By David Ignatius
Friday, October 24, 2003; Page A25
PARIS -- Amid the daily headlines about mayhem in Iraq and the latest audio tirades from Osama bin Laden, it's easy to lose sight of what's arguably the most powerful trend in the world today: the accelerating pace of economic globalization.
The power of globalization was clear during President Bush's swing through Asia. The trip began in a Japan that finally seems to be recovering from a decade-long slump, thanks largely to the fact that market forces are busting the walls of protection and inefficiency that had held the Japanese economy in suspended animation.
Some examples of the painful process of Japanese recovery came in a recent BusinessWeek article: Responding to international market pressures, the manufacturing giant Matsushita has closed 30 factories around the world and cut its Japanese workforce 20 percent since 2000; its profits were up 27 percent in the most recent quarter. Toray Industries, Japan's biggest producer of synthetic fabrics, has cut its costs $120 million over the past year and moved many jobs to China; its profits rose 23 percent in the most recent quarter.
Japan's once-bloated banking sector has shrunk to a sensible valuation. In 1987, it accounted for 24 percent of the total market capitalization of Japanese stocks; in April, it represented just 2.3 percent, according to BusinessWeek. And foreign capital is finally welcome. Foreigners owned just 9 percent of the shares traded on the Tokyo exchange in 1989; today, it's 32 percent.
This globalized Japan is growing again. The Nikkei average is up 38 percent this year, measured in dollars, and the economy overall is expected to grow by about 2 percent in 2003.
Then there is China. If optimism speaks a language these days, it's probably Chinese. The country's new president, Hu Jintao, is off to a smooth start in managing China's transition to economic superpower. The economy continues to grow at its regular annual clip of about 8 percent, and the country is now wealthy enough that Hu can talk about redistribution and social justice.
China is becoming the world's factory -- with the groaning trade surplus to prove it. Some analysts see this new economic muscle as dangerous, but I am reassured by the web of interconnections between foreign companies and a nominally communist China. Among the biggest challenges of the early 21st century is bringing this modernizing China safely into the global economy, and it seems to be happening.
Russia was the basket case of the 1990s, but even there, the forces of globalization are beginning to transform the corrupt entropy of post-communist life. The clearest sign is the integration of Russia's oil industry into the world economy. In August, BP acquired an $8.1 billion stake in the Russian oil giant TNK, and ExxonMobil is reportedly considering a $25 billion investment in Yukos, another Russian oil colossus. It seems that Russia's new oligarchs have concluded they can make more money by selling shares in global financial markets than by larceny.
Global financial markets provide a brutal but life-giving therapy to sick economies. Thailand and South Korea have emerged leaner and stronger from the 1997 financial crisis. The latest turnaround is Argentina. Once its peso was allowed to float freely, it fell to levels that made the country irresistible to investors. The Argentine economy is expected to grow 9 percent this year after an 11 percent decline in 2002. The dollar value of its stock market is up 100 percent this year -- the largest increase of any major market in the world.
The countries that are faring worst, not surprisingly, are those that resist the forces of globalization. Politicians in France and Germany, for example, talk about reform of their rigid labor markets. But reducing the conservative power of labor unions in those countries may require a new generation that prefers change and growth to stasis. A Trojan horse will soon enter the walls of Europe, in the form of the 10 hungry, low-wage countries joining the European Union. This process will batter Europe's social and political structure and, for better or worse, make the continent a truly global player at last.
The biggest cloud on the global economic horizon, paradoxically, is its home base -- the United States. The current "jobless recovery" may actually be a healthy American version of restructuring, in which companies are slowly burning off the excess investments of the 1990s bubble economy.
But U.S. politicians continue to think they can balloon trade and budget deficits, ignoring the economic rules that globalization imposes on everyone else. Even Brazil's socialist President Luiz Inacio Lula da Silva has learned better. One can only hope that President Bush and Congress will get the message of globalization before it imposes a severe penalty on the United States.
© 2003 The Washington Post Company