Globalization Failure - Redux

We tend to think of the forces of globalization as a permanent part of the landscape-but then perhaps they were thinking that way too in 1914, when a number of factors from an over-extended superpower to a rise in terrorism ushered in the First World War. Our current international economy has similarities to the economic dynamics of ninety years ago. Could globalization collapse? It may seem unlikely today. Yet despite many warnings, people were shocked the last time globalization crumbled, with the onslaught of World War I. Like today, that period was marked by imperial overstretch, great-power rivalry, unstable alliances, rogue regimes, and terrorist organizations. And the world is no better prepared for calamity now!

Ninety years ago, the German submarine U-20 sank the Cunard liner Lusitania off the southern coast of Ireland. Nearly 1,200 people, including 128 Americans, lost their lives. Usually remembered for the damage it did to the image of imperial Germany in the United States, the sinking of the Lusitania also symbolized the end of the first age of globalization.

From around 1870 until World War I, the world economy thrived in ways that look familiar today. The mobility of commodities, capital, and labour reached record levels; the sea-lanes and telegraphs across the Atlantic had never been busier, as capital and migrants travelled west and raw materials and manufactures travelled east. In relation to output, exports of both merchandise and capital reached volumes not seen again until the 1980s. Total emigration from Europe between 1880 and 1910 was in excess of 25 million. People spoke euphorically of "the annihilation of distance."

Then, between 1914 and 1918, a horrendous war stopped all of this, sinking globalization. Nearly 13 million tons of shipping was sent to the bottom of the ocean by German submarine attacks. International trade, investment, and migration all collapsed. Moreover, the attempt to resuscitate the world economy after the war's end failed. The global economy effectively disintegrated with the onset of the Great Depression and, after that, with an even bigger world war, in which astonishingly high proportions of production went toward perpetrating destruction.

It may seem excessively pessimistic to worry that this scenario could somehow repeat itself--that our age of globalization could collapse just as our grandparents' did. But it is worth bearing in mind that, despite numerous warnings issued in the early twentieth century about the catastrophic consequences of a war among the European great powers, many people--not least investors, a generally well-informed class--were taken completely by surprise by the outbreak of World War I. The possibility is as real today as it was in 1915 that globalization, like the Lusitania, could be sunk.

SIMILARITY IN CURRENT AND PAST STATES OF GLOBALIZATION

There are a lot of similarities between our own time and the pre-1914 period. That the years 1880-1914 were the "first age of globalization" is now quite a widely accepted idea among economic historians. The data on trade, capital flows, and migration certainly bear that out. To be absolutely precise about dating, I'd say it was from the moment the transatlantic cable was laid, which was in 1866, until the cutting of the cables to Germany, after war broke out in 1914. The Lusitania (which was sunk on May 7, 1915) is simply a good symbol for the end of this first age because so much had previously depended on safe navigation between New York and Europe.

We could just as easily find ourselves swept into economic "de-globalization" by an international political crisis as our great-grandfathers were in 1914. Like the Lusitania, globalization could be sunk by great-power conflict. I just say it's possible. Like the outbreak of the First World War, a crisis of globalization today is a low-probability worst-case scenario. The key causes of the 1914 crisis were:

1. Overstretch of the hegemonic empire (Britain replace with United States currently).

2. The escalation of rivalry between great powers (Britain and Germany in particular, but also Germany and Russia replace with United States and China).

3. The destabilization of the alliance system (unreliability of Austria in German eyes, of Britain in French eyes replace with unreliability of the Europeans in American eyes, unreliability of the Americans in Japanese, South Korean, and Taiwanese eyes).

4. The existence of a rogue regime sponsoring terror (Serbia replace Syria, Iran etc).

5. The rise of a revolutionary organization hostile to global capitalism (Bolshevism replace with Al Qaeda).

It would be a very good idea if the United States were to act now to avert the danger of a clash with China over the future of Taiwan. There is a real danger that Taiwan could be what Belgium was in 1914: the small state over which two great powers went to war without either quite meaning to. I am not sure waves are the right natural-world image here. I would prefer to think of events such as forest fires or earthquakes - sudden crises arising from the advent of what scientists call "criticality."

A NEW BIRTH OF FAILURE FROM HISTORY

Civil War bankrupts wrote their own version of history, yet they shared Abraham Lincoln's vision of a new nation. Even as the clash became a war for abolition, it continued to be a war for ambition-for the right to transcend one's origins. From Fort Sumter to Appomattox, Lincoln defined the war this way. "I almost always feel inclined, when I happen to say anything to soldiers, to impress upon them in a few brief remarks the importance of success in this contest," he said in August 1864, greeting the 166th Ohio Regiment as it made ready to muster out. "Hundred days men" like them were serving short hitches to ease troop shortages that summer. Lincoln often made time to thank such units-in words that not only defined the war but also presaged post-war capitalism. Lincoln addressed the Ohio troops on the White House lawn during the warmest August anyone recollected, in a city noted for torrid summers. At dawn and dusk, Lincoln commuted on horseback between the presidential mansion and a summer cottage on the edge of town. It was cooler there, and he could work undisturbed in an unceremonious white suit and Panama hat: small comforts in the war's bleakest month. With Sherman stalled in Georgia and Grant dug in outside Petersburg, opposition newspaper editors called Lincoln "an egregious failure." Even his own political advisors confided to each other, "I fear he is a failure." Friend and foe badgered him to withdraw from the 1864 presidential election.

