As the war proceeds in Iraq, debates have already begun over the impact that the war will have on the economy. Perhaps lost amidst this debate is the key question raised by Business Week this week in a lead article headlined “The High Price of Bad Diplomacy.” Citing growing fears about instability and the implications of an open-ended “Bush Doctrine” to fight evil and weapons of mass destruction (WMD) wherever they raise their heads, it noted with characteristic understatement, “It is not a picture conducive to worldwide economic growth and prosperity,” citing as an example the long-running economic impact of the Vietnam War on the 1970s U.S. economy. “It may even get worse than that,” the magazine’s editorial page editor Bruce Nussbaum went on. “Chief executives are beginning to worry that globalization may not be compatible with a foreign policy of unilateral pre-emption.”

It’s about time.

While Bush has moved U.S. soldiers around the world, invented new strategic doctrines, created a whole new cabinet agency, and driven a federal budget that was comfortably in the black just two years ago into a $300 billion, going on $400 billion, hole this year, Wall Street executives have generally reacted with a complacency, verging on a tax-cut-induced giddiness. What concerns have been expressed have been confined mainly to the price and flow of oil and how quickly, after an Iraq attack, the former will go down and the latter will go up.

Private forecasts for investors have been very upbeat, with best-case scenarios forecasting a short war of only a few days, minimal damage to Iraq’s oil infrastructure, and no other regional problems. This scenario, or ones like it, appears to be the betting favorite.

Worst-case scenarios, seen as only “10% probability” by “military people” consulted by one institutional investor, call for a longer war, lasting several months, “catastrophic loss of life in Iraq … that could be a source of further geopolitical uncertainty” and serious damage to that country’s oil infrastructure, which could drive up the price of oil to 80 dollars a barrel for several months this year before it returns to 40 dollars a barrel next year.

Such a scenario foresees more damaging impacts that would be felt throughout the economy and might even cost Bush the presidency in 2004, but would not seriously threaten medium to long-term prospects for economic recovery in the United States, according to the Wall Street experts.

But missing from all these analyses, which appear daily on the business pages of U.S. newspapers, has been any serious consideration of the economic consequences of the political strains that Bush’s strategic policies are exerting on the post-World War Two multilateral system that underpins, for example, international trade and investment.

‘”If Bush and his crew think that there will no economic consequences to the kind of political damage they are wreaking on the multilateral system—be it the [World] Bank, the [International Monetary] Fund, or even NATO—in their drive to be the world’s pre-eminent military and political power, then they are truly not of this world,” noted one World Bank official Tuesday. “How long will a country used to being unquestioned judge and jury in its own cause accept the judgments of others in its economic life?” asked the conservative Financial Times columnist, Martin Wolf, last week.

This question was already being asked last October in a book by Jeffrey Garten, dean of the Yale School of Management, who also served in a senior post in the Commerce Department under former president Bill Clinton. Garten argued that Bush’s “extreme unilateralism” poses a serious challenge to traditional U.S. corporate interests in open markets and the rule of law.

His worst-case scenario was considerably more dire. “The danger is that once the U.S. brazenly departs from international treaties,” he wrote, “it invites widespread cynicism about all global agreements and opens the door to other nations flaunting them, too.”

With trade tensions with Europe unresolved, a growing Atlantic political chasm over the United Nations, pre-emption, and military force, the tightening of borders and new regulations on money flows, immigration, and transportation since September 11, 2001, the possibility of greater political turmoil in key regions, such as the Middle East, and the example of the world’s most powerful state breaking out of the ropes that tied it to an international system of law and institutions, the possibility of a return to trade wars and the 1930s loom much larger than anything found in the business pages or television talk shows.

“America’s top CEOs should be figuring out what their collective interests are and how to communicate their views effectively,” wrote Garten, noting that they should “at least lean against the wind of highly nationalist, militaristic, unilateral, and pre-emptive policies.” If they have been leaning, there is as yet little evidence.

Meanwhile, Bush appears to be going in the opposite direction, and even on economics. Word leaked to the Wall Street Journal that the administration has solicited bids for nearly $1 billion in reconstruction work in Iraq exclusively to four U.S. companies has surprised and angered European and Middle Eastern governments, who see post-war construction contracts and a major role for UN agencies in administering them as a litmus test for Washington’s intentions in Iraq and the region. “It will be that much more difficult for the European Union (EU) to cooperate fully and on a large scale—also in the long-term reconstruction process—if events unfold without proper UN cover,” said EU Foreign Affairs Commissioner Christopher Patten, who called the bid solicitation “exceptionally maladroit.”

Concern about Washington’s unilateralist trajectory is mounting in the major multilateral agencies as well, including the Bank, the IMF, the UN Development Program, and the World Trade Organization (WTO), whose chief, Supachai Pantichpakdi, told the New York Times this week that he feared recent U.S. unilateral trade moves and an attack on Iraq would have serious economic consequences. “I can feel the sense of trepidation,” he told the Times. “Whatever happens, if the U.S. will maintain the way we use multilateral solutions, it will be highly appreciated.”

But that is not the way things are going here. Amid rising anger against France for its opposition to war, top Republican lawmakers called for special labeling requirements on French water and wine and an official boycott of this year’s Paris Air Show. Some are even mumbling about withdrawing from the WTO if it does not review some recent rulings that went against Washington.

The current situation is even drawing comparisons with the early 20th century, when European economic integration was almost on a par with today’s globalization. It reminds Stephan Richter of the Globalist Research Center of 1913, when then, as now, “major economic players are divided by non-economic issues—and have lost the ability to trust one another.”

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