Is liberalization reversible?

On the eve of the millennium, 'globalization' has become a catch-phrase throughout the world. The nation-state, the driving force of the past two centuries, is dissolving under the pressure of cross-national integration. Despite its many benefits, however, globalization is unsettling, and those who feel most threatened by it may try to turn back the clock. Today, the case for free trade and unrestricted capital movements is, perhaps, generally understood. But some commentators have begun to chip away at it, presenting the outcomes of certain special situations as yielding lessons with a broad application. One example, taken from strategic trade theory, is a situation in which, because of the existence of an oligopoly, some measure of trade protection may be beneficial. Another example is the abundant literature published since the Asian crisis on the dangers of herd behavior and volatility associated with short-term capital movements. The turbulence of the mid-1990s has led to increased skepticism about liberalization. As in the 1930s, the smart money is on control, not deregulation. Some major market participants, such as George Soros, have begun to advocate capital controls. Even moderate and pragmatic analysts, such as the World Bank's Chief Economist, Joseph Stiglitz, believe that the future lies in control and regulation of capital markets. Politicians in Europe and America are engaged in an intensive search for a 'third way.' In his reflections on the dangers of free capital transactions, MIT economics professor Paul Krugman is following directly in the steps of John Maynard Keynes.