Asia Times Online :: Asian news and current affairs

Feb 3, 2005

PART 1: The failed-state cancer
By Henry C K Liu

It has been said that when economics turns serious, it becomes political. The Washington Consensus, a term coined in 1990 by John Williamson of the Institute for International Economics to summarize the synchronized ideology of Washington-based establishment economists, reverberated around the world for a quarter of a century as the true gospel of reform indispensable for achieving growth in a globalized market economy.

Initially applied to Latin America and eventually to all developing economies, the term has come to be synonymous with globalized neo-liberalism or market fundamentalism to describe universal policy prescriptions based on free-market principles and monetary discipline within narrow ideological limits. It promotes for all economies macroeconomic control, trade openness, pro-market microeconomic measures, privatization and deregulation in support of a dogmatic ideological faith in the market's ability to solve all socio-economic problems more efficiently, and to assert a blanket denial of an obvious contradiction between market efficiency and poverty eradication.

Financial-capital growth is to be served at the expense of human-capital growth. Sound money, undiluted by inflation, is to be achieved by keeping wages low through structural unemployment. Pockets of poverty in the periphery are the necessary price for prosperous centers. Such dogmas grant unemployment and poverty, conditions of economic disaster, undeserved conceptual respectability. State intervention has come to focus mainly on reducing the market power of labor in favor of capital in a blatantly predatory market mechanism.

The set of policy reforms prescribed by the Washington Consensus is composed of 10 propositions: 1) Fiscal discipline; 2) redirection of public-expenditure priorities toward fields offering high economic returns; 3) tax reform to lower marginal rates and broaden the tax base; 4) interest-rate liberalization; 5) competitive exchange rates; 6) trade liberalization; 7) liberalization of foreign direct investment (FDI) inflows; 8) privatization; 9) deregulation and 10) secure private-property rights.

These propositions add up to a wholesale reduction of the central role of government in the economy and its primary obligation to protect the weak from the strong, both foreign and domestic. Unemployment and poverty then are viewed as temporary, transitional fallouts from wholesome natural market selection, as unavoidable effects of economic evolution that in the long run will make the economy stronger. Neo-liberal economists argue that unemployment and poverty, deadly economic plagues in the short term, can lead to macroeconomic benefits in the long term, just as some historians perversely argue that even the Black Death (1348) had long-range beneficial effects on European society.

The resultant labor shortage in the short term pushed up wages in the mid-14th century, and the sudden rise in mortality led to an oversupply of goods, causing prices to drop. These two trends caused the standard of living to rise for those still living. Yet the short-term shortage of labor caused by the Black Death forced landlords to stop freeing their serfs, and to extract more forced labor from them. In reaction, peasants in many areas used their increased market power to demand fairer treatment or lighter burdens. Frustrated, guilds revolted in the cities and peasants rebelled in the countryside. The Jacquerie in 1358, the Peasants' Revolt in England in 1381, the Catalonian Rebellion in 1395, and many revolts in Germany, all served to show how seriously the mortality had disrupted traditional economic and social relations.

Neo-liberalism in the past quarter-century created conditions that manifested themselves in violent political protests all over the globe, the extremist form being terrorism. But at least the bubonic plaque was released by nature and not by human ideological fixation. And neo-liberalism keeps workers unemployed but alive with subsistence unemployment aid, maintaining an ever-ready pool of surplus labor to prevent wages from rising from any labor shortage, eliminating even the cruelly derived long-term benefits of the Black Death.

The Washington Consensus has since been characterized as a "bashing of the state" (Annual Report of the United Nations, 1998) and a "new imperialism" (M Shahid Alam, "Does Sovereignty Matter for Economic Growth?", 1999). But the real harm of the Washington Consensus has yet to be properly recognized: that it is a prescription for generating failed states around the world among developing economies. Even in the developed economies, neo-liberalism generates a dangerous but generally unacknowledged failed-state syndrome.

