the establishment reports

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The Establishment ReportsAuthor(s): Martin WalkerSource: Foreign Policy, No. 89 (Winter, 1992-1993), pp. 82-95Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/1149075 .

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THE ESTABLISHMENT REPORTS

by Martin Walker

When a man compulsively checks his pulse and his temperature and believes that he is con- stantly on the verge of illness, he is a hypo- chondriac. There is no similar term for such a syndrome among countries, but perhaps there should be. Increasingly, major states find their politics convulsed by the weekly and sometimes daily litany of unemployment figures, currency rates, trade deficits, and new housing starts.

In Great Britain the condition became acute during the general election of 1970, when the opinion polls put Harold Wilson's Labour government so far ahead that Ladbrokes, those imaginative bookies who will take a bet on just about anything, offered odds on a Labour win of 34:1 on. To win a single pound, the gambler had to stake ?34. When Wilson lost, he blamed potatoes. Bad weather the previous year had shrunk the crop and helped provoke a 2.1 per cent jump in the retail price index just before the election. Defense Minister Denis Healey blamed bad monthly trade figures released in the week before polling day.

The United States is now suffering from a similar hypochondria, rather more serious than the economic figures really justify. Inflation at 2.4 per cent is down, the stock market trades near its all-time high, unemployment at 7.5 per cent is modest by European standards, the United States is once again the world's leading exporter, and the U.S. economy still shows some net growth. But the mood is dreadful. Opinion polls suggest that the malaise is swell- ing like the federal budget deficit, even though the total federal debt is still a smaller propor- tion of gross domestic product than the pro- portion the economy managed quite comfort- ably in the peak years between 1945 and 1960.

MARTIN WALKER is Washington bureau chief of the Guardian of London and Manchester.

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Like Britain's after 1945, America's sense of achievement at having "won" the Cold War is overshadowed by the perceived economic costs of that sustained effort. And like Britain in the entire postwar period, when the average annual economic growth rate of about 2.5 per cent surpassed the growth rates of the supposedly golden age of economic dominance in the nineteenth century, America frets at the percep- tion of relative decline. Britain and America have grown far richer and more prosperous, runs the popular argument, but less quickly than their former enemies, Germany and Japan. That generalization may be true of Japan, but it is demonstrably false of Germany. In the 1970s, the West German and U.S. economies averaged annual growth of 3.1 per cent. In the 1980s, West German annual growth averaged 1.8 per cent, a worse performance than the U.S. average growth rate of 2.6 per cent annu- ally over that decade.

The British parallel has been explicitly in- voked in another way: George Bush's supporters argued that just as Britain's Conservative prime minister defied the opinion polls and the recession to win reelection last April, so would he in November. To ram the point home, the right-wing Heritage Foundation imported John Lacy and Mark Fullbrook, respectively the director and deputy director of campaigning for the Conservatives, to give a talk on "The Brit- ish Elections: Parallels for the U.S." in Septem- ber.

The British election defeat of 1970 was fol- lowed by the most dramatic shift in foreign and commercial policy since 1945: the finally suc- cessful application by Conservative prime minister Edward Heath for British membership in the European Economic Community. Largely because French president Charles de Gaulle had been replaced by Georges Pompidou, the application succeeded. Now there are un- mistakable and cumulative signs that the United States is gearing itself for a foreign policy reassessment of similar proportions.

Over recent months, to observe the American foreign policy establishment's thinking aloud has been rather like getting a bird's eye view of a grand naval engagement in the great days of

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sail. As the reports have dropped from the think tanks and institutions of the great and the good, the image of a stately fleet of galleons tacking as one to the new prevailing wind is irresistible. The common theme among them is that the world of geopolitics, in which national virility was measured in missiles and megatons, has been replaced by a world of geofinance, in which power comes out of the export industries and the currency markets. Thus, the new thinking runs, the United States had better see to its sails and its rigging and restive crew, scour the weeds and barnacles from its fouled hull, and make its economy ship-shape for the fray.

