The Road to Global Prosperity - Hardcover

Michael Mandelbaum is the Christian A. Herter Professor and Director of American Foreign Policy at The Johns Hopkins University School of Advanced International Studies in Washington, DC. He is the author or coauthor of thirteen previous books, most recently the bestseller That Used to Be Us, with Thomas L. Friedman.

The Road to Global Prosperity

CHAPTER ONE

THE ROOF

It may be true in one sense that Trade ought not to be enforced by Cannon Balls, but on the other hand Trade cannot flourish without security, and that security may often be unattainable without the Protection of physical force.

—LORD PALMERSTON, 18601

Ultimately, someone has to shoulder the responsibility for peace, security, and the framework of laws and regulations that makes trade possible.

—DANI RODRIK2

The history of civilisation is a history of public goods. The more complex the civilisation, the greater the number of public goods that needed to be provided. . . . Unless there is a global economic collapse, an increasing number of the public goods demanded by our civilisation will be global or have global aspects.

—MARTIN WOLF3

The Three Pillars of Stability

In post-Communist Russia private businesses need what Russians call a krysha. The word means “roof,” and refers to the protection that these businesses buy, usually from illegal, Mafia-like organizations. Just as in a house lacking a roof the inhabitants would spend almost all their time and energy protecting themselves from the elements and do little else, so, too, businesses cannot function without protection from the forcible interruption of their activities. Indeed, not only individual businesses but entire markets, whether local, national, or international, need such protection.

Normally, government provides it. Supplying protection is the first duty of government, the reason it is established in the first place.4 Russian businesses are forced to buy protection privately because the government is too weak, or too corrupt, to furnish it.

Protection is one example of what economists call “collective” or “public” goods. Others are police and fire protection and clean air. Society needs public goods, but individuals or small groups will not supply them. It is government that must do so,5 which means that international public goods are rarer, and more difficult to generate, than public goods within individual countries because the international system lacks a government. Here the global economy is in the same predicament as Russian businesses. Yet just as Russian firms are able to do business without effective local and national government, the global economy does function despite the absence of global government.

The world as a whole does not entirely lack public goods. It has had enough security for international economic activity to flourish for most of the time since the mid nineteenth century—between the repeal of the British Corn Laws and the outbreak of World War I, and then again since the end of World War II. The world has thus enjoyed one of the benefits of government without actually having one. It has received this crucial governmental service from its wealthiest and most powerful country, first Great Britain, then the United States.

In both cases the protection of cross-border trade, investment, and immigration, which worked to the advantage of all countries, emerged as the not-fully-intended consequence of British and American policies designed to protect their own national economic and political interests. The two countries acted in the fashion of the owner of the largest and most expensive house in a neighborhood who hires private security guards to protect his home against burglary. The guards’ presence will keep burglars away from the other houses in the neighborhood as well, even though their owners pay nothing. Similarly, British and American policies protected the commerce of other countries.6

American-provided security continues in the present, so the future of the global economy depends heavily on whether the United States sustains this global role. While American military power is important for the continued functioning of the global economy, however, the globalized international economy of the twenty-first century, unlike its nineteenth-century predecessor, has two other sources of protection. The roof that shelters trade, investment, and immigration is sturdier today than it was then because it rests on three pillars rather than only one. The two others are the political legitimacy of market capitalism and cross-border economic transactions—the legitimacy, that is, of globalization—and the historically unparalleled illegitimacy of the practice against which British and American protection have shielded the global economy: war.

A government is legitimate when it is constituted according to established principles and operates in a proper way. Like ballast on a ship, legitimacy reinforces stability. A government possessing it is less likely than one without it to be actively challenged by, and more likely to command the active support of, those it governs. In traditional societies a legitimate ruler was one who was descended from a legitimate ruler. The ruling family usually owed its legitimacy to a proclaimed association with a deity. Twenty-first-century political legitimacy comes from popular sovereignty—the selection of the government by the people in free elections in which all adults may take part.

The globalized international economy also possesses legitimacy, not by virtue of its design but because of its results. It enjoys what political scientists call “performance legitimacy” through the prosperity it has delivered. Since 1846, and especially since 1945, globalization has built up a stockpile of goodwill and trust among people and governments around the world. A worldwide consensus has formed in favor of the twin propositions that economic self-sufficiency is bad and markets are good.

The legitimacy it has earned through past performance does not make the integrated international economy immune to criticism or even opposition. From the 40,000 people who rallied (and in some cases rioted) against globalization at the 1999 meeting of the World Trade Organization in Seattle (which was convened to launch new global trade negotiations) to the first round of the French presidential elections in April 2012 when candidates receiving upward of 40 percent of the popular vote expressed severe reservations about, if not outright opposition to, full-fledged French participation in the global economy,7 scarcely a day has passed without some public manifestation of unhappiness with international trade, or finance, or immigration—or all three. The consistent, widespread, and sometimes powerful distaste for the workings of the international economy does not, however, pose a serious threat to its continuation because its legitimacy rests on something besides performance.

There is no credible alternative to it. No method of organizing economic life on the planet other than internationally integrated free markets commands anything like the political support necessary to displace the current system. No collection of rules, institutions, and practices that is new, different, and promising is available. The alternative to the current global economic order is . . . nothing. The Great Depression of the 1930s gave rise to two replacements for global capitalism: the fascist version of import-substituting industrialization, and centrally planned communism. The great recession triggered by the American financial crisis of 2008—the worst global economic downturn since the Great Depression—has not inspired or raised to prominence any alternative at all.

