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The demise of "Western Style" Capitalism? (fwd)
This article contains important information and perspective.
Robert Weissman
Essential Information | Internet: rob@essential.org
Financial Crises Could Stall Capitalism's
Global March
By Paul Blustein
Washington Post Staff Writer
Friday, September 4, 1998; Page A01
As the crisis roiling global financial markets spreads
and intensifies, signs
increasingly suggest it could deal a historic setback
to the advance of
Western-style capitalism.
The most obvious illustration is Russia. After the
virtual collapse of the
country's economy last month, pro-Western forces are
in full retreat and
speculation abounds that socialist policies will be
revived.
Another example is Malaysia, which this week
effectively cut itself off
from global financial markets by imposing tight
controls on the flow of
capital across its borders. The country had thrived
over most of the past
decade by welcoming investments by U.S., Japanese and
European
firms. But Prime Minister Mahathir Mohamad, furious
over the selling
wave that has sunk the Malaysian currency and stock
market, decreed
that the currency -- the ringgit -- could no longer be
freely traded.
Even in Hong Kong, hitherto proud of its reputation as
the world's most
freewheeling market, the government launched a
vigorous effort last
month to bolster the Hong Kong Stock Exchange by using
billions of
dollars' worth of public funds to buy shares.
Up until a couple of months ago, the crisis appeared
to be forcing
economic policy in many countries in a market-oriented
direction -- so
much so that Michel Camdessus, the managing director
of the
International Monetary Fund, often referred to the
financial turmoil as "a
blessing in disguise."
Together with his backers in the Clinton
administration, Camdessus saw
potential long-run benefits resulting from the Asian
crisis: Even though
crisis-ridden countries such as South Korea and
Thailand were sinking
into painful recessions, they were moving toward more
Westernized,
free-market models as they met IMF demands to scrap
the "crony
capitalism" and policies of heavy government
intervention in the
economy that had undermined their long-term growth
prospects.
But the words "blessing in disguise" have disappeared
from Camdessus's
public utterances lately, underscoring growing fears
among Western
analysts and officials that the crisis may prove an
unadulterated curse.
"I think of it as a backlash against globalization,
and you're getting more
and more episodes that move down the same track that
make this whole
dimension of the crisis very worrisome," said C. Fred
Bergsten, director
of the Institute for International Economics, noting
that Taiwan and Japan
have also been resorting to government-backed stock
purchases as their
markets weaken.
Robert B. Zoellick, a top official in the Bush
administration, said the latest
developments have deepened his concerns that
Washington is failing to
aggressively consolidate the gains the U.S. system had
achieved at the
end of the Cold War. "Now we're moving beyond the risk
of missing
opportunities, to the risk of retrogression," said
Zoellick,
president-designate of the Center for Strategic and
International Studies.
"In the long view, you can argue that markets and
capitalism will
eventually dominate because people will discover the
benefits of an
efficient production system. But as we saw in the
1930s, the long run can
last a long time."
Remarkably few restrictions have been raised during
the crisis on imports
or exports of goods and services, so the dangers to
capitalism shouldn't
be exaggerated. So far, most of the government
interference, including
Malaysia's, has been limited to the markets for money.
Throughout much of the post-World War II period, many
countries --
including advanced industrial powers in Western Europe
-- maintained
controls on capital. In some ways, government
intervention in the capital
markets now can be viewed as an effort to correct the
excesses of a
decade-long experiment in which money was free to fly
virtually
anywhere on earth at the touch of a computer key.
Clinton administration officials, while deeply alarmed
about the recent
turn of events in Russia, profess to see Malaysia's
move as less of a
threat to the economic model they espouse. They
predict that Malaysia's
economy will undergo an even more wrenching downturn
as the inflow
of foreign money dries up in response to the
government's restrictions
on taking capital out.
"Malaysia's going to provide a good negative example
to everybody, and
in that sense what they've done may turn out to be a
constructive
contribution," a senior administration official said.
So far, however, Malaysia's stock market -- after
gyrating wildly -- has
posted gains since the controls were imposed. And a
number of
economists have acknowledged that the country may be
making a
sensible trade-off -- a lower chance for strong growth
over the long term,
in exchange for lower vulnerability to crippling
withdrawals of funds from
abroad.
Even Britain's staunchly free-market Financial Times
editorialized this
week after Mahathir's move that capital controls,
though "dirty words in
today's economic orthodoxy," must be considered as an
option by some
countries because "unfettered movements of capital can
have devastating
effects." Paul Krugman, an apostle of globalization at
Massachusetts
Institute of Technology, argued in Fortune magazine
last month that the
crisis had reached the point where capital controls
had become
necessary. (In an open letter to Mahathir this week,
Krugman fretted that
the Malaysian controls may prove excessive, especially
if they shield the
government from needed reforms.)
All this is a far cry from the atmosphere earlier this
year, when the IMF
and the U.S. Treasury were exulting over how South
Korea and
Thailand were embracing Anglo-Saxon principles such as
clear
accounting rules and the breakup of cozy
government-corporate
linkages.
U.S. and IMF officials still point proudly to the
Korean and Thai examples
and predict that the markets will "differentiate" them
as good performers.
But they had hoped to make the case for a new global
financial system
that would involve even greater openness in capital
markets -- a dream
that appears to have been rapidly overtaken by events.
In their worst nightmares, free marketeers imagine how
the crisis could
fuel anti-globalization sentiments in the United
States as well, as cheap
imports flood in from Asia and U.S. exports shrink.
"You could get this linkage -- the Asian crisis adds
to our trade deficit,
which pushes people here to back away from free trade,
and that fuses
with the Asian moves on the capital side," Bergsten
said. "Then the fat
would really be in the fire. That could really start
to unravel the structure
of the international economy."