Globalization and the nation- state

Introduction Economic globalization is growing rapidly and the national economies are more interconnected and interdependent than ever. Today, 30 % of the world trade is based on transnational corporations using deep integration models of production, globalizing their production chains (Hix, 2011:434). The growth of economic globalization increases the demand for more global political cooperation. This tendency is backed by the increasing number of transnational, trans-governmental, international and supra-national relations, which is changing the traditional views upon nation-states and sovereignty. The EU is the clearest example of a multi-level governance system where some national member state institutions and policy areas are overruled by the European Union. The most significant policy area that the union level has exclusively latitude over is the monetary policy (for the countries whose currency is the euro) and the single market, which is the first continental-scale single market without internal barriers to the flow of services, capital, labour and goods (Ibid:430). In this regard it becomes interesting to investigate EUs role in economic globalization and whether or not further EU integration plays an important role for future economic globalization both within and beyond EU s borders. The first section discusses the definition of economic globalization and the concept of modern nation states while the second examines the process of European integration through the lens of two theoretical approaches: the functionalist and the intergovernmental approach. Finding that European integration, and notably the creation of the internal market has been an important driver of transformation and change within the European nation states, the second section discusses the effect of European integration on the wider global economy. In relation to the worlds least developed countries, the paper argues that the sheer size of the EU s internal market means that EU s preferential trade agreements such as Everything But Arms has a significant effect on these countries integration into the world trading system. In relation to modernising countries EU integration appears to carry less significance as a driver of global economic integration. Thus, regional trade agreements in Asia and Latin America all seem evidence that the EU is no major driver of economic 1

globalization among this subset of countries although the paper does find an indirect effect of European Integration: trade diversion as a result of the European internal market may act as an incentive for these countries to actively seek trade liberalisation through the WTO and regional trade agreements. Globalization and the nation- state Globalization is a concept that has been defined and redefined many times. While Sørensen has provided a broad definition of globalization that embodies all those processes by which the peoples of the world are incorporated into a global society, (Sørensen, 2012:454), Bob Jessop gives a more narrow definition of economic globalization with which the following is concerned. Jessop speaks of economic globalization as the internationalization of national economic spaces through growing penetration and extraversion, the development of economic ties and regional authorities in different national economies and the widening and deepening of international regimes covering economics and economically relevant issues (Sørensen, 2011:457). The creation of regional and global regimes, break down in trade barriers both for goods, services and the transportation of people, and the globalization of production chains are all aspects of the process of economic globalization. (Sørensen, 2011:457) Given the wide-ranging implications of these global economic processes many, yet not all scholars, agree that globalization has a marked impact upon nation-states. This is the idea embodied in the retreat perspective which is based on the assumption that a qualitative shift is taking place where globalization erodes the power of the states, because many of the original domains of the nation-state authority are now shared with global or regional authorities. The retreat scholars believe that this will lead to a truly global economy (Sørensen, 2011:453,455). Some scholars question this view, arguing that globalization tendencies have been confused with technological developments, and that the world was equally globalized, but less technologically linked during the First World War as now, these views are known as state-centric (Sørensen, 2011;453). 2

