A Future Perfect: The Challenge and Promise of Globalization

by John Micklethwait

  These schemes at least have the advantage of forcing governments to be specific. But they are fraught with practical difficulties. People in the United States cannot even agree on who should regulate its national financial markets, let alone on how a global market ought to be organized. And even if a bankruptcy court could be created, you cannot replace the government of a country in the same way that you can remove the management of a company.

  A better trimming solution would be to concentrate the preventive side of p. 179 the world financial system on banking regulators and the Bank for International Settlements in Basel. Since borrowed money is the gelignite of financial crises, the BIS could use its position as setter of capital standards to bully bankers into doing things most want to do anyway. Force banks to put aside more capital for loans to companies in countries with murky capital markets or poor accounting standards, and borrowers will push for changes in the countries concerned. It would also be wise to increase the amount of capital needed for both loans to hedge funds and proprietary trading. And as before, we favor the concept of narrow banking, in which regulators decouple the insured, deposit-taking parts of banks from the rest.

  The BIS could also exert some pressure on bankers to change loan contracts to prevent single bankers from being able to opt out and start the sort of stampede that happened in Asia. Naturally, a super-BIS would suffer from some of the same disadvantages as the IMF. But the BIS is closer to the practitioners who matter—the bankers—and it puts the onus of enforcement on national regulators (thereby binding them into the system) and on commonly recognized standards rather than on clever young economists descending from on high.

  Dollarizing the World

  There is even—and here we begin to drift into the realms of hope rather than expectation—a chance of a similar bottom-up solution to the problem of exchange rates. As we have explained, there are good reasons why many emerging economies favor fixed exchange rates, as well as good reason why the chances of defending an arbitrary peg are small, however hard the IMF tries to help. Argentina had a currency board, where each unit of the local currency was backed by a similar amount of dollars at the central bank. That made it a much harder nut for the market to crack than Thailand. But it did crack in the end, the victim of the government’s failure to reform other parts of the economy. Even while the fixed peso “worked,” Argentina’s interest rates were often five percentage points above those in the United States.

  The idea of a global currency was discussed seriously prior to Bretton Woods. One letter written by Henry Morgenthau, the American treasury secretary, to his assistant, Harry Dexter White, just after Pearl Harbor specifically envisioned a postwar monetary system built upon a single international currency. In reply, White enthused about the importance of stable exchange rates not just for investors but also for governments that could avoid “the disrupting effects of flights of capital and inflation,” competitive devaluations, and protectionism, “World Enemy Number One.”[17] The same p. 180 arguments apply today: A single global currency would make it much more difficult for governments to interfere in the lives of businesspeople.

  The obvious rejoinder is that it is not practicable. It has taken Europe centuries to produce a single currency. Many emerging countries would regard dollarization as colonization, or at least their politicians would. But the tide may be shifting. In January 2000, Ecuador announced plans to adopt the dollar. Admittedly, the country was in a terrible state and the practicalities were murky, but other countries may follow. One poll taken in Mexico in 1998 found that nine out of ten people prefer the prospect of dollarization to floating exchange rates; Argentina looked at the option. It is not hard to imagine the Americas as a dollar bloc, or much of eastern Europe adopting the Euro, with much of Asia drifting toward the yen or the dollar. There would be holdouts, naturally: China and India are the two immediate examples. But regional currencies would hand power from unaccountable global institutions such as the IMF (which would probably still exist to look after the outsiders) to much richer and more transparent regional ones such as the Federal Reserve Board and the European Central Bank.

  So close your eyes and imagine a world blessed with competing regional currency blocs, a set of common accounting standards, an international bankruptcy court, and an IMF that remains open on the weekends. Would that mean that financial crises were a thing of the past? Hardly. As Stanley Fischer himself has pointed out, “The vision that propels most proposals for reform of the international financial system is that international capital markets should operate at least as well as the better domestic capital markets.” But that is a recipe only for a safer world, not a safe one. Banks still make plenty of idiotic decisions in their national markets, and there are still huge stock-market bubbles. As the first line of Charles Kindleberger’s Manias, Panics, and Crashes, the best book to date on financial catastrophes, reminds us, “There is hardly a more conventional subject in economic literature than financial crises.”[18]

  The Parliament of Man

  In other words, financial panics will continue, just as their political counterparts will. And the somewhat ramshackle army of multinational bureaucrats—both financial and political—will find themselves being pilloried for the mess. Perhaps even more frustrating for those who think that a magical structure exists, the chances are that in the end most of the decisions that matter will be not just national (and often American) but also personal. What would have happened to the world economy in 1998 if Alan p. 181 Greenspan had not loosened monetary policy? What would have happened (or not happened) in Kosovo if Bill Clinton had taken his eye off the polls and displayed a tougher face to Slobodan Milosevic much earlier?

