World Politics since 1989. Jonathan Holslag
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and East Asia, Washington radiated its influence through international organizations. It had a veto right in the world’s two most important financial institutions: the World Bank Group and the International Monetary Fund. These Bretton Woods institutions were founded in 1944 with the aim of stabilizing financial markets and preventing economic nationalism. The World Bank Group included important specialized affiliates, like a tribunal for international investment disputes and an investment guarantee agency. They all had their headquarters in Washington, DC. A third pillar in the Bretton Woods was foreseen, but did not materialize: the International Trade Organization. It was replaced in 1947 by the General Agreement on Tariffs and Trade, GATT. During the Cold War, the three served as a counterweight to economic initiatives of the Soviets and to advance the Washington Consensus. Coined in 1989, the Washington Consensus concerned the idea, creed almost, that growth required deregulation, low trade barriers, freely floating national currencies, commodity prices set by the international market, dismantlement of state-owned enterprises, and even the privatization of public services altogether.
Openness was the key to growth. Such structural adjustment toward openness became a condition for developing countries to receive aid. The Bretton Woods institutions proposed structural adjustment programs. Washington, together with Europe and Japan, also shaped the agenda of a raft of technical bodies that set global standards for digital communication, aerospace, and pharmaceutical products. If the Cold War still provided an alternative to the West, reality was now summarized as TINA: There is no alternative. This was, in fact, a triple TINA. There was no alternative for the West as a partner, no alternative for the West as an investor, and no alternative to neoliberal policy prescriptions of the West.
In the final years of the Cold War, Western economic influence spread without impediment and so did its military power. Western power projection capacity was unmatched. The Soviets too had long-range strike capacity, but this functioned more as a nuclear deterrence. Out of the world’s 25 aircraft carriers, 20 were owned by Western countries, 15 by the United States. The United States operated many more very large transport aircraft and had started building a formidable new fleet of destroyers and cruisers that plied the world’s oceans. In 1989, NATO defense spending surpassed that of all other countries in the world, the crumbling Soviet Union and China included. Operation Desert Storm, the rain of cruise missiles unleashed in Iraq in 1991, the strikes by stealth bombers, and the speed with which the whole expedition was executed, had just shown how obliterating Western hard power could be. This was a high-tech blitzkrieg.
So, with the Soviet Union in trouble, the whole world appeared to have become the periphery of the West. The center of the emerging new world order would be the United States. It accounted for one third of the global economy and was bordered by two countries that could not threaten it. The Atlantic and Pacific Oceans functioned like a moat around this fortress, guarded by aircraft carrier battle groups. On the other sides of the oceans lay a second line of defense, a line of allied countries that depended on American security and were also tied to the United States by means of commerce, capital, and culture. With Desert Storm, the United States and its partners demonstrated that they could strike overwhelmingly in even the remotest corner of the world. The predominance of organizations like the World Bank and multinationals as providers of capital to almost any country beyond the ring of allies in the Atlantic and the Pacific showed that there was no longer a genuine alternative to the West as an economic partner. Even if officials downplayed the term zealously, the United States arose as a global hegemon.
Economic fragility
The scene seemed set for a long age of Western dominance and the spreading of liberalism. For years, Soviet citizens were literally risking their lives to escape to the West. Its leaders in Moscow recognized failure. The ending of the Cold War kept the United States as the sole protagonist in the spotlight. But the protagonist was bedazzled. It was not even sure of its script. The situation was one of ambivalence: of unabashed strength on the one hand and, on the other hand, doubt that it would last. Rather than being celebrative, there was an odd feeling of gloom. Especially in the United Kingdom and the United States, the shortcomings of a decade of neoliberal reforms by the governments of Margaret Thatcher (1979–90) and Ronald Reagan (1981–9), marked by privatization and liberalization, had become undeniable. This neoliberalism was a reaction against high unemployment and high inflation in the 1970s. In the United States, only half of the population was satisfied with the state of the nation and confidence in democracy slowly retreated.6
The West struggled. It struggled with turbulence outside and disorientation inside. While Thatcher proclaimed the glory of global Britain, hundreds of thousands of citizens demonstrated in London against economic uncertainty and privatization. Confirming the dismal state of the economy, the pound nosedived. Far-right parties gained ground on the European continent. The United States experienced a mini stock market crash in 1989, encountered a bigger one in the autumn of 1990, and subsequently went into recession. Saddening stories appeared about poverty in cities like Detroit. “Most of the neighborhoods appear to be the victims of bombardment – houses burned and vacant, buildings crumbling, whole city blocks overrun with weeds and the carcasses of discarded automobiles,” a reporter put it. “Shopping streets are depressing avenues – banks converted into fundamentalist churches, party stores with bars and boards on their windows and, here and there, a barbecue joint or saloon.”7
Not only in Detroit was the infrastructure dilapidated. In New York, the iconic Williamsburg Bridge between Manhattan and Brooklyn was closed because of neglect. America’s cities looked old and fragile due to a decade of accumulated neglect. In the 1980s, a lot of infrastructure in the United States and the United Kingdom had been privatized. While previous generations sacrificed labor and capital to expand public infrastructure, built bridges, schools, and hospitals, Western countries started to shift spending from investment to consumption. Labor shifted from construction and manufacturing to banks, shops, and other services. The share of investment in America’s GDP had dropped from 25 percent in 1980 to 19 percent in 1990. The situation was similar in the United Kingdom. “Historians will come to doubt our national sanity,” a British politician alerted.8 The situation was a little better on the European continent, with France investing in high-speed trains, the Netherlands spending on flood defenses, and new ports and airports being opened throughout the region.9 Experts worried about a tendency to harvest the benefits from investments made by previous generations without making sufficient new investments to secure prosperity for the next generations.
Besides underinvestment in public infrastructure, economists questioned whether there was sufficient investment in manufacturing. Since the late 1980s, manufacturing growth in the United Kingdom and the United States had stalled. Growth of investment in factories had dropped significantly compared to earlier decades. This all happened at a moment when the consumption of manufactured goods increased. Strong national currencies benefited consumers of goods, because they made imports cheaper, but came as a challenge to local producers of goods. Optimist economists stated that the shift toward services made the economy competitive and that growth of information technology kept the West ahead of its rivals. They also stated that the reduction of manufacturing in places like Detroit need not be a problem, as long as new jobs were created in services elsewhere. Growth would continue, but in different sectors and in different regions.
Critics, however, suggested that an economy could not survive on services alone: “A service economy is a balanced one where all sectors – agricultural, manufacturing and services – are viable even though the great majority of people may work in one area.”10 Another concern was the abandoning of so-called basic industries, like steel and assembling. Instead of making factories more efficient and environmentally sustainable, the production of such goods was outsourced to countries with laxer social and environmental standards.11 It was an immense contradiction that the same economists who declared their faith in a free market that propelled efficiency gains accepted that rich governments forced polluting companies to close and that poor governments encouraged polluting companies to invest. It was a contradiction also that those who repeated their trust in progress found it normal that even in the twentieth century poor countries needed to pass through a stage of economic and environmental