The new world disorder evident here, abroad

September 04, 1998|By Jay Bookman

A NEW ECONOMIC system has emerged in the past decade, founded on computer technology, fueled by information, held together by an almost religious belief in the sanctity of free

markets and driven by a deep disdain for centralized government, safety nets and any other restraint on competition and personal enterprise.

Now we're going to see whether it holds together in a crisis.

This is not quite the "new world order" that George Bush envisioned in the late '80s. That phrase suggested a tidy little arrangement of national governments working in unison for the betterment of all. What we have today is something very different. It is a new world disorder, where countries have given up control of their currencies to international markets and control of their economies to international conglomerates and trading companies.

The new chaos

Business has embraced that theory as well, downsizing its work force, "outsourcing" its functions -- "re-engineering," as the best-selling business books call it. Like governments, they have sacrificed stability and control in return for flexibility and speed. The companies that embraced the new chaos most fully have been rewarded by skyrocketing prices on Wall Street.

That new system has produced unprecedented wealth and prosperity, particularly in the United States. Many of the challenges that seemed so daunting in the '70s and '80s -- the Soviet Union, unemployment, inflation, welfare reform, the federal budget deficit -- have fallen away, swamped by the productive power of capitalism unleashed.

The new prosperity has also seemed to suggest that the old rules of economics could perhaps be rewritten. In the past, capitalism had created inefficiencies that tended to go undetected in the heady flush of prosperity, accumulating until they brought on a recession. This particular expansion has gone on for so long, however, that some economists and politicians began to voice the heretical notion that the business cycle had been repealed.

Maybe, they mused, the combination of global competition and instant communication were eliminating inefficiencies even as they were created, never allowing them to accumulate to the point of forcing a recession. Maybe, they thought, this golden age was going to go on forever.

Or, as it turns out, maybe not.

In recent months, a rolling series of crises has exposed the structural weakness of Japan's banking system, the mindless extravagance that fueled Asia's "little tigers," the incompetence and corruption at the core of the Russian economy and perhaps now the unrealistic valuations of the U.S. stock market.

It turns out that in a world in which everything's connected, everything matters. The global economy is a system much like the global climate: The beating of a butterfly's wings in Chile could potentially touch off a hurricane in the Caribbean.

That butterfly can take many forms, political and social as well as economic. We replaced a postwar system containing one very large instability -- the possibility of nuclear war between superpowers -- with a system of many instabilities, smaller but capable of reinforcing one another, playing off one another, compounding one another.

At the peak of the Cold War, it would have been unthinkable for communist North Korea to fire a missile over Japanese territory. The consequences of such an act would have been enormous. As it is, the Korean launch Monday simply added to a growing sense that the world is unraveling, that too many of those little instabilities are flaring up at the same time.

In another contribution to that air of instability, the president of the United States, greatly weakened by scandal, met in Moscow this week with the greatly weakened president of Russia.

The collapse of the Russian economy has produced a serious political crisis, raising the risk that the Russian people will soon abandon their experiment with democracy and instead seek protection in a strong-armed government that promises to restore national glory and self-respect.

A similar risk haunts much of the globe, exacerbated by a fundamental conflict between the ground rules of the new economy and the demands of human instinct.

A global view

The global economy has been constructed on the premise that government guarantees of security and protection must be avoided because they discourage personal initiative. In times of crisis, however, that premise cannot be sustained politically. It is human nature for people in trouble to seek security and protection and to be drawn toward those who promise to provide it. That is how men such as Adolf Hitler and Vladimir Ilyich Lenin came to power, with disastrous consequences.

Government officials in Russia and elsewhere are caught in a dilemma. If they cannot provide their citizens with some assurance of protection and assistance, they risk being replaced by people who will. But providing that assurance will make economic recovery much more difficult.

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