Bush Administration and New World Order

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THE BUSH ADMINIS TRATION AND THE NEW WORLD ORDER Walter Russell Mead World Policy Journal, Vol. 8, No. 3 (Summer, 1991), pp. 375-420

One thinks of Saul, the first great hero of the unified Hebrew Kingdom. A pragmatic monarch most of the time, he seemed more concerned with smiting Philistines than with the great questions of life. Disturbed by the intrusion of the irrational into the ordered society he sought to establish, he drove the fortune-tellers and the mediums from his kingdom and attempted to create a secular order independent of the old prophetic leadership. But there were other sides to Saul's character. On the eve of the battle that took his life and destroyed his dynasty, he sought guidance from the W itch of Endor; on the occasion of his anointment, this practical politi­ cian fell into a religious frenzy and was found for three days in the com­ pany of the prophets, prophesying with them and praising God, astonishing his contemporaries and giving rise to a new proverb in Israel: "Is Saul also among the prophets?" Saul's spiritual life was not all sunshine; by night, an evil spirit tormented him. The old king grew moody and unpredict­ able, subject to unnameable fears and sudden rages, cursing his children and hurling spears at his friends. President George Bush is more even tempered than Saul, but he, too, has been seen among the prophets-and he, too, is haunted by night­ time fears. At one moment his administration proclaims the dawn of a new American-led world order: prosperity is breaking out in the developing world and the advanced industrial countries are rallying behind Washington's universal alliance for stability. Then the mood changes: Washington feels irrelevant in Europe and confronts a Japan that, increas­ ingly, can and does say no. In one mood the administration responds quickly and decisively to the military challenge of Iraq; in another it responds Walter Russell Mead is senior fellow for international economics of the World Policy Institute at the New School for Social Research. He is working on a book about American foreign policy in the post-Cold War world for the Twentieth Century Fund.

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languidly and almost passively to the breakup of the old European order. The GAIT (General Agreement on Tariffs and Trade) system, linchpin of Washington's international economic strategy for decades, lurches toward crisis; Washington alternates between an aggressive drive co extend the GAIT process into new fields and a passive abandonment of GAIT in favor of a system of bilateral negotiations with important trading partners. In one mood it calls for the consolidation of a liberal global trading order; in another it prepares for a shift to a world of trading blocs. The administration has good reason to feel confused; for all its political success, it lacks confidence in its ability co lead the country and respond to world events. The Republican Party has dominated policies in the United Scates since 1968; men like George Bush and Secretary of Seate James Baker have spent the past generation in or near the corridors of power. Their Democratic rivals nip at their heels and howl disconsolately at the moon, but they are a nuisance more than a menace. Under Bush, the Republican Party has regained the supremacy it enjoyed from the Civil War to the Depression. The opposition Democrats present a disheartening spectacle of leprous corruption, intellectual incoherence, and political incompe­ tence. The Republicans are once more the national party, the natural party of government. Only a depression, a Republican split, a scandal of Water­ gate proportions, or, possibly, the nomination of J. Danforth Quayle can break the GOP's hold on the W hite House. The success of Republican politics is beyond question; the success of Republican policy is another matter. W hether gauged by the traditional Republican measures-the strength of the dollar, the size of the budget deficit, the health of the banking system, and the amount of crime-or by the Democratic ones-the rate of unemployment, the level of real wages, the state of the health-care system, and the condition of the inner cities­ Republican rule has not had the desired effects. During a generation of Republican domination, we have tripled the national debt and devalued the dollar by 90 percent against gold and by 60 percent against the mark and the yen; there is seemingly no end to this process. Political omnipo­ tence, policy impotence; it is the best and the worst of times. Elevated by political success, haunted by institutional failure, the Bush administration-indeed the entire American establishment-swings from manic to depressed. Through 1989 and much of 1990, Washington felt its influence slipping away as Europe and Japan grew steadily more asser­ tive. The center of political gravity seemed to be shifting toward a renas­ cent European continent, caught up in the countdown to 1992 and the

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collapse of the communist world. Newspaper stories spoke of Washington's insecurity at finding itself on the periphery of world affairs. Then Iraq invaded Kuwait, and everything changed. Like the old war­ horse in Job, the administration pricked up its ears; "He saith among the trumpets, ha, ha; and he smelleth the battle afar off." The administration saw a way to turn military strength into a trump card and revitalize its position of hegemony. Germany and Japan turned out to be, in the dis­ missive phrase once used against the English, nations of shopkeepers. The stable world for trade on which they depended could be defended only by the United States; the bipolar world of the Cold War would, it now appeared, be followed by what Charles Krauthammer called a "unipolar world" in which the United States, as the only superpower, would exercise more influence than it had at the Cold War's zenith. It seemed that Washington's approach to the world had been vindi­ cated. Its ability and willingness to project military force around the world would give it the decisive voice in world affairs. Exhilarated by political success in the U.N. Security Council, by its ability to coordinate and fund an international force in the Gulf, Washington felt itself once more to be the center of the world. Hopes rose even higher: the end of the Cold War and the triumph in the Gulf gave the United States the best oppor­ tunity since 1945 to remake the world in its image, and to establish the peaceful and prosperous international order that it had sought since Woodrow Wilson proclaimed his Fourteen Points. Or so prophesied Saul in his elevated moments- but the nighttime fears still came. The dust had hardly settled in Baghdad when the adminis­ tration's old doubts came creeping back. The political problems of the Middle East muddied the clear military victory. Treasury Secretary Nicholas Brady found himself stymied at the Group of Seven (G-7) meeting of finance ministers in May; the other advanced industrialized countries were no more willing to listen to American views on interest rates than before. Was the victory in the Gulf decisive, irrelevant, or something in between? In the late spring of 1991, Washington could not make up its mind.

The Quest for the Holy Grail The desire for a new world order goes deep in American history. Even before we became a great global power, we believed that our example and our values would remake the world; the establishment of a peaceful and democratic world order has been the Holy Grail of American policy since World War I and the collapse of the Pax Britannica. Both Woodrow Wilson

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and Franklin Roosevelt thought they held the Grail in their grasp at the conclusion of the first and second world wars; both times it slipped away. Now the third great conflict of the century is over-the Cold War-and another American president has saddled up his charger and set out in pursuit of this elusive and compelling ambition. Our foreign friends often scratch their heads in wonder at this Amer­ ican obsession with the Grail. They do not know quite whether to admire or pity a country so possessed by this vision; they cannot make up their minds whether to see us as Parsifal or Don Quixote, St. George or Sisyphus. Some, often the French, see more method than madness in our policy; the quest for the Grail, they maintain, merely serves as a cover for the systematic pursuit of much baser ambitions. Commitment to a Wilsonian world order-a society of peaceful, democratic countries agreed on the observance of international law-is a perennial plant in American politics because it is rooted in our perma­ nent interests. Given its size, wealth, and geographical position between the two great oceans, the United States inevitably has global commercial interests that are best served when barriers to trade are few and when eco­ nomic relations among states are governed by law. Our reliance on for­ eign supplies of strategic materials, such as Middle Eastern oil, is the most obvious example of our dependence on an open international trading order, but there are many others. The freedom to invest and to sell is at least as important as the freedom to buy. A rich nation in a poor world, we find revolutions upsetting to begin with, and the economic and technological developments of the 20th cen­ tury have continually strengthened our interest in order. Economic integra­ tion makes disorder more expensive, since our major corporations depend on the flow of goods, information, and capital across international borders. We have other interests that are no less important. As war grows more destructive, our interest in peace has increased. As the ecological conse­ quences of human industrial activity loom larger, we see a growing need for collaborative international efforts to preserve the environment. The recent shift in our economic position from creditor to debtor status gives us a new and powerful interest in an open trading order: the United States must look to exports to assure substantial economic growth. The quest for world order, then, is no passing fancy in American policy. The Holy Grail is no will-a' -the-wisp; it is the polestar of our national policy, the fixed point around which all else revolves. We may underesti­ mate the difficulties of the quest for it, or overestimate how happy we will be if we ever get our hands on it, but no one should doubt that the

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quest for a Wilsonian international order will remain a central element of American foreign policy for many years to come. For much of its history, the United States enjoyed the benefits of world order without incurring the costs of maintaining it. We enjoyed a global marketplace established and defended by a power, Great Britain, with an ideological commitment to free trade and, like contemporary Japan, we did not have to open our markets in return or maintain a military force proportionate to our global interests. As the British Empire came apart, the United States was forced to emerge from the provincial comfort of its traditional isolationism and take on increasing responsibility for international order. We slowly learned that we would have to assume the costs of world order if we wished to maintain it. And as the United States first supplemented and then supplanted Great Britain as the world's most important political and economic power, it made an important discovery: that while the maintenance of world order imposed a heavy burden on a hegemonic power, there were compensa­ tions as well. For 40 years after the end of the Second World War, Amer­ ican concerns-political, moral, economic, and military-enjoyed a privileged position in a world order dependent on Washington. This experience only reinforced the deep American conviction that an orderly world is better than a chaotic one, and that the maintenance of global order is a proper object of American diplomacy. If the Bush administration's quest for order is well within the Amer­ ican mainstream, it is more original in its choice of methods. The adminis­ tration's overall approach to foreign relations is the culmination of trends increasingly evident over the past generation; its international economic policy represents a significant departure from that of its predecessors. 'Th.ken together, these two aspects of Bush administration diplomacy amount to a clean break with the traditional U.S. foreign policy. Princely Diplomacy. Traditional Anglo-American diplomacy, like that of Holland, Venice, and contemporary Singapore and Japan, was a com­ mercial diplomacy. It frankly recognized economic advantage as the chief goal of foreign policy; military prestige and power were useful as means to an end, but were not ends in themselves. British, Dutch, and American history shows that commercial societies are not insensitive to the martial virtues, but the ruling circles in these countries looked in the last analysis to the counting houses and not to the barracks. The Anglo-American diplomatic tradition gloried in its ability to provide for its security with a minimum of expenditure. Large standing armies in peacetime were burdens on the public purse and menaces to

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liberty; the Anglo-American tradition looked skeptically on military demands for higher appropriations and greater strength. The United States was even better off than Great Britain. Britain had the English Channel to protect it from the land wars of Europe. We had the ocean- and the British navy. With what were minimal expenses by the standards of continental Europe, both the United States and Great Britain were able to protect their essential commercial and security interests and, as maritime trading powers, to further their commerce with the entire world. The result was a self-sustaining, pay-as-you-go foreign policy. The commercial and economic rewards of this strategy, in other words, were sufficient to fund the military expenditures it emailed. Military deploy­ ments defended commercial interests; commercial prosperity funded mili­ tary costs. A different tradition dominated the thinking of the great powers of the European continent. For these powers, security policy was more impor­ tant than economic foreign policy. This "princely" tradition was rooted in centuries of conflict on the continent, where each great power was locked in a struggle for dominance with its powerful and jealous neighbors. The costs of these states' military establishments were high; much of the energy of the state was consumed in the struggle to maintain national prestige. The feudal origin of the continental regimes also played a role in the development of the princely tradition. The military and the diplomatic services remained the preserves of the aristocracy until the final collapse of the dynasties in the First World War. Money was important for the regi­ m�nts it would buy, but its acquisition was primarily the business of the mercantile, not the governing classes. A disinterest in economics, and a contempt for those who made their living in trade, was widespread among the ruling classes of Central and Eastern Europe. Global competition with the Soviet Union pushed the United States along the road trodden before it by Austria, Prussia, and Russia. Military supremacy came to be seen as the key to security; intangible prestige was more important than tangible gold in the vaults. The old school did not perish without a struggle. Dwight Eisenhower's warning against the military­ industrial complex was a plea for the older commercial tradition. John Kennedy once said that he was more worried about the balance of trade than about the Soviet military; both he and Lyndon Johnson sought to follow simultaneously the dictates of commercial and princely policy. Not until the Nixon administration chose to continue the war in Indochina at the cost of abandoning Brenon Woods did the United States set its feet firmly on the princely path.

