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The Challenge of Global Capitalism: The World Economy in the 21st Century.

The Challenge of Global Capitalism: The World Economy in the 21st Century. By Robert Gilpin, with the assistance of Jean Millis Gilpin. Princeton, NJ: Princeton University Press, 2000. 373p. $29.95.

The word globalization first appeared in the second half of the 1980s and now has become the most ubiquitous in the language of international relations. It has spawned a new vocabulary: globaloney (Why all the hype when the global economy was more integrated in the age of Queen Victoria?): globaphobia (the new, mainly mistaken, backlash); globeratti (the members of the international nongovernmental organizations [INGOs] who travel around the world from conference to conference, except when they are on the Internet mobilizing for the next conference), and so on. For Robert Gilpin, among the world's most eminent scholars of international relations, globalization is insightfully defined as the deepening and widening integration of the world economy by trade, financial flows, investment, and technology. This, he notes, is the "second great age of capitalism." The basic theme of the book is whether, like the first great age, it will end with a bang (or even a whimper) or survive and thrive.

Gilpin provides a clearly written and comprehensive tour d'horizon of the drivers of integration--trade, finance, transnational corporations--and highlights for each domain the major policy issues. He spells out the main features of the growing backlash and is most acute in his critique of the simplistic views that globalization is either nirvana or Armageddon. But the most important thesis of the book--and its most important contribution to the discipline of international political economy--is that the future of globalization ultimately rests on political foundations, not on the merits or demerits of the now dominant neoliberal paradigm. Like Schumpeter (and unlike Marx), Gilpin stresses that policy is the product of politics, not economics; unlike the international regime theorists who extend to the political domain the basic optimizing assumptions of economic theory, he stresses that the real world of political economy is too messy and prone to accident and error to support this reductionist model of policymaking.

At the core of the political economy of postwar global capitalism, Gilpin argues, was the Cold War. It is certainly true that the Cold War was vital to the launch of the Marshall Plan and the construction of the architecture of international economic cooperation. Churchill termed the Marshall Plan "the most unsordid act in history." That it was. But it was also, in Gilpin's classic realist approach, very much a response to fear of Stalin's communist missionary zeal. And there is little doubt that it was an immensely successful diplomatic maneuver to outwit the Soviet Union and score a triumphant preemptive move, the first salvo of the Cold War. It was also important that Stalin refused to participate and that both the Marshall Plan and the creation of the Bretton Woods institutions and the GATT were strongly supported by American business and labor, not for fear of communism, but because American industry was far more efficient than any potential competitors in Europe (let alone postwar Japan). Furthermore, although the Cold War constrained the spillover from "low" to "high" policy (e.g., from trade to security issues), the first major crack in the postwar architecture--the end of the Bretton Woods system of exchange rates--was catalyzed by the Nixon administration in the early 1970s, when the Cold War was still alive and well. Also, the shift to a multitrack trade policy and the rise of system friction with respect to Japan are related more to the increasingly complex evolution of the American trade policy agenda than to the threat of the evil empire.

As is clear from Gilpin's account, however, by far the most important effect of the end of the Cold War in the United States has been the decline in congressional deference to the executive branch in international economic policy. Gilpin cites Clinton's failure to secure fast track in 1997 and the struggle to win approval of IMF funding in 1998 as examples. Again, is it the end of the Cold War or the absence of a coherent view of America's role in a global economy that accounts for the increased domestication of foreign policy? What role is played by the media and, more broadly, enhanced communication in the erosion of the "permissive consensus" of the earlier postwar decades, which provided far greater scope for policy action in areas that did not resonate directly with the broader public? Obviously, no precise answer is possible, but it would have been useful to explore some of these factors. The American genius has always been creative ad hocery, and in a sense the United States became an "accidental hegemon" after being forced to enter World War II by the Japanese bombing of Pearl Harbor.

The uncertainty about America's willingness or ability to play a leadership role in sustaining and reinforcing the political foundations of the global system lies at the heart of Gilpin's concern with the future of this second age of capitalism. The main threats to the system, he argues, arise from regionalism, financial instability, and increased protectionism.

In reviewing the ongoing debate among economists as to whether regional trade agreements (RTAs) are building blocks for or stumbling blocks to preserving and enhancing the rules-based multilateral system, Gilpin comes down strongly--although for more than purely economic reasons--on the side of multilateralism. Many economists (myself included) would agree. But this analysis should have been broadened to include the proliferation of subregional agreements among southern countries (as tools to increase bargaining clout in the World Trade Organization). Indeed, the North-South divide, created in part by the Uruguay Round (and vividly manifested in Seattle by the walkout of virtually all non-OECD countries) is not mentioned. The threat may be a proliferation of RTAs without the United States, especially if the labor and environmental standards issues remain high priorities for the next administration. If a new round of negotiations cannot be launched within a reasonable time after the U.S. election, then the future of the WTO does not look promising.

For whatever set of reasons, we cannot dismiss the threat of fragmentation of the global system or the threat of another financial crisis--especially in light of the fact that the Clinton administration's ringing declaration to create a "new international financial architecture" has yielded little but modestly improved plumbing. As Gilpin points out, there is disagreement among economists and among governments about what should be done, and the United States is either unable or unwilling to lead the charge.

Gilpin wisely does not try to predict the outcome of these threats and challenges. He is certainly right in emphasizing that the political foundations of the global economy will determine its future and that the United States must play a leading role. But perhaps there are possibilities in other configurations of global leadership? Broader engagement was needed to launch the Uruguay Round. The creation of the WTO was due to a Canadian proposal latterly supported by the European Union to constrain U.S. aggressive unilateralism. The EU rescued the financial services negotiations after the outcome was rejected by the United States. These are only examples. It would worth exploring, especially by someone like Gilpin, whether a new pluralist system of global governance is possible. From the viewpoint of Realpolitik, perhaps the alternative would be bad enough for world leaders to give it a try.

Sylvia Ostry, University of Toronto
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Title Annotation:Review
Author:Ostry, Sylvia
Publication:American Political Science Review
Article Type:Book Review
Date:Mar 1, 2001
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