By contrast, when the Peace of 1990 came to the world all of the great powers knew what must be done. James Baker, who in some ways played the role of Colonel House in a later era as the president's political manager, personal intimate, and international representative, did not need to convene a new version of The Inquiry to determine what the postwar program should be, because it had not essentially changed since Wilson's day. Chastened by another world war, the Cold War, and the nuclear annihilation that threatened them all, the Allies this time did not try to ruin their adversary but endeavored instead to include him in a New World Order. Unlike Lansing, Baker exhilaratedly wrote when he returned from his journey to Paris, “The very nature of the international system as we know it [has been] transformed.”118
With the Peace of Paris, a door closed in human history. The East/West global struggle had divided the whole world as sharply and carefully as Gregory XIII divided the then–New World of the sixteenth century. Now there are many able academics and civil servants working hard on the issue of what sort of new world the twenty-first century will bring into being, and how it will be divided. Surely we need a New Inquiry, for what we need to know is not simply where we are going, but where we are, and, then, where we can go. Governments everywhere are floundering with regard to their security policies. Some have pursued consistent policies, only to find that it has been a relentless pursuit of failure, enhanced by an inability to rethink, but when governments have been inconsistent—and no governments have been more so than the United States and Britain—these governments did not find their way to fresh insights, unless it was the insight that the policy that they have just adopted was one they had recently abandoned.
Does this matter? We are in a time of crisis, and must turn our attention to international terrorism. Why should we pursue thought when action is required? Colonel House had to have answers before his war ended; he didn't know it would continue for seventy more years. Now that the Long War is over, and the Peace of Paris signed, and the possibility of a new war looming, why must we urgently undertake a New Inquiry? Because we are daily making decisions that will structure the kinds of opportunities available to us in the future. “Once in a while a door opens,” wrote Graham Greene, “and lets the future in.” This is such a moment.
From Mythology
First there was a god of night and tempest, a black idol without eyes, before whom they leaped, naked and smeared with blood. Later on, in the times of the republic, there were many gods with wives, children, creaking beds, and harmlessly exploding thunderbolts. At the end only superstitious neurotics carried in their pockets little statues of salt, representing the god of irony. There was no greater god at that time.
Then came the barbarians. They too valued highly the little god of irony. They would crush it under their heels and add it to their dishes.
—Zbigniew Herbert
(translated by Czeslaw Milosz)
PART III
THE SOCIETY OF MARKET-STATES
THESIS: A NEW SOCIETY OF MARKET-STATES IS BEING BORN.
The challenges facing the society of states are a direct consequence of the strategic innovations that won the Long War. The ways in which the various basic forms of the market-state cope with these challenges will structure the conflicts of a new society. We must act with this development in mind, accepting conflict where it is necessary to avoid cataclysmic war or the breakdown of the global superinfrastructure, and creating institutions that will legitimate the new society of market-states.
The Terrorist, He's Watching
The bomb in the bar will explode at thirteen twenty.
Now it's just thirteen sixteen.
There's still time for some to go in,
And some to come out.
The terrorist has already crossed the street.
The distance keeps him out of danger,
And what a view—just like the movies.
A woman in a yellow jacket, she's going in.
A man in dark glasses, he's coming out.
Teen-agers in jeans, they're talking.
Thirteen seventeen and four seconds.
The short one, he's lucky, he's getting on a scooter,
But the tall one, he's going in.
Thirteen seventeen and forty seconds.
That girl, she's walking along with a green ribbon in her hair.
But then a bus suddenly pulls in front of her.
Thirteen eighteen.
The girl's gone.
Was she that dumb, did she go in or not,
We'll see when they carry them out.
Thirteen nineteen.
Somehow no one's going in.
Another guy, fat, bald, is leaving, though.
Wait a second, looks like he's looking
For something in his pockets and
At thirteen twenty minus ten seconds
He goes back in for his crummy gloves.
Thirteen twenty exactly.
This waiting, it's taking forever.
Any second now.
No, not yet.
Yes, now.
The bomb, it explodes.
—Wislawa Szymborska
CHAPTER TWENTY-FOUR
Challenges to the New International Order
THE ECONOMIC ORTHODOXY of nation-states counseled state intervention in the national economy as a necessary means of achieving growth and other goals. Economic regulation was part of this orthodoxy and fitted the ethos of nation-states that relied so heavily on law. Market-states will have their own economic orthodoxy and their own distinctive tools.