  This is one of the more worrying things about globalization: Despite its logic, its fate seems to rely on human decisions made by people who normally have national interests closest to their hearts. Yet knowing that you face a near-impossible task is no excuse for doing it badly. The political and economic branches of “world government” offer contrasting lessons in how not to structure things. The UN has become an ungovernable sprawl gathered under one roof. The IMF, by contrast, is only one of several semiautonomous financial bodies (many of them confusingly connected to the UN) that do not work well together. Neither seems to have learned two of the basic lessons of multilateralism that seemed obvious even a century ago: Commonly agreed-upon standards tend to be more useful than institutions; and specific small goals are much better than vague lofty ones.

  What about the third lesson: All the great powers must be part of the endeavor? The multilaterals seem to have confused representation with accountability. On the one hand, they remain rich men’s clubs. The composition of the Security Council reflects the status quo sixty years ago. The world’s main economic organizations, such as the G8, provide no voices for the developing world. One of the ironies of the attacks on the WTO is that the organization, with its 144 members, usually looks like one of the fairest global institutions and certainly has a good record of helping poor countries take rich ones to court. Even so, twenty-nine of the poorest countries do not have missions at the WTO’s headquarters in Geneva, and many more complain that bringing cases against rich countries is prohibitively expensive in all but surefire cases.[19]

  On the other hand, the distribution of jobs among most multilateral organizations is done entirely on the basis of nationality rather than ability. It is difficult to imagine prospective successors to Kofi Annan sitting for public examinations. Yet the system by which countries “reserve” a certain number of places for “their own people” on international organizations seems increasingly dotty. International civil servants should be forced to reapply for their jobs every few years. Outsiders—particularly businesspeople—should be brought into the bureaucracy as a matter of course rather than as exceptions.

  Earlier in this chapter, we referred to that brief moment of pragmatic utopianism in the 1940s. That moment has passed, and with it the chance to build a new shining city. But th
e 1940s had not just goodwill but some degree of direction. The institutions that were forged in the white heat of war p. 182 were created with clear objectives in mind: They were to do something rather than just to exist, as most of them are today. Given the growth of economic interdependence and the necessity of building coalitions to battle global problems, such as terrorism, there are grounds for hoping that institutional globalism, albeit of a more limited sort, could muster support, providing that it retains a similar respect for precise objectives. The gradual lifting of tariffs over the past half century has shown that countries are willing to give up sovereignty if there is a clear goal in mind (in this case the greater prosperity that comes from freer trade). Both the IMF and the UN could learn from it.

  In many ways, the case needs to be made over the heads of national politicians and to the people in the same ways that NGOs do. Unfortunately, when the IMF tries to justify itself, it does so in the etiolated language of economics. Asked in November 1998 whether he thought globalization was in trouble, Stanley Fischer pooh-poohed the idea, insisting that most of the people he met at international meetings—finance ministers, central bankers, and the like—thought that globalization would continue. But they, as even some central bankers realize, are not the problem. The real challenge—as Guillermo Ortíz Martínez, the governor of the Bank of Mexico, pointed out to Fischer’s peers at a conference in Davos—is “to explain to a Mexican housewife why she has to pay higher interest rates on her housing loan because Russia has defaulted.”[20] That has never been the IMF’s way.

  As for the United Nations, our comparison of it to the medieval papacy should both inspire and frighten Annan almost as much as the more obvious parallel to the League of Nations. On the one hand, by using their pulpits effectively, some strong popes did manage to lead Christendom, regardless of their lack of battalions. On the other, the failure of most popes to face up to the manifold abuses within the church opened the way first to irrelevance and then to a reformation that split Christendom down the middle.

  10 – The Closing of the Global Mind

  p. 183 THE MINISTRY OF CULTURE in Paris does not look like the sort of institution in which pessimism ought to flourish. Everything about the place is designed to reflect the glory of the French mind. The ministry occupies a wing of Cardinal Richelieu’s Royal Palace, a magnificent building that has been kept in pristine condition, its paint fresh and its gilding aglow. And yet this is clearly not just a museum to a glorious but dead past. The reception area is thoroughly modern. The chairs are black and angular, sacrificing comfort for elegance, in classic Le Corbusier style; an entire wall is taken up with a bank of televisions. On their way to lunch, the ministry’s inhabitants have to pick their way through throngs of tourists that have come from all over the world to worship French culture. The Comédie Française is just around the corner, the Louvre and the Opera short walks away.

  Yet pessimism flourishes here nonetheless. The ministry’s inhabitants are convinced that a rising tide of American popular culture is swamping France. And they spend much of their lives administering a complex system of quotas and subsidies that are designed to protect French culture from being completely submerged. Here, protectionism is not just a ruling intellectual orthodoxy but a way of life. The ministry has almost uniform support among the French elite, from the professors at the Académie Française who are desperately trying to keep their language from being polluted by Franglais phrases, to television executives who insist (at least in public) that their loyalty to their mother country comes even before the need to turn a profit.

  The elite is most worried about the threat that America poses to French p. 184 film. This is partly because film—officially France’s seventh art—plays such a prominent role in French culture. Two Frenchmen, the Lumière brothers, put on the first public film showing, in the basement of the Café Royal in Lyon in 1895. A French company, Pathé Frères, invented the modern studio system, helping the French capture 70 percent of the American domestic film market by 1908.[1] French directors such as François Truffaut and Jean Renoir produced some of cinema’s finest products. The French, at least in their own eyes, have even been responsible for the canonization of the greatest Hollywood directors, from Alfred Hitchcock to Martin Scorsese. America may be a land of film fans, but France is a land of that infinitely more sophisticated creature, the film buff.

