The attack on America raised so many questions-
among them, questions about the dangers
of the new world economy.
Is terrorism the dark side of globalization?
Daniel Yergin: Up until September 11, there was a sense
that this movement towards globalization
really was irreversible.
And since then, there's a recognition
that things can go in another direction.
Can our deeply interconnected world deliver prosperity
to everyone?
Bill Clinton: And that's basically the next big challenge, is...
is making this interdependent world of ours on balance
far more positive and negative.
And the extent to which we succeed in doing that
will determine whether the 21st century
is either marred by terrorism of all kinds
or whether it becomes the most peaceful and prosperous
and interesting time the world has ever known.
This is the story
of how the new global economy was born.
The story of a century-long battle of ideas
to determine who would control
the commanding heights of the economy,
central governments or free markets.
In the 1990s, a worldwide capitalist revolution
fueled the new era of globalization-
the greatest expansion of world trade in history.
Dick Cheney: Millions of people today are better off
than they would have been without globalization,
and very few people have been harmed by it.
But with the promise came a debate
about the impact of globalization.
Woman: Should the world's wealthiest people
really dictate how the world's economy is going to run?
Tonight, the battle
over who should write the new rules of the game
for the global economy.
This program, with captioning, was made possible by:
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from strategy and implementation to hosting.
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but to us, it's the way we do business.
We're reinventing the energy business,
as we develop American oil and gas,
next-generation clean fuels,
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George W. Bush: 0ut of the sorrow of September 11, I see opportunity,
a chance for nations to strengthen
and rethink and reinvigorate their relationships.
When nations open their markets to the world,
they find in America a trading partner, an investor
and a friend.
Narrator: We are living through a revolution.
The 1990s saw the creation of a new kind of global economy:
a single market in which everyone has a stake
but no one has control.
Globalization has brought unprecedented prosperity.
But it has also brought crises and risks
we are only beginning to understand.
It has unleashed a worldwide debate
about wealth and poverty,
about the "rules of the game"
for this new era of globalization.
Yergin: Historians may well say that a new era began
at the beginning of the 1990s
with the end of the Cold War and the Gulf crisis,
and that was this new era of globalization
of... of... of a world being tied together
by flows of investment, of trade, of ideas, of culture,
of people traveling all the time.
And it happened very fast.
And as so often happened,
the change came more quickly than the ability of thinking
to catch up and understand the change.
But to understand where we are today and where we're going,
we have to understand this recent past.
Narrator: No economic idea
has shaped the era of globalization more profoundly
than a belief in free, open markets.
Free trade has been a fundamental tenet of capitalism
for over 200 years.
But in the 1990s, the global market created a new reality
that no government, no politician
could afford to ignore.
0ur story begins in 1992.
The global economy was changing rapidly.
But America seemed adrift.
A recession had left ten million workers unemployed.
Industries struggled against intense foreign competition.
Europe had formed a single trading bloc.
Japan looked invincible.
Japanese companies were buying up American icons,
like Rockefeller Center and Universal Studios.
In the 1992 presidential campaign,
Arkansas Governor Bill Clinton claimed
he could get America back on track.
Man: Have a nice day, sir.
Thank you.
Appreciate you.
Governor.
Narrator: He drew crucial support from America's labor unions,
and seemed to promise workers protection
against global competition.
Again, look at what our competitors do.
Meet the competition.
Look at what the high-wage countries do.
Look at what Germany does, look at what Japan does.
That's what you've got to do.
You'll stand up
against the good old boys to do that?
Absolutely.
What's the purpose of having a country
if you let it go down the drain?
I don't know; why have we been doing that?
You got my vote.
Governor, don't forget the federal employees, too, okay?
You have my vote.
Thank you, guys.
Narrator: But at a meeting with Wall Street financiers,
Clinton had discussed a different agenda-
an agenda some of his core supporters adamantly opposed.
Financial markets wanted to rein in government spending,
cut the deficit, and embrace free trade.
Without these policies,
they thought America's economy wouldn't recover.
0ver dinner in an exclusive restaurant,
Clinton tried to persuade
some of Wall Street's most seasoned executives
that he saw the world as they did.
Rubin: It was a small dinner in New York
that I was co-hosting.
We had about a dozen people.
And my view was
that the threshold economic issue for our country
was to restore fiscal discipline after a long, long time
during which fiscal discipline had eroded.
I could see that Rubin and the others
that were there in this rather dark place
where we had dinner at night
were kind of looking and saying,
you know, "Can this guy from Arkansas be president?
Could he possibly know enough about the economy to do it?"
Rubin: After that meeting, I thought to myself
that this was a man who cared about
what I at least thought
we needed to care a great deal about.
Now, on the issue of trade,
he clearly believed in... in trade liberalization
and that clearly has been a... a dividing line
in the Democratic Party.
Was then; is now.
Narrator: Trade became an issue in the 1992 presidential campaign.
Republican President George Bush had negotiated a treaty
that would allow unrestricted flows of trade and investment
between the U.S., Canada and Mexico.
For its supporters, trade embodies an idea:
that open markets create wealth, bind nations together,
and help construct
a more prosperous and a more secure world.
NAFTA put that idea to a political test.
In America, it was the first great debate
of the globalization era.
Ross Perot: You implement that NAFTA, the Mexican trade agreement,
where they pay people a dollar an hour, have no health care,
no retirement, no pollution controls, etc., etc., etc.,
and you're going to hear a giant sucking sound
of jobs being pulled out of this country.
Ross says, with great conviction,
he opposes the North American Free Trade Agreement.
I am for the North American Free Trade Agreement.
My problem with Governor Clinton once again is
at one time he's going to make up his mind,
he would see some merit in it,
but then he sees a lot of things wrong with it.
Then the other day he says he's for it;
however, then we've got to pass other legislation.
When you're president of the United States,
you cannot have this pattern of saying, "Well, I'm for it,
but I'm on the other side of it."
I am the one who's in the middle on this.
Mr. Perot says it's a bad deal,
Mr. Bush says it's a hunky-dory deal.
I say on balance it does more good than harm
if, if we can get some protection for the environment
so that the Mexicans have to follow
their own environmental standards,
their own labor law standards
and if we have a genuine commitment to reeducate
and retrain the American workers who lose their jobs
and reinvest in this economy.
( applause )
( "Hail to the Chief"playing )
Narrator: 0nce in office,
Bill Clinton's economic policy was aimed squarely
at restoring the confidence of financial markets.
His first term was dominated
by the battle to reduce the deficit.
0n trade, the president changed his position, and announced
he would wholeheartedly support NAFTA as it stood.
( applause )
Rubin: Clinton gave a speech
in the East Room of the White House
that set out how he wanted to discuss NAFTA
with the American people.
It was really quite a remarkable speech.
He talked about NAFTA in a much broader context.
He talked about NAFTA
in the context of the rapid changes taking place
in the global economy,
not only from trade, but from technological development,
spread of market-based economics.
This debate about NAFTA
is a debate about whether we will embrace these changes
and create the jobs of tomorrow,
or try to resist these changes,
hoping we can preserve the economic structures
of yesterday.
Nothing we do in this great capitol can change the fact
that people can move money around in the blink of an eye.
I tell you, my fellow Americans,
that if we learn anything from the collapse of the Berlin Wall
and the fall of the governments in Eastern Europe,
even a totally controlled society
cannot resist the winds of change
that economics and technology and information flow
have imposed in this world of ours.
Narrator: To some of his supporters,
the president's change of heart on NAFTA
was nothing less than a sellout.
Woman: The labor movement in the United States
opposed NAFTA as it stood, because we saw that
as a corporate-dominated trade and investment agreement,
one that served the interests of multinational corporations
that improved their flexibility, their mobility, their clout.
And at the same time, NAFTA did nothing
to protect the rights of workers to form unions,
uh, to bargain collectively
and to really raise their voices in the political system
so that workers could be a formidable countervailing power
to multinational corporations.
I think Clinton did sell out
his traditional blue-collar supporters on the NAFTA issue,
and... and a lot of people haven't forgiven him for that.
Clinton: 0ur adversaries tried to make it look
like the whole American establishment's on one side
and the little guys are on the other.
And they could, you know, stir that fear factor
and it was a tough sell,
( chuckling ): it was a tough sell.
Gingrich: I thought it was one of the most courageous acts
of his presidency.
We worked with him very hard.
The Republicans in the House
provided a much bigger percentage of the votes
than the Democrats did.
Narrator: 60% of congressional Democrats voted
against NAFTA.