Three days before addressing the 166th Ohio, Lincoln consulted Frederick Douglass in the White House. Lincoln resolved to defy public demands that he repudiate emancipation and sue for peace. Making plans should he be forced to give in, he asked Douglass to organize a federally backed underground railroad, to help as many slaves escape to the North as possible. On 22 August-the same day the Buckeye regiment listened to the president's speech-the editor of the New York Times sent Lincoln a private letter, warning that unless he would drop emancipation from his peace terms, he could not be re-elected. Lincoln pondered what to do: When his cabinet met the next morning, he would ask them to sign a blind pledge to make peace on any terms if he lost. With such matters cluttering his desk, even working in shirtsleeves barely made the office less stifling. Maybe Lincoln welcomed the chance to step outside and greet the Ohio soldiers under the blistering sun.

Who was more uncomfortable: almost a thousand soldiers in scratchy wool uniforms or the man in the long black coat? "The countenance of the President . . . was inexpressibly sad," wrote a member of another Ohio regiment Lincoln had greeted earlier in the summer. "He heard the music, saw the crowd, but his mind was evidently not there." The soldiers, at least, could daydream of going home. Hold out for victory, the president was telling them, "not merely for today, but for all time to come." In a great, muscular hand he held his stovepipe hat, because despite the heat he always uncovered to show respect for the troops. The front ranks could see him sweating with them. Rivulets moistened the face Walt Whitman had described exactly ten days earlier, upon glimpsing the president as Lincoln rode into the city that morning: "Abraham Lincoln's dark brown face, with the deep cut lines, the eyes . . . with a deep latent sadness in the expression."

Lincoln's high tenor voice squeaked some, but it carried like a bugle call, each word a clear, distinct note that made him easy to hear and understand. "I happen temporarily to occupy this big White House," he was saying. "I am a living witness that any one of your children may look to come here as my father's child has." Perhaps wandering thoughts outnumbered his words-nearly a thousand visions of fathers and children back in Ohio, interrupted by scattered sighs in the ranks of men anxious to return to neglected farms and shops. Even if some barely listened, they knew that Father Abraham started out life as a poor boy with dreams like theirs. It did not take a Walt Whitman to recognize a tanned brow accustomed to manly sweat.

 "It is in order that each of you may have an open field," Lincoln was saying about why they fought, "and a fair chance for your industry, enterprise, and intelligence." A fair chance! He was speaking their language, telling them what the struggle meant and why it must go on, even two or three more years. The president talked fast-quicker than you might guess his Kentucky twang could go. He would spit out two or three mouthfuls of words before he paused to accentuate two or three phrases that he especially wanted you to remember. He was nearly finished now: ". . . that you may all have equal privileges in the race of life, with all its desirable human aspirations."

The race of life! No one knows which words Lincoln stressed that day, but no phrase stuck longer in this intensely ambitious and competitive man's vocabulary. In 1852, he had exalted the race of life in a eulogy to Whig statesman Henry Clay, coiner of the phrase "self-made manhood," an ideal Lincoln deliberately embodied. In the presidential race of 1860, Lincoln promised "the humblest man an equal chance to get rich with everybody else. When one starts poor, as most do in the race of life, free society is such that he knows he can better his condition." He said, "I want every man to have the chance-and I believe a black man is entitled to it." The slogan graced his first message to Congress in 1861, only three months into a war "whose leading object is . . . to afford all, an unfettered start, and a fair chance, in the race of life." After 1863, "unfettered" took on a more liberal (and literal) meaning, yet emancipation enlarged Lincoln's creed without changing it. Individual success was devalued unless all could strive freely, and freedom was a meaningless abstraction without "a fair chance" to succeed.

In those dog days of August 1864, when he risked his office rather than break the promise of emancipation, surely Lincoln tried all of his old stump-speaking tricks to make the soldiers hear "equal privileges in the race of life" and embrace it as their true cause. He spoke fewer words that day than in his brief elegy at Gettysburg nine months earlier, where on a pasture of death Lincoln heralded "a new birth of freedom." Now, on the White House lawn, addressing men lucky enough to have avoided the graveyard, he translated the poetry of Gettysburg into plain talk that the greenest private could grasp.

