Stress testing the global economy. . - Books - three books on globalization - book review

Harold James, The End of Globalization: Lessons from the Great Depression (Cambridge, MA: Harvard University Press, 2001), 288 pp., $39.95.

Roger M. Kubarych, Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis (New York: Council on Foreign Relations Press, 2001), 187 pp., $15.

Kevin O'Rourke and Jeffrey Williamson, Globalization and History (Cambridge, MA: MIT Press, 1999), 355 pp., $27.95.

THE REWARDS for reducing uncertainty in an uncertain world are so large that the demand for political and economic forecasts never ends. Yet demand far outruns supply. We seem unable to predict the really big system breaks like the fall of Soviet communism or the Asian crisis, or at any rate to do so persuasively enough for society to prepare for them. How might we do better?

The answer depends to some extent on understanding the context in which forecasting takes place. The main process affecting international affairs has for some time now been the increased integration of global economic activity--"globalization" in the common parlance. That being so, do earlier manifestations of economic integration provide clues about the probable future of the current phenomenon? The sometimes violent backlash against trade and financial liberalization that we have witnessed since the final years of the 1990s gives the question a pertinence that seemed absent during the previous couple of heady decades when multinational enterprises rode high and trade barriers so conveniently fell before them. The upsurge of resistance makes it urgent to seek for indications as to whether phases of globalization are fated to be slowed, brought to a standstill, or even thrown into reverse.

Perspectives from history and concepts from economics thus seem likely to be helpful, and where we should look to find both these approaches brought into play is in economic history. Much of the unwillingness to apply economic reasoning in general history and the analysis of international affairs seems to stem from an aversion not only to many of its conclusions but even to its assumptions--that is to say, from an all-too-human reluctance to accept the fact that every course of action, including inaction, comes with a cost attached. Economic history is free from that weakness. Admittedly, some of its formal techniques suffer diminishing returns when applied to topics on the fringe, notably the interaction between economics and politics. Disagreeable though this may be to the harsh reasoners among economists, broader humanistic judgment comes into its own when dealing with such themes. As Clive Crook says in an admirable survey of globalization in The Economist, few economists nowadays learn enough history. (1 ) This tends to offset their undoubted strengths as problem solvers, because it disarms them regarding just what is and is not novel. Alvin Toffler put the point nicely: "We now have students so ignorant of the past that they see nothing unusual about the present."

A long view from economic history offers the counteracting benefit of perspective, a point that seems trite until we consider how misleading the lack of it may be. In one of the books discussed here, O'Rourke and Williamson rightly criticize the journalistic tendency to project the recent past into the indefinite future. They observe that this habit has-- since September 11 we should say had-- engendered the popular view that globalization is unstoppable. Recent protests and violent happenings mean that such an opinion is in serious doubt; indeed, as these authors demonstrate, it should always have been disputed. Before journalism threw itself into confusion over the current anti-globalization campaign, not to mention terrorism, O'Rourke and Williamson had already concluded that globalization is not unchallengeable. They were drawing on their study of the first globalization boom of 1870-1913 and how it was brought to an end. They saw that there would be a backlash this time, too.

Luckily, then, some modern writers are literate in economic history, and they have much to teach us. The work of a general historian, Harold James' The End of Globalization, stands out because the author has really done his economics homework. James appeals to the economic history of globalization in order to place the present and the future in the longer context of international economic integration. He delves as far back as the unease inspired by the Reformation and the great age of discovery in the 16th century, but concentrates on the breakdown of international order during the 1930s. An adventurous volume by Roger Kubarych, Stress Testing the System, which simulates a contemporary financial shock, counterpoints history's usefulness almost as sharply by rehearsing earlier attempts at building scenarios that failed because they did not explore past experience deeply enough. A third, slightly older, but magisterial work is O'Rourke and Williamson's Globalization and History, which, as noted, turns the searc hlight of econometrics on the 1870-1913 period.

