Cambridge Review of International Affairs,Volume 15, Number 2, 2002

A Turning Point for Globalisation? The Implications forthe Global Economy of America’s Campaign againstTerrorism

Lael BrainardThe Brookings Institution

Abstract Did September 11th herald a turning point for globalisation? AlthoughAmerica’s campaign against terrorism could put at risk many of the gains globalisationhas brought, the new environment likewise presents opportunities to smooth the roughedges of the globalisation associated with American policies of the past decade. Measuresto tighten the security of cross-border �ows of goods, people, information and capitalmay raise entry barriers still higher for poor countries seeking greater integration withthe global economy. But September 11th also provided a wake-up call, alerting thewealthier nations and especially Americans to the direct link between their ownwell-being and ensuring that people around the world have a stake in the internationalsystem. Unfortunately, there is little evidence so far these lessons have been taken toheart in policies on trade, �nancial assistance, and advancing economic reform in thestates of the Middle East.

No sooner had the world comprehended the horror of September 11th thanvoices on both sides of the debate began making the connection to globalisation.Some observers argued that the attacks were directed at globalisation, whileothers speculated globalisation would be a direct casualty. Is there indeed anyconnection between September 11th and the phenomenon of globalisation?Perhaps the unspoken question in this debate is whether September 11th willcast the previous decade in a wholly new light—as a unique period, even aninterwar period—belying our earlier assumption that it foreshadowed the shapeof the new century.

In some ways, the terrorist attacks in the United States were profoundlyabout globalisation. For countless Americans, these attacks brought home viscer-ally the anxious realisation that America’s involvement in the world is not aone-way street. Moreover, the terrorists targeted dramatic symbols of America’sglobal projection of military and economic power. America’s openness and hugefootprint in the international system made it both more vulnerable and moreattractive to terrorist attacks. And the technologies touted as handmaidens ofglobalisation—the Internet, global �nancial networks, and commercial avi-ation—proved their moral neutrality by enabling terrorists to wreak havoc on anunimagined scale.

Some observers contend the terrorist attacks were the logical, violent ex-pression of anti-globalisation; they were an act of revenge by people eitheroppressed or marginalised by the global economy. But this claim makes the

ISSN 0955-7571 print/ISSN 1474-449X online/02/020233–12 Ó 2002 Centre of International StudiesDOI: 10.1080/0955757022015128 1

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common mistake of equating globalisation—the progressive broadening anddeepening of international integration—with capitalism, American hegemony,or even modernity more generally.

Even if globalisation was neither target nor victim of the attacks, September11th could be a pivotal event for the future pace and direction of globalisationif it heralds a sustained redirection of America’s national security and economicpolicy. On one extreme, to the extent that globalisation is driven by technologicaladvances and the logic of the market, globalisation should continue to advanceat the same relentless pace. By this logic, globalisation should at most suffer ahiccup as security measures are tightened. But history suggests a very differentpossibility: globalisation could well be reversed. The policies pursued in theaftermath of the First World War had a profoundly chilling effect on globalisa-tion. It took nearly seventy years to recoup the levels of economic integrationseen in the pre-war period—on trade, immigration, and foreign direct invest-ment. Globalisation proved very fragile and heavily dependent for its survivalon international rules and institutions and national commitments to maintainingopen borders. And it is sobering to recall that globalisation already faced agrowing international drumbeat of criticism from both the left and the right inthe two years preceding September 11th.

Just as globalisation is not inevitable, neither is its reversal. History suggeststhe outcome depends not on the terrorists’ actions, but on our choices. Theinternational policy response to the Cold War was quite different than to theFirst World War. The progressive expansion of market rules and institutions hasbeen credited with lifting hundreds of millions out of poverty and helping toprovide foundations for democratisation and peace.

Too often, globalisation is either glori�ed or vili�ed as an end in itself. Farbetter to judge it critically on the extent to which it advances our highestaspirations, such as peace, freedom, and broadly shared prosperity. The eventsof September 11th put at risk many of the gains globalisation has brought, butlikewise may present opportunities to smooth some of the rough edges of theglobalisation associated with US policies of the previous decade. To skip to thepunchline, the future trajectory of globalisation is not preordained; it lies largelyin our own hands.