The economics of neo-imperialism
The United States is the leading advocate of the efficacy of free markets and the economic benefits of privatization of the public sector. It prescribes policy measures that aggressively weaken the state apparatus and that inevitably lead to failed statehood. At the same time, the US is also the leading proponent of superpower military intervention in failed states around the world. The number of victims caused by neo-liberalism far exceeds those from ethnic strife in failed states. Yet while neo-liberals, together with their strange bedfellows the neo-conservatives, advocate humanitarian military intervention in failed states, they adamantly oppose government intervention in failed markets that accept unemployment as necessary antidote for inflation (see Tackle failed markets, not failed states, March 26, 2002). )

Neo-imperialists identify failed statehood as the natural outcome of anti-imperialism. Historically, when power vacuums left by failed states threatened great powers, the ready solution was imperialist conquest. Such conquests were justified as necessary for imposing order and civilization over chaos and backwardness. But imperialism lost its legitimacy as a result of the disingenuous promotion of anti-imperialist sentiments by the warring imperialist powers of World War II. These warring powers were compelled to use anti-imperialism as incentives for mobilizing their colonial subjects to support their total war efforts. Imperialism became an unwitting victim of collateral conceptual damage in the second global war to end all wars.

The world order during the Cold War was a condominium of two superpowers who were opponents in dialectic ideological dispute as well as in conflicting geopolitical state interests. Toward the end of the Cold War, conflicting geopolitical state interests were overwhelming ideology disputes, driving communist China toward strategic convergence with the capitalist US against Soviet imperialism, in response to the Soviet alliance with anti-communist India against China. Localized ongoing superpower ideological wars by proxy states were wound down and local political struggles were frozen to avoid superpower conflict escalating into nuclear exchanges. The end of the Cold War diminished both the legitimacy and ability of former client states and satellites of the two opposing superpowers to control domestic rival factions, leading to failures of state power in several regions. At the same time, some states that had been divided by Cold War superpower geopolitics were reunited, some only after decades of violence, as in the case of Vietnam, others peacefully with the disintegration of the USSR, as in the case of Germany. Other divided states are still not reunited, such as the two Koreans.

The USSR itself broke up into separate states, held loosely together by a Commonwealth of Independent States (CIS) that comprise 12 sovereign states that were formerly Soviet republics. The CIS was formed on the basis of sovereign equality of all its members and that the member states are independent and equal subjects of international law. The CIS is not a state - it does not have supranational powers. In September 1993, the heads of the charter states signed a treaty on establishment of the Economic Union, in which they developed the concept of transformation of economic interaction within the commonwealth, taking into consideration residual realities. The treaty was based on the necessity of formation of a common economic space on the principles of free movement of goods, services, workers and capital; elaboration of concerted money and credit, tax, price, customs and foreign economic policies; rapprochement of the methods of management of economic activities; and creation of favorable conditions for development of direct production links.

Ukraine has since emerged as a danger point for regional peace in its effort to free itself from the Russian sphere of influence and reorient itself toward the West. In former Yugoslavia, a former Soviet bloc state, ethnic strife has embroiled NATO (North Atlantic Treaty Organization) members, primarily the US, in humanitarian intervention. The Middle East continues to be a smoldering powder keg that threatens global peace. In East Asia, US adventurism in trying to set up Taiwan as a separate state from China poses a threat to peace in the region and perhaps even the whole world by turning a long-dormant unfinished civil war into a new international war.

After the Cold War, with a new form of economic imperialism under the euphemism of neo-liberal globalization ravishing economies around the planet, the post-World War II restraint and the Cold War freeze against political imperialism are now being dismantled as disorder in ravished countries grows more threatening to the sole remaining superpower. The US now mistakes military and economic prowess for moral superiority and views itself as having earned the privileges of a benevolent hegemon. Thus the neo-imperialist formula for the new Pax Americana is a two-punch operation. The first punch uses neo-liberalism to cause a weak state's economy to collapse to produce a failed state. The second punch invades by force the failed state to delivery liberty as defined by the new imperialism to set it up as a US protectorate and economic colony.