Competition, Agriculture and Migration

EVEN EARLIER cases of economic integration than that of 1870-1913 may teach us something, despite the fact that they concerned only Europe. Although such episodes were not "global" by definition, nor in the strictest sense even international (because they partly predate the rise of the nation-state), they are still capable of illuminating the merits and discontents of integration. Oliver Volckart, for example, traces the effects of competition among multiple political units as early as the centuries between 1000 and 1800. (2) He notes that because Europe's political units were then so small and packed close together, hard-pressed individuals could move fairly readily from one to the next, either to escape oppression or to find a better life. They took their money with them. The availability of "exit" as an option induced rulers to compete for the mobile factors of labor and capital by offering more attractive constitutions, laws and customs. Princes offered commercial privileges at bargain prices to attract p articular groups to settle and pay them taxes in the future.

Competition was evident along these lines during the Middle Ages, but between the 14th and 18th centuries rulers concentrated on protecting the holders of privileges they had already sold. New entrants, or at any rate free entrants, to business were discouraged. By the early modern period, the maze of restrictive privileges was tending to smother additional market growth. Joel Mokyr tells us that this also impeded further technological advances of the types that had taken place during the phase of high medieval openness. (3) Then, in the 18th century, the rulers of mainland Europe perceived what was happening in Britain and once more reversed their policies. They grasped that skilled immigrants and more foreign investment would establish new enterprises and generate higher taxes, and began to re-open their economies to fresh talent and capital. Pre- and early-modern economic history therefore makes the association between openness and growth as apparent as it is today, and warns that growth is always vulnerab le to cumulative erosion by special interests.

Markets were internationalized more fully during the late 19th century than during any previous period and, perhaps surprisingly, the process went further in some directions than during the late 20th century. Recent globalization has focused on commodity trade and flows of financial capital more prominently than it has involved movements of people. During the 19th century, however, the bias was rather different; relative to the size of population, international migration was at a high point. Wage earners felt threatened in high-income countries such as the United States and Australia, to which migrants flocked. At the same time, landowning and cereal farming in Europe were undermined by cheap grain from the New World. The protectionist reaction came quickly. O'Rourke and Williamson do not attribute the onset of protection to the effects of the World War, nor date it to the depression years of the 1930s. They point out that as far as labor migration and agriculture were concerned, free movement and free trade were being curbed well before 1900. Societies find it agonizingly hard to adjust to openness. That is why, historically speaking, it is fair to say that the long liberal era after World War TI has been more of an anomaly than the many periods of relative closure.

Enthusiastic globalizers loudly, and reasonably, trumpet the gains from economic integration, particularly the gains of the post-Cold War period. They have had a bull run. Yet substantial advance has not been secured in every respect, notably in these two areas of agriculture and labor mobility. Triumphalists feel that agricultural protection will have to fall eventually because the budgetary cost of warding off imports and transferring revenue to farmers is so enormous. In any case, they incline to the opinion that farming does nor much matter because it is a shrinking sector in developed economies.

But "eventually" is a long haul; actual existing history, so to speak, takes place in the lag periods. It is therefore a mistake to underestimate the perverse hold of farming on the psyche of countries that are generally frightened of external competition, of which the outstanding example is France. Only public acquiescence within the developed countries could permit such vast transfers to continue. The catch is this: the importance of agriculture to poorer countries is such that if they continue to be excluded from Western food markets, they can return the compliment by blocking negotiations to liberalize trade in goods and services in ways that were not possible during the free-for-all 19th century. An impasse therefore threatens within the world trading system before we even start to take account of external threats or protest campaigns.

With respect to labor, triumphalists argue that it matters little if people cannot move freely about the world. Simply permitting their countries to trade will enable them to raise their rate of economic growth. But historical and modern experience both show that individuals are reluctant to sit through this slow, cold process: they will head for lands that have actually demonstrated their ability to prosper. That is why today, in countries where private businesses are willing to hire, half of the immigrants are illegals. The pull of businesses wishing to fill jobs conflicts with the push of governments trying to appease domestic labor unions and xenophobic citizens. At the moment, official controls are tightening precisely when the aging of populations in the developed world is reducing domestic labor supplies. This can only rile turbulent young populations elsewhere in the world and, given the strength of demand, ensure that people smuggling will continue to be rewarded. "Globalization" at the margins will therefore continue by stealth, but the prospects for extensive new legal migration are not good. Agriculture is, if anything, an even greater sticking point.