Eventually, all the leading members of the society of market-states may come to accept views similar to these: that capital markets have to become less regulated in order to attract capital investment and that capital has to become more global in order to achieve the maximum returns on investment; that labor markets have to become more flexible in order to compete with other, foreign labor markets and to keep jobs at home that depend upon producing products at a cost that can compete with the products of states that have lower labor costs; that if the world economy is to grow, access to all markets has to be assured and trade has to become less regulated; that a state's trade policy will have to become more free if that state's goods are to be able to penetrate foreign markets and thus participate in this growth; that government subsidies, spending, and welfare programs have to be managed in order to permit more investment in infrastructure and to allow greater private saving (which will lower the cost of investment); and that tax policy has to provide incentives for growth in order to attract enterprise and to maximize innovation and entrepreneurship. Early in the twenty-first century, it seems not unlikely that virtually all major states will accept for themselves the fundamental assumptions that Margaret Thatcher and Tony Blair urged for Britain and that Bill Clinton and George W. Bush urged for the United States, and furthermore that they will accept that if these states do not heed those recommendations, the United States, the United Kingdom, and other states will gain a decisive advantage over them.
If a market-state fails to provide tax incentives for capital formation and capital retention, domestic investment will either not take place or will flee along with foreign investment; if investment goes elsewhere, then innovation and productivity gains will go with it, so that the products that are its result will be cheaper and better than those produced at home; if the products of other states are more competitive, then jobs will be lost to those states; if jobs are lost, then tax revenues will fall, and unemployment and welfare costs will become unsupportable. Ever higher taxes will produce ever lower revenues. The state that resists liberalizing its labor markets in order to protect high-wage jobs will end up with no jobs to protect; the state that resists cutting back on welfare will find it has to cut back anyway when revenues fall and that it now has even larger welfare bills to pay as unemployment climbs; the state that attempts to protect its domestic industries by refusing to liberalize its trade policy will find that those
industries are locked out of other markets and in any case are uncompetitive, so that domestic prices stay high and the domestic standard of living falls; the state that tries to restrict capital flight will be shunned, and the state that inhibits capital imports will be ignored. That too will raise the cost of production and depress the standard of living in another turn of this vicious circle. If Mikhail Gorbachev could get this message in the 1980s the secure leader of the richest and most powerful socialist nation in the world—it will not be lost on anyone else.
Moreover, the market-state promises a “virtuous” circle to those states that copy its form and obey its strictures. The privatization of state-owned firms brings immense capital gains to the state as it liquidates vast monopolies; this windfall supplements the savings from cuts in welfare programs and thus lowers deficits, which leads to less inflation, which attracts capital and lowers the borrowing costs required to finance deficits, which in turn lowers the deficits still further, which permits lower taxes, which can produce more savings, which can enable more investment, which produces more funds for research and development, which enhances productivity, which lowers prices thus making exports more competitive, which creates jobs while lowering the cost of living for the consuming public. In the underdeveloped world, such policies mean higher growth owing to comparative wage advantages, which growth leads to a more educated population, which brings more women into the workplace, which leads to lower birth rates, which enhances political stability, which means greater macroeconomic prudence, which leads to more foreign investment, which finances still more growth, which tends to liberalize authoritarianism, which encourages personal autonomy.
The new orthodoxy of the market-state will surely play out in several competing formulations. In the following pages I will speculate about these different versions and describe what they might look like in the future. Like different race cars, they all compete in the same race, meet roughly the same specifications, and are governed by the same rules, but they approach the common competition with different drivers who use different tactics.
In Washington, for example, state intervention is anathema. The state can never adjust prices as quickly and as efficiently as the market, and every state intervention skews the price function to some degree. Moreover, the democratic, representative, deliberative state is slow-moving and cumbersome—just the sort of institution one wants where human rights are at stake or in a society where it is difficult to achieve consensus across many cultural communities but one that is deadly to innovation and the nimble reactions required to take advantage of changes in the marketplace. All market-states take as their legitimating charter that they are responsible for maximizing the opportunities of their citizens. In Washington, this means providing infrastructure (including intangible infrastructure like education and the means of enforcing agreements) and relying on private enterprise to maximize the abundance of consumer choice and minimize the costs to the consumer of exercising choice.
In Tokyo, by contrast, maximizing opportunity means protecting domestic industries so that future generations will have a full array of employment opportunities, subsidizing research and development so that future opportunities for innovation will be practicably exploitable, and restricting the import of capital so that the government remains in control of its capital allocation.
In Berlin, maximizing opportunity means ensuring social and economic equality among citizens, using the corporation as a stakeholder for the public interest so that the opportunities available to communities, workers, and future generations are maximized rather than maximizing the short-term profits of shareholders.
