AGAINST THE DEAD
HAND: The Uncertain Struggle for Global Capitalism
by Brink Lindsey
(Wiley, 336 pps, $29.95)
GLOBALIZATION AND
ITS DISCONTENTS
by Joseph Stiglitz
(Norton, 267 pps, $24.95)
THE END OF GLOBALIZATION:
Lessons from the Great Depression
by Harold James
(Harvard, 220pps, $39.95)
We are in the midst of a great debate on the past and future of globalization.
The debate begins with the recognition that the current global economy
is not unprecedented; it's a return to the high levels of world economic
integration that blossomed between 1880 and 1914. The first world economy,
once assumed to be an irreversible
safeguard for peace, was blown apart by 30 years of war and depression.
With the collapse of the first world system as the backdrop, the current
debate is not between the suits and the anti-WTO anarchists in the streets
but among respected economic analysts, all of whom acknowledge the benefits
of global trade.
In one corner stand those who argue for the virtues of globalization
but fear that, just as in the 1930s, a backlash against free trade could
again send the world into a tailspin. The dangers of a backlash are laid
out by economic journalist Brink Lindsey in his new book, Against the
Dead Hand: The Uncertain Struggle for Global Capitalism, and Princeton
economic historian Harold James, author of The End of Globalization:
Lessons from the Great Depression. In the opposite corner are Nobel
Prize-winning economist and former Clinton administration and World Bank
official Joseph Stiglitz and his policy alter ego, the multibillionaire
currency speculator turned critic of global capital markets, George Soros.
While Lindsey and James worry about the dangers of the anti-globalist
movements, Stiglitz and Soros, who a few years ago predicted "the
imminent disintegration" of international capitalism, share some
of the anti-globalist critique. Soros, who worries that the instability
of global capitalism contains, as in the 1930s, the seeds of its own destruction,
speaks for both when he insists that "market fundamentalism is today
a greater threat to an open society than any totalitarian ideology."
The competing camps divide between those who think that it is the volatility
of markets themselves, rather than the populist and regulatory responses
to that volatility and dislocation, which creates the greatest danger
to the benefits of 21st century globalism.
Both Lindsey and James describe the evolution of 19th century globalism
with its irenic vision of free trade as the solvent for war and imperialism.
In an 1846 speech given in Manchester, then the center of the British
trans-Atlantic textile industry, the British liberal Richard Cobden laid
out his vision: "I see in the principle of free trade" a force
that draws "men together, thrusting aside the antagonism of race,
and creed and language, and uniting us in the bonds of eternal peace."
For the next half-century it looked as though Cobden's vision would prevail.
By the late 19th century, globalization seemed irreversible. Investment,
information, industrial goods, and food supplies moved freely between
nations and across seas. Immigrants moved freely across borders without
the need for passports. In 1913, writes Lindsey, "Merchandise trade
as a percentage of gross output was about 12 percent for the industrialized
countries. They did not match that level of export performance again until
the 1980s." The British liberal Norman Angell, writing in a celebrated
1911 book, The Great Illusion, which was translated into 18 languages,
argued to widespread applause that "internationalism had made states
so dependent on the bond market" that they couldn't afford to even
consider war. Three years later, World War I began initiating a period
of war and totalitarianism, known as the short 20th century, that lasted
until 1989.
What went wrong? Karl Polanyi, a historian much in favor with Soros
and the critics of globalization, blames free markets. He argued in 1944
that "the origins of the cataclysm lay in the utopian endeavor of
economic liberalism to set up a self-regulating market system." Lindsey
disagrees. He blames the centralizing impulses of what he calls the "industrial
counter-revolution" that "swept up reformers and revolutionaries,
the religious and the anticlerical, social activists and big businessmen,
workers and capitalists." It gave birth, he argues, to "the
welfare and regulatory state; the mixed economy of social democracy; the
business-led associative state; Keynesian fine-tuning; the Galbraithean
new industrial state; the developmental states of the Third World; and
the totalitarian states, whether communist, fascist, or Nazi." This
is an overly broad brush, suggestive of the argument in Frederick Hayek's
The Road to Serfdom, which saw 1940s Britain on the slippery slope
to totalitarianism. By lumping the welfare state together with Stalinism,
Lindsey, who like many economic libertarians finds democracy problematic,
obscures the differences between unavoidable adaptations of self-governing
societies and the mass mobilizations of authoritarian regimes. There are
in fact numerous notches along the slippery slope to hell because, as
Keynes explained, "Dangerous acts can be done safely in a community
which thinks and feels rightly, which would be the way to hell if executed
by those who think and feel wrongly."
Still, there's something to Lindsey's argument. He's right: The socialists
were not alone in assuming that the growth of industrial monopolies demanded
a growth in government power. "The true pacemakers of socialism were
not the intellectuals or the agitators," argued economist Joseph
Schumpeter, "but the Vanderbilts, Carnegies and Rockefellers."
Schumpeter might have been thinking of George Perkins of J.P. Morgan and
Company, who explained, "I do not believe that competition is any
longer the life of trade. ... I believe in cooperation and organization ... for
both labor and capital.... under strict regulation and control of the federal
government." Teddy Roosevelt, an admirer of Bismarck, concurred,
insisting, "This country has more to learn from Germany than any
other nation ... [about] that species of socialized government action which
is absolutely necessary for individual protection and general well-being
under the conditions of modern industrialism."