It passed only with Republican support.
After NAFTA became law, thousands of foreign companies
built factories in northern Mexico,
exporting goods to the American market just a few miles away.
80% of all televisions sold in the U.S. are now made here.
( dog barking )
Nearly a million workers found new jobs along the border
in northern Mexico.
Woman: Pues, ya, lo poco que me va quedando, pues yo lo voy...
lo voy ahorrando para poderle mandar a mis hijos.
Translator: I have two children.
In the South, I didn't have a job
and couldn't give my children what they need.
I left them behind with relatives,
and came here to find work.
I found a job in a television factory.
I earn enough to send some money home to my children.
I couldn't do that before.
Man: This is a country about... over a hundred million people,
and there's no question
that those ten to 12 million people
who live in the north and the border area
are not doing badly by Mexican standards.
And it has become more industrialized,
with more jobs, higher wages, better social indicators, etc.
The people in the south are doing very badly
by Mexican or by anybody's standards.
Narrator: 40% of Mexico's population lives in poverty.
Mexico's embrace of NAFTA and free trade
was part of a broader change in thinking
within developing countries.
Their governments increasingly saw open markets
as the key to economic growth.
Man: I worked 15 years for Coca-Cola.
I started as a route salesman.
I started right from the bottom, and I learned that discipline,
that hard working, that talent is the way to succeed.
I always seen globalization as an opportunity.
Just the trade agreement with the United States
has moved our total trading-
which was six years ago 40 billion U.S. dollars-
today is 280 billion U.S. dollars in just six years.
Nobody loses.
Everybody can win.
Lee: 0bviously trade has increased,
investment has increased.
And if the only metric you use
to measure whether NAFTA has been a success or not
is the volume of trade,
then NAFTA is tremendously successful.
And yet most normal working people, most normal citizens
don't watch the volume of trade.
Companies have been more aggressive in threatening
to move production to Mexico.
They've succeeded
in bargaining down wages, in opposing unions.
And so on a lot of different fronts
we think that NAFTA has shifted the balance of bargaining power
in the continent of North America
towards multinational corporations.
Narrator: Since NAFTA came into effect, about 400,000 American jobs
have been "adversely affected" by trade with Canada and Mexico,
according to the U.S. government.
Exports to these countries have created 900,000 new jobs,
and over the '90s, global trade nearly doubled.
Narrator: We tend to think of trade
as products and goods moving across borders.
In fact, the biggest trade of all can't be seen.
It is money- the continuous, 24-hour worldwide flow
of stocks, bonds and currencies.
In the 1990s, practically anyone
with savings in a pension or mutual fund
became an investor in the global market.
Yergin: I was at a dinner,
a so-called "thinkers dinner" at the White House
before one of the State of the Union addresses.
And there's this great discussion
among all the people around the table about markets,
about "they" out there- that it's somebody different.
And finally I raised my hand and said,
"With all due respect,
"the markets isn't just them, it's us.
"It's our aggregated retirement savings, it's our pension plans.
That's what the markets are."
Narrator: The State of California runs
one of America's largest pension funds.
The fund, known as "CalPERS", manages the retirement savings
of over a million state employees.
For decades, CalPERS invested only in America.
But in the era of globalization, that changed.
A quarter of its money was invested overseas.
At one point, CalPERS controlled five percent
of France's entire stock market.
French television sent a crew to investigate.
Woman: They were filming in my office, and I had a salad on my desk
because it'd been just a very hectic day.
Well, they caught me
and... and we were talking about some figures on my computer,
but they kept filming this salad.
And I got the feeling that the... you know,
the story was going to be
that, you know, the Americans are coming.
You know, they're going to ruin the French way of life,
and we're all going to be eating salads at our desk, you know,
and working 12- and 14-hour days,
which, of course, is not true at all.
But I... I think it was just there's just a fear, I think,
that we've seen in the news
that globalization means Americanization.
Narrator: Pension funds became the powerhouses
of the global economy, because they had the money.
Man: The real source of change in today's world,
with the world getting smaller and smaller, as we say,
and this... the growth of the global economy, as we say,
I think it's going to be the providers of capital funds.
And that, whether anybody likes it or not,
increasingly are large pension funds.
Woman: I have some of my own personal mutual funds overseas
and they seem to be doing pretty well right now.
Man: And I think in terms of what CalPERS' position is,
they have a fiduciary responsibility
to seek those markets out and to invest
and to use that return on that investment
to honor their obligations.
We can't keep everything in the United States.
You keep things in the United States,
it's still not in the United States
because so many companies are global,
so much... everything is global, everything is interconnected.
Narrator: With the end of the Cold War,
many nations opened their markets to foreign investment
for the first time.
Funds like CalPERS saw new opportunities
and hired money managers to scour the Third World,
now renamed "emerging markets."
0kay, very good, yeah.
Let me talk to Dennis, huh?
Yeah, but they got an election coming up.
Uh-huh.
Mobius: Well, the whole rationale is
that these emerging countries grow faster.
So what we're trying to do is capture that growth
and of course make money for our investors.
But of course the risks are very great
because there's no free lunch.
So there's a balance
and of course it's our job to try to minimize the risks
and maximize the returns.
It doesn't always work out that way
but that's... that's the objective.
Narrator: As investment flowed around the world,
the Clinton Administration expanded the trade agenda
it adopted with NAFTA.
( crowd applauding )
The U.S. encouraged developing countries
to continue opening their economies to the global market.
Clinton: I favored a very aggressive policy.
I thought that the emerging countries,
both emerging economically
and those that were new democracies,
had a better chance to do well economically and politically
if the wealthier countries opened our borders
and made trade agreements with them,
and if in turn they opened their borders,
not only to trade, but to investment.
I thought that the... that economic policy
and traditional foreign policy would tend to merge.
Tyson: This is how it worked.
If you go back to the first term,
a lot of the international approach of the administration
on economic issues
was to break down barriers to U.S. firms.
We are going to engage our trading partners
and encourage, cajole, convince them
to bring down their barriers.
Narrator: Many developing countries had been colonies of the West.
Although they now wanted long-term foreign investment,
some saw fast-moving flows of money
as a new threat to their independence.
Mohamad: 0nce communism was defeated,
then capitalism can expand and show its true self.
It's no longer constrained by the need to be nice
so that people will choose their so-called free market system
as against the central... centrally planned system.
So because of that,
now there is nothing to restrain capital,
and capital is demanding that it should be able to go anywhere
and do whatever it likes.
Narrator: Some called it "the triumph of capitalism."
During the 1990s,
more countries than ever adopted market economics.
Crist: ...Health Insurance Portability and Accountability Act
upon our health programs...
Narrator: As an economics professor, Bill Crist had taught a course
comparing Marxist and capitalist theories.
As president of CalPERS, the California state pension fund,
Crist came to believe that only open markets
could ensure global stability.
Crist: This is a kind of revolution,
and I think it's going to be
one of the most powerful revolutions
over time, in my opinion-
that will... that will move towards giving everyone
the franchise of participation in... in economics.
If we don't reach out to these emerging markets,
if we don't be evangelists, if you will,
and try to encourage them to... to reform,
and invest some of our capital funds
into these... these markets- if we don't do that,
I'm afraid that some of the predictions
that were made a long time ago
by... by Karl Marx and Mr. Engels and others
that there will indeed be a... a confrontation
between the haves and the have-nots
that can bring the entire system down.
Narrator: The very day NAFTA came into effect,
Zapatista rebels launched an uprising in southern Mexico.
( sirens wailing )
( crowd shouting )
Shortly after,
the leading presidential candidate was assassinated.
Worried about stability, foreign investment began to flee.
The global economy was about to face a new kind of crisis.
Rubin: Christmas vacation, I was fishing
down in the British Virgin Islands
and Larry Summers called me and he said,
"There's some problems in Mexico
I'd like you to know about."
And I thought to myself,
"That was nice of Larry to call," on the one hand;
on the other hand, "I'm on vacation."
And you know, Mexico today,
it'll be some other country tomorrow,
and I don't know why this can't wait till I get back.
Well, it turned out that this was not just another country.
It was a very, very serious matter.
Gingrich: I was at a restaurant and they came and said,
"The Secretary of the Treasury is on the line."
I got on the line and he said,
"Greenspan and I have a problem."
( laughs )
"And we believe if we don't move very decisively
"that the Mexican peso will implode.
"If it implodes,
"the Mexican government will become very unstable,
"and we believe you could have a wave
of five to nine million people walking north to find jobs."
