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Editor’s Note
By Moisés Naím
Contrary to the expectations of most world leaders and experts, the crises in Kosovo and in the global financial system faded as quickly and improbably as they had flared. The world had been bracing for a bloody Balkan ground war and a protracted global economic slump. Few believed that air raids alone could win the war in Yugoslavia. Asia, Latin America, and Russia were mired in such financial turmoil that, echoing widespread opinion, President Bill Clinton predicted that the world was poised for “the worst financial crisis in half a century.”
Neither prediction came to pass. Slobodan Milosevic relented and the global financial turmoil receded. Overnight, a sense of urgency was replaced by sighs of relief and even complacency. The Kosovar refugees returned home, and the leaders of the Group of Seven and Russia met to declare the global financial crisis in clear remission, if not altogether over.
Although there is good reason to cheer both results, it would be incorrect to conclude that the globalized world is becoming a more manageable place. As financier George Soros said when he also closed the book on the financial crisis: “Now we can look for the next one.” Yes, it is safe to assume there will be a “next one.” But will it be another financial crash, a civil war that transcends national borders, a major terrorist attack, or a war between two or more nations? Where? When? If past is prologue, then the only safe answer is that we will not know.
As with earthquakes, with global crises we can only anticipate which regions will be most vulnerable to them. We cannot predict exactly when, where, and with what intensity such crises will hit or what consequences their aftershocks will have. Yet crises, like earthquakes, do reveal critical information about fault lines and regional vulnerabilities. The crisis in Kosovo and the recent global financial turmoil have highlighted systemic weaknesses that will lead to future instability around the world.
Both crises started as highly localized situations that rapidly escalated into major international problems. Both proved resistant to efforts by countries working alone or even by existing multilateral institutions. In Kosovo, the United Nations was missing in action. The intervention of the International Monetary Fund in the global financial turmoil had to be shaped and complemented by the U.S. Treasury, several central banks, and the Bank for International Settlements, among others.
These patterns are very likely to characterize the next global crises. The world will again have to improvise ad hoc institutional arrangements to support the limited capacities of the multilateral system. After all, existing multilateral institutions are inevitably better designed to deal with problems of the past, not with new ones. Major civil unrest inside China could make previous civil wars look like relatively simple challenges. The international impact of a crash on Wall Street would make the combination of Mexico’s Tequila Effect, the Asian Flu, and the Russian Infection feel like minor financial colds. A political collapse in Russia and an economic meltdown in Japan are also possible problems with the potential to become global crises that resist purely local solutions while exhausting the current capacity for multilateral action.
Effective multilateral action has always been in short supply. But because of globalization, demand for it is soaring. When demand outstrips supply, prices go up. The price the world is paying for the inability of sovereign countries to fill the huge unsatisfied demand for effective collective action is more global instability and less prosperity for all.
In many countries, the initial instinct of governments and citizens is to seek refuge from the ravages of global instability behind borders or protective barriers. Sovereignty and national autonomy become rallying cries in the battle against threatening foreign influences empowered by globalization, from hot money to cold-blooded terrorists. Unfortunately, in most cases, these efforts tend to aggravate problems rather than insulate countries and their societies from an unstable international system. Increasing the world’s capacity for collective action is much more likely to limit the negative impacts of globalization than any massive unilateral effort aimed at strengthening national sovereignty.
Although controversies over sovereignty and its implications for world governance have a long tradition, they will acquire a new urgency in years to come. This issue of foreign policy offers two sets of views on such broad questions. Ignacio Ramonet, the editor of Le Monde diplomatique, lives up to his reputation as a critic of American-style interpretations of globalization in a debate with Thomas Friedman, the influential New York Times columnist. In another exchange, Felipe Larrain and Jeffrey Sachs sharply disagree with Ricardo Hausmann about the merits of a country abandoning its national currency in favor of the dollar, the euro, or the yen. We welcome your opinions on both questions and look forward to hearing from you at www.foreignpolicy.com.
—Moisés Naím
September 1999