The Question of Globalization

(to appear in Competition & Change, vol.2 no.1, 1996)

Hugo Radice

School of Business and Economic Studies, University of Leeds, Leeds LS2 9JT, UK.

In their book Globalization in Question, Paul Hirst and Grahame Thompson (hereafter H&T) confront the rhetoric of globalization with a robust assertion of the potential for democratic governance in defence of public interests. They promise an effective intellectual response and political rallying point, a prospect of containing and even rolling back the power of global capital. To them, not only has the actual advance of globalization been greatly exaggerated, but so has the threat it poses to the nation-state's regulatory capacities: we are all like rabbits trapped in the headlights, unable to see that we still have the effective means to escape and even control the oncoming juggernaut.

Surely this conclusion should gladden the heart of all progressive citizens: so why is it that I find the book so deeply wrongheaded and even dangerous, despite my agreement with many of their policy proposals? It is because, while travelling from our common concerns over present-day inequality and injustice to our shared belief in the importance of strengthening global regulation and governance, they follow an analytical path which is riddled with empirical, theoretical and political weaknesses, and which leaves them facing in the wrong direction and with the wrong weapons to hand.

The book divides into three parts. The first two chapters present a conceptual and historical overview, defining the terrain of argument; chapters three to five analyse recent trends in the world economy, dealing with trade, capital flows, migration, multinationals and North-South relations; and chapters six to eight address the governance system of this world economy at different levels, especially the role of the nation-state therein.

H&T begin by establishing an ideal-type distinction between an internationalized economy (IE) and a globalized economy (GE). An IE is a system in which national economies are the principal entities, interacting in 'billiard-ball' fashion, so that international events and forces are "refracted through national policies and processes" (p.8). On the other hand, in a GE, "national economies are subsumed and rearticulated into the system by international processes and transactions...... The international economic system becomes autonomized and socially disembedded, as markets and production become truly global....... the national level is permeated by and transformed by the international" (p.10).

If a GE is now replacing the previous IE, there would be four major consequences. First is the "fundamental problematicity of its governance"(p.10). Global "socially decontextualized" markets would be hard to regulate, even by states acting in concert; uncontrolled market forces would lead to conflict, competition and disintegration. Firms would have to become even more global to insure against risks in such a system. Secondly, multinational corporations (MNCs) would become transnational corporations (TNCs), no longer based in any one national location, nor constrained by any one nation state: their mobility would compel governments to adopt standardized levels of regulation. No longer would firms have core functions necessarily 'at home'. Thirdly, the influence of organized labour would decline further, as the global mobility of capital undermined social-democratic strategies of improving wages and conditions. Fourthly, the international political system would become 'multipolar', the powers of all national states - even former or aspiring hegemons - would decline, and a wide range of actors, both public and private, would emerge in the arena of global politics.

They go on to argue in ch.2 that despite many recent changes in world capitalism, no shift from an IE to a GE has taken place. Economic life was already substantially internationalized before 1914, with greater openness as measured by ratios of trade and capital flows to gross domestic product, and by labour migration. Financial integration, measured by real-interest-rate equalization, integration of securities markets and scale of net capital flows, has increased since 1960: however it too is probably less than under the Gold Standard, although the recent trends of offshore market growth, innovation in financial instruments and conglomeration pose new regulatory problems. Substantial growth in foreign direct investment has only reemerged since the mid-1980s. As to the history of international governance regimes, H&T say that these have never allowed nation-states complete autonomy, while the degree of autonomy has oscillated without any clear long-term trend.

For H&T therefore, globalization is defined as a clearcut shift from an IE to a GE, as the basic form of organization and process in world capitalism. They admit that their model of a GE represents a "strong version of the thesis of economic globalization", and therefore they "might be held to be demolishing a straw man" (p.3). Quite so: their assertion, for example, that global markets and production (unlike, implicitly, their national counterparts) are "socially disembedded" is not substantiated, and can readily be challenged by reference to transnational institutions and practices, both public and private. They say that this "extreme and one-sided ideal type" (p.7) enables them to distinguish conjunctural changes within one model from a structural model change, but it is striking that, in contrast to the rigid and extreme GE model, their IE model is endowed with enough flexibility to encompass 'conjuncturally' much of the empirical evidence normally adduced by less extreme globalists. This approach is much like debating current issues in human evolution by reference to creationist theory.

