Putting social democratic values back into globalisation

Phil Toner, University of Newcastle

Chris Sheil (ed.) Globalisation. Australian Impacts Sydney: UNSW Press, 2001 (196pp). ISBN 0-86840-31328 (paperback) RRP $32.95.

Duncan Kerr Elect the Ambassador! Building Democracy in a Globalised World Sydney, Pluto Press, 2001 (194pp). ISBN 0-86840-7941 (paperback) RRP $39.95.

The subject of globalisation has clearly been the ‘hot’ topic amongst academic researchers and policy makers in economics and politics disciplines for the last few years. The University of Sydney’s library catalogue lists some 120 books on the subject of ‘globalization’ (the database insists on this U.S. spelling, in sympathy, I suppose, with the subject matter). There are 549 books with globalisation as a keyword, and of these 53 were published in 2001! Globalisation is a category used in these tomes to examine everything from comparative literature, population flows, anthropology, medicine, culture and the media. Denis Altman even has a title out called Global Sex, which is possibly of more intrinsic interest than the other 548 books. This is not to say that the subject of globalisation is devoid of pedigree, as attested by frequent quotation from the 1848 Communist Manifesto on dynamic capitalism creating a ‘world market’.

It is a standard reviewer’s remark that edited works consisting of chapters written by separate authors suffer a lack of conceptual consistency, while at the same time benefiting from diverse and expert perspectives on a variety of topics. This is certainly true of Chris Sheils’ book. For the most part the authors eschew any conceptual debates on the definition of globalisation and focus solidly on the empirical causes and effects of globalisation. These include the implications of liberalised international trade and financial flows; formation of regional trading blocs; and the growing influence of international treaties on national decision-making. The fact the authors do not necessarily share the same conceptual framework as to the nature and causes of globalisation gives rise to some internal inconsistency in the book. The Federal Labor MP, Kevin Rudd, argues that the ‘real multiplier of the economic globalisation phenomenon… has been the revolution in transport, communications and, particularly, information technology’ (p.148) (Rudd’s chapter is pompously titled Inserting a New Dialectic: Governance). Au contraire, says John Quiggin in chapter 2, who condemns this common view as technological determinism. Quiggin finds the cause of globalisation in governments deregulating financial systems, with resultant huge growth in short term financial flows.

Each of the fifteen chapters (excluding the introductory and concluding chapters by the editor) covers a separate topic such as telecommunications, transport, media, environment, industry policy, health, education, welfare and democracy. This is a real strength of the book as it demonstrates the pervasive influence of globalisation, and allows for a detailed empirical examination of diverse effects by subject matter experts. Some authors, such as John Quiggin, Roy Green, Clive Hamilton, Simon Marginson and Lionel Orchard, are senior researchers in their respective fields who also have the uncommon ability to write clearly and without jargon. With individual chapter lengths ranging from around 20 to 35 pages the authors are not constrained by space in developing their arguments and presenting tables and charts as supporting evidence.

If there is a common current of ideas flowing through most chapters it is that the nation-state, although confronting threats to its authority from globalisation, is not yet overwhelmed by these threats. Globalisation is largely the result of nation-states’ decision making, in particular, liberalisation of capital flows and privatisation, and a judicious return to social democratic ideology could re-regulate the system, albeit requiring a high level of international co-operation. Indeed, the necessity for extensive international co-operation in response to internationalised capital is perhaps the key theme in the book. (Though it must be noted that calls for international co-operation in dealing with globalisation are hardly new. The case for co-operation was cogently argued for example, in Christopher Tugendhat’s classic 1971 book, The Multinationals).

There are several highlights in the book. John Quiggin’s chapter is probably the best, and represents many of the book’s key ideas. Pitched at the person on the Clapham omnibus, it is a model of clear exposition and covers a lot of ground. By taking an historical view, Quiggin queries those who claim that ‘globalisation’ is absolutely novel—on ‘many measures, the world economy was more integrated before 1914 than it is today. There were few restrictions on the movement of goods, labour or capital… [though] On the other hand, the global integration of manufacturing was less advanced in the 19th century than it is today’ (p.21). However, such globalisation went into retreat for a large part of the twentieth century, with the establishment of the Bretton Woods system, from the end of WWII to the early 1970s. The gradual development of the current global system is the direct result of the collapse of that system as nations have abandoned financial controls and adopted complementary neo-liberal policies such as privatisation. For Quiggin, the ‘main differences between the globalised economy of today and that of the 19th century is the greatly increased volume of short-term financial transactions relative to the ‘real’ flows of goods and services and long term investment’ (p.25).

The nation-state is not yet overwhelmed by the threats to its authority from globalisation.

Quiggin argues each of these historical periods (the latter part of the 19th century, Bretton Woods, and the current deregulated system) were adaptations to the ‘impossible trinity’: a government cannot simultaneously pursue an independent macroeconomic policy, a fixed exchange rate and allow free international capital movements. Collapse of the international systems reflected internal contradictions in dealing with this trinity. For example, the 19th century allowed free capital flows, but maintained fixed exchange rates based on the gold standard. The system was inherently unstable with spectacular booms and busts because governments were unable to institute macro policy not conforming with ‘sound’ finance. The Bretton Woods system allowed considerable macro autonomy, but only by controls over both exchange rates and capital flows. The Vietnam War and the growth of the Eurodollar market caused a variety of problems which saw controls over both abandoned. Under the current system of deregulated capital markets and exchange rates, nation states’ macro independence is constrained by a growing uneven balance of ‘power between governments and financial markets at both the national and international level’ (p.27).