Simulating the Future

WRITING about world affairs means giving hostages to fortune. At least this puts one in good company. Henry Kissinger had just finished proclaiming in Frankfurt that the United States lacked serious enemies and had not been attacked on its own soil since Pearl Harbor when a news editor broke in to announce the strike on the World Trade Center. A few months earlier, the organizers of the Financial Vulnerability Project of the Council on Foreign Relations (CFR)--the simulation of a financial shock that is the subject of Roger Kubarych's Stress Testing the System--had rejected the idea of any scenario involving the bin Laden organization, the sources of its funding, or "fictional intelligence reports of plans for future terrorist assaults on U.S. facilities." They rested on the assumption that "government agencies likely were already considering contingencies involving bin Laden."

Puncturing "past futures" is always easy. The Financial Vulnerability simulation was not strictly intended to predict; it was concerned with the consequences of a major shock rather than the actual shape of the shock. Scenarios have more open-ended purposes than forecasting, "fuzzier" purposes, if you like, comparable to the grandmotherly musings of economic history. Nevertheless, actively and explicitly dismissing the scenario that really was to take place was unfortunate. There is no getting away from the fact that the simulation missed the true shock for reasons which suggest that some lessons of the past have not been learned. This generation is not the first to play war games. As Kubarych reports, Admiral Chester Nimitz stated that the war with Japan was "gamed" so often, by so many groups, that nothing came as a surprise, "absolutely nothing, except the Kamikaze tactics toward the end of the war." The error in 2001 was the same one of mirror-imaging, of assuming that non-Westerners would behave like Wes terners. No one except the politically incorrect would have admitted to thinking otherwise.

For all that, the CFR simulation exercise was an ingenious idea in a financial sector normally given to heavily-quantified (and repeatedly wrong) predictions. The CFR exercise is interesting less for its conclusions--necessarily transient, the more so in view of the impact of September 11--than because it may persuade other observers to contemplate open-ended scenario planning. The U.S. Army seemingly agreed when it hired Hollywood scriptwriters to imagine fresh terrorist scenarios right after that fateful day. This non-quantitative, apparently fanciful method is perhaps the only way to get decision-makers, who, until now, have inclined to be condescending about such approaches, to consider the whole range of influences on the global economy. They have tended to believe there is a sharp, identifiable difference between what they "need to know" as opposed to a broader range of "soft" variables and complex interactions that fall under a merely "nice to know" heading best left to people in ivory towers. How wron g they were.

The CFR simulation, tragically abetted by September 11, may help to change their minds. It was genuinely ahead of the game. Only its real importance, therefore, leads me to go on picking on some of its weak points. Participants were drawn from the financially great and good, and they were Americans. They were going to think like Americans and anticipate a future of prosperous internationalism whatever the occasional upset. No future of theirs would ever include a re-run of the medievalism to which Islamic terrorism would like to take us back. The organizers did dream up "a large number of fascinating, highly imaginative plot twists", but neglected to pursue them because they "feared that simulation participants would have... ridiculed them or dropped everything else to dig into them." The claim made for scenarios is that eliciting imaginative possibilities is one of their special virtues. But this benefit was foregone here. Too few resources were expended on preparing the scenarios and too little time ("a who le Saturday") allotted. Moreover, financial crises are seldom single shocks. They are not just Brutus murdering Caesar, but full-fledged Greek tragedies with horribly ordained multiple role-playing. Simulating a slither into the depths rather than a dramatic plunge would have been more compelling. It would definitely have been truer to the simulations that economic history has already run for us.

Will Globalization Backfire?