Terrorism is only one of the threats that failed states allegedly pose to the sole remaining superpower, albeit it has taken center stage after the tragically spectacular events of September 11, 2001. Much of the world's illegal drug supply comes from alleged failed states, whether it is opium from Afghanistan or cocaine from Colombia. Yet in the mid-19th century, when Great Britain illegally shipped opium to China from British India and Yankee Clippers shipped opium from Turkey in violation of Chinese law, neither Britain nor the US was condemned as a failed state. Other kinds of criminal business, such as new forms of slave traffic through the venue of illegal immigration, flourish today under the aegis of what are now identified as failed states while the recipient strong states remain immune. Furthermore, the economy of the southern US had been built by slavery with blatant immunity. For a whole century and through half of its history, the US was in egregious violation of the most obvious and fundamental human rights with its institution of slavery without fear of being liberated by a self-righteous foreign power.

How the strong define 'failure'
In 1919, Woodrow Wilson presented his self-righteous Fourteen Points of utopian liberty to the world while at home, a series of immigration quota acts based of racial discrimination were passed; government persecution and deportation of leftists became the unconstitutional and illegal response when 4 million workers went on strike in 1919 and Nicola Sacco and Bartolomeo Vanzetti, both Italian immigrant anarchists, were arrested, convicted on insufficient evidence and executed in 1927; the Ku Klux Klan, dedicated to the persecution of "Negroes", Catholics and Jews", achieved a membership of 5 million by 1924 without being outlawed; and civil rights legislation would not be passed for another half century. A series of Chinese exclusion acts that banned all immigration of Chinese and denied the right of Chinese to become naturalized US citizens were not repealed until 1943 when the US needed China as an ally against Japan. Yet through all this, the US was never invaded in the name of foreign humanitarian intervention.

Today, the strong recipient states of illicit drugs from weak failed states are themselves excused from failed-state status even though state functions to eliminate such illicit traffic consistently fail. Failed states are generally said to be increasingly trapped in a downward cycle of poverty and violence. Notwithstanding that many of the ills of failed states have been caused by globalized neo-liberal market fundamentalism, neo-imperialists argue that the solution is for the sole remaining superpower and its subservient allies to resort to imperialism again for the good of the world.

The spread of AIDS has been associated with failed-state syndrome. Yet the responsibility for failing to contain the spread of the virus at its early stages lies squarely on the shoulders of US president Ronald Reagan, who saw it as God's righteous punishment for sinful sexual deviants. On the issue of AIDS eradication, the US has been in every sense of the term a failed state.

Failed and collapsed states are a structural trait of the contemporary international system, and not a temporary dysfunction of the Westphalian world order of sovereign states. Failed states are not always weak states. They are sometimes strong states that have voluntarily forfeited basic state functions as a matter of ideology, or allowed them to be usurped by special-interest groups. Strong failed states are states that possess powerful military/police power for advancing the narrow economic interests of a small class of citizens while sacrificing a significant segment of the population as failed market victims. In the US, socio-economic Darwinism is celebrated as indispensable for the survival of the economy in the market place, while scientific theories of evolution are challenged by Creationism in public schools. Those who believe God created man apparently do not believe he created all men as equals. These structural anomalies and conceptual inconsistencies produce tensions in the international system, with serious consequences for developed and developing economies alike.

In the Third World, the notion of "failed states" is problematic since many Third World states collapsed after decolonization simply because they were artificial Western constructs in the first place, and not true states. All failed states in the Third World are located in former Western empires. Some Third World states are deemed failed states by the hegemonic superpower if the state apparatus is unable to uphold an effective monopoly of coercion over its entire territory to prevent meta-state activities deemed dangerous to the superpower. Such failed states lack an effective judiciary system to safeguard the rights of foreign and domestic private property, or are unable to fulfill international obligations such as repayment of sovereign or private debts to foreign financial institutions, or cannot prevent and police transactional economic crimes or the use of asymmetrical warfare by meta-state groups against strong states.

On the other hand, market states with advanced economies increasingly do not consider most human aspects of societies as proper state concerns, such as the provision of a rising standard of welfare to their citizens, which has been conveniently assigned to the indifferent workings of the market, but confining themselves to guarding and strengthening no-holds-barred free-market conditions through which private wealth is generated for the benefit of the strong, leaving the weak to perish in a natural selection. Wealth-distribution functions are assigned to the market even though the structural maldistribution of market power is maintained by the state. This amounts to a selective exercise of state power of coercion to favor one segment of the population or one type of institutions at the expense of all others.

