Current crisis affords cover for all sorts of weird things

October 07, 2001|By Jay Hancock

SINCE the world changed on Sept. 11, politicians and nation states are back in charge. Free markets are riding shotgun, and not quite so free.

The signs are all around.

Half a dozen countries are suddenly subsidizing their airlines to the tune of billions, in violation of World Trade Organization rules.

Trade and travel barriers are rising in the name of national security. Cross-border capital flows have dried up. Businesses are rethinking overseas outsourcing.

Even the Republican president seems to think that deficit government spending might be desirable economic adrenaline. Graduate international studies programs, which were in danger of becoming finishing schools for future investment bankers, are reporting new interest in statesmanship.

The blows that devastated Lower Manhattan dealt more than terrible physical injury to the financial system and its people. The attacks dislodged markets as the main hope for security and comfort, even among the faithful.

What you wanted after Sept. 11 wasn't going to come from a corporation. What you wanted wasn't a five-star mutual fund or theory about free trade spreading peace.

You wanted F-16s in the skies and a strong commander-in-chief in the White House who didn't have to worry about overspending his quarterly budget.

A few years ago, when Windows 95 and its successors were hot, the company that supplied them doubled in size and power. National defense is today's gotta-have product, and it also comes from a monopoly. Guess what happens next?

Congress is considering a $75 billion economic jump-start and has already approved $40 billion for emergency security and $15 billion for airlines. Other businesses want their own assistance, and billions more will be spent on defense hardware.

The era of big government is back, if it ever left.

The airline bailout, for example. Such deals are banned by free-trade treaties designed to stop governments from doping up industrial champions like East German Olympic swimmers.

But no U.S. trading partners are complaining. Far from it; Canada, Europe, Australia, Japan and others are throwing cash at their own airlines or thinking about it.

Why not? If Carrie Nation herself falls off the wagon, where's the risk in a snort?

If airline bailouts do get contested in the World Trade Organization, the United States and the others will shield themselves with Article XXI of the General Agreement on Tariffs and Trade, which basically allows countries to hurl free markets over a cliff if necessary for defense or emergency.

The GATT security loophole was already big. The danger is that it gets bigger, embracing not just munitions makers, its traditional clients, but anybody who can pretend to be essential to homeland safety.

This is political catnip. With a national emergency as cover, Congress will be tempted to sidle up anew to special interests in ways that are limited only by the number of yellow pages in the phone book.

The battered U.S. steel industry had already launched a macho public awareness campaign before the disaster: "The new steel - feel the strength." Now Big Steel is again suggesting to Congress - delicately! - that a secure homeland needs a domestic steel industry shielded from foreign rivals.

Two weeks after the terrorist attacks, Bethlehem Steel named as chief executive Richard S. Miller, who helped engineer the 1980 government bailout of Chrysler when he was the carmaker's executive vice president for finance. Coincidence?

The emergency furnishes a new reason for unions to argue for limits on Mexican trucks and immigrant workers; for computer and oil companies to enlist the government against imports; for trial lawyers to tap the federal till through liability settlements; for insurers to seek government backstops, for banks to stiff-arm offshore competitors under tougher money-laundering rules.

On Friday we learned that some car-rental firms want their own bailout. How can we fight the terrorist menace and regain our national confidence without a robust fleet of late-model Ford Tauruses?

Some of these measures may even be good ideas. But one way or the other they're feeding Washington, lowering the national portcullis, or both.

Continuing danger and delay in travel and shipping could also crimp foreign commerce. So could the newly charged "Buy American" movement. So could recession.

In the latest issue of Foreign Policy magazine, Michael Pettis argues persuasively that we may be heading into the kind of slump that has dealt periodic setbacks to globalization for two centuries.

This isn't the Panic of 1837, however. And the forces knitting the world together may still be strengthening through nonmarket means. While global bourses tremble, global governments are aligning in a way not seen since the 1991 Persian Gulf war, if ever.

At the same time that President Bush is resuming his push for greater authority to negotiate trade deals and for a new round of trade talks, some people have predicted that the Sept. 11 disasters will take the starch out of the anti-free trade movement.

It's politically risky to criticize your leaders in an emergency, the thinking goes. Maybe demonstrators will lie low for awhile, or morph into antiwar activists.

But the attacks and the subsequent circling of the wagons have produced what the protesters seemed to want: a comeback for sovereignty and new barriers to the global flow of information, goods and money.

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