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From Sarajevo to September 11

Saturday, February 1, 2003

On the morning of June 28, 1914, the world could rejoice in 60 years of extraordinary peace and progress. The first great age of globalization had made the world seem an infinitely smaller place. So great were the twin powers of technology (in the shape of the telephone, the telegram, the train, the car, electricity, the camera) and ideology (the gospel of free trade, guaranteed by the world’s hegemonic power, Britain) that Edwardian intellectuals prophesied the end of all wars. Yet on that summer’s day, one act of terrorism in Sarajevo — the assassination of the Archduke Ferdinand and his wife by a Serbian fanatic called Gavrilo Princip — set off a sickening train of events. The world plunged into the most horrific war in history, and even after the killing had stopped, countries everywhere renounced their previous openness, fortifying their borders to limit the movement of goods, people, and even ideas.

It would be absurd to blame all the miseries of the first half of the twentieth century on a single act of terrorism: The causes of world war and protectionist folly had been germinating for years. But those causes became clear only in retrospect. John Maynard Keynes nicely describes the typical middle-class Londoner in 1914, “sipping his morning tea in bed” while ordering goods from around the world and planning his global investments. For such a man, “the projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restriction and exclusions, which were to play the serpent to this paradise, were little more than the amusements in his daily newspaper.” For such a man, and millions of others, Gavrilo Princip’s two shots marked a turning point.

In the first edition of our book, A Future Perfect: The Challenge and Hidden Promise of Globalization (Random House, 2000), one of the figures we chose to illustrate the backlash against the current age of globalization was another terrorist: Osama bin Laden. Drawing on research by journalist Peter L. Bergen, who had interviewed bin Laden in Afghanistan, we quoted his fury against the “New World Order” that “haughty” America was imposing on the world. We noted that bin Laden, like so many other opponents of globalization, had been remarkably sophisticated about exploiting the process he professed to hate, using the latest technology to promote his medieval message. And we argued that, for all its other merits, lowering borders had made the West much more vulnerable to attack. We raised the possibility of al-Qaeda using a primitive nuclear bomb to blow up the World Trade Center.

At the time, this seemed a little far-fetched. We debated shortening the section on bin Laden, lest people might think that we were paying too much attention to the ramblings of a marginal crank. People were far more interested in the promise of open markets and technological innovation than they were in terrorism.

It was a heady time for supporters of globalization, particularly in the United States. The stock market continued to defy gravity. The standard indicators of globalization pointed skyward: The volume of global trade increased steadily in the decade through 2000, and foreign direct investment flows topped $1.3 trillion. Economists speculated about the birth of a “new economy” that had banished recessions for good. Gurus speculated about “Dow 36,000” — or whatever other number they plucked out of their hats. This was a time when Silicon Valley and Wall Street minted new millionaires every single day, when business-school graduates confidently expected to retire at 40 and begin a new career in philanthropy, and when the first signs of liberalization seemed to be awakening parts of the Third World. India and China were booming after decades of state-imposed stagnation.

Of course, there were serpents in this paradise, no less than there were in the world of Keynes’s Londoner. Too many people in the developing world lived in grinding poverty. Too many people in the rich world were worried about losing their jobs. The anti-globalization movement won a huge propaganda victory when a 100,000-strong army of trade unionists and students succeeded in turning the 1999 meeting of the wto into a farce. But most people found it easy to dismiss the Seattle protests (and their successors in Washington and Genoa) as a sideshow — cheap entertainment for students with too much money and too much time on their hands. Thousands of people might have turned out to protest against globalization, but hundreds of millions of people voted for governments that supported it.

A definition of globalization

How much of a reversal for globalization was September 11? To answer that question, we need to start by defining the term. One reason for the general confusion that surrounds this subject is that people have started to use the word “globalization” as shorthand for their entire philosophy of life. For high-flyers in Wall Street and Silicon Valley, it is a synonym for modernity; for French intellectuals (as for bin Laden), it means American domination; for Ralph Nader and Pat Buchanan, it means exactly the opposite: the emasculation of their country.

