Globalization: When Cure Is Worse Than Malady

NEW YORK: A new specter haunts Europe: a frightened, angry and badly fractured body politic. Elections in the past year from Germany to Poland to Italy have resulted in weak governments with razor-thin majorities, reliant on marriages of political convenience that once would have been thought impossible. And the short-term political future of the US looks no better. Though George Bush has another 30 months in the White House, he will most likely be forced to contend with a Democratic majority in at least one chamber of Congress.

Political paralysis is not always dangerous, but most developed and transitional countries face daunting economic and social problems ranging from persistent unemployment to under-funded pension programs to massive public deficits to unregulated immigration. Finding solutions to challenges of that magnitude requires a national consensus that no politicians on the immediate horizon have the prospect of building.

To a large degree, politicians are reaping the whirlwind of more than a decade of over-promising and scapegoating. The collapse of communism and increased pace of globalization that followed were supposed to create a rising economic tide that would lift all boats in developing and developed economies alike. Any transitional pains that the resulting huge commercial shifts would inevitably cause would be fleeting. Everything from the expansion of the World Trade Organization and the European Union, to the “reform” of government pension systems to force workers to work longer than originally promised were sold with the same political snake oil: “Take a bit of pain now,” politicians and pundits assured the public from Warsaw to Washington, “and we’ll all cross that shiny bridge to a new prosperity in the 21st century.”

Instead, workers of the world – whether they be former iron mongers at the Lenin Shipyard in Gdansk or erstwhile executives of Enron – are now united in a grudging appreciation of why American capitalism was so much more successful than Soviet communism: Unfettered competition ruthlessly wipes out old institutions and ways of doing business, allowing more efficient actors and methods to take their place.

Half a century ago, the economist Joseph Schumpeter gave the process the evocative name of “Creative Destruction.” But even Schumpeter could not anticipate the acceleration of the process when globalized, and the global workforce cannot view that brilliant insight with a scholarly detachment. For the workforce, no job is safe. For all but the very wealthiest, working lives will henceforth be spent worrying about tomorrow's paycheck, health benefits and pensions.

That anxiety has been driving centrist politicians out of office since 1992 when George Bush executed the most remarkable fall from electoral grace this century. For the foreseeable future the crucial political issue in most of the developed world will be how to resolve the tension between the efficiency imperatives of economic growth and the personal security desires of an increasingly frightened and disoriented body politic. Deficit spending can temporarily serve as a balm for the public’s distress. But once the taps run dry, parties at both ends of the political spectrum in Europe and the US will be left with self-defeating policies of raising trade barriers, defending domestic industries in distress, limiting social benefits to “true” citizens and wrapping it all in patriotic bunting.

The immigration bill passed by the US House of Representatives is among the most nativist pieces of legislation seen since the 1920s. The bipartisan congressional resistance to the sale of an American oil company to a Chinese one, of a cargo-handling service to a Dubai entity, not to mention saber-rattling about the value of the Chinese currency, is matched in socio-cultural issues like the reintroduction of a constitutional amendment to ban flag burning – co-sponsored by none other than New York’s supposedly liberal Senator Hillary Clinton.

In Europe and Asia, a more troubling model has taken shape, with ideological underpinnings that resemble fascism: reliance on the leadership of a strong, self-appointed elite; a mixed economy with a largely free market at the bottom, but one that is rigged in favor of state or crony-owned conglomerates at the top; and a nationalist raison d'état that verges on racism.

The first European variant of this model developed, ironically, in Italy where Silvio Berlusconi promised to lead an economic revival while appealing to the baser social prejudices of the electorate. The appeal is demonstrated by the fact that, although Berlusconi delivered on almost none of his promises, he had the longest run as prime minister in Italy since World War II, and barely lost the latest election to the admired Romano Prodi.

If you want to see just how strange electoral politics can get, examine the current coalition now leading Poland. The ruling, right-of-center Law and Justice Party, has gone to the opposite ends of the political spectrum to cobble together a majority in parliament, allying itself with the leftwing populists from the Self-Defense Party and the rightwing Catholic nationalists of the League of Polish Families. And the Czech Republic could soon be in a similar fix. Elections in early June left the two main coalitions with exactly half the seats in the lower house of parliament.

The next place to experiment with what might be oxymoronically called “Patriotic Globalism” could be France, a country never shy about protecting what it regards as its national patrimony. The final, almost pathetic days of the presidency of Jacques Chirac encapsulate the challenges facing a modern, western government. The government erects as many walls as feasible to foreign control of any of its leading industries – including stopping the takeover of a yogurt company. Yet France’s position within the EU has prevented erection of meaningful barriers to the adverse effects of globalization, particularly in terms of employment. And the notion of creating jobs by limiting the workweek to 35 hours only made matters worse. The shortage of employment opportunities, particularly for young people, exacerbates the already-difficult task of assimilating a rapidly growing immigrant population.

The politician best placed to take advantage of this growing crisis is Interior Minister Nicolas Sarkozy who has carved himself a role as defender of France’s economic sovereignty and a tough-minded enforcer of the law. But Sarkozy’s potential Socialist opponent in the 2007 presidential election, Ségolène Royal, has made it clear she won’t be outflanked on the right or left. On the right hand, she suggests a crackdown on teenage criminals, including sending them to boot camps, and for the left end of the political spectrum she criticizes the freedoms given to employers when the 35-hour work week was imposed.

From an economic standpoint, the dislocation that stems from the transition to a post-industrial, globalized economy, whatever that may turn out to be, will probably last another 10 years. But the discomfort and resulting public anger will likely increase, and that will only intensify the polarization of electorates in Europe and North America. If politicians at both ends of the political spectrum continue to win votes by pandering to the worst fears and basest instincts of a frightened electorate, it seems only a matter of time before the resulting governments indulge in the self-destructive grand gestures that could lead to a global trade war or a violent anti-immigrant backlash or both. As the world discovered 80 years ago, the dislocations wrought by globalization’s creative destruction are nothing compared to the economic chaos unleashed when efforts are made to halt the process.