The popular will is repeatedly frustrated through inflated minority rights backed by distorted constitutional interpretation on the part of politically appointed and biased courts. In that respect, states such as the US can also be deemed as having failed through its rule by law, not of law. Other attributes of failed states, such as privatization of basic state functions, fit the ideological trends in super-strong market states such as the US today. Thus the ideological fixation prevalent in the US today can be seen as moving the US toward a failed-state syndrome. These market states try to coerce other states also to become market states to prevent them from exercising sovereign control over their national territories, protecting their economies from structurally predatory global markets that amount to economic tyranny, regulating the behavior and lives of their population for the common good and in general aspiring to be strong states in defiance of globalized market fundamentals that lock them in permanent victimization by strong market states.

The collapsed state
A collapsed state is a failed state in its advanced stage. It is identifiable by three features, according to neo-imperialists. The first is its colonial legacy and ineffective post-colonial state-building. States formed from residual colonial rule may be confronted with insufficient love or loyalty to and from their artificially constituted population, with their domestic and international authority based not on legitimacy but on dominance, either economic or police/military. The historical process in accumulating centralized power in these states consists of subordination and assimilation that tend to maximize popular resentment, resulting in polarization derived from disillusionment and dissatisfaction by disfranchised minority or even majority groups and their elites. Thus neo-imperialists consider collapsed states to be the illegitimate children of anti-imperialism. In a way, collapsed states are juvenile delinquents of the international system left from the wreckage of the imperialist world order. The proper response to collapsed states is to re-colonize them, so argue neo-imperialists.

The second feature of a collapsed state is the withdrawal of superpower sponsorship/protection. The world order during the Cold War was a condominium of two superpowers. Local struggles and conflicts were frozen to avoid bringing the two superpowers into nuclear conflict. The end of the Cold War reduced both the legitimacy and the power of the client states of the sole remaining superpower to control domestic rival factions. The solution to this unhappy state of affairs is for the sole remaining superpower to assert its irresistible power by imposing a new world order according to its superior values, camouflaged as freedom and democracy.

This is the neo-conservative agenda. President George W Bush says that free and democratic states are peaceful states, notwithstanding the historical fact that World War II was launched by an expansionist German Third Reich born of a democratic process and the resistance by a British coalition government born through the suspension of elections. What Bush really means is that when the whole world subscribes to US values and accepts US power, not only out of fear but also out of respect for its power-backed legitimacy, the world will be peaceful. Adolf Hitler sang the same tune and failed. The US under Bush is attempting an ambitious undertaking of universal ideological control that even Christianity under the Holy Roman Empire failed to accomplish with the Thirty Years' War, having to yield finally to the Peace of Westphalia of sovereign states.

The third feature of a collapsed state is the impact on it from neo-liberal globalization. Unlike globalization in the past, which was implemented through an empire structure, neo-liberal globalization is imposed through a network of failed states by weakening a state's sovereignty and the role of the state in socio-economic arenas. Imperialist globalization of the past did not recognize the sovereignty of protectorates or colonies. In contrast, neo-imperialist globalization today employs weak client states with restricted sovereign rights as proxies of the strong market state to enforce its exploitative agenda worldwide.

Neo-liberal ideology is implemented through a venue of integrated global markets, free flow of capital and credit, wholesale deregulation and mandatory structural pro-market conditionalities imposed on weak and poor economies. It strips states of their sovereign authority to intervene in markets on behalf of national interests, causing state authority to collapse in all area except the protection of foreign and domestic private property. Failed states depend on globalized market fundamentals to finance their state functions and inevitably fall into collapsed-state status for lack of funds. In a sense, whereas the age of imperialism used Christian values as a pretext for empire, the age of neo-imperialism uses neo-liberalism as its missionary calling. The relationship of the neo-conservatives to the neo-liberals today is similar to the relationship of the Emperor and the Church in history. Missionaries are the velvet gloves of the ruthless hands of imperialists.