The Terrorism Tax on Cross-Border Flows

With support for globalisation already precarious, many held their breathsfollowing the attacks on the World Trade Center and the Pentagon, fearing amajor pendulum swing against cross-border �ows. ‘The footprints of globalisa-tion have left an obvious and important mark on the economic landscape duringthe past decade. But the terrorist attacks of September 11th and their aftermathmay bring about its demise.’1 And indeed, there was a major collapse in thevolumes of world trade and investment. Trade growth fell from a record 12.5%in 2000 to less than 2% in 2001.2 Foreign direct investment �ows fell by anestimated half in 2001 from the record of US$1.3 trillion reached in 2000—the

1 Stephen Roach, ‘Back to Borders’, Financial Times, 28 September 2001, p. 20.2 World Trade Organisation, International Trade Statistics 2001, France, WTO Publica-

tions, 25 October 2001, pp. 17–18.

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sharpest drop in three decades and the �rst drop since the beginning of the1990s.3 Yet most experts agree there is no connection to the campaign againstterrorism: these declines were already in the works, re�ecting slowing in theworld’s three biggest economic areas and the collapse of the global tech sector.

There was also considerable concern about the potential for the securityresponse to cause major and lasting disruption to the US economy. And indeed,in the �rst few weeks, cross-border transactions in the United States wereadversely impacted. A large number of international �ights were cancelled andair travellers resigned themselves to three-fold increases in wait times. Theprocessing of visas slowed, and 20,000 refugee visas that had already beenapproved remained on hold months later.4 With insurance costs soaring, corpo-rations advised their employees to restrict international travel to only the mostessential meetings, and took a hard look at the security exposure of theirinternational facilities. And multitudes of US companies were affected whenheightened scrutiny at land borders paralysed cross-border truck traf�c, idlingassembly lines dependent on just-in-time supplies from Mexico and Canada.

There has been considerable debate about the importance of these disrup-tions to the overall US economy and their contribution to the global recession.Months later, it remains dif�cult to disentangle the various factors contributingto the recession, most of which, such as the information technology downturn,the inventory cycle, and business investment overhang, pre-dated September11th. It is even more dif�cult to estimate the ongoing impact of the so-called‘terrorism tax’ because on many fronts it is still unclear what if anything will beenduringly different in the world after September 11th, especially where ‘home-land security’ legislation or regulatory proposals are pending, and in cases suchas maritime trade where emergency measures are still in place. There is noquestion that the drive to increase the security of national borders runs counterto the very forces that propel globalisation. It is dif�cult if not impossible toaddress the demands for greater security and scrutiny of cross-border move-ments of goods, people, information, �nancial capital, even snailmail withoutsome setbacks to the drumbeat of faster, cheaper, less red tape that drove produc-tivity gains in the 1990s.

Thus far, much of the analysis has focused on the overall cost to the USeconomy of projected increases in homeland security measures and on theincidence of this tax in the private and public sectors. Observers initiallycompared the economic impact of the attacks to natural disasters, weighing theone-time loss of physical and human capital against the increased demand forconstruction services.5,6 Subsequent comparisons were made between the in-creased public and private sector costs of security and the rising incidence ofpollution abatement expenditures in the 1970s and 1980s. Important questions

3 Leumi Trade, ‘Foreign Direct Investment Fell by Almost Half in 2001’, Global BusinessMagazine, 29 January 200, www.bankleumi.co.il

4 Somini Sengupta, ‘Refugees at America’s Door Find It Closed after Attacks’, New YorkTimes, 29 October 2001, p. A1.

5 Edward Leamer and Christopher Thornberg, ‘The Economic Impact of the TerroristAttack on the World Trade Center Will Be Minor’, UCLA Anderson Forecast, 13 September2001, pp. 1–3.

