Market free fall's threat to peace

August 25, 1998|By Walter Russell Mead

EVEN WITH stock markets tottering around the world, the president and the Congress seem determined to spend the next six months arguing about dress stains. Too bad. The United States and the world are facing what could grow into the greatest threat to world peace in 60 years.

Forget suicide car bombers and Afghan fanatics. It's the financial markets, not the terrorist training camps, that pose the biggest immediate threat to world peace.

How can this be? Think about the mother of all global meltdowns: the Great Depression that started in 1929. U.S. stocks began to collapse in October, staged a rally, then the market headed south big time. At the bottom, the Dow Jones industrial average had lost 90 percent of its value. Wages plummeted, thousands of banks and brokerages went bankrupt, millions of people lost jobs. Similar stories unfolded worldwide.

But the biggest impact of the Depression on the United States -- and on world history -- wasn't money. It was blood: World War II, to be exact. The Depression brought Adolf Hitler to power in Germany, undermined the ability of moderates to oppose Joseph Stalin's power in Russia, and convinced the Japanese military that the country had no choice but to build an Asian empire.

When the rules change

That's the thing about depressions. They aren't just bad for your 401(k). Let the world economy crash far enough, and the rules change. We stop playing "The Price Is Right" and start up a new round of "Saving Private Ryan."

The current depression isn't as bad as the Great Depression -- yet -- and it may not ever get there. But try telling that to the Asians. The Thai stock market has lost about 90 percent of its value. Tens of millions of people from Moscow to Malaysia have watched their savings disappear, wages fall and hopes for the future wither and die. Guess who they blame.

It's all a U.S. plot, say many ordinary Asians and a disquieting number of Asian politicians. Asia was getting too powerful. The United States engineered this crisis. And now that many Asian companies are for sale cheap, the United States will buy up Asia.

This is paranoid, but not totally dumb. The economic crisis we see today does result, in part, from U.S. policy. Not that we were plotting cleverly to make Asia poor. Actually, the U.S. government wants Asia to get rich. The United States feels much like Julius Caesar in William Shakespeare's play. Seeing Cassius with his "lean and hungry" look, Caesar instinctively says, "Would he were fatter!"

Ever since all the other great economic powers were either defeated or ruined by World War II, America has borrowed its foreign policy from the witch in Hansel and Gretel: Fatten them up.

Not that we wanted to eat them. We wanted to fight communism. We figured that only poor countries went Red, so the best way to win the Cold War was to make workers around the world too rich to rebel.

When the Soviet Union collapsed seven years ago, we fine-tuned our policy but made no basic changes. The goal changed from defeating communism to promoting democracy, but the reasoning was the same: Fattening them up keeps the United States prosperous and the world at peace.

That simple idea is the real core of U.S. foreign policy -- plus maintaining a military strong enough to scare off the lean and hungry guys who can't or won't climb on the chow wagon. If there's a better way to run a world, nobody's pointed it out to the foreign-policy establishment.

There's only one problem: The United States has a goal, but it doesn't have a plan. The economic ideas that the policy establishment thought would guarantee growth in Asia and elsewhere used to work. Now, they don't.

Our biggest blunder? To think that the export-oriented growth strategies pioneered by Japan, Taiwan and South Korea would keep working forever. The United States both directly and indirectly through intermediaries like the International Monetary Fund and the World Bank encouraged developing countries to learn from and imitate the examples of the early Asian tigers. Use low wages, lax regulations and low taxes to lure foreign investment, we told them, and save money yourselves. Put all that money into factories aimed at producing goods for export to the United States and Europe.

From company to a crowd

We never stopped to think that what worked brilliantly for a handful of countries might not work as well if everybody tried it. It's a little like traffic. If a few people decide to take the freeway, they save time. But if everybody tries the same route, they get caught in a monstrous traffic jam.

This is happening in Asia today. The Japanese, the South Koreans, the Taiwanese and the people of Hong Kong were all doing 70 miles an hour on the export freeway toward growth. The Thais, the Malays, the Indonesians and the Chinese saw how well they were doing and headed for the on-ramps. Now the Indians, Bangladeshis, Sri Lankans and Vietnamese are trying to crowd onto the freeway -- even as the traffic jams congeal.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.