States Against Markets

The Limits of Globalization

Robert Boyer, Daniel Drache

• Publisher: Routledge
• Year: 2005
• eBook ISBN: 9781134775989
• Topic: Business
• Subtopic: Business General
• Index: Business

This work challenges the popular view that globalization threatens the role of the nation-state in determining national policy. It examines the fundamental issue of competitiveness and market power in an increasingly borderless and co-dependent world. Despite this increased threat to the nation-state as an effective manager of the national economy, the authors argue that there are a number of options and alternatives open to governments to protect themselves from the global business cycle.

Part I

GLOBALIZATION: UNLEASHING THE MARKET

1
FROM KEYNES TO K-MART
Competitiveness in a corporate age

Daniel Drache

INTRODUCTION

The unprecedented expansion of markets worldwide is unlike anything seen in this century. With national economies more open than ever, countries have less ability to pursue independent economic policies as firms operate increasingly without regard to domestic borders (Small 1993). Nations now seem to have lost control of a large part of their economic destiny to the global ‘bulldozer’ that is intent on building a new world order on the ruins of once-powerful national economies.

The globalization-of-everything syndrome does not mean that national boundaries are disappearing. Far from it. There are more nation-states in the world today than any other time previously¹ (Latouche 1993). Yet, what is also different about the 1990s, compared to even a decade ago, is that a new kind of state is emerging with its own institutional forms. Some call it a post-national regional state (Ohmae 1993). Others refer to it as the post-sovereign state (Clarkson 1993). Still others see, in this age of diminished expectations, a restatement of economic liberalism (Brittan 1988). The common thread is that the basic precepts of public finance, work organization, trade policy, wealth creation and citizen rights are being rethought. For Kenichi Ohmae, the catalyst is the nation-state itself. ‘[It] has become an unnatural, even dysfunctional unit for organizing human activity and managing economic endeavor in a borderless world’ (Ohmae 1993:78). National institutions have lost their principal importance of representing a genuine shared community of economic interests for national ends. Ohmae is of the view that ‘it defines no meaningful flows of economic activity’ any longer. The claim that economic activity is no longer bounded by national economies may turn out to be without foundation. None the less, the dramatic change to the way the world economy is organized brings us to the heart of the matter.

Efficiency has become the universal belief of all major corporations and most leading industrial powers. In their view, capital has to be free to move across national boundaries if the world economy is to recover its past élan (OECD 1993a). Firms have to learn to reorganize their production to take advantage of the new opportunities. People are expected to adapt and accept new employment conditions to accommodate a world where business is no longer bound by national borders.

The relentless pursuit of export markets is part of the new circumstances. The emergence of trade blocs committed to a radically expanded version of free trade and a vast overall re-ordering of the world's trading system are two of the most far-reaching developments of our times. If the building of a world order on the principle of global free trade for all comes to pass, it will make all national economies more subject than ever to cost-cutting strategies that depend on firms having smaller workforces and countries less state regulation. What accounts for these dramatic changes to the social fabric of nations? What kinds of policy instruments are needed to protect governments from the global business cycle? How is the sovereignty of nations being redefined by this drive to compete?

A NEW STATE STRUCTURE/NEW MARKET FORCES

The answers to these central questions are anything but simple. What is irrefutable is that the structure of local, national and international markets has always shaped state policy and civil society in modern times. In no era is this more apparent than the present. As capital becomes increasingly mobile, the investment characteristics of capital flows reflect increasingly the pressures of the global market over local markets. The aggressive pursuit of these heightened investment and trade opportunities by business and government is changing the structure of the modern state.

For the last forty years, the state's Keynesian-inspired set of policies supported a seemingly inexhaustible virtuous growth cycle (Table 1.1) for all industrial nations (Polanyi 1957; Boyer 1991; Cox 1991). All Western democratic governments accepted responsibility for employment creation and the maintenance of high levels of consumer demand in the economy. This was achieved through a variety of measures. Unions were given a new status through Wagner Act kinds of legislation everywhere and this reform, more than any other, forged an institutional link through modern collective bargaining between consumption norms, real wage growth and increased productivity (Drache and Glasbeek 1992). From their wartime experience, governments learned a great deal about the practical problems of macro-economic management and, once the hostilities were concluded, countries took advantage of the situation to expand even further the state's role in the administration of the economy. Planning was seen as positive for the well-being of business and society and, as well, the proper role of governments. Virtually all industrial countries adopted Keynesian-inspired policies to make full employment, if not a reality, at least a primary goal for public policy-making.

