Mon, 03 Jan 2000

Global changes and personal anxieties

By Moises Naim

WASHINGTON (JP): Following the eve of a symbolic turning point created by an artificial calender, the world has given us plenty of evidence that the arrival of this millennium will be accompanied by huge changes in the human condition. Huge changes invariably bring huge anxieties. It isn't too early to identify many of the big anxieties to come.

When will Wall Street crash? How deep and prolonged will the downturn be? How will it spread to other countries? These questions are no longer just the concerns of bankers and politicians. Anxiety about a major financial crash is widespread and colors a huge variety of human endeavors, from personal decisions about how to spend and save to corporate mega-mergers, and from domestic politics to global trade rounds. Never before have so many individuals, regardless of their occupation, social status or nationality, become so dependent for their economic well being on the performance of one specific institution -- the United States stock market.

This new phenomenon is deeply rooted in three powerful messages that emerged from the 1990's. First, there is money to be made by investing all or part of one's savings in the stock market. Second, investors who took their money out of the market in anticipation of a possible downturn usually missed the chance to make even more money. Third, financial crashes happen quite often, catch the experts by surprise, and filter quickly to other countries.

Around the world, people with savings receive a daily dose of two highly contradictory messages: the first is that fortunes are being made by those who invest in the stock market; the second is that investing in stocks may be reckless speculation. Examples of overnight fortunes made in the stock market abound. So do examples of financial crises that were not supposed to happen. Mexico was the star among reforming countries and it crashed. So did the East Asian "miracle" economies. Barings Brothers was an old, solid, bank while Long Term Capital Management was a huge new financial company, guided by Nobel prize winners. Both failed.

In the last five years, the world has seen a major global financial crisis every year or two. Why assume that this new trend has ended? Why assume that the next crisis won't begin in the US and become the mother of all international financial contagions? The point is that even short of a crash in Wall Street, anxiety about widespread and virulent financial instability has become -- and will continue to be -- a central factor in the thinking of individuals, families, corporations and governments about the future.

The Internet is not only growing at a dizzying speed and invading every nook of human activity, it is also drastically transforming everything it "touches." We already know about the revolution it launched in business, the media, and personal communications. It has destroyed entire industries (remember travel agents?) while massively reinvigorating others (ever heard of "logistics"?). In the next decade or so, the building housing the New York Stock Exchange is destined to become a relic of a time when humans in colorful jackets yelled and made gestures to trade in securities.

But the Internet is not just about business, entertainment and personal communication. The Web is also profoundly altering politics, religion, health care, education, terrorism and even the process of starting a family. We are just beginning to realize that the Internet has become the most powerful force for change with which mankind has had to reckon in a very long time.

Moreover, many of the changes it is inducing are hard to understand. It is normal to feel anxious even when the shape of changes to come and the scope of their consequences in known. That anxiety is significantly amplified, however, when the nature, speed and impact of the change surprise us. Since its inception, the Internet has been a constant source of surprising changes. It will continue to be.

In the late 1980's and early 1990's the world witnessed a backlash against the State and a resurgence of hope for the market. Ironically, the century closed with riots in Seattle against the market-oriented initiatives of the World Trade Organization. The protests were an expression of a widespread apprehension about globalization and the social and environmental costs of unfettered markets.

Critics of the market-oriented reforms common in the last 10 years point to a world that now exhibits even greater inequality and poverty and that seems even more corrupt and unstable. The deeply troubled transitions towards market-based prosperity in the former Soviet Union, Central Europe and Latin America as well as the Asian financial crisis are also paraded as examples of the bankruptcy of the approaches en vogue during the 1990's. Yet, in most countries, market reforms have exhibited a surprising resilience.

Based on the magnitude of the rhetorical assault against globalization and market reforms, by now all sorts of protectionist measures should have crippled the world's trade and investment system. Similarly, the economic reforms adopted around the world in the last 10 years should have been subject to a wholesale reversal. But that has not happened. Some reversals in economic reforms have taken place and the speed of reform has certainly slowed down. But, in reality, the backlash against market reforms has manifested itself more in speeches than in actual policies.

Nonetheless, a general uneasiness about the policy direction of the last 10 years has prompted a search for a free-market model that recognizes an important role for the state and pays more attention to social policies. Tony Blair's "third way" is the most prominent example of this new approach, which is still longer on lofty goals than on new practical policies. In fact, the right balance between the many contradictory requirements of market-based economic efficiency and State-led social solidarity is not easy to achieve, and the search for such a balance will produce its share of failed experiments. People around the world will have to live not just with the consequences of these failures, but with the anxiety generated by continuing policy experiments designed to find the right mix between state and market.

