Politics of Globalization - Assignment Example

Spring S.Rashid Take Home Midterm Exam Politics of Globalization PS 476 According to Rodrik, why is national democracy incompatible with deep globalization? There are several contradictions between the concepts of democracy and unfettered globalization. Professor Dani Rodrik’s work on the subject is about elucidating these contradictions which is at the centre of many political debates today. One of main reasons why deep globalization is antagonistic to national democracy is the undue power wielded by international capital. For most part what appear to be foreign investments into a local economy is actually fluid speculative capital. If the investment firm perceives the return on their investment to be unimpressive then it would not hesitate to pull out capital from the financial markets. This would lead to a fall in share prices and huge nominal losses to the other stakeholders – local partners, local firms and the national government. So the power of international capital gives its wielders the power to dictate terms to local governments, which in turn undermines democracy and nation-oriented policy making. There are numerous instances of this kind of veiled coercion in the era of globalization and it does not augur well for the future of civil society. Professor Dani Rodrik cites numerous case studies which support the fact that integrating deeply to the global economy can cause instability to national governments. For example, countries that rely on international finance fare poorly over a period of time. The great collapse of the Argentinean economy is a classic illustration. Argentina’s Convertibility Law tied the national currency of Peso to the American dollar, pushing the economy into a destructive spiral. More recent, the same pattern of strangulation of national economies is witnessed in the cases of Greece, Cyprus, Italy, Portugal and Spain. Apart from causing instability to the national economy, it creates an array of related issues. These include high disparity between the super-rich and the abject poor, social and communal tensions, fissures in social harmony and the prospect of civil war, etc. By allowing international firms a free reign in the economy, most of the local industries are put under pressure. As free trade agreements prevent subsidies for local industries, local firms with limited resources find themselves unable to compete with huge multi-national corporations. What unregulated free trade does is it makes the competition unfair and uneven. To the extent that stakeholders in local firms are citizens of a country, it is a blow to democracy and nationhood. In a sharp indictment of the lopsided rules promoted by the WTO, World Bank and the IMF, Rodrik states that fixed exchange rates and free capital mobility enslave smaller nations to other nations’ monetary policies. It entails the proposition of taking great risk for modest average growth. Rodrik calls this practice ‘trade fundamentalism’ and dispels the myth that greater capital inflow does not translate to greater economic growth. Critics of protectionism might argue that despite its flaws globalization is the only option available. The argument if fallacious for in Argentina, which was devastated toward the late 1990s, regrouped its economy through prudent controls over foreign capital. By the turn of the millennia, the government changed its policy direction. It increased social spending, focused on improved tax collection and encouraged import substitution industries. Within a matter of years, the economy rebounded impressively. Moreover Argentinean society also witnessed less strife and tension. So deeply integrating a nation’s economy with the global economy is a matter of choice and not compulsion. History shows that those countries that have heeded to the will of their own people and resisted control by foreign capital have actually proven to be the most stable and sustainable of models. Hence, it is fairly clear that one cannot pursue democracy and national determination while also being deeply integrated to the global economy. Rodrik’s thesis of the fundamental incompatibility between globalization and nationalism stands fortified after reading his scholarship on the subject. To Rodrik’s question of whether I would like to be rich in a poor country or poor in a rich country, neither scenarios appeal to me. I do not like huge disparities in wealth – such conditions are not only inhumane but also undemocratic. I would like to live in a society where there is more equity and representation. The Scandinavian counties like Sweden, Denmark are good examples in this regard. Some countries in Western Europe can also claim to be better in terms of social welfare programs, nationalized healthcare system, unemployment insurance, impressive public transport infrastructure, etc. So, in this regard, I would want to live in a country where basic rights of citizens, including their right to dignity of life, are respected. With respect to globalization, it is fairly clear that such reasonable aspirations of citizens will be deeply harmed. 2. Compare and contrast the differences between Bretton Woods as the world trade regime in operation before 1972 and the current world trade system governed by the World Trade Organization. The Bretton Woods system was the result of a grand financial conference at the culmination of the Second World War. The participants were delegates drawn from 44 Allied countries that were in coalition against the defeated Axis powers. The main purpose of the conference was to organize and regulate the international monetary and financial systems, which were thrown into disarray during the war. The chief outcome of the event was the signing of GATT (General Agreement on Tariffs and Trade. The conference laid the foundation for the later emergence of World Bank and the International Monetary Fund. The priorities and economic models adopted by the WTO are a marked contrast to that of the Bretton Woods regime. The mantra of WTO since 1972 has been international trade liberalization. The Marrakech Agreement of 1995 officially replaced the other GATT regime. Although free trade is paid lip service, the arrangements are more favorable to countries and business corporations with bigger economic clout. However, within the WTO framework, trade deals are negotiated and formalized, just as disputes are arbitrated and resolved. Coming back to the Bretton Woods Conference, it laid out a roadmap for the financial, trade and monetary policies of participant countries. Consultation, cooperation and consensus among the nations were the basic principle upon which several agreements were made. Even in an era preceding neoliberal globalization, the leadership of the Bretton Woods conference understood the interconnectedness of national economies. Since most of the nations were depleted in terms of resources and infrastructure at the end of the war, the immediate focus was on rebuilding and fostering peace. The conference succeeded in encouraging and creating open markets, which nicely counterbalanced national interest with economic stability. One of the means through which the Bretton Woods system was able to achieve this stability is by pegging foreign exchange market rates at a certain level. Some mild flexibility was permitted under special contingencies. Unlike the contemporary neo-liberal model, capital inflows into a country were also regulated to acceptable levels. Moreover, all participant nations were obliged to subscribe to IMF’s capital. Nations were also allowed to create a favorable balance of payments position for their economy. Hence, a fairly stable and sustainable system was established in the form of the Bretton Woods. One cannot claim the same with respect to the global economic regime in place under the WTO. The WTO is very different to how the Bretton Woods system was organized. The earlier system contained only 44 members and was a response to the great losses incurred in the Second World War. The WTO, on the other hand, is more inclusive, in that nearly all nations of the world are part of it. Despite a lot of flack the WTO receives from representatives of Third World nations, there are some meritorious principles it upholds. For example, the member nations are obliged to treat all other members in equal terms, preventing any case of undue favoritism on part of a member nation. Likewise members should treat imported and home-made goods on parity. A related principle is that of reciprocity, whereby, the gains and consequences for all the signatories to the agreement are given consideration. Another measure to ensure fairness is the imposition of commitments made by members. WTO also promotes transparency and accountability for all trade deals carried out under its auspices. For example, the WTO has failed to reduce the gap between the wealthy and the poor of the world. It cannot evade this criticism by pointing fingers at national governments. In the four decades since the neo-liberal program was put in place, the world has become polarized in terms of economic development. Many underdeveloped nations in sub-Saharan Africa, Latin America and South Asia were left out of the prosperity boom. The WTO regime is equally unable to prevent crony capitalist tendencies whereby, in most participant nations, an oligarchy of politicians and businessmen collude to promote vested interests. This is a hazardous phenomenon which has undermined democracy in many nations. With the free flight of capital across borders, the citizen franchise to vote is weakened by the veiled veto power exercised by global investment firms. Along with democracy, internal economic stability of many nations have also been weakened under the neoliberal regime of the WTO. These are areas that need immediate redress, for, otherwise, social fissures and eruptions of civil war across class lines will become rampant across the globe. Read More