Great upheavals produce shock waves that widen cracks in political, economic, and security orders. Sometimes the old orders break. Yet it can be in the power of leaders and peoples to shape the directions of change.
Today, most people assume that when Edmund Burke wrote his Reflections on the Revolution in France he was denouncing a revolution that had already executed a King and Queen, and launched the Terror. But he published his work in 1790, before the cobbled streets of Paris echoed with the rumble of tumbrels and the roar of crowds at the guillotine.
1789 was one of the great upheavals in history. Although Burke offered wise warnings, most of his contemporaries expected France to tread an “English path” towards constitutional democracy.
The effects of momentous events can reverberate over time. When asked more than a century later about the impact of the French Revolution, China’s Premier Zhou Enlai allegedly replied, “It’s too soon to say.”
This year is the 20th anniversary of the peaceful revolution of 1989. The upheavals across Europe of that year, so different from 1789, brought an end to the Cold War. They led to the opening of the Berlin Wall, the freedom of Central and Eastern Europe, the unification of a democratic Germany and the reunification of Europe, the break-up of the Soviet Union, and the return of Russia. To many, these tumultuous events really did feel like the “End of History,” as my friend and your professor Frank Fukuyama famously put it. Yet the European narrative moved to new chapters with the widening of what became the European Union, the creation of a common currency, and the enlargement of the NATO Alliance.
While most eyes were focused on Europe in that era, new histories were being sketched around the world: NAFTA offered a fundamental reorientation of Mexico, including toward democracy and potentially deeper integration of North America; APEC implied a new “open regionalism” that could connect a rising East Asia with the Americas bordering the Pacific; and a coalition based upon UN action reversed Iraq’s brutal conquering of Kuwait, opening the way for a Madrid Conference that initiated negotiations between Israel and the Arab states. These seeds of change were planted by forward-looking leaders who saw the opportunities amidst seismic shifts and shifting trends.
My experience then –and since – has reinforced my sense that events occur within a continuum. As Burke observed, there exists “a partnership not only between those who are living, but between those who are living, those who are dead and those who are to be born.”
Outcomes are not predetermined. They depend on both events and purposeful actions.
In 2009, we are living through another upheaval that is changing our world. What will be its implications for the future?
Today’s upheaval did not occur from nowhere. The seeds were planted earlier.
The last 20 years have witnessed a huge economic shift. The breakdown of the planned economies in the Soviet Union and Central and Eastern Europe, the economic reforms in China and India, and the export-driven growth strategies of East Asia all contributed to a world market economy that vaulted from about 1 billion to 4 or 5 billion people. This shift offers enormous opportunities. But it has also shaken an international economic system forged in the middle of the 20th Century, with patched-up changes in the decades since.
Some seeds of today’s troubles were sown by the responses -- or lack of them -- to the financial crises of the late 1990s. After the Asian financial crisis, developing countries determined they never again wanted to be exposed to the tempests of globalization. Many “insured” themselves through managing exchange rates and building huge currency reserves. Some of these changes contributed to imbalances and tensions in the global economy, but for years governments muddled through amidst generally good growth.
Central banks failed to address risks building in the new economy. They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the “real economy” of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong.
Regulators and supervisors of financial institutions were no longer grounded in reality. Financial innovation and competition vastly expanded services – including to companies and families often shunted aside in the past –but the alluringly simple design of “rational markets” theory led regulators to take a holiday from the realities of psychology, organizational behavior, systemic risks, and the complexities of markets and humans.
As in the past, the actions we take today shape future opportunities and challenges.
We need to learn the lessons from the past – without being limited by them. Too often we prepare to fight the crisis of the past rather than anticipate the crisis of the future. The one thing we can be sure about is that another upheaval will happen in your lifetimes and that it will be different from the one we are currently experiencing.
All of you at SAIS have the good fortune to be prepared to contribute, and I hope you will choose to. As you study past efforts, you may be asking: how will our world be changed by this crisis?
In 1944, the delegates at Bretton Woods seized a moment to shape a new global arrangement. They spent three weeks in New Hampshire developing a system of rules, institutions, and procedures for financial and commercial relations in the world economy.
That world has changed enormously over the past 65 years – not least with the transformations of 1989. The current upheaval is changing the landscape yet again.
Already, we can see potential shifts in power and institutions and international cooperation. In part, the shifts will depend upon how the parties adapt to new circumstances; in part, upon the rapidity of the recovery; in part, upon changes in who holds the world’s capital, technology, and human resources and what they do with them; in part, upon how countries cooperate –or do not. .