Globalization, Enterprise and Governance: Twentieth Anniversary Re-release – Part IV

Blogger’s Note. Reflecting upon the a recent “long read” published in the Guardian – an absorbing piece by Nikil Saval entitled “Globalisation: the rise and fall of an idea that swept the world” – I was rather jarringly reminded of something I wrote back in the nineties.  What strikes me about this vintage analysis, published in the International Journal (53:1, Winter 1997, pp 17-37), is just how little the debate has advanced over the intervening two decades. It seems that virtually nothing has been learned, and even less done in response to this longstanding critique. Why?  As a contribution to everyone’s summertime reading, I have decided to re-release the original, complete and unabridged, in five easy pieces. With apologies for the curious formatting, I would very much welcome reader commentary.

 

Globalization, national affiliation, and sovereignty

 
Corporations are growing increasingly cosmopolitan and sophisticated, able to respond to
challenges and exercise influence with subtlety and nuance. Circumstances may still dictate the
occasional hiring of mercenaries or subverting of governments, but most days corporate power is
more effectively wielded through local consultants or sympathetic national or international
organizations.

 
The received wisdom is that corporations have become stateless, and in general the location of a
company’s head office is increasingly incidental to corporate priorities and objectives. The
internationalization of production, in combination with the lure of tax avoidance, has largely
brought an end to corporate affiliation with countries of origin – except, perhaps, when foreign
assets are threatened or when it suits marketing objectives. United States flag patches, for
example, have again become a popular ornament on denim apparel – much of it made in Indonesia
or China or Bangladesh.

 
For the most part, major corporations raise capital in international financial centres, do their
design work in nodes of creative expertise, assemble where labour market conditions suit, pollute
where regulations or enforcement are weak, market where demand is strong, and so forth. With
the exception of demands related to trade policy negotiations and the control and policing of
intellectual property rights, it is in the interest of multinational corporate managers to retain at
most an arm’s-length association with host governments. No sinister plots here, just rational
responses to objective conditions.

 
The global negotiating agenda over recent years has been good for business. Dreams of the North-
South dialogue and a new international economic order have receded into distant memory and in
their place stand the WTO, Asia-Pacific Economic Co-operation (APEC), and a host of regional
trade liberalization agreements. Successive rounds of trade talks have brought widening agreement
on basic principles intended to facilitate competition, while protectionism has acquired a bad
name.

 

In such areas as terms of entry, access to technology and intermediate goods, and the treatment of
investment capital and remittances, most barriers are down. The Multilateral Agreement on
Investment (MAI) promises to level the international economic playing field yet further – for
certain types of players. When differences do arise, reference can usually be made to one or
another of the dispute settlement mechanisms that are standard features in most trade
agreements. But these tribunals tend to meet behind closed doors, and neither their
responsiveness to the public interest nor their accountability is well established.

 

Defenders of freer trade and unfettered investment argue that the transition to a rules-based
system has brought a form of discipline to a world which would otherwise be governed by the
law of the jungle. The existence of agreed rules is seen to enhance accountability, improve
performance, and curb the worst unilateral impulses of the strongest players. Be that as it may,
compliance with the provisions of international agreements has for many states translated into
significant intrusions into the business of government, with broad implications for domestic
management and national identity. Maximum efficiency in a global economy requires an
unprecedented degree of policy uniformity, which in turn involves a substantial surrender of
national decision-making control. In Canada, about which more later, one need look no further
than the explosive growth in private health care and education facilities as the public system runs
down. For some, these changes are the result of systems friction; for others they are a new
imperialism. Whatever your preference, the impact of globalization on sovereignty, popular and
national, is enormous.

 

Of public service

 
The policy harmonization required by globalization often translates, for practical purposes, into
agreement on the lowest common denominator. This erodes human security in advanced
industrial countries and elsewhere. No one should defend duplication or waste, but responsible
social spending, for example on education and health care, is an investment in human capital and
an essential component in any sophisticated development strategy. Quality of life, which is a
much more useful indicator than qualitative measurements alone, is becoming a critical
comparative advantage, particularly in attracting high value-added enterprises. Nonetheless, the
apostles of the marketplace have triumphed, even in public policy circles. With few exceptions,
no matter how progressive the programme or how effective the administration, the siege and
pillaging of the public sector will continue.

 
So, markets rule. Markets can perform many useful functions, especially when it comes to the
rapid allocation and deployment of resources. But they also have inherent weaknesses, notably
they are driven, ultimately, by greed and fear and respond to opportunity rather than need. If
they behaved rationally, markets would be predictable, and everyone would be rich. Instead, a
cautionary word from the chair of the Federal Reserve Bank in the United States can result in
chaos. Oscar Wilde was right: the problem with relying on markets is that while they can put a
price on anything, they put a value on nothing.

 
Accordingly, the ethic of universal and equitable access to services is giving way to contracting
out, cost recovery, and user payment. That this has occurred at the same time as service
reductions, regulatory rollbacks, and a transfer of the burden of taxation from companies to wage
earners has led some analysts to conclude that globalization is tantamount to the imposition of
some kind of corporate agenda, the accumulation of corporate power under the guise of an attack
on government.

