Cure Worse Than Malady

NEW YORK

A new specter hauntsEurope: a frightened, angry and badly fractured body politic. Elections in thepast year from Germany to Poland to Italy have resulted in weak governments withrazor-thin majorities, reliant on marriages of political convenience that oncewould have been thought impossible. And the short-term political future of theUS looks no better. Though George Bush has another 30 months in the White House,he will most likely be forced to contend with a Democratic majority in at leastone chamber of Congress.

Political paralysis is notalways dangerous, but most developed and transitional countries face dauntingeconomic and social problems ranging from persistent unemployment tounder-funded pension programs to massive public deficits to unregulatedimmigration. Finding solutions to challenges of that magnitude requires anational consensus that no politicians on the immediate horizon have theprospect of building.

To a large degree, politiciansare reaping the whirlwind of more than a decade of over-promising andscapegoating. The collapse of communism and increased pace of globalization thatfollowed were supposed to create a rising economic tide that would lift allboats in developing and developed economies alike. Any transitional pains thatthe resulting huge commercial shifts would inevitably cause would be fleeting.Everything from the expansion of the World Trade Organization and the EuropeanUnion, to the "reform" of government pension systems to force workers towork longer than originally promised were sold with the same political snakeoil: "Take a bit of pain now," politicians and pundits assured the publicfrom Warsaw to Washington, "and we’ll all cross that shiny bridge to a newprosperity in the 21st century."

Instead, workers of the world– whether they be former iron mongers at the Lenin Shipyard in Gdansk orerstwhile executives of Enron – are now united in a grudging appreciation ofwhy American capitalism was so much more successful than Soviet communism:Unfettered competition ruthlessly wipes out old institutions and ways of doingbusiness, allowing more efficient actors and methods to take their place.

Half a century ago, theeconomist Joseph Schumpeter gave the process the evocative name of "CreativeDestruction." But even Schumpeter could not anticipate the acceleration of theprocess when globalized, and the global workforce cannot view that brilliantinsight with a scholarly detachment. For the workforce, no job is safe. For allbut the very wealthiest, working lives will henceforth be spent worrying abouttomorrow's paycheck, health benefits and pensions.

That anxiety has been drivingcentrist politicians out of office since 1992 when George Bush executed the mostremarkable fall from electoral grace this century. For the foreseeable futurethe crucial political issue in most of the developed world will be how toresolve the tension between the efficiency imperatives of economic growth andthe personal security desires of an increasingly frightened and disoriented bodypolitic. Deficit spending can temporarily serve as a balm for the public’sdistress. But once the taps run dry, parties at both ends of the politicalspectrum in Europe and the US will be left with self-defeating policies ofraising trade barriers, defending domestic industries in distress, limitingsocial benefits to "true" citizens and wrapping it all in patriotic bunting.

The immigration bill passed bythe US House of Representatives is among the most nativist pieces of legislationseen since the 1920s. The bipartisan congressional resistance to the sale of anAmerican oil company to a Chinese one, of a cargo-handling service to a Dubaientity, not to mention saber-rattling about the value of the Chinese currency,is matched in socio-cultural issues like the reintroduction of a constitutionalamendment to ban flag burning – co-sponsored by none other than New York’ssupposedly liberal Senator Hillary Clinton.

In Europe and Asia, a moretroubling model has taken shape, with ideological underpinnings that resemblefascism: reliance on the leadership of a strong, self-appointed elite; a mixedeconomy with a largely free market at the bottom, but one that is rigged infavor of state or crony-owned conglomerates at the top; and a nationalist raisond'état that verges on racism.

The first European variant ofthis model developed, ironically, in Italy where Silvio Berlusconi promised tolead an economic revival while appealing to the baser social prejudices of theelectorate. The appeal is demonstrated by the fact that, although Berlusconidelivered on almost none of his promises, he had the longest run as primeminister in Italy since World War II, and barely lost the latest election to theadmired Romano Prodi.

If you want to see just howstrange electoral politics can get, examine the current coalition now leadingPoland. The ruling, right-of-center Law and Justice Party, has gone to theopposite ends of the political spectrum to cobble together a majority inparliament, allying itself with the leftwing populists from the Self-DefenseParty and the rightwing Catholic nationalists of the League of Polish Families.And the Czech Republic could soon be in a similar fix. Elections in early Juneleft the two main coalitions with exactly half the seats in the lower house ofparliament.

The next place to experimentwith what might be oxymoronically called "Patriotic Globalism" could beFrance, a country never shy about protecting what it regards as its nationalpatrimony. The final, almost pathetic days of the presidency of Jacques Chiracencapsulate the challenges facing a modern, western government. The governmenterects as many walls as feasible to foreign control of any of its leadingindustries – including stopping the takeover of a yogurt company. YetFrance’s position within the EU has prevented erection of meaningful barriersto the adverse effects of globalization, particularly in terms of employment.And the notion of creating jobs by limiting the workweek to 35 hours only madematters worse. The shortage of employment opportunities, particularly for youngpeople, exacerbates the already-difficult task of assimilating a rapidly growingimmigrant population.

The politician best placed totake advantage of this growing crisis is Interior Minister Nicolas Sarkozy whohas carved himself a role as defender of France’s economic sovereignty and atough-minded enforcer of the law. But Sarkozy’s potential Socialist opponentin the 2007 presidential election, Ségolène Royal, has made it clear shewon’t be outflanked on the right or left. On the right hand, she suggests acrackdown on teenage criminals, including sending them to boot camps, and forthe left end of the political spectrum she criticizes the freedoms given toemployers when the 35-hour work week was imposed.

From an economic standpoint, thedislocation that stems from the transition to a post-industrial, globalizedeconomy, whatever that may turn out to be, will probably last another 10 years.But the discomfort and resulting public anger will likely increase, and thatwill only intensify the polarization of electorates in Europe and North America.If politicians at both ends of the political spectrum continue to win votes bypandering to the worst fears and basest instincts of a frightened electorate, itseems only a matter of time before the resulting governments indulge in theself-destructive grand gestures that could lead to a global trade war or aviolent anti-immigrant backlash or both. As the world discovered 80 years ago,the dislocations wrought by globalization’s creative destruction are nothingcompared to the economic chaos unleashed when efforts are made to halt theprocess.

Richard Hornik isdirector of Southeast Asia Programs with the Independent Journalism Foundation.He has been an editorial consultant specializing in corporate governance andsocial responsibility issues since retiring from Time Inc. in 2002.Rights:
© 2006 Yale Center for the Study of Globalization. YaleGlobalOnline