Don't know much about history....

We learn from history that we never learn anything from history. Georg Hegel

I get the sense, from reading, inter alia, Stephen Roach's missive from Davos, that the globalization gang at the World Economic Forum (WEF) is beginning to realize they were wrong. Beginning to realize, I write, not realized. The full scope of their mistake has yet to dawn on those who would remake the world of men.

Conservatism, as I understand the term, refers in part, to the view that there is nothing new under the sun - man is man, much as he was when the Pharaohs ruled, albeit with a few more tools. By the definition I am a conservative. Liberalism, again, as I understand the term, refers to the view that man, the species, can be improved (perhaps forcibly evolved might be a better choice), poverty can be erased, and material well being shared more or less equally. The WEF gang, on balance, were, by that definition, a liberal organization.

As Mr. Roach puts it: The World Economic Forum is the cradle of the modern-day globalization debate. The motto of the organization says it all, “Committed to Improving the State of the World.” The win-win endorsement of globalization -- that the development of poor countries is a huge plus for rich, developed countries -- was first coined in Davos. There have been anti-globalization protests associated with this event for years. But this year is different. The debate has moved from the outside to the inside. Serious challenges to globalization are now being openly aired in the rooms and corridors of Davos’s fabled Congress Centre.

Was it but 5 years ago that the WEF was the talk of the economic town? A benevolent capitalism, we were told, would lift all boats. In its most radical variation, the new economy, scarcity would be all but banished. So much for that idea.

To be clear, this is not an anti-capitalism rant. I believe, on balance, that a system of private property and rules of exchange are more beneficial to man than other organizational forms. In a sense, capitalism can be thought of as a regimen of diet and exercise. It can improve the material well being but whether that makes one more or less benevolent seems to me a dubious proposition.

Returning to Mr. Roach and the globalization gang, The reasons behind this shift are not hard to fathom. One of the “wins” in the win-win of globalization has failed to materialize. Job creation and real wages in the mature, industrialized economies have seriously lagged historical norms. It is now commonplace for recoveries in the developed world to be either jobless, or wageless -- or both. That this shortfall has occurred in the midst of accelerating globalization and surging global trade is all the more disconcerting.

This shouldn't, I contend, have been much of a surprise. The break down of national sovereignty is one aspect of globalization. Yet it was at the level of the nation state that the rules of exchange were enforced. Thus the current mess. The rules of exchange are not being enforced. It reminds me of the stories of the wild, wild west. Except that in this case, the lawlessness was confused with lawfulness for many years.

Thus the dawning realization, returning to Mr. Roach, that the toughest part of this story is that there may be no easy way out.....For generations, we harbored the belief that while it was painful, it was also understandable for rich countries to lose market share in tradable manufacturing activities. This was never viewed as a serious threat because the developed world was blessed with a growing profusion of highly-educated knowledge workers toiling in nontradable services -- workers that were effectively sheltered from the tough pressures of global competition. It was win-win because rich countries would be able to buy cheaper things from poor countries, thereby expanding the purchasing power of an increasingly knowledge-based workforce. And as producers in the developing world turn into consumers, a proliferation of new markets would provide nothing but opportunity for the industrial world. This positive-sum outcome was the true hope of globalization. Alas, it is rarely easy to recover from years of misplaced faith in matters of material import.

It also apparently takes a long time to grasp the enormity of error. Consider the closing from Mr. Roach: Yet protectionism may not be the real risk in all this. I don't believe that the world would be so foolish to repeat the tragic mistakes of the 20th century. The more likely danger is that the powerful countries in the industrial world now view the Chinas and Indias of the developing world with a growing sense of distrust -- more as economic adversaries than as strategic partners. A world of distrust may well squander the greatest opportunities of globalization.

This, in my view, is the great flaw of liberalism, as defined above, exposed - the faith that man, the species, will not repeat his mistakes. Man, the species, the collective, it has been often written, learns little from history, although, man, the individual, can. In my view, the greatest opportunities of globalization were but a pipe dream. Rising distrust is an unavoidable consequence of misplaced faith.

All of which brings me back to my faith in real goods. The vast web that is the world's financial system of promises was built on the very shaky foundation of win-win globalization. Now comes the hard part, resolving the gulf which separates the world as it is with the world assumed by our financial markets. As always, it is the map that will need to come to the territory, not the other way round.