Our definition of globalization is rooted in freedom. Globalization is the ever-freer movement of goods, services, ideas, and people around the world. Two things about this definition are worth stressing. First, globalization is about more than just business; it is about culture and people. The Guggenheim in Bilbao is as much a symbol of globalization as DaimlerChrysler; so are the Albanian “asylum seekers” flocking into Britain. Globalization is certainly about the ratio of exports to gross domestic product. Yet it is also about the nonchalant way in which people under 30 make an international call; the cafes in Shanghai where you can get a decent cappuccino (and sometimes surf the internet); the way that Chinese teenagers can recognize Arnold Schwarzenegger and Michael Jordan; the clothes people wear; or even the fact that in the Himalayan hamlet of Lukla, people setting off for Everest are given French toast and Swiss muesli for breakfast, with American soft toilet paper to stuff in their pockets.

Second, globalization is a process rather than a fact or a structure. The forces driving globalization — the digitization of information, falling trade barriers, even the spread of pop music — are real enough, but they have left behind an economy that is much less integrated than either the proponents or critics of globalization admit. In some cases, observers have ignored what might be called “the undertow”: the way in which the tide that seems to be bringing people together can also divide them into ever smaller groups. For instance, multi-channel television has spawned not only global networks such as cnn and mtv, but also countless small local “community” stations. The ease with which big-city newspapers can produce different editions for different local markets usually means that they cut back foreign news.

People who talk excitedly about an unprecedented era of globalization should read more history. By some measures, the world is not much more integrated than it was before Princip stepped out of the crowd in Sarajevo. Much of the final quarter of the twentieth century was spent merely recovering ground lost in the previous 75 years — and today’s “global village” still effectively excludes billions of people. Most of the world’s citizens live on less than $10 a day; most don’t have access to phones; four out of every five have never traveled further than 100 miles from their home.

Even when you look at trade among rich countries, many markets for products still stop at national borders. A Canadian province trades 12 times as many goods and 40 times as many services with another Canadian province than it does with an American state of similar size and proximity, according to a Brookings Institution study. In the supposedly open European Union, people are still six times more likely to trade with their countrymen. Industries are deeply rooted in certain bits of the globe: There are plenty of cheaper places to locate a film industry than Hollywood, but none that has the same collection of people. A surprising number of the most humdrum products come from local sources. Nearly all of America’s light bulbs are still made in the U.S., largely because transport costs are too high to justify moving the factories elsewhere.

The uneven nature of globalization helps to explain why it is often a cruel process. In our book, we looked at some of those who have lost out as a result of globalization: the car workers in Flint, the people of South Korea and Russia in the wake of the Asian contagion, the wretchedly poor Gobetti family in a favela in Sao Paulo. But these casualties do not stop globalization from being a process worth defending.

By any economic measure yet invented, globalization has enriched the world. Far more people suffer from too little globalization than too much (not least because of the barriers that the First World erects against Third World products). Once again the central issue is freedom: Any process that increases the number of legal choices that are open to people (even if those choices are as mundane as the right to drink Coca-Cola or surf the internet) should command support. Indeed, it is precisely those sorts of mundane freedoms that people like bin Laden detest most.

The al Qaeda effect

Osama bin laden changed the debate about globalization in three important ways. First, the attacks on the World Trade Center and the Pentagon revealed the soft underbelly of globalization — the way that the very tools of globalization can be turned against it. The passenger jet, which had hitherto been celebrated for bringing the world together, became a horrific weapon of destruction. Towers that were built to glorify both world trade and American power were destroyed in less than an hour; now pictures of them symbolize American insecurity. Bin Laden even bastardized some of the language of globalization. “Networks” and “cells” used to be the stuff of trendy management theories. Now they have a more ominous ring.