 
Study after study has shown that most government programmes benefit middle and upper
income groups, that tax expenditures benefit wealthy corporations and individuals, and, in the
absence of progressive mechanisms to redistribute it, that wealth tends to accumulate upwards.
Even so, with little debate and less defence, government has been saddled with the responsibility
for all of the economy’s ills and has been evicted from large areas of its former territory in
transportation, communications, environmental protection, resource management, and health care.
Except for foreign affairs, defence, and finance, and a few other core policy areas, the apparatus
of the state has been stripped, public services have been repackaged as business opportunities
and corporatized, privatized, or simply vacated, and large swathes of regulatory, administrative,
and programme delivery capacity has been dismantled or sold off.

 
This withering of the legitimacy and domain of state activity has produced both policy paralysis
and a recalibration of the popular vision of government. Within élites, the benign image of the
state as the embodiment of shared convictions, arbiter of competing demands, and agent of
distributive justice has been eclipsed by pro-business, anti-government values. The welfare
vocation – predicated always on a degree of national protection and the isolation of certain
services from market forces – has given way to the new imperative of competitiveness. The
scramble is on to deregulate.

 
Despite lip service to the contrary, governments have largely given up on distributive justice as
they struggle less to provide for the disadvantaged and more to attract investment and create
suitable ’enabling’ environments – through tax holidays, zoning exemptions, loan guarantees – for
business. These priorities are not propitious for democratic development or human security.

 
Private interests

 
For most nations, previously autonomous actions such as the establishment of interest and
exchange rate levels have become, in large part, a function of international capital markets. Indeed,
in an integrating world economy, national financial well-being is increasingly conditioned, if not
determined, by the sorts of international monetary and investment flows discussed earlier and by
the perceptions of those who control them. Could the fate of a nation be decided by a 28 year old
MBA in red suspenders whose responsibilities include the assessment of sovereign
creditworthiness for a major Wall Street bond rating agency? It is not inconceivable.

 
Nor is it hard to understand why there is a growing sense of powerlessness and anxiety. Capital
and technology are highly mobile. Labour, however, is much less so, and governments – repeated
attempts by the United States notwithstanding – cannot legislate beyond their political territory.
Neither parliaments nor trade unions have much leverage when faced with a run on their currency
or the threat of corporate relocation to an export zone sweatshop somewhere in the economic
South. And as the number of homeless and reliance on food banks grows, globalization is bringing
more and more aspects of underdevelopment – economic, social, political and cultural – home to
roost in the industrialized world. Most member states of the Organisation for Economic Cooperation
and Development (OECD) face continuing high unemployment and underemployment,
which exerts downward pressure on wages and incomes and is helpful to the employer in
collective bargaining.

 
Meanwhile, professionals, senior managers, entrepreneurs, and knowledge workers keep the
myth of opportunity alive, prospering beyond the dreams of those stuck in McJobs. Or, stuck
without them. In the era of the jobless recovery, many young people and a growing corps of the
downwardly mobile who have fallen out of the middle class face a difficult and uncertain future.

 
… and the residual state

 
Democracy and human security are relative concepts, but at a some basic level they turn on
economic well-being, social justice, and the absence of conflict. Along with the articulation of
national values, policies, and interests, and their pursuit and projection abroad, these
responsibilities have for centuries been a central part of what states do. But in the political
culture of the millennial dawn, expect more enterprise, less governance. In OECD member states
and in less developed countries, the severe shocks, backlashes, and social divisions that are the
side-effects of globalization have impaired the durable construction and effective functioning of
representative institutions. And when the role and wherewithal of government are in jeopardy,
democracy and security will remain elusive.

 
While globalization will one way or another affect virtually everyone and everything, it heralds
particularly tough times for states. In capitals around the world governments seem too big to do
the small things and too small to do the big things. Power is flowing upward to multilateral
bodies, outward to corporations and NGOs, and downward to other levels of provincial and
municipal government. Hollowed out by ethnic, religious, and regional uprisings from within,
washed over by waves of supranational force, and undercut by subnational currents, governing
has perhaps never been more difficult.

 
Is the end of the state near? Not quite. Certain roles will remain, and some, of necessity, may
well be enlarged. Trade liberalization, macroeconomic policy reform, and structural adjustment
tend to concentrate wealth. Neither the gains nor the losses from globalization are evenly
distributed. As polarization leaves increasing numbers economically distressed and politically
disenfranchised, government priorities may have to shift away from incentives to business and
towards a more fundamental requirement: keeping the lid on.

 
As for domestic priorities, look not for national daycare but for the continued expansion of the
criminal justice system, proliferating correctional facilities, and more heavily equipped security
forces. What some have called the residual state may be closer to a police state, or, à la Singapore,
a virtual police state – no social problems or violence, enforced limits on freedom of association
and expression. A 21st century version of the national security state does not auger well for
democratization anywhere.

 

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