GOLDBERG: Americans look away as world waits

ANALYSIS/OPINION:

Americans have had an ambivalent relationship with globalization, allowing their politicians to pretend publicly that it doesn’t exist.

They pretend that America stands alone; its borders secure against the supposed economic hordes spurred on by the interplay of technology, capital flows, foreign investments and trade that we know collectively as globalization.

Our leaders have played a devil’s charade and have encouraged the worst forms of globalization with the excuse that the market always knows best. They let China buy more and more of our debt and created a monetary and tax policy that favored the brokering of deeply margined assets to the world over the development of long-term investment.

But this game has played itself out, and globalization no longer can be massaged politically or hidden.

Of course, America was not the only country exploiting globalization instead of managing it. China, which is now playing the blame game about the inability of Americans to save, did not cry so loudly when the same spendthrift Americans were buying its products en masse. And the Europeans were a little less self-righteous when they were lending to Iceland with abandon or allowing their U.S. banking subsidiaries to buy thousands of over-leveraged assets.

Unmanaged laissez faire globalization has now turned on itself, creating an ever-greater negative multiplier effect that is ricocheting through the world’s major economies. Because of domestic political reasons (that are essentially the same all over the world), united globalized action to fight the crisis either is ignored or at best given lip service. And because globalization politically never has been managed or confronted properly, the international agreements and organizations needed to fight the current economic contagion never truly were put in place.

If the world had a major pandemic, the wealthiest nations immediately would do whatever possible to eradicate the disease before it spread further. We now have a global economic epidemic, but major governments are trapped in their 19th-century concept of the nation-state, caught between the prevailing view of national economic independence and the reality of worldwide economic dependence.

It is clear from the recently concluded economic forum in Davos, Switzerland, that world leaders are waiting for Congress to pass President Obama’s stimulus package, putting the onus on America’s new leader to right the U.S. economy. The financial crisis began in America, but America is only somewhat responsible and, under globalization’s rules, a U.S.-only cure, regardless of how powerful the medicine, merely will put the patient into remission.

What is needed is a truly coordinated triagelike effort by the three largest economies: the United States, China and the European Union. Ideally, they should create a simultaneous big bang stimulus for their economies. But, of course, they won’t do that. And even if such a plan could be worked out, they are still fighting among themselves over defining a stimulus.

Coordination of this magnitude probably is easier to carry out on the fiscal side between regulatory authorities and the central banks of the major governments. By definition, unlike Congress or a parliament, these agencies can take a more global view and are less immediately intimidated by former House Speaker Tip O’Neill’s dictum that all politics are local.

Globalization has made credit and capital flows an international function. And a globally coordinated fiscal and regulatory action, although not an immediate cure, would establish the protocol needed to allow world business to right itself. Without such coordination, we will continue to have chaos and loopholes in the international financial system.

When Mr. Obama creates a plan to salvage U.S. banks, the question needs to be asked not how it will help lending in the U.S., but how will it help restore trust, confidence and credit flows in the international banking community.

But beyond trust, free money flows and investments of globalization demand that regulators act immediately on other issues such as the ratio of bank risk to equity. These ratios were spelled out internationally at the Basel II accords in 2004. But, for political reasons, the accords indirectly have allowed national regulators to make the judgment calls. In addition, many countries are not planning to implement Basel until 2015.

In his inaugural address, President Kennedy said that “those who foolishly sought power by riding on the back of the tiger ended up inside.” As with so many other issues, we have allowed our leaders to ride the tiger of globalization, to be duplicitous and not educate or prepare America to live in this new world.

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