One other adverse consequence merits mention. The appeal of free markets is much diminished. The ability of U.S. officials to preach persuasively on the virtues of market reform is all but gone. The backlash against markets will almost certainly go too far, with adverse results for economic recovery and democracy around the world.
We are already seeing increased anti-Americanism, the result of perceptions that the global economic slowdown had its roots in the U.S. mortgage market. Globalization itself is further tarnished. What we can expect is heightened state intervention, protectionism and mercantilism as governments look to enter into arrangements that guarantee preferential outcomes.
Susan Aaronson wrote a similar argument in Policy Innovations last week in her popular article "Financial Crisis Hurts U.S. Soft Power." Like Haass, she predicts traditional policy tools will be weakened and, like Hasss again, U.S. market ideology will take a hit:
First, America's global standing is, to a great extent, reflective of how it projects its power, relates to other countries, and keeps its commitments to them. If the global financial meltdown makes life worse for the world's poor, many people may link the U.S. model of democratic capitalism with global misery. They may be less receptive to economic and political strategies presented by U.S. diplomats and NGOs. Meanwhile, the financial crisis will make American taxpayers less able to provide generous levels of foreign aid to help the world's poor.
Second, although many countries will be desperate for investment, U.S. investors could come under considerable pressure to create jobs at home. U.S. tax policy is likely to favor domestic job creation and investment in the U.S. market. Meanwhile, U.S. investors may be less welcome abroad than, for example, Chinese or Indian investors—Americans and Europeans are more likely to demand transparency, accountability, and human rights.
Will people associate U.S. power with "global misery" or with the opportunity and pluralism that Obama's victory represents? Perhaps both. I am speaking at a conference with the European Parliament in Brussels this week called "Ethics in Business - Corporate Culture and Spirituality." In February, I am speaking about a very similar topic in Tokyo. There is clearly a demand for reflection on the future of market capitalism.