6 Gary S. Becker, ‘Don’t Be Surprised if Recovery is Rapid’, Business Week, 22 October2001, pp. 26–27.

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remain about the extent to which these costs will affect the economy in aone-shot manner, similar to Y2K compliance measures, or on a recurring costbasis.7

There is an important related question that has received far less attention:whether the security measures now being implemented or contemplated willdisproportionately impact cross-border �ows of goods, people, capital, and aservices relative to domestic �ows. A bias in the incidence of the terrorism taxgoes to the underlying plumbing of economic globalisation—and the inter-national cooperation necessary to sustain it. Such a bias seems both logical andlikely, since the focus is on the security exposure created by America’s extensiveinvolvement with the rest of the world, ranging from immigration to cross-bor-der trade to overseas operations of multinationals to the travel and communica-tions networks that are the lifeblood of international commerce to the densewebs of international �nancial transactions. To the extent that the costs impactdisproportionately on cross-border in�ows, there could be important implica-tions for direct transmission to other economies as well as for policies toencourage integration of countries, and particularly poorer countries, into theinternational trade system.

This kind of bias could derive from a variety of sources. US multinationalsfacing greater costs of transport among locations and of providing security foroverseas operations might reasonably be expected to pull back from thoselocations where security risks are greatest. Legal immigration �ows into the USmight slow, with foreign students taking their education dollars to Europe orCanada, deterred by greater scrutiny and wait times, and with skilled workerstaking their skills to more hospitable labour markets, alarmed by anecdotes thatUS employers are increasingly reluctant to take on the security exposure and redtape of foreign hires. US businesses might reasonably be expected to favourdomestic suppliers, in an effort to avoid the greater ‘just in case’ inventoryholding and security costs associated with heightened security measures at USports.

Maritime security experts have pointed out the frightening potential forweapons of mass destruction to be concealed in one of the 11.6 million school-bus-sized metal containers that pass through America’s ports and onto Amer-ica’s railways and highways each year with minimal oversight.8 Addressing thisvulnerability will require not only strengthening inspection and scanning capa-bilities at America’s borders, but preventing threatening shipments from everentering the port system through the adoption of internationally agreed securitystandards and procedures in all of the world’s major ports. It is likewise clearthat strengthening immigration surveillance at the borders alone is inadequatewhen it is clear the terrorists carefully calibrate their visa strategies to exploitdifferences in scrutiny and oversight.

These examples illustrate a more general phenomenon. The security mea-sures adopted in the wake of September 11th are likely to fall disproportionatelyon cross-border �ows relative to domestic activities, for instance raising the costs

7 David Hale, ‘Will Islamic Terrorism Produce a Global Recession?’, Zurich FinancialServices, 17 September 2001, pp. 1–5.

8 Thomas Frank, ‘Potential for Terrorism at Ports Called Alarming’, 15 January 2002,www.Newsday.com; Stephen Flynn, ‘America the Vulnerable’, Foreign Affairs, vol. 81, no.1, 2002, p. 64.

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(or the precautionary inventory holding motive) of imports relative to domesti-cally produced goods. Moreover, the policy response will necessarily put agreater premium on cooperation among enforcement authorities across bordersas well as on partnerships with those corporations that have a proven capacityto enforce internal security measures through supply chain management andother practices. The result is likely to be a “slow-lane” bias against transactionsinvolving poorer countries and smaller, less internationalised companies that areunwilling or lack the requisite resources or governance capacity to enforceenhanced security measures. In short, the response to September 11th is likely tocreate even higher entry barriers to the members club of countries able to takeadvantage of the upside of globalisation—at a moment when lowering the entrybarriers for the poor and disenchanted is more important than ever.

More International Cooperation?

The aftermath of September 11th confronts America with countervailing pres-sures. When a sense of safety previously taken for granted is profoundlyundermined, there is a natural tendency to pull up the drawbridges and pullback from the world. And when jobs and economic security are put at risk, thereis a tendency to look towards protectionist solutions. But September 11th alsobrought a realisation of how much America’s well-being depends on theinternational order and on having friends and allies around the world that sharethe same basic values. The attacks of September 11th made concrete the certainknowledge that America cannot effectively combat the terrorist threat alone.America cannot alone track and stem the �nancial lifeblood of internationalterrorist organisations, combat the roots of terrorism, or win a war against ashadowy enemy. Perhaps for the �rst time since the end of the Cold War,Americans may see international cooperation in a new light as directly relevantto their well-being.

