The Stealth Factor; Just because the world is awash in information doesn't mean that globalization will go smoothly. Indeed, we are as ignorant as ever about the larger forces that threaten our prosperity. Maybe more so.

Byline: Robert J. Samuelson

Let's locate the greatest vulnerability of the "knowledge economy." Easy. It's ignorance. In a globalized and digitized world, we are awash in what might be called "microknowledge": databases, music downloads and financial transactions. eBay's annual listings are now approaching 2 billion, almost five times the level in 2001. Half are outside the United States; from 12 percent to 15 percent of final sales involve cross-border purchases. But then there's "macroknowledge," meaning the great forces that move history: the impact of new ideas, mass movements and technologies; changes in political and social systems; the evolution of geopolitical relations; the transformation of cultures. Here we are where we've always been: we're in the dark.

Look at some recent upheavals: the collapse of communism; the advent of AIDS; the opening of China; the rapid spread of the Internet. Most arrived by stealth; they were barely anticipated or not anticipated at all. Describe the modern economy by any label you wish: post-industrial society, the knowledge economy or globalization. By any name, it's still hostage to large unknowns. Will technology's dangers (examples: nuclear proliferation, cybersabotage or global warming) someday cancel the benefits? Could terrorism or a pandemic cripple globalization? Will China try to remake the international trading system for its own ends? These are all good questions--without good answers.

In lectures and articles, English historian Niall Ferguson, now at Harvard, has drawn parallels between our own era and the period before World War I. A century ago world trade boomed. Many experts deemed a major war impossible, because countries were so interdependent. Interest rates were low. In June 1914, the rate on British consols (bonds that were the era's benchmark securities) was 3.6 percent. Among major industrial countries, inflation was also low, averaging about 1 percent annually from 1880 to 1913. And then came World War I; it all collapsed. Some similarities between then and now seem obvious: the infatuation with global business; low interest rates and inflation; dazzling new technologies (then: electricity and cars).

What Ferguson finds especially intriguing is the disconnect between economics and geopolitics. By all logic, he says, the stock, bond and commodities markets should have warned of an impending war. After all, investors, bankers and traders were presumably smart and sophisticated. But the financial markets seemed clueless. The standard indicators of risk (prices, interest rates, volatility) didn't flash danger signals. Until almost the onset of combat, "the most well-informed people in Europe thought... that there was not going to be a war," Ferguson said recently. Maybe this was wishful thinking. Whatever the cause, Ferguson concluded that financial markets do poorly at detecting major social and geopolitical upheavals.

It's an apt caution now. Just because the world economy can be bound together by the declining costs of information--more microknowledge--doesn't mean that the process will go smoothly or be stable. Global prosperity depends on more than supply and demand; it also requires favorable political and social conditions. For starters, most major national economies must do well; if too many struggle, the effects will spill over into the rest of the world. Next, there must be some sort of political consensus among major countries. Almost every successful economic system--including the global economy--needs a parallel political framework: accepted ways to make rules, settle conflicts, create trust and handle crises. Unfortunately, each of these vital conditions seems shaky.

--Let's see why. A big part of the world ...