One of the most profound and positive trends of the last two decades has been the global spread of democracy. In most of the world, elections for presidents, parliaments and local governments have became frequent, indeed normal. Freedom House, a think tank tracks the evolution of political freedom in the world, notes that while in 1950 just 30 percent of the world's population lived in democracies, today 60 percent does.

The new challenge is to make such democracies work. Elections and the trappings of democracy are not enough. A country where media tycoons share too many interests with government officials, where the judiciary is for sale, and where Congress is too fearful of irritating the military cannot be characterized as a democracy even if it boasts an elected President and Parliament.

Discussions about the quality of a democracy will therefore become as important as those about the quantity of democratic regimes in the world. New forms of political repression as well as new vehicles for political opposition will develop. Increasingly, democratically elected regimes with authoritarian proclivities will understand the need to keep up appearances.

Political opponents that in the past would have been visited by the secret police and then tortured will now be visited by tax inspectors and accused of corruption. Opposition parties may be allowed to exist, but the dissemination of their ideas may be limited by the self-censorship of the pro-government media. On the other hand, opposition forces today also have unprecedented options at their disposal. Geographical closeness among activists is no longer necessary as the Internet facilities the meeting and organizing of the like-minded. Limited media access is partially compensated by new, cheaper forms of mass communications. International support is easier to muster and the glaring eye of the global media is a strong deterrent to governmental abuses.

Anxieties about governments using sophisticated and stealthy new tactics to curtail political freedoms are going to become more common. Indeed, in many countries the fight for true democracy is just beginning.

Vulnerability is a major source of anxiety. One historically proven way to reduce the vulnerability of a country is to build a military capacity that either dissuades potential attackers or is capable of repelling them. This military approach will increasingly become obsolete.

The Pentagon recognizes this new reality. A recent report by a U.S. commission, chartered to review U.S. national security, concluded that "America will become increasingly vulnerable to hostile attack on our homeland and our military superiority will not protect us" -- a sobering admission from a country that spends almost US$300 billion a year on defense and enjoys unmatched military superiority. Given this conclusion, the anxiety of all other countries about their capacity to guarantee national security is more than justified. So is that of their citizens.

The forest fires that ravaged East Asia three years ago will have a more damaging effect on those countries' economic growth than the Asian financial crisis. The amount of a sea ice in Arctic waters is shrinking every year by an amount that is equivalent to the size of Belgium. There were more hurricanes in the last three months of 1998 than during any previous quarter on record. During January of 1999 there were more tornadoes in the US than in any other single month in history. Worldwide, insurance companies are seeing unprecedented claims in size and frequency as a result of the devastation caused by floods, hurricanes, droughts, monsoons and meteorological phenomena like El Nino.

Yet, even with the huge impact that climatic changes and their meteorological effects may have, the main source of anxiety in years to come is more likely to originate from the new possibilities and threats opened up by the revolution in cell biology. As has already been noted, if the ending century was one of physics perhaps the next one will be the century of biology.

New viruses and epidemics are creating new realities that are a cause for concern. The HIV pandemic is just the most notable example of a profoundly transforming outbreak of biological surprises. The promise of bio-engineering and genetic manipulation is often buried under the anxiety produced by the ethical, economic and scientific uncertainties associated with the bio-genetic revolution. Who would have predicted, even only a few months ago that a central theme for countries negotiating trade agreements (and of the protesters outside the talks clashing against Seattle's riot police) would be trade in genetically modified food?

We should expect an acceleration of the barrage of surprises originating in man's newfound capacity to drastically re-engineer nature. While this new capacity is very likely to result in increases in life expectancy and improvements in the quality of life, the contrary outcomes are, unfortunately, also possible.

What do these six examples of the new problems have in common? They are all "inter-mestic" -- i.e., each has both international and domestic origins and consequences. Financial volatility, the Internet, the problems of balancing state and markets or those of a dysfunctional democracy, the new threats to national security and the unforeseen effects of human manipulation of nature are all global problems. None can be dealt with effectively by countries acting alone. More importantly, each has myriad connections to the daily life of communities and individuals. The point is that while these anxieties may sound too remote, too "global," they are, in fact, already reshaping everyone's life. And what we are witnessing is in fact just beginning.

The writer is Editor-in-Chief of the Washington-based Foreign Policy Magazine ( who contributed the article to The Jakarta Post.