The Committee for Economic Development (CED), harking back to papers it published in the 1940s that helped make the case for the World Bank and International Monetary Fund, has just published its own glossy offering, a clarion call for The United States in the New Global Economy: A Rallier of Nations. The Carne- gie Endowment for International Peace's Na- tional Commission beat the CED to the punch with an even more high-tech booklet, with different kinds of paper to highlight its themes, titled Changing Our Ways: America and the New World. The Council on Foreign Relations (CFR) had been preparing its own magisterial offering on the same theme, but the project has been dropped on the grounds that its gestation was too slow and the world was changing too fast. A somewhat more modest survey of the future of U.S.-European relations is now being planned for next year. It too is said to focus on the state of the American economy as a precon- dition of an effective foreign policy, an econo- centrist approach that was signaled when For- eign Affairs recently began marketing its own 70th anniversary T-shirts, touted as: "100% cotton heavyweight white shirt with black, printed logo, front & back, $14.95." Rarely have the new attractions of the free market to

foreign policy theorists been more vividly dis- played.

Candidates for Navigator

It was no doubt to be expected that for the first U.S. presidential election after the collapse of the Soviet Union and the final quietus of the

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Cold War, the think tanks would set sail in new directions. But perhaps inspired by the brief success of Francis Fukuyama in suggesting that the world had reached "The End of Histo- ry," a number of individuals have also laid hands upon the tiller. Senator Joseph Biden, evidently anticipating the day when he succeeds Claiborne Pell (D-Rhode Island) as chairman of the Senate Foreign Relations Committee, has published his own booklet. The Delaware Democrat's collection of impressive but little- noticed speeches, entitled On the Threshold of the New World Order: The Wilsonian Vision and American Foreign Policy in the 1990s and Beyond, calls for exporting and sustaining democracy, a new containment strategy to inhibit rogue states from nuclear pretensions, and embracing collective security to protect the grand vision of an econo-environmental revolution.

In addition to those grand declarations, a number of books and essays have been published from various commentators (who can expect influential posts in a Clinton administra- tion) that also explore the need for a dramatic reassessment of the American course. Harvard economist Robert Reich, an intimate friend of Democratic nominee Bill Clinton since the young Arkansan held the seasick Reich's head over the side of the ocean liner taking them to their Rhodes Scholarships at Oxford, has put the American dilemma with characteristic force in the American Prospect:

The next president of the United States either will lead the world into an era of unprecedented peace and growth, in which virtually all nations are knit- ted together into a seamless economic web, or will watch the world fragment into three trading blocks of advanced and rapidly developing nations, and a fourth vast territory--stretching from South Amer- ica through central Africa, Eastern Europe, and central and southern Asia-largely characterized by deepening poverty, ethnic strife, and civil chaos.

Michael Mandelbaum, a CFR analyst who helped coordinate Clinton's foreign policy positions from the Johns Hopkins School of Advanced International Studies, argues in Foreign Affairs that

the post-Cold War international agenda is beginning to take shape. It is not likely to be dominated by military confrontation between great nuclear

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powers, or even by crises like the one in the Per- sian Gulf. Instead, economic issues will predomi- nate, particularly as former communist Europe and countries in other regions move toward market institutions and practices.

Robert Hormats of the trading house Goldman Sachs took that econocentrism even further in another Foreign Affairs article:

If America's economy does falter, so will the un- derlying source of its international power. Thus this nation's central foreign policy priority in com- ing years and its central domestic priority must be the same: strengthening the American economy. Unless the United States reinvigorates in this decade the economic roots of its international power, it risks an erosion of self-confidence and of its international leadership at the turn of the century. With a weak economy and a society in con- flict over how to allocate slowly growing resources, this nation would find it increasingly difficult to achieve its essential global objectives.

