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Interested in working at NED? See all job openings. There can be little doubt that the whole is different from, if not greater than, the sum total of the parts. This epoch of globalization has also witnessed the spread of political democracy across countries in the developing world and in the transition economies. Such democratic politics is mostly about electoral democracy in some form, even if people do not always have the political rights or political freedoms that democracies should ensure for their citizens. Nevertheless, it represents a vast change from authoritarian regimes that characterized the developing world until three decades ago.
The geographical spread of democracy is striking across Asia, Latin America and Africa. Of course, elections are not always free and fair. And it is not as if authoritarian regimes have vanished. There are many that exist. Some are entrenched, while some are under siege. In a large number of these countries, however, dictatorial regimes are subject to increasing question, as aspirations for democracy are rising everywhere.
In this essay, I explore the relationship between globalization and democracy. It begins with a simple analytical construct derived from economics that suggests trade-offs between globalization, the nation state and democratic politics. In reality, of course, the relationship is neither linear nor characterized by structural rigidities.
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It then analyzes the relationship between market economy and political democracy in a national context to show that it is interactive, so that such an approach is useful for an understanding of the international context. It leads into a discussion on how globalization might constrain degrees of freedom for nation states and space for democratic politics. But this provides an incomplete picture because the causation runs in both directions. The essential next step is to consider whether political democracy within countries might exercise some checks and balances on markets and globalization, which also provides a closure.
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In sum, my argument is that the relationship between globalization and democracy is dialectical and does not conform to ideological caricatures. It is possible to consider the relationship between the process of globalization in the world economy with political democracy in nation states in terms of a simple analytical construct, which is the standard trilemma from open economy macroeconomics.
This is, at best, a starting point because it does not quite recognize the complexity, let alone the dialectics of the relationship. The original trilemma argues that it is not possible for countries to maintain, simultaneously, independent monetary policies, fixed exchange rates and open capital accounts. This open economy trilemma is sometimes described as the "impossible trinity" because it is possible to maintain only two of the three. If an economy chooses capital mobility and fixed exchange rates, it must give up autonomy in monetary policy.
If an economy wants fixed exchange rates and autonomy in monetary policy, it must do without capital mobility. If an economy wishes to have autonomy in monetary policy with capital mobility, it cannot have fixed exchange rates. These possible alternatives are, in fact, observable in the world economy at different points in time. From the late nineteenth century until the Great Depression, the Gold Standard combined fixed exchange rates with capital mobility but countries sacrificed monetary policy autonomy.
From the mids until the early s, the gold exchange standard created at Bretton Woods combined fixed exchange rates with monetary policy autonomy but more or less ruled out capital mobility. In the period since the mids until now, the present era of globalization, most countries sought to combine monetary policy autonomy with capital mobility abandoning fixed exchange rates for a regime of floating exchange rates.
The derived construct first developed by Dani Rodrik is described as the political trilemma of the world economy.
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The three nodes of this derivative are globalization, the nation state and democratic politics. In this characterization, globalization describes a substantial integration of national economies into the world economy, the nation state refers to sovereign jurisdiction in terms of laws and institutions, while democratic politics is about electoral democracy, political freedoms and political mobilization. As in the original trilemma, it is possible to sustain only two of the three. If a country wants to stay with the nation state and democratic politics, it cannot sustain deep international economic integration.
If a country wants to combine globalization with the nation state, it needs to sacrifice democratic politics. If a country wishes to have democratic politics in a world of globalization, it would have to do without the nation state. This argument is developed further, at much greater length, in Rodrik , where he suggests that countries cannot simultaneously pursue national sovereignty, political democracy, and economic globalization, so that nations can have any two in any combination but not all three.
The underlying reasons are not obvious. The essence of the Rodrik hypothesis is that deeply integrated national economies would conflict with the regulatory and jurisdictional discontinuities created by heterogeneous national laws and institutions, while harmonized laws and institutions that eliminate the significance of national borders conflict with the foundations of democratic politics where governments are accountable to their people. The basic idea is illustrated with a caricature description of reality in the past.
