Yes, Globalization Passed Its Peak

Our message two years ago was that policy leaders needed to manage expectations at home as they worked together internationally. In particular, we argued that the United States needed to reinforce the global institutions that supported international trade while getting its own domestic house in order. Following through on these prescriptions is now even more necessary. In order to avoid disaster, all of the major economic players are going to have to resist pressure to protect home markets through subsidies or tariffs. Individual governments need to tackle the downturn through macroeconomic and financial policies; unemployment and worker retraining should be addressed through expanding and strengthening the social safety net. The United States in particular needs to absorb one of the most important lessons of European social democracy -- that a generous, well-designed welfare state is not the antithesis of capitalist globalization but rather its savior.

Amid all this gloom and doom, however, there is also a glimmer of optimism. Over the past 15 years, American capitalism lost its way, abetted by a world much too ready to lend it vast amounts of capital. The U.S. economy -- its households and companies -- essentially squandered those borrowed funds, saving and investing less, building and consuming more. The debate about the sustainability of those global imbalances has lost any charm it might once have had. Now, some $11 trillion of losses later, the answer is clear. And if the crisis proves to be a catharsis that persuades the United States to change its profligate ways, the legitimacy and promise of globalization may eventually be restored.