He understood it very quickly and I remember his saying,
"This is the first financial crisis of the 21st century."
And I said to him,
"This is the first real-time worldwide financial crisis
of a kind that will become very normal."
And so I said, instinctively, "I'll back you."
Rubin: It was fascinating because we had Mexico-
which we really did think was facing default-
and we had enormous political problems
accomplishing what we felt we needed to accomplish-
to support Mexico, try to prevent this from happening-
and we all knew that while we believed
the program we were recommending was right,
there was some risk it wouldn't work.
Tyson: So you go in and say to the president,
"Here is a big crisis that could happen.
"I mean, we can tell you something to do about it.
"We can't tell you it's going to work.
"It's very risky.
"And we know that it's extremely unpopular,
but we think you should do it anyway."
Clinton: Somewhere between five and ten minutes
I listened to all of this and I said,
"This is a no-brainer- we've got to do this.
"If we don't do this, Mexico will certainly fail.
"Then the borders will be flooded
with illegal immigrants
"who are starving and need food and a job;
"we'll have an enemy on our southern border,
"people that will remember when they were down,
"and they were in need, we were not a good neighbor,
"and we will pay hugely for that.
"All over the developing world, people who look at us
"and think that we are smug and rich and unresponsive
"and don't care about anybody else
"will have all that confirmed.
"If we help, at least people will know
"we tried in a good cause
and it will resonate throughout the developing world."
Narrator: The bailout worked.
Mexico paid back the loan- early.
For some, the intervention set a dangerous precedent-
protecting big investors from risks they had willingly taken.
Man: Remember, the people that got bailed out
were foreign holders
of Mexican government obligations.
In a sense, we were trying to bail out our own citizens,
but it signaled to banks and other rich investors
that, uh, the U.S. Treasury at that time
was going to, um, adopt a bailout policy.
People who take risks should bear those risks.
They got the reward for them;
um, they should take the down side.
Narrator: As the Mexican crisis made clear,
technology had transformed financial markets-
money could literally be moved across borders in seconds.
During the 1990s,
technology, too, leapt over national borders,
spreading commerce and ideas.
Yergin: It's hard to believe at the beginning of the 1990s
e-mail was virtually unknown, most people didn't have it,
and a decade later it was everywhere
and it would just become part of people's lives.
And so this, this communications network
is so powerful the price of telephone calls plummeted.
The number of telephone calls around the world skyrocketed,
and people are in contact and connected
in a way that had never happened before.
Narrator: In a decade, the number of international phone calls
from the U.S. increased from 200 million to 5.2 billion.
This AT&T Control Center
handles 300 million calls each day.
Americans were often connected to the developing world
without even knowing it.
Consumers checking their credit card balance
could be routed seamlessly
to call centers like this one in India,
where operators identify themselves
with made-up American names.
Good evening, this is Tracy.
How may I help you today?
Just give me a moment... right.
Narrator: In a remote Indian village,
farmers took their crop to market,
as they had for generations.
But an Internet connection ensured they were now paid
the world price for their crop-
a price set at the Chicago Mercantile Exchange,
8,000 miles away.
( gong resonating )
( traders all talking at once )
( traders yelling )
This borderless world created a new kind of businessperson.
Entrepreneurs could now think like multinationals
and see the entire world as a single market.
Narayana Murthy understood this revolution
earlier than most.
Murthy: All of us believed in central planning;
all of us believed in socialism,
because we are all children of a different generation.
Then I realized
that if you want to eradicate poverty
you don't do it by redistribution
of existing wealth.
You have to create new wealth.
Narrator: With only $250, Murthy helped found
a computer software company.
His headquarters in Bangalore became
the world's second-largest software campus.
0nly Microsoft's was bigger.
30% of the world's software engineers are from India.
Murthy: You know, I define globalization
as producing where it is most cost-effective,
selling where it is most profitable,
sourcing capital from where it is cheapest,
without worrying about national boundaries.
Narrator: People, as well, were becoming increasingly mobile.
America relaxed its immigration laws,
attracting a huge influx of high-tech workers
from across the developing world.
Silicon Valley is the place,
it's the happening place.
So many people come here.
This is a place of opportunities.
We get a chance to prove ourselves.
We get a chance to prove ourselves, to show our skills.
Narrator: In many ways, Silicon Valley
was the spiritual center of the new global village-
the source not only of its technology,
but of its entrepreneurial ethos.
The Draper family had invested in entrepreneurs
since the 1950s,
when they brought venture capital to Silicon Valley.
In the early '90s, Bill Draper's son Tim funded Hotmail.
Its instant, global success convinced him
that the world was fundamentally changing.
Tim Draper: We knew that the Internet
was going to change the whole way the world worked,
because we knew that you could do commerce,
you could do, uh, communication,
you could do all these things over the Web,
and all these governments-
India and Africa and Pakistan, China-
were all, had all been trapped
and they were not really participating
in the world economy.
They could now.
They could, because now they could communicate
with the rest of the world through this Internet.
It was a big opportunity and we saw it, we jumped on it.
I thought I had checkmated you again.
Tim Draper: I think entrepreneurship can happen anywhere.
All it takes is someone with a vision
and an idea for how to do something better.
Narrator: 0ne of the Drapers' best investments
was in David Lee, the first foreign-born American
to take a high-tech company public.
David Lee: When we came over we have nothing,
$600, 20 kilos of clothes,
and this society provide,
give us opportunity and everything.
Woman: Even "entrepreneur," it sounds very good,
but, uh, being a spouse is very difficult,
because most of the time
he's traveling or he's not home.
I raised my three children by myself
and he doesn't, sometime don't remember
how old they are.
Narrator: David Lee manufactures high-end telephones.
He embodies the new breed of global entrepreneur.
0kay? Bye-bye.
0kay, don't eat too much, okay?
Narrator: In the early '90s, David Lee returned to his homeland
for the first time in over four decades.
Could we change that to...?
David: I always... afraid to go back to a communist country.
From San Francisco.
( speaking Chinese )
0h, no, no, no, no.
David Lee: I was born in Beijing
and actually right in T'ien-an-men Square
and we left there after the revolution, 1949.
We were very lucky that we were able to leave the country.
We were like the boat people and... on top of a cargo ship.
We left everything
and, uh, the only thing is whatever we can carry.
This is a free trade zone
and anything you do in here, you don't have to pay tariff,
or you can build the thing
and then ship it out and... for export purpose.
Narrator: David Lee set up a joint venture
in a free-trade zone near Shanghai.
Lee saw at first hand
a China in the midst of epic economic transformation.
China's communist leadership had embraced markets
and welcomed hundreds of billions of dollars
of foreign investment.
0ne quarter of the world's population
was entering the global market for the first time.
In villages across China
and throughout the developing world,
people left their rural homes.
They traveled to industrial towns,
seeking work in new factories
built to serve the global market.
The era of globalization
saw the largest wave of human migration in history.
80% of the world's future economic growth
is expected to occur in cities rather than the countryside.
( Lin speaking Chinese )
Translator: I was a schoolteacher in the countryside.
At that time I only earned a hundred a month.
My parents are both farmers, so we lived a very poor life,
but now I'm earning 3,000 a month.
My life is totally different.
My child is going to school here, near the factory.
So we are living a much, much better life now.
( speaking Chinese )
Narrator: China's leaders hoped to emulate
the "tiger economies" of Southeast Asia,
where trade and investment had transformed
once-impoverished nations.
Man: When the British came here in 1819
they found a fishing village of about 120 people,
no agriculture, because the ground was infertile.
So when the empires broke up,
everybody wanted to do their own trading,
and, uh, we could easily have just withered on the vine.
So we just had to make ourselves relevant
to the world,
and the countries that make themselves relevant
become better off.
Those who opt out... they suffer.
Narrator: Since the 1970s, the countries of Southeast Asia
had become world-class exporters,
shipping everything from cars to computers across the globe.
Yergin: And they called it the "Asian economic miracle"
because the world
had not really seen that kind of economic growth,
that many people brought out of poverty,
that rapid a creation of a middle class so quickly
anywhere in the history of the world.
Narrator: By the mid-'90s,
many Asian economies were growing at the astonishing rate
of ten percent or more each year.
Lee Hsien Loong: There was a tremendous confidence and hope
that this was the Asian century
and the place was being transformed
and you just had to put money there
and it would grow on trees.
Yergin: I remember the CE0 of one major company
in about 1995 or so
saying, "If we're not invested tomorrow in Asia,
we're too late."