At the same time, the GE model is also historically constrained, since it is only presented as a potential successor to a prior IE. Thus, it is conceded that since the 1960s there has been much more integration between national economies, that global finance has outflanked national regulation, and that the nation-state's capacity for autonomous policy-making has been significantly reduced: however, they say, things were much the same before 1914, when by definition only an IE model could exist. But why not instead view not only the developments of the past thirty years, but the whole history of world capitalism, as a complex combination of tendencies towards both 'globalism' and 'nation-statism'? In this view, the sovereignty of the nation-state is "not an impermeable barrier but a fluid point of articulation between the international and the domestic sphere" (Picciotto 1996:7). Then the phenomena defined as 'globalization' by both its advocates and its critics could be seen not in opposition to the nation-state, but instead as "a process of breakdown and restructuring of the articulation between the national and the international" (ibid.).

Moving on to the empirical evidence on globalization, chapter 3 reviews the trends in trade, foreign direct investment (FDI) and inter-country inequality, and picks up on the shift from trade to FDI as the main engine of world economic expansion. This has raised new governance problems, as evidenced in the Uruguay Round. FDI is strongly regionally-clustered, and its true scope is increased by non-equity alliances and by the emergence of smaller MNCs. The growth of the largest firms, supported by their home states, centres on the oligopolistic exploitation of home-based advantages in largely separate national or regional markets. FDI stocks and flows are overwhelmingly sourced from and directed to the 'triad' of North America, Europe and Japan, each with privileged access to a 'client' region. FDI concentration worsens inter-country inequalities; addressing these through greater North-South capital flows would not only avoid political tensions, but also absorb excess industrial capacities in the North. This in turn requires new governance mechanisms addressing FDI issues such as property rights, labour standards and taxation.

So far, so good. But H&T then argue strongly (ch.4) that despite the growth in FDI, the investing firms remain overwhelmingly 'home-oriented' in sales, assets, profits and research and development activities: there is no sign of the emergence of truly global 'transnational' corporations - which is why they insist on using the epithet 'multinational' instead. Part of the problem is again definitional. An MNC is defined as a company with a "clear national home base" (p.9) but operating also abroad. A TNC is "genuine footloose capital, without specific national identification and with an internationalized management, and at least potentially willing to locate and relocate anywhere in the globe to obtain either the most secure or the highest returns" (p.11); while the last component of this definition is meaningless given the qualifier "at least potentially", the other three amount once more to a straw man.

Empirically, however, chapter 4 is very weak. First, their 1987 data set (or at least in the way they use it) defines an MNC's 'national home base' as a supranational region: for the analysis of sales, assets and profits, the 'home' of US firms includes Canada (and vice versa), of Japanese firms it is 'Asia/Pacific', and of UK and German firms it is 'Europe, Middle East, Africa'! This is a blatant ploy to create figures in support of their hypothesis, the more so since in ch.7 they insist that even the EU is not a single state and should not be treated as such. Secondly, because their 1992-3 data set is constructed on a different basis, they cannot offer any clear data on trends, but omit to mention that all the data given in standard works by Dunning (1993) or Dicken (1992), and in the UN's annual World Investment Review, point to significant increases in the foreign share of sales, assets and profits for the great majority of firms, sectors, and home countries. Thirdly, no one has ever denied that the MNC/TNC starts out from its home base, and if that happens to be a large, rich economy (USA, Japan) then the home base will continue to dominate its activities quantitatively; this is not the case for firms from smaller and/or more historically-internationalized economies like the UK, Netherlands, Canada, Sweden or Switzerland.

