Globalization and American Power

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

There is much in what Friedman says, and he says it very well. But how much? And, specifically, what is the effect of closer interdependence on the conduct of the internal and external affairs of nations?

First, we should ask how far globalization has proceeded. In fact, much of the world has been left out of the process: most of Africa and Latin America, Russia, all of the Middle East (except Israel), and large parts of Asia. Moreover, for many countries the degree of participation in the global economy varies by region. Northern Italy, for example, is in; southern Italy is out. Globalization is not truly global, but is mainly limited to northern latitudes. Linda Weiss points out that, as of 1991, 81 percent of the world stock of foreign direct investment was located in high-wage northern countries: the United States, followed by the United Kingdom, Germany and Canada. She adds that the concentration of investment in these countries has increased by 12 percent since 1967. [2] Obviously, the world is not one.

Second, we should compare the interdependence of nations today with interdependence earlier. The rapid growth of international trade and investment from the mid-1850s into the 1910s preceded a prolonged period of war, internal revolution and national insularity. During the years of post-World War II recovery protectionist policies lingered as the United States opened its borders to trade while taking a relaxed attitude toward counties that protected their markets. One might say that from 1914 into the 1960s an interdependence deficit developed, which helps to explain the steady growth of interdependence thereafter. Among the richest twenty-four industrial economies (the OECD countries), exports grew at about twice the rate of GDP after 1960. In 1960 exports accounted for 9.5 percent of their national GDPs; in 1900 that figure was 20.5 percent. [3] Finding that the level of interdependence in 1999 approximately equals that of 1910 is hardly surprising. What is true of trade also holds for capital flows, again as a percentage of GDP.

Third, money markets may be the only economic sector that has become truly global. Finance capital moves freely across the frontiers of OECD countries and quite freely elsewhere. Still, with the movement of financial assets as with commodities, the present remains like the past. Despite today's ease of communication, financial markets in 1900 were at least as integrated as they are now.

Yet many globalizers underestimate the extent to which the new resembles the old. In any competitive system the winners are imitated by the losers. In political as in economic development, latecomers imitate the practices and adopt the institutions of the countries that have shown the way. Occasionally, someone finds a way to outflank, to invent a new way or to ingeniously modify an old way to gain an advantage; and then the process of imitation begins anew. That competitors begin to look like one another if the competition is close and continuous is a familiar story. But the apostles of globalization argue that the process has now sped up immensely. In the old political era, the strong vanquished the weak; in the new economic era, says Friedman, quoting Klaus Schwab, "the fast eat the slow." No longer is it "do what the strong party says or risk physical punishment", but "do what the electronic herd requires or remain impoverished." In a competitive system, a few do exceptionally well, some get along, and m any bring up the rear.