Prague, 27 October 1997 (RFE/RL) - The intense focus on the immediate economic impact of the meltdown of the Hong Kong stock exchange last week has distracted attention from the larger, if longer term, political consequences of such events.
When the Hong Kong market fell dramatically last Thursday, it affected other markets around the world from New York to London to Singapore. It initially drove some markets down as investors hastened to cover margin purchases or sought protection in traditional "safe haven" currencies. And it led some central banks to announce measures for the defense of their currencies.
But soon it caused other markets to rebound as investors calculated that the economic difficulties in Hong Kong and southeast Asia could end up having economic benefits for themselves. Thus, on Friday, U.S. analysts suggested that the decline of the Hong Kong exchange could have positive benefits for the American economy.
These analysts said that last week's events would reduce the prices of imports from that region and also hold down interest rates in the U.S. as more money flows toward New York markets. And those developments would help keep the American economy growing.
Whether such economic analyses prove correct, of course, remains to be seen. Indeed, on Friday, the markets in Hong Kong and elsewhere seemed to bounce back as investors took advantage of the decline of the previous day to snap up what they perceived to be bargains in the market. And that in turn limited the flow of funds many American analysts had expected.
But largely absent from these discussions was a development that may cast a far larger shadow on the future. While a large and stable market like the one in the United States may be able to benefit from unsettled conditions elsewhere, or at least not suffer enormously, many smaller countries are very much at risk.
In order to participate in the new global economy, one advertised to benefit all participants in the long run, these smaller countries increasingly are losing control over key parts of what has traditionally been the sovereign power of the state. Equally important, they are seen to be doing so by their own populations, who may at any one time be as much victims as beneficiaries of global markets.
To take but a single example, following the collapse of the Hong Kong market, the exchange in the capital of Estonia fell by the largest single percentage decline in its history. This immediately had a number of consequences there.
Not only did some foreign investors pull out in order to put their money in safer places, but local investors who had bought stocks on margin -- putting down only a fraction of the price to buy stock -- were forced to sell off to cover their accounts.
Moreover, the decline in the Tallinn exchange put pressure on the other Baltic exchanges in Riga and Vilnius, forced the Estonian central bank to announce that it would defend the value of the kroon, and raised questions about whether the Estonian government would collect as much in tax revenue as it had expected.
Thus, even though nothing fundamental had changed inside Estonia, an event half a world away had enormous economic consequences for that country and, because of these economic consequences, it is likely to have equally or even greater political consequences as well. There as elsewhere, some people are beginning to ask whether the benefits of the new global market are worth the cost of loss of control, of the weakening of national communities where citizens make decisions relative to a globalized marketplace where forces beyond anyone's control seem to be in charge.
Even in the United States, there are voices calling for a return to protectionism, to higher tariffs and to greater national control over the economy, even if that means that some people within the U.S. and others outside will lose some of the economic benefits of the global market.
In the largest sense, then, the globalization of the economy represents an attack on the traditional prerogatives of the nation-state, prerogatives that many citizens have come to expect the state to exercise. And thus there are likely to be some serious political costs to a system that for most does produce economic benefits.
Not surprisingly, people caught between their expectations and the new realities are uncomfortable, and their discomfort at the ability of events thousands of miles away to unsettle their lives is likely to be an ever more important force in defining the politics of their countries.