The terms “global economy” and “New World Order” have become part of the common litany that frames foreign policy discussions. Though the second term is often used in a mocking or ironic tone, the first has attained the status of a paradigm. Yet Hazel J. Johnson, a professor of finance at the University of Louisville, does not believe it is an accurate description of world trends. Instead of a “one world” Utopia where goods and money flow without regard to national boundaries or politics, Johnson finds only pockets of growth organized around strong nation-states: a pattern of regional empires rather than universal harmony. The “Old World Order” persists, and in this slim but data-filled monograph she looks at each major geographical region in turn. She finds—not surprisingly—very large disparities; what is surprising in the current atmosphere is her frank discussion of what lies behind these differences.

Asia warrants the most attention. Japan greatly increased its share of the world’s wealth in the 1980’s, largely at the expense of the United States. “Japanese economic behavior fails on every front to qualify as ‘global’ . . . The country is strongly nationalistic with unmistakable tendencies towards imperialism,” writes Johnson. “The Japanese are truly intent on building a new empire, based in Asia, with affiliated offices around the world.”

Japan’s trade surpluses with the United States have given Tokyo enormous financial reserves, which are being converted into ownership of productive assets and raw materials. Japan prefers to own its sources of imports, and Japanese firms are investing in energy development, mining, agriculture, and basic manufacturing throughout Asia. Production is aimed at American and European markets, while Asian resources are meant to substitute for more distant supplies. The strategic and highly valuable elements of industry, however, are kept in Japan—along with authority over them.

America’s pullback from Asia opens new opportunities for Tokyo. The cheap labor and natural resources of the Philippines, for example, are attractive. Johnson believes that South Korea, despite its economic success, will not be able to finance reunification with North Korea without external help. If the United States is unable to fill this role, Japan will be Seoul’s only option. She predicts “Japan will extract economic concessions from Korea the likes of which have not been seen since the peninsula was invaded at the turn of the century.”

In the nascent Japanese empire, “the primary functions that the United States appears best suited for are basic manufacturing and expanding the sphere of Japanese farm and other land ownership.” Japanese investments in the United States, as elsewhere, serve to expand Japan’s own network. “Japanese manufacturing operations in the United States channel output through Japanese wholesale trading companies with transactions financed by Japanese banks.” The multiplier effects of these investments are captured primarily by Japanese firms at the expense of their American competitors. Thus every new job “created” in a Japanese-owned factory in the United States costs the American economy two jobs in other sectors. Johnson does not hold out much hope for America to negotiate better arrangements with Japan. Any concessions the Japanese are prepared to make, they are saving for negotiations with a united Europe whose mercantilist tradition makes it a much tougher adversary than “free trading” Washington.

In contrast to the economic gains made by Japan and Asia in the 1980’s, American growth has slowed dramatically since the mid-1970’s. Aside from those employed in the export sector, real income among workers in the private sphere fell during the 1980’s. Americans continued to live as if they were still in a medium-growth economy, financing the difference between dreams and reality with mountains of debt. But today Americans must either accept stagnation or adopt radical reforms that will put the country back on a faster track. Though the economy was sliding into a recession as Johnson wrote, her book is concerned with structural changes rather than cyclical ones. Yet it seems clear that any combination of “quick fix” recovery schemes, financed by more red ink and burdened with environmental regulations and mandated benefits for businesses, will keep the American economy derailed.

Johnson encourages the United States to integrate Latin America into its economic system as Japan is doing with Asia. She warns that without strong economic growth in Latin America “an unbearable immigration problem” will threaten America. Unfortunately, Latin America’s misuse of past capital flows has left it with huge debts it cannot repay. During the 1980’s, the region made debt payments of $518 billion but earned only $ 188 billion from trade surpluses. The rest was financed by new debt ($191 billion) and by domestic austerity measures ($139 billion) that further weakened the region. Johnson proposes a mixture of write-offs and zero-coupon refinancing. She also suggests supervision by a consortium of banks to insure that future investments go to productive uses. Her plan, however, depends on the United States getting its own house in order first. If the United States cannot abandon the pernicious trade and fiscal policies that prevent it from generating enough capital for its own development, it can hardly be expected to generate enough additional capital to finance Latin American growth.

Johnson pays special attention to Sub-Saharan Africa, the only region to experience negative economic growth in the 1980’s (with an annual decline of 4.3 percent). Though Africa has abundant labor and is rich in natural resources. there is no nation on the continent to serve as the engine of growth (Johnson avoids mention of South Africa, which now seems destined to fall to the same forces that have ruined the rest of the region), nor is Africa linked to any stronger region. Its ties have been with Europe, but a unified Western Europe will turn now to brighter prospects in the former Soviet empire. The oil-rich Arab states have capital to invest in their neighboring region but have not done so because Arabs “continue to treat Black Africans as inferior beings” fit only for the continuing slave trade.

Obviously a universal feeling of brotherhood is a long way off. Johnson believes, however, that the United States can still prosper in a world of competing regional empires if it deploys its assets wisely. But to do so Americans must perform the most difficult of all tasks. They must “view the world as it is rather than as they would like it to be.”


[Dispelling the Myth of Globalization: The Case for Regionalization, by Hazel J. Johnson (New York: Praeger) 176 pp., $42.95]