"It is for this that the struggle should be maintained," he concluded, barely three minutes after he began. "The nation is worth fighting for, to secure such an inestimable jewel." The jewel of liberty, a new birth of freedom, the race of life: All three named Lincoln's vision of a nation of strivers, which gradually but irrevocably linked the war for ambition to the war for abolition. This duality encompassed what he meant by "a new birth of freedom": a fresh chance at self-made manhood, a right to rise for white men as well as for black men. This vision did not get Lincoln reelected in 1864-military victories clinched that. But it did get him killed. John Wilkes Booth, after hearing Lincoln promote limited Negro suffrage, vowed that the tyrant had given his last speech. At first a reluctant emancipator, Lincoln's faith that individual effort alone should earn men success or failure in life ultimately cost him his own.

After the war, the defender of this faith was the White House visitor of August 1864, Frederick Douglass. Virtually Lincoln's peer as a writer, Douglass was a peerless orator, gifted with a lordly, basso voice the emancipator lacked. Douglass's most popular lecture, which he gave more than fifty times between 1859 and 1893, was entitled "Self-Made Men." It asked why, "in the race of life, the sons of the poor often get even with, and surpass even, the sons of the rich?" An escaped slave who had taught himself to read, Douglass faced the public as living proof that indeed the race went to the swift, that people are "architects of their own good fortunes . . . indebted to themselves for themselves." Douglass's biography was so well known that he need not draw explicit parallels to the exemplar of his speech: "the King of American self-made men... ABRAHAM LINCOLN." No better model of work and self-improvement existed than "the fortitude and industry which could split rails by day, and learn grammar at night at the hearthstone of a log hut." Douglass baptized the freedmen in the entrepreneurial identity now vindicated by war. Our motto, he exclaimed, is "Go ahead!"

Douglass was a politician, not a motivational speaker. His paean to the race of life exposed the fraud of Reconstruction to the "scorching irony" that had made him famous. Once the post-war twaddle about forty acres and a mule died down, the former slaves got nothing but freedom-no parcel of land made fertile by bondage, no coin to reimburse stolen generations. Night riders, sharecropping debts, crooked labour contracts, and segregation precluded anything like a fair chance. If self-made men "owe[d] little or nothing to birth, relationship, [or] friendly surroundings," asked Douglass, who fit that part better than the freedmen? "I have said, `Give the Negro fair play and let him alone,'" he explained. "It is not fair play to start the Negro out in life, from nothing and with nothing, while others start with the advantage of a thousand years behind them." The race of life should not be rigged. "For his own welfare, give [the Negro] a chance to do whatever he can do well. If he fails then, let him fail! I can, however, assure you that he will not fail." Anyone who accepted the Lincoln myth and the race of life as articles of faith, Douglass implied, must concede that racial equality was unassailable. Politicizing the gospel of self-help, the great orator preached it in earnest.

The war had changed the terms of political and economic identity in ways that expanded the constituency of failure. In Douglass's words, "Liberty and slavery" gave way to a new measure of human worth: "success and failure." Trying to live up to these normative ideals, postwar generations faced hazards that neither bankruptcy laws nor constitutional amendments could relieve. New chances meant new risks. Civil rights created a new basis of identity for all, but even if political equality were enforced, economic inequality was inescapable. One scholar explains, "even as Lincoln celebrates the freedom of opportunity . . . he also inscribes a new logic for assigning blame." The logic is this: In a fair race, losers have only themselves to blame. The problem in post-war America was that fortunate sons ran alongside former slaves, and bond brokers edged out ditch diggers; the contestants included black and white, rich and poor, male and female. If Lincoln overlooked the dark side of his ideal, Douglass did not. In "this eager, ever moving mass which we call American society," Douglass explained, "life is not only a race, but a battle, and everybody [is] trying to get just a little ahead of everybody else." Off the dais, Douglass beheld a painful example in his three hapless sons and a daughter who married a ne'er-do-well. Confessing his "many failures in life" in an 1876 letter to his implacable father, Charles Douglass admitted, "It seems that under any circumstances I am to fail in my undertakings, and my life is to be one series of blunders." Identity seemed to be more a matter of new risks than new rights.

This was a common story after the Civil War. The Douglasses were a rare family, black or white-except in their encounters with success and failure as the definitive categories of human worth in post emancipation America. Coming up from slavery only to go down in failure, they approximated a saying attributed to another self-made man, Andrew Carnegie: "Three generations from shirtsleeves to shirtsleeves." Entrepreneurial individualism ended with the war it won. The age of go-ahead became the Gilded Age when business innovators remade self-made manhood on an unimagined scale. Men like Carnegie and John D. Rockefeller embodied different myths from those of Douglass or Lincoln. In the same era when Reconstruction failed to establish political equality, corporate industrialization challenged the limits of "an open field and a fair chance . . . in the race of life." Black and white, workman and tycoon would be-in theory but not in reality-just so many equal competitors in the race of life. "Properly speaking, there are in the world no such men as self-made men," Frederick Douglass said. "The term implies an individual independence of the past and present which can never exist. . . . We have all begged, borrowed, or stolen." Many families would resort to some of these strategies in the post-war decades, after learning the hard way that the celebrated "new birth of freedom" also brought forth a new birth of failure.

