By David J. Rothkopf New York Times

March 8, 1999

The candidate came to the voters last week. The candidate was Ricardo Lagos, who is likely to be the next President of Chile, but virtually none of the voters he spoke with were Chilean.

In fact, Mr. Lagos, a minister in the last two Chilean Governments, was campaigning on Wall Street, and his whistle stop was a sign of the changing nature of global politics. Although he is a Socialist, he made sure to meet with George Soros, David Rockefeller, Steve Forbes and other members of the American financial elite.

The reason for this is what might be called the dual constituency conundrum -- the dilemma faced today by many political leaders who must balance the demands of two diametrically opposed groups.

One is the voters who elect the government in a given country.

The other consists of the 30,000 or so traders and fund managers who conduct moment-to-moment referendums on the policies made by the world's governments.

A political leader can enjoy broad support at home and still run afoul of the men and women who vote with their money. When these investors pull their money out, local economies flounder, policies are derailed, and support at home can erode quickly.

And this happens with dismaying frequency, because Wall Street voters are not much interested in the long-term well being of the countries they judge. What they want to know is whether their money will grow now or in the cycles during which their bonuses are being calculated.

It was Wall Street that drove the International Monetary Fund to focus on making countries credit worthy and preserving the flow of payments to banks and other creditors. Who were those creditors? The citizens of Wall Street. This presents a candidate like Mr. Lagos with a problem. He sees the value of sound fiscal policies. But he is also aware that those policies may not close the gap between rich and poor as quickly as needed and can set back social justice.

This is why many of the poor in countries with emerging markets blame the I.M.F. and Wall Street for economic policies that perpetuate the control of a tightly knit elite. Its members are usually drawn from the ranks of a few powerful families, the inheritors of a post-colonial legacy or a handful of giant corporations.

These jet-setting, English-speaking upper classes have been the true beneficiaries of globalization and the principal clients of the financial community. They are all for market liberalization -- until it starts to threaten their interests and, in particular, the elitist class. Together, Wall Street and the local oligarchy form a powerful political force. And politicians of every stripe must adjust their campaigns accordingly.

Even Hugo Chavez, the former populist coup leader who was elected President of Venezuela in December, felt compelled to do video link-ups with Wall Street honchos during the meeting of the I.M.F. and the World Bank in Washington last fall. When speaking to a domestic audience, Mr. Chavez had called for a moratorium on paying foreign debts. But speaking via satellite to Wall Street he said he would actually be more responsible.

Mr. Chavez recently canceled two trips to New York because he had no concrete and credible economic plan to offer Wall Street and may well have feared that tough questioning from the financial community could lead to further damage to an economy already suffering from depressed international oil markets.

In country after country, once it becomes clear that broad segments of the population are frustrated with new economic policies, populists can turn that dissatisfaction to their advantage. Governments are then tugged in two directions and have no easy mechanism for resolving this tension. This backlash against globalization and liberalization is now occurring in Brazil, Russia and Malaysia.

It is clear that opening up markets is not enough for these countries. The new policies must also lead to a more equitable distribution of wealth.

Since governments can't do this very well, the market must.

Therefore, the stranglehold of elites on these markets must be broken, and middle classes must be cultivated and educated so that capital is attracted to the quality and not just the price of labor.

The trick is wiring together nations of learners and teachers as well as we have wired together a globe of traders.

This may mean accepting slightly slower growth now to have steadier and more equitable growth long term.

For the leaders of emerging countries, the dual-constituency conundrum can potentially be a force for balance and can lead to greater worldwide prosperity and stability. But it can also cause swings from one extreme to another and lead to isolation, resentment and instability.

A farsighted leader like Ricardo Lagos will try to strike a balance that takes advantage of the opportunities created by this situation. Wall Street "voters" need to do the same by realizing that it is in their interest to support policies that are both politically and economically sustainable in the countries where they invest.

David J. Rothkopf, a former Commerce Department official under President Clinton, is president of an international advisory firm.



