Floating exchange rates are another mechanism for bringing national economies into better alignment by moderating trade imbalances, reducing interest-rate differentials and curbing flows of hot money. But as long as China and other export-oriented economies prevent their currencies from adjusting upward by pegging them to the dollar, that adjustment won't happen, either.
Global inflation is yet another danger. The rapid growth in developing countries has already driven global commodity prices back to near-record levels as an emerging global middle class demands more food, more cars, bigger homes and more electricity. In addition, all that cheap money being churned out by the Fed and other Western central banks is being used to fuel a new wave of speculation in commodity futures and derivatives. A little inflation probably wouldn't be a bad thing for debt-burdened industrial countries like Japan, Britain and the United States. But inflation rarely comes in small doses, and it can be downright dangerous in developing countries, as the rulers of Tunisia and Egypt can attest.
Back when there was a strong tendency for people and companies to buy and invest at home, none of this would have much of a problem. Over time, countries developed mechanisms for dealing naturally with such imbalances within their own borders.
As yet, however, nobody's figured out how to really solve these imbalance on a global basis. Existing market mechanisms are often frustrated by national policies aimed at improving economic conditions within one country, irrespective of the impact on other nations. And what political mechanisms exist for coordinating policies and coaxing countries to do what is in the best for the rest of the world - well, those remain weak and ineffective. "Global governance," it turns out, is no more popular among Chinese and Germans than it is among Americans.
Indeed, even 50 years after the launch of what is known as the "European project," members of the European Union still struggle with what it means to operate a truly open economy with a single currency, coordinated fiscal and monetary policies and a unified set of regulations. That's what the recent euro crisis is about, and it is nowhere close to being resolved.
After the Asian financial crisis inn 1997, there was hopeful talk at Davos that the G-7 industrial nations step in and begin to manage the global economy. After the financial market meltdown two years ago, focus shifted to the G-20, a more inclusive group of world leaders that was meant to reflect the rising importance of developing nations. This year, strategist Ian Bremmer of the Eurasia Group may have captured the mood at Davos with his wry observation that all we've really got is the G-Zero.
Yes, we have globalization. What we don't have yet is a global economy or the institutional infrastructure to sustain it.