He concludes that "the danger for the United States at the end of this century is not imperial overstretch but domestic underperformance." Bevin and Baker

Hormats's imperial echo recalls a final parallel with Britain that has been little noticed. Some 40 years ago, a Princeton undergraduate submitted as his final thesis an extraordinarily long paper on Ernest Bevin, the former trade union boss who became Britain's legendary foreign secretary from 1945 to 1951. The young James Baker, who was to become Bush's secretary of state and then his White House chief of staff and campaign czar, was fascinated by Bevin's skill at masking the implications of British economic decline. Bevin's trick was to lock the British long-term international role into a series of institutions that would extend the country's influence far beyond its economic merits. The United Nations Security Council, the World Bank and International Monetary Fund, NATO, and a series of other pacts were Bevin's vehicles to defend British interests from a declining power base far into the future.

Baker's subsequent career suggests that he learned Bevin's lesson well. As treasury secretary under President Ronald Reagan, he estab- lished with the Plaza and Louvre Accords an

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institution of the industrial world's central banks to manage exchange rates and the orderly decline of the dollar. As secretary of state under Bush, he worked hard to preserve NATO as the institution that could continue to give the United States automatic leadership in the Atlantic Alliance, and he extended NATO's reach to Eastern Europe with the North Atlantic Cooperation Council. In Asia, Baker as secretary of the treasury had tried in 1987-88 to establish a Pacific version of the G-7 group of industrialized countries. To his intense frustration, he found that regional concerns including Hong Kong's colonial status and difficulties with Beijing over Taiwan prevented its fruition. In compensation, Baker later built up the organization known as Asia Pacific Economic Cooperation, bringing in China, Hong Kong, and Taiwan at the third ministerial meeting in Seoul.

Baker's fondness for international institutions to sustain America's global role has not always met with success. He suggested before the House Foreign Affairs Committee in September 1990 that the most sensible way to guard against any future Iraqi threats was a security pact between the United States and its allies in the Persian Gulf. His suggestion was mocked as "Gulfo," Middle East child of NATO, in the New York Times. Baker, ever sensitive to his image and his press relations, dropped the idea like a hot brick.

But that approach was all a part of the global vision of American foreign policy under new and straitened circumstances that Baker spelled out in the policy paper he delivered to the U.S. Senate for his confirmation hearings as secretary of state: "We enter a new era characterized especially by the greater strength of our friends," he said.

We also live in a world of increasingly influential allies whose cooperation is essential if we are to surmount common problems. There are new, global dangers, such as terrorism, the international narcotics trade, and the degradation of the world's environment, that cannot be managed by one nation alone-no matter how powerful. These realities will not permit a blind isolationism or a reckless unilateralism.

Those thoughts were all later reflected in the

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think tank products already mentioned. Such are the origins of an establishment consensus.

It may be premature to judge Baker's stew- ardship of American foreign policy. But it is already clear that his reputation is less glittering than it would have appeared a year or so ago. Then the Middle East peace process, the unifi- cation of Germany, the process of nuclear arms cuts, and the democratization of Russia all looked rather more promising than they do today. Time will tell, but Baker has not visibly succeeded in consolidating major gains for American foreign policy after the Cold War. He can, however, be credited with that strik- ingly early entry in the great econocentric mood shift in the American foreign policy debate, which now explores ways to retain U.S. influence amid "the greater strength of our friends."

The New Wisdom

Now over the horizon looms the new consensus, debouching into the American establishment like the advance frigates of an invasion fleet. For the past five years, in spite of Baker's spasmodic conceptualizations before House and Senate committees, there really has not been a coherent American foreign policy. The world's only superpower has been floundering about its role ever since Georgi Arbatov first made his prescient warning from his office at Moscow's old U.S.A. and Canada Institute. "We [the Soviets] are going to do the worst thing we possibly can to America-we are going to take away their enemy," Arbatov predicted to me back in 1987. So it proved. The main orga- nizing principle of American policy for nearly 45 years, opposition to the Soviet Union, has slowly disappeared.

