Talk of the financial crisis and the stimulus package
often involves furious debate about the deficits that caused it or
those that are likely to result from it. There's discussion of
current-account deficits, trade deficits and, of course, budget
deficits. But there are other more global deficits created by this
crisis that may prove even more central to the future of America's role
in the world. They include deficits of capital, ideology, creativity
and attention. How the United States addresses these issues will likely
play a significant role in shaping the twenty-first century world order.
its most basic, the current economic crisis has given rise to a deficit
of capital. The sudden withdrawal of credit and investment available to
countries, companies, banks and individuals around the world has
resulted in a dramatic reduction in capital flows--especially into the
developing world. This scarcity of capital is likely to worsen as
current and proposed plans for stimulus packages and rescue programs in
the United States, Europe, China and elsewhere soak up huge amounts of
funding, thereby vastly reducing the amount of international capital
available to these developing countries.
inability to access capital through global markets will likely restrict
many governments in their ability to fund basic domestic programs. And
when a government experiences an imminent funding crisis that poses a
risk of civil unrest or that threatens its survival, previously shunned
sources of financing suddenly become worthy of serious consideration.
example of this scenario was Iceland's response last October when its
pleas for financial assistance went unanswered from many of its NATO
allies. In desperation, Iceland commenced negotiations with Russia.
Iceland's prime minister explained his actions at the time by noting
that his country had not received support from its friends, so it was
forced to look for new friends.
experience be the tip of the iceberg? Consider these transactions over
the past several weeks: Russia, in spite of falling share prices, a
weakened currency and declining foreign reserves, provided a $2 billion
loan to the government of Kyrgyzstan; a Chinese state-owned mining
company provided almost $20 billion in emergency financing to a
troubled Australian/British mining company; a Chinese state-owned bank
agreed to lend $25 billion to Rosneft and Transneft, Russia's
state-controlled energy giants; and the Libyan Central Bank bailed out
one of Europe's most important banks.
shortfall created by this crisis is a deficit of ideology. While the
fall of the Soviet Union represented a clear triumph of democracy and
capitalism over communism, the current crisis has again raised
questions in many parts of the world about what economic and political
systems are most desirable and effective. Few, if any, are calling for
a return to communism, but the current crisis has called into question
several of the last century's generally accepted political and economic
principles--including the benefits of Anglo-Saxon-style capitalism,
American democracy and, more broadly, the ideological leadership of the
Many countries in the developing
world spent the last decade following the so-called Washington
Consensus. They embraced tough fiscal policies, opened their markets,
removed capital controls, built up reserves and embraced the global
financial order. None of this protected them from the current downturn,
which has hit them hard.
The financial crisis thus
created an ideological deficit, where even our closest allies in
Europe--not to mention other countries with whom our relationship is
more complex, like Russia, China and the Gulf states--are once again
exploring the right balance between social values and market-based
economies. There is renewed consideration of political and economic
systems like "state capitalism" and "authoritarian democracy." What
were previously oxymorons are now ideological challengers to the status
A third deficit raised by the crisis is one of
creativity. As other nations rethink the ideological underpinnings of
the international order, there remains an enormous yearning--as yet
unfulfilled--for bold and creative solutions to the crisis on a global
One of the unexpected consequences of the
financial crisis has been the apparent establishment of the G-20 as the
new forum at which many of the world's most pressing economic problems
will be discussed and addressed. For the first time, many of the
world's largest emerging market economies--not just the United States
and Europe--have a seat at the head table, a table at which neither
America nor anyone else has a veto. That means that the G-20 is likely
to be a more competitive platform for creativity and intellectual
Thus far, Britain, France and the
European Union have taken the intellectual lead in proposing and
crafting the most creative solutions for reshaping the international
financial system. On our end, although former--Federal Reserve Chairman
Paul Volcker received widespread international praise for a report that
included several bold and innovative proposals, he went out of his way
to emphasize that his suggestions did not represent official U.S.
policy. And it is not at all clear that the Obama administration
subscribes to his recommendations.
This leads to
my fear of a fourth deficit--a lack of attention from the United States
on the global nature of this crisis and the strategic issues it compels
us to address.
It is understandable for America,
like other countries, to turn our focus inward and address the domestic
impact of the current economic crisis before considering the more
strategic global implications of our response.
it is imperative that we not send a signal to the world that we are now
solely focused inwards. If we assume that we can try to right our own
domestic ship first and deal with international issues later, then we
are almost certain to find that other, more creative, aggressive and
opportunistic actors will step in and try to fill any vacuum created by
a lack of attention on our part.
foreign-policy issues in our response to the economic crisis, we should
consider how to address head-on these deficits of capital, ideology,
creativity and attention. Failure to do so may be far more damaging
than the red ink on the bottom line of the stimulus package.