Narrator: Yet there was one big exception:
Japan, the world's second-largest economy,
had fallen into a deep, unexpected slump
that shook the confidence of its people.
( woman speaking Japanese )
Translator: Japan was in the so-called "bubble economy,"
and at that time the Japanese people
were not very careful about debt.
After the collapse of the bubble economy,
people came back to reality
and came down from their dreams.
Narrator: Japan's economy once looked unstoppable,
but it was slow to adapt to the rapid changes
of a fast-moving, interconnected world.
Man: Japan is a very sort of parochial
and very closed economy, there's no question about that.
It's a very closed society.
Walk around the Japanese cities,
you don't see many foreigners.
Narrator: Japan, the great exporter,
protected its domestic industries.
At the heart of the country's economic problems
lay a contradiction.
0ne sector of the Japanese economy,
export-oriented sector,
which is highly competitive,
consisting of Toyotas and Sonys.
And the other is a domestic manufacturing
and domestic service industry
and which is extremely uncompetitive.
You know, we have a market- oriented capitalistic system
on the one hand;
we have a very socialistic, egalitarian sort of sector
on the other hand.
Narrator: In Japan, government bureaucrats
managed a highly regulated economy.
As Masahisa Naitoh was to learn,
ideas about change met with profound skepticism.
( Naitoh speaking Japanese )
Translator: I wanted to deregulate our financial system.
The new global markets of the 1990s created a new reality.
I said we had to change
for Japan to thrive in the new world economy.
My colleagues in the government criticized me.
They said that it was in the best interest of Japan
that my ideas be destroyed.
Narrator: Naitoh was fired without warning,
Japan stuck to its old ways,
and the nation's economic slump continued.
For the first time,
an Asian "economic miracle" was in trouble.
By early 1997,
Southeast Asia's rapid economic boom
was overheating.
Sirivat Voravet was one of many
who thought the good times would never end.
Voravet: Ever since I was a child
I have been wanting to be multimillionaire;
I wanted to be rich.
I wanted to do something that no one has done:
build a luxurious condominium.
I knew a lot of rich people and multimillionaires
who would like to take time off to play golf,
to enjoy the fresh air in mountains,
which you cannot find in Bangkok.
I looked at the golf course;
it was a design by Jack Nicklaus.
I put my effort to make it
one of the most beautiful condominiums in Thailand.
Still today, with the mountains in the background,
with a fairway and a lake in front of the condominium,
it's really beautiful.
Man: People were just buying apartments and condominiums
just like they were gambling.
They were tempted by this easy money,
they were tempted by this easy profit.
Narrator: During the '90s, Thailand had opened up its capital markets.
For the first time,
local businesses could borrow money
from foreign banks,
which offered lower interest rates.
Panyarchun: People would come and knock on your door
and plead with you to borrow money,
be they, you know, European banks or Japanese banks.
They came and begged us to borrow from them.
Narrator: In just four years,
loans to Thai businesses had tripled to over $200 billion.
American and European governments
encouraged the inflow of money.
0h, yeah, we were strong advocates
of opening up capital markets
and the benefits that could flow therefrom.
But we were also strong advocates at the same time-
because we recognized the tie-
of developing the banking systems,
developing the capital markets
and developing regulatory systems,
none of which is easy.
Yergin: And there was an underlying flaw in the system
that people really didn't focus very much on,
which was the institutional weakness.
What that meant is
that the banking systems were not well developed,
the securities laws were not well developed.
They were not... they had not kept up
with the development of these economies
and their integration into the world economy.
Narrator: Thailand's central bank had kept its currency artificially high,
fueling the speculative bubble.
The International Monetary Fund,
which acts as a bank of last resort
to countries in financial trouble,
began to worry that Thailand was heading for a fall.
Man: I went to Bangkok in May 1997.
It was full of cranes- everywhere-
and it looked like the boom would never end.
But there were very weak banks
who were lending against the security of those buildings,
which were never going to be filled.
Narrator: Muang Thong Thani was a sign of the times:
a "new city" built from scratch for 700,000 people.
It was meant to be bigger than Boston.
But almost no one was moving in.
Mobius: The vision was great.
The vision was to take this huge tract of land
and build a city, basically,
between the downtown, congested Bangkok
and the airport.
So the concept was excellent.
The problem was
that it was financed to a great degree by U.S. dollars.
Narrator: Thailand's currency- known as the baht-
was pegged to the dollar.
As the Thai economy weakened,
financial markets sensed this policy couldn't last.
Fischer: Thailand had fixed its...
the value of its currency in terms of dollars;
it had a fixed exchange rate.
And as people began to wonder,
"Well, do they actually have enough dollars
"to always be able to give me dollars
in exchange for the baht, the Thai currency, I have?"
And when they begin to wonder about that,
they start asking for the dollars.
Mobius: The central bank kept on saying,
"No, no, we'll support the currency at this fixed rate."
And of course they were shelling out the U.S. dollars
to protect the currency.
So their foreign reserves were dwindling,
and of course any hedge fund manager looking at that
would say, "Hey, these guys are going to be in trouble
and I'm going to short the Thai baht."
Narrator: The baht came under relentless market pressure.
In July 1997,
the Thai government was forced to devalue.
The bubble had burst.
The Asian financial crisis was about to begin.
0kay, here we are.
Voravet: When it hit, I realized my fate:
I could not sell a single unit when the crisis hit.
And this was my most expensive model unit.
Now no more doors...
all decorations, materials, gone.
Voravet: My condominium is called
"American Dream: Home-Dream Condominium."
But we are broke.
Even my clients who were multibillionaire, broke also.
Narrator: The economic shock reverberated
through all levels of Thai society.
( woman speaking Thai )
Translator: When the economy went bad,
my husband's salary was cut 30%.
I was lucky, I kept my job,
but I didn't get a raise.
To support our family, my husband had to find other work.
Every morning he drives a motorcycle taxi.
The cost of living was rising.
Everything was going up- water, electricity, even soap-
but the salaries were staying the same, or even going down.
Narrator: With its economy in a virtual free fall,
Thailand received an emergency rescue loan
from the International Monetary Fund.
When that didn't work,
the Thai government asked Washington for even more help.
No one imagined that an economy as small as Thailand's
could spark a global crisis.
Tyson: Thailand is a very small economy.
It didn't have a lot of links,
and it's not exactly in your backyard.
In any event, the U.S. chose not to intervene in Thailand,
thinking it was not going to spill over.
Why would it?
The contagion effects were not apparent to anybody,
not just the administration.
Lee Hsien Loong: I think they misjudged the situation.
They misjudged the situation and...
probably because it was seen too much as a financial issue
rather than an overall strategic issue.
Narrator: Global markets worried that other Asian countries
might have similar hidden flaws.
Like a classic "run on the bank,"
money began to pull out of the entire region.
They called it "contagion."
Yergin: And at each stage,
the crisis turned out to have a virulence-
that became known as "contagion"-
much greater than had been anticipated.
And what that really reflected was indeed globalization,
was the way these economies had become locked together
and investors looked at emerging markets.
They said, "There's a problem in Thailand;
well, then there's a problem in these other countries."
And so each step of the crisis
created these shock waves that carried on into the next.
Narrator: Contagion spread to Thailand's neighbors.
Malaysia's economy had seemed stable.
Suddenly, it too was facing
relentless pressure from global markets.
Mahathir bin Mohamad: We have the currency going down and down and down,
and we have the stock market doing the same.
And we felt totally helpless.
We feel that there is no way we can... we can recover.
So, I mean, the feeling
is really very bad, very frightening.
Narrator: Contagion next hit Indonesia,
the most populous country in the region.
Its government collapsed, its cities descended into chaos.
Lee Kuan Yew: The fund managers didn't know the difference
between Indonesia and Malaysia,
Thailand, Singapore.
They just said, "I want out."
Property prices collapsed, companies collapsed.
And in the case of Indonesia, the social fabric collapsed.
( people talking and shouting )
Churches have been burned.
Mosques have been attacked.
They have killed each other.
And it's all the fallout of an economic collapse.
Narrator: This was a new kind of financial crisis,
unlike anything the International Monetary Fund
had ever encountered.
The I.M.F. organized huge loans
for Indonesia and other Asian nations
on the condition they cut government spending,
raise interest rates and eliminate corruption.
Fischer: You're the doctor going in to deal with a very sick patient.
The public blames the doctor
for the fact that the patient is sick,
but the patient was sick to begin with.
