To prognosticate about the future of the globe, much less the global economy, is a formidable task. What becomes apparent when one undertakes such an endeavor is that political and economic themes are inextricably intertwined. The greater the time frame, the greater the interconnectedness between political and economic interests. To hear some conservative business groups speak, the US has all but lost its free market system. Yet the process of creating wealth in America is steaming full speed ahead, precisely because the sectors that are the most successful have the least to do with the government. The common thread in the Asian debacle is that a boom preceded the bust. The question of Europe presents vastly different challenges from those in Asia.
Free-Market Models and the Global Economy
One hundred years ago, who could have known what the 20th century held in store? World wars, regional conflicts, speculative manias and crashes, depression, prosperity, the rise and fall of communism and fascism-all were part of the violent century that is coming to a close. To prognosticate about the future of the globe, much less the global economy, is a formidable task. What becomes apparent when one undertakes such an endeavor is that political and economic themes are inextricably intertwined. The greater the time frame, decades compared to years, centuries compared to decades, the greater the interconnectedness between political and economic interests. Any worthwhile discussion of the future of the global economy must be in the spirit of what the previous generation of economists wisely called "political economy."
Closing the 20 Century
At the close of the troubled 20, century, the United States finds itself in a position of military supremacy in comparison to its erstwhile political rivals, and with an embarrassment of riches relative to its trading partners. The most important decade of the latter half of the 20th century turned out to be the final decade; it was during these years that the Soviet system finally collapsed and, coincidentally, the so-called Asian economic miracle met its demise.
With the Soviet Union's disintegration, America's most important military adversary over the five decades that followed World World War II has disappeared. Moreover, Russia, the most significant of the former Soviet states, has itself descended into financial and economic collapse. Russia arrived at capitalism's doorstep as a foundling, bereft of the basic resources necessary to make a transition to what was an unfamiliar world of capitalist economics, and never had a chance to make a quick conversion to the Western market-based economic system. And although the seeds of the freemarket system can ultimately grow in any field, there is certainly no guarantee that the first few fall harvests will be successful.
In the economic sphere, Asia was America's main competitor during the latter portion of this century. In contrast, Asia ends the 20th century in a desperate struggle to overcome its most severe economic recession in the postwar period. This turnaround is all the more remarkable given that no less than a decade ago political scientists and economists were heralding the 21st century as the "Asian century". The greatest of all threats to the credibility of the system, however, has been a headlong rush to fix what didn't cause the Asian crisis, namely the speculative trading in foreign exchange to which some politicians have ascribed the crisis. Focusing on these events comes at the expense of ignoring the true causes of the financial crisis: a close association between government and the private sector, deliberately opaque accounting practices, fixed or managed foreign-exchange regimes, and political systems that worked to encourage the development of bubble economies.
Tragically, many promising emerging market countries also experienced tremendous economic setbacks in the final years of the 20th century following a tidal wave of financial crises and the collapse of worldwide commodity prices. …