The argument runs as follows. From the late s to the mids, the golden age of capitalism, the multilateral economic system made it possible for countries to stay with the nation state and democratic politics by limiting the degree of international economic integration.
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From the late s until the late s, the age of globalization, which sought to harmonize, policies, institutions and laws across countries, made it possible for countries to combine globalization with the nation state but at the expense of democratic politics. In this construct, it is conceivable to contemplate a future, however unlikely, where it may be possible for countries to combine democratic politics with globalization, by dispensing with the nation state and opting for a world government or global federalism.
The second link in the chain of this storyline is also stressed by Thomas Friedman, from a somewhat different ideological perspective. Of course, his belief in the magic of markets and globalization is not without its limitations and flaws Chang, , but his characterization of the consequent constraints on governments describes aspects of reality. Friedman uses "Golden Straitjacket" as a phrase to describe how governments everywhere, in this age of globalization, compete with each other to harmonize policies and earn the confidence of international firms and international markets.
The following quotation is so explicit that the phrase needs no further explanation: "As your country puts on the Golden Straitjacket, two things tend to happen: your economy grows and your politics shrinks [ Yet, the reality is that there has been an expansion of, rather than a contraction in, political democracy during the era that Friedman describes and idolizes. In my view, this caricature characterization does not capture the complexity of reality. The golden age of capitalism witnessed a rapid liberalization of international trade and international investment to provide the foundations of globalization, even if restrictions on capital mobility meant that it did not extend to international finance.
What is more, the age of globalization witnessed a spread, rather than a sacrifice, of democratic politics across countries, even if the rise of political democracy was uneven and incomplete. And this move towards greater democracy in a world of globalization was not attributable to any governance of the world economy in terms of institutions and rules let alone a world government. But that is not all.
The major industrialized countries, not only the United States but also countries such as Britain, France, Germany and Japan, are able to combine the nation state and democratic politics with globalization but for some deference to international financial markets. Surely, this diminishes the explanatory power if not validity of the hypothesis. Apart from such reality checks, there are two basic problems with the trilemma as an analytical concept.
For one, it depicts a caricature world with strong structural rigidities. For another, it creates a binary world with either-or choices. Hence, if there are three possibilities, it is possible to attain only two of the three at a time.
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It is, at best, an analytical abstraction that highlights conflicts or trade offs between three stipulated objectives. And it is not quite appropriate even in the limited context of open economy macroeconomics Taylor, , where it is simply an analytical construct that highlights conflicts between policy objectives, or instruments, to focus on dilemmas that arise, rather than a depiction of reality. There is, however, an even more serious problem of transitivity in moving from economics in the original trilemma to politics in the derived trilemma.
Each of the three nodes, international economic integration, the nation state, or democratic politics, may represent a range rather than a single unique point, which means that there may be choices within each. Moreover, trade-offs may be a continuum rather than binary choices, which means that it may be possible to have more of two and less of the third. In other words, there could be more choices within and between the three nodes whereas the trilemma only allows choosing two from three.
The fundamental problem with such an analytical construct is that it suggests a false precision which is deceptive if not misleading. Of course, in reality, there are conflicts between objectives or desired states. And, wherever there are conflicts, there are bound to be trade-offs. Hence, there are choices to be made. But these should not be reduced to: "pick two, any two". In this context, there is something to learn from a historical perspective.
Globalization in the late twentieth century and early twenty-first century, as much as the earlier era of globalization during the late nineteenth century and early twentieth century, represents neither the end of history nor the end of geography Nayyar, It is not the end of history, now as it was not then, because markets and globalization may not be the dominant mode for the world economy in perpetuity.
It may have been a world war then and it is the economic crisis now that has created doubts about the wisdom and necessity of deepening economic integration in the world economy. And there was life after globalization then as there will be now. It is not the end of geography, because nation states cannot exist in a vacuum and most must strive to improve the economic conditions of their people to whom governments are accountable. It is clear that the nation state is a reality that has not withered away. There has been an erosion in its economic space but not in its political space. This reality has been brought home by the global economic crisis Nayyar, At the same time, democratic politics is an aspiration that is on the rise everywhere.