To understand the implications of closer economic integration for sovereign states and the processes of economic globalization that they undergo one must necessarily define the sovereign nation state. This paper takes the sovereign nation-state as embodying an entity with territorial borders, a national economy, a national polity and a national community of citizens (Sørensen, 2011:452), though both Max Weber and Benedict Anderson have applied more descriptive theories (Poggi, 2011:81). Nation-states have been divided into three different groups: 1) advanced capitalist states 2) weak post-colonial states and 3) modernizing states and of course processes of economic globalization will have different impacts and manifestations in each of these categories of states (Sørensen, 2011:452). The process of economic integration within the EU, which has taken place since the creation of the Coal and Steel Community in 1951, and its implications for the economic globalization and transformation of nation-states will be discussed below. The members are all examples of post-modern states. The concept of post-modern states is closely linked to the concept of globalization. Political, economic and cultural forces transform the advanced capitalist states from modern states to postmodern states (Sørensen, 2011:459). The concept of a modern state is defined by a state with constitutional independence, a centralized system of democratic rule, a population within a territory sharing cultural and historical bonds and a segregated national economy (Sørensen, 2011: 455). These modern states have started a transformation into post-modern states which exhibit more international characteristics of multi-level governance, a less coherent population with a part of the population seeing themselves as international citizens rather than belonging to a specific nationhood, and part of the population becoming more nationalistic as a counter-movement. The economy becomes much less self-sustained due to the deep integration of companies and a large part of economic activity is rooted in international networks (Sørensen, 2011:455). Below the process through which European integration and the creation of a single European market has impacted the transformation into post-modern states contributing to a process of economic globalization will be elaborated and discussed. 3

European integration and its impact on European nation states The European Union started as an economic cooperation based on the European Coal and Steel Community in 1951. Today it has developed into the world s most integrated political and economic system with a single market guaranteeing economic prosperity to almost half a million citizens in the EU (Hix, 2011:430). Two competing theoretical explanations for this outcome have been put forward. The intergovernmental approach argues that the main actors in the EU are the governments of countries. National preferences and decisions are viewed as being of primary importance and governments act out of national self-interest (Hix, 2011:431,432). This is in contrast to the supra-national approach that emphasises deterministic political, economic and social forces, which work beyond the control of national governments. According to this theoretical perspective, interest groups play a pivotal role in the integration process (Ibid: 432). The inter-governmental approaches are useful for understanding why the integration process stalled in the 1970s as the governments preferred national to European solutions to the economic problems experienced during the 70s and 80s. Equally, this theoretical perspective helps explain why policy-making processes at a European level are difficult and marked by deadlock within policy areas where member states exhibit differences of opinion and fear losing ground in the bargaining process (Hix, 2011:430) Focusing on these areas, some inter-governmental theorists have assumed that European integration would never progress beyond a minimum level (Hix, 2011:432). Yet while the approach can help shed light on the deadlocks involved in high-level policy making within the EU, the approach is less successful in explaining why the EU can, anyhow function effectively in the day-to-day decision-making process. Here the supra-national approaches are more coherent (Ibid:432). The functionalistic supra-national approaches can be illustrated by the spill-over effects of integration (Hix, 2011:432). When the common market for Coal and Steel was established, the politicians quickly discovered that for it to work effectively a common market for the goods and services used in the production and distribution of 4

coal and steel would have to be established. Likewise, when a customs union was established among EU member-states, the potential economics of scale could not be met before regulations on free movements of goods, services and labour had been established. This resulted in the single market which in turn functioned more effectively with the establishment of a monetary union was established. This process of spill-over effects is also known as the theory of economic integration (Hix, 2011:432). These functionalistic approaches enable one to understand the evolution from a customs union to an economic and political system. It also allows us to understand how supra-national level regulations that replace national legislation have been allowed to arise despite political interests in maintaining national sovereignty (Hix, 2011:433). These functionalist approaches, however, do not explain why European integration slowed in the 1980s or why the policy-adoption process is easier in some areas than others. Thus, to be fully able to understand the EU it must be conceptualized as a political system with a constitutional architecture, which determines the balance of powers between the EU institutions and the member states. Gabriel Almond and David Easton were the first scholars to develop the theoretical framework of a political system in the 1960s. (Hix, 2011:433) Their essential characterizations of a political system consists of four elements: 1) There must be a stable and clearly defined set of institutions for collective decision-making, and a set of rules governing the relations between and within these institutions. 2) Citizens and social groups seek to realize their political desires through the political system either directly or through organizations such as political parties or interest groups. 3) The collective decisions within the system have a significant impact on the distribution of economic resources. And 4) there is continuous feedback between these political outputs, new demands on the system and new decisions. The EU possesses all the basic elements of a political state, but it differentiates itself from a state in the traditional Weberian meaning of the word by the fact that it does not have a monopoly of the legitimate use of coercion. The power of police and security 5