HAROLD JAMES distinguishes three ways in which globalization may be reversed or reverse itself. The first is the one favored by the perpetual opponents of capitalism: Intrinsic contradictions in the capital markets will make them blow up. Capital markets will exsolve, so to speak, giving off bubbles that burst with a bang. At its worst, a bursting like this in the Great Depression forced the world economy down to a low equilibrium where exchanges tended to retreat behind national frontiers. The institutional apparatus to support it was, however, rebuilt after 1945, and what has been done once can be done again, if necessary. In principle, rescuing the system should be easier now that there are precedents for so doing. Politicians may actually be more willing to reconstitute international organizations than to face down opposition in their own countries. A failure of nerve in the face of predictions of the self-liquidation of international capitalism would be worse than unnecessary; it would amount to a death- wish.

Otherwise, second, if everything does go wrong, the international economy may dissolve. One route to such dissolution would be via institutional failure, the inability of the system's presiding institutions to manage its crises successfully. James devotes most of his labor to this problem of the interwar years, producing a learned and (for a technical subject) enviably readable history. Although he formally leaves open whether globalization will survive this time, his arguments all tend toward optimism. Yet the somewhat uncertain management of institutions like the World Bank and IMF does not warrant complacency. In keeping the world financial system afloat on September 11, the hero of the hour was Roger Ferguson, Alan Greenspan's deputy, who stayed when the Federal Reserve building was mostly evacuated, issued a statement saying that the Federal Reserve system was still operating, and provided $80 billion of liquidity during the day. It is all too easy to imagine other circumstances, less professional and br ave people, and an alternative response.

This leaves James' third issue: the backlash against globalization. The prospect became a significant one about 1997, when opposition within the developed countries began to approach a crescendo and to coalesce across their borders. We may label this auto-immune disease the Seattle syndrome. It was trumped by the atrocities of September 11, which we may term the Taliban scenario. The two species of opposition may reinforce one another, but it is convenient to deal with them separately.

The New Opposition

WE THUS need to step outside the reviewing procedure at this point in order to consider two broad streams of threat to globalization. No book written before September 11 could be expected to take into account the specifics of the world after that date. None does, though James explicitly deals with the issue of whether the modern phase of globalization might be reversed, while O'Rourke and Williamson are persuaded that, as they find in the past, counteracting resistance is always likely to build up. The difference between past and present experience is, however, as significant as the similarity. That difference lies, in large measure, in the extra-political and extra-legal nature of modern anti-globalization protests. This is true if we look at threats from within or those from without, at Seattle or the Taliban (or as we may now say, Al-Qaeda).

Hitherto there was simply no confluence of violent, middle-class internal opposition to globalization in rich countries of the type signaled by the Seattle riots. Ironically, the most impressive organization in the history of international trade was in favor of free trade, not against it. This was the Anti-Corn Law League that campaigned against agricultural protection in 19th-century Britain. As a grassroots organization the League was stupendous; it sent out one million pieces of propaganda from its Manchester office during a single week in February 1843. The Seattle protestors' use of the Internet was scarcely more dramatic, the difference of course being that the League was "for" free trade and modern protestors are against it in an astonishingly reactionary fashion. As for anti-globalization from the outside, so to speak, there was not in the past any systematic, lawless trans-global opposition of the kind offered by the Taliban-cum-Al-Qaeda training camps and actions. The conclusion we should draw from all this is that history may take us some way toward understanding globalization and its discontents, but it cannot take us the whole way. Hence, as I say, we must step a little outside the books under consideration in order to map the shape of modem anti-globalization protests.

The Taliban Scenario

THE REACH of Western information is more nearly global than either capital movements or commodity trade. Technologies and markets that broadcast images and news are capable of causing disturbances in three ways. First, the Hollywood effect raises unrealizable aspirations for living at the level of a fairy-tale United States, where the modal citizen appears to be represented by a film star in southern California. Second, American movie producers seem unaware--given the box office appeal of their products, why should they worry?--that the merest flecks of background in their films may prove inflammatory in more rigid and patriarchal societies. (I refer to the ordinary dress and everyday status of American women.) Third, we are now reaping what we have sown: the electronic transmission of information and misinformation runs both ways, providing ample exposure for the opinions of, say, A1-Qaeda. And their messages are intended to promote negative globalization.

