Don't Panic: How Secure Is Globalization's Future?

A century ago the world entered the first age of globalization. Trade and investment spread rapidly around the world, spurred by revolutions in communication and production technologies and a stable gold standard. Behind the scenes stood Great Britain -- preeminent in manufacturing, finance, and naval power -- which championed free trade throughout the Victorian era, beginning with the celebrated repeal of its protectionist Corn Laws in 1846. A succession of British governments pursued agreements to lower tariffs; London banks put capital to productive use abroad; and the Royal Navy ensured open access to world markets and resources. The result was an unprecedented flow of goods, capital, and people -- and the rise of the first truly open world economy.

In 1900 there was every reason to expect and welcome a future of continued world economic openness. Nineteenth-century globalization advocates such as Richard Cobden and John Bright argued that free trade fostered growth and created vested interests in favor of stable and peaceful relations between countries. After all, Britain's trade missions to continental Europe during this period were not just business initiatives but peace missions as well.

But this optimism was soon to end. The open world order came crashing down in 1914, a victim of rapidly shifting power relations, escalating strategic rivalries, the waning of Pax Britannica, and finally, war.

Today the world is well into the second age of globalization, propelled by technological revolutions and the advanced industrial states' commitment to the liberalization of capital and trade. This time, the United States has put its hegemonic weight behind developing the open world economy -- creating multilateral institutions, sponsoring trade rounds, opening its own markets to imports, and singing the praises of commercial liberalism. Just like a century ago, the march of global capitalism appears irresistible.

But is this new age of globalization any more secure than the last? In a masterful new account of contemporary world capitalism, one of America's most distinguished scholars of international relations tells us that there is reason to worry. For Robert Gilpin, the political foundations of economic openness have dramatically weakened in the last decade as the explosion of trade and investment has placed new strains on global institutions. In his view, the end of the Cold War was the seminal event for the world economy. Paradoxically, it unleashed new global market forces while intensifying economic conflict among the industrial countries and eroding America's commitment to liberal multilateralism. The rules-based world economy launched at Bretton Woods in 1944 is now breaking down as the political bonds among Europe, Japan, and the United States dissolve. Most worrying, the United States appears increasingly unwilling -- or unable -- to provide the strong political leadership that was the central pillar of the postwar liberal order. If these political foundations of world capitalism are not rebuilt, the world economy just might return to its unhappy past: escalating upheavals in financial markets, rising trade conflict, renewed economic nationalism, and ultimately the return of antagonistic regional blocs.

Gilpin's book reaches this dour conclusion through a careful review of the components of the world political economy -- the trade, monetary, financial, and foreign investment regimes -- along with the economic strategies of the United States, Europe, and Japan. The result is a grand illumination of modern capitalism. Gilpin convincingly shows how deeply rooted the current world economy is in the American-led Cold War order, making a strong case that the forces of globalization actually have not transcended states to escape the political control of their leaders. Rather than imparting a logic of discipline and reward that will tame authoritarian and nationalist passions, the chaotic forces of globalization create losers as well as winners -- a potentially dangerous source of conflict. Gilpin brings a welcome sobriety to the often overheated debate over globalization. But he does not venture to say whether the current turmoil will lead to a political breakdown or create a new order that supports and governs world economic openness.

RISE AND FALL

Throughout his career, Gilpin has explored the underlying political, security, and institutional structures on which markets depend. U.S. Power and the Multinational Corporation (1975) argued that America's world dominance made possible the rapid postwar growth in multinational corporations, bolstered by a security framework with Europe and Asia that supported trade and direct foreign investment. In War and Change in World Politics (1981), Gilpin expanded this logic to the entire history of international relations. Transplanting the classic realist model of anarchic, interest-based world politics to economics, Gilpin portrayed a world economy that mirrored the ongoing historical dynamic of rise and decline. Markets do not spring to life automatically but rather occupy the space created by the world's dominant state and its partners. The subsequent flow of trade, investment, and technology gradually redistributes power and wealth; states rise and fall; and the conditions for the next violent transformation of order eventually emerge.

At the core of Gilpin's work is the proposition that markets are in their essence neither autonomous nor self-regulating. An open world economy -- marked by free trade, currency convertibility, and capital mobility -- can be secured only by the power and steady hand of a leading state. Without this discipline, the global order tends toward fragmentation. And this is what worries Gilpin most about today's capitalist system: the power and the steady hand of the United States are wavering.