Capital Without a Conscience
The failure of last week's top-drawer financial meetings to produce a solution to the global economic crisis should not come as a big surprise. Economic orthodoxy is in full retreat amid fundamental disagreement over the causes of the problems, appropriate countermeasures and the institutions that should implement them. The world is fragmenting into combative, yet interdependent cliques, none of which trust or want to shoulder burdens for the others. There is even talk of controlling free-flowing capital, the cornerstone of the world's acclaimed "new order."
The consequences have been devastating. Decades of Asian growth and social advancement have been destroyed in a few months. Russia lacks a functioning economy. Latin America teeters near collapse. The mounting global insecurity and anxiety have reached the United States and Europe. As the grim toll mounts, the consensus that the United States worked so hard to build is giving way to nationalism and philosophical antagonisms many thought obsolete.
Not that long ago, free-market capitalism seemed everywhere triumphant. Led by such Wall Street alumni as U.S. Treasury Secretary Robert E. Rubin and backed by outfits like the International Monetary Fund, which specializes in forcing economically troubled nations to liberalize their financial markets, the United States championed unregulated global capital above all else. More than merchandise trade or copyright protection, fast-moving, profit-seeking capital opened the world to big-time investors as never before.
But most nation-states were totally unprepared for the age of borderless capital. Few foresaw the rapid growth and staggering power of "hedge funds," the invisible, mostly U.S.-based investment pools open only to ultrarich individuals and large institutions. By some estimates, hedge funds have $200 billion of "hot," extremely fluid capital that they can leverage into investments worth trillions of dollars.
Countries like Thailand or South Korea are no match for these kinds of resources. Critics contend that hedge funds make huge bets that certain currencies or stock prices will fall, then use their power to trigger panics by selling off local assets. Earlier this year, normally laissez-faire Hong Kong authorities, for the first time ever, pumped $15 billion worth of foreign reserves into local stocks to counter reputed hedge-fund attacks. Badly battered Malaysia simply checked out of the global economy, ended free currency convertibility altogether.
