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Reconnecting to the World

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The Twenty-Year Crisis

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Sherle R. Schwenninger
Sherle R. Schwenninger is director of the Economic Growth Program at the New America Foundation and a senior fellow at...

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Instead of addressing the real problems, Obama and Romney are focusing on deficit reduction. 

The crisis was caused by weak governance, excessive speculation and lax regulation. Austerity will only make the disease worse.

In his New Republic essay, Peter Beinart argues that the Democratic Party faces a choice similar to the one it made in 1947-48, when Harry Truman and other party leaders took a tough and uncompromising posture toward Soviet Communism. But we can learn more from the twenty-year crisis from 1919 to 1939, whose conditions bear an eerie resemblance to the challenges today. Then as now, the world's dominant power had been weakened by war and imperial adventures in Iraq and by the erosion of the competitive base of its economy, and as a result was becoming too weak to stabilize the system. Then as now, there were rising powers that could not be easily accommodated in the world economy and the international order. Then as now, several decades of globalization had created a world economy of finance and trade that had outstripped the ability of national economies to effectively manage it, while the rapid expansion of new producers had created excess capacity and inadequate consumption, which put downward pressure on profit margins and led to frequent financial manias and crises. Then as now, widespread unemployment, together with feelings of humiliation at the hands of one's perceived enemies, created a fertile ground for radical utopian ideologies--in that period in Germany, today in much of the Arab world. Then as now, a high-sounded idealism became the substitute for wise statecraft and cooperation.

Today we have the benefit of the lessons that Roosevelt, Keynes and others drew from this experience. We also have the legacy of many of the policies and institutions they eventually created to manage a world of multiple great powers and a globalizing world economy (even if those institutions and policies are badly in need of reform and updating). For ideological reasons, the Republicans under George W. Bush have turned their back on these lessons and institutions. But so has the neoliberal wing of the Democratic Party. Yet these lessons have far more relevance to the problems of today than does a new crusade, and far more to offer as a guide to a progressive and internationalist foreign policy. What are those lessons?

First, an international system with multiple powers cannot rest on the power of one dominant power alone. The world is too big, too complex, too diverse and too disorderly. Roosevelt therefore favored a community of power--a handful of great powers that would together assume the burdens of order-keeping and managing the world economy.

Second, such a community must include as many powers as possible without paralyzing the system, even if they do not fully share America's liberal democratic credentials. The last time the world deprived two major industrial countries, Germany and Japan, of what they considered their rightful place in the sun, the result was World War II. Today, the United States has to help find a place not only for China and India but also for other emerging powers, including regional powers like Iran.

Third, a multipolar system cannot depend on the good intentions of the great powers alone. It must rest on a broader legitimacy than power. Roosevelt and his advisers therefore sought to create international institutions, like the United Nations and the World Bank, that would help insure cooperation and bestow legitimacy on the leading powers. Multipolarity needed to be accompanied by multilateralism or a form of international governance based on the rule of law.

Fourth, peace and international stability depend as much on economic prosperity as on collective security. Collective security without collective economic cooperation is virtually impossible to maintain. Moreover, economic development has to go hand in hand with democratization. In postwar Europe, for example, US officials developed an approach that included economic reconstruction (the Marshall Plan), collective security (NATO) and the institutionalization of democratic politics.

Finally, the world economy has to be managed and it has to be based on principles of ample demand, full employment and a stable international financial system. The great conclusion of the postwar world was that international peace and prosperity depended upon making the world economy safe for the social welfare state and full employment, whether it was American-style Keynesianism or European-style social democracy.

The lessons that Roosevelt and other progressives drew from the twenty-year crisis suggests a role for the United States much different from the one being pursued by the Bush Administration and proposed by the neoliberals: less one of warrior and preacher/proselytizer and more one of architect and builder, less one of imperial cop and more one of community leader or board chairperson.

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