The progressive globalisation of the past �fty years did not just happen. Itwas the product of concerted efforts to build an international order. Thefarsighted statesmen of the day founded the General Agreement on Tariffs andTrade, and eight successive rounds of negotiations have fuelled growth in tradeat four times the pace of world income and successively broadened the geo-graphic scope to encompass China and much of the developing world. TheInternational Monetary Fund (IMF), created to help countries facing externalimbalances at a time when the gold standard prevailed and capital controls werethe norm, has since shifted its focus to �nancial stabilisation in the face ofexplosive growth in private capital �ows and an unprecedented experiment in�oating currencies. The World Bank, created to address reconstruction in war-ravaged developed economies, has since taken on the more complicated chal-lenges of �ghting international poverty and complementing rather thanreplacing private capital investments. The US was both the ringleader and thesugar daddy during the initial decades of these efforts, �nancing the MarshallPlan, maintaining generous foreign aid, opening its markets, and demonstratingsteadfast commitment to the multilateral institutions.

As the Cold War wound down, however, and the US entered a sustainedperiod of strong productivity-driven growth, Americans had the luxury ofquestioning their international commitment. Entering the �rst decade of the new

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century, foreign partners increasingly criticized as unilateral. Critics in Europeand elsewhere increasingly saw America as a double agent—working to extendglobalisation to every village, but unwilling to share the authority or spend theresources to shape the international environment in ways that serve America’score interests. For a global power, America appeared remarkably self-absorbed.

And indeed, the �rst nine months of the Bush administration were character-ised by a series of policy announcements that—whether by design or byaccident—lent themselves to characterisation as unilateralist and hostile tointernational treaties, institutions and regimes. In the months immediatelyfollowing September 11th, however, the pattern was precisely the reverse: atalmost every decision point, the Bush administration chose the course of greaterinternational cooperation and involvement. Indeed, some high-ranking of�cialsand advisers are quoted in the Washington Post suggesting that the goal ofmaintaining a broad coalition would help de�ne US military strategy, promptingsome commentators to worry out loud about ‘paralytic multilateralism’.

However, it is not clear that the new emphasis on coalition building hasbrought with it an enduring new sensitivity to the concerns and priorities offoreign partners. And there is little evidence that fundamental positions on tradeand aid policies have shifted—at a time when they could make a criticaldifference.

The Root Causes Debate

In searching for the root causes of the terrorists’ violent fanaticism, many havepointed to the poverty and inequality associated with globalisation. The realityis far more complicated. First, a sceptic might well point out that if poverty werethe driving force, we would expect terrorists to come mostly from the poorestcountries in the world, largely concentrated in sub-Saharan Africa, such asEthiopia, Burundi, Sierra Leone, Guinea Bissau, Malawi, and Niger. Instead, thearchitects and perpetrators of the September 11th attacks were largely fromeducated, middle class backgrounds in the relatively more af�uent societies ofthe Middle East. The roots of their anger are more likely to be found infrustration with the blocked routes to political and economic opportunity in theirsocieties than with poverty per se.

A careful reading of Bin Laden’s fatwahs and expert analysis of the perpetra-tors’ worldviews suggest the attacks were motivated by a pan-Islamic radicalagenda hostile to US intervention in the Middle East and moderate MiddleEastern governments alike. Research teaches us that con�ict is most prevalent inperiods of societal transition. The rifts within these societies can be explainedwithout any reference to the global marketplace by the age-old clash betweenmodernity and tradition. Surely, the events of September 11th have far more incommon with the Iranian hostage crisis of 1979 than with the Asian �nancialcrisis of 1998. The debates within Saudi Arabia, Egypt, and Iran are only in themost trivial way centred on whether to ban Western television and video games.The real �ght is over the relation between political and religious authority andwho wields power in these petri�ed states that have largely failed to modernise.