How the strong define 'success'
Success in statism is measured by a state's ability to deliver political goods. Security, both external and internal, is a primary political good the provision of which is the state's primary function. It provides a framework through which all other political goods are delivered. The events of September 11, 2001, revealed that even the most powerful state cannot guarantee its citizen protection from terrorism, a fact since openly acknowledged by the Bush administration. The modus operandi of the "war on terrorism" and the Department of Homeland Security is based on the acceptance of spectacular terrorist attacks continuing in the future and their likelihood of repeated success. The aim is not to eradicate terrorism by removing its root cause, but only to make it more difficult to implement. It is a war lost before it begins.

Neo-imperialism detaches economic security from legitimate state functions. Freedom from want is not considered a state responsibility by neo-liberalism. Financial security is merely a market risk that should be faced by each individual market participant. Another political good provided by the state is the enforcement of law as expressed in a system of codes and procedures that equitably regulate the affairs and interactions of the population. The state is responsible for setting and maintaining standards for equity and acceptable conducts both domestically and in its foreign relations. Neo-liberalism relieves the state from such responsibility and assigns it to the market.

Friedrich A Hayek (1899-1992) wrote The Road to Serfdom (1944) to warn of the invasion of the welfare state in people's private lives, the fundamental conflict between liberty and bureaucracy. Hayek and his fellow Austrian economists who viewed the market economy working as the calculus of independent individual decisions differed with Milton Friedman and the Chicago School economists who thought macroeconomically in analyzing total quantity of money, total price level, total employment, etc, in aggregates and averages terms. Hayek's rejection of socialist thinking was based on his view that prices are an instrument of communication and guidance that embodies more information than each market participant individually processes. To him, it was impossible to bring about the same price-based order based on the division of labor by any other means. Similarly, the distribution of incomes based on a vague concept of merit or need is impossible. Prices, including the prices of labor, are needed to direct people to where they can do the most good. The only effective distribution is one derived from market principles. On that basis, Hayek intellectually rejected socialism.

In Hayek's social philosophy, value and merit are and ought to be two distinctly separate issues. Individuals should be remunerated purely on the basis of value and not in accordance with any concept of justice, whether it be Puritan ethic or egalitarianism. Hayek went as far as to deny that the concept of social justice has any meaning whatever, on the basis that justice refers to rules of individual conduct. Since no rules of the conduct of individuals can determine how the good things of life should be distributed, the question of justice is moot. Since a free market is the natural outcome of a multitude of individual decisions, how the market decides is amoral.

Accordingly, a spontaneously working market, where prices act as guides to action, cannot take account of what people need or deserve, because it operates according to a neutral distribution system that nobody has designed. Such a distribution system cannot be just or unjust. And the idea that things ought to be designed in a "just" manner means, in effect, that one must abandon the market and turn to a planned economy in which somebody decides how much each ought to have. And the price for that justice is the complete abolition of personal liberty.

Hayek's free-market ideas have been applied to much of unregulated globalization of the past quarter-century, and the socio-economic damage is now very visible. Notwithstanding Hayek's repugnant social philosophy, even his "scientific" claims on the effectiveness of free markets has not been substantiated by events. Hayek's fallacy rest on his blind faith in "spontaneous" prices that neglect the potential of long-term value through excessive instant sub-optimization.

Another political good is the provision of universal health care and education, the maintenance of a vibrant economy of full employment at living wages that will allow workers to afford decent housing and secure retirement, and a clean environment, without which all rhetoric about liberty becomes irrelevant. Freedom from want is a first freedom that neo-liberalism denies by imposing the tyranny of the market. The logic of a segmented health-insurance market based on tiers of risk profiles is fundamentally flawed. It assigns high premiums to high-risk customers, instead of universal protection for all. For those who are healthy, the fact that they do not need medical care is already worth a fortune; do they need also to deny financial support to others in the insured pool who are unfortunate enough to be ill? For the healthy, not needing medical care is itself the benefit. Who would wish to be ill merely to get their money's worth from insurance? If the healthy in a community do not help the sick, who will? There is no logical or ethical argument against universal health care.

