Until about two weeks ago when instabilities in the Middle East exploded on America's television screens, voters expressed little interest in foreign policy issues. Time and again, polls indicated that they were focused on domestic issues, with education, health, and social security topping their lists. Like 1992 and 1996, the first campaign of the new century revolved around the economy. But disturbances in the Middle East are a jarring reminder that the fate of the American economy is inexorably tied to developments in the global economy. There were other less visible but equally compelling reminders of this reality earlier at meetings of the International Monetary Fund and the World Bank in Prague.
Despite the inattention of American voters and the resistance of a motley group of protesters, the interdependence of national economies--globalization in a word--continues to intensify. It's driven by the same marvelous new technologies that allow Americans to search the globe for the best vacation spots, investments, products, and chess partners.
But technology has not eliminated surprises and bumps along the path to a more integrated global economy. Look at what happened at the recent meetings of the IMF and World Bank. Inside the formal conference halls, officials who planned to discuss how to deal with the sort of financial crises that rocked global markets in 1998 instead found themselves confronting the implications of the sudden spike in oil prices and the unpredicted weakness of the euro.
EURO POWER. They intervened to stem the euro's decline because of its unwelcome effects on inflation, interest rates, and economic growth. What was new in this intervention was the currency itself, one created to hasten a unified market in Europe. This unification has a clear political component to it. The euro, in effect, reflects a political commitment to economic interdependence on the part of participating countries. The Danes realized this when they voted not to join the European Monetary Union, preferring a slower pace of integration with Europe.
Despite its weakness and limited backing, however, the euro has already unleashed a powerful wave of consolidation and investment in Europe that has helped sustain the global economic expansion of the last two years. Americans may not be watching, but the creation of a unified market and currency in Europe has already affected the American economy, and there's more to come.
Global economic integration has also been behind the 50% jump in crude oil prices. During the last year, economic growth around the world accelerated, increasing demand for oil sharply. Officials from the industrial nations at Prague helped to reverse the speculative spike in oil prices threatening the global expansion by relying on persuasion, bluster, and some well-timed intervention in the form of a U.S. decision to release 30 million barrels from its Strategic Petroleum Reserve. And the Saudis, understanding that their development prospects are linked to global prosperity through an elaborate web of interdependence, announced plans for a substantial increase in production.
Perhaps the greatest beneficiaries of the actions taken to stabilize world oil prices were developing countries with economies that are voracious users of energy. The developed countries leading the charge for lower prices consume only half as much oil per dollar of output as they did during the early 1970s, when they first confronted the brutal reality of interdependence in global energy markets.
Outside the meeting rooms in Prague, perhaps 10,000 activists converged to express their concerns, and in a few cases their rage, about what they perceive to be the downsides of globalization. Some of these protesters were representatives of well-known groups such as Oxfam, and they seek not to reverse globalization but to spread its benefits more equally among rich and poor countries. In Prague, they focused their appeal on debt relief for the poorest nations. Although no progress was achieved, continued pressure by such groups could help break the political logjam on this issue in the future.
The Prague protesters also included an odd collection of dyed-in-the-wool opponents of globalization who are willing to use force to pursue their obstructionist objectives. Despite their disruptive tactics, such protesters are fighting a misguided and ultimately losing battle. Since Marco Polo set off for trade and adventure seven centuries ago, globalization has been on a generally upward trend.
Globalization has been a potent force for rising living standards, which is why emerging nations chose to break down the walls to trade and foreign investment. American voters may not want to hear much about globalization during this election season, but it will continue to exercise a growing influence on their lives. It shouldn't take a crisis to get them to pay attention to this reality.