In any case, the use of simple average quantities tells us nothing about what drives MNC/TNCs. Once we look at their strategies and structures we get a very different picture from that implied by H&T. A growing number of firms of all nationalities have adopted global product division structures, adapt local marketing strategies from a global 'basic model', use common production equipment in widely-separated locations, coordinate production schedules along global production chains, scan technology sources all over the world.... Of course their management, basic R&D and above all ownership remain predominantly national, but then only the most purblind apologists of global capital ever claimed otherwise.

In chapter 5, H&T rightly take issue with some globalist claims that rapid FDI-led growth in less developed countries (LDCs) will transform the North-South balance. Like most progressive and heterodox writers, they see growth as confined to a few politically-stable LDCs in which social obstacles are few and the international environment favourable. For them, the success of East Asian newly-industrialized countries is due to high savings and careful state intervention, not to laissez-faire; while this demonstrates the continued possibility of 'national' economic development, it will be hard for most LDCs to follow this road, especially if they are forced to accept the new liberalism of the World Trade Organization. Only a few labour-intensive sectors are likely to flee to low-wage LDCs, and high levels of FDI will lead to volatile and fragile growth; even this may go into reverse if recovery in the North turns off the FDI tap. Flexible manufacturing strategies favour retaining high-value-added production in the North, and may even allow the North to compete with Southern mass production; in any case, the North can always take protectionist measures against the low-wage threat. If any redistribution of global wealth is to occur, for H&T it will only be by deliberate restructuring of the world economy under an appropriate governance system.

Here H&T steer a sensible course between the more foolhardy predictions of triumph and disaster, but I still have some serious disagreements. First, I object to their 'inter-hyphen-national' reading of inequality. Enslaved to traditional statistical 'realities' as well as to traditional development theory, they acknowledge intranational inequality in most LDCs only as a 'blockage' to development which undermines political stability and economic growth, instead of seeing them as at least as much an intrinsic part of North-South colonial and neocolonial relations. I see no evidence to challenge the view of the dependency school, that significant urban elites in most LDCs are economically, socially, politically and culturally integrated into global economic processes (Sunkel 1973), and that this is a vital factor in explaining the failure of national development strategies. Secondly, the argument that flexible manufacturing strategies will allow 'the North' to outcompete low-wage countries depends upon an acceptance of the reality and importance of the mass production / flexible production distinction: this is, to say the least, vigorously contested (Pollert 1991, Braczyk et al.1995). However, it does not seem to be a necessary part of their case.

H&T begin the third part of the book by defining five interdependent levels of governance: (1) the major states (Triad) in concert; (2) intergovernmental regulatory agencies; (3) economic area blocs; (4) nation-states; and (5) subnational regional authorities. The basic principle at all levels is that markets should always be "embedded in a context of non-market social institutions and regulatory mechanisms" (p.123).

In the crucial area of international finance, H&T accept that a shift from a government-led to a market-led regime in the 1970s left level 2 and 4 governance outflanked, even when supplemented by ad hoc level 1 G5/G7 interventions. In their view, recent developments in the Bank for International Settlements, the Basel Committee on bank supervision and among the G10 central banks indicate not a definitive shift to unregulated global markets, but rather the extension and international coordination of national regulation. However, more proactive and formal regulation, smoothly combining levels 1 to 4, can only emerge with a major political effort. As for trade, migration and FDI issues, here neither traditional sovereignty nor regulatory capacity seem seriously threatened, and national monitoring and controls can still be effective, especially with coordination between countries.

National economic governance has become more problematic, but national governments remain "political communities with extensive powers to influence and to sustain economic actors within their territories" (p.143). In particular, the state retains its fiscal powers over non-mobile goods and factors, ensures the public supply of key inputs and institutional supports, and meets the need for "the orchestration of social consensus" (p.146) through a 'distributional coalition'. These activities lack the clear definition of traditional Keynesian policies, and H&T suggest that there will be wide variation in the capacities of different countries to generate effective governance at both national and regional levels - the advantage lying with countries like Japan or Germany with a stronger tradition of 'social cohesion'.

