Against The Dead Hand: The Uncertain Struggle for Global Capitalism Soviet-style Communism has fallen. The dream of centralized, top-down control over the course of economic development. That dream has now expired in universal failure. It died in the United States and Western Europe during the stagflation of the 1970s. It died in China when Deng Xiaoping declared that "it doesn't matter if the cat is black or white, so long as it catches mice." It died in Latin America during the debt crisis and lost decade of the 1980s. It died in the Soviet Empire with the collapse of the Berlin Wall. And it died in East Asia with the bursting of the Japanese bubble and the financial crisis of 1997-98.
The death of that misbegotten dream, more than any other single factor, has been responsible for the process conveniently summarized by the catchword "globalization. The liberalization of international transactions is only one aspect of a larger pattern of reform. As faith in government controls has dissipated, markets have been given wider play, not only in shaping economic relations be- tween nations, but in shaping them within nations as well. The willingness to subject domestic economic actors to foreign competition has gone hand in hand with the willingness to embrace competition at home. Trade and in- vestment liberalization are thus of a piece with a broad array of market- oriented policies: in particular, the privatization of state-owned industries; commitment to a monetary policy of price stability; elimination of price and entry controls that sustained domestic monopolies and oligopolies; the resurrection of labor markets; the reform of punitive tax systems; and the over- haul of financial institutions to make the allocation of capital more responsive to market returns.
Most popular accounts of globalization have focused on its novelties. It is an understandable preoccupation: The world economy today is buzzing with the new and unprecedented. Companies scatter their production facilities around the globe: research and development here, components manufacturing there and there, and final assembly and testing somewhere else entirely.
"Hot money" sloshes around the world at the click of a mouse. Mind-boggling sums flicker on the computer screens of foreign exchange traders. It is true that international economic integration has reduced the freedom of action available to national policymakers, and that the Internet and other technological marvels have sped that integration. Even the most cursory glance at world events, however, suffices to show that much of the rhetoric from both sides has been ludicrously overblown. Governments continue to assume a massive and enormously influential presence in economic life. Throughout much of Western Europe, government spending as a percentage of national income still exceeds 50 percent. Federal taxes in the United States have claimed a higher share of gross output in recent years than at any time since World War II. Chinese state-owned enterprises continue to employ some 80 million people. Government subsidies in India amount to 14 percent of gross domestic product. The state oil monopoly remains en- shrined in the Mexican constitution.4 The plain fact is that market pressures—even speedup, Internet- driven market pressures—exert only modest and occasional discipline on national policies. To borrow Friedman's metaphor, the "golden straitjacket" is a loose-fitting garment indeed: In other words, the past remains very much with us. The defunct ideas of centralized control exert a waning but still-formidable influence on the shape of the world economy.
By exaggerating the triumph of markets over government, the friends of globalization play into the hands of their opponents. If the present world situation represents the unchallenged reign of market forces, then that reign has much to answer for. After all, the world today is a very messy place. Those hostile to markets pursue this opening with gusto. However appealing the notion that the two great trends of recent times—the information revolution and globalization—really boil down to the same thing, the spread of more market-oriented policies cannot be explained by crude technological determinism. H o w computerized was China when Deng Xiaoping decollectivized agriculture and created the coastal, special economic zones? What did the microchip have to do with Margaret Thatcher's decision to face down the coal miners' union? The Internet was still an obscure Pentagon initiative when the "Chicago boys" transformed Chile's economy and N e w Zealand's Labor government scuttled protectionism and committed the central bank to price stability. Adversaries of market-oriented reforms benefit from the popular view that globalization is, at root, a matter of technology. Globalization is not a simplistic technological imperative. In fact, it is not primarily an economic phenomenon at all. When viewed in the larger historical perspective, it must be understood fundamentally as a political event. Globalization, in the broader view, stands revealed as but one consequence of the death and repudiation of the old ideal of central planning and top-down control. In particular, the greatest recent gains in international economic integration (the ones that have allowed us to talk sensibly of a truly global economy) have come with the demise of communism and various state-dominated systems in developing countries. Those earthshaking political transformations unraveled state controls in both the domestic and inter- national spheres; consequents, they have brought billions of the world's population into the fold of a now planet wide division of labor. The popular view of globalization has things topsy-turvy. Globalization, the conventional wisdom holds, undermines sovereignty. In fact, however, the more powerful currents of historical causation flow in the opposite direction. It is the retreat of the state that has allowed international market relationships to regain a foothold. This retreat was provoked, not by the impingement of blind economic forces or by transports of libertarian enthusiasm, but by disillusionment. The dream died because it failed: It failed morally in the horrors of its totalitarian variants; and it failed economically by miring billions in grinding poverty and subjecting billions more to unnecessary hardships. Globalization is the fitful, haunted awakening from that dream.