Foreign Policy.
The release of another weak U.S. jobs report
this Friday, July 6 -- which showed the economy adding only 80,000 jobs in June
and the unemployment rate holding steady at 8.2 percent -- raises some serious red
flags. It's just one of many signs these days that the world economy is once
again on the brink of an abyss. Nearly four years after the collapse of Lehman
Brothers, U.S. growth is flailing, central banks are racing to cut interest rates,
and several European nations have plunged back into recession. Instead of
powering the 21st-century world economy, export-dependent emerging markets
remain hostage to the transatlantic economic morass. We should be out of this
by now. The missing ingredient? U.S. leadership.
In the 20th century, beginning with the creation of
the Bretton Woods system in 1944, America's great
contribution was to champion an economic paradigm and set of institutions that
promoted open markets and economic stability around the world. The successive Groups
of Five, Seven, and Eight, first formed in the early 1970s, helped coordinate macroeconomic
policies among the world's leading economies and combat global financial
imbalances that burdened U.S. trade politics. The International Monetary Fund (IMF)
spread the Washington Consensus across Asia and Latin
America, and shepherded economies in transition toward capitalism. Eight
multilateral trade rounds brought down barriers to global commerce, culminating
in the establishment of the World Trade Organization (WTO) in 1995.
Meanwhile, a wave of bank deregulation and financial
liberalization began in the United States and proliferated around the world,
making credit more available and affordable while propelling consumption and
entrepreneurship the world over. The U.S. dollar, the world's venerable reserve
currency, economized global transactions and fueled international trade. Central
bank independence spread from Washington to the world and helped usher in the Great Moderation, which has produced a
quarter-century of low and steady inflation around the world.
Globalization was not wished into being: It was the U.S.-led
order that generated prosperity unimaginable only a few
decades ago.
Since 1980, global GDP has quadrupled, world trade has
grown more than sixfold, the stock of foreign direct investment has shot up by
20 times, and portfolio capital flows have surged to almost $200 trillion
annually, roughly four times the size of the global economy. Economic reforms
and global economic integration helped vibrant emerging markets emerge: The
"Asian Tigers" (Hong Kong, Singapore, South Korea, and Taiwan) that boomed in
the 1980s were joined in the 1990s by the awakening giants of Brazil, China,
and India.
