|
|
On Mon, 2 Mar 2009 14:47:31 -0500, "Dionysus" <...@never.net
ESSAY FROM WALL STREET JOURNAL
(A LENGTHY READ, BUT THE INTELLIGENT HERE WILL APPRECIATE IT, GIVEN THE
LOUSY OBAMA ECONOMY)
HEAD: The Dangers of Turning Inward
SUB-HEAD: Countries are attempting to protect their own companies and
workers from the economic crisis. The financial and political damage will be
severe, argues Jeffrey E. Garten.
By JEFFREY E. GARTEN, professor at the Yale School of Management and
chairman of Garten Rothkopf, a global advisory firm. He held economic- and
foreign-policy posts in the Nixon, Ford, Carter and Clinton administrations
Not long ago, on a visit to Bangalore, India, I made what I thought would be
a 15-minute trip to the outskirts of the city. The journey took 90 minutes
on roads filled with cars, trucks, bicycles, push carts, children, all kinds
of animals and giant potholes. At one point my taxi was at a dead stop for
what seemed like an eternity, waiting for a small group of cows to move to
the side of the road. It was dusty and noisy, filled with the sounds of
buzzing scooters and honking horns.
We eventually came to our destination: the campus of Infosys, an Indian
technology company with major operations around the world. Here was a city
within a city, with ultra-modern buildings, movie theaters, restaurants with
international cuisine, workout facilities, classrooms for executive
education, accommodations for workers who had to stay late and
communications capabilities that I had never seen in American companies.
Two worlds. One globalized, the other not. One that had access to the
world's capital, technology and management, the other stuck in another
century. Many of Infosys's management and employees came from that poorer
world. I wondered what it would take to pull up the millions of others.
In the next 24 hours, approximately 180,000 people in developing countries
will be moving from the countryside to cities such as Shanghai, Sao Paulo,
Johannesburg. The same will happen tomorrow and every day thereafter for the
next 30 years, the equivalent of creating one new New York City every two
months, according to the United Nations. These men and women will need
everything -- electricity, water, food, heath care, shelter, schools,
computers and, of course, jobs. Many have the potential to improve not just
their local environments but the world. For better or worse, the forces of
globalization have pushed them to urban areas to seek a better life. And it
will be globalization that opens the world to them, allowing international
agencies to pump in capital, multinational companies to help supply
technology and management, and Western universities to transfer knowledge.
Yet if historians look back on today's severe downturn, with its crumbling
markets, rising unemployment and massive government interventions, they
could well be busy analyzing how globalization -- the spread of trade,
finance, technology and the movement of people around the world -- went into
reverse. They would likely point to the growth of economic nationalism as
the root cause.
Ordinary protectionism such as tariffs and quotas would be one aspect of
this problem, but it won't be the worst of it because a web of treaties and
the enforcement capabilities of the World Trade Organization will constrain
the most egregious behavior. Economic nationalism is more insidious because
it is broader, more subtle and subject to fewer legal constraints. It is a
frame of mind that casts doubt on the very assumption that we live in a
single international market, and that relatively open borders are a virtue.
It is based on a calculation that despite all the talk about economic
interdependence, nations can go it alone, and could be better off in doing
so. True economic nationalists want above all to protect capital and jobs in
their own countries. They see global commerce not as a win-win proposition
but as a contest in which there is a victor and a loser. They are thus not
focused on international agreements to open the world economy; to the
contrary, they are usually figuring out how to avoid international
commercial obligations.
The last time we saw sustained economic nationalism was in the 1930s, when
capital flows and trade among countries collapsed, and every country went
its own way. World growth went into a ditch, political ties among nations
deteriorated, nationalism and populism combined to create fascist
governments in Europe and Asia, and a world war took place. It took at least
a generation for globalization to get back on track. There have been some
bouts of inward-looking governmental action since then, such as the early
1970s when the U.S. cut the dollar from its gold base and imposed export
embargoes on soybeans and steel scrap. However, the economic conditions were
not sufficiently bad for the trend to sustain itself.
