But the whole point of World 3.0 and particularly my diagnosis, in chapter 2, of semiglobalization is that given current levels of integration, it is perfectly possible to take shelter behind national borders. In fact, the big risk today, if the overreaction in the 1930s onward to the last big failure of market capitalism is any guide, is of too much sheltering of this sort. Given this backdrop, and instances of external integration even substituting for internal regulation rather than precluding it, simply focusing on instances of tension between the two is counterproductive. The reality of semiglobalization means that there should be—now and for the foreseeable future—ample scope for regulation and integration. In other words, Rodrik's policy trilemma isn't wrong; it just doesn't seem relevant in most respects.
These conceptual intuitions are backed up by at least some empirical evidence. First, government spending hasn't fallen as integration has increased. Rather, government expenditure as a proportion of GDP has generally been on an increasing trend over the last half-century. And while there was particular fear that government social expenditure in advanced countries would get crimped due to low cost competition, gross governmental social expenditures in the OECD countries rose, on average, from 16 percent of GDP in 1980 to 21 percent in 2005.12 Even the amount of money officially spent on lobbying the U.S. government rose by 150 percent between 1999 and 2009.13 This would make no sense if politicians had no sway over policy.
Finer-grained studies of potential links between globalization and government spending have focused on weighing two opposing effects that have been proposed. On one hand, many economists and political scientists assert on the basis of the risks and distributional concerns explored in chapters 7 and 9 that fears about globalization create pressure for governments to combine integration with increased welfare expenditure. (Note that such fears could drive policy even if they are not actually rooted in reality.) But on the other hand, it is argued that in order to attract or retain mobile capital, governments are forced to curb taxation (especially taxes on capital) and rein in social spending. The results of studies weighing these proposed effects have come down on both sides of this argument, reflecting differences in measures of integration and spending used, countries covered, time periods, and so on, leading one author to conclude, “Globalization has not induced a pervasive race to the bottom in welfare state regimes. Nor have governments responded to market integration by increasing their welfare efforts across the board. The reality surely lies somewhere between these two extremes.”14
One reason that such studies don't find uniform impacts of globalization on domestic policy is that politics still matters, as targeted research confirms. One study of advanced industrial economies, for example, finds that globalization leads to higher levels of welfare spending in general but that the magnitude of this effect is conditioned by the number of players in a domestic political system with veto power and the ideological distance between them.15 Another indicates that in Western Europe, globalization causes social expenditure to increase in countries with conservative welfare regimes and decrease in those with social-democratic welfare regimes, and has no effect in countries with liberal and southern welfare regimes.16 And yet another study notes the impact of partisan politics, “Countries in which the balance of political power is tilted to the left continue to be more responsive to redistributive demands than those dominated by center-right parties.”17
Mistaken intuitions about the “golden straightjacket” probably reflect underestimates of how much differences between countries matter and a resultant overestimation of how footloose economic activity actually is across countries. Note that such misperceptions have probably been reduced in recent years as national governments have undertaken a variety of highly assertive responses to the recent crisis. And if we look more closely at cases where countries do seem to have been straitjacketed (e.g., Greece), we find that the problem is not globalization and openness to capital flows per se, but rather the level of public exposure or indebtedness. Especially since financial markets seem to be subject to random fluctuations of their own, countries can gain more freedom of motion and reduce vulnerability to shifts in overseas sentiments simply by not relying too much on external debt, as discussed in chapters 7 and 8.
The Death of Democracy?
Is globalization toxic to democracy, as globalization's opponents contend? Intuition would suggest otherwise, and so does the evidence. Intuitively, opening up to the outside, particularly in the form of freeing up flows of information and ideas, should be associated with political opening up inside. In fact, writers as different as Immanuel Kant, Joseph Schumpeter, Friedrich Hayek, and Niels Bohr have identified a causal relationship between openness and democracy. In Bohr's words, “The best weapon of a dictatorship is secrecy, but the best weapon of a democracy should be the weapon of openness.”18 It's no accident that Communist China long maintained strict control over its borders in the interest of suppressing dissent, and that countries like Myanmar and North Korea continue to do so to this day.
Others attempt to go beyond arguments based on obviousness or anecdotes. Some simply point to the fact that the recent period of globalization has also seen a spread of democracy: in 1975, thirty nations of the world had popularly elected governments, but by 2010 that number had grown to 116.19 More specifically, and in ways that attempt to get at underlying mechanisms, scholars point to the experiences of countries in central and eastern Europe and in South America as evidence of a close relationship between openness and democracy. The evidence from these regions has been read as suggesting that the suppression of democracy and confinement of political power to a ruling junta or oligarchy tend to require a closer control of borders, whereas greater openness tends to encourage democracy and the more equitable distribution of political power within a society.
