Source: Carnegie

A Virulent New Strain of Crisis

By Moises Naim

Originally published in the Financial Times, on May 13, 2002

In the past decade the world was regularly taken unawares by domestic financial accidents that spread to other countries at great speed, following surprising trajectories. Today, we are regularly startled by political incidents that also spread internationally at great speed, on trajectories that are equally surprising.

That Russia's financial crash in 1998 would destabilise the Brazilian economy was as unexpected as the recent discovery that al-Qaeda and Hizbollah were operating in Ecuador. The international financial crisis ignited by the devaluation of the Thai baht seemed as improbable as the possibility that an anti-globalisation rally in Seattle in 1999 would, for years, ignite similar ones around the world.

International political contagion is nothing new and books and activists have always been its main conduits. Greek democracy, an idea that travels well, is one of the earliest and most successful examples. Socialism also travelled well, for a while. Unfortunately, some instances of present-day political contagion have a more lethal edge: suicide bombers have replaced books as the most potent means through which political messages are transmitted across borders.

The recent wave of international political contagion is also characterised by the speed and reach of the international dissemination of local or regional problems. The conflict in the Middle East, for example, has been with us for a long time and has always involved actors outside the region. Yet this time the conflict is affecting politics in corners it had not previously reached. In Europe, the conflict is infecting relations between Muslim and Jewish communities and affecting electoral outcomes in ways not hitherto seen. In east Asia the large Muslim populations of countries such as Indonesia and Malaysia are now engaged in the Arab-Israeli conflict as never before. Worrying about the consequences of the international spread of the madrassas (religious schools) has displaced the worries about the spread of McDonald's restaurants.

This political contagion has interesting similarities to the financial contagion of the 1990s. Some of the lessons of those international financial crises can usefully be applied to the current spread of political instability across borders.

Both start with localised incidents that spill over very rapidly. In both cases, geo-graphy is no longer the main determinant of which other countries will be affected. Chile suffered more from the 1997 Asian financial crisis than it did from the collapse of neighbouring Argentina. Manhattan suffered a tragic blow on September 11 as a result of obscure political events taking place in its antipodes.

Another similarity is that crises, financial or political, that escalate internationally frequently catch policy-makers, experts and the public off guard. Their surprise is itself surprising, given that many of the crises did not erupt suddenly but had a long gestation period. Mexico's financial woes had been brewing for at least a year before they exploded in late 1994, leading to the "Tequila effect". Al-Qaeda became influential in Afghanistan in the mid-1990s but it was only after September 11 that the international consequences of its influence became tragically clear. In both cases, the international community responded when it was too late.

The inability of the international community to prevent national crises from boiling over is partly due to the fact that some of the instigators are powerful non-state actors, able to bypass governments and exert influence across borders rapidly and often stealthily. The economies of Mexico, Russia and South Korea crashed because their governments' policies allowed serious vulnerabilities to materialise. Yet their downfall was accelerated and exported by the actions of hedge funds, institutional investors and currency speculators who had gained unparalleled influence, thanks to recent changes in information technology and in the inter-national financial system. Present-day terrorists also benefit from their ability to move quickly and stealthily across borders.

Greedy currency speculators and fanatical terrorists alike are empowered by the tools and trends of globalisation, from the internet to more open borders. No government is yet equipped, technologically or institutionally, thoroughly to protect its economy or its population from their attacks.

The need to shield national economies from the vagaries of "hot money" led, in the late 1990s, to widespread calls for a "new global financial architecture". Similar calls are now made in favour of a "new global security architecture". Both imply vast transformations to tackle the root causes of global instability, financial or political. A global central bank, the merger of the International Monetary Fund and the World Bank, or a global bankruptcy court, are among the proposed elements of a new financial architecture. Nation-building, regime change, a revamped Nato or a massive war on poverty are some of the proposals combat the threats to global security.

But if something was learnt from the attempts to create a new financial architecture, it is that efforts at large-scale change yield more speeches, seminars, books and false starts than real improvements. What proved far more effective in strengthening the global financial system was the adoption of a range of smaller, less glamorous and more technical measures, many of which entailed new and more systematic forms of collaboration between countries. Mechanisms that ensure that better information is available, more surveillance of potential trouble spots, more reliable early warning methods and new tools to act preventively are now in place. These changes, while no panacea, have certainly aided stability.

A plan for a new security architecture may be more exciting than a scheme for harmonising global standards for the inspection of shipping containers. And a blueprint for easing global poverty may seem more noble than a framework for improving the co-ordination between mid-level employees of intelligence agencies in different countries. But in both cases, the latter promises to have more concrete results than the former.

The writer is editor of Foreign Policy magazine

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