The spread of political democracy has coincided in time with the advent of market economy. There are fewer authoritarian regimes and more democratic regimes. In sum, the nation state is a reality embedded in history that has emerged stronger from the global economic crisis. Democratic politics, which has gathered both momentum and strength in the recent past, is increasingly a prior, as there is a rights consciousness among citizens. In contrast, the degree of international economic integration is a matter of strategic choice in terms of speed, sequence and engagement.
It depends on choices made by the nation state where, ultimately, governments can decide only in accordance with preferences of people. And if it produces unequal outcomes, globalization is unsustainable in terms of both economics and politics. The nature of the relationship between market economy and political democracy in the national context is perhaps the more appropriate starting point for an understanding of the relationship between globalization and democracy situated in the international context.
The causation is interactive as it runs in both directions and the relationship is dialectical as one shapes the other. The essence of the tension between the economics of markets and the politics of democracy must be recognized. In a market economy, people vote with their money in the market place. The underlying principle is one-dollar-one-vote. But a political democracy works on the basis of one-person-one-vote Bhaduri and Nayyar, The distribution of votes, unlike the distribution of incomes or assets, is equal. One adult has one vote in politics, even though a rich person has more votes than a poor person, in terms of purchasing power, in the market.
This tension may be compounded by a related asymmetry between economy and polity. The people who are excluded by the economics of markets are included by the politics of democracy. Hence, exclusion and inclusion are asymmetrical in economics and politics. The distribution of capabilities is also uneven in the economic and political spheres.
Edited by Robert E. Goodin
The rich dominate a market economy in terms of purchasing power. But the poor have a strong voice in a political democracy in terms of votes. And there is a mismatch. It is clear that, in reconciling market economy and political democracy, a sensible compromise must be reached between the economic directions that the market sets on the basis of purchasing power and the priorities that a political system sets on the basis of one-person-one-vote. In this context, it is not surprising that successive generations of economic thinkers and social philosophers have stressed the role of the State in this process of mediation.
The reason is important even if it is not obvious. Governments are accountable to their people, whereas markets are not. In a democracy, of course, governments are elected by the people. But even where they are not, the state needs legitimization from the people, most of whom are not rich or are poor. The task of reconciliation and mediation is obviously difficult but clearly necessary Nayyar, a. Markets are responsive to the demands of rich people and not to the needs of the poor people. This is inherent in the logic of markets where decisions about what is produced are based on demand and not on need.
Thus, markets produce goods for which there is enough purchasing power. The output-mix depends upon the composition of expenditure and the size of the market. Since the rich have more purchasing power, markets, left to themselves, are likely to produce more soft drinks and not safer drinking water. In this manner, markets include people with entitlements but exclude people without entitlements.
In theory, every economic agent has the freedom to choose. In practice, there is a choice for some but not for others. And there is more choice for some than for others. Democracies are more responsive to people with a voice than to people at large. People without a political voice are often simply neglected. There are, of course, problems associated with majority rule which might lead some democracies to exclude minorities.
Even if we abstract from such problems, however, the principle of one-person-one-vote does not make every citizen equal in a political democracy. For, in the real world, social and economic inequalities are inevitably reflected in the political process.
In theory, democracy provides every citizen political freedom in the form of civil rights and political liberties. In practice, there is freedom for some but not for others. And there is more freedom for some than for others. It is only to be expected that there is an interaction between exclusion from the market in the economic sphere and exclusion from democracy in the political sphere. An economic exclusion from livelihood often creates or accentuates a political exclusion from rights. Thus, for the poor in a democracy the right to vote may exist in principle, but in practice it may be taken away by coercion or coaxed away by material incentives at the time of elections.
Similarly, the very poor are vulnerable to exploitation or oppression because their civil rights or equality before the law exists in principle but are difficult to protect or preserve in practice. The reason is simple. They do not have the resources to claim or the power to assert their rights. Exclusion extends beyond the economic and the political to the social and cultural spheres. The social manifestations of exclusion can be powerful.