Second, September 11 has made it harder for goods, people, and services to cross borders. Air travel has become more bothersome, and airfreight more expensive. America’s airports are currently struggling to install between 2,000 and 5,000 bomb-detecting devices, each costing about $1 million. America wants to force importers to “check in” their inbound containers at secure foreign ports so they can be cleared before reaching American waters. As for immigrants, America’s system of “don’t ask, don’t tell,” which the terrorists exploited, will surely have to be revised. In Europe, xenophobic politicians are already using September 11 as a further excuse for protesting against immigrants from North Africa and the Middle East.

The biggest question about September 11, however, is the Sarajevo one: Was the attack on the World Trade Center one of history’s turning points? Are we witnessing the end of a process of global integration that has been gathering pace for decades? Many of globalization’s opponents certainly think so. John Gray, one of the most intelligent globophobes, argued just a few days after September 11 that “the era of globalization is over. The entire view of the world that supported the market’s faith in globalization has melted down.”

Consider the case for pessimism. Bin Laden’s timing could not have been better. The year 2001 produced something new in the current era of globalization: “synchronous sinking,” as all the world’s major economies slowed down at the same time and the major indices of global integration stood still. World trade, which grew by 7 percent annually throughout the 1990s, remained almost stagnant. Foreign direct investment slumped from $1.3 trillion to barely half that. Almost all of this was the result of the business cycle rather than terrorism, but the coincidence was unfortunate.

The same goes for the economic crisis of 2002, which Alan Blinder, a former vice chairman of the Federal Reserve Board, described as the biggest loss of confidence in the markets since 1929. The collapse of Enron and WorldCom, the revelations about shoddy bookkeeping, the deconstruction of the Orwellian world of stock market analysis (where “buy” meant “maybe,” “hold” meant “sell,” and “sell” meant “run like hell”): All these things gave people around the world an excuse to question shareholder capitalism, which many saw as synonymous with globalization, and to jeer at the pampered princes of America’s New Economy who had once lorded it over them. Suddenly, an American president, not an Indonesian one, was fending off allegations of crony capitalism. Much of this represented the continuing deflation of the dot-com bubble; but when the market loses more than a trillion dollars in a single month, as it did in July 2002, it is hard not to ask serious questions about the way the system works. And there is no doubt that there were serious weaknesses to be addressed — particularly in the auditing world.

The pain was not just in the United States. In the mid-1990s, Argentina had been hailed as an example of the benefits of global integration, opening up much of its economy to foreigners; but in December 2001, it defaulted on $155 billion of debt. The country’s collapse into political and economic chaos sent the middle class onto the streets banging their pots and pans. By 2002, many of Argentina’s biggest states and cities were printing their own currencies. An economy that had once been among the world’s most sophisticated had been reduced to something akin to medieval barter. Brazil also looked vulnerable. As for Zimbabwe, another erstwhile model, it already seemed to have fallen over the precipice.

For the pessimist, there is also much to worry about in the political core of globalization — the transatlantic alliance. From the earliest days of the new American administration, Europe never particularly warmed to George W. Bush, a man who had seldom bothered to travel abroad, despite his father’s cosmopolitan cv. For his part, the new president seemed determined to pursue a unilateral course, shrugging off both the Kyoto treaty and the Anti-Ballistic Missile treaty. In the aftermath of September 11, Europe rallied to America, invoking Article 5 of the nato treaty (which holds that an attack on one is an attack on all) for the first time ever. But by 2002, the alliance was feuding over all manner of things, from the reconstruction of Afghanistan to the possible invasion of Iraq. Relations were particularly strained over the Middle East, Europeans sympathizing with the Palestinians and Americans with Israel. Perhaps these differences can be papered over; but pessimists can still point to the growing strains between two powers that feel they need each other less and less. The Pentagon wonders about the usefulness of European troops, with their outdated equipment and “appeasement-minded” political masters; European politicians, newly emboldened by the euro, wonder about the merits of supporting a country that refuses to listen to their advice (and that is also, they add quietly, largely to blame for its problems in the Islamic world).

