Sinking Globalization

Niall Ferguson

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  Could globalization collapse? It may seem unlikely today. Yet despite many warnings, people were shocked the last time globalization crumbled, with the onslaught of World War I. Like today, that period was marked by imperial overstretch, great-power rivalry, unstable alliances, rogue regimes, and terrorist organizations. And the world is no better prepared for calamity now.

Niall Ferguson is Professor of History at Harvard University, a Senior Fellow at the Hoover Institution, Stanford University, and a Senior Research Fellow of Jesus College, University of Oxford. Copyright (c)2005 by Niall Ferguson.

APOCALYPSE WHEN?

A doomsday scenario is plausible. But is it probable? The difficult thing--indeed the nearly impossible thing--is to predict a cataclysm. Doing so was the challenge investors faced in the first age of globalization. They knew there could be a world war. They knew such a war would have devastating financial consequences (although few anticipated how destructive it would be). But they had no way of knowing when exactly it would happen.

The same problem exists today. We all know that another, bigger September 11 is quite likely; it is, indeed, bin Laden's stated objective. We all know--or should know--that a crisis over Taiwan would send huge shockwaves through the international system; it could even lead to a great-power war. We all know that revolutionary regime change in Saudi Arabia would shake the world even more than the 1917 Bolshevik coup in Russia. We all know that the detonation of a nuclear device in London would dwarf the assassination of Archduke Ferdinand as an act of terrorism.

But what exactly can we do about such contingencies, if, as with the Asian tsunami, we cannot say even approximately when they might occur? The opportunity cost of liquidating our portfolios and inhabiting a subterranean bunker looks too high, even if Armageddon could come tomorrow. In that sense, we seem no better prepared for the worst-case scenario than were the beneficiaries of the last age of globalization, 90 years ago. Like the passengers who boarded the Lusitania, all we know is that we may conceivably sink. Still we sail.