forces remains on the member-state level (Hix, 1999: 4). However the EU as a political system is seen as a regulatory state. This means that the EU aims to benefit all citizens more or less equally through regulation, rather than through the redistribution of resources, as seen in the welfare states of the EU where the governments redistribute the resources from one group of citizens to another (Kersbergen, Manov, 2011). Democratic governments and welfare states are controlled by politicians who try to achieve policy outputs that benefit their supporters in order to be re-elected, this consequently tends to lead to policies that redistribute the resources from the losing minority to the winning majority. In the European welfare states the left parties normally redistribute the resources in favour of the workers, thus imposing costs on business, and the right usually does the opposite (Hix, 1999:237). The EU produces two types of regulatory policies: the negative/deregulatory and the positive/re-regulatory integration policies. The negative integration policies, which have created the single market, involve the removal of barriers to international trade and competition within the EU member states and the positive integration policies are European wide regulations which have replaced national regulations (Hix, 2011:437). The single market with its regulatory policies has influenced a wide number of political areas both directly and indirectly. Harmonised consumer protection standards have enabled consumers to gain information about the qualities of the products on the market while competition policies have prevented the establishments of monopolistic markets, and industry regulators as price controls have ensured that natural monopolies are operating according to the market practises. These are the social regulations, and they differ widely from the member states social policies which provides benefits for specific social groups, the former instead aim to allow the labour market to function more efficiently (Hix, 2011:437). The indirect consequences of the single market are of a redistributive matter. Though the EU does not have a redistributive capacity as its nation-states have, the regulatory legislative pieces put constraints on the existing welfare compromises and choices at the domestic level, which puts a downward pressure on states with high labour market 6

standards as the Scandinavian countries and upward pressure on states with lower labour market standards (Hix, 2011:438). Due to the processes of integration that have taken place, the EU is thus now a unique supra-national polity based on national governments cooperating in a single market characterized by the removal of trade barriers and the regulation of common trade and production standards (Hix, 2011:448). Based on Bob Jessop s summation of definitions of economic globalization as laid out above, the single market in the European Union has thus propelled a process of economic globalization among the EU member states, at least among the European nations themselves. However, the process of economic globalization is in essence of the word a global process and to understand whether the EUs own process of economic integration can drive a global economic integration process requires analysing the influence that EU s single market has had on the international alliances and the national economies outside the EU. The rest of the paper turns to an analysis of whether the process of European integration has the power to drive the process of economic globalization beyond Europe s own borders. Economic Globalization beyond Europe s Borders When looking at EU s ability to effect economic integration beyond its own borders it is necessary to differentiate between two groups of countries: weak post-colonial states and modernizing states. The next section will focus on the weak states and how they integrate with the economy of the EU. EU and the Least Developed Countries The weak post-colonial states describe the states that became independent at the time of decolonization, when sovereign statehood became the only legitimate form of political authority worldwide (Sørensen, 2011:460). The decolonization led to the creations of these states from the outside by the colonizing countries with little respect for local tribes and communities. This has led to the features of inefficient and corrupt regimes with low levels of state legitimacy and a divided population 7