To deliver such political goods, the state is granted police power and the power to issue sovereign credit to steer the economy toward rewarding activities that produce such political goods. The unregulated market rewards activities that externalize such political goods from their cost structure and siphons off the resultant surplus value as private profit. In fact, failed states are often generated by failed markets. The state has an obligation to preserve and protect its sovereign credit authority from being usurped by private interest groups. Capitalists use globalized finance markets to tilt a level playing field in trade to create private profit out of public poverty. This is done through the private control of money as a legal tender, through a monetary system under a central banking regime that ideologically accepts structural unemployment as the unavoidable means to combat inflation. Central banking is the policy of a failed state. A globalized foreign-exchange market dominated by dollar hegemony is the venue for US superpower financial imperialism (see US dollar hegemony has got to go, April 11, 2002).

A Bank of International Settlement (BIS) regime of global network of central banks whose main function is to protect the value of privately controlled money through unemployment and slave wages is a world order of failed states, not sovereign states. Dollar hegemony, the status of the dollar as a dominant reserve currency in international trade despite its fiat nature, operates in a globalized foreign-exchange market to rob sovereign states of their right and ability to issue sovereign credit for domestic development, by exposing their domestic currencies to market attacks. Since sovereign control over the monetary system and the economy is the sine qua non prerequisite of sovereignty, the BIS financial world order of failed states has in fact replaced the Westphalian world order of sovereign states through financial globalization

Both strong and weak states can be failed states. Successful states are those in full control of their territories and economies to provide rising-quality political goods to all their citizens. Failed states contain ethnic, religious, linguistic, or other tensions such as ideology that limit or decrease their ability to deliver political goods. The privatization of education, health care and social security is a formula for state failure. These smoldering tensions, if unattended, eventually explode into violent open conflicts. Some strong states became strong by failing. They abdicated normal legitimate state obligations in order to focus state resources on building up a strong military/police capability to disarm domestic and foreign opposition to their failed-state policies.

Failed states provide only substandard political goods, if any at all. Weak failed states involuntarily forfeit, and strong failed states do so voluntarily, the responsibility for delivering political goods, and leave it to non-state actors, ie the private sector through the market mechanism. Privatization of the public sector is more than the outsourcing of state functions. It is the selling off of state prerogatives.

In the military sphere, this is manifested in two ways: 1) the use of mercenaries within the regular army and 2) deferral of state-security functions to contractors. The killing and mutilation last April 2 in Fallujah, a Sunni stronghold 50 kilometers west of Baghdad, of four US contract security personnel - mercenaries in all but name - testified to the hate and rage of an occupied people. More than 30,000 mercenaries serve as armed security guards for foreign private contractors engaged in the rebuilding of Iraq for profit, taking over from the military the responsibility of providing security and maintaining order in a war zone. Even US civilian administrator L Paul Bremer sought protection by contract security personnel, not US soldiers.

These armed mercenaries are officially not engaged in offensive operations and are authorized to use their weapons only defensively if fired on. The distinction is only technical, since invaders can hardly claim self-defense against hostile fire from the invaded. The very presence of invaders is itself an offensive act that naturally draws hostile response from the invaded. The use of mercenaries is nothing more than the privatization of war, the ultimate epidemic of neo-liberal market fundamentalism. Mercenaries do not enjoy protection under the Geneva Convention on war crimes and the mutilation was not perpetrated by an enemy army but by an angry mob in a country under occupation. The television images of the burned remains of US mercenaries, brutal on one level, were symbolic of failed US policy on another. They represent violence against the crime of regime change for profit. Iraq after US invasion fell deeper into failed statehood.

The failure to provide security for all citizens is the first sign of a failed state, as is the use of state violence on its own citizens. So is a larger prison population or one that is racially or ethnically disproportioned. An economic infrastructure that failed to deliver income or wealth equitably is another sign of a failed state, measurable with the Ginni coefficient on income inequality. The absence of a universal health-care system is another sign, as is a dysfunctional public educational system primarily reserved only for poor children. An excess of per capita national debt is also a sign of failed statehood, as is pervasiveness of corruption and fraud in government and business. Hunger and food shortage for the poor while food surplus persists in the economy is another sign of failed statehood. Failed states often have a very rich minority that takes advantage of the failed system with the blessing of the state.

