PARIS -- There has been remarkably little reaction to the splendid articles on the international economic crisis that appeared Feb. 15-18 in the New York Times.

While moderate and judicious in tone, they reveal the extent to which the crisis of the globalized economy (not yet over) was unnecessary, the unanticipated product of a self-interested policy that originated in the U.S. financial community and was taken up by the U.S. government.

Over the past decade, the conventional wisdom of governments and international economic organizations -- such as the International Monetary Fund and the World Bank -- as well as much of the university economic policy community and the press, has been that deregulation and "globalization" of the international economy has been a natural, even inevitable development.

It held that globalization results from technological innovations in communications, banking and industrial organization, and ultimately from the economic reality that international trade, exploiting the comparative advantage of national economies, produces progress for all.

Hence, resistance to globalization has been considered futile, and objections to it -- based on political or social arguments concerning the ability of such nations as Russia or Indonesia to function responsibly in a globalized economy -- have been dismissed. It was said that market forces would automatically correct excesses and enforce the general interest.

Anti-government line

This belief was not universally shared among political economists. It originated as the sectarian enthusiasm of a minority of writers and theorists in Britain and the United States, beginning in the 1970s, and it derived more from their political hostility to "big government" than from objective economic analysis. It was an argument naturally appealing in business circles and the financial community.

The New York Times articles document the process by which international financial deregulation was sold by Wall Street to the Clinton administration, causing President Clinton to aggressively promote global deregulation and use the political power of the United States to remake world finance.

Jeffrey Garten, of the Yale University School of Management and an official in the Commerce Department during Mr. Clinton's first term, says, "We were convinced that we were moving with the stream." He and his colleagues pressed "as a matter of policy for more open markets wherever you could make it happen."

"Although the Clinton administration always talked about financial liberalization as the best thing for other countries," the Times article said, "it is also clear that it pushed for free capital flows in part because this is what its supporters in the banking industry wanted."

The success of this campaign produced a fundamental change in the world economy. Goods and commodities were replaced, as the principal components of international trade, by stocks, bonds and currencies. The global financial market replaced the global economy. The total worth of financial derivatives -- leveraged financial instruments -- traded in 1997 was 12 times the worth of the entire world economy.

Government rescue

When crisis arrived in late 1997, the same Western investors who had profited from globalized markets worsened the crisis by speculating against newly weakened currencies. The United States used its own resources and those of the IMF to rescue Western investors and U.S. and European banks (as now is generally acknowledged).

The countries that were the victims of the crisis were pressed by Washington to adopt measures of austerity, imposing severe economic and social costs on their populations -- a policy now widely conceded to have been wrong.

The Times also reported that "when the crisis seemed as if it might strike the United States," in September 1998, "the administration had a change of heart" about austerity as the appropriate response. "Mr. Clinton . . . [welcomed] three interest-rate cuts by the Federal Reserve Board, pressing Europe and others to cut rates as well," and the Federal Reserve arranged the rescue of Long Term Capital Management.

The conclusion that follows from this is that to millions in Asia, Russia and Latin America, deregulation of the international economy must look like a vast, deliberate and successful swindle. It was not, in fact, a swindle. It was something perhaps worse. It was an irresponsible and, in crucial respects, disastrous experiment, inspired by ideology, promoted by Western groups that expected to profit from it, backed by the power of the U.S government.

The experiment's more prominent victims were Indonesia, Thailand, China, Russia and Brazil, and the affair is not over. Western defenders of the experiment argue that despite all that went wrong, there has been a large net increase in international growth and wealth.

This does not take into account the political carnage that also is part of the result. That, unfortunately, has in the past proved to be the outcome of economic crises with the most lasting consequences.

William Pfaff is a syndicated columnist.

Pub Date: 3/02/99