist.

  At the same time, the sheer horror of September 11 concealed an important fact: By most measures, Islamic fundamentalism is the weakest of all the threats that globalization has yet faced. Socialism, the main ideological opponent of liberalism for most of the past century, combined a searing analysis of contemporary injustices with a compelling promise of a better future. Whatever its defects, Marxism spoke to the genuine discontents of millions of workers. It also attracted some of the finest minds in the West—particularly during the dark days of the 1930s, when capitalism was p. xxiv plagued by depression and unemployment. Half a century ago, communism held sway over at least a sixth of the world’s population.

  Socialism also had a profound influence on plenty of democratic leaders who would never have described themselves as Marxists. In the 1940s and 1950s, European social democrats happily nationalized the commanding heights of the economy and restricted the free movement of capital; in the developing world, many leftish leaders went further and opposed free trade in goods in the name of “import substitution.” The results may have been regrettable—India’s domestic version of Coca-Cola was one of the most disgusting drinks invented by man—but they were the work of democratically elected leaders, with the firm backing of many economists.

  By comparison, radical Islam seems a much weaker opponent. Rather than offering a futuristic workers’ paradise, it looks back to the primitive world of the seventh century. The regime that came closest to embodying the radical ideal was the Taliban in Afghanistan. Even capitalism’s harshest critics are unlikely to fashion an alternative out of a society that denied women education and debated whether the proper way to deal with homosexuals was to push them off tall buildings or throw them into holes and push stone walls on top of them.

  This is not to say that radical Islam lacks popular appeal. Large numbers of Muslims expressed delight at the events of September 11 (and even larger numbers still argue that the atrocity was not perpetrated by Muslims). Too many Muslims in western Europe are alienated from their host societies and attracted to fundamentalism. Throughout the Arab world, authoritarian regimes try to distract popular attention from their own failures by blaming all the ills of the world on American foreign policy, especially its support for Israel.

  This is a dangerous brew: It provides groups like al-Qaeda not just with a supply of raw recruits but also with a sympathetic milieu in which to hide. The continuing success of globalization depends on the willingness of the United States to stamp out terrorism and the grievances that underpin it. The war on terrorism must involve not jus
t stepping up covert operations against al-Qaeda and disposing of Saddam Hussein but also doing more to prevent nuclear proliferation and resuming the search for peace in the Middle East.

  This is a colossal challenge. Yet the threat from radical Islam is still less serious than the one posed by the Soviet Union during the cold war. Radical Islam has been relatively unsuccessful in turning itself into a coherent political force. The Taliban is gone. The mullahs are rapidly losing their grip on Iran. Iraq is a secular rather than an Islamic regime. Islam became a powerp. xxvful political force because it combined three social groups: businessmen and professionals who were unhappy with their lot, the disenchanted urban young, and Islamic clerics and intellectuals. The rise of bin Ladenism has fractured this alliance: The more radicals rely on terrorism, the less mainstream Muslims are inclined to give them wholehearted support.

  It is impossible to argue that the whole world faces a choice between Islam and liberal capitalism in the same way that it once faced a choice between capitalism and communism. Yet this is small comfort. As this book argues, the main threat to globalization comes from within: from Western politicians arguing about things like steel, movies, and the Middle East, and from Western workers getting tired of the unrelenting (if productive) pressure that globalization places on all of us. So far that pressure has been primarily applied to blue-collar workers, but it is now affecting the professional classes. The fuss about steel imports will be as nothing compared to the furor when lawyers, accountants, and even doctors discover that their work can be outsourced to India.

  This matters because much of the time, advocates of globalization are wrestling with human nature. The steel-tariff decision perfectly illustrates how difficult it is to persuade people to care as much about the global as they do about the local. Bush backed the steel lobby for the sake of a few votes in West Virginia, Ohio, and Pennsylvania—just as, three years earlier, Bill Clinton caved in before protestors in Seattle because he was worried about shoring up labor support for Al Gore.