Since then, Bush has occasionally spoken of a "new world order," but that now seems to be a phrase looking around vaguely for a policy. In the Persian Gulf, it meant collective international action against aggression, led by America. In what used to be Yugoslavia, the new world order does not seem to mean anything at all. If there were a common thread to post-Gulf foreign policy, then in both Bosnia and Somalia it seems to be inspired by the degree of misery

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portrayed through American T.V. screens, with the crisis defined by CNN, and the administra- tion's response calibrated according to the fluctuating interests of "Nightline" and "McNeil-Lehrer."

The new econocentric consensus has been honed into policy recommendations and structural reforms by Clinton's friends and advisers. The first suggestion came from Professor Derek Shearer of Occidental College, was taken up by Reich and Ira Magaziner, who together with Shearer wrote the first draft of the Clinton manifesto, Putting People First. Shearer suggested that with the Cold War over, the National Security Council (Nsc) was no longer enough to defend America's interests abroad. Founded with the Cold War in 1947, the NSC has been the president's own private think tank and coordinating office for global strategic affairs. Shearer and Reich suggest that the old NSC should be joined by a new and similar office that goes to the heart of Amer- ica's top international priority for the 1990s, to be called the Economic Security Council. The argument is that trade and economic policy are now so crucial that they should succeed the Cold War itself as the heart of U.S. strategic concern.

The Carnegie Endowment report does not cut so close to the structural heart of the White House, though it noted that "we are a country ill-equipped for new priorities. Our institutions creak with anachronisms." (A second commission is to address those anachronisms.) But the thinking of the commission of senior figures convened to draft Changing Our Ways echoes Reich and Hormats in its first principle: "Our foreign policy must be founded on a renewal of our domestic strength; rebuilding our economic base is now our highest priority." The report warns: "To advance our interests abroad we must get our own house in order. An America that lacks economic strength and social cohe- sion will lose respect abroad."

"Greater economic parity among North America, East Asia and Europe has caused a sea change in world trade and finance. We have no choice but to move from what was formerly the hegemony of a single country to collective

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management by the industrial democracies," it

goes on. "America must recognize that now other nations seek greater voices, not just greater burdens. We need to act more as catalyst than as commander, resorting more often to

persuasion and compromise than to fiat and

rigid blueprint." The commission reports that

Acting alone the United States lacks the resources to secure stability and democracy in the new world. Despite our military power America is in no position unilaterally to cause states to demilita- rize peacefully, to curb nuclear proliferation or contain ethnic explosions. It is becoming more difficult to translate military dominance into political influence.

Sitting on the Carnegie commission were former defense secretary Frank Carlucci; former chairman of the joint chiefs of staff William Crowe, also a Clinton adviser; Barber Conable, the last head of the World Bank; and a group of former assistant secretaries of state, senators, congressmen, and bankers; and Tom Donahue, the secretary-treasurer of the AFL-CIO, the main U.S. trade union organization. (Donahue submitted one perhaps predictable disclaimer, which condemns the "idealized version of a non-existent free trade world" and "a trade policy designed to increase the opportunities of U.S.-based multinational corporations to invest [in Mexico] and to repatriate profits, while creating low-wage jobs" as "the wrong approach.")

Their chairman was Winston Lord, a former aide to Henry Kissinger and a former U.S. ambassador to China, who launched the report in Washington with a blistering critique of foreign policy's role in the campaign: The treatment of foreign policy is "somewhere between distressing and appalling," Lord told a press conference. "We see no coherent vision here or abroad."

The Carnegie commission has two main proposals, which also echo some of the thinking among Clinton advisers. The first is that the world needs a new Dumbarton Oaks conference, to reconsider the structure of the United Nations, the Security Council, and other international organizations. The second is that the G-7 group of leading industrialized

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countries should become the G-3-the United States, Japan, and the European Community. They should reorder the structures of the global economy and "review [the] present institutional arrangements, including the division of responsibilities among the World Bank, the IMF, other international financial organizations and the U.N."

