A lesson of history for today’s world

It is said that you can line up all the world’s economists end-to-end and still never reach a conclusion. However, one crucial consensus seems to be emerging in recent years among market watchers: the Reagan era of deregulation is coming to an end.

This enduring push for deregulation among the world’s advanced economies, triggered initially by Ronald Reagan and Britain’s Margaret Thatcher in the early 1980s, has fueled globalization’s rapid advance around our planet ever since. Globalization is –first and foremost — the worldwide flow of investment capital.

When there’s lots of private money on the table, historically the global economy expands in both size and reach. Cheaper money means more risk tolerance, so investors are willing to enter more dicey, somewhat off-grid environments. When money gets taken off the table, especially through higher taxes, everybody gets more conservative.

The West’s willingness to engage in higher-risk overseas investments these past three decades is a major reason why so many emerging markets were able to emerge. Sure, cheaper labor always beckons, but breaking up production chains and spreading their components around the world invites complexity’s many invisible dangers.

The upside is that new consumers are created through rising incomes, triggering the rise of a global middle class of unprecedented size and purchasing power. The downside? Now the economic health of all involved requires more stability in more places of the world, meaning we need to police a wider universe of nefarious actors –both purposeful and accidental — capable of triggering unwanted turbulence.

A good historical analogy to this era is found in America’s post-Civil War experience in rapidly integrating its trans-Mississippi West. You have to remember, these United States had started as a mere 13, then saw their numbers double in the early decades of the union, only to roughly double again in the years leading up to our Civil War and the half-century that followed.

Compare that expansion to the growth of the U.S.-engineered international liberal trade order following World War II: starting with a mere quarter of the world’s population, the West remained essentially closed until the late 1970s and early 1980s, when modern globalization began to emerge. Now, most experts recognize a "bottom billion" that’s poorly connected to the global economy, meaning more than fourth-fifths of the planet finds itself deeply or increasingly connected to our "interdependent" economic fate.

If these "states uniting" served as source code for modern globalization, superseding the unjust version set-up by Eurasia’s many colonial powers, it only makes sense to remember what came after our own extensive period of frontier integration. The historical experience of first shaming and then taming America’s rapacious capitalism, known as the Progressive Era, extended for several decades and brought with it a vast array of new rules and regulatory bodies.

Two challenges were being addressed simultaneously.

First, there was the process of integrating high-trust environments with low-trust environments –i.e., the already built-up and high-performing East with the still-being-built-out and far more rough-and-ready West. So in one loosely knitted-together country, you had years like 1876, when the first transcontinental express train arrived in San Francisco from New York and Gen. George Custer’s cavalry regiment was wiped out by a Native American insurgency led by Crazy Horse. Some way to mark our centennial!

Second, there was the process of simply getting our collective arms around the rising complexity created from knitting together a series of regional economies into a truly integrated continental economy — in essence the world’s first true super state and logical forerunner of today’s globalization.

Similar challenges confront us today in our ongoing attempts to administer our increasingly tumultuous global economy, only this time it’s the more stable West absorbing the wild East. And yes, there’s no shortage of imperious robber barons or radical insurgents to manage.

Intimidating? Sure.

But remember that we’ve been down this path before — and thrived magnificently.

 

Thomas P.M. Barnett (tom(at)thomaspmbarnett.com) is a visiting scholar at the University of Tennessee’s Howard Baker Center and author of the forthcoming book "Great Powers: America and the World After Bush."

2 Responses to "A lesson of history for today’s world"

  1. almandine  August 6, 2008 at 12:32 am

    Major problems now, that we didn’t have before, are that we’ve squandered both our resources and our manufacturing base, not to mention the fact that we’ve indebted ourselves beyond what we can repay in the next 3 generations – without some significant monetization of our internal and external debt. In a word – as a society – we are broke. In consideration, a retrenchment of our society is being engineered to bring us back into line with that significant majority of the planet that has has in recent history had much less that we… this retrenchment is in many ways the “soft” policing of nefarious actors that could actually harm us… the old “here have some of the pie, cause you’re family.” Thus, the plan is actually geared to make those other societies focus on the materialism that has driven our society – not that materialistic security is a bad thing – but the bottom line is effervescent profits for the ruling globalist bankers, using the ground-swell of an upwardly mobile, global population as the source. Not a particularly bad thing really… just don’t try to sell it as the American dream. That train left the station a long time ago – courtesy of those imperious robber barons.

  2. woody188  August 6, 2008 at 2:23 am

    I wonder why Mr. Barnett wouldn’t want to mention on his bio line on how he actively promotes the U.S. Military policing the world to promote stability to enable the global economy. Or his job as Senior Managing Director of Enterra Solutions, a risk management company that contracts with Government on terrorism.

    Mr. Barnett, the U.S. Military should not be the world’s police force.

    …cheaper labor always beckons…

    Wow some honesty.

    …only this time it’s the more stable West absorbing the wild East

    Seems like the East is absorbing all the West’s wealth.

    So let me get this straight. We need to police a wider universe of nefarious actors –both purposeful and accidental — capable of triggering unwanted turbulence so that we can enable a global cheap labor work force and send higher paying jobs there so that massive corporate profits can follow to benefit the already rich and help Socialist and Communist nations form middle-classes by exploiting their peasant populations.

    It’s a win-win so long as you aren’t the guy that lost his high paying job or those peasants. Oh wait, thats us middle class Americans and most of the world!

    Hey wait a minute. Isn’t this fascism? Dum dum daaaaaa!

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