Turmoil Marks End to Naive Globalism

Make no mistake. Amid the tumbling of markets around the world, we are witnessing the passing of an era--the age of naive globalism that followed the end of the Cold War.

The economists and Wall Street tell us that we are coming to the end of a cycle of remarkable expansion dating back to 1991. In business terms, that’s true. But in a larger sense, the era now drawing to a close dates back to 1989 and the fall of the Berlin Wall.

With the collapse of communism, American foreign policy was guided by a new set of beliefs: that free markets and the free flow of capital would spread growth and prosperity around the world; and that the increasing wealth and the free flow of information would lead inexorably toward democracy. Governments would be powerless to stem the tide.

“America wanted global leadership on the cheap,” Harvard University economist Jeffrey Sachs wrote recently in an incisive essay on global capitalism in The Economist. “It was desperate for the developing world and post-communist economies to buy into its vision, in which globalization, private capital flows and Washington advice would overcome the obstacles to shared prosperity. . . .

“In essence, America has tried to sell its social ethos: The rich need not help the poor, since the poor can enjoy rising living standards and someday become rich themselves.”

The ruins of this shattered edifice of beliefs can be best observed now in Indonesia, the world’s fourth-most-populous country.

One year ago, Indonesia was hoping to follow the path of its Asian neighbors to the good life: bring in foreign investment, offer low-cost labor, pump up exports. But as the Asian financial crisis spread, investors once enamored of Indonesia fled even more quickly than they had arrived.

Today Indonesia is poorer than Bangladesh. Over the last year, its economic output has dropped by nearly 25%. Inflation is approaching 100% a year, and tens of millions of people are unemployed. It is, by many accounts, one of the most rapid economic declines in history.

The inevitable result of the financial turmoil spreading around the world will be a new period of disenchantment with globalization.

Over the next few years, developing countries will be increasingly skeptical about the wisdom of opening themselves up to the global economy. They will be more resistant to advice from the United States, the world’s leading proponent of free markets.

Look at Asia. Malaysian Prime Minister Mahathir Mohamad has imposed currency controls. China, its leadership rejoicing that it did not make its currency freely convertible into Western currencies, has thus been hurt less by the Asian financial crisis than its neighbors.

In some countries, America is already a symbolic target. Two weeks ago, in the streets of Surabaya, one of Indonesia’s largest cities, students demonstrated outside an American consulate, complaining that the United States wasn’t doing enough to speed up money from the International Monetary Fund to help out the Indonesian economy.

For its own part, in the coming era of disenchantment, the United States is likely to become gradually more skeptical of economic entanglements overseas. If other countries won’t conform to America’s prescription for free markets, America is likely to distance itself a bit from the rest of the world.

The best example is Congress’ recalcitrance throughout the past year to approve $18 billion in new borrowing authority for the IMF, despite repeated appeals by the Clinton administration and the U.S. business community.

“How can we acquiesce in a plan to vastly expand an international agency that covers other people’s debts and undermines free-market processes the world over?” asked House Majority Leader Dick Armey (R-Texas) last Friday.

That’s an American perspective. However, the rest of the world may well wonder why Congress can’t come up with new money for the IMF at a time when the government has just reported a $70-billion budget surplus, and when the titans of American capitalism have just let their free-market principles lapse long enough to rescue Long-Term Capital Management, the mammoth hedge fund that was on the brink of bankruptcy. Even if Congress approves the money in the waning days of its 1998 session, it will do so only with reluctance and conditions.

At the moment, Washington is trying to figure out how to fix the international financial system. Everyone has an idea. Some think the IMF should be overhauled, while others think it should be abolished or replaced.

None of this long-range planning will mean much in Indonesia, where 47 million people are now facing food shortages.

The Clinton administration is quietly trying to iron out some plans for emergency food distribution in Indonesia. It must overcome the objections of commercial grain exporters in Australia, who fear that food-relief efforts in Indonesia could undermine their markets.

Indonesia serves as a fitting symbol of the end of naive globalism. Not long ago, America was telling Indonesians to open their markets to foreign capital, and the world would make them rich. Indonesia didn’t follow the advice well enough. The foreign investors vanished, and now the United States may find itself helping to feed an impoverished nation.

Over the last six years, one of the great bromides about President Clinton was that he had the misfortune to hold office during an unchallenging era when America was prosperous. As a result, it was said, Clinton didn’t have the opportunity to become a great president like, say, Franklin D. Roosevelt.

That was always a curious way of thinking. If it was true, Clinton is about to become a very lucky man.

Jim Mann’s column appears in this space every Wednesday.