Some of the present troubles accordingly arise from the fact that the world's political and economic markets are out of kilter. As far as the mass of the population in the less developed world is concerned, a disequilibrium consists in the way that information flows have heightened economic expectations far ahead of the ability of trade and investment to satisfy them. The poor are both titillated and frustrated. They therefore listen to the anti-globalization, anti-Western, and counter-capitalist ("counter-cap") messages put out by the disgruntled or opportunistic intellectuals among them. These intellectuals are men (here we can safely say men) whose status would be most threatened by competition from outside ideas. Some have gone so far as to forbid students in Muslim madrassas across South Asia access to newspapers and television. Where intellectuals-turned-fundamentalists have the grain of coherent ideologies to work with, their potential threat to the world system is greatest.

I do not claim that the West could have countered these effects easily and, although they have led to palpable envy around the world, they have not always provoked violent anti-Americanism. Nor is the contemporary revulsion against Westernization the first there has ever been. A similar element was present in the early rise of Indian nationalism. E-mails are not indispensable; mass action did not await their invention. Printing presses, railways, telegraphs, and postal systems were sufficient. Nor would official attempts to "explain" the American way of life have been particularly effective; such things must sound to poor peasants in distant lands like recipes for pie in the sky. Nevertheless, some intellectuals in the non-Western world might have been receptive to argument, as were those in the defeated countries after 1945.

Efforts to argue the abstract case for Western styles of economics and politics need not prove futile in the longer run either. It is worth considering an analogy with the way scientific revolutions occur, at least according to Thomas Kuhn, which is to say not by changing the minds of established authorities but by converting the next generation. A new Colombo Plan would help. As it is, Western academics seem fixated on the motes in the eyes of their own political systems, while the hubris of private-sector globalization seems to have blinded politicians to the value of generous and far-sighted public actions. Closing the overseas libraries of the United States Information Service, for example, has surely been an unfortunate act of cheese-paring.

As we quickly learned, the perpetrators of the atrocity in New York and Washington were not from within. They were external individuals who make up what Gerard Baker, an American columnist of London's Financial Times, calls "the ultimate anti-globalization movement." No one knows precisely what the ordinary inhabitants may be thinking in the countries from which this movement is recruited. Revealed preference suggests that many of them have responded to the Hollywood effect and display no objection to rich-country ways. Some are even desperate enough to put to sea in leaky boats in the hope of landing on a Western shore.

The powerful and influential, on the other hand, resist globalization on any number of grounds, summarized as distaste at the "imposition" of Western, or so-called American, culture. Their unease is largely cultural, its betes noire the supposed materialism and individualism of the West. The charge of materialism actually confuses material wealth with a fixation on objects. As an American friend who had worked in the Sudan once remarked to me, "we are not the materialists, goods come easy to us." But no one in the West would wish to escape the charge of individualism, and individual choice is a clear threat to hierarchies. Beneath all the various cultural overburdens, the aged patricians in less-developed societies who rage against these things are rent-seekers, striving to maintain privileges associated with existing forms of social organization. (I will not call the folkways "traditional" since they are adulterated by plenty of borrowed technology.) Undoubtedly, most of the individuals involved are so condi tioned by their upbringing as not to recognize the element of selfishness in trying to deny their brothers, and especially their sisters, a taste of the modern world.

It is fashionable to see resentment against the West in terms that amount to a stage theory of economic history. Economies that have failed to climb aboard the bandwagon of growth fester away in corners of the world while the rest of us proceed ahead. Every so often the losers erupt in ways that hitherto have seemed little more dangerous to the West than an occasional spent meteor clanging into the desert. In any case, as the saying once went, we have the Maxim gun and they have not. There is a smack of the "end of history" thesis about the underlying assumption of unidirectional change. In its bald form, the thesis is economistic.