This divergence is economic as well as political. In 2002, in a blatant attempt to win votes in the Rust Belt, President Bush imposed tariffs on steel imports. This calamitous decision undermined the Doha trade round, provoked threats of retaliation from Europe, and made a mockery of his professed support for free trade. If an American president couldn’t stand up for his principles with his approval ratings close to record levels, when could he stand up for them? Soon afterwards Bush signed a $170 billion agriculture bill that comes close to matching Europe’s Common Agriculture Policy in the harm that it inflicts on trade in general and the developing world in particular. Despite a quarter-century of globalization, the Western world now spends $1 billion a day on agricultural protection of one sort or another, depriving the poor world of the market that it most craves. The fact that the president then had the nerve to go to Monterey to boast about an increase in American aid to the developing world (which, in fact, still leaves the world’s richest country well behind other donors) only added insult to injury.

These are real grounds for worry. Yet there are also reasons for hope, which begin with the fact that September 11 provided a bracing dose of reality. In the heady days of the 1990s, globophiles insisted that the process was unstoppable. How could people think of resisting the law of comparative advantage? And how could they contemplate putting the genie of technological advance back in the bottle? Too many Americans believed in a bastardized version of Francis Fukuyama’s thesis of the end of history: that the triumph of Western liberalism was inevitable, that politics no longer matters, that all they needed to do to produce utopia was tend to their stock portfolios. Today people have a renewed appreciation for the importance of nation-states and their armies. The invisible hand sometimes needs the help of the chain-mailed fist.

The sheer horror of September 11 also conceals an important fact: By most measures, Islamic fundamentalism is the weakest of all the threats that globalization has yet faced. Socialism, the main ideological opponent of liberalism for most of the past century, combined a searing analysis of contemporary injustices with a compelling promise of a better future. Whatever its defects, Marxism spoke to the genuine discontents of millions of workers. It also attracted some of the finest minds in the West — particularly during the dark days of the 1930s when capitalism was plagued by depression and unemployment. Half a century ago communism held sway over at least a sixth of the world’s population.

Socialism also had a profound influence on plenty of democratic leaders who would never have described themselves as Marxists. In the 1940s and 1950s, European social democrats happily nationalized the commanding heights of the economy and restricted the free movement of capital; in the developing world, many leftish leaders went further and opposed free trade in goods in the name of “import substitution.” The results may have been regrettable — India’s domestic version of Coca-Cola was one of the most disgusting drinks invented by man — but they were the work of democratically elected leaders, with the firm backing of many economists.

By comparison, radical Islam seems a much weaker opponent. Rather than offering a futuristic workers’ paradise, it looks back to the primitive world of the seventh century. The regime that came closest to embodying the radical ideal was the Taliban in Afghanistan. Even capitalism’s harshest critics are unlikely to fashion an alternative out of a society that denied women education and debated whether the proper way to deal with homosexuals was to push them off tall buildings or throw them into holes and put stone walls on top of them.

This is not to say that radical Islam lacks popular appeal. Large numbers of Muslims expressed delight at the events of September 11 (and even larger numbers argue that the atrocity was not perpetrated by Muslims). Huge numbers of Muslims in the West are alienated from their host societies and attracted to fundamentalism. Throughout the Arab world, authoritarian regimes try to distract popular attention from their own failures by blaming all the ills of the world on American foreign policy, especially its support for Israel. This is a dangerous brew: It provides groups like al Qaeda not just with a supply of raw recruits, but also with a sympathetic milieu in which to hide.

The continuing success of globalization depends on the willingness of the United States to stamp out terrorism and the grievances that underpin it. That war involves not just stepping up covert operations against al Qaeda and disposing of Saddam Hussein, but also doing more to prevent nuclear proliferation and resuming the search for peace in the Middle East.

