Financial crises like the current one actually strengthen America’s global position, Walter Russell Mead argued in the pages of The New Republic a few weeks ago, because they don’t cause us to entirely lose faith in capitalism.
Countries that can encourage–or at least allow and sustain–the change, dislocation, upheaval, and pain that capitalism often involves, while providing their tumultuous market societies with appropriate regulatory and legal frameworks, grow swiftly. They produce cutting-edge technologies that translate into military and economic power. They are able to invest in education, making their workforces ever more productive. They typically develop liberal political institutions and cultural norms that value, or at least tolerate, dissent and that allow people of different political and religious viewpoints to collaborate on a vast social project of modernization–and to maintain political stability in the face of accelerating social and economic change. …
But, in many other countries where capitalism rubs people the wrong way, this is not the case. On either side of the Atlantic, for example, the Latin world is often drawn to anti-capitalist movements and rulers on both the right and the left. Russia, too, has never really taken to capitalism and liberal society–whether during the time of the czars, the commissars, or the post-cold war leaders who so signally failed to build a stable, open system of liberal democratic capitalism even as many former Warsaw Pact nations were making rapid transitions. Partly as a result of these internal cultural pressures, and partly because, in much of the world, capitalism has appeared as an unwelcome interloper, imposed by foreign forces and shaped to fit foreign rather than domestic interests and preferences, many countries are only half-heartedly capitalist. When crisis strikes, they are quick to decide that capitalism is a failure and look for alternatives.
My initial reaction was that this was perhaps a mite too self-congratulatory. But then I read the article in this morning’s NYT about the economic free-fall in Dubai:
No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.
Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.
What’s more, if you can no longer afford your mortgage or your car loan in Dubai, you can end up in debtors prison. Foreigners are skipping town by the thousands and abandoning their cars at the airport.
This is not how you’d think things would work in the world’s fastest growing international financial center. Which could mean that Dubai simply doesn’t have what it takes to be a major world financial capital.