Global Policy Forum

by John Micklethwait and Adrian Wooldridge *

All wars end in reconstruction. This time the most visible reconstruction will be in Iraq — in the form of roads, hospitals and, hopefully, a parliament. But there is the additional challenge of rebuilding the Western alliance: with President Jacques Chirac of France meeting with the leaders of Russia and Germany, the í‰lysée Palace and the White House seem so far apart. Yet rebuilding the alliance is key if the Bush administration is to rebuild an idea that Washington has championed for half a century: globalization.

The fact that globalization could be in trouble is yet another sign of how much the world has changed since Sept. 11, 2001. Before the terrorist attacks, the ever-freer movement of goods, services, ideas and people seemed inevitable. All the economic indicators pointed toward greater global integration. Foreign direct investment topped $1.3 trillion in 2000. The Internet and the wireless phone promised to destroy distance. American culture appeared ubiquitous: you had to go deep into China to escape Leonardo diCaprio. Now an old lesson is being painfully relearned. Far from being inevitable, globalization is a complicated, precarious process that relies on political will as much as economic logic. Trade barriers do not lift by magic; first, politicians have to pass laws.

The current era of globalization is inextricably entangled with the same Western alliance that now seems so precarious. Both were born in America near the end of World War II. The United Nations was created in San Francisco in 1945. At Bretton Woods in New Hampshire, America created its economic equivalents — the International Monetary Fund and the World Bank — and prepared the way for the General Agreement on Tariffs and Trade (forerunner of the World Trade Organization). Just as America poured military resources into NATO, it poured $120 billion (in today's dollars) into the Marshall Plan — to recreate a Europe strong enough to trade with. Indeed, European countries had to lower tariffs to get Marshall aid.

The results were dramatic. World trade, which had contracted in the early 1930's, grew by 7.25 percent a year in the quarter-century after 1948. Most of the initial burst of prosperity was limited to Europe, America and Japan. Yet ver the past two decades, liberalization spread to the developing world. In the 1990's, according to the World Bank, the gross domestic product per person in the 24 most globalized developing countries (with the highest ratio of trade to national income) rose at an average rate of 5 percent a year; over the same period it fell by 1 percent a year in the less global developing countries.

Given these numbers, it is easy to see why people once believed that globalization was unstoppable. But since Sept. 11, things look different. Thanks to new security checks, goods and people move far less easily than they once did. World trade, which bounded ahead by 7 percent a year in the 1990's, seems to have stalled. Americans and Europeans have been squabbling over everything from food and "cultural products" to aircraft and farm subsidies — and that is before you mention "freedom fries." Last week, the I.M.F.'s World Economic Outlook forecast "below-trend" growth for both sides of the Atlantic.

The current fracture in the Western alliance seems ominous. What better way for Europeans to resist American imperialism and protect their farmers than keeping out America's genetically-modified beef? What better way for Americans to punish "Old Europe" than by keeping out its wine? Washington is already talking about rewarding countries that support its foreign policy with bilateral trade deals. The arguments about the Western alliance and globalization have a strange symmetry. Many in Europe feel that the biggest threat to the global order is not rogue states, but the dominance of America: hence the need to shackle it with treaties and multilateral organizations. They feel the same about American-style capitalism. To the French and other supporters of stakeholder capitalism, le capitalisme sauvage is a beast that needs to be tamed by all sorts of rules — like the French law that bans people from working more than 35 hours a standard week.

The debate will endure because it as much about the future of the European Union as the Western alliance. The French and Germans want the European Union to be a counter-balance to the United States, both in terms of geopolitical influence and economic style. The British have a far more liberal notion of the European Union as a free trading area, powered by American-style companies. Le Monde has suggested that there are two Europes: "European Europe" and "American Europe." Meanwhile, Washington seems nervous about the creed that it has championed for so long. A recent study of voting habits in Congress by the libertarian Cato Institute counted only 15 members of the House of Representatives and 22 senators as free traders. With a yawning trade deficit, support could ebb further. In fact, one vehicle of protectionism could be free trade areas: why should the European Union and the North American Free Trade Agreement bother about global free trade when they have huge internal markets?

The idea of a world dissolving into two feuding trade blocks might seem pessimistic. But to get really worried, look back at history. On the morning of June 28, 1914, many people on both sides of the Atlantic assumed that the world could only become more global. Who could resist new technologies, like the telephone, the airplane, the car and electricity? Or the logic of free trade, guaranteed by the acknowledged hegemonic power, Britain? Then Gavrilo Princip, a young Serbian nationalist, stepped out of the crowd in Sarajevo and shot Archduke Ferdinand. Within months, the world slid into the most ghastly war in history. And even when the war to end all wars was over, the powers once so keen on free trade erected tariff barriers. The world's economies contracted — and dictators like Hitler and Mussolini built their monstrous tyrannies. It was this tragedy that Franklin D. Roosevelt and Harry S. Truman tried to prevent from ever happening again.

An act of terrorism presaging the end of an age of globalization? That is a terrifying precedent. There is no logical reason why the Western alliance cannot be rebuilt. But politics does not always work logically. These are perilous days for globalization — regardless of the success in Iraq.

John Micklethwait and Adrian Wooldridge, who write for The Economist, have just published "The Company: A Short History of a Revolutionary Idea" and a paperback edition of "A Future Perfect: The Challenge of Globalization."

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.