This is a colossal challenge. Yet the threat from radical Islam is still less serious than the one posed by the Soviet Union during the Cold War. Radical Islam has been relatively unsuccessful in turning itself into a coherent political force. The Taliban is gone. The mullahs are rapidly losing their grip on Iran. (Iraq is a secular rather than an Islamic regime.) Islam became a powerful political force because it combined three social groups: businessmen and professionals who were unhappy with their lot, the disenchanted urban young, and Islamic clerics and intellectuals. The rise of bin Ladenism has fractured this alliance: The more radicals rely on terrorism, the less mainstream Muslims are inclined to give them wholehearted support.

It is impossible to argue that the whole world faces a choice between Islam and liberal capitalism in the same way that it once faced a choice between capitalism and communism. Yet this is small comfort. The main threat to globalization comes from within: from Western politicians arguing about things like steel, movies, and the Middle East and from Western workers getting tired of the unrelenting (if productive) pressure that globalization places on all of us. So far, that pressure has been applied primarily to blue-collar workers, but it is now affecting the professional classes. The fuss about steel imports will be as nothing compared to the furor when lawyers, accountants, and even doctors discover that their work can be “outsourced” to India.

This matters because, much of the time, advocates of globalization are wrestling with human nature. The steel-tariff decision perfectly illustrates how difficult it is to persuade people to care as much about the global as they do about the local. Bush backed the steel lobby for the sake of a few votes in West Virginia, Ohio, and Pennsylvania — just as, three years earlier, Bill Clinton caved in before protestors in Seattle because he was worried about shoring up labor support for Al Gore.

In his other great work, The Theory of Moral Sentiments, Adam Smith compared the pain that you would feel if you lost your little finger to the distress that you would feel over the news that “the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake.” You would be hugely shocked, he said. You would express your sorrow. You would reflect on the precariousness of life. You might even “enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general.” But you would sleep soundly, and go about your business.

The first rule of political life is that all politics is local. People are far more easily moved by their own immediate concerns — by the state of their fingers — than they are by the fate of millions of people in a distant corner of the earth. That is why it is so easy to imagine the current phase of liberalization running out of steam. And that is why it is more important than ever for supporters of globalization to speak out in favor of the endangered process.

A call to arms

Too often, supporters of globalization seem to be on the defensive. Public debate on the subject is carried out largely on the enemy’s terms. The backdrop is usually a shuttered textile factory rather than a young African child sitting at a computer, a burning Amazonian forest rather than a young Brazilian investment banker, a scene from Star Wars rather than a shot of the Guggenheim in Bilbao. At times, the defenders of globalization seem crass: The Wall Street analyst on cnbc who expressed delight that the 1997-98 Asian currency crisis was “really beginning to hurt” springs to mind. More often, they are silent. In particular, the wide class of people who have gained most obviously from globalization — call them the Cosmocrats — have almost made a vocation out of excluding themselves from local political debate.

Their defense of globalization should begin with economics. Put simply, the more open any economy is, the quicker it tends to grow. Before 1980, globalization was concentrated largely in the rich world. Since then, it has moved to the developing world with massively beneficial results. The World Bank reports that in the 1990s, even allowing for the Asian crisis, gdp per person in the 24 more globalized developing countries (i.e., those with a higher ratio of trade to national income, such as Mexico and China) rose at an average rate of 5 percent a year, more than twice the rate in the rich world; meanwhile, gdp per person fell by 1 percent in the less globalized developing countries (many of which were in Africa). Needless to say, literacy and life expectancy also rose in the globalizing countries, which were home to 3 billion people (against 2 billion in the less globalized ones, where poverty has increased).

Confronted with such compelling evidence that open borders help developing countries, anti-globalists usually shift their ground. They argue, first, that globalization harms the poor and, second, that it promotes inequality. The first of these arguments is dubious. Some poor people have been harmed by globalization, and many more have seen disgracefully few benefits, but there is no hard evidence that the poor as a whole suffer disproportionately. Another World Bank study, of 80 countries over the past 40 years, demonstrates that the incomes of the poor have risen with those of everybody else. The Fraser Institute also points to a more general connection between freedom and prosperity: In 2000, the income of the poorest tenth in the least free countries was a miserable $728; the figure for the poorest tenth in the freest countries was 10 times as high. And fewer of us are really poor: The proportion of people living on less than $1 a day fell from 20 percent in 1970 to 5 percent in 1998.