In contrast, poverty is a critical ingredient in the failed states such asAfghanistan and Somalia that litter the world’s landscape, provide the foot

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soldiers in Al Qaeda’s efforts, and play hosts to Al Qaeda’s deadly trainingcamps and recruitment efforts. And poverty, poor access to education, anddespair clearly help explain why so many in the Islamic world fall prey to thedemagoguery of resentment and violence in Bin Laden’s message—the impetusthat led them to dance in the streets at the news of the September 11th attacks.It is at least plausible that if Pakistan devoted greater resources to publicprimary education, the madrassahs, or religious schools, would have less of amonopoly on the hearts and minds of Pakistan’s youth. There is admittedly nosimple guarantee that addressing poverty and helping to rescue a state fromfailure will automatically cause it to lose its appetite for the internationalopprobrium associated with harbouring or sponsoring terrorism, but it certainlyraises the stakes.

But in neither the failed states nor the petri�ed states of the Middle East andCentral and South Asia is the answer less globalisation. The Islamic nations ofthis region by and large have spurned rather than been split by globalisation.Most have low trade and investment shares of GDP and export bases that arehighly concentrated in primary commodities—in several cases, oil—and only ahandful are members of the World Trade Organisation (WTO). In many cases,relative insulation from the world economy is combined with heavy stateinvolvement in the domestic economy. With notable exceptions, such asLebanon, Bahrain and Jordan, the wealthier Middle Eastern states are character-ised by striking underperformance, high levels of economic statism, and shallowintegration with the international economy. Not surprisingly, many of thesecountries experienced declining per capita incomes through much of the 1990s—while emerging markets elsewhere made advances. For the Middle East andNorth Africa region as a whole, unemployment averages 15%.9 This is aparticularly volatile mix in countries with rapidly growing, young populations;population in the Arab countries grew an average of 2.7% between 1975 and1999—high even compared with the average for all low income countries—and38% of the population is under 15.10

There is an intimate connection between the striking lack of economic andpolitical modernisation in many of these states. Extensive state control overdomestic resource allocation is critical in maintaining the legitimacy of existingregimes, giving the ruling elites power over the distribution of plum jobs, statecontracts, and social welfare expenditures. In Egypt, for instance, universitygraduates remain unemployed for years in order to capitalise on the govern-ment’s guarantee of secure coveted employment.11 Experience elsewhere sug-gests that economic liberalisation diminishes the scope for corruption andbureaucratic discretion in allocating jobs and capital (a vital source of power forentrenched interests), introduces ideas from the international arena, and createssources of power and opportunity independent of the state.

In fact, it appears that more and better globalisation may be an importantpart of the answer both to help millions escape poverty and to kick-start the

9 World Bank, ‘Middle East Northern Africa Region Regional Brief’,www.worldbank.org, 27 September 2001, p. 1.

10 The statistics are for ‘Arab countries’ as reported in the UNDP 2001 HumanDevelopment Report, New York, Oxford University Press, 2001, p. 157.

11 Paul Blustein, ‘Unrest a Chief Product of Arab Economies’, Washington Post, 26 January2002, p. A1.

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economic reforms that are so sorely needed by the rapidly growing populationof the Middle East. Of course, it is up to the governments and citizens of theregion to make the choice to embark on a course of international integration andreform in order to reap the bene�ts of more broadly shared prosperity andopportunity, but the advanced industrial countries can in�uence the terms ofthis debate through their trade and �nancial assistance policies.

A Fair Deal on Trade?

If indeed the attacks herald a sustained shift in the organising principle of USforeign policy, it could lead to a reorganisation of American internationaleconomic policy analogous to the Cold War. However, so far there is littleevidence of change. Broadly speaking, the 1990s were characterised by profoundreconsideration of America’s international economic engagement, freed of thecustomary constraints from the security environment. Critics from both the leftand the right converged on a dif�cult standard for judging US commitments onforeign aid, the international �nancial institutions, and trade agreements. It camedown to the simple question: ‘What’s in it for us?’