  Despite all this, the French are seeing “their” art form being taken over by Americans, thanks, in their view, to unfair competition. Because of the high cost of making and distributing films, cinema is a highly unusual enterprise. Hollywood has the advantage of a gigantic domestic market that allows filmmakers to recoup the costs of their productions before dumping them on the rest of the world. A big film in America can open on three thousand screens, ten times the number in any European country.[2] This allows Hollywood to make not only more films (around seven hundred a year, twice as many as Britain and France combined) but more expensive ones. The average budget for a studio film is above thirty million dollars; very few non-American ones ever reach ten million. Hollywood has the further advantage of using a language that is rapidly becoming ubiquitous. And it has the enthusiastic support of the world’s most powerful government. In 1946, the Truman administration made free trade in films a condition of Marshall Plan aid for Europe. In the 1980s, the White House was occupied by the star of such classics as Bedtime for Bonzo; in the 1990s, Hollywood and Bill Clinton were shamelessly infatuated with each other.

  There is, however, more to the French obsession with American films than this. The French see Hollywood as a Trojan horse: It gives birth to theme parks; it popularizes fast-food restaurants; and it provides free advertising for a mass of Americana from jeans to baseball caps. “America is not just interested in exporting its films,” says Gilles Jacob, the head of the Cannes Film Festival. “It is interested in exporting its way of life.” One survey in 1999 by Libération found that two thirds of the French do not “feel close to the American people”; roughly the same proportion thought that America was “too influential culturally,” and there were also solid majorities that disapproved of its economic, political, and military clout. The young and the educated were especially anti-American.[3]

  p. 185 This feeling has deep roots. In the 1950s, the French communists tried to turn their countrymen against Coca-Cola. (A cartoon at the time showed a sultry Coke bottle diverting a Frenchman away from his legitimate Beaujolais wife.) Earlier, Georges Clemenceau had complained that America was the “only nation in history which miraculously has gone directly from barbarism to degeneration without the usual interval of civilization.” If the premier were to wander up the right-hand side of the Champs Élysée toward the Arc de Triomphe, he would encounter, among other bits of Americana, a Gap, a Disney Store, and, inevitably, a McDonald’s. The fact that McDonald’s was also the official food of the 1998 World Cup, held in France, would probably cause Clemenceau more pain.

  Je Ne Voudrais Pas Mon MTV

  Anxieties about Americanization are not peculiar to Paris. A willingness to denounce Hollywood for its formulaic plots, cartoonish characters, and unerring ability to pander to the worst in human nature is almost a requirement for admission into the intellectual elite in every country in the world, including America. Disney is despised wherever claret is drunk, not just for its greedy executives and corporate paranoia (though for anyone who has ever talked to the company, those are reasons enough) but also for its products. Euro Disney was famously denounced by one European intellectual as a “cultural Chernobyl.” In his diatribe Team Rodent, Carl Hiaasen, a Miami-based novelist, warned that “Disney will devour the world in the same way that it devoured America, starting first with the youth.”

  Other elites argue that the enemy is a force even more pervasive than Hollywood: the English language. Some 343 million people speak it as a mother tongue; another 235 million speak it fluently as a second language; and somewhere between a hundred million and a billion people aro
und the world are in the process of learning it.[4] English is the language of the global economy, the argot of the Internet and business meetings. This inevitably creates resentments among the speakers of the world’s ten thousand other languages. The French ministry of culture tried to ban three thousand English words in 1994. (It was stopped on freedom-of-speech grounds.) The anti-English language movement in India has denounced the America-based Cartoon Network, a favorite with children across the country, for undermining local Indian languages and furthering the hegemony of the tongue used by the country’s former colonizers. In Germany, the Institute for German Language recently protested Deutsche Telekom’s decision to p. 186 start billing people for “city calls” and “Germany calls” rather than their much longer German equivalents. Smaller languages seem particularly protective. The mayor of Barcelona has tried to push through a law that would force all popular films shown in the city to be dubbed into Catalan.

  This resentment has allowed the French to assemble a global guerrilla army that is dedicated to limiting American cultural hegemony. In 1989, the French persuaded the European Community (as it then was) to decree that at least 40 percent of the programs shown on its members’ television should be domestic products. (The quota policy was called, with a completely straight face, Television Without Frontiers.) In 1993, just as Steven Spielberg’s blockbuster Jurassic Park was defeating Claude Berri’s Germinal at the box office, Jack Lang, then France’s culture minister, threatened to sabotage the GATT round in order to get audiovisual materials (which account for a tiny proportion of world trade) exempted from free-trade agreements. “Cinema used to be the side salad in world commerce,” observed one French commentator, “now it’s the beef.”[5] Director Bertrand Tavernier—who is a sophisticated historian of the American cinema—proclaimed that America had the same attitude to the French cinema as it had toward the American Indians. “If we’re very good, they will give us a reservation.”