The American participants in this year’s World Economic Forum in Davos, Switzerland, have been the first to confront the full international blowback to the U.S.-created world economic crisis. The crisis has devastated America’s reputation for intellectual innovation and practice in global finance, its business leadership and its domination of applied and academic economics — all promoted at the Davos forum for decades. Last Friday, a Wall Street Journal front-page headline said: “European capitalism gets a halo.”

And it has devastated something even more important: the American reputation for competence, along with the justification for the nation’s six-decade role as world leader.

The meeting has been one of the main channels by which a Europe long identified with interventionist and regulated Social- and Christian-Democratic business values was reluctantly persuaded to accept American ideas and business and financial principles and practice.

American comment on the crisis until now has certainly been self-critical (except in certain Wall Street institutions cut off from human reality), but for the most part there has been little willingness to assume responsibility. The overall position has been that “we all made mistakes” and it’s time to move on.

A few financial-community Cassandras of the recent (or not so recent) past have been recalled and congratulated (or given their jobs back); much has been said about “how could we have missed this or that signal,” but on the whole a curtain has been drawn, and most would agree with Donald Rumsfeld’s incantation that “stuff happens.”

That alibi (or renunciation of responsibility) may work at home, but not abroad. The head of Morgan Stanley Asia told the opening Davos discussion that 2009, globally, “may be the first year since World War II when gross domestic product actually contracts.”

The International Monetary Fund has nearly doubled its estimate of bank failures this year; the International Labor Organization says as many as 40 million people could lose their jobs. Losses linked to bad U.S. loans could reach $2.2 trillion this year, according to the IMF. This is twice the estimate the IMF offered just two months ago.

There is more bad news to come, signaled at Davos. The political, national and psychological consequences have yet to be fully appreciated. This crisis implies something else important: The U.S. reputation for world leadership has crashed and burned.

At the start of the Bush administration years of vainglorious, ignorant and failing interventions in world affairs, there was great initial enthusiasm among Americans, believing the nation to be once again in the lead of a crusade to moralize the world by destroying evil and installing “freedom.”

Even as that policy was failing, critics of the administration were (and remain) mostly inclined to support the general line of fighting “terrorism.” They believed that, under more intelligent Barack Obama management in Afghanistan and Pakistan, it was a defensible policy, consistent with the country’s postwar leadership in the Korean War, the Cold War, the Indochina intervention and Vietnam War, and now the “clash of civilizations” — each gratifying an American self-conception as leader of the forces of freedom in what ex-President Bush, in his farewell speech, described as the great struggle between global good and global evil.

Distraction was provided for much of the world by the economic boom Alan Greenspan proudly presented as “beyond history.” A new economic order had been created by Americans that already had made the industrial world rich, and was confidently predicted to bestow the same blessing on everyone else. Francis Fukuyama’s assessment that history was coming to a happy ending was thought only a little off in its timing.

But not only the economy has crashed. It is now necessary to come to terms with the fact that the Cold War was not won by America, but lost by communism’s internal corruption. That America’s Asian conflicts were actually all defeats: Communist China, Korea, Laos, Cambodia, Vietnam, Somalia, Lebanon, Iran, Iraq (an estimated 95,000 civilians killed in Iraq, 15,000 coalition soldiers and police, including 4,229 Americans; and the outcome still in doubt). The war against terror has been a bloodbath with mainly civilian victims, two free-standing Asian states wrecked, and probably more to come.

The immediate disaster, evident at Davos, is that the American economic model of deregulated market capitalism, dominant today in the U.S. and the rest of the industrial world, cited as a vehicle of human progress, proves under examination to have been in significant part an affair of swindle, personal enrichment, looted Third World nations, international and national crime conspiracies, bank robbery and Ponzi schemes, criminal real estate practices, environmental and institutional rip-offs, and official corruption.

Stuff does indeed happen, when greed is good and power better.

Visit William Pfaff’s Web site at

© 2009 Tribune Media Services Inc.

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