The US has structured the world economy to enrich itself. It cannot last
Robert Hunter Wade Saturday January 5, 2002 The Guardian
Suppose you are a modern-day Roman emperor, leader of the most powerful country in a world of sovereign states and international markets. What international political economy do you create so that, without having to throw your weight around too much, normal market forces bolster the economic pre-eminence of your country, allow your citizens to consume far more than they produce, and keep challengers down?
You want autonomy to decide on your own exchange rate and monetary policy, while having other countries depend on your support in managing their own economies. You want to be able to engineer volatility and economic crises in the rest of the world in order to hinder the growth of centres that might challenge your pre-eminence. You want intense competition between exporters in the rest of the world to give you an inflow of imports at constantly decreasing prices relative to the price of your exports.
You want to invite the best brains in the rest of the world to your universities, companies and research institutes. You befriend middle classes elsewhere and make sure they have good reasons for supporting your framework.
What features do you hard-wire into the international political economy? First, free capital mobility. Second, free trade (except imports that threaten domestic industries important for your reselection). Third, international investment free from any discriminatory favouring of national companies through protection, public procurement, public ownership or other devices, with special emphasis on the freedom of your companies to get the custom of national elites for the management of their financial assets, their private education, healthcare, pensions, and the like. Fourth, your currency as the main reserve currency. Fifth, no constraint on your ability to create your currency at will (such as a dollar-gold link), so that you can finance unlimited trade deficits with the rest of the world. Sixth, international lending at variable interest rates denominated in your currency, which means that borrowing countries in crisis have to repay you more when their capacity to repay is less. This combination allows your people to consume far more than they produce (and it periodically produces financial instability and crises in the rest of the world). To supervise the international framework you want international organisations that look like cooperatives of member states and carry the legitimacy of multilateralism, but are financed in a way that allows you control.
Is the above a Machiavellian interpretation of the US role in the world economy since the end of the Bretton Woods regime around 1970? Certainly. America's engineering of its dominance has at times been for the general good, when it used its clout to "think for the world". But often its clout has been used solely in the interests of its richest citizens and most powerful corporations. This latter tendency has been dominant lately.
We see it in its new single-minded unilateralism in international relations, much exacerbated by the mixture of rage at September 11 and gung-ho jubilation at "success" in Afghanistan. And we see it in what the United States is now ramming through the international supervisory organisations.
The US has engineered the WTO to commit itself to negotiate a general agreement on trade in services, which will facilitate a global market in private healthcare, welfare, pensions, education and water, supplied - naturally - by US companies, and which will undermine political support for universal access to social services in developing countries. It has engineered a "private sector development" agenda devoted to accelerating the private (and nongovernmental) provision of basic services on a commercial basis. The World Bank has made no evaluation of its earlier efforts to support private participation in social sectors. Its new private development thrust, especially in the social sectors, owes everything to US pressure.
These power relations and exercises of statecraft are obscured in the current talk about globalisation. The increasing mobility of information, finance, goods and services frees the American government of constraints while more tightly constraining everyone else. Globalisation enables the US to harness the rest of the world to its own rhythms and structure.
Of course these arrangements do not produce terrorism. But they are deeply implicated in the very slow economic growth in most of the developing world since 1980, and in the widening world income inequality.
Slow economic growth and vast income disparities breed cohorts of partly educated young people who grow up in anger and despair. Some try by legal or illegal means to migrate to the west; some join militant ethnic or religious movements directed at each other and their own rulers. But now the idea has spread among a few vengeful fundamentalists that the US should be attacked directly.
The US and its allies can stamp out specific groups by force and bribery. But in the longer run, the structural arrangements that replicate a grossly unequal world have to be redesigned, so that markets working within the new framework produce more equitable results. Historians looking back a century hence will say that the time to have begun was now.
Robert Hunter Wade is professor of political economy at the LSE and author of Governing the Market (Princeton University Press). This article originally appeared in the International Herald Tribune.