Suppose you are a modern-day Roman emperor, the leader of the most powerful country in a world of sovereign states and international markets. What sort of framework of international political economy arrangements do you create so that without having to throw your weight around more than occasionally, normal market forces bolster the economic preeminence of your country, allow your citizens to consume far more than they themselves produce, and keep challengers down?
You want autonomy to decide on your exchange rate and monetary policy in response only to your own national objectives, while having other countries depend on your support in managing their own economies. You want to be able to engineer volatility and economic crises in the rest of the world in order to hinder the growth of centers that might challenge your preeminence and in order to allow your vulture funds periodically to buy up their assets at fire-sale prices. You want intense competition between exporters in the rest of the world that gives you an inflow of imports at constantly decreasing prices relative to the price of your exports.
You want to invite the best brains in the rest of the world to come to your universities, companies and research institutes. You befriend the middle classes elsewhere and make sure they have good material reasons for supporting the framework. You make it unlikely that elites and masses should ever unite in nativistic reactions to your dominance or demand “nationalistic” development policies that nurture competitors to your industries.
What features do you hard-wire into the international political economy? First, free capital mobility. Second, free trade (excepting imports that threaten domestic industries important for your re-selection). Third, international investment free from any discriminatory favoring of national companies through protection, public procurement, public ownership or other devices, with special emphasis on the freedom of your companies to get the custom of national elites for the management of their financial assets, their private education, health care, pensions, and the like.
Fourth, your currency as the main reserve currency. Fifth, no constraint on your ability to create your currency at will (such as a dollar-gold link), so that you can finance unlimited trade deficits with the rest of the world. Sixth, international lending at variable interest rates denominated in your currency, which means that borrowing countries in crisis have to repay you more when their capacity to repay is less.
This combination allows your people to consume far more than they produce; it periodically produces financial instability and crises in the rest of the world, which hold back the crisis-affected countries and also cause other governments to hold more of your currency and therefore help to finance your deficits; and it allows your firms and your capital to enter and exit other markets quickly. You also need, of course, a bail-out mechanism that protects your creditors and displaces any losses from periodic panics onto the citizens of the borrowing country.
To supervise the international framework you want international organizations that look like cooperatives of member states and carry the legitimacy of multilateralism, but are financed in a way that allows you to control them.
A Machiavellian interpretation of the U.S. role in the world economy since the end of the Bretton Woods regime around 1970? Certainly. In reality, America’s engineering of its dominance has at times been for the general good, when it used its clout to “think for the world.” But often its clout has been used solely in the interests of its richest citizens and most powerful corporations. This latter tendency has been dominant lately.
We see it in its new single-minded unilateralism in international relations, much exacerbated by the mixture of rage at Sept. 11th and gung-ho jubilation at “success” in Afghanistan. And we see it in what the United States is now ramming through the international supervisory organizations.
The United States has engineered the World Trade Organization to commit itself to negotiate a General Agreement on Trade in Services, which will facilitate a global market in private health care, welfare, pensions, education and water, supplied – naturally – by U.S. companies, and which will undermine political support for universal access to social services in developing countries.
And it has engineered the World Bank, through congressional conditions on the replenishment of IDA, the soft-loan facility, to launch its biggest refocusing in a decade – a “private sector development” agenda devoted to the same end of accelerating the private (and nongovernmental) provision of basic services on a commercial basis. The World Bank has made no evaluation of its earlier efforts to support private participation in social sectors. Its new private sector development thrust, especially in the social sectors, owes everything to intense U.S. pressure.
These power relations and exercises of statecraft are obscured in the current talk about globalization. Far from being just a collapsing of distance and widening of opportunities for all, the increasing mobility of information, finance, goods and services frees the American government of constraints while more tightly constraining everyone else. Globalization and the global supervisory organizations enable the United States to harness the rest of the world to its own rhythms and structure.
Of course these arrangements do not produce terrorism in any direct way. But they are deeply implicated in the very slow economic growth in most of the developing world since 1980, and in the wide and widening world income inequality. (The average purchasing power of the bottom 10 percent of Americans is higher than that of two-thirds of the rest of the world’s population.)
Slow economic growth and vast income disparities, when seen as such, breed cohorts of partly educated young people who grow up in anger and despair. Some try by legal or illegal means to migrate to the West; some join militant ethnic or religious movements directed at each other and their own rulers. But now the idea has spread among a few vengeful fundamentalists that the United States should be attacked directly.
The United States and its allies can stamp out specific groups by force and bribery. But in the longer run, the structural arrangements that replicate a grossly unequal world have to be redesigned, as we did at the Bretton Woods conference after World War II, so that markets working within the new framework produce more equitable results. Historians looking back a century from now will say that the time to have begun was now.
Robert Hunter Wade is a professor of political economy at the London School of Economics and author of Governing the Market.