2002 will be remembered as a year of spectacular failures. The political mistakes that became front-page news were glaring, but they were often the product of miscalculation. Those that dominated the business headlines were the result of greed and larceny. Painful as all those blunders were, there are lessons to be learned from them. While individuals have been hurt and businesses destroyed, the damage has been contained: both national economies and the global trading system have proven more resilient than many had feared. The political mistakes were often well-intentioned gambles that did not pay off. Politicians need to be better prepared for uncertainty; they cannot — should not — take the safest option at every turn.
Bankruptcies dominated 2002. It seemed that each month a new record was being set by a corporate collapse. The first to fall was Enron, the Texas-based energy company that fabricated trades in an attempt to boost its bottom line. Enron’s implosion also claimed accounting firm Arthur Anderson, which signed off on the Enron trades and then shredded documents to obscure the paper trial.
Markets had barely a chance to catch their breath before WorldCom made history by becoming the biggest U.S. company ever to file for bankruptcy protection. The telecom company admitted that it, like Enron, had inflated earnings. The original gap was estimated to be $3.85 billion over five quarters; that estimate was eventually revised upward to reach $9 billion. Global Crossing soon joined WorldCom in the Chapter 11 pantheon. In England, Vodafone announced a $19.3 billion loss, the largest annual loss in British corporate history. Those jaw-dropping failures confirmed for many that the Internet “bubble” and the talk of a “New Economy” were just so much more market hysteria and hype.
Unfortunately, the damage was not restricted to the New Economy. During 2002, Kmart, with over a quarter of a million employees, became the largest U.S. retailer to go bankrupt. (Japan’s equivalent of Kmart, Mycal, won the distinction of being the largest domestic retail bankruptcy in 2001.) And as the year closed, United Airlines, the world’s second largest air carrier, filed for bankruptcy.
On a larger scale, Argentina plunged into uncharted territory during 2002. The government of President Eduardo Duhalde is grappling with the most severe economic crisis in the country’s history, one that shrank the economy 10.5 percent in 2002. During that time, the government defaulted on its $141 billion debt — the largest debt default in history — and devalued the peso by 70 percent, while unemployment reached the 20 percent level. Fortunately, the damage has been contained; the international monetary system, like the domestic economies rocked by those massive corporate bankruptcies, accommodated the strains.
There is no other word for the economic policies of the government of Prime Minister Junichiro Koizumi than “failure.” The economy has resisted every attempt at reinvigoration. Large-scale bankruptcies like those in the United States have been avoided, but unemployment remains at record levels, bankruptcies are at historic highs, banks continue to be burdened with nonperforming loans and recession is still on everyone’s lips.
The political world has had its share of failures, too. But here the prime examples were gambles that did not pay off. Take Mr. Koizumi’s historic visit to Pyongyang in September. A bold move was needed to break the stalemate in Japan-North Korea relations. The surprise admission by North Korean leader Kim Jong Il that his country had abducted Japanese and that most of them were dead caught Japanese diplomats unprepared. The quagmire into which relations have since fallen is regrettable, but it should not overshadow Mr. Koizumi’s gambit.
Or consider Mr. Kim’s “confessional diplomacy.” While it is hard to know what exactly motivates North Korean behavior, it does seem clear that the North Korean government is trying to clear up issues that have hindered relations with countries such as Japan and the U.S. In both cases, the North’s “confession” was not enough to overcome the ill-will and inertia that have impeded the normalization of relations. Amends have to be made as well. But in both cases, the North Korean impulse to come clean and try to make a fresh start should be encouraged.
In other words, there are silver linings in the ominously dark clouds of 2002. The global economy absorbed considerable shocks during the year. Crises, both domestic and international, have been surmounted. Politicians have made bold bids and been rebuffed. The risk of failure is ever present, but that does not mean giving in to that fear. That should be one of the enduring lessons of 2002.
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