23 November 1998

It's the Fault of the West

If globalization is heading for a crisis, it will be because the rich world's leaders are fools

By Gerald Segal

The run-up to the meeting of the Asia Pacific Economic Cooperation (APEC) in Kuala Lumpur last week was full of the usual stuff: more complaints about the failures of globalization, fueled by the meltdown of the Asian economies. Such sourness is misplaced. Globalization is as robust as it has ever been. Indeed, if there is a threat to the success of the Western-dominated global system it comes from shortsighted Western leaders, most of whom were not in Kuala Lumpur.

A dissonant medley of voices has decided that globalization is terminally ill. First come those who always saw globalization as the embodiment of a nasty capitalist agenda, but had muted their campaigns following the death of European communism and the global economy's bull run in the 1990s. The grouchy class now also includes Asians, among them some who were once the brightest protégés of international capitalism. Poor dears; they never read the fine print in the advertisement for capitalism--the lines that note that markets can both fall and rise. Then there are the guilt-ridden or nervous puritan capitalists in the Anglo-Saxon world (e.g., George Soros) who could not quite believe their recent successes.

If these critics have little in common, it's hardly surprising: there has been no single crisis of globalization, but merely some loosely connected trends. The most significant development has been in Asia. As a result of spectacular hubris and fundamental problems in Asian political and economic systems (cronyism, corruption, opaque politics and economics), many Asian countries are properly paying the price for a failure to reform fast enough. By trying to blame the crisis on the impersonal forces of foreign-directed globalization, Asians risk missing the real lesson--they hold their future in their own hands and reform must begin at home. Unfortunately, far too many Westerners were taken in by the Asian hubris and rhetoric. As is common in the late stages of a bull run, the "masters of the universe" on Wall Street and in the City of London demonstrated vaunting hubris of their own, even while they were being told that Asia's fundamentals were rotting. Much like an immature shopper with a credit card, Western moneymen could squander funds all too easily. But blaming globalization for all that is about as useful as blaming credit-card companies for a spendthrift's debt.

Moreover, the bull markets on both sides of the Atlantic needed--and got--a correction. In practice, emerging markets in non-Japan Asia and Russia account for less than 8 percent of the trade of Westerners and less than 1 percent of GDP. But as stock markets in Europe and the Anglo-Saxon world creep back near their record highs earlier in the year, it is clear that fears about Asia and Russia merely provided the excuse for a long-anticipated and much-needed correction in irrationally exuberant markets. The fact that in October the G-7 masterfully spun a package of inconsequential tinkerings with the global economic architecture into "an effective action plan" demonstrates that, for the developed world, the greatest fear was merely fear itself.