What about inequality? There is no doubt that it has increased in many countries, but it is hard to find a specific link to trade policy. The poorest 10 percent of people in countries the world over have to make do with 2 percent to 3 percent of national income, the Economist has reported (June 22, 2002), regardless of whether their economies are open or closed. In the rich world, the rise in inequality has more to do with new technology than with lower trade barriers. One study shows that technology was five times more important than trade in widening inequality in America in 1973-1993. In the steel industry sleeker mini-mills and computerized production systems have cost thousands of Americans their jobs. Yet politicians are unwilling to risk being called Luddites by condemning technology.

These dry statistics tend to understate the human effect of liberalization. When developing countries have agreed to open up their economies — be it South Korea in the 1970s and 1980s or China in the 1980s and 1990s — the gains in well-being have been phenomenal. Deng’s market reforms of the 1980s brought the biggest and most rapid eradication of poverty that the world has ever seen: Several hundred million peasants climbed out of a life that had consisted of little more than the relentless struggle to stay alive.

As we have already conceded, these aggregate figures disguise a lot of individual losers. Globalization destroys some jobs in the same remorseless way the industrial revolution once did, but it also creates many more. Mourning the jobs lost in Detroit seems a little like regretting the departure of horse-drawn carriages (which Detroit did so much to speed). And it also forgets the jobs created in places like San Caetano, Brazil, where General Motors has a factory and has helped push up both local wages and labor standards. There is nothing odd in this. Typically, the average wage at the foreign affiliates of multinationals is 1.5 times the local average; in the case of low-income countries, the figure is double the local domestic manufacturing wage. These factories may pay less than they do in Western countries — sometimes disgracefully so — but usually they push up living standards, bring in skills, and increase the choices open to local consumers.

Time and again in debating this subject, we encounter common assumptions about globalization that are simply false. How many times, for instance, have you heard that globalization favors big companies — indeed, that it is encouraging a “silent takeover” in which companies are becoming more powerful than governments?

In fact, globalization mainly favors smaller companies because it allows them to reach markets that were previously monopolized by multinationals. In most developed economies smaller firms have been gaining ground at the expense of larger ones. Far from being undermined by globalization, governments have been growing steadily in size over the past quarter of a century. The “fact,” popular in anti-globalization circles, that companies accounted for 51 of the world’s 100 biggest economies relies on comparing the sales of companies with the gdp of countries. But gdp is a measure of value added, not sales. Using a measure for value added for companies, only 37 multinationals appeared in the 100 biggest economies in the world in 2000. That still sounds reasonably impressive; yet only two companies scrape into the top 50 (Wal-Mart in forty-fourth place and Exxon in forty-eighth). Wal-Mart was barely a quarter of the size of Belgium. But, again, what does that mean in terms of power? Wal-Mart has no powers of coercion; it cannot tax, raise armies, or imprison people. In each of the countries where it operates, it has to bow down to local governments.

Such facts need to be voiced more loudly. Yet merely choosing a better defensive position is not really good enough. Proving that globalization is, on balance, a good thing that has generally enriched the world economically is certainly valuable, but the same could also be said for the lavatory or the lemon squeezer. To engender any political support, globalization needs a surer political base, a reason to believe in it rather than merely to tolerate it.

Liberty, fraternity, globality

To our mind, globalization is not just an economic process that can be more or less squeezed into the mould of classical liberal political theory; it marks a significant development of that theory. John Stuart Mill advocated the largest possible measure of individual freedom as long as it did not involve harming others. So far, most of the battles that have been fought in freedom’s name have involved political tyranny of one sort or another. Globalization has undoubtedly lent powerful support in that struggle — not only by helping to topple corrupt autocrats like the Suhartos of Indonesia, but also by casting light into the darker corners of the world. It is not coincidental that the pace of globalization has picked up with the spread of democratic rights; the two are symbiotic. Yet globalization also widens the concept of what the maximum degree of individual freedom might be.