Collapsed states are failed states with a significant vacuum of central authority. They are political black holes with regards to all indicators of institutional health. It is much less costly to stop a state from failing than to reconstruct it after it has failed or collapsed. Neo-liberal efforts aimed at saving weak states have been mostly ceded to financial institutions (banks and funds) that focus their efforts either on profit incentives, returns from loans and investments or export expansion for Western producers, particularly of agriculture, arms and intellectual property. This is a form of blood-letting cure. There is not only no financial reward for populism, but in fact also heavy penalties of operational losses. Wealth and income maldistribution inevitably lead to impending economic collapse and subsequently state collapse. A system of rewards and punishment that leads a state to more populist policies can help to prevent state failure. Financial shocks frequently cause a state to fail, or at least its regime to fall.

World order in flux
Contemporary world order is a complex, contested and interconnected order. This world order, its rules and institutions that circumscribe the structures of power, is in a process of change, putting stress on the order. The traditional world order based on the primacy of interstate or geopolitical relations is being injected with other ordering principles such as the world order of global politics and global governance is one of such injections. Financial, economic and trade globalization is another. The voluminous literature on humanitarian interventions focuses mostly on security and force. Economic humanitarianism is neglected in favor of a "natural law" of market competition. The increased propensity of states to intervene is, then, on the one hand illustrative of a new world order where states put human-rights principles and norms above the classical principles of sovereignty and non-interference in another state's internal affairs. On the other hand, domestic human suffering from globalized economic exploitation is off limits to state intervention within its sovereign territory.

Russian President Vladimir Putin, who declared in 2004 that the collapse of the USSR had been a "national tragedy on an enormous scale", in trying to save Russia from the fate of failed statehood by reversing wholesale privatization of state-owned enterprises and media, is being accused by neo-liberals of trying to restore central state power as if that were a terrible thing. His policy on Chechnya is a crucial element in the US-led "global war on terrorism", while Russia's disastrous human-rights record in the breakaway republic conflicts with US standards.

While sovereignty is the organizing principle of the Westphalian world order, the legitimacy of international actions today is governed by Westphalian principles only if the state relinquishes it responsibility in economic affairs. A clear case of this is the way the sole remaining superpower treats oil-producing states. Nationalization of the oil industry by any member state of the Organization of Petroleum Exporting Countries (OPEC), if coupled with a state policy detrimental to the fundamental oil-import needs of the sole superpower, or measures that upset the pricing structure of oil, will run the risk of being invaded by the superpower.

Seen from a development-theory perspective, the failed-states phenomenon is based on a universal acceptance of the theory of teleological development of societies toward specific developmental goals. This implies progression from a simple toward a more complex form of society. To Western theorists, this points in the direction of emulating the Western model. To non-Western theorists, it points to development models with indigenous characteristics. The role of the state is crucial in these processes. Failed states have only attracted interest as part of a revisionist revaluation of colonialism, imperialism and dependency as benign blessings, but not as part of a critique of market capitalism, of the folly of universal application of Western democratic processes and social values, and of the destructive impact on community cohesion by a fixation on individual freedom. Superpower intervention seldom acts to prevent failed statehood in a weak state. Rather, it intervenes to stamp out resistance to superpower-instigated failed statehood.

In a fundamental way, terrorism is the weapon of last resort for resisters of foreign-instigated failed statehood. Historically, terrorism tends to end when terrorists are granted due recognition of their legitimate grievances and promises of equitable redress. The policy of refusal to negotiate with terrorists is a propaganda slogan of little logic or usefulness.

Since 1990, concerns for failed and failing states have occupied center stage in international politics because the Westphalian order of sovereign states has been challenged at the geopolitical convenience of the sole remaining superpower. States are put in a position of either not being strong enough to deal with their own internal problems and thus risking non-acceptance by other states as sovereign, or being labeled as failed states for violation of human rights in their attempt to maintain internal security. The structure of the Westphalian international system is based on states upholding one another as sovereign actors. Cross-border intervention on human-rights or economic issues is in conflict with that principle, particularly when the option of intervention belongs exclusively to strong states that on the basis of military strength also claim the privilege to define the standards of human rights and economic equity. The sole reason the US has not been a victim of humanitarian intervention is its military strength, not because it is free of human-rights violations. Humanitarian or human-rights or economic intervention are frequently acts of moral imperialism by strong states.