That call is evidently an agenda for a new Bretton Woods, the 1944-45 conference at which London and Washington laid out the postwar economic order, based on the dollar and the pound sterling as the international reserve currencies, at fixed exchange rates. The new focus on the G-3 makes it clear that the new world economic order will be based on the dollar, the yen, and the European currency unit (or the deutsche mark), and the objective will be to establish some ground rules for the competitive fray of the new global economy.

The Carnegie commission approach, which recalls the principles of Baker's Plaza Accord of 1985, requires

a renewed commitment to develop operating principles of international monetary cooperation, exchange rate management and policy coordination, especially in light of the possible evolution of a European currency. An agreement on exchange rate undertakings-perhaps target zones for key currencies, or fixed but adjustable parities--would be based on commitments to growth, price stability and avoidance of unsustainable external im- balances.

There are two interesting implications of that view. The Soviet Union paid a heavy price for its exclusion from world trade and finance during the Cold War; and because of its economic weakness, Russia is now again faced with exclusion from the new system that is beginning to emerge. The other implication is not so much that America lost the Cold War, but that it paid such a heavy economic price for success that, like the enfeebled but victorious Britain of 1945, it must find new ways to maintain a leading role in the world.

There are obvious seductions for diplomats and policymakers, and those establishment figures whom the British call "the great and the good," to convene new conferences at Dum- barton Oaks and Bretton Woods and imagine

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themselves to be John Maynard Keynes and Dean Acheson, present at a new creation. Perhaps the times require no less. But the overwhelming impression given by reports like Carnegie's or the CED's is that the intellectual hegemony enjoyed by the free-marketeers in the Reagan-Thatcher era of the 1980s has withered. Free markets are praised, and their magical effects recommended to the East European and former Soviet countries, but the real thrust of the reports is for more state intervention and greater global planning based upon international consensus. Many of Reagan's most fervent supporters used to mut- ter darkly about the Bilderberg Group and the global conspiracy of the Trilateral Commission. They would find much fuel for their suspicions in the Carnegie report's enthusiasm for a new world financial order drawn up by the G-3.

The common theme among the

reports is that the world of geopolitics has been replaced by a world of

geofinance.

The trend toward global and national planning is even more marked in the CED

study. It offers six principles, whose first three are collective security, free trade, and promoting growth in the developing world. The other three principles are domestic. They say the United States should "shift its policy emphasis from military strength to economic strength" and should do that through explicit and planned social engineering.

The government should shift federal policy away from encouraging consumption and toward favor- ing productive saving and investment ....The Unit- ed States should pursue a comprehensive human investment strategy that begins before every citi- zen's birth and continues throughout our working lives.

The CED report begins by dismissing "anxi- eties that a U.S. decline from leadership is inevitable. We reject such pessimism and fatal- ism; these qualities have never been part of the American character." But it goes on to argue that because of the decline in American eco-

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nomic weight, the nature of that leadership must be scaled back and fundamentally recast.

The international leader in this new global age will not be a nation that uses force to achieve its own goals but a rallier of nations, capable of mak- ing divergent countries see a commonality of interests and motivating them to act....If there is to be burden sharing, there must be power sharing as well.

There are two intriguing aspects to those various recipes for the American hypochondria. The first is that, while the diagnoses of the American decline come from respectable and even scholarly sources, they would not find automatic agreement among America's friends, nor among her former enemies. What Joseph Nye astutely called the "soft power" of American cultural influence and political values has never been stronger. Just ask a Moscow black-marketer which currency he works in, or a Mexican businessman why he supports the North American Free Trade Agreement, or a member of Japan's reformist New Party what political model he studies. But the prevalent hypochondria means that even the most reputable Americans seem dreadfully gullible about their economic failings: Witness the ridiculous error in the CED report, which claims "Japanese exports to the United States represent 29 per cent of its GDP." According to OECD figures, total Japanese exports to the entire world have never reached 16 per cent of Japan's GDP, and the latest Bank of Japan figures for 1991 suggest that Japanese total exports account for 9.7 per cent of GDP.