The kind of economic nationalism we are seeing today is not yet extreme. It
is also understandable. The political pressures could hardly be worse. Over
the last decade, the global economy grew on average about 4% to 5%, and this
year it will come to a grinding halt: 0.5% according to the International
Monetary Fund, where projections usually err on the optimistic side. World
trade, which has grown much faster than global gross domestic product for
many years, is projected to decline this year for the first time since 1982.
Foreign direct investment last year slumped by 10% from 2007. Most
dramatically, capital flows into emerging market nations are projected to
drop this year by nearly 80% compared to 2007.
The aggregate figures don't tell the story of what is unraveling in
individual countries. In the last quarter of 2008, U.S. GDP dropped by 6.2%
at an annual rate, the U.K. by 5.9%, Germany by 8.2%, Japan by 12.7% and
South Korea by 20.8%. Mexico, Thailand and Singapore and most of Eastern
Europe are also in deep trouble. In every case, employment has been
plummeting. So far popular demonstrations against government policies have
taken place in the U.K., France, Greece, Russia and throughout Eastern
Europe. And the governments of Iceland and Latvia have fallen over the
crisis.
Governments could therefore be forgiven if they are preoccupied above all
with the workers and companies within their own borders. Most officials
don't know what to do because they haven't seen this level of distress
before. They are living from day to day, desperately improvising and trying
to hold off political pressure to take severe measures they know could be
satisfying right now but cause bigger damage later. Thinking about how their
policies might affect other countries is not their main focus, let alone
taking the time to try to coordinate them internationally.
Besides, whether it's in Washington, Brussels, Paris, Beijing, Brazilia or
Tokyo, it is hard to find many top officials who wouldn't say that whatever
measures they are taking that may undermine global commerce are strictly
temporary. They all profess that when the crisis is over, they will resume
their support for globalization. They underestimate, however, how hard it
could be to reverse course.
Political figures take comfort, too, from the global institutions that were
not present in the 1930s -- the IMF, the World Bank and the World Trade
Organization, all of which are assumed to be keeping globalization alive.
This is a false sense of security, since these institutions are guided by
sovereign countries. Government officials often feel that because they are
going to endless crisis summit meetings -- the next big one is in London on
April 2, when the world's top 20 nations will be assembling -- that some
international coordination is actually taking place. This is mostly an
illusion. With a few exceptions, such as the so-called Plaza Agreements of
1984 when currencies were realigned, it is difficult to point to a meeting
where anything major has been said and subsequently implemented.
But as the pressure on politicians mounts, decisions are being made on an
incremental and ad hoc basis that amounts to a disturbing trend.
Classic trade protectionism is on the rise. In the first half of 2008, the
number of investigations in the World Trade Organization relating to
antidumping cases -- selling below cost -- was up 30% from the year before.
Washington has recently expanded sanctions against European food products in
retaliation for Europe's boycott against hormone-treated American beef -- an
old dispute, to be sure, but one that is escalating.
In the last several months, the E.U. reintroduced export subsidies on butter
and cheese. India raised tariffs on steel products, as did Russia on
imported cars. Indonesia ingenuously designated that just a few of its ports
could be used to import toys, creating a trade-blocking bottleneck. Brazil
and Argentina have been pressing for a higher external tariff on imports
into a South American bloc of countries called Mercosur. Just this week, the
E.U. agreed to levy tariffs on American exports of biodiesel fuel, possibly
a first shot in what may become a gigantic trade war fought over different
environmental policies -- some based on taxes, some on regulation, some on
cap and trade -- being embraced by individual countries.
Much bigger problems have arisen in more non-traditional areas and derive
from recent direct intervention of governments. The much-publicized "Buy
America" provision of the U.S. stimulus package restricts purchases of
construction-related goods to many U.S. manufacturers, and although it is
riddled with exceptions, it does reveal Washington's state of mind. The
bailout of GM and Chrysler is a purely national deal. Such exclusion against
foreign firms is a violation of so-called "national treatment" clauses in
trade agreements, and the E.U. has already put Washington on notice that it
will pursue legal trade remedies if the final bailout package is
discriminatory.