BACK TO THE FUTURE

The last age of globalization resembled the current one in numerous ways. It was characterized by relatively free trade, limited restrictions on migration, and hardly any regulation of capital flows. Inflation was low. A wave of technological innovation was revolutionizing the communications and energy sectors; the world first discovered the joys of the telephone, the radio, the internal combustion engine, and paved roads. The U.S. economy was the biggest in the world, and the development of its massive internal market had become the principal source of business innovation. China was opening up, raising all kinds of expectations in the West, and Russia was growing rapidly.

World War I wrecked all of this. Global markets were disrupted and disconnected, first by economic warfare, then by post-war protectionism. Prices went haywire: a number of major economies (Germany's among them) suffered from both hyperinflation and steep deflation in the space of a decade. The technological advances of the 1900s petered out: innovation hit a plateau, and stagnating consumption discouraged the development of even existing technologies.

"America now faces the prospect of economic conflicts with both Europe and East Asia. The United States and the European Union have already fired the first shots of retaliatory sanctions over their ever-growing trade disputes. On the other side of the world, meanwhile, Asian countries are creating a bloc of their own that could include preferential trade arrangements and an Asian Monetary Fund. These developments could produce a tripolar world and hamper global economic integration. To avert this outcome, the United States must quell its domestic backlash against globalization and reassert its economic leadership in the world. The new Bush administration should make multilateral trade liberalization a top priority -- or it will face unpleasant economic and political consequences as the U.S. and foreign economies slow.

Since the end of the Cold War, the perceived threats to U.S. security have been mainly from "rogue states" such as Iraq and North Korea -- none of which are superpowers or likely allies of each other in confronting the United States. But the United States now faces the real possibility of economic conflict with both Europe and East Asia -- the commercial and financial equivalent of two-front combat. In this domain, both potential rivals are superpowers. Moreover, they have already demonstrated their ability to coalesce against the United States, as they did to help torpedo the Seattle ministerial meeting of the World Trade Organization (WTO) in December 1999.

Peaceful and effective resolution of these potential conflicts is one of the most important and difficult issues facing the new U.S. administration and the world. The American and global economies are slowing sharply, and their futures may be heavily affected by the outcomes. In a post-Cold War world in which economic issues are central to international relations, those outcomes will also be crucial for U.S. foreign policy and global stability. Compounding the complexity of the situation is the fact European and East Asian nations are not only the United States' economic competitors but also its economic partners -- and many of them are close security allies as well.

The United States and the European Union (EU) are on the brink of a major trade and economic conflict. Washington has already retaliated against European import restrictions on American beef and bananas -- each retaliation accounting for a hundred million dollars or so of annual trade -- and has rejected all European efforts to resolve these disputes. Europe in turn threatens to retaliate against several billion dollars of U.S. export subsidies, as well as new U.S. trade laws that would channel the proceeds of antidumping penalties from the Treasury Department to the complaining industries and would force the president to continually change the products being retaliated against, thus intensifying the impact of U.S. punitive sanctions.

Still larger trade clashes loom. The troubled U.S. steel industry will likely file additional antidumping cases against European firms or even an industry-wide safeguard action that would restrict all European imports. In addition, a major dispute over commercial aircraft is brewing as the two sides quarrel over whether direct European governmental subsidies for Airbus or indirect Pentagon subsidies for Boeing are more egregious. Europe's outcry over U.S. sanctions against European firms that deal with American adversaries such as Cuba and Iran has only been swept under the rug. And just over the horizon lies the biggest battle of all: the debates over farm subsidies, genetically modified products, and overall agricultural trade that will explode in 2003, when the U.S.-EU "peace clause" (a moratorium on new complaints in the agricultural sector) expires.

The United States and Europe also differ on global trade issues for which they share leadership responsibility. They remain divided, for example, on whether to include competition policy and investment issues in new WTO negotiations." [Fred Bergsten is Director of the Institute for International Economics and former Assistant Secretary of the Treasury (1977-81) and Assistant for International Economic Affairs to the National Security Council (1969-71)].

CONCLUSION

Keeping an eye over the history referred above, the analysis of world press and remarks of leading economist, Pakistan must look at its foreign policy and they will certainly conclude that they are on board of a titanic which is about to sink, as appeared from the history, and the number of boats on the ship are unable to carry all the passengers on the titanic.