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The princely view, which regards American foreign policy as an exercise in power politics, survived Watergate and Ronald Reagan co become the central idea of the Bush wing of the Republican party. The cloak of Met­ ternich sits uncomfortably on American shoulders, however; Bush and Baker, like many Americans, feel an instinctive, Wilsonian distaste for princely scheming. Nevertheless, in its essentials, the Bush policy is a princely one. Military strength, and the will co use it, create military pres­ tige; this prestige generates the political strength necessary to defend national interests. The American princely tradition is more assertive than the diplomacy of Metternich. The Austrian chancellor, along with many European diplomats of this school, was concerned about preserving his state's place within a balance of powers. The princely tradition in American diplomacy grew up at a time of national preponderance; as a result, American diplomats have the habit of command, and American diplomacy has trouble seeing any options between domination and abdication. The princely tradition also breaks with the traditional American consti­ tutional system of foreign policy. The commercial tradition is legislative or at least oligarchical. It is a tradition of Whig magnates, of well-entrenched mercantile elites in Venice and Amsterdam, of the deliberative Senate in Washington. The princely tradition is executive; it holds that the executive is inherently more competent than the legislature, and that the intrusion of the legislature into the sphere of foreign policy is at best a necessary evil. It is the attitude of a Hapsburg emperor and his chancellor reluc­ tantly consenting to meet with a delegation of drab parliamentarians from the middle classes. In the United States, the transition from a commer­ cial to a princely foreign policy has followed a shift in the center of polit­ ical gravity from Congress to the W hite House, and the resulting atmosphere of intrigue and secrecy would be familiar to any habitue of the old courts of Europe. All foreign policy is more interesting and elevated than all domestic policy; this is one axiom of the princely tradition. Another princely tenet is that economic diplomacy is low diplomacy. Arms talks, NATO, the China card, and the Persian Gulf-these are the mountaintop moments of a presidential and diplomatic career. The Bush administration is bound to this tradition by training and inclination. The careers of its senior officials have been shaped by the Cold War; the princely tradition and the habit of command are for them synonymous with foreign policy. The discom­ fiture of the Bush administration prior to August 1990 grew from the fear that this tradition could no longer provide useful guidance in the pose-Cold

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War world. For decades the United States had built up its military; it had an unrivaled network of global bases and a vast industrial complex dedi­ cated to the supply of its forces, while a generation of America's finest minds had been shaped by the struggle with the Soviet Union. The people who made American policy had invested years in mastering the arcana of NATO deployments and the intricacies of the arms race. Those whose inclinations had led them to study trade and other problems of "low diplomacy" found their careers sidelined. The end of the Cold War and America's loss of control over its allies created a crisis of confidence for princely diplomacy. Had the national and personal investments in princely policy suddenly become irrelevant? Was the United States, like the Soviet Union, a clumsy dinosaur of a power, destined to die out as smaller, sleeker, and more agile powers like Europe and Japan inherited the earth? For the products of the princely tradition, Operation Desert Storm was like a breath of fresh air. How satisfying to move on Iraq; how invigorating to leap, to bellow, and to thrash one's mighty tail; to fed the earth shake and to watch the tiny mammals scatter when at length one stamped down one's immense, irresistible foot. The aftermath of the war has not been quite as satisfying; Saddam Hussein still chitters in his burrow, the mammals somehow keep eating one's eggs, the irritating Bundesbank keeps its dis­ count rate uncomfortably high. Even so, a generation of policymakers felt a blessed sense of relief as Iraqi tanks rolled into and then out of Kuwait; the princely policy might have a future after all. The commercial tradition in foreign policy is neither altruistic nor pacific - just ask the Indians what they thought of the Raj - and British governments of the 19th century intervened against provocations less marked than Saddam's invasion. But the desert war had a special meaning for the Bush administration. It was taken as confirming the theoretical basis of the princely tradition: that military strength is the source of economic power, and not vice versa. Power grows from the barrel of a gun - this is the lesson Washington proclaimed in the wake of the Gulf War. And, the administration believes, just as the allies' fear of the Soviet Union made them more responsive to Washington's leadership during the Cold War, their concern about insta­ bility in the Third World will give Washington an edge in the post-Cold War era. The U.S. government, which in July 1990 had anticipated inter­ national isolation and irrelevance, not to mention a profound and wrenching reorientation of its military and economic policy, hoped ear­ nestly that victory in the desert had ended this disagreeable prospect. The

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United States would have to reform its military to direct it away from the Soviet threat and toward instability in the developing world, but other­ wise it could simply revert to the Cold War style of American leadership. Indeed, the administration felt that the war placed the United States in the best position it had occupied since the Tet offensive of 1968 dealt its military prestige a crippling blow. After victories in Grenada and Panama, Washington had now taken on and taken apart one of the largest military machines in the developing world. Popular faith in the military seemed to be restored; Washington's ability to carry the American people into a military adventure had been convincingly demonstrated before a global audience. It did not diminish the administration's pleasure in its efforts that the war was a struggle related to control of the world's oil trade. Oil is a busi­ ness that has been at the core of American economic, technological, and political vitality throughout the 20th century. It is the chief business of the home state of the president and his secretary of state, and the busi­ ness in which the president made his personal fortune. As the vast reserves of the Middle East were discovered, successive generations of oil men and diplomats made it their business to gain control of this rich prize for the United States. International political supremacy based on the military defense of oil is an agenda that perfectly confirms the expectations and satisfies the hopes of the Bush generation of Republican leaders. The administration was not just fighting for Kuwait; it was fighting for its world. The Neoliberal Option. In addition to its embrace of princely diplomacy, the Bush administration's foreign policy represents a break with the past in another sense; from the standpoint of neoliberal economic theory, this administration is the most orthodox in American history. One could even argue that it is thefirst orthodox administration in American history, since the Reagan administration, for all its virtuous rhetoric, presided over an orgy of deficits, credit, and devaluation. We are a nation of heretics. Theologians and economists have wept for our sins since the American Revolution. We listen respectfully to Moses, then dance around the golden calf. Now the Bush administration pro­ poses to keep us on the straight and narrow. More than any of its predecessors, the current administration has attempted to take its eco­ nomic policy directly from the textbooks. The neoliberal stool rests on three legs: laissez-faire, hard money, and free trade. American politicians, even the most commercially minded, have generally employed one or at most two of these elements. George Washington and Alexander Hamilton favored hard money, but that was

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as far as they went. As for the rest, they were convinced protectionists who also believed in what today would be called national industrial policy. Canals, turnpikes, railroads, and the promotion of manufacturing: Fed­ eralist, W higs, Democrats, and Republicans worked to foster the indus­ tries of the new country. In later years, U.S. commercial and corporate interests downgraded their support of industrial policy, but their adherence to protection grew steadily deeper. Free trade, like free silver or even free love, was denounced as a dangerous doctrine by generations of American industrialists, bankers, politicians, and even economists. We did not have a centralized bureaucracy, but otherwise our policies were similar to those of present-day Japan. We exported, and felt no obligation to import in return. Our textile industry was based on stolen British technology and protected by discriminatory tariffs. Enemies of the manufacturers opposed protection for reasons of their own, but it was difficult to find anyone in American business who doubted the efficacy and the morality of protection. In the wake of the disastrous effects of the 1930 Smoot-Hawley Act, the Republican establishment understood that protectionism had to go: the United States could no longer get away with free trade abroad and protection at home. But the acceptance of free trade brought little conso­ lation to the orthodox. Beginning in 1933, the United States moved for 40 years in a Keynesian direction-toward soft money and a regulated economy. This was the concept of Bretton Woods, which I have discussed more fully in another article.1 The present administration is as committed as any American adminis­ tration can be to all three components of neoliberal orthodoxy. It is, moreover, determined to test this doctrine in the laboratory of history. The administration's faith deserves a better reward than it is likely to get; for all its virtues, neoliberal economic thought is unsuited to the present circumstances of the United States. Twenty years ago, the neoliberal cri­ tique of the existing Keynesian system was not without merit. A genera­ tion of Keynesian policy had led to many rigidities and inefficiencies in the micro realm of economic policy, while the threat of inflation appeared more dangerous than the prospects of deflation due to insufficient demand. It was the Keynesians who seemed to have the wrong concepts for the problems of the day-perversely, just as their intellectual hegemony seemed complete. "We are all Keynesians now," said Richard Nixon at, as usual, the worst possible moment. Now neoliberal principles have attained the kind of universal accep­ tance that often, in politics and the stock market, immediately precedes

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definitive failure. The United States needs positive economic policies that neoliberal economics cannot comfortably or elegantly provide. Questions for which neoliberalism gives few or inadequate answers- the construc­ tion of a trading order in the ruins of the socialist bloc, the problem of U.S. exports in glutted global markets-do not call on the strengths of the neoliberal tradition. Neoliberal economists look at policy in terms of Thou Shalt Nots: thou shalt not protect thy markets; thou shalt not regulate thy private sector; thou shalt not inflate thy prices. Neoliberalism is a recipe for negative policy. One assumes away the evidence of American, Japanese, German, South Korean, and Taiwanese history; since positive economic policy fails the test of theory, it cannot have worked in practice. QED, and now back to SDI. The neoliberal mind is happy to dismantle barriers, uncomfortable with building structures. Yet a system of free trade requires more than just tariff reductions- it needs a regulatory structure. As international trade grows in importance, the emphasis in trade negotiations shifts from barrier reduc­ tions to economic integration. Thus, for Western Europe to form a single market, a new, European regulatory structure had to be established and reconciled with existing structures. This could not be, as neoliberals would like, a simple process of reducing European regulations to the lowest common denominator. One could not reduce German labor law to the level of Spain or amend the French system of appellations controlees to fit the more flexible categories of Itafy, nor could one be sure that in all cases the European system of regulation would abolish local laws. Given that economic practice in each individual country rests to a large extent on unwritten consensus and custom, a multistate regulatory system will in general be more encumbered with written regulations and enforcing mechanisms than the national economic systems it embraces. One must regulate to liberalize. The neoliberal spirit recoils from this paradox, but the paradox does not disappear on that account. The neoliberal mind likes production, but has problems with consump­ tion. It believes that the private sector ought to be freed up to invest, but it does not worry about where the new production will find a market. Wage reductions increase profits, reasons neoliberalism; higher profits mean more investment; more investment means more jobs. Yet neoliberalism is sublimely indifferent to the problem of demand. Low wages shrink markets; goods that cannot find markets cannot be sold at a profit; invest­ ments will not be made if markets are already glutted. Neoliberalism takes

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no interest in these Keynesian problems; Say's Law, which asserts that supply creates its own demand, has never been repealed. Neoliberalism is capitalism trying to recover from its "Depression syndrome'� the nagging fear that without positive state economic policy of various kinds the whole system can stagnate or even come crashing down. One notes that since neoliberalism began its rise with the collapse ofBretton Woods, growth rates are down in all the advanced economies, while inflation and unemployment have both been higher on average than during the Bretton Woods period. One notes also a financial system increasingly devoted to rash speculation and a dangerous reliance on debt as the one means of financing consumption. Neoliberals see all this and draw no conclusions; in fact, the most vociferous advocates of neoliberal economics are found in the financial sector that has reeled from one disaster to the next for 20 years, but no matter. Countries don't default, supply creates demand, and there is nothing complicated about free trade. This outlook has everything needed to recommend itself to a foreign policy establish­ ment little given to economic study or reflection: it is as respectable in the academy as it is on the golf course, and, crucially, it is easy to understand. Unfortunately, neoliberal economics and princely diplomacy are un­ wieldy tools with which to build a world order. They are especially unsuited for the kind of world order that America needs. Princely diplomacy is as negative a policy as neoliberal economics. A military policy can deter or roll back attack; it can extend a security guarantee within which nations and regions can evolve in peace; but its ability to shape the evolution of those states is sharply limited. Princely diplomacy made a certain sense in Cold War Europe; if the Soviet Union could be stopped, then Western Europe could recover from the war. But in a new era in which the world faces no specific security threat, a positive diplomatic agenda is required. As in the 1920s, the task is to build an order that accommodates the interests of many states. If we fail, then presumably security threats will appear in due course. The administration is like a person with a hammer in a room full of jello; its conceptual tools are unsuited to its policy tasks. Neoliberal eco­ nomics and princely diplomacy united in the service of the Holy Grail of a Wilsonian order: this is the Bush vision of how foreign policy should work and what it should do. When the Grail seems close at hand, the administration's mood soars; its problems are manageable and its world view secure. When the Grail threatens to escape us, then the administra­ tion faces a double challenge. Its foreign policy goals appear to be eluding