The legitimacy that the current configuration of the global economy enjoys has accumulated through its own success and the failure of its rivals complements the support it receives from the policies of the United States. Legitimacy protects global economic integration from resistance from within. In the twentieth century it suffered severe damage from attacks from without in the form of the two world wars, the equivalents of a tornado that blows off the roof of a house and wrecks its contents. Now globalization has acquired a historically unprecedented source of protection from that threat.

For almost all of recorded history war was considered a normal, indeed inevitable human practice. War was like winter: it might be delayed, it might be mild, but sooner or later human communities were bound to experience it. In the twentieth century that attitude began to change. War came to be seen as not only undesirable but also avoidable. It was increasingly regarded—more in some places than in others—as a senseless and obsolete custom. It was put in the same category as foot-binding or dueling: once entirely legitimate but now less and less so—and a good thing, too.8

This new aversion to war has three sources.9 One is economic. People and their governments discovered that they could do far better economically by trading and investing with their neighbors than by attempting to conquer them.10 At the same time, because economic growth has made people richer, they have more to lose through war than did their forebears. The same trend that has made global economic integration popular has made war unpopular.

Political change in the decades since World War II has also contributed to the rise of war aversion. The major illiberal ideologies of the twentieth century, fascism and communism, made war central to their visions of political life. The fulfillment of their designs for remaking the world required conquest. These ideologies have all but disappeared. The closest contemporary equivalent, Islamic fundamentalism, while virulent and dangerous, has no chance of taking over powerful countries, as did fascism and communism. It will surely provoke international conflict—as it already has—but not on the scale of the two world wars or the Cold War.

In addition, more and more countries have become democracies, and democracies tend not to go to war with one another.11 Democracy goes hand in hand with an emphasis on the rights of individuals. War, because it kills people, violates individual rights in the worst possible way.

Finally, war-aversion has technological roots. The ongoing Industrial Revolution has generated ever-more-powerful machines for a wide variety of activities, including war. As war has become more destructive, it has become less legitimate. The prospect of a war using the most powerful of all armaments, nuclear weapons, is especially forbidding because a nuclear exchange on any but the most modest scale would destroy the countries waging it.

Because of the rise of war-aversion, with its diverse sources, armed conflict has become both less frequent and less deadly.12 Sovereign states have built up a resistance to it in something like the way that human beings have acquired immunity to deadly diseases. That resistance affords a measure of protection to international economic activity that supplements the protection it receives from American power and the legitimacy of globalization.

Just as disease has not vanished, however, war has not become, nor will it become, entirely extinct. The absence of a formal, effective, global government means that there is no supreme authority to prevent sovereign states from fighting each other. The kinds of political conflicts that triggered war in the past have not disappeared. War remains possible, and therefore a possible influence—in the worst case a very powerful influence—on the future of the global economy. That future thus depends on the kinds of wars that are fought during the decades ahead.

Major War

Beginning in 1996, an estimated 5 million people died in fighting in the Congo, in Central Africa.13 That terrible conflict illustrates two features of the world of the twenty-first century. One is that the rise of war-aversion does not make large-scale killing a thing of the past. The other is that the impact of twenty-first-century wars, large or small, beyond those directly involved depends very much on their location. Not all wars are equally important, or, to the rest of the world, important at all. Deadly though it was, the Congo war changed nothing outside Central Africa. Elsewhere it barely attracted any attention. It had no discernible effect on buying, selling, and investing in the rest of the world.

War in Africa does not matter, or at least thus far has not mattered, to the global economy. What would matter are wars in the most economically dynamic regions of the world, of which Africa is not one, and especially wars involving large countries that play major international economic roles. Three such countries, Russia, India, and China, could go to war, with damaging economic consequences, in the years ahead. In all three, war-aversion is weaker than in western Europe and North America, where it has put down deepest roots.14 Each of the three has political interests that are or could be in jeopardy in the years ahead, interests for which it has fought in the past.

During the Cold War a conflict between the Russian-dominated Soviet Union and its chief adversary, the American-led Western coalition, could have visited more damage on the international economy than even the two world wars. In the twenty-first century that conflict has disappeared, but Russia’s location, bordering on the European Union, China, and the Middle East, means that any war it fights could disrupt international commerce; and post-Soviet Russia does not lack causes of conflict.

As a recently imperial power, it is susceptible to the impulse to reclaim its former territories. In some of them, notably Ukraine and Kazakhstan, millions of ethnic Russians were left outside the borders of the new Russian state when the Soviet Union collapsed, and the Russian government has proclaimed a special responsibility for protecting them. Post-Communist Russia has fought a war against one of its new neighbors, in August 2008, with the former Soviet province and now independent country of Georgia.

While the rhetoric of Russia’s leaders has sometimes tended toward the bellicose, however, the Russian impulse for war is far from overpowering. If reluctantly, most Russians seem to have resigned themselves to the end of their country’s career as a great Eurasian empire.15 More importantly, Russia is militarily weak, especially in comparison with the strength of the old Soviet Union. Its armed forces did not distinguish themselves against tiny Georgia.16 Weakness, and the leadership’s awareness of it, constrain Russian foreign policy even where war-aversion does not. Russia is a declining power, something that cannot be said of India.

Before the twenty-first century, in global economic significance India ranked closer to Africa than to Europe. Its embrace of global integration, however, and consequent rapid growth after 1991 have made its conflict with neighboring Pakistan a threat to economic well-being beyond South Asia. That conflict centers on the Muslim-majority Indian province of Kashmir. The province’s Hindu ruler opted to join India rather than Pakistan when British India was divided into the two countries in 1947. Pakistan objected and attempted, unsuccessfully, to reverse the decision by force. The two countries fought again over the province in 1965 and 1999.

Kashmir’s status is important enough to both countries to be a cause of war be...