In this vein, individuals are assumed to seek happiness in material form. Once they attain something approximating their goal, they, or their children, will move up to a new stage, looking for services as well as goods, and for services that embody freedoms--independent judiciaries, an end to corruption, a press that does not suppress too much at the behest of the powerful, maybe even pluralistic government. We know that this happened in Europe, and we can see it happening in East Asia. We can interpret part of the struggle within Iran in approximately the same way. Where the tendencies have still not emerged, we tend to rescue the thesis by saying that momentum has stalled not through choice but via the machinations of old elites. Hence we portrayed the backlash in Afghanistan as a pathological response to national economic failure, whereby those in power stir up their people to opt out.

Opinion in the developed world assuredly believes that the fundamentalist challenge to the West is driven by the inability of alien leaderships to cope with modernity. Yet if it is economic humiliation that bothers the fundamentalists, resentment should direct itself against East Asia, not the West. While other regions fell behind, East Asia pulled itself up by its bootstraps. If anyone has lost face they have lost it to the spectacular economic growth of Japan, the little dragons, and now China. The West was rich from the start. Since fundamentalists attack America and not Asia, it follows that the animus must have more complicated roots than simple economic humiliation.

Undoubtedly, the economistic interpretation of global change is acceptable in a broad sense. It is borne out by the history of the developed countries--unless one wants to imagine that the quest for freedoms and introduction of liberal laws has been independent of the emergence of a bourgeoisie. Yet as soon as this is said, the limitations of the theory are evident. Again: history takes place in the lags where motion outruns inertia. Economistic models and "swell of the ocean" theories must always assume that the outcome is written. So it may be in broad outline, but the pace and details of the story are made up as we go along. Economic history is not so deterministic, at least not in fine grain.

At the very least, the growth process may be delayed or distorted (involving attempts to pick and choose among borrowings, with the emphasis on information technology and military hardware). This seems to be the case now, given the reactive hardening of attitudes and the narrowing of Quranic teaching among the current young generations in the Islamic world. Anything approaching outright war on a regional scale or even a series of big terrorist strikes could still close down a large share of world trade. In that sense external backlash retains the power to disrupt globalization. Prevailing unidirectional theories do not adequately prepare us for this.

The Seattle Syndrome

FURTHER rapid liberalization of global trade had become doubtful even before September 11, 2001. Most governments are compromised by favors owed to special interests. Western leaders respond snappily to polls in shopping malls. Businessmen are at least as short-termist and even more reactive. They have not gone out of their way to proclaim why the anti-capitalist and anti-globalist lobbies have added two and two together and got five, besides failing to face down the shock troops of the protest movement. Few business people write books and, ironically, the most publicized exception, George Soros, has come out against global capitalism. With political and business leaders like these, economist authors may well feel they are tacking into the wind. They may be reduced to hoping that Keynes was right--meaning that educated opinion will capture the minds of later generations.

Before September 11, anti-globalization was almost entirely an intra-Western affair. Until then, Kissinger seemed to be right that the United States lacked external enemies strong enough to be a threat. My first thought on hearing of the assault on the World Trade Center was indeed that the anti-globalization front had finally kicked over the traces. After all, the attack had done the protesters' work for them. In the weeks that followed there were job losses, reduced international movements of people, huge costs to Western economies, shrinking international business activity--all outcomes that they had been working for, together with the knock-on of increased morbidity and mortality in the less-developed world that they scarcely acknowledged would soon be the accompaniment.