But these things are societally wrenching
and there are huge vested interests,
and you wouldn't get into these crises
if the vested interests weren't that important.
That I think is one of the reasons
why it takes political change
to deal with a crisis as big as this.
Narrator: To some of the region's entrenched leaders,
the I.M.F.'s conditions smacked of a new kind of colonialism.
Presently we see a well-planned effort
to undermine the economies of all the ASEAN countries
by destabilizing their currencies.
Mahathir bin Mohamad: In the old days you need to conquer a country
with military force and then you can control that country.
Today, it is not necessary at all.
You can destabilize a country, make it poor
and then make it request for help.
And for the help that is given,
you gain control over the policies of a country,
and when you gain control over the policies of a country,
effectively you have colonized that country.
Narrator: The market forces were simply too powerful
for the I.M.F., or any government, to contain.
In late 1997, contagion reached Korea,
one of the most successful economies in the world.
Sakakibara: It was unbelievable
that the crisis had spread as quickly as...
to Indonesia and Korea-
within a matter of six months or seven months,
but the world was much more globalized
than we thought it was at that time.
In the last week of December of 1997,
the 11th largest country... economy, rather, in the world,
which was Korea, had, roughly speaking,
$4 billion of reserves left, and was using reserves
at the rate of $1 billion a day.
Well, it didn't take a great deal of quantitative insight
to see that that was not a long-term viable situation.
( man speaking Korean )
( answering in Korean )
Narrator: Korea had been misleading the world,
claiming it had enough money to withstand the crisis.
( crowd chanting )
The I.M.F.'s Stanley Fischer arrived in Seoul
to inspect the Central Bank's accounts.
Fischer: I visited Korea a couple of days
before they turned to the I.M.F. for help,
and it was a state of panic.
And it was at that point that I went to the Central Bank
and was shown how much money was left
in the Korean Central Bank.
It was essentially all gone.
Narrator: Korea was about to default on its loans
from Japanese and Western banks.
Pressured by their governments,
the banks agreed to share some of the pain.
They rolled over their loans.
Korea was then given the largest bailout in history.
Lee Hsien Loong: If they had done that in Thailand,
I think that they would have not only avoided
some economic problems,
but I think that the sense in Southeast Asia
that the Americans were really on the side
of putting things right would have been stronger.
Man: Then a very, very strange thing happened.
From about the first of February, 1998, until August,
there was a period in which financial markets
essentially decided that risk didn't exist anywhere.
Narrator: Markets thought contagion had been contained in Asia.
Investment flowed elsewhere.
Some came to Russia, where the Moscow stock market
was the best-performing in the world.
But economic reforms had stalled,
and Russia was heavily in debt.
Even so, investors were convinced
they'd found an emerging market that couldn't fail.
McDonough: Investors had decided
Russia is an ex-superpower,
it has lots of missiles and lots of atomic warheads for them.
Certainly you could not have a financial accident in Russia
because the rest of the world...
the rich countries would bail Russia out.
Well, it turned out that that was wrong.
Narrator: Russia defaulted on its debt.
Its currency plummeted.
Global investors were stunned.
McDonough: All these people who, in the previous seven months,
had decided there was no risk anywhere,
literally panicked
and decided there's got to be massive risk everywhere.
Behind each fence and barnyard wall
there must be a risk that we hadn't thought of,
kind of like the Redcoats retreating from Lexington.
Narrator: Everywhere, markets were freezing up.
The economic crisis seemed to have taken on a life of its own.
Rubin: I thought at the time
that I had a pretty good sense of what was going on.
But what I didn't know,
and nobody could possibly have known,
was not what was going on
at the moment that you were looking at,
but what was going to happen at the next moment.
Man: When you get in a room
with both Alan Greenspan and Robert Rubin,
and they say they're scared to death,
and they've never seen anything like this, and they're worried
about whether or not we can get through it,
I get worried because they know a heck of a lot more about it
than I do.
You had the contagion
sweeping across all the developing countries.
As Rubin said, we'd never seen that before.
I mean, maybe in the Depression
they saw that over a period of time,
but nothing that happened that quickly.
Narrator: Now the crisis had reached America.
A little-known but powerful private investment fund
was on the brink of bankruptcy.
Long-Term Capital Management, or L.T.C.M.,
directly controlled $100 billion of global assets
and indirectly more than a trillion dollars.
Man: The '90s saw a huge buildup in concentrations
that we had never seen on... on a global scale.
Maybe we had way back in history.
Maybe the Romans had financial institutions
that were disproportionately large
to the overall activity of the world that they operated in.
But L.T.C.M. was a specific... type of hedge fund.
They were involved whether it was the Singapore Exchange,
the Tokyo Stock Exchange, the London Stock Exchange,
the New York.
What... you know, there was no market
that they weren't maybe the largest player
or close to the largest player.
Narrator: By September 1998,
L.T.C.M.'s losses were spiraling out of control.
Contagion had arrived on Wall Street.
Incredibly, the failure of this single investment fund
threatened the entire global economy.
Yergin: If L.T.C.M. went down,
it would be just the gears, the machine just stopping,
the economy not working and, of course,
it's not just what's on the balance sheet
of banks and so forth,
but that would translate into people not working,
businesses not operating,
small businesses not being able to get the capital they need.
And this... a global economy that...
almost inconceivable to see what the picture,
but sort of just not working.
And people just not working.
Narrator: The New York Federal Reserve
summoned representatives of major U.S. and European banks
to an urgent meeting.
Jon Corzine, then at Goldman Sachs, was among them.
Corzine: The real problem of Long-Term Capital
was nobody really understood all the downsides.
All one knew was it was going to be extraordinarily dangerous
to enter into that.
And everybody, I think, understood the Fed's concern
that that had real implications to the real economy.
Narrator: Since L.T.C.M. was a private fund,
the government could not impose a solution.
The fate of the global economy
was in the hands of these bankers.
McDonough: The head of a securities firm or a bank
is not paid to be a patriot.
He or she is paid to serve
the best interests of the shareholders.
So the most that one can do in a position like mine is to say,
"The public interest may well be served
"by Long-Term Capital Management not failing.
"But there is no public-sector money to solve the problem.
"The taxpayer is not going to do this.
"You folks have to decide
whether it's in your interest to do it."
Narrator: The banks agreed to put up their own money to rescue L.T.C.M.
Wall Street had averted disaster,
but the global crisis had one final chapter to go.
What had started in Asia now reached Brazil,
the eighth-largest economy in the world.
But this time, a loan package was put in place early.
Brazil's government cut spending and enacted reforms.
It worked.
Brazil's problems were contained.
Global financial markets gradually returned to normal.
( crowd applauding and cheering )
Rubin: It's not clear when you would say it ended,
but what happened was that the countries
that actually took ownership of reform-
Korea, Thailand, Brazil-
began to reestablish stability in their financial markets,
and their economies started to recover.
And after a while there came a point
we began to feel, "Maybe we're past the crisis."
Then a little bit past that we said,
"You know, it does look like we are past the crisis."
And finally we got to the point where we said,
"Well, we think this is over."
Narrator: The world economy had survived the first crisis
of the globalization era.
But millions of ordinary people had paid the price.
Panyarchun: And that's the unfortunate part of so-called globalization,
because such negative effects can come very fast.
It takes decades for a country to grow up...
and all of a sudden it disappears.
( birds singing )
Voravet: We've been a poor country, so we never tasted richness.
When we tasted the richness, we wanted more, being greedy.
I blame myself also- never had enough.
Man: Quite a view.
Yeah, it's quite a view.
And I really feel bad,
because no one can enjoy it now.
It's all left to the bank.
And here I see a nice fairway and nice lake.
It's so sad.
( hawking sandwiches )
Voravet: I had a big dream; I couldn't achieve it.
That's why I am today standing selling things for two hours
and you don't sell anything, or you sell very seldom sales.
But after four years of struggling,
at least I know I have a chance.
Today my big dream is to be McDonald's of Thailand,
because selling sandwiches on the streets-
now I develop a new Japanese sushi- I use Thai brown rice.
I am the first in Thailand.
So hopefully in the near future,
I will raise my funds in the local stock market.
So in the near future I will be McDonald's of Thailand.
Narrator: The global economy rested on institutions
that dated back to the end of the Second World War.
The contagion crisis proved that the new era of globalization
needed new rules.
McDonough: We have to improve the rules of the game.
You want the financial system
essentially to be like the shock absorber in a car-
when you hit a pothole the car still bounces.