The most sophisticated efforts to establish a link between globalization and democracy have focused on the effects of international trade and investment: the link between openness and information flows seems to be seen as too trivially obvious or even tautological to be worth as much attention. In addition to reviewing more than a dozen previous studies, economists Barry Eichengreen and David Leblang deploy their own sophisticated analytical approach to conclude that “positive relationships running both ways” do in fact exist “between globalization and democracy, though exceptions to this generalization appear to obtain at particular times (during the Bretton Woods period) and places (in labor-scarce countries).”20
How could trade and financial integration promote democracy and vice versa? As we have seen, products and services have informational content, which creates a link between trade and cross-border information flows. Gains from economic integration also support economic growth, and we know that democracy is more stable in countries where per capita income is above $3,000 to $6,000.21 Financial integration and policy transparency are also complementary. In chapter 7, we got a taste of how capital markets react to informational problems. And even more simply, the freedom to form links across borders is probably harder to deny in a context where government protects individual liberty and answers to the general public rather than the other way around. Additionally, it seems that geographic distance conditions the spread of democracy. Thus, researchers have recently undertaken statistical examinations of the domino theory, according to which the implantation or removal of democracy in one country “infects” neighboring countries, increasing or decreasing their likelihood of being democratic. And in fact, some effects of this sort do seem to show up in the data: countries do tend—albeit to a limited extent—to track increases or decreases in the democratization of their neighbors.22
It's true that if a country is subject to a high level of inequality (e.g., if it has a very high Gini index), democracy may lead to a backlash against globalization as people focus on domestic redistribution; a country like Bolivia provides a recent example. But the fundamental political problems in such situations, as in many others, are rooted in the d
omestic context, rather than being intrinsic to globalization. Restricting globalization does nothing to resolve such problems that would offset its numerous other costs. And allowing it might even serve as a catalyst for updating political institutions to reflect societal changes, fostering more representative democracy.
Widespread Wars?
The final political concern about cross-border integration covered here is that it may also promote cross-border conflict. This concern was not without foundation in the Age of Empire: for example, it has been argued that Germany's largely unsuccessful attempts to acquire colonies were an important factor underlying World War I. But in the modern period, the influences at work seem to be quite different. Thus, the discussion in chapter 4 of the loci of all U.S. military interventions between 1990 and 2002 and their juxtaposition against countries' involvement in disputes at the WTO suggested that economic engagement and military trouble tend to be substitutes: if you don't get the one, you get the other.
Further insight into problems and opportunities is afforded by looking more closely at wars. While interstate and intrastate warfare have both declined dramatically since the early 1990s, intrastate or civil wars remain much more frequent, and are much more serious in their impact.23 Very poor countries are several times as likely as rich ones to be embroiled in armed conflicts, and ethnic disputes are estimated to be responsible for the majority of deaths, with religion coming a distant second and money related to contraband such as drugs and conflict diamonds third.24 What to do about ethnically divided and, more generally, fragmented countries is discussed further in the next section. What needs to be noted here is that ascribing their internal conflicts to globalization, when many of them are not very integrated with the world economy in the first place, seems a bit of a stretch.
That said, even when such conflicts do remain confined within a country (which can't always be counted on—think of East Africa), their effects spill over national boundaries. Thus, one study estimates that the economic cost of failed states amounts to as much as $270 billion per year, a figure that includes lost income due to nonfunctioning economies (but excludes the costs of threats such as terrorism and drug trafficking that are spawned by failure). The bulk of this cost—87 percent, to be exact—is estimated to be borne by neighboring countries, themselves usually poor, whose income is depressed by the turmoil next door.25
This is, of course, an example of a cross-border externality. Note that it provides yet another answer to the question of why failed/failing states shouldn't simply be left to expire. And like most such externalities, it is less than fully global: neighbors should be expected to take a particular interest in reviving failing/failed states.
Finally, amid all the chatter about globalization and conflict, it is worth remembering that much conflict is driven by nationalist sentiments rather than impulses to globalize. You might think that after two world wars and millions of deaths we'd have learned our lesson; the reality is that radical nationalism tends to flare back up in times of financial crisis and economic uncertainty. In fact, you can measure it. One study suggests that a one percentage point decline in the growth rate is associated, roughly, with one percentage point more support for extreme right-wing or nationalist parties in a country, and even more in countries where income is relatively well distributed.26 The bad news is that such xenophobia is on the rise; the good news is that ADDING value through globalization in the ways flagged by World 3.0 may be the best way to bolster general attitudes toward globalization.
