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Relax, it's not the end of the world

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By Francis Fukuyama

It is easy to get very discouraged when surveying the state of the world. Few Americans need to be reminded about the chaos in Iraq, Iran's ambitions as a regional and potentially nuclear power or the possibility of Sunni-Shiite conflict spreading throughout the Persian Gulf.

But there's also the fact that Russia has been regressing politically, using its energy wealth to muscle Belarus and Western oil companies that invested in it, while using gangster-style tactics to silence critics at home and abroad. Nationalism is resurgent in Northeast Asia, with younger generations of Japanese, Chinese and Koreans at each other's throats over wrongs committed more than half a century ago. This in turn blocks cooperation over the threat posed by North Korea's nuclear weapons.

In another hemisphere, anti-American populists have been elected in Venezuela, Bolivia and Ecuador, and are busy centralizing power and reversing the trend of the 1990s toward openness and economic integration. Around the world, authoritarian regimes are learning repression from one another. What political scientist Samuel Huntington labeled the "third wave" of democratization began in the 1970s with Spain and Portugal, spread through Latin America and Asia, and culminated in the collapse of communism. But this wave has clearly crested. Not wanting to see another democratic upsurge like Ukraine's 2004 Orange Revolution, Russia, Egypt, Syria and Venezuela have all passed laws closing off international funding for pro-democracy groups.

Underlying these worrisome trends is a huge decline in the prestige of the American model, which since the Iraq war has come to be symbolized less by the Statue of Liberty than by the hooded prisoner at Abu Ghraib.

The world's evident instability has led the Bulletin of Atomic Scientists to move the hands of its "Doomsday Clock" to five minutes to midnight, two minutes closer to the figurative end of civilization. Even the fact that hundreds of millions of people are pulling themselves out of poverty lays the groundwork for global warming.

But before we get too discouraged with the state of the world at the beginning of 2007, we should stop to consider a broader context in which things look a lot brighter. The single most notable but overlooked fact about today's world is that the global economy has been driving ahead full speed, raising living standards and closing the gap between the First and Third worlds. The economies of the world's two most populous countries, India and China, have been growing in recent years at nearly 9 percent and 10 percent, respectively. A decade after the 1997-98 financial crisis, East Asia as a whole has returned to its torrid pace of development.

But the rest of the world is growing steadily too. Latin America, despite instability in the Andes and a backlash against "neo-liberalism," has been averaging 4 percent to 5 percent growth based on exports. Sub-Saharan Africa, after three decades of decline, has seen greater than 5 percent annual growth in recent years, and the Middle East is not far behind. These trends in the developing world are increasingly driven by south-south trade, as India and China consume commodities and natural resources from Latin America and Africa. This has spawned world-class multinational companies from developing countries, such as Mittal (originally of India), Cemex (Mexico) and Embraer (Brazil). Even Europe, despite the dislike of many of its intellectuals for an American-led globalization, has seen rates of unemployment fall to levels without recent precedent as the European Union expands and integrates with the global economy.

What is even more striking than the fact of economic growth has been its robustness. The early years of the 21st century have not been peaceful ones, after all: The world has seen the 9/11 attacks on the United States; horrific bombings in London, Madrid, Istanbul and Bali; two wars in the Middle East and one in Afghanistan; and an enormous increase in commodity prices. Similar shocks in the 1970s sent the global economy into a tailspin, leading to recession and inflation in the United States, the debt crisis in Latin America and stagnation in Europe. And yet the U.S. economy has not even suffered a technical recession (two back-to-back quarters of declining output) in the last decade.

Ah, many would say, but today's rosy economic picture masks huge vulnerabilities, particularly in the form of the twin American trade and budget deficits and the unsustainable buildup of U.S. dollars in foreign central banks. These deficits, and the global imbalances they represent, are indeed worrisome and unsustainable, but people misunderstand where they come from. They do not arise primarily from American profligacy but rather from decisions taken by non-Americans to build up dollar reserves and thus ensure themselves against financial risks. The decade following the fall of the Berlin Wall was marked by constant financial instability, but since the Asian financial crisis, countries have weaned themselves off short-term capital flows and built up reserves through export-led growth. The International Monetary Fund is in trouble today because it has run out of customers for its fire brigade services. We evidently suffer, as Federal Reserve Chairman Ben Bernanke once suggested, from a global oversupply of capital that keeps real interest rates low even as growth takes off.

