Published on August 29, 2008
© 2008 - The Washington Times
Once the leader of globalization, America under George W. Bush has abdicated its role in managing it.
And with this abdication, America's place in the world - and what it will feel like to be an American in the years to come - has been altered radically.
The political, economic and psychological implications of this are overwhelming.
French Foreign Minister Bernard Kouchner, a strong friend of the United States, may have put it best: "For America, the magic is over. It will never be as it was before."
How will we as Americans define ourselves when the magic is gone, when America no longer is the world's leading economy - a position America has held since Teddy Roosevelt?
The financial markets already have begun to adjust structurally and geographically to this change.
New York had been the financial capital of the world since before World War II. London now is challenging New York for that role, and it is succeeding. It's not, as some would say, because New York is more heavily taxed and regulated. It's because America, by itself, is no longer the major generator of capital.
London sits between the old capital pool of America and the new wealth of Asia, with the third capital reservoir - continental Europe - an hour away. Much of Napoleon's dictum that "geography is destiny" lost its rationale in the Internet age. But when it comes to London and its ability to straddle the time differences in the new world of three capital markets, the adage still applies.
Structurally, the change is evident in the financial clout of sovereign funds, large pools of investment money that are owned by foreign governments.
The source of these funds partly can be traced to the lack of a U.S. energy policy and, consequently, the U.S. need to send billions of dollars abroad to pay for oil.
The amount of capital in these funds is staggering. And as America's premier financial institutions desperately needed to recapitalize, the sovereign funds became the logical investors.
Some argue that nothing is wrong with big cash pools controlled by foreign governments investing in U.S. financial institutions. Why? Because these investments merely follow the long-standing American philosophy of embracing the free flow of capital.
But in reality these investments could conflict with that most American of traditions - that capital and investments should be free.
In his 1992 book "The End of History," Francis Fukuyama of the Johns Hopkins University wrote that with the fall of communism, the historic struggle of mankind for human liberty - and with it, liberal capitalism - finally had been won. But Mr. Fukuyama could not have anticipated sovereign funds and their ability to pervert liberal capitalism in an almost fascistic manner.
When sovereign funds invest in a company, it is the state, not the individual, that is investing in the capitalist system. When an individual or a financial institution invests, the investment generally is neutral politically. But when the state invests, it is very difficult for that neutrality to be maintained over time.
Regardless of how we try to rationalize the acceptance of these investments, we must be aware as a country that the repayment could carry a hidden political cost that will reach far beyond the abilities of our financial institutions to repay.
How strange that when our Federal Reserve tries to prevent panic by assisting a financial institution, it is criticized for government intervention in the private market while at the same time silence greets sovereign fund investments in similar institutions.
Change is inevitable. But what is not inevitable is the management of change.
The Bush administration, with its dogmatic approach to policy, refuses to believe that the world had changed.
In ignoring the greatest opportunity in decades to demonstrate leadership by refusing to act forthrightly on the energy crisis after Sept. 11, 2001, the Bush administration has let American wealth sap away.
Time is running out to manage and redefine America's transformation in the world.
It can be argued that the current economic crisis is being fueled as much by markets perceiving the reality of America's changing role as it is by mortgage debt. Americans are beginning to look at a world they do not recognize and, for some, a world they do not wish to see.
Globalization has forced changes on America that affect more than its balance of payments, markets or even whether it can maintain its wealth while no longer being a manufacturing economy.
Globalization has redefined worldwide investment, productivity, wealth and power. Yet globalization is not the enemy. Absence of leadership is.
Edward Goldberg, a consultant on international trade with Russia and Eastern European countries, teaches marketing at the Baruch College of the City University of New York.