But have you ever been in one
that didn't have a shock absorber?
If you have a good, strong shock absorber,
at least you get through the pothole
and you're still driving in the same direction
that you thought you were when you hit it.
Lee Hsien Loong: The moral is that there are risks to globalization,
but in the end there is no alternative to globalization.
So don't let your banks go lend recklessly,
don't allow bubbles to get out of hand.
Keep prudent measures, sound economic policies,
which will inspire confidence and maintain confidence
so in a crisis people will know that you will stay the course
and won't panic and be up and off.
It's easier said than done,
but these are the principles you have to follow.
Man: We had a close call,
and without an activist international policy
you could have seen
perhaps as serious an economic downturn
as we'd seen any time since the Great Depression.
And that's why we need to continue
to understand the dynamics of financial crisis better,
and that's why especially the United States
needs to be prepared to take a lead
in working to contain financial crises.
Narrator: For many Americans, the world financial crisis
created new unease about the risks of the global economy.
Woman: People sense the instability of it.
They get indicators like big meltdowns,
like the financial crisis in Asia.
But they also get indicators of things like, you know,
the local bank which just keeps getting merged and renamed,
and like your card does work and it doesn't work,
and the name keeps changing every three weeks.
And you combine that with the real financial cataclysms
like the Asian meltdown,
and a lot of people in their everyday life
are seeing this sort of out-of-control scenario,
very personally.
You know, it's out of their personal control.
Narrator: For critics like Lori Wallach, this was an opportunity.
Together with allies in labor unions,
they began to channel public anxiety
into what became known
as the "anti-globalization movement."
The World Trade 0rganization, known as the "W.T.0.,"
manages the rules that govern global trade.
In late 1999, delegates from 135 nations gathered in Seattle.
They planned to launch a new round of negotiations
that would expand trade even further.
Instead, Seattle was a watershed.
Yergin: As one could see from the way Seattle exploded,
it really caught the people
at the World Trade 0rganization meeting there
quite by surprise.
The largest environmental organization in the world...
Man: They can take us away,
but they cannot silence us!
Yergin: And it became a lightning rod
for all of those people across this very broad spectrum
who are concerned by some aspect of globalization,
or what they perceive as globalization,
or by the causes that animate and move them.
And yet the W.T.0., which is led by CE0s
of the company that make bovine growth hormone,
get to make rules
saying that these countries can't ban an unsafe product.
Narrator: While the protesters represented
an array of interest groups,
the majority were from American labor unions,
which had bussed in thousands of their members.
Thea Lee: People came together from all over the world in Seattle
to say that the rules of the current global economy,
as embodied in the World Trade 0rganization,
are unfair, they're bad for developing countries,
they're bad for workers and they're bad for the environment.
Narrator: In the 1990s,
the expanding U.S. economy created 17 million new jobs,
but unions' share of the work force
had fallen dramatically.
The A.F.L.-C.I.0. blamed cheap labor overseas.
As an example, they pointed to this factory in China,
where workers are paid five dollars a day
to make bicycles once built in America.
Thea Lee: 0ur workers are in direct competition
with workers overseas.
We can't control whether every, single job
stays in the United States or not,
but it's another thing to lose jobs
to workers who are being denied their fundamental human rights,
who are not represented by independent trade unions.
And so that changes the nature of competition
that American workers face.
Narrator: Countries that opened their markets
saw their overall wealth and living standards increase.
Yet the politics of trade
were less straightforward than the economics.
It's always difficult to sell open markets.
There's a basic problem with the costs of open markets,
whether it's somebody loosing a job, particularly,
or, very obvious, the benefits are much less clear.
Whoever said on Christmas day,
"Gosh, thanks.
"Without open markets I would have only been able
to buy half as many toys for my kid."
0n the other hand, every job loss
that can remotely be connected to international trade,
people do.
So this problem of invisible beneficiaries
and very visible losers
is one that bedevils the political economy of trade.
( drums beating, people cheering )
Thea Lee: The truth is
that the business community has very good access
to the international institutions
and to their own governments.
And we hit the streets
because we feel that we have a hard time
getting our governments to listen
to the concerns that we've raised,
and we think we can do better.
We think we could write a set of rules for the global economy
that would ensure that corporations
had to live up to a minimum standard.
( crowd chanting )
Narrator: But inside the Seattle meeting,
the unions' demands met stiff resistance
from the developing world.
They wanted more trade, not less.
Poorer countries charged that America and Europe
unfairly protect industries
with powerful union and business support.
Ramesh: Let's take textile trade.
Now, all textile imports into America, for example,
are governed by quotas.
Every country is allocated a certain quota.
It's not free trade; it's managed trade.
America is free to sell textiles to us,
but we are not free to sell textiles to America.
Narrator: Developing countries forged a negotiating bloc
to make Western markets more open.
This should not be a time
when big countries, strong countries,
the world's wealthiest countries
are setting about a process designed to enrich themselves.
Narrator: Bill Clinton had been a leading proponent of expanded trade.
But the protests forced him into a political corner:
a presidential election was about to begin
and Democrats needed union support.
In a speech to W.T.0. delegates,
Clinton appeared to side with the protesters on the streets.
Clinton: I condemn the small number who were violent
and who tried to prevent you from meeting
but I'm glad the others showed up.
Because they represent millions of people
who are now asking questions about whether this enterprise
in fact will take us all where we want to go.
I think his speech at Seattle was an absolute disgrace
and an act of strategic defeat for him.
I think they were gearing up for the election,
and appeasing the unions to elect Gore
was more important than standing for free trade.
Narrator: Clinton instructed American W.T.0. negotiators
to keep protections for key U.S. industries.
The summit ended in failure.
Leaders across the developing world
vowed to block the next round of trade negotiations
unless their demands were taken seriously.
Mahathir bin Mohamad: We believe in trade, but we didn't believe
in just being a market for other people.
So when you talk about opening markets,
you're talking about the rich people
who can manufacture goods with added value
and selling it in our markets, not the other way around.
( festive music playing )
Narrator: Countries like Tanzania, that rely on foreign aid,
claim they wouldn't need the aid
if they could only sell their products to the West.
Mkapa: We talk about "a level playing field"
but in fact it is very much tilted in their favor.
We would earn so much more
than we are possibly getting by bilateral aid
if those markets were just open to us- literally by billions.
Narrator: Global poverty soon became the galvanizing issue
among globalization's opponents.
In the wake of Seattle,
control of the protest movement began to shift from unions
to a disparate network of grassroots activists.
( shouting in protest )
Man: We're trying to move from the politics of protest
to the politics of liberation.
It's not simply trying to create
a kinder, gentler kind of capitalism, you know?
Its not simply about trying to have social clauses that...
or negotiate the terms of our misery, you know...
try to make our misery a little bit less miserable.
It's about changing the world.
It's about creating structures and institutions and frameworks
and communities and neighborhoods
that are based on our values,
which are values of social justice,
of mutual aid, of solidarity, of direct democracy.
And we're a long way from where we want to go
but we have to start now.
( siren wailing )
Narrator: 0ne of the protesters' next targets was the World Bank,
an institution whose sole purpose
is to reduce poverty in developing countries.
Wolfensohn: When you see someone outside a barricade
attacking you vehemently
because of something called "globalization,"
you have to wonder what it is they're getting at.
Man: Excuse me, sir.
Wolfensohn: It enrages me when you have people
who assume that they have the moral high ground
against a team of people here
who are devoting their lives to addressing the very questions
that these people claim to be addressing.
( sirens wailing )
Narrator: But the protests had become impossible to ignore.
Inside the World Bank and other institutions,
officials struggled to make sense of the growing debate.
Woman: The protest movement is multifaceted
and the anger is multifaceted,
but there clearly is a sense of losing control
and a sense of alienation.
The old structures and the old institutions
and the old lines aren't working anymore.
And I think we're at a stage
where there is this extraordinary chaos
in international organizations,
in international rules of the game,
that we're trying to define.
And we're not there yet,
and I think like any chaotic situation
when you're in the middle of it you don't see the way out.
But I think what we're observing-
the series of protests, the series of engagements-
is part of the process of coming towards some new structure
for managing a global economy.
Narrator: Globalization did not cause global poverty
but it did make us more aware of it.
And by creating a single global market
it raised the question
of how that market benefits the world's poorest nations.
Yergin: We are seeing around the world
a movement towards greater reliance on markets,
greater confidence in markets.
But for that confidence to last
it has to be seen that these markets are fair,
that they are delivering the benefits widely,
that people are benefiting from them.