Uncle Sam is not the only economic nationalist. The Japanese government is
offering to help a broad array of its corporations -- but certainly not
subsidiaries of foreign companies in Japan -- by purchasing the stock of
these firms directly, thereby not just saving them but providing an
advantage over competition from non-Japanese sources. The French government
has created a sovereign wealth fund to make sure that certain "national
champions," such as car-parts manufacturer Valeo and aeronautics component
maker Daher, aren't bought by foreign investors.
Government involvement in financial institutions has taken on an
anti-globalization tone. British regulators are pushing their global banks
to redirect foreign lending to the U.K. when credit is sorely needed and
where it can be monitored. Just this past week, the Royal Bank of Scotland
announced it was closing shop in 60 foreign countries. Western European
banks that were heavily invested in countries such as Hungary, the Czech
Republic and the Baltics have pulled back their credits, causing a
devastating deflation throughout Eastern Europe. The Swiss are reportedly
considering more lenient accounting policies for loans their banks make
domestically as opposed to abroad.
This de-globalizing trend could well be amplified by Washington's effort to
exercise tight oversight of several big financial institutions. Already
AIG's prime Asian asset, American International Assurance Company, is on the
block. As the feds take an ever bigger stake in Citigroup, they may well
force it to divest itself of many of its prized global holdings, such as
Banamex in Mexico and Citi Handlowy in Poland. It appears that new
legislation under the Troubled Asset Relief Program will also restrict the
employment of foreign nationals in hundreds of American banks in which the
government has a stake.
Whether or not it goes into bankruptcy, General Motors will be pressed to
sell many of its foreign subsidiaries, too. Even Chinese multinationals such
as Haier and Lenovo are beating a retreat to their own shores where the
risks seem lower than operating in an uncertain global economy. The
government in Beijing is never far away from such fundamental strategic
decisions.
Then there is the currency issue. Economic nationalists are mercantilists.
They are willing to keep their currency cheap in order to make their exports
more competitive. China is doing just that. A big question is whether other
Asian exporters that have been badly hurt from the crisis -- Taiwan, South
Korea and Thailand, for example -- will follow suit. Competitive
devaluations were a major feature of the 1930s.
It's no accident that the European Union has called an emergency summit for
this Sunday to consider what to do with rising protectionism of all kinds.
There are a number of reasons why economic nationalism could escalate. The
recession could last well beyond this year. It is also worrisome that the
forces of economic nationalism were gathering even before the crisis hit,
and have deeper roots than most people know. Congress denied President Bush
authority to negotiate trade agreements two years ago, fearing that America
was not benefiting enough from open trade, and an effort to reform
immigration was paralyzed for years. Globally, international trade
negotiations called the Doha Round collapsed well before Bear Stearns and
Lehman Brothers did. Concerns that trade was worsening income distribution
were growing in every major industrial nation since the late 1990s.
Whenever countries turned inward over the past half-century, Washington was
a powerful countervailing force, preaching the gospel of globalization and
open markets for goods, services and capital. As the Obama administration
works feverishly to fire up America's growth engines, patch up its financial
system and keep its housing market from collapsing further, and as its major
long-term objectives center on health, education and reducing energy
dependence on foreign sources, the country's preoccupations are more purely
domestic than at any time since the 1930s.
In the past, American business leaders from companies such as IBM, GE,
Goldman Sachs and, yes, Citigroup and Merrill Lynch beat the drum for open
global markets. As their share prices collapse, some voices are muted, some
silenced. It is not easy to find anyone in America who has the stature and
courage to press for a more open global economy in the midst of the current
economic and political crosswinds.
And given that the global rot started in the U.S. with egregiously
irresponsible lending, borrowing and regulation, America's brand of
capitalism is in serious disrepute around the world. Even if President Obama
had the mental bandwidth to become a cheerleader for globalization,
America's do-as-I-say-and-not-as-I-do leadership has been badly compromised.
If economic nationalism puts a monkey wrench in the wheels of global
commerce, the damage could be severe. The U.S. is a good example. It is
inconceivable that Uncle Sam could mount a serious recovery without a
massive expansion of exports -- the very activity that was responsible for
so much of America's economic growth during the middle of this decade. But
that won't be possible if other nations block imports.