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it and, at the same time, the conceptual tools with which it makes foreign policy begin to look unsound. This is not a happy situation, either for the administration or for the nation so led. Washington's conceptual tools leave it unable to under­ stand events, much less to shape them. The discontinuity between the euphoric vision of the new world order and the gloomy sense of irrelevance and anarchy is so great that Washington seems to have two different world views and foreign policies at the same time. It marches forward, trumpets blaring, into the new world order; at the same time it retreats to lick its wounds in a Fortress America. The United States has more problems than the administration under­ stands in its euphoric moments; it has more choices than the administra­ tion believes on its depressed days. A more balanced assessment of the U.S. position in the world is essential if the administration is to shape the new approach to foreign policy that is so urgently needed. The Rosy Scenario In its eupeptic moments, the administration looks out across the world and sees a new order being born. The old postwar relationship among the advanced industrial democracies is being replaced by an alliance even more sweeping than the old one; the United States will remain in control of this alliance even as it pays a smaller share of the bills. Meanwhile, the communist world and the developing countries are rapidly becoming more peaceful and prosperous. Liberal democracy and liberal economics will reign around the world; history is over-and we won. Picking holes in this theory is like shooting fish in a barrel, and even the administration has its dark doubts. Nevertheless, the rosy scenario still has its true believers in Washington. It seems well worth the effort, therefore, to look systematically at the basis for the administration's hopes that a new world order is at hand. The Universal Alliance. W hether their diplomacy is princely or com­ mercial, the first task that engages the attention of American diplomats is the coordination of relations among the advanced industrial democra­ cies of North America, Western Europe, and Japan. These states' cooper­ ation on economic and security issues is an essential part of any effort to build a world order, and a new sense of optimism about relations with the industrialized countries contributed to the exhilaration sweeping Washington in the spring of 1991. The administration is smart enough to know that cooperation among

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these countries cannot simply be taken for granted. Western Europe, the United States, and Japan all share an interest in an orderly world, but that shared interest is not enough, unless channeled and supported, to secure the active cooperation necessary for a new world order to take root and grow. After all, the great powers of 1914 were rich countries with a shared interest in European stability, but they failed to act together on the basis of this interest to prevent the catastrophe of World War I. The advanced industrial democracies stuck together during the Cold War, but that was due to their common fear of the Soviet Union. If Bush and Baker sound upbeat today about the possibility of establishing a new world order, it is partly because they believe that, thanks to Saddam Hussein, they have found a way to regulate the political and economic relationships among the leading industrialized countries. The new U.S. security strategy rests on the transformation of the NA1D and U.S.-Japanese alliances into a global alliance against potential future threats. Communism no longer seems to need much containing, but without a common threat there can be no alliances. W ith the Iraqi inva­ sion of Kuwait, Washington felt that it had a new and convincing global enemy to contain: chaos and scoundrelism in general. There are bad people out there in the world, so the old anti-Soviet allies- with help from the chastened and repentant Soviet Union- will dub together to keep Saddam Hussein and his ilk in line. Meanwhile, fear of the Saddams of the world will keep the advanced industrial democracies in line behind Washington. The Bush administration believed that what it was orchestrating in the Gulf was a successful transition to the new universal alliance. Yet the pro­ posed changes in the alliance structure are revolutionary in nature and will be much harder to bring about than Washington currently understands. Washington's new security policy is politically radical but psychologi­ cally conservative. The expansion of containment into a doctrine applied to all gross violations of international law entails an expansion of U.S. responsibilities and a reorientation of its alliances, but not a change in attitudes. We are still containing a globally active force for evil, and we still see our policy in one global trouble spot as related co our policy in others. If we had not shown resolve in the Gulf, the administration believes, we would face new challenges in other parts of the world. Conceptually and psychologically, the new policy inhabits the same world as the old one. This is a comfortable world and a familiar one for Washington, but unfortunately nobody else lives there any more. There are disturbing signs that the administration does not fully grasp just what it is asking of its

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allies: to commit themselves to a costly universal alliance at a time of dimin­ ished direct threat to their own security. There are two major difficulties with the administration's new strategy. One is the growing reliance of the United States on the support of its partners as it pursues its security objectives. Inability to pay one's bills is a frequent consequence of a princely policy in foreign affairs. In the 18th and 19th centuries, the great powers of continental Europe were con­ stantly nagging the maritime powers for subsidies and support. In 1956, President Eisenhower did his best to drive France and Britain from the Middle East; now President Bush wants not only those two countries, but also the Germans and the Japanese, back in the Gulf. Those who pay the piper end by calling the tune; Washington's new dependence on for­ eign funding is certain to impose limits on the independence of its for­ eign policy. This brings us to the second difficulty facing the universal alliance. Each of the advanced industrial democracies has its own views about security and order. There are regions of the world-such as much of sub-Saharan Africa-where no major power believes great global issues are at stake. There are other regions, such as Latin America, where Europe and Japan are largely indifferent to problems that may seem crucial to Washington. Both the United States and Japan are far more keenly interested in the Philippines than are the Europeans, while nobody but Japan is very interested in the fate of the tiny islands north of Hokkaido. For France, and even more for Italy, North Africa is a vital region where issues of great importance must be decided. The United States, by contrast, is not interested one way or the other in the political evolution of Algeria. Much German opinion still agrees with Bismarck's belief that the Near East, and much less Iraq, contains nothing worth the bones of a single Pomera­ nian grenadier. The timely removal of Soviet troops from German soil, however, looms much larger in Bonn than in Paris, Washington, or Tokyo. Beyond these questions of differing priorities, which are of great impor­ tance to the operation of an alliance, are the even graver problems of different interests. The survival of the Arabian sheikdoms is of vital interest to the United States. The existence of these rich but weak states helps prevent the establishment of a united Arab state that would be a military menace to Israel. Moreover, the reliance of the Gulf states on U.S. mili­ tary power adds significantly to U.S. economic and political clout around the world. The special position of the dollar is something other countries are willing to accept, but not eager to defend; for Washington it is the keystone of

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the economic world order. The interests ofJapan and Europe in the Middle East -first, for the predictable delivery of oil at a predictable price and second, for political stability- might be better served in a world without sheiks in, say, an Arab republic stretching from the Mahgreb to the Shatt-al-Arab. If, like Turkey, this republic was largely contented with its boundaries and was committed to peaceful economic development, Europe and Japan might welcome its establishment. For the United States, the consolidation of the Arab world into a small number of republics, even peaceful and stable ones, would be much more problematic. The sheikdoms need U.S. protection and reciprocate with many favors. Their economic support is especially important. Their will­ ingness to hold large dollar balances and their decision to price oil in dollars underpin what remains of the dollar's status as the principal world cur­ rency. The loss of the privileged position of the dollar in the Gulf would be a crippling blow to the United States; it would be less painful, perhaps even beneficial, to Europe and Japan. In some cases the conflict of interest among the Cold War allies is even greater. Both NATD and the U.S.-Japanese security relationship have a double focus, with each seeking to contain not only the Soviet Union, but also the old Axis power involved. With the Soviet threat diminished, these contradictions remain to complicate the task of policy coordination. Even at the height of the Cold War, the United States and Europe failed to coordinate their foreign policies outside the NATD theater of opera­ tions. The clash over the 195 6 Suez crisis was only the most dramatic in a series of disagreements and divergent policies. Ventures that the United States considered critical to the world order- its wars in Indochina and Korea, for example- received very little support in Europe. On the other hand, the French wars in Indochina and North Africa were unpopular here. The decline in Soviet power will make our allies less interested than ever in a globally coordinated foreign policy. A global alliance for "good" would be a fine thing- but we shall first have to agree on what good is. The difficulties only increase when we consider security relationships with non-European regional powers. The world order that the United States and its developed allies are prepared to defend is one suited to the needs of demographically stable, aging countries at a high level of development. It is difficult to imagine a stable system of alliances to defend this order that would incorporate underdeveloped debtor countries in the midst of a population explosion. The United States never solved this problem during the Cold War, and it will remain a thorny issue in the new era. Finally, our efforts to persuade Germany and Japan to increase their

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international military presence may not make us as happy as we think .

If we succeed in curing the "World War II syndrome" that has made Ger­

many and Japan reluctant to project military power, and persuade them to adopt a more princely diplomacy, will we like what we get? A society with a global military role is a society with a powerful military-industrial complex eager to grow; it is a society convinced that military activism is an important part of its national security. If Germany and Japan become more military-minded, chis does not mean that either country would return to its openly piratical policies of the 1930s and 1940s. But it would mean that they would seek to advance their own interests, as they understand them, with much less consideration for Washington's views. Washington may think primarily in security terms as it considers its foreign policy options, but other nations see matters differently. The com­ mercial orientation of German and Japanese policy will cause recurring strains as Washington seeks to give the universal alliance a military and political character, while the other powers seek to make it an instrument of their commercial policy. Already Germany and Japan are resisting U.S. attempts to shape world economic policy in the service of political interests. U.S. proposals for debt forgiveness for Poland and Egypt have met stiff resistance, with authoritative voices in both Germany and Japan warning that such steps will seriously impair the borrowing abilities of the beneficiaries. Washington may think that a universal military alliance to contain global instability will be an instrument for shaping the world to its liking. It is likely to discover, however, that the purpose and direction of any such alliance is likely to slip steadily and inexorably out of its grasp. We rely too heavily on our allies, and our allies are too wedded to their commer­ cial theories of diplomacy, for the alliance to keep the shape the adminis­ tration wants. Worse, as the alliance gradually loses its princely character and embraces a commercial agenda, it will drift-as it is doing already­ toward a commercial agenda that is contrary to the interests not just of the United States, but also of the developing world and of the formerly communist countries. The World Trading System. Supplementing Washington's overall security­ based strategy for shaping its relationships with Germany and Japan is a neoliberal economic program that seeks, in essence, to transform the United States into a net exporter. More alarmed by the accumulated deficits and debts of the 1980s than it cares to admit in public, the administra­ tion acknowledges that this legacy of debt places irksome constraints on the U.S. economy. We cannot go on sinking deeper into debt; sooner or

