World Puts the Brakes on the Rush to Globalization

By Steven Pearlstein
Wednesday, July 5, 2006

This is the week each year when Americans revel in their nationalism, a summer brew of playful patriotism, boastful exceptionalism and a somewhat smug insularity.

But the events of the past few weeks suggest that the nationalist impulse may be more than seasonal this time, and certainly not limited to the United States. Certainly in the economic sense, the rush toward globalization has slowed, and "economic patriotism" is on the rise. The nation-state and the national economy, which only a few years ago were being written off in certain elite circles, are proving to be a lot more enduring than people thought.

The utter collapse last weekend of a global trade conference is the latest evidence that, among developed and developing countries alike, there is simply little appetite for another round of globalization.

The best face to put on it is that there's still a lot of adjustment going on just to digest the last round, and it is only natural that people want and need more time before diving in for another helping.

In places where globalization has generated the greatest gains -- the United States, China and Korea come to mind -- there is a need to come up with mechanisms to spread the benefits more broadly and fairly while working off some of the excesses that show up in things such as asset bubbles and unsustainable trade imbalances.

And in places where globalization has generated surprisingly little progress -- Africa, Latin America and Russia are examples -- it is clear that some countries have yet to develop the economic, political and social institutions required to benefit from a globalized market economy.

It would be comforting to believe that a failure to conclude the Doha round of trade talks was merely a reflection of the political cycle that finds many political leaders at an ebb of power and popularity all at the same time. But if you look at the reason they are weak in the first place, and why public opinion is so divided, it often involves some sort of backlash against globalization.

Take the standoff in Sunday's election in Mexico. Here's a country that has dutifully followed the globalization script written by the U.S. Treasury, the World Bank and the International Monetary Fund, adopting a free trade pact, denationalizing and deregulating much of its economy, and attracting gobs of foreign investment. But in the years since, it has suffered one financial crisis, seen its small farmers brought to the brink of ruin and failed to develop an efficient and entrepreneurial service sector. And the one sector of its economy that had produced the most gains, manufacturing for multinational corporations, is now threatened by even cheaper labor in China.

As a result, Mexican politics have lurched leftward, just as they have in much of the rest of Latin America, reflecting a healthy strain of anti-Americanism and a distrust of trade and global investment. The much ballyhooed free trade pact for the Americas is dead in the water.

Last weekend's executive scramble at Airbus provides the latest evidence that Europe is still not comfortable with a genuinely deregulated market economy. The airplane maker got into trouble with its two new product lines because it was better at responding to the egos of its own executives and political patrons than to the needs of its customers. Now Airbus faces its worst crisis in more than a decade. But rather than bring in the best and most experienced aerospace managers anywhere in the world, and giving them a mandate to turn things around, the higher priority was apparently making sure that the top posts at the parent company continued to be divided between a German and a Frenchman, the latter drawn from the same elite group of executives from state-sponsored enterprises who got them into this pickle in the first place.

(A quick aside: Did it strike anyone other me as rather remarkable that, in a single weekend, the head of Airbus's parent company, EADS, was replaced by the head of the state-owned railway, who was in turn immediately replaced by the head of the bus and metro service in Paris, while the head of Airbus was replaced with the No. 2 executive at Saint-Gobain, a French building materials conglomerate with deep ties to the government? While one can admire the corporate choreography, it rather revealed how clubby the French establishment remains.)

Even in Eastern Europe, with the transition from inefficient and insular state-run economies to thriving economies benefiting from exports and foreign investment, voters have thrown out pro-market governments from Warsaw to Bratislava.

Here in the United States, the political shouting match over immigration has become this year's proxy for the ongoing debate over globalization. On policy grounds, President Bush has it exactly right: Although the extent of illegal immigration has become unacceptable and should be curbed, immigration remains a big plus for the U.S. economy. But the fact that a sitting president and former Texas governor can't get a majority of his own party in Congress to sign on to his program speaks to the widespread desire among Americans now to reduce our entanglement with the rest of the world.

With the near-certain collapse of the Doha round and the prospect of a wall going up across the Rio Grande, you can be sure that, in the coming days, business executives, think-tank economists and former chairmen of the Federal Reserve will come forward with all sorts of dire warnings about the dangers of protectionism and isolationism.

They should all save their breath. You can't go around the world preaching about democracy and free markets if you're not willing to accept the results of elections and acknowledge the shifting sentiments in the marketplace of ideas. Up to now, globalization has been the project of business and economic elites who have largely foisted it on a wary or unsuspecting public. Now, from remote villages of China to a gathering spot for day laborers in Herndon, globalization has entered its more democratic phase. And it's likely to be a messy phase, at that.

Steven Pearlstein will host a Web discussion at 11 a.m. today athttp://washingtonpost.com. He can be reached atpearlsteins@washpost.com.


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