And if they don't have that kind of legitimacy
then the confidence is not going to remain
and the markets will be vulnerable to disruption
and be replaced by other kinds of controls.
So every day the market has to earn and prove its legitimacy,
and that's a big test,
particularly in the developing world,
where the number one issue is the issue of poverty
and that, more than anything else,
is what these markets will be judged by.
Jeffrey Sachs: The world is more unequal than at any time in world history.
There's a basic reason for that,
which is that 200 years ago, everybody was poor.
A relatively small part of the world achieved
what economists call modern economic growth.
But those countries represent
only about one-sixth of humanity,
and five-sixths of humanity
is what we call the developing world.
It's the vast majority of the world.
The gap can be a hundred to one, in some cases-
maybe a gap of $30,000 per person and $300 per person.
That's absolutely astounding, to be on the same planet
and to have that extreme variation
in material well-being.
Man: The problem that's happened over these last years
is that somehow or other, people who are capitalists
in countries like the United States
consider the real interlocutors
are rich people from developing countries.
So they've been touching the wrong constituency.
The constituency of capitalism
has always been poor people that are outside the system.
Capitalism is essentially a tool for poor people to prosper.
Narrator: Hernando de Soto is one of the most original economists
in the developing world.
An adviser to Mexico, Peru, Egypt and other countries,
he seeks to cut through the old debate about wealth and poverty
and reinvent capitalism in the name of the poor.
Hernando de Soto has been called
the most important economist in the Third World.
He's a champion of market economics
and property rights in Latin America.
In his new book, The Mystery of Capital,
he talks about the question
of why capitalism triumphs in the West
and fails everywhere else.
Welcome.
De Soto: The important thing about a capitalist system
is that it's a system of representations.
When I go to the United States, people ask me for my identity
and I say, "My identity is me.
"I mean, look at my face.
I am Hernando de Soto."
But the man at U.S. Immigrations just says,
"Look, give me your passport."
The reason that things travel so well
in the market economy of the United States
and values travel from one place to another
is because they all have passports.
And the real value is like my identity.
It's not in me; it's in my passport.
Real value to pay the hotel room is not in me;
it's in the credit card.
Gracias.
And so what happens
is that this system by representation,
it requires, of course, that all these representations-
the credit cards, the passports,
the IDs, the property titles and the shares-
be organized by a system of law
that allows people to be able to trust what they're dealing with.
Narrator: In September 2000, de Soto published his explanation
of why capitalism hasn't worked for the poor.
He took his message directly
to some of Latin America's most remote regions.
De Soto: The reason I'm going to Cajamarca now
is because 12 years after the fall of the Berlin Wall
and 11 years after Peru adopted pro-market policies,
their situation hasn't gotten that much better
and they want to know why.
The Mystery of Capital offers an explanation.
It says that the system, per se, works in the West,
but that in our country, like in much of the Third World,
it isn't functioning,
because we have missed some of the crucial elements
that the Westerners had in the 18th and 19th century,
like property rights,
without which the system cannot function.
Narrator: De Soto's book had become the number one bestseller
in Peru's history.
El sistema legal no solamente es ?til para vincularnos,
pero en Per?, ya no podemos...
Narrator: And in poor neighborhoods across the country,
this economist had become a celebrity.
( applause )
De Soto believes that people are capitalists by nature,
but that in the developing world,
most are locked out of the capitalist system.
De Soto: Peru, like in every other developing
and former communist nations...
people on the ground, with or without a property law,
have basically agreed on the distribution of assets
among themselves.
You go to any of the places we've been to-
the hinterland of Egypt, of the Philippines... of Haiti,
where there is no official law
that is actually in place or being enforced,
but there is another law in place.
You step on somebody's territory
and somebody comes up and says, "Get off my territory,"
whether there's a law or no law.
You walk down the street, and you walk into a garden
and some... the dog starts barking,
and you start finding out that that dog is defending
a consensually agreed determination
of possession rights throughout a certain area.
So there are property systems in place.
The question... I think the important thing is
that they're illegal, they're extra-legal,
to be more precise.
Narrator: In the West, property rights are taken so for granted,
they rarely cross our minds.
But in many countries, these crucial "tools of capitalism"
simply aren't available.
In the foothills of Mt. Kilimanjaro,
Phillip Tesha's family has grown coffee for generations.
He sells directly into the global market,
yet like many in the developing world,
he can't prove that what he owns is actually his.
Interviewer: Who owns the land around here?
The land is our property.
We bought it for... from the, from a farmer
who was willing to sell to us.
So we bought this land,
although we don't hold any title
for... for the ownership,
but it's our property.
Interviewer: So how can you prove
that it's your property?
Because I'm here.
I was the person who bought it
and the person who sold it to me is also around here.
De Soto: So what we've been discovering
is that there's a real huge paper wall
that stops the poor from actually being able
to develop private, legal enterprise.
( speaking local language )
Narrator: Without property rights,
ordinary people in developing countries
can't get a loan, a mortgage or credit.
They are excluded from the capitalist system,
and the global market simply passes them by.
De Soto: So this is a time of crisis
for the cause of capitalism worldwide,
because for the moment,
it has only meant giving the elite of developing countries
additional opportunities,
and not being able to get down deep,
deep into where the real majority interests
of people in any developing country are,
which is among the poor.
Sachs: It is an incredible moral problem:
how to live together with this vast gap in... in wealth.
It's also an incredible intellectual problem.
It's what development economists such as myself
spend all our time thinking about.
Why is the gap so large?
What can be done
to help the poorer countries narrow the gap?
It's a very tough question.
Narrator: Places like Merelani, in northern Tanzania,
are the bottom end of the global economy.
Miners hunt for gemstones- tanzanite-
that will eventually sell for over $1,000 per stone.
Some mines are too narrow for grown men to navigate.
Those mines are left to children as young as ten,
known as "snake kids."
For each stone, they receive less than one dollar.
De Soto: 0liver Twist has come to town.
And he's poor, and he's got a TV set,
and he's able to see how you live,
as compared to how he lives.
He's going to get very angry.
So either you show him a capitalist route to do it
and integrate him, or he's going to find another ideology.
And the fact that today
there is no more Kremlin that is organizing revolt
doesn't mean that they're not going to find another capital,
because when these things happen-
when people are unhappy and rebel against a system-
they'll find another locus of power very, very quickly.
Clinton: I'm not one of these people that believes
that economics solves all problems,
but if people know they're taking care of their children,
and if they have a personal interest
in maintaining the peace,
it's just easier for them to manage life's difficulties.
You know, it's no accident
that the Nazi Party arose in Germany.
Everybody who was alive at the time
remembers people in the Weimar Republic,
after the harsh peace of Versailles after World War I,
carrying wheelbarrows full of worthless marks to the bakery
to buy a loaf of bread.
So I... I don't want to oversell this.
It is not sufficient to build a peaceful, free world,
but it is absolutely necessary.
Man: What is?
Trade.
Narrator: In his final foreign policy address
before leaving office,
Bill Clinton sought to define the challenges of globalization.
He had come to the presidency
saying that free trade would benefit America.
He left arguing it was crucial
to maintaining the peace in an interconnected world.
First, let me say I think it's quite important
that we unapologetically reaffirm a conviction
that open markets and rule-based trades
are necessary, proven engines of economic growth.
Now, I know that many people don't believe that,
and I know that inequality, as I said, in the last few years
has increased in many nations,
but the answer is not to abandon the path of expanded trade,
but instead, to do whatever is necessary
to build a new consensus on trade.
That's easy for me to say.
You can see how successful I was in Seattle at doing that.
No generation has ever had the opportunity
that all of us now have
to build a global economy that leaves no one behind.
For eight years, I have done what I could
to lead my country down that path.
I think for the rest of our lives
we had all better stay on it.
Thank you very much.
( applause )
Narrator: Washington's free-trade agenda passed seamlessly
from the Clinton to the Bush Administration.
George W. Bush: Conquering poverty creates new customers.
What some call globalization is in fact the triumph
of human liberty stretching across national borders,
and it holds the promise
of delivering billions of the world's citizens
from disease and hunger and want.
Cheney: At this stage I don't find, in my travels around the country
or even around the world,
that there is widespread opposition
to the basic fundamental trends that have been there
for the last 40 or 50 years.
Millions of people today are better off
than they would have been
without those trends and developments,
without globalization,
without the developments
of the increased international commerce
and that's all to the good.
And very few people have been harmed by it.