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later people will stop financing our defic its. The inevitable readjustment can come either through drastically curtailed consumption - that is, a significant drop in living standards- or through a trade surplus achieved by export growth. The administration, not unwisely, thinks chat the second alternative is the better one. Unfortunately, neoliberal economics offers little guidance on how to achieve this result. The administration's economic views leave it with two possible policy options for achieving a trade surplus. First, it can- and does-call for more rapid growth among its principal trading partners, chiefly by urging lower interest rates on Germany and Japan at G-7 meetings. Second, it seeks to improve access for U.S. goods in foreign markets, preferably by liber­ alizing trade through the GAIT process but if necessary through bilateral negotiations. Washington believes that the importance of U.S. security guarantees will make its partners responsive to its economic concerns, but so far it has had little success with this strategy. Washington's determination to become a net exporter brings it up against one of the most serious shortcomings of neoliberal theory- its approach to the problem of supply and demand. Neoliberal economics, assuming as it does that supply creates demand, cannot cope well with trade fric­ tion resulting from globally glutted markets. The Keynesian economics of the Bretton Woods era understood that an open world trading system required a positive policy to ensure sufficient markets. The International Monetary Fund (IMF) and the World Bank existed in part to support consumption and to avoid the need for sudden shocks in response to external payments problems; the United States further supported the world economy by serving as the consumer and lender of last resort. The United States has lost the ability to serve as a Keynesian locomo­ tive for world growth, but a locomotive is still needed. Because neoliber­ alism cannot acknowledge the need for global stimulus, the United States is prevented from taking any effective steps in this direction. The adminis­ tration cannot frankly call for international policies to support consump­ tion in certain surplus countries or to extend the high-wage and highly regulated system of the advanced industrial democracies into the most successful newly industrializing countries (NICs) because these structures the source ofWestern prosperity and stability-are anathema co neoliberal dogma. Instead, the administration skulks around the edges of the consump­ tion issue. It harps on the need for Germany and Japan to lower interest rates without being able to make a convincing case for its recommenda­ tions on neoliberal grounds. It moves by fits and starts on debt relief-

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now taking the hardest line of all the advanced industrial states, now capri­ ciously writing off the debts of countries like Poland and Egypt for polit­ ical reasons. This is at least as destabilizing to the international credit system as a massive and general write-down of debt on principled grounds perhaps more so, since it feeds a climate of uncertainty-yet it provides less relief than a systematic approach. The administration resists Japan's plans for the creation of new, consumption-supporting special drawing rights through the IMF, and it drags its feet on similar European proposals for Eastern Europe. The inability to face the problem of demand undermines the adminis­ tration's efforts to ensure improved access for U.S. goods in the markets of Ease Asia. These markets have their own strategies for coping with the problem of demand. Washington's failure to understand chis, and its unwill­ ingness to search for common ground with its trading partners, condemn its quest for a trade surplus to futility. The East Asian approach to demand is simple and logical given the historical circumstances of the region. Starting off mired in poverty and backwardness, the East Asian countries-led by postwar Japan-invented a brilliant development strategy: rather than seek to support domestic demand through Keynesian economic strategies, they would keep domestic demand low and export to rich consumer markets in other countries, where Keynesian income policies created high wages and mass consumption economies. This export orientation, which has fueled spectacular growth throughout the region, has created a bloc in search of a market. Ease Asia must export or die. The four tiny tigers-Hong Kong, Singapore, Taiwan, and South Korea - now account for 10 percent of the world's exports in manufac­ turing; the U.S. share is 12 percent. These countries deliberately and sys­ tematically protect domestic producers and limit the size of their domestic markets, maintaining policies that are heavily skewed toward promoting investment and reducing consumption. Japan is not populous enough to absorb the products of Asia, nor do its leaders intend to make the island nation Asia's consumer of last resort. When Washington pressures Tokyo to reduce its bilateral surplus with the United States, Japan responds by intensifying its efforts to channel its exports to East Asia's NICs while they export to the United States. The United States hopes to redress this situation by closing loopholes in GATT that, for example, allow East Asian exporters to systematically flout copy­ right and patent protection for U.S. products and designs. At the same time, Washington seeks through bilateral talks to reduce barriers to U.S.

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goods, even as it acknowledges that such barriers only account for a small proportion of the trade deficit. However just and sensible on their own terms, these initiatives have little hope of producing structural change in the U.S.-Asia trading rela­ tionship because they do not deal with the critical issue of demand. The administration finds it philosophically difficult to acknowledge chat Asia's rapid growth has been dependent on Keynesian demand-oriented policy in the West. Neoliberals believe that the United States must purge itself of Keynesian tendencies and become more like East Asia. Consumption must drop; investment and exports must rise. Economic shortsightedness leaves the administration blind to what should be the real U.S. goal in East Asia: raising consumption levels so that the region becomes more like Western Europe and the United States. If demand-oriented policy can stimulate new markets in Asia, then Asian producers will not need to work so hard to penetrate our markets-and our products will find more buyers over there. This would require a 180degree turn in U.S. policy; the administration would need to become an effective advocate of microeconomic demand-stimulation policies such as international labor rights and social welfare programs in the NICs. A different kind of blindness clouds Washington's perceptions as it attempts to deal with Europe. Here the problem is not so much the neoliberal blindness to demand as it is the neoliberal horror of planning. The Europeans simply do not share the Bush administration's view of plan­ ning, and events are pushing them away from, rather than toward, U.S.­ style neoliberal economics. European history and the record of the European Community (EC) have created a large constituency for planned development within a closed Euro­ pean system. This preference, which is by no means limited to the polit­ ical left, will be strengthened in coming years because of perceived conflicts between the construction of European stability and the requirements of open relations with the rest of the world. Members of the EC see two enormous problems on their doorstep: the Muslim societies to their south and the formerly communist states to their east. The EC governments are trying to devise ways of supporting eco­ nomic growth in these neighboring areas in order to prevent civil distur­ bances and mass migrations. A laissez-faire trade policy could undermine these plans. Export of capital to the United States would reduce opportu­ nities within Eastern Europe and North Africa; open imports of agricul­ tural or low-wage manufactured goods from outside Europe could deprive Eastern Europe of its potential for growth; high-tech imports would interfere

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with the drive of the West European states to position themselves as regional producers of these products. Europe can accept balanced trade with the United States. but it is likely to insist on sectoral safeguards, and it cannot accept a significant long-term deficit in its U.S. trade without endangering its own peace and stability. A sophisticated U.S. trade policy could cope with these concerns. We could participate more fruitfully in discussions about the future of the EC's troubled neighbors and offer alternatives to an inward-turning Euro­ pean bloc. We could help orchestrate a process through which Asia, Europe, and the western hemisphere would find complementary economic roles within an overarching global trading system. But this would require acknowledging the importance of two concepts-planning and demand­ that Washington prefers not to embrace. Princely policy and neoliberal economics have saddled the administra­ tion with policies toward its leading economic and political partners that stagger under the weight of their own contradictions. The outlook is no better for U.S. policy toward formerly communist Europe and the developing world, where misplaced priorities and an inappropriate ana­ lytical framework leave the United States befuddled and paralyzed in a time of historic transition. Communist Europe. Our modern-day Saul once waxed ecstatic in con­ templating the new order arising in what used to be communist Europe. The downfall of communism in the former satellites and the rise of reformers in the Soviet Union originally sent a wave of euphoria through Washington. The great Marxist rebellion against liberal democracy had come to an ignominious end; the Europe that Woodrow Wilson and Franklin Roosevelt had longed for but never seen-a democratic, capitalistic Europe of human rights and international law- was rising in the East. The new world order had never seemed closer at hand. Communism had made Eastern Europe poor; capitalism would make it rich-quickly. This was the easy wisdom with which neoliberal Wash­ ington greeted the changes in Europe. The debacle of communism was somehow assumed to prove the tenets of neoliberal policy - as if Scylla could justify Charybdis. Not only had communism collapsed, but its col­ lape was taken to show that liberalism could work miracles. These miracles would be cheap, and they would not even take much intellectual spadework. A few professors, some hardworking graduate stu­ dents, and some good personal computers could hammer out programs to transform Eastern Europe into Switzerland-or at least South Korea-in a handful of years. The communists had once thought there was a shortcut

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to modernity; now another group of intellectuals would get a chance to remake society according to lines on a chart. Not that blueprint, this blue­ print. Fifty billion dollars was considered an upper limit for the amount of aid Eastern Europe would require; five years was the time frame envi­ sioned for its transformation into something approaching conditions in the West. This misplaced optimism explains, though nothing can excuse, the lack of U.S. leadership with respect to the former Soviet satellites and the lack of U.S. realism with respect to the Soviet Union. The roses are fading from this scenario, though Washington has still not come to grips with the real story in Eastern Europe. Despite some promising developments scattered here and there, the situation in the eight formerly communist countries (East Germany, Poland, Czechoslo­ vakia, Hungary, Romania, Yugoslavia, Albania, and Bulgaria) continues to worsen. The core problem of the region-its attempt to build capitalism without capital or capitalists-has not been addressed. Even the pessimists underestimated the difficulties of the transition. New estimates emanating from Bonn now project a cost of up to a tril­ lion dollars over 10 years for the transition in eastern Germany-the most successful, and also one of the smallest, of the communist states. The Soviet Union, several years behind the Germans in counting costs, now estimates that its industrial makeover will require $750 billion. It is proposing $100 billion as a reasonable figure for aid from the West. None of the non­ German eastern states can hope for investments on anything approaching this scale; furthermore, none of them enjoys the political and other advan­ tages of the East Germans. W hile some of the smaller, more advanced pans of the region-like Czechoslovakia and Hungary-may muddle through, neither the will nor the resources are present to transform Eastern Europe as a whole into something similar to the West. This suggests that we should be thinking of much of the region as a European extension of the Third World. In the early months of Eastern Europe's transformation, people spoke of its "recovery" from communism. The implication-that the region was ever on a par with the advanced industrial West-is patently false. We will have a clearer understanding of Eastern Europe's needs if we refer to its development, rather than its recovery. This reflection alters our view of the task of building a new order in East Central Europe. In most of the region, it now appears, critical prob­ lems will go unsolved while near-Western levels of affluence will remain elusive. Instead, political and economic events will push these countries toward a social model that is more authoritarian and less enlightened than

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one might wish for. Under the circumstances, it is reasonable to expect some bitterness in the region at the insufficiency of Western aid and the excessive promises made by advocates of a liberal economic system. Ultrana­ tionalist movements seem inevitable in many of these societies, which lack other forces for social cohesion in the face of wrenching change. Meanwhile, the world economy is proving to be a hostile environment for the struggling states of the region. The U.S. market is a difficult one for these countries; chilled by recession, it is contested by well-established, well-capitalized, and experienced suppliers from all the advanced indus­ trialized countries of the world. Western Europe has been slow to open its doors to Eastern products. Heavily subsidized Eastern industrial goods like steel and coal cause problems for the carefully balanced EC system of national cartels and restricted competition, while Eastern Europe's desire to export farm produce pits the region's farmers against the EC's powerful farm lobby. In the face of this hurricane of dark forces and despair, the United States has not had much to offer Eastern Europe. Our material contributions have been generally small; the intellectual quality behind our policy initia­ tives has been more modest still. A handful of dollars and a smile; these are the resources that the United States thought would suffice after the fall of the Iron Curtain. Washington supposed that beneath the communist overlay was a part of the world essentially identical to Western Europe. Once the heavy hand of the bureaucratic and conservative occupying power was removed, these countries would return to their true democratic tradi­ tions. That perception and little more guided Wilson's proposals to break up the Hapsburg, Hohenzollern, and Romanov empires two generations ago; we have not learned much since. The Soviet Union shares almost all of Eastern Europe's problems, and economically and spiritually its resources are even less adequate to the scale of 'its tasks. U.S. thinking about the Soviet Union is dominated by many of the same illusions that shape our policy toward its former satel­ lites, with even more serious results. Washington's early debates over the meaning of Gorbachev's reforms were unhelpful. The princely Cold Warriors insisted that the changes were not real, and that communism was engaged in either a ruse or a cunning retreat. The neoliberals argued that the magic of the market, once applied in the Soviet Union, would easily convert it into a liberal-democratic state on the Western model. Both theories illustrated the hopes and fears of Washington policymakers, but neither had much of interest to say about the Soviet Union.