Table 1.1 The three-in-one virtuous growth model: a comparison of state interventionist strategies

	Beveridge-inspired social policy	A Fordist capital/labour compromise	Keynesian macroeconomic management
Canada	Low to medium social net coverage but universal health system and unemployment insurance	Decentralized collective bargaining; fragmented labour markets; 25,000 individual collective bargaining agreements in force	Export-led growth made rather than Keynesian policies; uncompetitive manufacturing sector that competes on wages; over 70% of exports for US market
United States	Poor UIC benefits for only 25% of workforce. Health benefits mostly private but with public funds for low-income earners	Decentralized collective bargaining; weak capital/labour accord and becoming weaker; less than 15% private sector unionized; less than 30% of public sector workers unionized	Weak commitment to Keynesian redistributive and stabilizing principles; military R&D expenditures crucial to US industrial might
Western Europe	Universal social programmes and coverage; high levels of skill training; training compulsory and paid for by employers and public funds	Sector and centralized collective bargaining; strong national labour movements external to individual workplace; initially high levels of industrial unionism	Initially a strong Keynesian commitment to full employment with incomes policy and deepening domestic demand in many countries; gradual trade liberalization measure that do not imperil industrial policy or strategies

In time, all kinds of universal programmes became embedded in the culture of all Western industrialized countries. They were good for people and good for business. Governments of every stripe saw their utility. Social policy became a bi-partisan issue in every major industrial country. There were few exceptions to this general rule and the consensus arrived at guaranteed social peace. The promise to defend social welfare entitlements helped governments of the right to hold on to power and get themselves re-elected. For the socialist left, welfare rights were also a code word for an expanded concept of citizenship which ensured that people had work, that they could not be dismissed arbitrarily and that social inequality remained static rather than dynamic (Esping-Andersen 1990; Mazier et al. 1993).

For four decades, no political party on the right nor the left dared question the need for market-correcting social programmes to protect their citizens against unregulated markets. Today, that is no longer the case. Social democratic, liberal reform and centre governments are all intent on cutting benefits despite their electoral promises not to do so. Now even the strongest economies have succumbed to slow-growth monetarist practices. Governments want to cut their spending to the bone. Taxes on business have to be reduced in order to make the private sector more ready to invest in restructuring industries. Consumers are promised cheaper goods while the unemployed are guaranteed new jobs once a recovery begins. So far, the promises have remained just that—only promises. Some have called this policy betrayal, the ‘social Munich’ of our times (Julien 1993b). In a world where the rules of the global economy are being redefined and state policy transformed, governments have to decide whether the new state forms constitute an optimal choice with respect to two critical challenges.

TWO POLICY CHALLENGES

The first challenge comes from trade-led development itself. In a world where the rules of international trade are being redefined, countries have to look carefully at the design of their commercial policy. It is not good enough for a government to subscribe uncritically to the dictates of free trade that require it to open its markets regardless of costs and consequences. Rather, it should not give more than it is getting from the globally driven system. It has to have the option to protect itself when the negative effects of trade-led development threaten its national interest. In the past, countries often resorted to beggar-thy-neighbour policies when things went wrong and the international economy failed to live up to its promise to provide jobs through exports. Today, a return to traditional protectionism is not on the cards for any country. Thus, all states require an alternative. They need to have strong policy instruments that will let them plan and finance their strategic goals including job creation, science and technology policy, R&D, environmental policy, affirmative action programmes and the like. This re-tooling of state regulatory policy does not require governments to choose between free trade or protectionism, but between the diminishing prospects for free trade and expanding the conditions for managed trade. In the words of Robert Kuttner, protection-like industrial policies can be either ‘a refuge to shelter losers’ or the most effective way to incubate new industries (Kuttner 1984:93). Countries can react to globalization in its most extreme form by joining a trade bloc or by reducing their exposure to global forces by strengthening the instruments of state policy.

The advantage of the second option is that if a country is intent on competing smarter, it has to strengthen the link between investment, jobs and productivity, growth. This is the only avenue that leads to higher levels of welfare. With firms being less state-bound than ever, countries have to find ways to ensure that the best business practice of leading firms benefit their respective national economies. They have to take measures that require that firms invest in new production facilities, skill-training of their employees and critical kinds of science and technology initiatives. The question is what kinds of policy instruments do governments need so that this option does not become a missed opportunity. This is the crucial challenge now facing all countries.

The second challenge is that a world order posited on trade liberalization has no proactive role for the nation-state in shaping its economic future. Rather, the new rules of the game are premised on a single-minded belief in comparative advantage—that is, specializing in those activities which give a country a leg-up on the competition. The way this is supposed to happen is that the home country's environment creates a pattern of country-based advantages or di...

Table of contents

• Cover
• Half Title
• INNIS CENTENARY SERIES
• Full Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• INTRODUCTION
• Part I Globalization: unleashing the market
• Part II The limits of Japanese power
• Part III Finance and trade: The erosion of national sovereignty
• Part IV Globalization and labour
• Part V Are Keynes and Beveridge really dead? The strategic dilemma for policy-makers
• Part VI New politics in an uncertain world
• Index