The Web of Globalization

Can a country withdraw from globalization, or for that matter, give up democracy in order to benefit from global capital flow? In this column, YaleGlobal editor Nayan Chanda dissects the recent argument offered by Harvard economist Dani Rodrik, who suggests that “economic globalization, political democracy, and the nation-state are mutually irreconcilable.” Crises that disrupt global capital flows, such as huge debt in Greece or the previous sub-prime mortgages in the US – could be tamed by accepting conditions imposed by the market, but Rodrik predicts nations – both citizens and leaders – would balk at any interference to national sovereignty. While acknowledging that democratic opinions have often clashed with rules brought by globalization, the choice is less stark than presented by Rodrik. The 153 members of the World Trade Organization fare better than those like North Korea that reject global connections. Attempts to withdraw from globalization or embracing authoritarianism are not a practical course for the interconnected world. – YaleGlobal

The Web of Globalization

Retraction from a globalized world is no longer an option for most of sovereign governments
Nayan Chanda
Monday, May 24, 2010

The Greek crisis has provoked fresh worries about globalisation. But unlike the schadenfreude that greeted Asia’s financial crisis of 1997, the turmoil in Europe is producing less lecturing and more angst-ridden self-examination. If the Asian crisis was explained away by crony capitalism and greed, the upheaval in Greece is holding up a mirror to more than one over-leveraged western government. American analysts worry that Greece may be a precursor of what is in store for the debt-ridden US. Taking this concern further, Harvard economist Dani Rodrik even wonders whether the Greek crisis is forcing countries to choose between globalisation and democracy. With due respect to the professor, I would humbly submit that there is no such choice in the real world.

In a recent column, Rodrik has returned to his theme of the “political trilemma” emerging from the Greek crisis. He argues that “economic globalisation, political democracy, and the nation-state are mutually irreconcilable”. For him, economic globalisation boils down to global capital flows. In order to ensure that this flow continues, sovereign states will have to surrender some of their independence in monetary and fiscal policy making. Without stating the obvious, he implies that this surrender of sovereignty would be unacceptable to a democratic electorate. The options to emerge from this ‘trilemma’ are the suppression of democracy on one the hand or the abandonment of globalisation on the other. Those wishing to have both globalisation and democracy have no option but to embrace the “internationalisation” of democratic politics or, as he puts it, “a global version of federalism”.

The simplicity of stark choices and Rodrik’s clever phraseology makes his thesis an intuitively seductive one.

There is clearly much truth in what Rodrik says about the power of the global markets and the buzz-saw of opposition it has run into countless times since the anti-globalisation riots in Seattle in 1999. The anti-globalisation protests that have greeted almost every meeting of the WTO, IMF and World Bank have been a constant reminder of democratic opposition. No such protests have been seen in China — the world’s leading globaliser — providing ‘Exhibit A’ for his thesis about globalisation working well with autocratic regimes.

There is no doubt either that for global integration to proceed without obstacles, greater political coordination is required. Rodrik’s thesis becomes untenable when he presents globalisation and democracy as straightforward options that can be accepted or rejected at will. “If we push for globalisation while retaining the nation-state,” he says, “we must jettison democracy. And if we want democracy along with globalisation, we must shove the nation-state aside and strive for greater international governance.”

This stark view of globalisation as but one of the options available to sovereign governments only works if the phenomenon is straitjacketed into meaning only ‘mobility of capital’. But in reality, globalisation is a historical process that has grown over the millennia, increasingly tying the world in thicker webs of trade and travel. Far from representing notional dollars or euros rocketing around the globe, globalisation or growing connection has transformed every aspect of life.

There have of course been exceptions, when countries resisted joining the integrating world: the Hermit Kingdom of Korea in the 19th century or Kim Jong Il’s Democratic People’s Republic are recent examples. But for most of the rest of the world — especially the 153 countries that have enthusiastically embraced membership of the WTO — withdrawal into the national shell is simply not an option, even though capital flow may dwindle or stop for a period as it has many times and was threatened in Greece. Neither can capital flows be separated from the trade and travel (some 140 million people live outside their country of birth) that make up today’s globalised world.

Rodrik’s notion that countries may have to “jettison democracy” in order to be part of a globalised world is equally unrealistic and ahistorical. The march of society towards greater freedom and accountable government has encountered many bumps — and even occasional short-lived reversals — but it is hard to imagine that the leaders of any established western democracy would embrace military dictatorship in order to ensure overseas capital flows. Even if some politicians were tempted to suppress democracy in order to keep global funds flowing, the outcome could be just the opposite.

The author is director of publications at the Yale Center for the Study of Globalization and editor of YaleGlobal Online.

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