Classical liberalism relies on the notion that there is a kind of contract between a government and its citizens, a contract into which individuals freely enter and may freely leave. In practical terms, that proposal has been (and still largely remains) a farce. For billions of people who live in countries that are wretchedly poor, isolated, or tyrannically ruled, there is little choice at all. But even in rich, democratic countries, most of us have faced at least two sorts of practical constraint. The first sort are all the things that make rejecting the social contract and leaving the place where you were born difficult — the rules governing where you can live, your ability to remain in touch with family, friends, even soccer teams. To the extent that globalization reduces this tyranny of place, it makes migration more likely to be a matter of choice rather than despair, and even if you do not move, it still provides choices where none existed before. Rather than being the worst sort of prix fixe menu with only one option for every course (you will live in Germany, eat German food, shop in German shops, watch German sport), it presents a wider range of options. Thanks to globalization, a Berliner can, if he so chooses, eat Moroccan food, read the New York Times on the internet, and visit Paris without changing money or producing a passport.

Put in these terms, it can sound a little trivial, but the underlying point is not. Globalization increases people’s freedom to shape their own identities rather than assuming those of their ancestors. Of course, as communitarians point out, there are trade-offs between the comforts of community and the virtues of mobility — but those are surely trade-offs that individuals should calculate for themselves. It is hardly surprising that globalization scares authoritarians (such as Lee Kwan Yew, who once pronounced that “to us in Asia, the individual is an ant”), not to mention wild-eyed fundamentalists such as bin Laden.

Indeed, supporters of globalization should realize that the Islamic world represents an opportunity as well as a threat. The fundamental problem in the region is more than just poverty. Remember that bin Laden inherited millions, that many of the September 11 hijackers were university graduates, that Saudi Arabia controls a fifth of the world’s oil reserves, and that the Arab world has less abject poverty (defined as an income of less than $1 a day) than any other developing region, thanks in part to Islamic traditions of charitable giving. The fundamental problem is a lack of economic and political freedom.

A report from the United Nations Development Programme in 2002 ranked the Arab world lowest out of seven regions in the world, with abysmal standards for civil liberties, political processes, and media independence. The wave of democracy that washed over much of the developing world (particularly Latin America) during the past decade has passed the Arab world by. The region’s autocratic rulers, whether they dignify themselves with the title of president or king, give up authority only when they die. Women are denied basic economic and political rights. Not one of the Arab states that are commonly accused of spawning terrorism is a member of the World Trade Organization. All of them are dominated by intrusive states and freeloading kleptocracies, and all of them are locked in a pattern of relative decline.

This illiberalism is ruining any chance the Arab world might have of providing a decent life for its citizens, condemning the region to long-term economic decline and spawning an alienated and underemployed middle class. The non-oil-related gdp of the entire Arab world is about the same as the gdp of Finland. Between 1985 and 1998, real average income per head declined in Iran, Iraq, Jordan, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen. It can hardly be accidental that the Muslim-dominated countries that have actually succeeded in offering a better life to their citizens have also been the ones that have been the most democratic and the most open to free trade. The most successful of them all, Turkey, has been a secular state since 1928.

The lesson of a terrible century

None of this is meant to imply that the Western brand of globalization is a perfect model. It is not. There are clearly manifold problems — from the governance of companies like Enron and WorldCom that allow chief executives to behave like tawdry pirates to the persistence of poverty in the developing world. Fixing all these problems requires an active role for government.

One of the few things that the left and right agree about is that globalization diminishes the importance of government. They are both wrong. There is no statistical relation between the globalness of an economy and the size of its state: Sweden and Denmark are two of the most open economies in the world (with a ratio of imports to national income roughly double that of the United States), but their governments both account for more than 50 percent of gdp — way above the level in America.