At the same time, economic exclusion accentuates social exclusion, while social exclusion accentuates political exclusion. Similarly, cultural exclusion such as that of immigrant groups, minority communities or ethnic groups interacts with economic exclusion from the market and political exclusion from democracy. Clearly, there is an overlap between those excluded by market economy and those excluded by political democracy, just as there is an overlap between those included by market economy and those included by political democracy.
The poor who are marginalized in the economy also do not have a voice in the polity, just as the rich who are dominant in the economy also have a strong political voice. Economic deprivation and political marginalization go hand-in-hand in much the same way as economic strength and political power go hand-in-hand. There are two underlying factors. For one, the economy and the polity are connected and interdependent. For another, there is no equality among economic agents or political citizens in terms of their economic or political freedom to choose. There is, in fact, a hierarchy of freedoms, with more for some and less for others, where there is a significant overlap in the economic and political sphere.
These two propositions add to our understanding of the interaction between markets and democracy Nayyar, a. It needs to be said that the liberal paradox is much deeper. On the one hand, markets exclude people without entitlements, assets or capabilities. It is in the logic of markets. Yet, markets would like to include as many people as possible.
For, in the words of Adam Smith: "the division of labour is limited by the size of the market". On the other hand, democracy includes people by a constitutional right to vote. It is the foundation of democracy. Yet, political processes seek to exclude or to marginalize those without a voice.
That is what the pursuit and exercise of political power is about. The irony of this paradoxical situation is striking. Indeed, this twist in the tale further highlights the dialectics of the interaction between market economy and political democracy. This dialectical relationship between markets and democracy, as also the interaction between economic and politics, becomes more complex when globalized economies are juxtaposed with national polities. However, the essential tensions, asymmetries, overlaps and paradoxes remain similar. The dialectical relationship also remains.
Even so, two questions arise. First, how does a market economy, which is more global than local, influence national politics differently? Second, how does political democracy influence a globalized market economy differently, when compared with a national market economy that is much less integrated with the outside world? Globalization has indeed reduced degrees of freedom for nation states in the economic sphere which is so essential for countries that are latecomers to development.
Indeed, the space for, and autonomy to formulate policies in the pursuit of national development objectives is significantly diminished. This is so for two reasons: unfair rules of the game in the world economy and consequences of integration into international financial markets. In a world of unequal partners, it is not surprising that the rules of the game are asymmetrical in terms of construct and inequitable in terms of outcome. The strong have the power to make the rules and the authority to implement the rules.
In contrast, the weak can neither set nor invoke the rules Nayyar, The problem, however, takes different forms. First, there are different rules in different spheres. The rules of the game for the international trading system, being progressively set in the WTO, illustrate this with clarity. There are striking asymmetries. National boundaries should not matter for trade flows and capital flows but should be clearly demarcated for technology flows and labour flows. It follows that developing countries would provide access to their markets without a corresponding access to technology and would accept capital mobility without a corresponding provision for labour mobility.
This implies more openness in some spheres but less openness in other spheres. The contrast between the free movement of capital and the unfree movement of labour across national boundaries lies at the heart of the inequality in the rules of the game. Second, there are rules for some but not for others. There are no rules for surplus countries, or even deficit countries, in the industrialized world, which do not borrow from the multilateral financial institutions.
But the Bretton Woods twins set rules for borrowers in the developing world and in the transition economies. In effect, IMF programmes of stabilization and World Bank programmes of structural adjustment seek to harmonize policies and institutions across countries, which is in consonance with the needs of globalization. Third, the agenda for new rules is partisan. There is an attempt on the part of industrialized countries to create new multilateral agreements in the WTO, in many spheres, which is partly responsible for the impasse in the Doha Round.
The primary object of this exercise is to set rules for a deeper integration in the world economy. And the WTO is seen as the place to lodge these agreements essentially because it incorporates an enforcement mechanism which provides a legal right to retaliate.
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