The question now is whether the new security environment will shift theterms of the debate to a broader de�nition of America’s interests. Sensing theopportunity, US Trade Representative Bob Zoellick lost no time in proclaimingtrade to be a central element in America’s campaign against terror. A monthlater, President Bush put the case in even stronger terms: ‘The terrorists attackedthe World Trade Center, and we will defeat them by expanding and encourag-ing world trade.’ Nonetheless, it remains extremely dif�cult for the mostadvanced nations to deliver on their promises, given the high domestic salienceof the most controversial areas, such as support for the agricultural sector,protection of textiles jobs, the sovereign right to deploy trade remedies to softenthe impact of disruptive trade and to set environmental and labour standards,and the distributive issues associated with intellectual property.

Together, the terrorist attacks and the perceptible deepening of recession inthe US and around the world upped the ante on both sides of the trade debate.With the US experiencing the �rst surge of unemployment in years and with thecyclically sensitive manufacturing sector hit particularly hard, domestic concernsmoved front and centre. The result has been a mixed record: there have beenseveral achievements of great symbolic signi�cance, but little of a concretenature so far.

The emphasis on international coalition building in the wake of September11th created enormous momentum for the successful launch of global trade talksat the WTO ministerial that was scheduled to take place two months after theattacks. Success at Doha became a political imperative. Moreover, although thedecision to locate the ministerial in Doha Qatar had been taken months earlier,the determination to follow through was courageous and symbolically import-ant, given Qatar’s position as one of a handful of Middle Eastern states that hasjoined the WTO. Moreover, as evidenced by the term used to describe theoutcome, ‘the Doha Development Agenda’, the tenor of discussions at Doha andthe resulting ministerial declaration tipped the balance on the margins towardsthe developing world. Both the EU and the US made concessions to assure asuccessful launch. Nonetheless, the developing countries can claim only limited

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victories, and it is clear that the battles over the most contentious issues willreturn to be fought another day.

Second, in the US, both Houses of Congress voted to grant the President fasttrack trade promotion authority, following several years of stalemate. Thislegislation, which has greater symbolic than practical signi�cance for US tradepolicy in the immediate term, looks likely to be enacted during 2002, followingreconciliation of the House of Senate Versions. However, the House vote waswon by a margin of one and was purchased at the expense of a rollback of textiletrade concessions already granted to Caribbean Basin nations in earlier legis-lation.

These agreements to proceed with negotiations, while dif�cult in themselves,nonetheless are much easier than the follow-on negotiations over concrete trademeasures, which will inevitably require concessions in speci�c sectors whereidenti�able jobs and livelihoods are directly on the line. So far, domesticconsiderations have dominated on these more concrete sectoral tradeoffs.Already, several US allies in the �ght against terrorism have been disappointedin their efforts to secure greater access to America’s markets for particularproducts. Thus, it is still an open question whether, in the spirit of coalitionbuilding, America, the EU and others will be able to bridge the divide with keydeveloping countries by offering greater �exibility in sensitive areas.

Moreover, so far, there has been virtually no discussion of a concerted tradestrategy to address the complicated issues discussed above of lagging economicreform and shallow international integration that hamper development in theMiddle East. Such a strategy could range from expanded trade preferences forthe poorer countries to a systematic effort to increase participation in the WTOto a longer-term plan for regional economic integration within the framework ofa free trade arrangement with the US or the EU.

The Foreign Aid Debate

America’s commitment to the international �nancial institutions and bilateraldevelopment aid has come under attack since the end of the Cold War. USdevelopment aid has declined by over 35% in real terms since its heyday in theearly 1960s (to roughly US$11 billion in 2000). US assistance reached a post-1945low in 1999, both as a share of national income, and as a share of federal budgetoutlays, where it has fallen from over 3% to under 0.6%.12 If we compare donorcountries, US spending on Of�cial Development Assistance (ODA), whichincludes aid to the poorest countries, is 0.10% of national income—the lowestamong OECD (Organisation for Economic Co-operation and Development)donors and less than half the donor average of 0.22%. And US per capitaspending of US$34 per year is far below the average of US$67.13 Clearly, policymakers had little success in selling the case for foreign aid to the American

12 Isaac Shapiro, As a Share of the Economy and the Budget. U.S. Development andHumanitarian Aid Would Drop to post-WWII Lows in 2002, Washington, Center on Budget andPolicy Priorities, 18 June 2001, pp. 2, 12.