Economic growth by itself will not guarantee stability, any more than the period of globalization before 1914 could prevent the outbreak of World War I. But there is good reason to think that we have consistently overestimated threats to stability since 9/11 and that it is our reaction to this overestimation that has created special dangers. At the time of the Sept. 11 attacks, there were probably no more than a few dozen people in the world with the motivation and potential means to cause catastrophic harm to the United States. Once our mighty national security apparatus was turned to focus on this problem, the likelihood of a successful attack dropped dramatically. It was in deciding that we had to "make a statement" by invading Iraq that we created a brand new problem for ourselves, creating a new terrorist haven and shifting the power balance in the Persian Gulf in Iran's favor.

But various equilibrating forces are at work. The Sunni world is not sitting by idly as Iran's influence grows, but is mobilizing to contain the threat. At home, there are many more measures we could take to lower the risk of catastrophic terrorism, such as better port security and an upgrading of our public health system to deal with biological threats. Far more likely than a catastrophic attack on the U.S. using weapons of mass destruction are bombings, attacks on airplanes, assassinations and the like - terrible events, but ones we can deal with.

There are, of course, many good reasons to want to prevent rogue states such as Iran and North Korea from getting nuclear weapons. But countries have important equities to protect, and it is not clear why deterrence would not to continue to work to restrain them. Iran's foreign policy, despite frightening rhetoric, has remained relatively cautious from the start of the 1979 Islamic revolution whenever core national interests were involved. The most acute dangers presented by proliferation are those of miscalculation as new nuclear powers emerge and as other states are tempted to preempt them.

And although the behavior of the latest bunch of oil-empowered tyrants is disturbing, in the long run, many of today's troublesome political trends are unlikely to be sustained. Russia, Venezuela and Iran have been able to defy the normal laws of economics because they benefit from high energy prices. But oil prices have already come down from last year's high of $75 per barrel to about $57 per barrel Friday. This reflects the working of markets: Rising prices have stimulated heavy investment in new upstream capacity while persuading consumers to conserve or to switch to alternative sources of energy. It is unlikely that Venezuela will be able to waste another $25 billion trying to buy itself a seat on the U.N. Security Council anytime soon.

Even pessimism about Iraq is overdone. The Bush administration has indeed made a mess of things, creating a new terrorist base in Al Anbar province and facilitating the rise of Iranian and Shiite power throughout the Gulf. But we seem not to have noticed that the civil war engulfing Iraq involves two anti-American, radical Islamist groups that are increasingly interested in fighting one another rather than the United States. This does not absolve Washington from moral culpability for bringing this situation about, but it does mean there are self-equilibrating forces in the region that will limit the damage that conflict will represent to U.S. interests once we disengage.

There are real dangers to being excessively pessimistic at this juncture. Growing numbers of people in the U.S. and Israel believe that Iran represents an existential threat, that it will behave irrationally and therefore cannot be deterred - and that we consequently have no choice but to preempt. It is this same logic - that our backs are against the wall - that led us to the Iraq debacle. But assuming a worst-case outcome is likely to make it a self-fulfilling prophecy.

For all of its stumbles in the last few years, the United States remains a rich and powerful country, with plenty of margin to absorb setbacks and make up for mistakes. The large part of the world that is modernizing successfully is dependent on the U.S. for continued progress, and perhaps for that reason is far less anti-American than those regions mired in conflict and stagnation. There are real risks out there today, but it may help to take a deep breath and assess calmly where we stand. Terrorists use the tools they do because they are weak and have no others. Americans need to remember that we are the 800-pound gorilla: We have choices, but we need to take care when we throw our weight around.

Francis Fukuyama, a professor at the Johns Hopkins School of advanced international studies, is the author of "America at the Crossroads: Democracy, Power and the Neoconservative Legacy." - Ed.

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