But how dire is the state of the U.S. economy? The short answer: not nearly as weak as Britain's, not as indebted as Italy's, not as unemployed as France's, and with a much healthier stock market than Japan's. The jury on the U.S. economy must still be out. But an argument can be made that just as the rust belt, and the industries that sustained the traditional skilled working class, went through a painful readjustment in the 1981-82 Reagan recession and are now rebounding into the export resur- gence, so the current white-collar recession could conceal a healthy restructuring of the service sector.

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Looking ahead, the public response to independent candidate Ross Perot's challenging electoral appeal to sacrifice, and the speed with which American consumers are running down their personal debt, suggest that the days of self-indulgence may be over. And thanks to immigration, legal and otherwise, the U.S. demographic profile for the next 30 years looks markedly less senescent than those of Germany and Japan. Overall U.S. productivity remains significantly ahead of Japanese and German levels. To many non-American observers, the reports of America's economic decline appear exaggerated, symptoms of adapting to the global economy rather than of a surrender to its challenges. There is not much that cannot be put right with political will and sensible priorities on education, investment, and the deficit.

The second remarkable feature of America's new econocentric consensus is that it represents a return to the values of what any European would recognize as social democracy. The lesson that has sunk in after the 1980s is that those countries that America perceives to be doing better are either classic social democracies themselves, like Germany, or those East Asian countries that cleave to free-market principles in their export trades while running their domestic economies with a great deal of dirigisme (state-directed planning and industrial intervention) and explicit social engineering.

The common theme of the new consensus is that while they may claim to have won the Cold War, the free-market theories of the Reagan-Thatcher era of the 1980s amounted to a damaging Anglo-Saxon delusion. And that conclusion goes a long way toward implying that the American foreign policy establishment has shifted the weight of its support to the re- vamped Democratic strategies of Bill Clinton. The Clinton health reform plan is based on public regulation of private provision, which is very close indeed to the German system. Clinton's plan for lifetime education and job training is based on the Swedish model and those of other European countries. His belief in government's role in strategic planning for the economy is partially borrowed from Western

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Europe and Japan. "We need to create a partnership among

government, business, labor and education-just as our competitors do," says Putting People First, chunks of which could easily have been inserted wholesale into either the Carnegie or the CED

reports. Modeling his concept on the Pentagon's Defense Advanced Research Pro- jects Agency, Clinton calls for

a civilian agency [that] will bring businesses and universities together to develop cutting-edge products and technologies ....The only way America can compete and win in the twenty-first century is to have the best-educated, best-trained workforce in the world, linked together by transportation and communication networks second to none.

And that is where government comes in. During the hegemony of Reagan-Thatcher

free-market economics in the 1980s, Clinton's point of view would have been a losing philosophy for the Democrats. But Reaganomics is discredited, and the conservative movement is exhausted, just as the old Democratic welfare policies were exhausted after Lyndon Johnson's bold Great Society programs in the 1960s. After their triumphs of the 1980s, the Republicans (and Britain's Conservatives) are similarly bereft of any strategy but to defend old ideas that demonstrably no longer work, or, at least, are now paying the cyclical price for the overheated boom of the last decade.

Clinton's Democrats are now energized by the prospect of regaining power, and this time with a purpose that looks new to American eyes. But it is all familiar to anyone who has studied Willy Brandt's German Social Democrats, Gaullist France, or even Harold Wilson's permissive Britain with its vaunted "white heat of the technological revolution"-which the young Bill Clinton witnessed for himself at Oxford in 1969. Americans are trying to learn from the experience of foreign friends. That is a radical shift for a traditionally self-satisfied culture. But will America study practices abroad carefully enough to avoid foreign mistakes as well as profit from foreign successes?

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