Foreign Policy
Winter 1998–99

Editor’s Note

By Moisés Naím

 

High expectations breed deep frustrations. The unalloyed enthusiasm that accompanied the spread of globalization in the last decade is no longer with us. It has fallen victim to unexpected financial crashes, important policy reversals such as those in Malaysia and Russia, and many unresolved problems with potentially disastrous consequences, from Japan’s fragile banks and China’s insolvent state enterprises to Brazil’s huge public debt. Most people, including the experts, do not understand how such domestic economic problems can become global crises. Nonetheless, everyone seems to apprehend two characteristics of today’s global financial contagion: It is fast, and it is devastating.

Enthusiasm about globalization has also diminished in the face of other newly acquired collective knowledge. In hindsight, much of this “new” knowledge seems embarrassingly obvious. Even more embarrassing is how often it was, and still is, ignored by politicians, policymakers, and the media.

We now know, for example, that when an economy becomes vulnerable through its government’s macroeconomic malpractice, and financial markets begin to exploit this vulnerability, government bureaucracies can mount a feeble defense at best. The world has also learned that the institutional framework created at the end of World War II to coordinate the international economy needs to be rethought, adjusted, and perhaps even overhauled. We have discovered that institutions such as the International Monetary Fund (IMF) and World Bank do not have enough money, experience, or organizational skills to keep an unexpected financial crash in one country from periodically derailing the global economy.

These days, the world of ideas is as chaotic as the world of global economics. In barely a breath, experts and commentators go from extolling the “Asian Miracle” to explaining why crony capitalism was bound to bring it down, or from insisting that the free movement of foreign capital is indispensable to urging the imposition of government controls on capital flows. In fact, the interplay between the turmoil in ideas and the turmoil in the reality they seek to explain is as powerfully destabilizing as the economic infections that travel from one wrecked economy to another. In today’s hyperlinked world, economic policies tried in Argentina are implemented in Bulgaria and Estonia, while Malaysia’s decision to shield its currency immediately sparks policy debates in Russia and shapes presidential campaigns in Venezuela.

In this highly charged climate, fleeting ideas often acquire more currency than they deserve. Fortunately, the rapid spread of information ensures that their true value is quickly revealed. One deserving casualty of today’s financial turmoil is the school of thinking that dismisses the costs of world integration and sees globalization as a panacea for peace and prosperity. Similarly, those pundits who cite today’s crisis as final proof that globalization—and its emphasis on free markets in trade and investment—are just passing fads will fare no better. The combination of technological and political changes driving global integration has not lost any of its strength. In fact, we may perhaps be entering a new stage of globalization that, as many of the articles in this issue reveal, may be even more intense and difficult to manage.

George Soros argues that unless major reforms are introduced in the world’s financial system, it will inevitably self-destruct. His perspective is not only that of a major player in global financial markets but also of a thinker who has sought to distill larger truths from his professional life. To avoid the impending collapse, Soros recommends the creation of a new credit insurance scheme closely related to the IMF. Like any supranational initiative, Soros’ plan will require the collaboration and alignment of the world’s most influential countries. Not possible, counters Robert Wade, professor of political science at Brown University, because Asia, Europe, and the United States favor different policies toward international capital that reflect their respective political interests. Wade argues that regional variations will be crucial in defining the financial world to come. The importance of regionalism is echoed in another article in this issue&emdash;and not one about money and finance. Joshua Fishman, a leading authority on linguistics, explains that even as English goes global, regional languages and dialects are also rapidly spreading—a complex dissemination of tongues that has many important and often unrecognized effects.

These are only three of the articles in this edition of FOREIGN POLICY that offer fresh thinking about some of the most important international issues of our time. The ideas they express will continue to be part of an indispensable global conversation. And we will continue to be the vehicle for it.

—Moisés Naím

December 1998