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World: Analysis From Washington -- The Primacy Of Politics

Washington, 16 November 1998 (RFE/RL) -- Three interrelated developments are convincing ever more people around the world that the state should play an active rather than passive role in the economic marketplace.

But this new faith in the primacy of politics, one largely discounted in the period since the end of the Cold War, has not led to a new consensus on what either individual states or the international community should do.

Instead, it has sparked a new debate between those who want to defend their countries by protectionist measures even at the cost of economic growth and those who want to preserve the advantages of the world marketplace by creating institutions to regulate it.

That discussion, which has recently moved from the academy to the political world, appears likely to divide some traditional alliances and quite possibly to create some strange new ones.

The first and most dramatic development pushing this issue forward, of course, is the immediate and dramatic fallout from the globalization of financial life and the ability of owners of capital to move it from one market to another at unprecedented speed.

Such rapid and often unexpected transfers have led to economic and even political collapse in some Pacific Rim countries and to increasing uncertainty in others -- even as these shifts have continued to generate handsome returns for the owners of capital.

But this new feature of international financial life has had some serious consequences even in countries that have not yet suffered the ravages of a financial withdrawal.

Not only has it forced them to be more transparent in their business dealings -- something that may prove beneficial to all -- but it has, in the words of French scholar Pierre Bourdieu, threatened the communities and institutions on which the world now rests.

In seeking what he calls "the reign of absolute flexibility" for capital flows, the new system threatens the survival of all groups up to and including the nation and the state that stand in its way.

And not surprisingly, Bourdieu points out, none of them are happy about this, whatever economic "benefits" they may receive from the new arrangements.

The second development prompting this debate has received less attention so far. But it may ultimately prove more important because it has serious consequences not only among them but within them as well.

That is the increasing differentiation in the returns to labor and capital. Over the last decade, one German scholar has noted, "incomes based on labor simply have not grown in real terms, even as income based on the global application of capital has soared."

Within countries, that trend means that the owners of capital have seen their incomes rise dramatically while those who rely primarily on wages have seen their position relative to others stagnate or even fall.

And among countries, that trend means that those countries with large amounts of capital to invest have done far better than those countries lacking this resource. Such success often has given them power, usually unwelcome, far beyond the marketplace and their own borders.

And yet a third development -- the difficulties many post-communist countries have faced in moving to the free market -- is also helping to shift the terms of the debate.

Following the collapse of communism in Eastern Europe and the disintegration of the Soviet Union, many in both these countries and the West assumed that the introduction of free market institutions would be sufficient to solve the political problems of these countries.

And as a result, there was a remarkable willingness to overlook arrangements that were anything but democratic as long as particular leaders proclaimed their commitment to free market reforms. But the collapse of what some have called Russia's "sham capitalism," a system with banks that are not banks and privatized companies that still act like parasites on the state, has led to a reevaluation of the role of economics and politics in these countries.

Inside Russia, this re-evaluation has led some to conclude that the state must play a bigger role if the economy of that country is to recover, even if that means a retreat from the orthodoxies of capitalism.

Outside Russia, it has led others to conclude that anyone interested in promoting free markets must devote more attention than some had thought to developing a more open and popularly responsible political system.

And in this case, as in the other two, the acceptance of an expanded role for politics does not represent a threat to the free market but rather the precondition for its continued success.