Much Seattle-style protest seems to be a lifestyle choice, feeding on an array of anxieties, real and pretended. Protest gives a purpose to life, protest is fun, protest is sexy, and protest can be made to pay. Some companies appear to be paying Danegeld to bodies openly devoted to undermining international business. The Unilever Corporation is reported to have been funneling millions of dollars to anti-globalization groups. This money passes via a new subsidiary, Ben & Jerry's, to bodies such as Global Exchange, which campaigns to shut down the World Bank and WTO, and the Ruckus Society, which largely did shut down the Seattle WTO meeting. Ironically, some of the money went to a group called United for a Fair Economy, which campaigns against excessive pay for CEOs--though not very effectively as far as Unilever is concerned, since the firm's co-chairman was paid about $1.8 million in 2000. Executives of Unilever have previously advocated trade liberalization, and knew full well, when they took that company o ver, that Ben & Jerry's would support anti-globalization causes. Yet they seemed to think that it was worth buying even though, for unexplained reasons, they felt unable to place restrictions on its behavior.

Nor is this all: Public money has gone for similar purposes. The European Union lavishes taxpayers' money on counter-cap groups. UK National Lottery money has gone to the World Development Movement, a critic of corporate globalism. With a protest gravy train like this, "activists" are plainly onto a good thing.

Joseph Schumpeter once feared that capitalism's success would undermine the work ethic. The counter-cap assault gets its backing today from an ever-changing brew of discontents among the very middle class that is the beneficiary of business endeavor. Some of the individual objections to globalization may have merit but many positions are frivolous ("capitalism should be nicer"), others are mindless ("don't trade, blockade"), and still others are clearly wicked (web sites directing that the cobblestones of Gothenberg could be pried up and used as missiles). No operable and consistent policy alternative is offered; protest strikes out blindly. Less than three weeks after September 11, anti-globalization demonstrators in London had switched to protesting against government plans to involve the private sector in the provision of Britain's health and education services. The Green Party co-sponsored the rally. Two female "activists" danced topless. Seven others were arrested on suspicion of conspiring to commit vio lent crimes.

The counter-cap movement is held together by the suspicion of markets, a strong collectivist instinct, and a belief in protest as a form of moral uplift (signaled, no doubt, by topless dancing). The demands of such a movement cannot possibly be appeased. The movement is Stakhanovite: when one goal is reached, the target indicator shifts upwards, as in some Soviet factory. What, then, drives all this? Lurking beneath the kaleidoscopic variety of causes seems to be a rise in expectations capable of outstripping even the rise in wealth and leisure achieved in Western society, indeed made possible by this very achievement. Fuel is heaped on the flames by readily-aroused hostility to any increase in competition in the workplace.

The constant mutation of protest betrays its negative and opportunistic sides. More sober protesters might take counsel were not so many of them adamant in their beliefs that the global environment is going to hell in a handcart and that world trade is inherently a bad thing--the latter opinion being firmly held by people who, to judge from those I have asked, have never heard of David Ricardo, let alone read him. One sign of widespread bad faith is the misrepresentation of the WTO as a dictatorial form of world government rather than a very limited world association in which legitimate governments are represented.

Some governments, too, are plainly guilty of opportunism over the issue of globalization. Lionel Jospin wants France to speak for anti-globalization. He backs a Tobin tax (a levy on cross-border capital movements) contrary to the advice of his finance minister, Laurent Fabius. Professor Tobin himself does not think that imposing such a tax would be a good idea in present circumstances: his aim was to stabilize exchange rates, not generate funds for the next fashionable development project. Fabius counters Jospin by proposing a tax on arms sales and he has upped the ante. To Fabius, it is not France but Europe that is uniquely placed to lead the discussion of globalization--a discussion whose statist results he announces in advance as the taking of action to regulate the global economy and protect the environment. He takes the view that Europe's unique capacity to achieve this arises from its experience of regional integration and its balanced institutional framework. Yet this "balanced framework" includes the Common Agricultural Policy, which blocks the marketing of farm crops from poor countries at a cost to them of an estimated $75 billion per year! Next, Gerhard Schroder leapfrogs over to claim that Germany and France should lead the debate. We now face not only state-sponsored anti-globalism, but a bidding war over who is to head it.

Can Backlash Really Prevail?