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Unfortunately, these rival schools of thought are still playing a significant role in U.S. policy at one of the most important and dangerous moments in history. The Cold War school wants to embargo aid and promote the breakup of the Soviet Union; it instinctively supports secession by any republic or province. Its program, strongly felt but seldom clearly expressed, is essentially for Soviet unconditional surrender in the Cold War. The market school believes that some program of "reforms''.- never quite spelled out-would resolve the Soviet crisis in short order. These neoliberals would treat the Soviet Union much as the IMF treats Peru; their program, too, amounts to a demand for unconditional surrender. For the Soviet Union to rejoin the family of states on an equal footing, it must not only give up any aggressive intentions against neighboring states (a principle that has been fully accepted by the Soviet leadership) and abandon its current social system, but it must change its social system in a direction and at a pace acceptable to the United States. This is discriminatory treat­ ment, but the Soviet Union is not to object. Gorbachev must beg for a hearing at meetings of the G-7, where Italy and Canada sit by right; Fiji, Vanuatu, and Chad will sit at the IMF table from which the Soviet Union will be excluded; Burundi and El Salvador will vote at GATT, where the Soviets will sit, on sufferance, as observers. This is no way to treat what is and shall remain a great power: it is uncomfortably similar to the treat­ ment of Germany under the Treaty of Versailles. It is a treatment that future regimes in Moscow, whatever their politics, will remember and resent-much as the Bolsheviks resented slights suffered by the tsars. Washington's Soviet policy oscillates between the desire to press for unconditional surrender and an uneasy consciousness of the abyss beneath its feet. On the one hand, the administration irresponsibly encourages (or, in what amounts to the same thing in the current climate, irrespon­ sibly refuses to discourage) secessionists throughout the Soviet Union, while setting impossibly stringent and discriminatory hurdles for aid. On the other hand, it wakes from time to time to the importance of maintaining some sort of stable, nonhostile regime in the Kremlin; at those moments, it generally makes some conciliatory move. Washington fiddles as Moscow smolders. The Soviet Union may well break down into chaos and anarchy. A society of almost 300 million people, disposing of the second most powerful arsenal in human history, hovers on the edge of civil war in a situation of unprecedented complexity and difficulty. Nobody knows how to rebuild the Soviet economy; nobody knows what principles, if any, will allow its hundreds of language and ethnic groups to coexist; nobody knows how far the current slide toward chaos

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will go; and nobody knows what kind of authority will ultimately be able to stop 1t. Realistically, the prospect of significant private investment in the Soviet Union in current circumstances is essentially nil. Even under the rosiest of scenarios it would take many years before prudent investors would believe in Soviet stability or take the word of a Russian government. The lazy hope that "market economics" can bring prosperity and stability to this unhappy country within a reasonable time frame stems from a profound lack of understanding of Western political economy. The market does indeed play an important role in the West, but by itself it cannot fully explain the development of the advanced industrial states. Western societies are much better described as capitalist societies than as market societies; all societies have markets, but not all market societies develop into capitalist countries-and not all capitalist countries are rich. As conservatives should know, the institutions that safeguard private prop­ erty and individual liberty while upholding public order took centuries to mature in the West. The triumph of the politics of compromise over the politics of confrontation came slowly, as did the acceptance of pluralism. Banks, courts, philanthropies, universities, families with the cultural and economic attitudes that foster entrepreneurial qualities in their childrennone of these priceless assets sprang up overnight. W ithout them the life of an advanced industrial democracy is difficult to imagine. For 70 years, the Bolshevik dictatorship labored to extirpate all memory of these institutions and cultural traits from a society where their roots were shallow to begin with. There is no magic, in markets or anywhere else, that can produce a peaceful, stable, happy, and rich society from this history in any short period of time. The way out of the Soviet morass, if indeed one can be found, will be long and difficult. It is not a good sign that much of Washington seems to think that what Soviet society needs is radical reconstruction according to a blueprint imported from a foreign culture; this is an approach worthier of Robespierre than of Burke. The United States must develop a new flexibility and sub­ tlety in its approach to the Soviet Union. Neither the Cold War princely tradition nor the callow magic-market school of economics that goes with it will suffice to understand, must less to respond to, the changes buffeting Moscow as we move toward the 21st century. Our intellectually flaccid and fecklessly optimistic approach to economic matters increases the likeli­ hood of Armageddon in the troubled lands of the old Bolshevik Empire. The storm has not yet begun to blow, but the barometer is still dropping and the wind is from the East.

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The Developing World In recent decades, the developing world has been an object of pity and a source of despair for U.S. policymakers. Its problems were so great and so resistant co solution, and the economic and political resources that could be marshaled against them were so insufficient, that the developing countries and their billions of inhabi­ tants were condemned to a future of misery and stagnation. This in turn led to a bleak assessment of the prospects for world order. Angry, restless, and poor countries would intrigue and struggle against a global system that had little to offer them; communists and the vendors of other totalitarian dreams would continually find new recruits and supporters among the wretched of the earth. The Bush administration thinks all that is behind us. It sincerely believes that the intellectual triumph of liberal economics presages a global eco­ nomic flowering of unprecedented proportions- and that this economic progress will lead to the consolidafr>n of stable, peace-minded regimes in the developing world. We are most prone to facile generalization in fields we know little about. Washington's princely diplomats, for whom economic policy is a secondary concern and for whom the Third World is a backwater, are happy to believe assurances that its problems, to the extent that they cannot be neglected, lend themselves to cheap and painless solution. Development is more com­ plicated than Washington imagines; an overconfident belief in the ability of "market forces" to transform economies in short order has led Washington to underestimate-and fail to prepare for- the many problems and dangers ahead. The stakes are high. No world order can endure that does not meet in some fashion the needs of the developing world. Even after the tri­ umph of Western arms in Iraq, nobody seriously believes that the United States or any combination of countries could police the entire developing world. Closer to home, a stable, mutually satisfactory relationship with Latin America is an essential part of any world order that would suit the United States. L atin America's economic decline over the past decade has caused enormous problems for us: problems of immigration, problems in our banking system, problems with drugs, a long political nightmare in Cen­ tral America, and, least perceived but most serious, a lost opportunity for trade due to the continent's depressed levels of consumption since 1980. In a world threatened by the emergence of new international trade blocs, the health of Latin America becomes more critical than ever co the United States. Throughout the 1980s, our L atin American policy was chiefly preoc-

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cupied with efforts to stop the apparent spread of communism in the tiny nations of Central America, to suppress the cultivation of coca in the Andean highlands, and to promote the transition to democratic regimes. The first effort was based on an ignorant misreading of international and local politics; the second has sunk under the weight of its own contradic­ tions. Neither policy had any significant impact, for good or ill, on the continent as a whole. The third effort has had mixed results, although there are encouraging successes; it remains to be seen whether the new democracies can take root. At the opening of the 1990s, Washington has a new horse to ride. The recent history of the region has been difficult, but the administration is optimistic about the prospects for progress. Ten years ago Washington was obsessed with the fear that Latin America was about to go communist; today it is convinced that it is about to go liberal. Political and economic freedoms are becoming secure, and market-oriented economic reforms are opening the door to new prosperity; these reforms, in turn, are strength­ ening the continent's democracies. This optimism is not entirely without foundation. Liberal ideas have gained new respectability in Latin America. A continental cultural and political shift appears to be under way. The continent's oligarchies seem open as never before to modern ideas. The Catholic Church has made great changes in the past generation, while the continent's cultural elite has also lessened its traditional hostility to Anglo-American liberal thought. Neofeudalism and Marxism, the two traditional strands of intellectual oppo­ sition to liberalism in Latin America, have both collapsed. All these develop­ ments are no doubt related to the remarkable intellectual changes that have taken place in Latin Europe, where the prestige of liberalism in France, Spain, and Italy stands at a historic high. Latin America itself seems deter­ mined to modernize, to become something more like North America and Europe; it wants to emulate the progress of post-Franco Spain. To date, the economic record of Latin America has been notably less encouraging than that of Latin Europe. Nevertheless, many economists and policymakers in Washington believe that the solutions to the conti­ nent's problems are known, and that a transformation of its economic prospects can be effected within a relatively short period of time. The "winds of democracy" blowing through the continent will shortly produce the rains of prosperity that will enable the democratic regimes to put down roots. There are two examples of economic development elsewhere in the world that inspire widespread hope in Washington that Latin America's chronic

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problems can be overcome, or at least substantially reduced. These are, first, the awesomely rapid industrialization of so many of the Pacific Rim nations, and second, the rapid and positive effect on Latin Europe of mem­ bership in the EC. Unfortunately, Washington seems to have misunder­ stood the real lessons of both these experiences. As a result, the policies it is pursuing in Latin America are more likely to undermine than to con­ solidate its modernization. Washington thinks that the industrialization of the Pacific Rim nations is proof that laissez-faire- or at least liberal- economics can bring about rapid industrialization. Here we see the consequences of intellectual sloth. The real story in the Pacific Rim is quite different from Washington's ideal­ ized view of it. W hile it is true that these nations abandoned the import­ substitution development strategy that dominated Latin America from the 1940s to the 1980s, the Pacific countries did not, by any means, adopt laissez-faire economics. They erected high tariff walls around their econo­ mies to protect domestic producers and kept domestic markets small by favoring investment over consumption. Far from serving the cause of democ­ racy, these economic policies went hand in hand with domestic repres­ sion. Pinochet, not Alfonsfn, is the Latin American leader closest to the political tradition of Asia's NICs. 2 Aided by systematic, large-scale government subsidies, NIC producers were able to move into world markets in search of profits while keeping rivals out of their home markets. At the same time, foreign investment, while permitted and even encouraged, was strictly controlled. Much of this investment flowed into special "export processing zones," where normal regulations against foreign investments did not apply; the catch was that goods produced in these regions could not be sold domestically. Even today, the stock exchanges of many NICs are open to foreigners only under a host of restrictive conditions. The most successful Asian producer, Japan, is the nation most consis­ tently cited by the United Scates as an unfair trader. Washington would not be pleased if Latin America did its best to emulate Japan-in other words, if ic systematically closed its markets to U.S. goods, disregarded U.S. patent rights, barred U.S. citizens from its capital markets, and tar­ geted U.S. industries. Yet such policies played a more important part in the success stories of Pacific development than the laissez-faire orthodoxy Washington seeks co impose-in the name of rapid development. Under the illusion that it is encouraging Latin America co emulate the Pacific Rim, Washington is actually following a more traditional and histor­ ically less successful strategy in the region. For many years, U.S. investors

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and corporations have resented Latin American barriers to their penetra­ tion of its domestic markets. It is this old agenda that Washington seems to pursue with the most gusto today. In effect, the forms of market opening that Washington is advocating are likely to perpetuate Latin America's economic dependency and stagnation without opening the door to Asian­ style economic growth. Unfortunately, this approach is also likely to under­ mine Latin America's new willingness to overcome its historical mistrust of Washington. A policy establishment more attuned to economic history would know that the current wave of liberal thinking is not without precedent in Latin American history. The generation that won independence from Spain was as heavily influenced by British thinking as it was supported by British gold and dependent on British trade. Pedro II of Brazil was a liberal mon­ arch in the mold of a Louis-Phillippe or Louis-Napoleon; Porfirio Dfaz believed that foreign investment was the key to Mexican development. Argentina and Chile have both been governed by liberal-minded moder­ nizing parties in the past. Latin history is littered with the failure ofliberal reforms; sadly, Washington's approach gives little reason to believe that the current liberal tide will leave a more enduring legacy than its predecessors did. A similar languid confusion of thought and lofty indifference to detail distorts U.S. understanding of the Common Market experience and its possible lessons for the Western hemisphere. The centerpiece of the administration's Latin America policy - the proposed North American free­ trade area, which will include Canada and Mexico as well as the United States-illustrates the differences between the European and American conceptions of economic integration. Lowering barriers to the movement of capital and goods between the three countries - this is the beginning and the end of Washington's approach to continental free trade. Nowhere in Washington's proposals is there anything comparable to the other features of the Common Market that made the integration of northern and southern Europe possible­ the subsidies for low-income countries, the special regimes and transna­ tional arranger:1ents for vulnerable industries in less developed countries, or the provisions for free immigration. Washington appears to have invented a version of European history that includes all the concessions made by the South to the North, while omitting virtually all of the reciprocal con­ cessions made by the North- including the freedom of citizens in each EC country to seek work opportunities throughout the Community. The failure of the U.S. strategy in Latin America in the 1980s is already