Applying this approach to the European Union (EU) in ch.7, H&T argue for a balance of powers between regional, national and EU levels, focused around common interests like the re-regulation of the international economy. A Euro-Keynesian programme is needed both to 'level up' backward regions and to reconstruct Eastern Europe, but will be hard to achieve given wide national differences in institutions and historical experiences: a 'Europe of the regions' is no substitute, since it will merely accentuate inter-regional divisions in the absence of firm 'concertation' between national governments.

Overall, however, H&T reiterate in ch.8 that we still have an 'international' not a 'global' economy, and that the nation-state continues to have a significant governance role. For the right, the rhetoric of globalization justifies assaults on labour rights and social welfare; for the "radical left" (p.176) it confirms both the reality of capitalist exploitation and the inadequacy of national social democracy. However, the sensible response according to H&T is not to embrace the polar opposites of globalism or autarchy, but to develop a coherent system of governance embracing all five levels. Markets require regulation, and economic agents are socially embedded in national business systems, in turn underpinned by national public power both inside and outside the country. In the emerging and complex 'new sovereignty', nation states are central to governance because of "their relationship to territory and population" (p.190); they and they alone can legitimately redistribute public powers upwards or downwards as required.

In this part of the book, as earlier, there is a lot of sensible analysis and prognosis, particularly concerning the EU and the potential for renewing international regulation. However, there are a series of closely-linked conceptual positions which, taken together, raise serious doubts about the political conclusions to be drawn.

First, there are the concepts of order, regulation and governance. These seem to be necessitated for H&T by the disorder of markets, which is self-evidently socially damaging: "most markets need to be embedded in a context of non-market institutions and regulatory mechanisms if they are to produce effective outcomes" (p.123). But who decides what outcomes are effective? From the point of view of capitalists able to operate at that level, the 'disorder' of global finance over the past twenty years has been extremely profitable; it has enabled them to restructure economic activity in ways that transfer wealth and power back to them, and therefore constitutes an 'effective outcome'. At the same time, the ideology of the 'free market' has decisively replaced that of Keynesian interventionism, suggesting that in the dominant public discourse the market is seen as an 'enabler' of progress, not as a source of social disorder (Chang and Rowthorn 1995:17).

Secondly, there is no explicit discussion of the goals of 'governance' and how they are determined. Most of the time, it seems that in the economic arena, these are the conventional goals of growth, the conquest of poverty, job creation and security. H&T repeatedly ignore or gloss over the fact that in any system of 'governance', concrete policy choices are made - between job creation and fiscal discipline, between the redistribution of income and wealth and the provision of market incentives, between bread and circuses at home, and aid to the Third World. They project the nation-state as the benign 'orchestrator of social consensus', when for the last twenty years, nearly all governments have been busy orchestrating the redistribution of wealth and power from labour to capital. But then, neither labour nor capital enter into H&T's analysis in any case. Labour makes a fleeting appearance as victim of globalization in chapter 1, but never appears as an organised social interest from then on, nationally or internationally: the international trade union movement might as well not exist (it does: see for example Herod 1995). Capital, too, never appears as a social actor: no Confederation of British Industry, no Brussels lobbyists, no International Chamber of Commerce.

Thirdly, and weakest of all, there is H&T's concept of the state. Rejecting all varieties of Marxist state theory, and pluralist and corporatist theories as well, they define the state in terms of sovereignty, over a given population and in relation to other states. Internally, the relation is state-citizen: no role here for interest groups, let alone classes. Externally, the processes of the world economy are strictly between nation-states, and thus a fortiori have no basis in class interests or in the dynamics of accumulation. Thus anthropomorphized, 'the state', drawing on its assumed unique resource of legitimacy, can choose to delegate elements of that sovereignty, upwards or downwards. This approach abstracts from the state's specific historical relationship with capitalist accumulation (Arrighi 1994). It constitutes a long step beyond 'bringing the state back in' (Evans et al. 1985) to what can only be called the absolute autonomy of the state from social interests: and this in turn then allows Paul Hirst elsewhere to return to the utopian idealism of a class-blind 'associationism' (Hirst 1994, especially chs. 4 and 5).