THE TREND of counter-cap opinion and even some government opinion would lead to damaging or even reversing trade flows. Most "activists" want more regulation and more national sovereignty, while in the same breath demanding that the West intervene, in a virtually neo-colonialist way, to force economic development on poorer nations, at the expense of their sovereignty. To Harold James their hopes seem forlorn. In his concluding chapter he remarks that, absent coherent ideology and without examples of countries successfully de-linked from world trade, big government and nationalism are discredited shells. Cuba and North Korea certainly seem to bear that Out. James's view is a rational one. The question is, will rationality prevail?

James takes the position that international organizations are stronger than they were between the wars. As his subtitle, "Lessons from the Great Depression", suggests, the interwar period serves as his principal economic and intellectual baseline. However, his faith in the strength of modern international organizations sits a little uneasily alongside his vision of a world system too complex to plan and held together by spontaneous coordination. It sits awkwardly, too, with his account of the scant means of enforcement available to world bodies.

Central to his argument is the belief that the "Washington consensus" on economic liberalization differs fundamentally from the inter-war "Geneva consensus." The world of the League of Nations was built on treaties; the modern world is built, he says, on "sustained reflection about appropriate policies." Thus, in deciding that globalization probably will not be reversed, he relies heavily on "intellectual conversion" to free trade. Maybe good ideas can drive out bad after all and Gresham's Law be overturned, though the recurrent history of trade protection scarcely guarantees this, and James himself admits that free market parties do badly in the polls. The question therefore becomes this: Can the world rely on the intellectual commitment of politicians in the face of outside threats , internal protest, and the ever-present clamor for protection by sectional interests? The diffuse interests of the whole of society are always hard to defend in the teeth of lobbying by more tightly-focused groups; Mancur Olson long ago drew our attention to that.(4)

Liberalization has undoubtedly been assisted by the fact that policy positions in many countries are held by individuals trained in Western economics departments, and who therefore do understand Ricardo's theorem, comparative advantage and the benefits of trade. Their positions, however, tend to be advisory rather than legislative. As for the ultimate resilience of academe, it is a frail reed. Recall the passage in Peter Drucker's autobiography about the first Nazi-led faculty meeting at Frankfurt, the most liberal of German universities. (5) After hearing his Jewish colleagues dismissed without salary and forbidden to enter university precincts, the leading liberal got up and asked: "Will there be more money for research in physiology?" An extreme case of human fear, frailty and greed? Fear, frailty and greed, yes; but such behavior may not prove altogether exceptional in the face of violent anti-globalization protest and well-funded conniving.

By pressing ahead with the WTO ministerial talks at Doha this past autumn, even in the face of the September 11 attacks, world leaders have certainly shown that James is right, up to a point, to have spotted an intellectual conversion to free trade. But will those leaders always remain among the converted, and if they do, will they succeed in advancing international economic integration in the face of opposition on so many fronts? The happy smile of Franz Fischler, the EU agricultural commissioner, when he returned from Doha bodes ill. "The final form of the declaration was aimed", reported the Financial Times on November 16 last, "primarily at pacifying Europe's powerful farming lobby."

Just as nations have interests more than they have friends, so governments have lobbies more than they have principles. From a purely abstract standpoint James may be right. I hope so. But if the intellectual commitment of the political classes is all that lies between us and de-globalization, we are by no means completely out of the wood. Economic history suggests that more than good intentions may be needed to preserve globalization from the countervailing forces it provokes.

(1.) Clive Crook, "Globalisation and Its Critics", The Economist, September 29, 2001.

(2.) Volckart, Political Fragmentation and the Emergence of Market Economies: The Case of Germany, c.1000-1800 AD (Jena: Max-Planck Institute, 1999).

(3.) Mokyr, The Lever of Riches: Technological Creativity and Economic Progress (New York: Oxford University Press, 1990).

(4.) Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982).

(5.) Drucker, Adventures of a Bystander (London: Frankfurt, 1979).

RELATED ARTECLE: Trade and Commerce, if they were not made of Indian rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way.

Henry David Thoreau, Civil Disobedience (1849)

Eric Jones is a professorial fellow at Melbourne Business School in Australia and a professor at the Graduate Centre of International Business at Reading University in the UK.

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