The truth is the opposite: Globalization actually increases the importance of government, in at least three ways. First, markets depend on transparency and the rule of law, things that only governments can provide. The scandals now engulfing American capitalism only underline how important those rules should be. There is nothing illiberal about a government demanding that the accountants who audit companies should be rotated. The same need for competent government applies in spades in the developing world: As Hernando de Soto has argued, merely giving people basic property rights (their home and the opportunity to borrow against it) could unleash trillions of dollars of capital.

Second, governments have a preeminent role to play in ameliorating the downside of globalization. Like any other efficiency-producing device, globalization mercilessly exaggerates any weaknesses that it encounters. Forcing countries, companies, and people to compete with the best in the world imposes huge strains. Faulty policies — be it Brazil’s push into deforesting the Amazon or Thailand’s adoption of a fixed-rate currency system — are rapidly exposed in a world of mobile information and capital. The doctrine of comparative advantage is a harsh one if you possess little but comparative disadvantages.

So far, politicians have usually been less innovative than businesspeople in dealing with the relentless pressure to compete. Some of the necessary changes (such as making pensions in Western countries portable) are merely fiddly. Others (for instance, changing American schools or European universities) require a more fundamental review of the traditional role of governments. Wouldn’t America’s urban schools be more efficient if parents were given vouchers? And wouldn’t Europe’s universities be more successful if they weren’t so dependent on the state?

The third area where Western governments have an important role is in coping with Third World poverty. As we have already mentioned, Western countries could contribute enormously by opening their economies to poor-country imports. It is scandalous that agriculture and textiles, the two things most poor countries most want to export, are also the areas with the highest tariffs in the West. The Third World needs more than this. It has fallen too far behind.

Many non-governmental organizations think the answer is to tilt trade rules — to make trade “fairer” by, for instance, only admitting imports produced by workers with “decent” wages. This is a recipe for hidden protectionism — for preventing the developing world from trading its way out of poverty. Instead, the simplest way to help the Third World is to do so directly — by giving money and advice. Debt forgiveness could be dramatically expanded at relatively little cost to the West. Far too little thought has gone into global philanthropy.

To many Westerners, these issues might seem like a sideshow. Africa is a long way away, and there is a war against terrorism to be fought. History, however, argues that complacency is always punished — be it a Londoner in 1914 sipping his tea in bed or a Californian hunched over a cappuccino in Starbucks in 1998.

We began by comparing September 11 to Sarajevo, but the underlying causes of the failure 100 years ago went deeper — and were rooted in the complacency of the winners of the first age of globalization. A decade before Princip made his fateful move, the Salvation Army threw a dinner party at Madison Square Garden. The stadium’s lights beamed down on thousands of poor people tucking into free food. The rich hired boxes and galleries to savor their philanthropy. Everybody sang “Praise God From Whom All Blessings Flow.” It was hailed by the Salvation Army Commander as “the dawning of a new era, the bridging of a gulf between the rich and poor.”

Over the next quarter-century the masses at the trestle tables turned on the elite in the galleries. The icons of American capitalism — the Rockefellers, Morgans, and Vanderbilts — were denounced as “robber barons” and “malefactors of great wealth.” Even before Sarajevo, antitrust policy was being used to cut them down to size and higher taxes to narrow the inequalities they had created. World War I provided a spur for more state intervention. The stock market crash of 1929 (also “their” fault) led the government to interfere even more in business. Then came the Depression, which helped neither the rich nor the poor.

To avoid such a fate, the world requires better leadership. We have many reasons to regret the title of our book (A Future Perfect) since September 11. In some ways a more honest title would be A Future Contingent. We continue to believe that globalization can produce a much better world for the vast majority of people, but it will not do so simply as the automatic result of technology. The future is contingent upon the quality of our political leaders in Washington, London, and the other capitals of the world. Globalization promises a better world, but we have to build it.