Because the market-state secures political legitimacy through the active pursuit of opportunity for its citizens but declines to specify the goals for which opportunity is to be used, there will be different models whose advocates can plausibly maintain that their constitutional strategy best maximizes opportunity. For example, consider these contrasts between the Tokyo and Berlin models: education financed privately versus public education; high savings rates versus low savings; low currency values versus high currency values; low interest rates versus high interest rates on corporate borrowing; high interest rates versus low interest rates on consumer loans; personal sacrifice versus a higher quality of life; long working hours versus leisure consumption. Either set of choices can plausibly be said to maximize opportunity, depending on what that opportunity is for and what it consists in. What is more difficult to maintain is a set of choices that skips around, pairing high leisure consumption (which maximizes the freedom of choice for one's pleasure) with personal sacrifice (which maximizes the freedom of the society as a whole). So these choices tend to fall into discrete sets.
THE ENTREPRENEURIAL MARKET-STATE
Labor relations under this model are confrontational as well as sectoral—a new experience for market-states such as China that have not previously permitted voluntary and competitive labor organizations. Because wages are low and because the relocation of investment is entirely unfettered, labor unions are weak. Job creation is achieved at the cost of job security. Local industries are largely unprotected from foreign competition, which tends to make the firms that survive hardy, agile, and attractive to foreign capital. Interest rates are maintained at a relatively high level in order to encourage foreign investment and to suppress inflation. Considerable income disparities are tolerated on the grounds that everyone is richer owing to the booming economy that such freewheeling competition can provide, and it is certainly true that, in terms of personal consumption and standard of living, the entrepreneurial market-states outperform all comparable states (that is, they exceed the improvement in consumer standards of living achieved by states that began with comparable levels of development).
Immigration is robust under the Entrepreneurial Model because it freely imports highly paid talent as well as low-wage workers, which tends to suppress labor costs and keep capital from going abroad. By contrast the Mercantile Model shuns immigration; indeed cultural homogeneity is almost a prerequisite for its successful operation. The Managerial Model is ambivalent: open to “guest workers” but hostile to new citizens. The Entrepreneurial Model tends to loosen the identification that citizens feel with the larger polity: autonomy and individual achievement are so prized and the consumption of particular goods so meaningful an act of self-definition that the citizens of these states “invent” their citizenships, identifying themselves with those subgroups within the state with whom they share a consumption pattern. This exacerbates the problems of social cohesion that every market-state faces. These effects are acutely felt in the entrepreneurial states that have all-volunteer military forces, federal political structures, strictly meritocratic promotion ladders, and multicultural media. Both the mercantile and managerial states, by contrast, retain conscription for military service (though with force levels vastly reduced from those of the twentieth century), affirmative action for certain social groups, and varying degrees of state control of the media.
The basic ethos of the Entrepreneurial Model is libertarian: the conviction that it is the role of society to set individuals free to make their own decisions. This ethos counsels minimal intervention in the economy as well as in the private lives of its citizens. Privatized health care, housing, pensions, and education as well as low taxes and low welfare benefits all characterize such states. Regulation on behalf of special interests is discouraged. Indeed, responsibility for regulation of any kind is largely abdicated in favor of policing by the market, which responds with extensive information to the consumer, who is expected to look out for himself. That doesn't necessarily mean that the environment is not protected or that labor is exploited: companies soon discover that they will be rewarded for “green” policies and penalized if they are discovered to have engaged in exploitative labor practices. It simply means that the role of government in protecting the public has to some extent been taken over by the media and by private groups acting on the information from,
and in concert with, the media.
THE MERCANTILE MARKET-STATE
This model relies upon a strong central government to protect national industries, subsidize crucial research and development, and steer certain important enterprises toward success. Artificially low prices are set for export goods and artificially low interest rates are maintained that depress currency values. This would lead to capital flight except that capital flows are also regulated by governments and forced savings are extracted from all incomes. Under the Mercantile Model, the opportunities available to the consumer, which have been exalted under the Entrepreneurial Model, are sacrificed to the long-term opportunities of the society. These societies are able to maintain social cohesion—to a far greater degree than entrepreneurial market-states—in part because income disparities are suppressed, variations in take-home pay between manufacturing workers and service workers are rationalized, and elaborate social welfare subsidy systems, including public housing and access to education, are put in place for those—this must be emphasized—who are eager to work. It is important for the states that follow this model to monitor the collusion between the large corporate structures endemic to this model and their bureaucratic allies. Otherwise, the predictability sought and prized by this model will also bring potentially crippling inefficiencies and even corruption. Educational curricula must be tempered by some sense of the demands of the market; otherwise far too few persons will emerge from the educational system with the skills that fit them for employment (a problem that plagues he Managerial Model as well, though the latter's difficulties stem not from a refusal to give technical training so much as a willingness to underwrite costly studies with no professional future).
THE SHIELD OF ACHILLES Page 95