(Sørensen, 2011:460) with the result that today, most of these nations are among the 49 states classified by the UN as Least Developed Nations (LDC). These states are dependent on economic aid from the outside, These states are not yet on the same path of transformation as advanced capitalist states and their economies are not direct beneficiaries of the economic globalization, as they cannot interact on the world market with the same intensity as the post-modern states or compete in the global economic competition on the same terms (Sørensen, 2011:461,462). Among these states, it can be argued that the EU, with its large single market, has had an important role to play as a driver of economic globalization. The size of the European internal market gives it substantial market power. For exporting countries, gaining access to the European market harbours the potential for large export earnings and integration into the world economy. Through the preferential trade agreements signed by the European Community on behalf of member states, Europe has liberalised export to the European market for the least developed countries since 1971, granting non-reciprocal trade preferences to countries classified as least developed countries (LDC s) by the UN (Søren, 2011: 462 and The European Commision-Trade). Originally the Lomé convention and currently, the Everything But Arms-Agreement (EBA) ensures that developing countries classified as LDC s gain access to the European internal market through preferential terms that grants them duty-free access to the European market for their products excepting arms and ammunitions (The European Commision-Trade). EU and The modernizing states The modernizing states are a mixture of the modern state, the post-modern state and the weak post-colonial state. These states are in a general process of transition, though it is not possible to range them along a transition axis. The BRIC-countries (Brazil, Russia, India and China) are the most prominent examples of modernizing states. (Sørensen, 2011:462). Each of these has features of corruption and weak state structures, though they also contain degrees of effective national governments. On the economic side they also contain elements of the three state types. China has seen 8

the world s most rapid economic growth the past 25 years with an average growth of more than 9 % per year, yet this has only led to a minimal rise in the average living conditions, mostly it has increased the inequality level (Sørensen, 2012: 463). Due to China s rapid economic growth it is now considered one of the most important economies in the world, though the economic globalization has happened with major costs to the environment and with no thought of the international human rights, which has increased the level of social unrest (Ibid: 463) When talking of China s economic globalization process in relation to the integrated market within the EU, the EU does not necessarily perform as an economic globalization driver to the same extent as with the LDC s. In contrast to the LDC s countries like China, Brazil and India can and actively pursue economic globalization through other routes as suggested by the large and increasing number of regional trade agreements among these modernising nations. Yet the EU, in virtue of its large internal market, is a popular trading partner and the EU in turn has an active interest in trading with these nations. EU and China s for example, have had trading relations since 1975 (Men, 2012:348). EU is China s largest trading partner and China is now the EU s second largest trading partner (Ibid: 333). One could perhaps also argue that EU s internal market has more indirect effects on economic globalization among modern and modernizing states. Baldwin uses an historical example of how European integration led the US to pursue active economic globalization and lower trade barriers through the General Agreement on Trade and Tariffs (GATT), now the World Trade Agreement. As Baldwin explains, at the time when the Treaty of Rome launched the European Economic Community in 1957 America sent a third of its exports to Europe. Because of the increased intra- European trade as a result of the free trade zone, American exports to Europe were discriminated against. As Baldwin writes, US membership in the EEC was out of the question, so the US sought to redress the discrimination in a very different way, namely by negotiating a lowering of the EU s Common External Tariff through the GATT (Baldwin, 2006:1477). European integration may thus function as a drive for 9

economic globalization by incentivizing countries to seek to prevent discrimination because of regional trade agreements through pursuing other regional or WTO-trade liberalizations. Conclusion This paper began with a definition of economic globalization that, based on Jessop, emphasized the reduction of trade barriers, the globalization of production chains and the free movement of people, goods and services. Looking at the process of European integration the first section argued that because of integration, the EU is now a unique supra-national polity based on national governments cooperating in a single market characterised by the removal of trade barriers and the regulation of common trade and production standards. Economic and political forces have transformed the nation states of Europe into post-modern states that exhibit internationalization, particularly Europeanization of the economy with a large part of the economy rooted in international networks. Secondly this paper discussed the effect of European integration as a driver of economic integration in a global context and found that European Integration does drive economic globalization globally, although the importance of European integration for this process does depend on the countries that become subject of analysis. While the internal market of Europe, via initiatives such as the Lomé Convention and Anything but Arms, is a key driver of the integration of LDC s into the global economy the modernizing countries like the BRICs are increasingly creating regional networks thus driving economic globalization themselves. Yet, here as well the paper showed how European integration may have an indirect effect on economic globalization as well. 10

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