Independence and Integration
Aspirations toward the creation of new nation states, a driver of some of the internal conflicts mentioned in the previous section, have also been linked to globalization. Here, some historical context is useful. As we saw in chapter 1, there were nearly a million independent political entities in 3000 BC, averaging only a few dozen people each—but since then, their average size has increased several hundred thousand times as they have consolidated into nation-states with millions of inhabitants, sovereignty over defined territories, and extensive state apparatus.27 Political concentration was actually at a maximum in the Age of Empire prior to World War I, when the number of independent political entities (not including sub-Saharan Africa) decreased to just over fifty. By the end of World War II, there were about seventy-five independent countries in the world, and now there are nearly two hundred—a number not seen for about two centuries. So the last century has seen a (small) reversal of a pattern of political consolidation that stretches back into prehistory.28
Some of this fragmentation was the “natural” consequence of decolonization. But the process seems to have proceeded beyond that point—leading some scholars to conclude that “the ‘globalization’ of markets goes hand in hand with separatism.”29 The idea is that in a closed world, large countries enjoy economic advantages over small ones because political boundaries determine the size of the market. But with free(r) trade, even relatively small cultural, linguistic, or ethnic groups can form smaller, more homogeneous political jurisdictions that are economically viable.
Also note that such fragmentation has been accompanied by countries ceding some authority to (international) regional and global bodies (e.g., the European Union, the United Nations, the WTO) as well as, in some instances, (intranational) regional devolution of authority. These put additional pressure on the traditional nation-state, from above as well as from below.
The Spanish region of Catalonia, whose capital, Barcelona, I call home, provides a good example. Catalan separatism from Spain is sometimes traced as far back as the (unsuccessful) proclamation of a Catalan republic in the seventeenth century. But it found its modern expression in the aftermath of Francoism. General Franco brutally suppressed Catalan language and culture as payback for the region's opposition in the Spanish civil war (memorialized by George Orwell in his Homage to Catalonia). With Franco's death and Spain's transition to democracy, Catalonia's political aspirations were recognized by the Spanish government in a statute of autonomy passed in 1979. In a 2006 revision, the Spanish government recognized Catalonia's “national reality as a nationality.” But in 2010, Spain's highest court ruled that the only legal nation recognized by the constitution was Spain. This sparked another surge in Catalan separatism, with one large poll indicating majority support for independence.30
At the same time, the Catalan government has continued to try to strengthen Catalan over Spanish (which is still spoken by more people in Catalonia) with ever more insistent policies and practices. Thus, in summer 2010, it was decided that all professors who teach in Catalonia had to be able to do so in Catalan.
Underlying these political and cultural moves is the sense that the European Union has done a good enough job of integration that governance at the level of Barcelona and Brussels dispenses with the need for an intermediate level of government in Madrid. Similar sentiments can be encountered in other parts of Europe—Spain's Basque region, northern Italy, Belgium, Scotland, and so on—with one source predicting that as many as ten new countries may emerge in Europe in the course of the twenty-first century.31
I know (or have learned) better than to suggest to Catalans, for example, that they shouldn't pursue independence or promote Catalan above all other languages. All I can do is suggest that costs as well as benefits should be as fully accounted for as possible in making such existential decisions. To be specific, if separatists (like most people, as we saw in chapters 2 and 3) overestimate current cross-border levels of integration and underestimate residual border effects, they are likely to be too quick for their own good to approve secession.
Thus, in the Catalan case, its interregional merchandise trade with the rest of Spain is four-fifths the value of its merchandise trade with the rest of the world and—more importantly—helps convert an international trade deficit equal to 11 percent of Catalan GDP to an international and interregional trade surplus equal to 7 percent of GDP. Applying the estimate of a pure border effect reducing trade intensi
ty by two-thirds, the decrease in Catalonia's interregional trade volumes implied by the erection of a national border between it and the rest of Spain would decrease its GDP by 12 percent, and transform its external trade balance from a 7 percent surplus to a 5 percent deficit. Note that if the border effect reduced trade by only one-third, these shifts would be halved—but would remain substantial in their effects—at a time when local politicians are trying desperately to achieve 1–2 percent annual GDP growth.
I hasten to add that this is a back-of-the-envelope calculation rather than an adequate basis for a policy recommendation. But the point is that I've never seen the issue of border effects mentioned, let alone quantified, in the debate about whether to secede or not. It is certainly possible to decide to “consume” some of the benefits afforded by greater integration at the European and global levels in the form of political independence. But before deciding to do so, it might be useful to figure out how much independence would really cost—in terms of not just reduced (interregional) trade flows but also forgone opportunities for further economic integration.
Another indicator of latent separatism is provided by geography—the degree to which national borders are straight rather than squiggly, and therefore likely to have been drawn arbitrarily without attention to the realities on the ground. The most artificial states, as in the ones that rank in the top tier in terms of both ethnolinguistic fragmentation and straightness of borders, are Chad, Ecuador, Equatorial Guinea, Eritrea, Guatemala, Jordan, Mali, Morocco, Namibia, Niger, Pakistan, Sudan, and Zimbabwe.32 Countries like these Troubled Thirteen are the really hard cases, where there is so little love lost among different ethnolinguistic groups that relatively little else seems likely to be lost—some have argued—by their going their separate ways. Thus, foreign policy analyst Parag Khanna has suggested that thirty to forty of the countries that currently exist are worth splitting up or otherwise restructuring.
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