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with us. The new democracies are not healthy. Mexico's political reforms have bogged down; far from achieving democracy, many countries are strug­ gling to maintain any form of organized national life at all-Panama, Nicaragua, Colombia, El Salvador, and Peru spring to mind. In Argen­ tina and Brazil, demotratically elected regimes reel from one socioeco­ nomic crisis to the next as their mandates decay. T his is an environment in which the United States is unlikely to achieve either its great ambi­ tions, such as the modernization of the hemisphere, or its small ones, such as the control of drug traffic. We see many of the same problems at work outside the Western hemi­ sphere. U.S. policy in the Philippines, for example, illustrates the inade­ quate nature of conventional liberal remedies for severe economic and political problems. The belief that laissez-faire solves all problems, and that it can be implemented by democratic regimes struggling to put down institutional roots in countries lacking strong democratic traditions, is an axiom of Washington's global policy. T his is the rosy scenario projected onto a global scale. It recalls both the policies and the psychology of the 1920s, when Washington's confidence in world peace was even higher than it is today. In the rest of East Asia, our support for export-oriented trade strategies has sown a crop of dragon's teeth for the future. The tangled thicket of Sino-U.S. relations already shows the warning signs of contradictory trade and development policies. If China's 1.2 billion inhabitants were to develop along the lines of the 44 million South Koreans, the 5. 7 million inhabi­ tants of Hong Kong, or the 2. 7 million citizens of Singapore, the impact on world trade would be staggering. Taiwan's per-capita trade surplus with the United States was $567 in 1989; its total trade surplus was $11.6 bil­ lion. If mainland China were to achieve the same per-capita trade surplus, the United States would have a trade deficit of almost $750 billion with China alone. If lndia, Pakistan, Bangladesh, and Indonesia were to achieve similar successes, the U.S. trade deficit with Asia's NICs would rise to some­ thing between $1. 5 and $2 trillion. The trade strategies that have worked so well for the first-wave NICs are closed to countries like China and India, yet Washington gaily and blithely encourages them in this direction with one hand, while resisting the trade practices that this strategy implies with the other. The madness goes further. Washington has so much confidence in the miracle-working power of its economic philosophy that it not only urges export-oriented policies on other countries, but attempts to impose these policies through coercion. When India, a nation in a state of profound

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crms, approaches international financial organizations for assistance, Washington takes the line that assistance must be conditioned on India's shift from import-substitution to Washington-style export-led develop­ ment. Neither we nor anyone else are prepared to absorb India's exports if the strategy succeeds, and we refuse to allow India to resort to the pro­ tectionism that such a strategy requires. Yet we insist that India restruc­ ture its basic economic institutions and policies for the sake of this agenda. Trifling with the destiny of the second most populous country on earth in this manner is policy incoherence raised to an art form; it is typical, alas, of current U.S. attitudes toward the developing world. The Perils ofProgress. As we have seen, the economic outlook for the world is less rosy than the administration forecasts. And yet, even if the administration's optimistic scenario were to be realized - even if, in other words, an ever larger number of developing countries were to reach ever higher levels of development over the coming years-the success of democ­ racy and the establishment of peace would by no means be assured. The hopeful, Western, enlightenment-based theory of history-one shared by this writer-holds that economic progress makes a better form of human society possible as societies "develop." The increase in produc­ tivity that comes from scientific advances increases the economic and cul­ tural possibilities of rich and poor alike. Traditional social classes weaken and slowly dissolve; a society of peasants and aristocrats becomes one of workers and capitalists. Ideally this "early modern" industrial society, often marked by class conflict, turns into a modern industrial democracy on the West European and North American model. In developed societies, poli­ tics is stable, democratic institutions secure. The advanced industrial democracies are as pacific and cooperative in their international conduct as they are egalitarian and consensual in their domestic organization. As we often hear, "Democracies don't go to war with each other." Western liberal politicians therefore conclude that the process of global development is making the world a nicer, friendlier place. There may be transitional problems as countries like Iraq reach a level of technological prowess incommensurate with their still violent and primitive social orga­ nization, but time is on the side of order. We must be vigilant and forceful in dealing with anomalous figures like Saddam Hussein, but if we keep our nerve there is ample reason to believe that the world will keep moving our way. The existence of a relationship between economic progress, political democracy, and international civic-mindedness seems indisputable when one surveys Western history. Unfortunately, the correlation is most evi-

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dent when considered in the long run-measured over centuries. In the short term, measured by years and by decades, the process of industrial development appears to be among the most traumatic upheavals human societies can undergo. Old economic and political systems dissolve; tradi­ tional cultural patterns disintegrate; towns and villages mushroom into huge cities. In the West, the politics of industrializing societies were typically revo­ lutionary. Between 1789 and 1879, as France struggled toward some durable political arrangement, it raised up and cast down three dynasties and two republics; its armies overran Europe and much of Africa; it set up guillo­ tines in the squares of its cities; it fought bloody civil wars over politics, religion, and money. In the end, France became a modem industrial democ­ racy, but as recently as the 1950s the government was plagued by a series of constitutional and military crises, and in 1968 the French state trem­ bled in the face of mob protests. Even today, knowledgeable and respected observers of French politics wonder about the likelihood of new earth­ quakes along the old faults. Those of us who retain our long-term faith in progress must realize that the potential for global disorder has never been greater than it is today. The Industrial Revolution-so fertile in revolutionary movements, so destructive of preexisting social relations-is accelerating as it transforms the developing world. Explosive population growth continues unchecked. The degradation of the environment spreads. Progress is a tiger, not a pussycat. The upheavals associated with mod­ ernization created fascism and communism earlier in this century; tiny underground sects armed with these faiths rose to world power overnight. In 1915, Mussolini was a socialist newspaper editor. In 1916, Lenin was an obscure exile intriguing in seedy cafes. In 1919, Corporal Hitler was one among many faceless agitators haranguing veterans in the beer halls of Munich. The world, more heavily populated and under greater cul­ tural and economic strain today than at the start of the century, is more hospitable to such fever dreams than ever before. If the old ideologies no longer seem capable of serving the interests of the wretched of the earth, they-or the intellectuals who identify with them-are perfectly capable of creating new ones. The Ayatollah Khomeini, after all, was a powerless exile in 1975. In the long run, yes, industrialization and modernization create what is potentially a more peaceful and stable, as well as a more prosperous world. But the road to that world is a long and a winding one, and we are still in the initial stages of the journey. Washington's faith that prog-

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ress, democracy, and peace march hand in hand will be severely tested in years ahead. The feckless optimism emanating from Washington indi­ cates a national policy elite that is seriously out of touch with the magni­ tude of the problems that it faces. Like the British and French leadership in che 1930s, the current U.S. leadership does not imagine that it will be tested by history. In this, as in so much else, Washington is almost certainly wrong. The Dark Vision: Trade Blocs The United States seems incapable of creating the kind of world it wants, and at times a consciousness of the weakness of the U.S. international posi­ tion penetrates Washington's euphoria. It often seems that, instead of coming together into a new world order, the world economic system is splintering into blocs. U.S. influence appears to be waning in Europe;Japan and East Asia seem to be constructing a new and powerful economic bloc of their own. The United States, like Saul, sits up at night and trembles with fear-of betrayals by its allies, of a failure to meet world standards of competition, of a dark and questionable future of debt, isolation, and impotence. This dark vision dominated 1989 and much of 1990. Four crucial events set the tone. The first was the Paris G-7 summit in July 1989, when the United States conceded to the European Community the lead role in managing Western aid to Eastern Europe. For the first time since World War II, the United States permitted itself to take a back seat in a matter crucial to Europe's future. In doing so, the United States seemed to acknowledge that it was no longer a universal power committed to leadership in every important global development. This impression deepened a year later as West German Chancellor Helmut Kohl and Soviet President Mikhail Gorbachev, meeting alone, negotiated the future of reunited Germany. The message was that Germany-and by implication all of Western Europe-no longer relied on the United States as its interlocutor with the Soviet Union on matters of the gravest importance. This second milestone on the road of Amer­ ican decline appeared to mark the end of the special status in European affairs that the United States achieved in 1944 and 1945 and to which it had obstinately clung ever since. The third sign of a new world situation came during negotiations with Japan intended to reduce the U.S. trade deficit with the island nation­ the so-called Structural Impediment Initiative talks. These negotiations

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concluded with an admission by the United States that policy failings on our side, including the budget deficit and the state of the educational system, were partially responsible for the trade problems, and the adminis­ tration committed itself to correcting these matters. It was the first time in living memory that the U.S. government had assumed obligations of this magnitude to a foreign power to reshape its domestic policy. The prin­ ciple was more important than the specific concessions; the United States appeared to accept a new kind of equality in its dealings with Japan. The final marker was the collapse of the Uruguay Round of trade talks in December 1990 -the first U.S.-sponsored trade liberalization measure to fail in this way since the Second World War. The European Commu­ nity refused to back down on the question of agricultural subsidies, as its officials made plain their belief that Europe was able to stand up to Washington's pressure. This event crystaJlized a growing perception that the global economic system Washington had constructed in the wake of World War II was in danger of breaking apart. As GATT negotiations bogged down, both Congress and the executive showed a new interest in alternatives to the GATT process. Super 301 legislation placed the United States on the road to bilateral negotiations and managed trade in a non­ GAIT context, while the idea of a hemispheric trade bloc gained momentum. Although the Gulf War boosted the administration's self-esteem, there were numerous signs that it had not halted the steady erosion of U.S. influence. U.S. pleas for lower interest rates continued to meet with stony, even contemptuous, opposition. The East European countries decided to link their new trading regime to the European monetary system, rather than to the dollar. Sweden, gravitating closer to the EC, took the dollar out of the basket of currencies against which the kroner would float and based its value directly on EC currencies. Poland, too, downgraded the dollar. In Eastern Europe, the formerly communist countries were coming to realize, often reluctantly, that the United States was not prepared to play a major role in their future; we offered neither private investments, nor government aid, nor thoughtful diplomatic support. It was to Bonn first and to Brussels second that they would turn -for assistance, guidance, and models of economic and political behavior. In the western half of the continent, the lights of U.S.-style economic liberalism were going out. British Prime Minister Margaret Thatcher fell from office because she preferred an Atlanticist model of a liberal world order to the Continental version of the European project. Like President