13 Jean-Claude Faure, Organisation for Economic Co-operation and Development,Development Assistance Committee, ‘Development Co-Operation, 2000 Report’, DACJournal, vol. 3, no. 1, 2002, pp. 203, 207.

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public during a decade of peace and rising prosperity. But their perceivedsalience to America’s well-being rises during times of crisis. Already, sanctionson Pakistan have been lifted, freeing up loans and debt relief. And the US hasjoined the international community in pledging hundreds of millions for therebuilding of Afghanistan. The Bush Administration has recently proposedincreasing foreign aid by $10 billion over the next three years, representing animportant shift in US aid policy.

In the wake of September 11th, a growing chorus of in�uential voices hascalled for a Marshall Plan for the Middle East. But a close look at the chiefelements of the Marshall Plan raises questions about its relevance to America’stroubled relations with the Islamic countries of the Middle East and NorthernAfrica. The stunning 33% increase in European income achieved over the fouryears of the Marshall Plan owed far less to the volume of aid than to the fertileenvironment to which it �owed. The European recipient nations all had stronginstitutional foundations, a wealth of human capital, and a demonstrated com-mitment to reform. There is little reason to believe that the absorptive capacityor the commitment to reform of either the failed states or the petri�ed states ofthe Islamic world are comparable to those of post-war Europe.

Nonetheless, a case can be made that the vision and spirit that underlayconceptualisation of the Marshall Plan are precisely what are needed today. Thepost-war visionaries who launched the Marshall Plan and provided the blue-print for the international economic architecture understood the intimate rela-tionship between peace and prosperity in America and in con�ict-prone regionselsewhere. They also displayed an acute understanding of the role of inter-national commerce and �nancial ties in giving everyone a stake in the inter-national system.

The Marshall Plan debate raises broader questions about the appropriaterole—if any—for �nancial assistance in the immediate campaign against terror-ism as well as in the broader campaign to expand support around the world forthe international trade and �nancial system. Based on public opinion, the likelyanswer would be that few Americans see any connection, and most think the USalready wastes too many dollars on aid. A 2001 University of Maryland pollfound that on average Americans believe 24% of the federal budget is spent onforeign aid; the actual �gure is closer to 0.5%.14 And it is admittedly dif�cult tomake the case for assistance—apart from strict humanitarian and reconstructionaid—in light of the abysmal performance of some of the primary bene�ciaries oflargesse in the Middle East. Egypt has received more than US$55 billion in aidfrom the international community over the past 25 years—which most expertsagree allowed the government to shrug off genuine economic reform andmaintain a heavily state-directed economic system that stymies private initiativeand generates far too few jobs.

More broadly, critics draw the conclusion that aid is counterproductive bycomparing the stunning economic success of East Asian countries—which re-ceived relatively modest shares of aid relative to resources—with the relativeeconomic failure of more aid-dependent states in sub-Saharan Africa. Andindeed, the raw numbers are compelling. Many countries in sub-Saharan Africa,where aid �ows have exceeded 10% of GNP over the past several decades, have

14 University of Maryland Program on International Policy Attitudes, ‘Americans onForeign Aid and World Hunger: A Study of U.S. Public Attitudes’, 2 February 2001,www.pipa.org/OnlineReports/BFW/toc.html

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yet to see progress. Per capita incomes are declining or stagnant, life expectancyremains well below the world average, and primary school attendance is low. Incontrast, in the countries of East and South Asia, which have received aidamounting to less than 2% of GDP on average, there have been stunning growthrates averaging 7.5% and 4.9%, respectively, over the past three decades, lifeexpectancy has risen considerably, and primary school attendance has achievedimportant gains.15

But here, as elsewhere, simple generalities do not do justice to reality. First,research has shown that a prime reason for the poor performance of develop-ment aid is that too many resources were allocated on the basis of geostrategicconsiderations rather than on the basis of the recipient government’s commit-ment to fostering a conducive environment for growth and its accountability andlegitimacy. Money is fungible, and too much of the money disbursed during theCold War was wasted on autocratic and corrupt anti-reform regimes, whichused it to beef up military budgets or line their own pockets.