For generations, the deficits that we have run this past decade and the
trillions of dollars we are spending now mean we will be highly dependent on
foreign loans from China, Japan and other parts of the world. But these will
not be forthcoming at prices we can afford without a global financial system
built on deep collaboration between debtors and creditors -- including
keeping our market open to foreign goods and services.
The Obama administration talks about a super-competitive economy, based on
high-quality jobs -- which means knowledge-intensive jobs. This won't happen
if we are not able to continue to bring in the brightest people from all
over the world to work and live here. Silicon Valley, to take one example,
would be a pale shadow of itself without Indian, Chinese and Israeli brain
power in its midst.
More generally, without an open global economy, worldwide industries such as
autos, steel, banking and telecommunications cannot be rationalized and
restructured efficiently, and we'll be doomed to have excessive capacity and
booms and busts forever. The big emerging markets such as China, India,
Brazil, Turkey and South Africa will never be fully integrated into the
world economy, depriving them and us of future economic growth. The
productivity of billions of men and women entering the global workforce will
be stunted to everyone's detriment.
Of course, no one would say that globalization is without its problems.
Trade surges and products made by low-priced labor can lead to job
displacement and increasing income inequality. Proud national cultures can
be undermined. But these challenges can be met by reasonable regulation and
by domestic policies that provide a strong social safety net and the kind of
education that helps people acquire new skills for a competitive world. With
the right responses of governments, the benefits should far outweigh the
disadvantages. For thousands of years, globalization has increased global
wealth, individual choice and human freedom.
The point is, economic nationalism, with its implicit autarchic and
save-yourself character, embodies exactly the wrong spirit and runs in
precisely the wrong direction from the global system that will be necessary
to create the future we all want.
As happened in the 1930s, economic nationalism is also sure to poison
geopolitics. Governments under economic pressure have far fewer resources to
take care of their citizens and to deal with rising anger and social
tensions. Whether or not they are democracies, their tenure can be
threatened by popular resentment. The temptation for governments to whip up
enthusiasm for something that distracts citizens from their economic woes --
a war or a jihad against unpopular minorities, for example -- is great.
That's not all. As an economically enfeebled South Korea withdraws foreign
aid from North Korea, could we see an even more irrational activity from
Pyongyang? As the Pakistani economy goes into the tank, will the government
be more likely to compromise with terrorists to alleviate at least one
source of pressure? As Ukraine strains under the weight of an IMF bailout,
is a civil war with Cold War overtones between Europe and Russia be in the
cards?
And beyond all that, how will economically embattled and inward-looking
governments be able to deal with the critical issues that need global
resolution such as control of nuclear weapons, or a treaty to manage climate
change, or help to the hundreds of millions of people who are now falling
back into poverty?
To say that there is an obvious antidote to the rise of economic nationalism
is to brush off the powerful pressures that have created it. It wouldn't be
enough for President Obama to make a great speech demonstrating his
determination to head off anti-global trends. Neither can any one summit
turn the tide, nor any one piece of legislation.
It would be an achievement if the WTO publicized and named and shamed
anti-global measures that governments were taking. Shoring up the IMF and
the World Bank to help poorer countries deal with economic stress would be a
good idea, too. Developing far-reaching trade adjustment policies consisting
of education, training, wage insurance and other forms of community support
for those people clobbered by imports will be valuable, because it would
reduce protectionist pressure. Making a Herculean effort to conclude the
global trade agreement that now languishes in Geneva and designing and
implementing a treaty on climate change would also be a great shot in the
arm. And if the efforts under way in Europe and in the U.S. to reform
banking regulation could be brought under one roof -- a new global banking
regulator -- in place of what could otherwise turn out to be competing and
conflicting systems, that would be a breakthrough.
But the most powerful medicine for the disease of economic nationalism would
be a short-lived recession. Under any circumstances, it will take years of
work for government and business leaders to get the world back on the
globalization train. The sooner that work can begin, the better.
******************
"It is not from the benevolence of the butcher, the brewer, or the baker,
that we expect our dinner, but from their regard to their own
interest." --Scottish philosopher and economist Adam Smith (1723-1790)
OBAMA: One Big Ass Mistake, America!
Dionysus
|