Financial Times - September 15, 1999
America rules OK
Given the alternatives, the world should be grateful for the hegemony of the US throughout the 20th century, writes Martin Wolf <Martin.Wolf at ft.com>
The end of the 20th century witnesses the arrival of a global commercial civilisation that embraces most of the world's population. To take one instance, Deng Xiaoping made China's 1.2 billion people, if not economically free, far freer than ever before. China is increasingly integrated into the liberal world economy. Yet 60 years ago, restoration of a liberal world order seemed a dream. That it has become reality is due above all to the US.
Between 1914 and 1945, European civilisation committed suicide. The first world war, the rise of the Nazis and then the second world war destroyed its prosperity and its morale. But the US also played a destructive part, by intervening at the end of the first world war, then withdrawing and, finally, inflicting the great depression and the protectionist Smoot-Hawley tariff upon a hapless world.
But if the US had not existed or had remained aloof, Europe would have fallen to either Nazism or Bolshevism and Asia would have succumbed to Japanese militarism. It would have been a new dark age.
British resistance in 1940 and the heroic self-sacrifice of the Soviet people were both vital. But Japan's attack on Pearl Harbour and the subsequent US engagement made the decisive difference. By liberating western Europe and defeating Japan, the US-led western part of the war-winning alliance laid the basis for the restoration of a liberal global order.
It is easy to take the US for granted. Yet it is indeed the exceptional country most of its people believe it to be. Its politics are federal, its values commercial and its ideology freedom. It is, for these reasons, the only very large country - large in population, resources and size - that is also rich, stable and democratic.
In a speech delivered on 8 September, Alan Greenspan, chairman of the US Federal Reserve, remarked that "we are witnessing this decade, in the US, history's most compelling demonstration of the productive capacity of free peoples operating in free markets." The US has had the biggest, richest and, above all, most innovative economy for over a century.
Such a country does not happen; it is made. The US is a child of Britain, shorn of the aristocratic pretensions. It is also the Enlightenment's best product, characterised by the division of church from state, by republican institutions, by the separation of powers and by the rule of law. It is a country dedicated to the democratic proposition that who you are depends not on inherited status, but on personal achievement.
By the 1940s, the hour of the US had come. Britain was no longer capable of playing its historic role. With British assistance, the US brought three inter-related elements to the postwar world. These were a military alliance capable of stabilising the division of Europe and containing the Soviet Union; a more humane, more attractive and more successful ideological alternative to state socialism; and co-operative international institutions that were intended to restore liberalism in a more moderate and flexible, but more politically entrenched guise, than before 1914.
The list of the economic institutions is long: the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade (much later the World Trade Organisation) and the Organisation for European Economic Co-operation (administrator of the Marshall Plan, later the Organisation for Economic Co-operation and Development). The OEEC was itself one precursor of what ultimately became the European Union.
In retrospect, the most striking aspects of the far-reaching reforms promoted by these bodies were the slow pace at which they proceeded and how far countries had to come:
*Controls on trade of the advanced countries were lifted progressively over the 1940s and 1950s, but some, notably on imports of textiles and clothing, remain to this day.
*Liberalisation of exchange controls was even more cautious, with some high-income countries continuing to limit free movement until the 1990s.
*Tariffs were liberalised over a series of eight trade rounds, with agriculture put to one side until the Uruguay round.
*Ample room was left for domestic pursuit of Keynesian fiscal policies.
*The exchange-rate regime was deliberately constructed to allow for adjustments in rates.
This pragmatic liberalism allowed those responsible both to learn from experience and to modify parts of the new system, without losing the virtues of the whole. Above all, it worked spectacularly well. The world economy became more open to trade than ever before (see chart).
Between 1950 and 1997, the volume of world commodity exports rose 17-fold, while output grew six-fold. More astoundingly, between 1950 and 1996, the volume of manufactured exports rose 29-fold, while output grew eight-fold.
This last half-century has been far and away the most economically dynamic in history. Brad De Long, of the University of California at Berkeley, estimates that global GDP (in 1990 dollars with constant purchasing power across countries) will have risen 10-fold between 1950 and 2000, against fourfold in the first half of the century. World population has grown by 150 per cent, yet average real income per head has still risen fourfold.
Incomes rose most in countries that exploited the new global opportunities for the first time - notably in east Asia. If anyone doubts the relevance of policy, let him contrast South Korea with North Korea, West Germany with East Germany, or Taiwan with mainland China. Countries that shunned the liberal world market economy fell behind.
This does not mean all controls must be abolished immediately. It does mean there is no intellectually credible alternative to the open market economy - whatever the grumblings of critics. Fifty years ago many believed the future lay with hermetically sealed, planned economies. They were wrong.
The capstone was the collapse of the Soviet bloc between 1989 and 1992. It imploded because it failed. Since then, most of those who gave it their overt or covert support have fallen into unaccustomed silence.
But, lest we forget, state socialism was a disaster: it killed tens of millions of people; it devastated the environment; it made lies a central instrument of policy; and it deprived people of all freedom. It was the zenith and the nadir of the all-mighty state. This was the god that failed.
Today's world is imperfect; so indeed is the US. Utopias are, we know, the opium of the intelligentsia. The world has to grapple with the consequences of the success of open markets - including environmental issues. It also has to deal with the dismal array of failed or predatory states.
But who can doubt that a world with an increasing number of democracies and stronger global institutions, with a dynamic market economy and continued technological advance, is the only possible basis for human advance?
History does not follow straight lines. It is quite possible that much of what has been achieved will be undone in the next millennium.
But the world has a chance to build on what has been gained. This was the American century. Given the grim alternatives to US hegemony, the rest of the world should, for once, express its gratitude.