World-order principles have historically been crucial in setting the parameters for how failed-state intervention has been rationalized and conducted. With the end of the Cold War, different world-order principles have gained prominence as competing political cultures for how state power and national interests are to be translated into policy. World-order principles are products of political cultures. They form the structure of the international system, provide the content for state and national interests and add ideological meaning to state power.

The structure of the international system both in its political and socio-economic forms has historically set very different rules of the game for how failed states are identified and dealt with. The Roman Empire was seen as a model for later attempts to provide international governance. The idea is that a hegemonic system with dominant power can serve best as guarantor of world or regional order. The concept of the United Nations was a community of sovereign states governed by a Security Council of major powers.

In contrast to the strict notion of territoriality behind the Roman Empire, the Middle Ages saw several competing non-territorial organizing institutions: the Holy Roman Empire, the Church, and feudalism. In the early Middle Ages, world order was contested even though the non-territorial systems co-existed. There was no clear conception of sovereignty, and lines of authority were mixed at best. Failed and failing states made no real sense in such a system except in a religious sense as defenders of the faith.

It is with the growth of territoriality that an international order of sovereign states was constructed whereby states were empowered by recognition by other states, rather than by the Church. The coming of age of the nation-state in the 18th and 19th centuries gave enduring strength to the Westphalian system, with state sovereignty at its core. This sovereignty may be seen to have a constitutional and a functional dimension. On the one hand, the state is the actor in international relations. It alone has the political authority to deal with other states. On the other hand, the state has sovereignty over all functions in society and defines the rules of the domestic game. Thus states may vary in how they define their domestic setups and how they claim their functional sovereignty. Tyranny, even as repulsive as it has become in modern society, has not been a basis for disqualification of state sovereignty.

On this foundation of state sovereignty was built the system of balance of power as an ordering principle in international relations. Since states are sovereign with reference to one another, they must build alliances in order to guard themselves against the dominance of the powerful over the less powerful. The balance-of-power logic reflects both a systemic logic and a historical reality in the 19th century.

In this system, failed and failing states constituted a serious problem. The system had a dual logic with regard to failed and failing states. Outside of the European balance-of-power system, non-European states were subjugated and made into colonies in order to maintain stability. To prevent fighting over the colonies, the balance-of-power logic could be applied as it was with the founding in 1871 of the German Empire.

The European system was a rational system that matured during the age of reason when statesmen worked out the mechanics of power and balancing in order to create a stable international order. Beyond Europe, the state system was introduced in the colonies after the age of imperialism, and the international system was in fact created and based on the rules and functionalities of the European state system. In East Asia, the world order until the advent of European imperialism was one of tributary states to China as the central kingdom whose international relations were based on generous gifts from the central kingdom in return for meager tributes from lesser states. The Asian world order of a prosperous and benevolent center showering gifts on the less prosperous periphery was different from the European system of empire of the center exploiting the periphery. This was due to both the relatively advanced stage of Chinese civilization and the sheer size of the Chinese economy, which did not need much from outside. The West had to use force to open trade with China.

World order, then, is the network of economic and strategic pressures that both holds a system together and constrains its members to act in acceptable ways through commonly accepted rules and institutions. When those rules and institutions are set by a hegemon or an empire, failed-state status will be defined by those rules and institutions. When the rules of balance of power are dominant, state failure is a different phenomenon. Modern state failures are not associated with losses on the battlefield, but with fractional fighting and a crisis of legitimacy that feeds the fighting, or with the loss of sovereignty due to globalization. State failure is inseparably connected with the problems of authority and political legitimacy, as well of recognition of sovereignty. World-order principles define the sovereign foundations for legitimacy and authority. The type of world order is thus connected directly to why and how states fail, and how actions to remedy state failure are perceived.

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Henry C K Liu is chairman of the New York-based Liu Investment Group.

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