Given this sort of underlying political theory, it is not surprising that the book has little to say on who might actually promote an agenda of international governance in the interests of global order, development and justice. I agree with H&T that there are strong signs of the emergence of elements, at least, of a global system of governance. The G7 summits are becoming less ad hoc, the IMF and the World Bank have not been marginalized by private global finance, and regional groups such as the EU have increased in importance without becoming 'superstates'. But governance for whom? To me, the evidence points clearly to big business - TNCs, banks, international traders - as the prime beneficiaries of the restructuring of governance since the demise of fixed exchange rates. What is missing from H&T's analysis is the crucial connection between the increased transnational scope of capital and the changed content of national economic policies. Who will benefit from the 'new sovereignty' if big business sets the national policy agenda? It is true that welfare gains and workers' wages and rights are not at present being successfully defended at the international or global level: but what sign is there of successful defence at the national level? On the contrary, supposedly progressive parties the world over seem to be falling over backwards to defend the interests of capital, including the cross-border mobility and the tax breaks that capital now demands.

To H&T, this conclusion is unjustifiably pessimistic, but what is the basis for their own optimism? There is a telling reference at one point to the nation-state becoming "a crucial relay between the international levels of governance and the articulate publics of the developed world" (p.191). Of course 'articulate publics' form the basis of all progressive, democratic political movements; but how ironic that, having rubbished the radical left as utopian, and having totally ignored the efforts of organized labour to build a transnational challenge to capital, all that H&T can propose to these 'articulate publics' is to work through 'their' national states - states that, to me at least, remain preeminently capitalist. Surely the realistic alternative is to build a genuinely global and politically autonomous progressive movement, breaking decisively with the logic of 'international competitiveness', which sets worker against worker in a spiral of declining wages and welfare. In the international labour movement, and in the emergence of regional and global popular cultures of resistance, lie the seeds of this alternative.

Globalization in Question: the International Economy and the Possibilities of Governance, Paul Hirst and Grahame Thompson, Polity Press, Cambridge, 1996.

References

Arrighi, G. (1994), The Long Twentieth Century: Money, Power and the Origins of Our Times, London: Verso.

Braczyk, H-J., G.Schienstock and B.Steffensen (1995), 'The region of Baden-Württemberg: a post-Fordist success story?', in E.J.Dittrich, G.Schmidt and R.Whitley (eds), Industrial Transformation in Europe, London: Sage, pp.203-33.

Chang, H-J. and R.Rowthorn (1995), 'Introduction', in ibid. (eds), The Role of the State in Economic Change, Oxford: Clarendon Press, pp.1-27.

Dicken, P. (1992), Global Shift: the Internationalization of Economic Activity, London: Paul Chapman.

Dunning, J.H. (1993), Multinational Enterprises and the Global Economy, Wokingham: Addison-Wesley.

Evans, P.B., D.Rueschemeyer and T.Skocpol (eds) (1985), Bringing the State Back In, Cambridge: Cambridge U.P.

Herod, A. (1995), 'The practice of international labor solidarity and the geography of the global economy', Economic Geography 74/4, pp.341-63.

Hirst, P. (1994), Associative Democracy: New Forms of Economic and Social Governance, Cambridge: Polity Press.

Picciotto, S. (1996), 'Fragmented states and international rules of law', inaugural lecture, University of Lancaster.

Pollert, A. (1991), Farewell to Flexibility?, Oxford: Blackwell.

Sunkel, O. (1973), 'Transnational capitalism and national disintegration in Latin America', Social and Economic Studies 22/1, pp.132-76.

Hugo Radice lectures in Economics at the University of Leeds, and is active there in the Centre for Industrial Policy and Performance and in the Centre for International Business. He works at present mainly on the political economy of transnational capital in the UK, and on the restoration of capitalism in East-Central Europe.