Today is May 1, the International Day of Labour. It seems appropriate, therefore, to devote this column to the triumph of global capitalism. For if there is one social principle on which all economists, historians and politicians must now surely agree, it is that capitalism has done more than any other human construct to benefit working people around the world.
Even if there were room for argument about the benefits of free trade and free markets to workers in advanced industrial countries — and there really cannot be, if we compare what has happened to ordinary people’s lives in Western and Eastern Europe, not to mention in North and South Korea, during the 50 years since the Second World War — the principle that global capitalism is the most benign and successful of all human creations would be firmly established by the social progress in China since its integration into the global economy.
Apart from the coincidence that today happens to be May Day, I have two reasons for eulogising global capitalism in such extravagant terms.
First, the world economic cycle appears to be at a point of inflection. With the war in Iraq successfully concluded, with oil prices falling and with interest rates at record lows, economic growth is likely to pick up strongly in the months ahead. If this happens, the world economy could soon find itself enjoying a long period of sustained expansion similar to the 1990s. This would set the scene for a golden age of global capitalism and intensified globalisation. If a recovery does not happen soon, however, financial markets will probably plunge into another crisis, dragging the world economy into a long period of stagnation.
Secondly, I have just returned from Paris, where I chaired the opening panel at the annual OECD forum on the prospects for growth, development and prosperity around the world. I was struck more forcibly than ever by how high the stakes have become at this cyclical turning point. If the world economy cannot quickly pull itself out of stagnation, the entire global system of free trade, free capital markets and free movement of people will be at risk.
It is perhaps because the stakes are so high today that investors and businessmen have become so sensitive to every possible threat to world economic growth — terrorism, war, stock market instability and, most recently, even the spread of an obscure disease. But this hypersensitivity to bad news also suggests that the world economic cycle is probably about to turn. It is a typical feature of cyclical troughs that relatively minor risks are exaggerated out of all proportion.
The Sars outbreak was a perfect example. The Iraq war had just ended without unleashing the widely expected disasters, but here was another potential trigger for economic and financial Armageddon. It was as if investors and businessmen were in the mood to panic and any excuse would do.
But the Sars outbreak was not just any old pretext for financial panic. Sars shared another characteristic with the previous panics about terrorism, the “war between civilisations” and the dot-com crash. All these phenomena were linked clearly to globalisation. They seemed to be caused by the way that capitalism was drawing the world together, often against the wishes of the peoples and countries involved. And globalisation was the means of disseminating these evils, as well as their cause.
Like terrorists, the Sars germs had turned symbols of globalisation — mass travel and jet aircraft — into sinister weapons. As in the dot-com crash and the clash between the West and Islam, the effects of the Sars virus seemed to be vastly magnified by instant electronic communications that penetrated every corner of the world.
Sars was therefore the perfect successor to the previous panics, not just for investors with apocalyptic dispositions. but even more for anti-globalisation campaigners. This movement was initially stunned into silence by September 11, but has been gradually emboldened by events. Terrorism and the clash of civilisations seemed to prove that globalisation was sowing the seeds of its own destruction. Sars showed this could be happening in the biological, as well as the social, sphere.
No wonder, then, that the antiglobalisation movement (including its many sympathisers in the media) were so excited by the Sars outbreak. But what will happen when the world economy and the financial markets shake off their irrational fear of Sars?
Assuming that businessmen and investors start to focus again on the economic fundamentals, instead of being distracted by such peripheral events as the war on terrorism and Sars, the world economy and financial markets should be ready for a robust recovery, at least outside continental Europe, where the mismanagement of the euro project will continue to take its toll. If this happens, the tide of political scepticism about capitalism, free trade and globalisation will also turn.
As I listened to the politicians, international officials and “civil society” pressure groups represented in Paris, it struck me that, while opposition to the global capitalist system is widespread, nobody has anything remotely resembling a constructive alternative to propose.
Everything about the present state of the world appeared to be unsustainable or unbalanced or unjust — and most of the anomalies appeared to centre on the US. Let me give just a few examples.
Americans have been the richest people in the world since the late 19th century, but in the postwar decades Western Europe and Japan dramatically narrowed the gap in living standards, productivity and social conditions. In the past decade, however, this process of convergence has come to an end. According to the OECD’s studies, the US has been widening its lead over all other advanced economies since the mid-1990s — and, according to most key economic and social indicators, this divergence is likely to accelerate in the years ahead.
When we combine America’s widening economic supremacy with the military hegemony that has been demonstrated so spectacularly during the past two years, the rest of the world’s jealousy and resentment is easy enough to understand.
Everyone knows that America’s military dominance rests ultimately on the power of its economy — according to one estimate presented at the forum, America will spend more next year on defence equipment than all other nations combined. From this self-evident proposition it is an easy (though entirely erroneous) leap of logic to assert the converse: that America’s unparalleled wealth and superior economic performance depend on abuse of its military power.
The idea that free trade is a form of exploitation — that the gains to the rich countries and the multinational corporations must be at the expense of the poor — may have been logically refuted 200 years ago by David Ricardo and empirically disproved in the most spectacular fashion by the experiences of Japan, China and Korea. Yet the irrational appeal of protectionism seems to be spreading, along with the illusion that America is somehow translating its military hegemony into an imperialist abuse of the global system of free trade.
Another symptom of America’s alleged abuse of the global system is said to be the $500 billion trade deficit that it runs up each year. This surely makes the global economy entirely unbalanced and its growth unsustainable. How can Americans continue to live beyond their means to this extent? Their ability to keep buying so much more from the world than their industries manage to export must indicate an abuse of the dollar’s reserve currency status, a status which in turn, is often said to depend on America’s hegemony of military power.
This is completely wrong. America is actually doing the world a favour by buying more goods than it produces at a time of global mass unemployment. The reason for the US trade deficit is not the profligacy of US consumers, but the stupidly deflationary bias of economic policy in Europe and Japan. The imbalances in the global economy are not the responsibility of Washington but of Frankfurt, Tokyo and Brussels.
If European politicians and central bankers begin to understand all this, Europe will have a chance to catch up with America. Until then, America, Britain and China will reap the benefits of globalisation while Europeans continue to sulk resentfully on the sidelines.