Quiggin is critical of the technological determinism argument as an explanation of globalisation. He also argues that the process is less one of globalisation, in the sense of uniform increase in trade and financial flows between all countries, but one of increased regionalisation. ‘Growth in trade among European countries is a major component of the growth in world trade, often used as evidence that globalisation is occurring. But since trade between Europe and the rest of the world has grown more slowly than European output, an analysis of world trade which excluded intra-European trade would yield only weak evidence of globalisation’ (p. 26). This argument also gets a solid run in Archibugi, Howells and Michie, Innovation Policy in a Global Economy (1999).

In rejecting technological determinism, Quiggin, quite rightly, emphasises that the current system is the outcome of national governments’ decisions to abandon capital and banking controls. In other words, the breakdown of Bretton Woods and the decision to deregulate reflected a major ideological shift. The implication of this is that the problems of instability in the current system can be addressed by national governments co-ordinating efforts at financial re-regulation, as they did near the end of World War II at Bretton Woods. The ‘fundamental question is whether the world economy will be controlled by the individual and collective actions of governments; as it was during the postwar boom, or by capital markets, as it was in the 19th century… the debate over globalisation is simply an extension, to the international stage, of the debate between the defenders of the social-democratic welfare state associated with John Maynard Keynes and the advocate so free markets. Indeed the arguments for and against allowing free movement of international capital are much the same as those for and against the deregulation of domestic markets’ (p. 20). (A related argument is to be found in Hirst and Thompson’s 1996 Globalisation in Question). Quiggin is lukewarm as to the benefits of a Tobin tax, given for example, the capacity of countries to gain advantages by offering ‘Tobin tax free’ status. (A Tobin tax, named after its proponent James Tobin, is a tax on short term financial flows into and out of a nation. It is intended to slow the rate of such flows and inhibit the destabilising effects of large rapid flows).

Green and Wilson, in their chapter on industry policy, highlight the flaw in the argument of Third Wayers, such as Mark Latham, Lindsay Tanner and Bob Catley, who equate globalisation with free trade. Non-commodity international trade is based on competitive advantage which is created, in part, through state industry policies. Indeed, with globalised markets industry policy becomes even more important in maintaining living standards. As net exports form a rising share of countries’ GDP, policies relating to the efficiency and effectiveness of industrial clustering and national systems of innovations assume even greater importance.

With globalised markets, industry policy becomes even more important in maintaining living standards.

By contrast with Sheil’s collection, Duncan Kerr’s Elect the Ambassador is a profoundly disappointing book. This is not to say it is badly written; it is not. The clarity of the writing however, simply exposes the banality of the contents. The basic thesis of the book is that globalisation is diminishing the power of the nation-state to govern its own affairs, though the majority of the population of these nations are critical of the economic liberal policies which, in part, created this situation. This gap between neo-liberal governments and the policy aspirations of the populace is creating a legitimacy crisis for democracy—what Kerr calls a ‘democratic deficit’ (p.2). So far, so good. The rot sets in with the basic premise, common to many on the Labor Right, such as the aforementioned Latham, Tanner and Catley, that attempts by nation states to control their economic destinies through directing or channelling private investment are profoundly bad policies. Globalisation is equated with free trade and its orthodox accoutrement, comparative advantage: ‘Globalisation and open markets have allowed resources to be used more efficiently and productively… Strategies that will be destructive of open markets are, therefore, not only naively impractical but also flawed in principle’ (p.141). There we have it, the old pea and thimble trick, taking the principle of the textbook model of comparative advantage with its unambiguous benefits and applying it to the real world where, as Green and Wilson argue, globalisation is the very antithesis of the comparative advantage doctrine. Globalisation is based on ever increasing scale economies, international flows of factors (not just products); endogenous technical change and, of course, imperfect competition, and so on.

Kerr’s solution to the crisis of democracy is for international institutions to have either their representatives directly elected by the populace of nation states or for shadow institutions with elected representatives to be developed alongside existing bodies, such as the U.N. What is to stop the representatives of existing parties monopolising such electoral feasts; the same parties that are to blame for the democratic deficit? A model for an international electoral system is advanced ‘where each member states’s quota of seats would be the square root of the number of millions of its population’ (p.179). With such an international electoral system Kerr notes the problem of authoritarian states who would be unlikely ‘to take a progressive view on civil liberties, greenhouse issues, child labour, affirmative action, education of women, disarmament, ethnic cleansing, religious tolerance, saving rainforests?’ (p.146). No solution is offered to this dilemma.

And the end result of all this democracy? The expected economic outcomes of all this democracy are minimal indeed. The ‘program to deal with the negative structural consequences of globalisation’ consists of a Tobin Tax to slow down excessive international speculative capital flows; international agreements to prevent tax losses arising from transfer pricing / tax shelters; competitive reductions in national tax rates to attract foreign investment; and minimum labour standards relating to exploitation of child labour, prison labour, and free trade unions (pp. 134–140). What is this going to offer a worker at Mitsubishi Adelaide facing redundancy—except another dose of democracy deficit?

REFERENCES

Altman D. (2001) Global Sex, Allen and Unwin, Sydney.

Archibugi D. and Michie J. (eds) (1998) Trade, Growth and Technical Change, CUP, U.K.

Hirst P. and Thompson G. (1996) Globalisation in Question: The International Economy and the Possibilities of Governance, Polity Press, Cambridge.

Latham M. (1998) Civilising Global capital: New Thinking for Australian Labor, Sydney: Allen and Unwin.

Marx K. and Engels F. (1998) (Introduction by Eric Hobsbawm) The Communist Manifesto, New York: Verso.

Tanner L. (1999) Open Australia, Sydney: Pluto Press.

Tugendhat C. (1971) The Multinationals, U.K: Penguin Books.

Phil Toner is Principal Researcher, Employment Studies Centre, University of Newcastle. His main interests are structural changes in the labour market, skills formation, comparative industrial structures and industry policy.