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Bush, she was too wedded to a narrow economic philosophy to develop convincing positive alternatives to initiatives she disliked. Germany's response to the problems in its new territories grew more corporatist as the problems deepened; the new French premier proposed, with significant backing from the French corporate sector, a return to dirigiste national industrial policy and a closing of the door on Japan. The philosophical gap between Europe and Washington was unmistak­ ably widening, and with Thatcher's fall and the reorientation of Britain's European policy Washington was in danger of losing what had hitherto been the strongest and most effective supporter of the Atlanticist and globalist options within Europe. For the first time, prominent European financial and political leaders could be heard to say that Washington was neither a menace nor a blessing to Europe: it was a nonentity. In a book published after the Gulf War,Jacques Attali, head of the European Bank for Reconstruction and Development, spoke dismissively of the United States as a failed nation; he argued that the great struggle of the future would be the battle between Europe and Japan for the global leadership that Washington had already and irretrievably lost. The common front of the G-7 nations in their dealings with other coun­ tries also continued to unravel. While Germany and Japan went along with U.S. pressure to reduce the government debts of Poland and Egypt for political reasons, their open expressions of dissatisfaction-and their warning that these countries would face new obstacles in their quest for capital-suggested a parting of the ways. Meanwhile, Mitterrand and Kohl stated publicly that Gorbachev was welcome at the G-7 summit as Bush was still hesitating and negotiating. U.S. supremacy, far from being reaffirmed by the Gulf War, continues to evaporate as other countries quietly secede from the old Washington­ based order and begin to construct alternatives. The Europeans are building an economic bloc based on the European Community; the Japanese are integrating the neighboring economies of the Pacific Rim into a modern­ day version of the Co-Prosperity Sphere. These trends have not gone unno­ ticed in Washington, where the Bush administration has formulated a fallback diplomacy in case the transition to blocs continues. Europe and Japan have blocs; very well, reasons Washington, we will have one too. Even as it seeks to patch up the international economic system, Washington has negotiated a free-trade agreement with Canada, begun to negotiate one with Mexico, and is moving toward expanding its economic diplomacy throughout the Western hemisphere. This strategy has no better prospects for success than the administra-

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cion's global diplomacy. For one thing, the hemispheric bloc is getting a very lace scare. The EC has grown out of half a century of European experience with steadily deepening economic ties, while Ease Asian eco­ nomic integration reflects decades of patient and often coordinated Japa­ nese public and private policy. The Western hemisphere, by contrast, benefits from no such history. Worse, the administration appears not to understand chat the Western hemisphere does not have the makings of an economic bloc comparable to the EC or East Asia. The use of the common term "bloc" for the EC, the Western hemisphere, and East Asia conceals as much as it reveals; the three systems of scares emerging from the old world order could hardly be more different. One obstacle co the successful consolidation of the Western hemisphere as a trading bloc is its status as a debtor. The Western hemisphere as a whole must import capital; it must also run a trade surplus with the rest of the world to service its existing debt and to attract new investments. (One should note here that inter-American trade will not affect the balance-of-payments position of the bloc as a whole. The United States will be unable to solve its balance-of-payments problems through exports to Mexico just as, under Comecon, Hungary was unable to alleviate its hard-currency shortage through a trade surplus with the Soviet Union.) The face that the Western hemisphere is a dollar bloc is another reason for concern. The bloc's position will be gravely weakened by the decline of the dollar that will result from the breakdown of the global trading order. The dollar is the reserve currency of the global system; this, along with the massive dollar-denominated debts of the United States and the other American countries, has created a vast dollar overhang. As the rest of the world secedes from the dollar system, we muse expect a continuing downward pressure on the dollar over time, with the greenback depreciating against the yen and the mark by 3 percent per year over the long haul­ essentially the same race at which it has declined over the past 20 years. And this is a conservative estimate; the potential for depreciation is actu­ ally much greater. Investors who could keep their accounts in harder cur­ rencies are likely co demand increasing interest-rate premiums co com­ pensate for the risks involved in holding dollars, especially as Europe and Asia enlarge their pools of government securities backed by stable curren­ cies. The consequences of the weakening dollar are likely to be rising inflation and slow growth throughout the bloc. The hemisphere has ocher shortcomings as a potential bloc. From the U.S. point of view, there are not enough customers in it. The gross national product (GNP) of Latin America is comparable to the total GNP of the

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Scandinavian countries, Switzerland, and Austria-the five countries next in line to join the EC. For Europe, these countries represent a small and easily digested addition to the EC. For the United States, the economies of Latin America will be difficult to integrate-and that is all there is. Based on the size of its GNP, Mexico will represent an addition of about 3 percent to the U.S.-Canada market, and Brazil another 9 percent; the remaining Latin American countries are too poor to figure significantly m our economy. Nor are there enough producers in the Western hemisphere. U.S. industry has no significant competition south of the Rio Grande, which means that there are few incentives for companies to improve their performance. In addition to a marginally larger market, U.S. companies will gain access to a huge low-wage work force through the creation of a hemispheric bloc, but this advantage may make them less and not more competitive in world markets. Companies will be able to fatten profit margins and increase sales without making the difficult changes that a global competitive strategy would involve. The contrast with Europe could not be more marked. The EC offers each country a larger market-but at the cost of greater competition. As the EC expands to include more countries and eliminates internal bar­ riers to trade, competition within the bloc increases. The rewards for winners grow larger, but the rewards are also harder to win. From the point of view of development, the emergence of a hemispheric bloc is more likely to bring a shift toward Latin-style economic policy in the United States than anything resembling European orJapanese policy. A Western-hemispheric bloc will have little internal competition, a per­ manent balance-of-payments problem due to its debts, and an institu­ tional preference for higher inflation than eitherJapan or Europe is willing to tolerate. It will increasingly be an import-substitute bloc with a classic Latin American development strategy; oligarchical producers will divide a protected market. This is not an attractive prospect, and it is supremely ironic that it should be the natural result of neoliberal policy. Unfortu­ nately, U.S. policy is incapable of securing even the limited advantages of an integrated hemispheric bloc. Building a bloc, after all, requires long­ term national economic policy coordinating the public and private sectors-precisely the kind of policy that neoliberal economics condemns. The administration's current push for a free-trade agreement with Mexico illustrates Washington's bloc-building techniques at work. So far, they inspire little confidence. The intellectual confusion over this initiative begins with its name: "free trade" in the classical sense is the last thing on

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Washington's mind as it negotiates with Mexico. Free trade, as classical economists conceived of it, meant free markets and free movement of all the factors of production: not just goods and capital, but labor as well. Adam Smith denounced the system of parishes and poor laws in 18th­ century England that limited the ability of workers to move to markets where labor received the highest wage. Later, economists somewhat cal­ lously argued that if British workers were unhappy with Dickensian fac­ tory conditions they should be free to emigrate to places like Australia where wages were higher. The "free-trade" talks between the United States and Mexico, by contrast, propose to create ultraliberal regimes for capital and goods, while placing labor, especially Mexican labor, under a system of invidious and discriminatory restraints. This is by no means the end of the confusion surrounding the proposed free-trade agreement. Proponents of the pact make frequent reference to the EC, a comparison that reveals the breathtaking insouciance and care­ lessness with which Washington approaches the subject of economic integra­ tion with Mexico. The gap between conditions in Mexico and those in Canada and the United States is substantially greater than the gap between any two countries within the EC. Despite its experience at integrating and assimilating economies, the EC has shrunk thus far from attempting to include developing nations. Yet this task is something the Bush adminis­ tration, utterly inexperienced with any type of economic integration, is eager to begin. European economic integration has been a slow and carefully consid­ ered process. Forty years after the Treaty of Rome, the EC still retains significant nontariff barriers to trade. Furthermore, a host of noneconomic institutions have supported and made possible the EC's remarkable prog­ ress toward integration. European courts have the power to strike down national edicts that violate the Community's standards of human rights. British schoolboys cannot be caned, nor Irish homosexuals jailed, because a European court has determined that such punishments violate Euro­ pean laws. Uniform laws and courts are very far from being considered, much less established and obeyed, in the Western hemisphere. Nations without established democratic systems are barred from the European Community. Spain and Portugal were only admitted after their one-party regimes had yielded to multiparty democracy; Greece was excluded until its generals stepped down. Mexico's elections are openly fraudulent; well-respected international human-rights organizations cite its government for torture and murder; the corruption of its institutions, after 70 years of one-party rule, approaches Bolshevik standards. The

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warmest admirers of President Carlos Salinas de Gortari do not deny these charges; they merely claim that the present administration is seeking to improve conditions. From the standpoint of political economy, contem­ porary Mexico is less like Spain than it is like Turkey, a country the EC has so far not seen fit to invite into membership. In some respects, Turkey's multiparty democracy is significantly stronger and closer to Western norms than the Mexican system. None of these facts makes closer economic integration between the United States and Mexico impossible or even undesirable. Indeed, the argument that closer economic relations with the United States can con­ tribute to change in Mexican society is as well-taken as it is well-intentioned. But the enormous gulf between the two societies suggests that integra­ tion will be a difficult affair at best. The reduction of barriers to invest­ ment and trade cannot help but cause problems for important interests in both countries. Closer economic relations will inexorably create a need for a harmonization of legal codes and regulatory climates. Both coun­ tries (all three countries if one considers the Canadian role in a proposed "free-trade area") will find this pressure at times to be destructive of sov­ ereignty. None of the three countries is prepared to pool sovereignty along the lines of the EC. In short, we are headed into a mine field; the present protests over the pact's effects on labor and environmental interests are only the first of many controversies destined to arise. Aware, perhaps, that the EC is not an appropriate model for the US.­ Mexico relationship at this point, some administration apologists speak of the Puerto Rican experience. Under "Operation Bootstrap," Puerto Rico has enjoyed the benefits of free trade with the mainland and the political stability resulting from its position as a U.S. commonwealth. Forty years ago, Puerto Rico was one of the poorest places in the hemisphere; today, its per-capita GNP of roughly $4,000 is twice as high as Mexico's. The free-trade agreement with Mexico will bring about a similar economic miracle, proponents of the initiative argue. Possibly. But today some 2 million Puerto Ricans live in the continental United States, compared to 3.2 million on the island itself, and unem­ ployment in Puerto Rico still stands at well over 10 percent of the work force. Twenty-two percent of Puerto Rico's gross domestic product consists of direct payments by the U.S. Treasury to Puerto Ricans: this is half the difference between Puerto Rico's per-capita income and Mexico's. If the United States were prepared to accept something like 60 million Mexican citizens as immigrants over the next 40 years and subsidize the 100 mil­ lion remaining in Mexico to the tune of $1,000 per capita per year, Mexico

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could well enjoy an economic miracle also-at a cost to the United States of $100 billion per year. This is clearly not what the administration intends. It is hard to avoid the conclusion that the free-trade agreement represents an attempt to "do something" for Mexico on the cheap-co stabilize the Salinas regime without dealing with Mexico's foreign debt. Proponents of the pact hope that the economic opportunity provided by the opening of the U.S. market, along with the implicit U.S. endorsement of the Mexican regime, will induce Mexican flight capital to return and attract new investments from abroad. These investments will create jobs, and the resulting prosperity will legit­ imize the present Mexican government and its handpicked successor. In time, the improved economic climate will allow the reform wing of the PRI, and perhaps even the democratic forces that oppose the ruling party, to overturn the one-party state without a catastrophic disruption of Mexico's society and economy. That this scenario, or something like it, is desirable from both the Mex­ ican and the U.S. points of view can hardly be disputed. One only ques­ tions whether a muddled development strategy joined to an ill-considered political initiative and informed by a fallacious view of political economy and history is capable of achieving the desired result. These considerations suggest that the United States and Mexico, not to mention the rest of Latin America, are far from transcending their old, unsatisfactory relationship. We seem headed for another round in the tragic cycle of hemispheric misunderstanding and exasperation chat has marred our relations in the past, the end result of which will be to obstruct the forces for modernization in Latin America rather than to help chem along. Worse, we are likely to fan the flames of populist, antiliberal political agi­ tation in the region. Unlike the European program of integration, the U.S.-Mexico negotiations seem destined to arouse popular animosity on both sides of the border as Mexico becomes a site for low-wage, low­ regulation production facilities. American workers will resent the lost jobs; Mexicans will resent the naked exploitation. This hardly seems like the route to a strong and prosperous Western hemispheric bloc. Yet Washington remains unwilling to commit either the financial or the intellectual resources necessary to build such a bloc, much less to chart a strategy by which it can prosper in a hostile environment. Policy in a World ofBlocs. It is a long fall from lonely superpower in a unipolar world to head of the poorest, slowest-growing, and most indebted of three economic blocs. Yet Washington remains optimistic about its