For those citizens displaced or disoriented by rapid industrialization,
the "counter-revolution" attempted to recreate a sense of local
community on a national level. "The counter-revolution," writes
Lindsey all too disdainfully, "promised to both restore community
and achieve material prosperity for all." Harold James takes up some
of the same points but without the polemical edge.
James shows how "the very successes of open global trade, investment,
and migration bred increasing demands for trade protection and restricted
emigration." In fact, the modern nation-state "was a response
to the challenges of the first wave of globalization." As the advanced
nations democratized, group after group turned to government to shield
them from the underside of the international economy. Businessmen insisted
that central banks use discount rates and reserve funds to restrain volatile
short-term capital movements. Labor unions, their bargaining power undercut
by the arrival of low-wage workers, turned to the state to restrict immigration.
Farmers and businessmen hurt by foreign competition pressured government
to restrict imports through the use of tariffs and quotas. And workers
of all sorts looked to a government-financed and administered welfare
state to protect them against the oscillations of the market. The result
time and again was the growth of state power, not only to restore community,
as Lindsey would have it, but also to simply provide a measure of stability.
The first world system came to an end with the Great Depression when
it was widely assumed that capitalism and democracy had failed. The backlash
against liberalism, explains James, identified "globalism with change
and sin and held that moral regeneration required national cultures"
purged of foreign influence. Even the liberal Keynes shared in the mood
in his essay "National Self-Sufficiency," written in 1933: "Let
goods be homespun whenever it is reasonably and conveniently possible;
and above all let finance be primarily national." In the German version
of national self-sufficiency, the job of the state was to externalize
the cost of economic instability, by force if necessary, on to foreigners.
Communism was already ahead of the curve in this game since, as Lindsey
explains, "if a nation's economic life is to come under central control,
that control must extend to the nation's connections with the outside
world."
While the Lindsey and James books are haunted by the memory of the 1930s,
Stiglitz, a man of neo-Keynesian ideas and populist instincts, is haunted
by the scenes of Third World poverty he has seen around the globe. His
villains are what he calls "market fundamentalism" and its institutional
agents, the United States government and the International Monetary Fund
(IMF). Stiglitz scores points on both fronts. He skewers the "inequities
and hypocrisies of American government policies" that preach free
trade to developing countries but then, as with the recent farm subsidies
bill, too often practice protectionism. Like the anti-WTO protesters with
whom he sometimes identifies, Stiglitz rightly accuses the IMF of an "arrogant,"
"recipebook," "checklist" approach to the problems
of poor countries that ignores the specificity of their situations.
But Stiglitz's own account of particular countries doesn't inspire confidence
in his grasp of the specifics. In a much-cited article ("Argentina:
Why the Nation That Followed the Rules Fell to Pieces"), he argues
that Argentina "did everything right." Its economy only collapsed,
he insists with the fervor of Ahab pursuing the whale, because of the
rigid exchange rate policies imposed by the IMF. Stiglitz's Argentina,
troubled neither by "budget profligacy or corruption," bears
little resemblance to a country where almost half the workers in some
provinces are on the government payroll, where the Mussolini-style labor
codes imposed by Peron make it almost impossible to either fire people
or create new jobs, where tax avoidance is a way of life, where the rule
of law is a foreign concept, and where foreign banks face criminal sanctions
if they fail.
When it comes to foreign aid, Stiglitz insists that it can be successful
but gives few examples and never takes up the arguments of the late P.T.
Bauer or, more recently, William Easterly that show that foreign aid has
often done more harm than good. Similarly on the question of another of
his bete noires, capital flows, his nearly apocalyptic account of the
East Asia crisis of 1997 is hardly borne out by, for instance, the roaring
revival of the South Korean economy.
James shares much of Stiglitz's critique of the IMF but notes that Stiglitz's
skepticism fades when it comes to the competence of unelected Third World
governments. Looking ahead, James is optimistic; he doesn't see a recurrence
of the 1930s, noting that experiments in "economic heterodoxy,"
as in Mitterand's France and Schroeder's Germany under finance minister
Oskar Lafontaine, have had to be quickly abandoned. To be sure, as the
WTO demonstrations and recent European elections suggest, there is something
of a contemporary backlash against immigration, trade, and capital flows.
But unlike in the 1930s, when the critics of capitalism could point to
seemingly successful regimes in Germany and Russia, today there is no
alternative model available. The rage against the West shared by many
WTO protesters and by the Islamists isolates the protesters even more
than it empowers them.
But, nonetheless, war -- even a war against terrorism, begun after these
books were written -- brings uncertainty. I would argue that war itself explains
the course of the 20th century far better than either the political backlashes
James discusses or Lindsey's ideological counterrevolution. War is an
inherently collective activity in which the fast must march at the same
pace as the slow. It's World War I that brought not just social welfare
measures but the planning with a vengeance that became the model for both
the Nazi and Soviet economies. War requires, as we saw in the wake of
9/11, the redundancies of fail-safe measures; economic efficiency, notes
historian Jim Chapin, is a benefit of peacetime. The extraordinary efficiencies
of just-in-time production were an artifact of a time when the Cold War
was winding down and the war on terror had yet to begin. The questions
ahead involve the ways in which the war on terror will unavoidably interfere
with the free movement of people and goods.
