Weeks after the terrorist attacks on New York and Washington, Americans continue to feel a level of anxiety not felt since the darkest moments of the Cold War, such as the Cuban Missile Crisis or Berlin Blockade. The US' economy has almost certainly moved from a slowdown into a full-fledged recession.
The US is also rethinking the wisdom of its unilateralist approach to foreign policy.
ILLUSTRATION: YU SHA
Beyond these changes are two others, which may be equally profound in their implications. There is a greater sense of the US as a community, a greater sense of social cohesion, than has existed for years, perhaps decades. With that is coming a long overdue re-examination of the role of government.
Pride in our firemen and our policemen, a recognition of their heroism and their willingness to sacrifice themselves for others is broad and deep. There is a growing sense that we may have lost our way, put too much emphasis on material self-interest, too little emphasis on shared interests.
In retrospect, some of what both the Bush and Clinton Administrations did in echoing market fundamentalists around the world -- but carried even further -- seems particularly absurd. It made no sense to "privatize" a vital area of public concern such as airport security.
The low wages paid to private sector airport security guards led to high turnover. Airlines and airports may have made more profits in the short run, but they, and the US people, lost in the long run, as we now know, to our horror. It made no sense for President Bush's Secretary of the Treasury Paul O'Neill to spurn the Organization for Economic Cooperation and Development (OECD) agreement on money laundering. Whatever O'Neill said, the true reasons for his objections were clear: protect financial interests.
For the offshore banking centers were not an accident. They exist because Wall Street and the other financial centers around the world wanted safe-havens, protected from regulations and taxes. There has been bi-partisan hypocrisy here: while the US called for transparency in the emerging markets in the aftermath of the East Asia crisis, both Larry Summers (President Clinton's last Treasury Secretary) and O'Neill joined in efforts to protect off-shore banking centers and hedge funds.
Other actions, taken in secret or with almost no public discussion, remain equally troubling. In 1997, the US privatized the US Enrichment Corporation (USEC). Only a few know what lies behind that innocent sounding name: USEC enriches uranium, to make both the core ingredients for atomic bombs and for nuclear power plants. It also had responsibility for bringing out of Russia nuclear material from old Soviet warheads, and to convert that material into low enriched uranium for power plants, a true "swords to ploughshares" initiative.
Once privatization occurred, however, USEC had every incentive to keep the material out of US markets, for the Russian material would depress its prices and profits. As Chairman of the Council of Economic advisers, I saw the risk in keeping the material in Russia as enormous, posing perhaps the most serious threat of nuclear proliferation. This was a matter not only of national interest, but of global interest. But the temptation of private firms to put profits above collective interests is almost irresistible.
It made no sense to privatize USEC and thus expose its managers to this temptation. My concerns were borne out -- faster and in a manner far worse than I had ever expected. We uncovered a secret agreement between USEC and Minatom (the Russian agency in charge of the nuclear materials) in which, in response to a Russian offer to send more of their nuclear material to the US for safekeeping, USEC said, "No, no thanks," and then went on to pay US$50 million in hush-money to the Russians not to disclose the offer.
USEC repeatedly tried to hold the US taxpayer for ransom, saying that it would not continue to bring the Russian material into the US unless it was paid additional money. How could the US government have proceeded with this privatization, which on its face seemed so absurd? While the privatization ideology may have played a role, financial interests played their part, too: the Wall Street firm handling the privatization lobbied hard and made a hefty profit.
Once again, the US Treasury (Summers as well as Robert Rubin) put Wall Street's interests above the national interests. The thirst for an US$1 billion in revenues in the budget in one year -- even though revenues in future years would be lowered -- sealed the deal. In light of the huge surpluses, this budgetary shortsightedness now looks particularly foolish. The final outcome of this sad episode is yet to be told. Congress rightly felt nervous about turning over control of nuclear production to a firm in weak financial conditions, and required Treasury certification. It is not clear now whether USEC will continue to satisfy those conditions (unless the US Treasury turns a blind eye). Concern is mounting in Congress, with suggestions of the need for re-nationalization.
What should now be clear is that this decision by the US government, taken largely behind closed doors, affects more than Wall Street, more than the US: it affects the whole world.
When the US gets things wrong, as it did in its stance on money laundering and privatizing responsibility for recycling nuclear weapons, it puts the whole world at risk. The US has heralded globalization. But it should now recognize that with globalization comes interdependence, and with interdependence comes the need for collective decision making in all the areas that affect us collectively.
Joseph Stiglitz, professor of economics at Columbia University, was formerly chairman of the Council of Economic Advisers to former US president Bill Clinton and chief economist and senior vice president of the World Bank.
Copyright: Project Syndicate
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