Wednesday, April 30, 2008

Globalisation – not as 'globalised' as it would appear

More global trade would be nice.

by StFerdIII



Globalised trade and international economic integration were supposed to crush the nation state. Regional trade agreements; bi-lateral economic associations; and the IMF-World Bank 'consensus' were to eradicate state power. For the past 50 years cries and alarms have been raised about such mental distortions as 'a race to the bottom'; 'the death of the welfare state'; or 'the loss of sovereignty'. In the past 50 years the nation state has of course gotten stronger, not weaker, from globalisation. This is the saddest consquence of increased wealth creation worldwide.

The world has never been 'flat', 'borderless', or 'one'. That is a gross myth. One could argue that along most metrics the late 19th century was more open than today's world if you measure GDP invested abroad; trade as a percentage of national income; or international capital flows compared to national incomes. There is nothing that unique about the economic forces underpinning the modern development of globalisation. What is special is that the nation state has perversely grown much stronger, not weaker from this current modern brand of an age-old phenomenon.

The top 20 economies account for 70% of all trade. This simple fact means that 180 odd states are minor players or almost completely excluded from global trade flows. Even within the prosperous 20 states trade on average, accounts for 45% or less of total GDP.

The US for example has 17% of its GDP linked to exports and about 16% to imports. In compacted Europe where distances are small and borders more prevalent the totals range from 40-50% for import and exports combined. Yet the large economies of Japan, Russia, Brazil, and India have 32% or so dependent on trade. While impressive and certainly higher than 20, 50 and 100 years ago, trade and globalised money and production poses little threat to state power.

As trade increases so too do non-tariff barriers. The GATT process has reduced manufactured tariffs down to an average of 5% per product, but non-tariff barriers proliferate. Eco-regulations, 'fair' labor standards and regional sources of origin requirements, all mitigate against open trade. Some sensitive sectors such as autos; agriculture; lumber and steel are openly protected by tariffs, quotas and content requirements.

Along with rising protectionism state-owned companies are expanding, particularly in oil and gas. Governments are using these cash-cows to back huge state managed investment funds. These sovereign wealth funds from Asia and the Middle East are now invested in struggling US and European banks.

In the battle of the market versus the state, it is pretty clear that the state is in the ascendant. In the richer countries the power of the state has grown magnificently through a near doubling of most state budgets in the past 25 years and rich plethora of new tax and regulatory opportunities. In the 30 mostly rich countries of the Organization for Economic Cooperation and Development, tax revenue as a percentage of the local economy was higher in 2005 then ever before – on average about 40% of GDP.

Across the developed and more prosperous world, demands by the old, the sick, the 'poor', and those on the margins of society, or in regions which are less wealthy than 'core' areas; are demanding more. Equality, 'justice' and communal values are now the norms for the nation state. Individualism, capitalism, unrestrained supply and demand interactions are now regarded as loathsome in most states. This is largely due to the state's power to control, regulate or monopolise key sectors of information, education, and the media.

Only in few countries is there any form of competition in the media, education, or the public space. The internet has allowed many non-state actors to spread and discuss state independent viewpoints, but in many countries even this vehicle is being crushed by 'Human rights commissions' which target certain 'offenders' in order to aid certain state approved 'victims'. The state is very good at trying to control free speech and debate.

Far from being powerless in the face of global economic and trade forces, the state has become far more powerful. Markets can only operate within a state. The state ensures security, contracts, rights, laws, regulations, borders and well known processes. Markets cannot operate in an anarchic world. States have seized the opportunities afforded by trade to do 3 things:

1.increase national wealth and relevancy
2.erect more programs and regulations and
3.engage in more agreements and compacts in order to limit and define and thereby control cross border transactions.

The real perversity is this: the more 'global' we become, the stronger the state becomes. This is a fact which should give everyone pause. Freedom of economic exchange should lead to greater individual freedoms and reduced state interference. The fact that we have the opposite should be very unsettling to anyone who promotes freedom and civilisation. State power is anathema to what makes civilisation's great.