Controlling economic competition in the Pacific Rim.

• Author: Kegley, Charles W., Jr.

The Big Three economic powers in Asia -- China, Japan, and the U.S. -- must learn to cooperate economically, politically, and militarily if prosperity is to succeed in this burgeoning marketplace.

As astonished tenders and investors surveyed the wreckage from the chain-reaction near-collapse of Asia's currencies and markets, their former smug self-confidence began to fade. The spread of Asia's economic flu throughout the globalized marketplace has provoked widespread anxiety about the prospects for a 21st century of peace bolstered by prosperity through free trade in a borderless, integrated international economy. The financial typhoon amidst contagious currency devaluations, budget deficits, and bankruptcies has exposed the logical flaws underlying the megalomania during the 1990s' string of boom years. Now, in the face of crisis, the basic fault lines and vulnerabilities in the unmanaged trade and monetary system have been exposed. Policymakers worldwide have ample reasons to fear the future. The economic foundations of peace in the Pacific Rim are precarious and, without Asian regional stability, there exists little chance for the interdependent international political economy to remain stable.

The challenge of building a more stable institutional architecture for order must be faced if the future is to be prosperous and peaceful. The obstacles to cooperation must be confronted collectively to overcome nations' natural temptation to bolster exports at one another's expense. To avert the disaster of another competitive round of "beggar thy neighbor" policies that was the tinderbox for the 1930s Great Depression which ignited World War II, the leading powers must overcome their divisions and work together or their national economies will implode. In a globalized economy where states only can help themselves if they help their rivals as well, all have a clear stake in the collective management of collective problems. Still, history does not inspire much confidence that parochial impulses can be resisted. How, then, should the pitfalls and prospects for a prosperous and peaceful future be envisioned?

Any understanding of the prospects for the Pacific Rim, and the globe in general, must begin with a sense of history. As British statesman Winston Churchill once observed, in looking to the future, the further back one looks, the further ahead one can see. To find an informed basis for grasping the major challenges that should be faced by the Big Three economic powers in Asia (China, Japan, and the U.S.), one should follow his advice by looking at long-term historical trends and learning from their lessons.

A second analytical axiom for viewing the future is that there exists a tight interface between the political and military preconditions for continued economic growth in the Pacific Rim. A synergistic, interactive interrelationship has developed among economics, politics, and military security, which can not be meaningfully separated. Peace is a precondition for prosperity, and inspired diplomacy to manage economic competitors' trade relations in the global market is. in turn, a precondition for lasting peace.

What are the long-term problems of the past and the core contemporary circumstances that most will affect the future? First, the U.S. still is a military superpower and an economic giant. It once was said that when the American economy sneezed, the rest of the world caught a cold. That assertion no longer is quite true, but the globalization of trade means that the impact of changes in the American economy continue to reverberate throughout the world.

A second feature of today's global realities lies in how the law of gravity applies in international relations. In the historical evolution of the global political economy, as in nature, what goes up must come down. That natural phenomenon pertains to the U.S. It now is recognized widely that, although the recent Japanese economic upheaval has interrupted that nation's ascendancy, Japan and China's economic growth will resume over the long term. China and Japan enjoy massive trade surpluses and hold vast reserves of foreign currency. Their own currencies...