Narrator: 0n his first foreign trip, President Bush came to Mexico.
His friend Vicente Fox wanted to use the global market
to relieve his nation's endemic poverty.
Fox: Mexico has been
one of the losers of the 20th century.
We've tried many different alternatives
to development, and unfortunately
we have 40% of the population poor;
we have a per capita income that is extremely low.
It is the same per capita income we had 25 years ago,
so we must change things.
Narrator: Presidents Bush and Fox hope to expand
the North American Free Trade Agreement
to the entire Western Hemisphere.
Fox: Now we want to go further.
I'm talking about a NAFTA-plus-
a NAFTA that takes us to a further integration.
I've been talking this with President Bush,
and fortunately he's seeing it the same way.
Man: Qu? pas¨®?
Narrator: But as his foreign minister,
Fox chose a leading voice of the left-
a onetime friend of Fidel Castro
and critic of global capitalism.
Castaneda: The left's main issue since the middle of the 19th century
has been the inequality that accompanies capitalism.
There is probably more inequality
pressing against society today than before,
within rich countries, within poor countries
and between rich countries and poor countries.
So on this score, for example,
the left has more of a cause, more of a raison d'¨ºtre
than perhaps any time recently.
Narrator: Presidents Fox and Bush were set to meet again
in Quebec City, at a summit
for 34 democratically elected presidents
from North and South America.
The National Assembly is over there, so, um,
the mentality was we have to surround our National Assembly
with symbols of modernity.
Narrator: Anti-globalization activists made the summit
their next target.
Whatever people say, there will be
some sort of property destruction
or some sort of violence.
And we need to look at the effectiveness
of things that we are doing.
Man: The way that the division
has played out
is very abstract: violence and nonviolence.
And for me that's not the way
the debate should be played out.
0ur goal is to disrupt the summit as best we can
with the largest possible mobilization
on the 20th and the 21st.
( people shouting )
Narrator: The summit's agenda was to be trade, poverty
and the new rules of the game.
( pounding and drumming )
Narrator: 0rganizers sealed off the city center.
( people whistling and cheering )
Narrator: As President Bush and other leaders arrived,
the demonstrators tried to break through.
( gunshots )
( drumming in distance )
Narrator: Inside the barricades, Mexico's foreign minister was now a part
of the system he'd once criticized.
Castaneda: They never mention the Americans.
They said, "We need leeway with...
to show that we can get results."
Castaneda: This is my first big summit as foreign minister, and it's fun.
Get to see a lot of people
who are very representative of their societies
and the power elites in their countries,
and also friends.
Everybody's here.
Interviewer: If you were 25 today, where would you be?
In the streets.
( gunshots )
I would think that's certainly a hell of a lot more fun.
( distant drumming, whistles blowing )
Narrator: Like Jorge Castaneda,
most of the delegates were from developing countries
that had embraced globalization.
Castaneda wanted more trade.
He also hoped to narrow the gap
between the rich and the poor of the developing world.
Castaneda: An issue that's been coming up constantly in the speeches-
that the small countries,
the poorer sectors of each society, need a special deal;
that they cannot just be left out
because if they are, they'll never be brought in.
There is, I would say, a growing consensus on that
but there isn't necessarily a consensus on what to do.
I'm here to learn and to listen from voices,
to those inside this hall and to those outside this hall
who want to join us in constructive dialogue.
Narrator: By now, the street demonstrations had become
a routine feature of major international meetings.
( gunshot )
( men yelling )
Hold on just a second.
Narrator: Protest organizers were increasingly sophisticated,
using the Internet
and other tools of globalization
to try to bring the system down.
...to put out a general call
for protesters to come down to C?te d'Abraham.
It seems like there's a scuffle with the police.
We need some reinforcements.
We need some super protest power.
King: So we travel around the country
and we set up these Web streams.
Wherever there's a minor or a major demonstration,
wherever people want this to be set up, we'll help them.
And so if we can provide alternatives,
if we can provide criticisms that come from the streets
and represent a diversity of people,
then I think there's... there's a possibility of success.
And that success would be, you know,
burning the Free Trade Area of the Americas;
that success would be disbanding the W.T.0.;
that success would be removing the power
from the top one percent of the world's population.
( people cheering and whistling )
Castaneda: The protesters, by staking out an extremist position,
make a more regulatory position more centrist, and that's fine.
Perhaps that's not what they want, but that's too bad.
You don't always get what you want
and you don't always know who you're working for.
But I do think that the protesters are natural allies
of people who believe that there are things that should be done
to manage world trade in a certain way.
Narrator: The lasting impact of the protest movement was subtle,
but real.
Since Seattle, the terms of the global debate had shifted.
Shafik: When the first protests started,
I remember feeling very frustrated
because they had no alternative program.
And the more I thought about it the more I realized,
and if one looks historically,
the role of protest movements isn't to provide solutions.
It's their job to be critical.
And then it's the job of the "insiders"-
the people in the system-
in their response to those protests
to come up with new solutions.
And I think that's where we're at now.
So I do think it's healthy
that we have them, you know, banging at the gates.
Clinton: I would say this: they care about legitimate problems,
but they have the wrong diagnosis.
Their diagnosis is that the global economy has produced
all the misery that they're protesting against.
0n the other hand, you cannot have a global economy
without a global social response,
without a global environmental response,
without a global security response.
It's just... it's unrealistic to think you can.
And that's basically the next big challenge...
is making this interdependent world of ours on balance
far more positive and negative.
And the extent to which we succeed in doing that
will determine whether the 21st century
is either marred in its first 50 years
by terrorism of all kinds across national borders,
and more racial and religious and ethnic strife
and tribal strife in Africa,
or whether it becomes the most peaceful and prosperous
and interesting time the world's ever known.
Narrator: In the first decade of the 20th century,
the global economy was in many ways as integrated
as ours today.
That era of globalization ended in Sarajevo in 1914,
when a bullet fired by a terrorist
triggered the First World War.
In the aftermath of September 11,
it seemed possible that history could repeat itself.
Yergin: Up until September 11,
there was a sense that with the crises and the risks
that nevertheless this movement towards globalization
really was irreversible.
And since then there's a recognition
that things can go in another direction.
Markets do best and work best
and deliver what they can do during times of peace.
And if you're not in a time of peace,
but you're in some other kind of time,
then things won't work as well
and priorities will be elsewhere as well.
Narrator: The U.S. economy was already in recession.
As the war against terrorism progressed,
the Bush Administration sought to rebuild economic confidence.
Bush: 0ut of the sorrow of September 11, I see opportunity,
a chance for nations to strengthen and rethink
and reinvigorate their relationships.
When nations open their markets to the world
they find in America a trading partner,
an investor and a friend.
Narrator: In November 2001, the World Trade 0rganization gathered
as planned in the Middle East.
The remote city of Doha had been chosen
to keep protesters away,
but September 11 had dampened
the anti-globalization movement.
Delegates reached the compromise
that had eluded them in Seattle.
A new round of trade negotiations was launched,
and the concerns of the developing world
will be at the top of the agenda.
Rubin: I think that the new technologies,
the breaking down of trade and capital market barriers,
the spread of market-based economics,
that all of this has contributed greatly
to global economic well-being
and will contribute enormously for a long, long time to come.
I think the potential is tremendous.
But the people in those countries
who feel that they are left out
and the system isn't working for them
have merit on their side of the case.
And I think it's not only an issue of being helpful to them,
I think it's enormously in our interest
that they become part of the system.
I don't think there is any one overnight solution.
I don't know anybody who's smart enough to sit down
and write a brand-new set of rules
that we should all then adhere to.
I think it is a process of negotiation
among sovereign and independent nations.
And that's probably as it should be.
And it will evolve over time
and I do think we learn from our mistakes.
But I... the idea that...
that there's some sort of basic right way to do it out there
and there's one individual or group
who've got all the answers-
I'd be deeply suspicious of that notion.
Narrator: Months later,
the American economy seemed on the road to recovery.
While threats remained,
the global system seemed more robust than many had feared.
The era of globalization looks set to continue,
as does the debate over the new rules of the global game.
Yergin: The belief that trade increases the odds for peace
and also leads to higher standards of living
is something that has been part
of the American political tradition.
And looking back on the Depression,
looking back on the First or Second World War,
it became very deep-seated.
And it's not a question of specific trade agreements,
but it's really a broad consensus
about the importance of trade to the American economy,
to what it does for economic development around the world
and also as one of the foundations
for a more peaceful world.
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