In reality, there have been vastly differing experiences with aid, dependingon the intended purpose and the context. A careful reading of the researchsuggests many valuable lessons have been learned that can help guide theef�cient use of aid resources as one component of a sustained poverty reductioneffort. A UK government memo cites recent academic research showing thataid’s impact on economic growth has increased since the Cold War era. Itsuggests that every US$1 billion of aid given in 1997 raised 284,000 peoplepermanently out of poverty, and that where a recipient country’s policies aresound, aid worth 1% of GDP cuts poverty and infant mortality by 1%.16

The green eye shades of the 1990s taught some dif�cult but valuable lessonsabout what kind of assistance has the greatest impact on growth and in whatconditions. Investments in basic health and education have the best track record.Substantial research has documented the value of primary education for allchildren as a high yielding long-term investment strategy. Investment in edu-cation for girls has important positive spillovers to other areas of humandevelopment, encouraging smaller and healthier families. And indeed, there issubstantial potential for improvement on primary education among the poorerIslamic countries—and particularly on girls’ education. Similarly, scienti�c ad-vances hold great promise for combating killer infectious diseases and reducingmaternal and infant mortality rates through relatively inexpensive preventionstrategies. Other areas such as ensuring access to clean drinking water, improv-ing transportation and communications infrastructure especially in rural areas,and facilitating the availability of credit to micro-entrepreneurs have demon-strated value.

The record is also relatively straightforward on the kind of environmentswhere such investments are likely to deliver the greatest bang for the buck.Relative macroeconomic stability, sound overall economic policies, and a well-supervised market-based system of �nancial intermediation are critical prerequi-sites. Moreover, the existence of a well-functioning institutional structure withgood governance, relative transparency, and democratic accountability are criti-

15 Keith Marsden, ‘Trade Helps More than Handouts’, Wall Street Journal Europe, 4September 2001, online edition, www.wsje.com.

16 Editorial, ‘Does Aid Help?’, Washington Post, 9 February 2002, p. A26.

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cal to ensure that aid dollars are used for the designated purposes and re�ect theneeds of the citizenry. In environments where corrupt and illegitimate govern-ments stand in the way of effective anti-poverty programmes, strategies can bedevised to work through grassroots organisations and target the private sectordirectly.

If the foreign assistance spigot is turned back on, driven by the exigencies ofcoalition building, reconstruction, and addressing the root causes of the currentcrisis, the big question is whether the US will disburse aid based on soundfoundations of reform and good governance rather than the stratetic rationale ofwhether a country is ‘with us or against us’. There are risks that poorly directedspending could do more harm than good in the longer term—helping sustainpolitical regimes that are seen as illegitimate by increasingly radicalised youth.So the prescription for progress must lie not only in the amount of aid but howit is used. It would be a terrible shame if increased �ows of assistance discred-ited the enterprise and reinforced public scepticism by repeating the mistakes ofearlier periods—providing pocket money for corrupt autocrats, �nancing unpro-ductive pet projects, and helping to �nance unsustainable currencies and capital�ight.

Conclusion

Globalisation was neither the primary target nor necessarily a casualty ofSeptember 11th. But September 11th could be a pivotal event for the futurecourse of globalisation. That course is not preordained. It is in the hands of thosein the wealthiest countries who have greatest in�uence on the internationalsystem—and especially Americans. Will we have the foresight to respond to theneed for greater security without compromising our commitment to openborders and international engagement? Will we have the political will to moveforward the trade agenda in a way that demonstrates to the developing nationsthey have a real stake in it? Will we have the wisdom to address the distributiveconsequences in our own economy? Will we increase the generosity of ourinternational aid while resisting the pressures to disburse money as a bribe orpayback, with the inevitable misuse and backlash that would bring?