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prospects in a world of trading blocs, convinced that it will be able to negotiate a favorable relationship with its two rivals. The administration holds what it thinks are two trump cards in this negotiation. The first card, of course, is security; on the Potomac, clubs are always trumps. Washington thinks of itself as the Saudi Arabia of secu­ rity, able to produce and export as much or as little as it wants with rela­ tively little strain. Western Europe and Japan are worried about the Soviet Union and China; both also look uneasily at the Middle East. Washington believes that in return for security, the two blocs can be induced to make economic concessions- specifically, to continue to fund our debt, and to accept a trade regime that leaves us with the export surplus we need. The second card is also a club. Like Thomas Jefferson, who believed that his Non-Intercourse Act would force the British and the French blocs to their knees, Washington - in both its executive and legislative incarnations- believes that its control over access to the U.S. market will enable it to negotiate favorable bilateral agreements with the other two blocs. "They need us more than we need them" is the Jeffersonian logic now dominant in U.S. policy circles. No prospect is too grim for Washington to find in it a beguilingly rosy scenario. In the administration's view, the breakdown of the existing world order would leave Washington still at the center of world politics. GAIT withers away; there are few or no overarching world economic institutions; but this means primarily that Europe and Japan will drift apart, not that Washington will lose its importance to either bloc. The administration has great confidence in its clubs, but the hand now being played is in no-trump. It is quite possible that neither U.S. security guarantees nor the lure of the U.S. market will suffice to get Washington the kind of world order it wants. The problem is that Washington's prin­ cipal economic goal - a trade surplus in a mercantile system of blocs - is something that neither of its partners can willingly give. Europe can accept balanced trade with the United States, although it will still want to dis­ criminate by sector to accommodate its internal economic strategy; Asia can agree to reduce, though not to eliminate, its surplus, and it can allow Washington extra relief in specified sectors. But to concede anything more would be surrender, not negotiation-and if the United States were in a position to enforce surrender, its economic system would not be in need of shoring up. By using security as a trump card, Washington only hastens the day when Europe will develop an independent security apparatus. Even suc­ cessful displays of U.S. military strength can accelerate this process. The

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lesson the Europeans absorbed from the Gulf War was that they need to redouble their efforts to create an effective and independent defense system. The more Washington tries to use its security leverage to manipulate the economic system or the international political process, the more the Euro­ peans will submerge their differences in the interest of a common external policy. Saudi Arabia has wisely exercised its influence in OPEC-the Organi­ zation of Petroleum Exporting Countries- to keep prices low. It reasons that if oil prices rise too high, its customers will invest in developing alter­ native energy sources. If the United States is to continue to serve as a monopoly exporter of security, it will have to adopt a similar strategy. Our yoke must be easy and our burden light, or no one will want to assume it. This means that Washington cannot use its military strength to drag Europe in a direction that Europe believes runs counter to its essential interests. Washington's other trump card-access to the U.S. market-is also of dubious value in the game now being played. Europe is becoming less dependent on our market, and there are enough investment opportuni­ ties and eager customers in the former communist countries, Turkey, and North Africa to keep Europe as busy as it wants to be for decades to come. The more we threaten and huff, the more European businesses will prefer the risks of the markets on their doorstep. Each month sees Europe less willing to give ground to Washington; there is nothing in administration policy to suggest that any change is on the way. East Asia needs our markets and our troops much more than Europe does, but we have never been able to translate this dependency into Asian pliancy at the negotiating table.Japan is becoming more and not less inde­ pendent as it grows conscious of its financial strength. Smaller, weaker countries like Taiwan and South Korea fight us tenaciously on trade because favorable trade balances with the United States are not a luxury for them. We are about as likely to get East Asia to give up its trade surplus as we are likely to get it to give up the right to breathe; exports are oxygen to these economies. And as the East Asian countries face the loss of the Euro­ pean market in a world split into blocs, they will become more desperate for markets, not less. Our own misguided enthusiasm for export-oriented growth helped plant these dragons' teeth; now we must help harvest the crop. A division of the world into blocs is likely to leave the United States confined to its hemisphere and unable to service its debts through trade.

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There is nothing the administration would like less, yet it could not find many policies more calculated to produce chis result than chose it has chosen.

Toward A New Foreign Policy In this bleak survey, I have criticized the Bush administration for the flawed conceptual tools with which it approaches foreign policy. The end of the Cold War and the crisis in the world economic order have left it bereft of an appropriate framework for analyzing, much less coping with, global political and economic developments. Yet as broad and sweeping as this indictment may be, no discussion of U.S. foreign policy under Bush would be complete without noting the intellectual and moral bankruptcy of his leading political opponents. Most senior Democrats today, especially in the realm of foreign policy, are little more than Republicans manque. They accept the premises of Republican thought-princely policy and neo­ liberalism-and quibble feebly with the conclusions. The Democrats may be a collection of critics of administration policy, but they are not an opposition. The current generation of American leaders- chose who headed America's corporations and directed its government in the era of neoliber­ alism and deregulation chat opened up after the collapse of Brecton Woods-is intellectually Republican even when it is politically Democratic. In its youth, it fought the Second World War; it took power in the chaotic years of the early 1970s as its predecessors, unnerved by V ietnam and inflation, lee the reins drop; now ic is moving toward retirement. George Bush will almost certainly be its last representative in the Oval Office. This was the first-and it will be the only-generation in American history to condition its policy on the assumption of U.S. superiority. The United States was supreme in 1945, but the men who made policy at that time grew up when it was one among many great powers. They joined the habits of negotiation to the power of command, and the result was the most brilliant period in the history of U.S. foreign policy. The genera­ tion that rose to power over the past two decades faced a world in which U.S. supremacy was eroding, but possessed an outlook that was formed when supremacy was taken for granted. The policymakers of this era were princely by instinct; they believed that the economic position of the nation could be taken for granted, and chat all chat remained was to exercise and defend its international prestige. The princely generation had another unique characteristic: it believed

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that stability was the norm in world politics. Since the French Revolution, modern history has been an unending chronicle of upheaval and revolu­ tion; each generation buried the assumptions of its predecessors. But the princely generation lived all its adult life under the Cold War order. The Warsaw Pact and NATO changed very little from the early 1950s to the late 1980s. For four decades, the United States faced one unchanging adver­ sary; we dueled and intrigued with the Soviets all over the world. This frozen political landscape led to unimaginative and routinized foreign policy in more places than Washington, but it had a special impact here. Because the Soviet challenge demanded, for the first time, a sustained U.S. international presence, the superpower model and the Cold War order seemed less temporary and contrived here than they did in capitals with long memories of reversals of alliances and rapid international change. Now that the international order has become more fluid and Jess predict­ able, we have returned to what since 17 89 has been the normal state of affairs-but such reflections have no place in princely Washington. The emerging world is something that Washington-institutionally as well as intellectually-is utterly unprepared to face. Future generations of American leadership will at least be spared the illusions of supremacy. The Bush generation has presided over the rapid decline of the international economic position of the United States. This is not just a failure of foreign policy or of the public sector. A generation of American corporate leaders grew up in the sunny era of U.S. supremacy, struggled to rise through the ranks, assumed the helms of the great flagship corporations of American enterprise, and then promptly steered their ships onto the rocks. In some cases, they even looted the wrecks with the help of investment bankers. This generation, which prided itself on its economic realism and its managerial flair, has been consistently outperformed by the business elites of other nations. The habit of supremacy bred bad bankers, bad car makers, and bad corporate planners, as well as bad diplomats. As the princely gener­ ation edges toward retirement, what do we have to show for its 20 years in power? The dollar is devalued, the Treasury awash in red ink; virtually every social problem existing in the country has worsened. Detroit is a ruin; Hollywood a colony ofJapan; American banks, 20 years ago the most brilliant objects in the financial skies, now flicker dully in the background. The proudest achievements of the princely generation are in foreign policy. They have had 10 years of successive foreign policy triumphs, and wrapped the whole country in yellow ribbon: Grenada, Nicaragua, Panama, and Iraq-one parade after another. Even the Cold War ended in victory-

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but what are its fruits? We are deeper in debt than we were 10 years ago and less important to our allies than we used to be; our technological lead continues to erode, our economic options to narrow. Hollow victo­ ries, substantive setbacks; yellow ribbons and red ink. We have had a generation of Walter Mittys at the national steering wheel. They drove the United States like it was a Ferrari, and they nearly suc­ ceeded in driving it into the ground. The United States is more like a Chevrolet than a sports car; the route our foreign policy needs to take looks more like the weekly round of suburban family errands than the Grand Prix de Monte Carlo. We need political leaders who like to drive family cars, and who like to do Chevy-type errands: taking the kids to school, stopping by the bank, the post office, the health clinic, and the community center. We need a commercial and not a princely policy, and the commercial policy we need is that of a debtor country with a weak financial system, serious social problems, and cumbersome, expensive and unworkable educational and health-care systems. This does not mean, as some observers maintain, that we will need less foreign policy than we have had in recent years. The option of withdrawing from Europe, in particular, is not a real one for us-not so much because the Europeans need us as because we need them. We are more dependent now on other countries for our economic well-being than we have been since the 19th century. The alternative to improved U.S. export perfor­ mance is the gradual Latinization of our economy -higher and higher basic levels of inflation combined with poor economic growth in real terms. While we can look to Asia and to Latin America for some improvement in trade, European events will determine whether the United States can escape from its present embarrassment without undue difficulties. Amer­ ican foreign policy must learn how to make the global option important to Europeans-a task demanding the same creativity and commitment that went into the Marshall Plan and the construction of NA1D. It is always dangerous to sit among the prophets. Saul saw mostly delu­ sions there, and the best crystal balls are cloudy and deceiving. Still, one can begin to discern the outlines of post-princely policy in the United States. The younger generations now crowding toward the limelight have been shaped by a United States in relative decline. They have been both personally and professionally affected by an economy that is no longer growing at postwar rates; many of them do not take for granted that their standard of living will be higher than their parents', or than the standard of living in every foreign land. They no longer assume that American tech-

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nology is the best, American managers the smartest, American workers the best prepared. The next generation of American leaders will place less value on national prestige than on national interests: if they are wise they will relearn, some­ times painfully, the skills appropriate to the commercial diplomacy that served our ancestors so well. Economic orthodoxy is likely to be a luxury the rising generations will do without. They will search for and, let us hope, they will find positive economic policies suited to the real strengths and weaknesses of the United States. They will learn to build coalitions with other countries who share our interests, and to oppose, short of war, the economic strategies of countries whose policies run counter to our interests. The next generation of American leaders will, in short, tend toward the mainstream of the American policy tradition. They will still have stars in their eyes-Americans cannot help searching for the Grail - but their policy will once more proceed from the mixture of commercial cunning and idealism that helped make this counuy rich and helped keep it peaceful during most of our history.

Notes 1 Walter Russell Mead, "The United States and the World Economy," Part I, World Policy journal, Vol. 6, No. 1 (Winter 1988-89), pp. 1-45; Part II, World Policy Journal, Vol.

6, No. 3 (Summer 1989), pp. 385-468. 2 There are, of course, many other differences between the situation in East Asia and in Latin America. Latin America never had an infusion offoreign capital comparable to that received by the East Asian countries as a consequence of the Korean War; there was no Japan in Latin America whose rapid rise could galvanize the rest of the continent; land reform in Latin America was not as thorough as in Korea andJapan; there was no counter­ part to the Confucian ethic; the racial polarization of many Latin American societies has no counterpart in many successful Asian countries. This by no means exhaustive list of significant differences between the regions merely emphasizes the point made above­ that the version of liberal philosophy with which the U.S. government approaches the region is hopelessly inadequate to Latin America's historical situation.