Globalization and American Power

National Interest, The, Spring, 2000 by Kenneth N. Waltz

ASSOCIATING interdependence with democracy, peace and prosperity is nothing new. Before World War I, the close interdependence of states was thought of as heralding an era of peace among nations, and democracy and prosperity within them. In his widely read book, The Great Illusion, Norman Angell summed up the texts of generations of classical and neoclassical economists and drew from them the dramatic conclusion that wars would no longer be fought because they would not pay. World War I instead produced the great disillusion, which reduced political optimism to a level that remained low almost until the end of the Cold War--"almost", because beginning in the 1970s a new optimism, strikingly similar to the old, began to resurface. Interdependence was again associated with peace, and increasingly with democracy, which began to spread wonderfully to Latin America, to Asia and, with the Soviet Union's collapse, to Eastern Europe. In 1989 Francis Fukuyama foresaw in these pages a time when all states would be lib eral democracies, and more recently Michael Doyle projected that this would happen sometime between 2050 and 2100. [1]

Robert Keohane and Joseph Nye, in their 1977 book Power and Interdependence, strengthened the notion that interdependence promotes peace by arguing that simple interdependence had become complex interdependence, binding the economic and hence the political interests of states ever more tightly together. Now we hear from many sides that interdependence has reached yet another height, transcending states and establishing a Borderless World, the title and theme of Kenichi Ohmae's 1990 book. People, firms and markets matter more; states matter less. Each tightening of the economic screw raises the benefits of economic exchange and makes war among the more advanced states increasingly costly. The simple and plausible propositions are that as the benefits of peace rise, so do the costs of war; when states perceive wars to be immensely costly, they will be disinclined to fight them. Still, war is not abolished, because even the strongest economic forces cannot conquer fear or eliminate concern for national honor. G enerally, however, economic interests dominate and markets begin to supplant politics at home and abroad. That economics depresses politics and limits its significance is taken to be a happy thought.

The State of the State

GLOBALIZATION is the fad of the 1990s, and globalization is made in America. Thomas Friedman's The Lexus and the Olive Tree (1999) is perhaps the most exultant celebration of the American way, of market capitalism and liberal democracy. Free markets, transparency and flexibility are the watchwords. The "electronic herd" moves vast amounts of capital in and out of countries according to their political and economic merits. Capital moves almost instantaneously into countries with stable governments, progressive economies, open accounting and honest dealing, and out of countries lacking those qualities. States can defy the "herd", but they will pay a price, usually a steep one, as did Thailand, Malaysia, Indonesia and South Korea in the late 1990s. Some countries may defy the herd inadvertently (the countries just mentioned); others out of ideological conviction (Cuba and North Korea); some because they can afford to (oil-rich countries); others because history has simply passed them by (many African countries) .

Countries wishing to attract capital and to gain the benefits of today's and tomorrow's technology must don the "golden straitjacket", a package of policies including balanced budgets, economic deregulation, openness to investment and trade, and a stable currency. The herd decides which countries to reward and which to punish, and nothing can be done about its decisions. The herd has no telephone number. When it decides to withdraw capital from a country, there is no one to complain to or petition for relief. Decisions of the herd are not made; they happen, and they happen because many individual investors make simultaneous decisions on similar grounds to invest or to withdraw their funds. Globalization is a process shaped by markets, not by governments.

Globalization means homogenization. Prices, products, wages, wealth, rates of interest and profit tend to converge the world over. Like any powerful movement for change, globalization encounters resistance--in America from religious fundamentalists, labor unions and their allies; abroad from anti-Americanists; everywhere from cultural traditionalists. The "end of the Cold War and the collapse of communism have discredited all models other than liberal democracy. The statement is by democratic theorist Larry Diamond, and Friedman repeats it with approval. There is but one best way, and America has found it. As Friedman puts it, "It's a post-industrial world, and America today is good at everything that is post-industrial." The herd does not care about forms of government as such, but it values and rewards "stability, predictability, transparency, and the ability to transfer and protect its private property. The message to all governments is clear: conform or suffer.