Wednesday, November 5, 2008

Back to the Nation-State

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Excerpted from the first draft of Fight Back: Reclaim and Expand the Lost Social and Economic Gains, Surge Forward Towards a New Economic Platform, a Freedom from Debt Coalition analysis paper written by the Debt and Public Finance Team (James Miraflor and Emman Hizon).

Directions for the System 

Now that the neoliberal system is going haywire, two directions are being presented in the status quo. The first direction, reasoning that it is not the direction but the intensity of pushing forward that is the problem, pushes us towards further market fundamentalism and advances the neoliberal project towards its completion – the total global economic integration and the absolute dismantling of the remaining free trade barriers.

We are now seeing how this paradigm works on how the rice crisis managed to do what trade talks failed to do – a unilateral reduction of crop tariffs of several countries – a solution forwarded by IMF-WB. Neoliberalism is still being presented as a solution, and in fact the problem is being portrayed as the half-hearted effort in implementing this philosophy of governance. This portrayal may not seem so obvious now, but it had been obvious before the collapse of main US investment and insurance houses.

This direction rests on a premise: the alleged irreversibility of the “reforms” and political-economic restructurings made during the Washington Consensus period. World economies are so supposedly linked-up already, the global trade too much facilitated by transnational and multinational corporations (some even proposed the rise of the “Transnational Capitalist Class” vis-à-vis the globalization process), that solution can only arise from a strong global market and private sector that is free from “distortionary” interventions from governments.

The second direction brings us back to another alternative, a revival of regulatory capitalism – akin to that of the post-World War II original Bretton Woods and Keynesianism era. During that time, strict capital controls were institutionalize in order to foster strategic investments, and massive government spending and wage increases contributed to push consumption by the middle class. In effect, it was characterized by a strong and big government which intervenes, and an organized labor force which fiscalizes.

This paradigm has certain requirements.

If neoliberalism is biased towards more globalization, regulatory capitalism is biased to where regulation can best be done: the nation-state. In fact, the alternative models of development that are being sought are forwarded not by multilaterals but by nation-states themselves struggling to survive in the increasingly predatory global environment. Now that the credibility of the dominant global neoliberal ideology is at its lowest, the general discourse may evolve into a discourse favoring the protectionist and developmentalist model which brings back the responsibility and the locus of power back to the nation-state. 

This resurgence of nation-state protectionism is rested on several contexts: 

Global Context: US-centric Globalization in Crisis

First, the global economic integration project, as facilitated by multilateral and international institutions such as the IMF, WB, and the WTO, is in crisis. This was partly a crisis of confidence and legitimacy: confidence because of globalization’s failure to fundamentally resolve humanity’s enduring problems such as poverty and it’s role in exacerbating the ramifications of the neoliberal framework; legitimacy because of the widely perceived play of the US in this project, making nation-states such as some of the developing nations look at the multilaterals with suspicion, now that their ineptness are showing. Other intergovernmental projects, such as the United Nations (UN), are emasculated to have lasting impact beyond mitigation of symptoms of chronic problems. They serve at best as merely temporary palliatives to recurring crises of the global system.

Second, the uni-polar geopolitical environment is slowly being transformed, with the hegemonic presence of the United States as the lone superpower economically and politically challenged, if not undermined. This was partly because of its own internal difficulties. Of course, we have the financial crisis leading to a deterioration of its economic strength. But we also have see that the subprime mortgage crisis, the prime originator of the collapse of the housing bubble, is also bound to have social effects especially in the urban areas. 

We also have the ever-rising US public debt due to years of deficit-spending, with debt per capita pegged at more than $34,000. This can be traced to the decades of huge military spending, as a consequence of its imperialist intervention in Afghanistan and Iraq, and maintenance of a mobile defense and intelligence forces around the world. Again, this brings the US another problem – a military fatigue that eroded the popularity of the Bush administration. 

Given these problems and more, some are proposing a new era of US isolationism – an era of lessened international intervention and more internal intervention. Whether or not this will play out in the policy of the next US administration is yet to be seen, as candidates put forward platforms for US energy independence and other inward-looking concerns.

But a large part of the reconfiguration of the geo-political environment was brought by the rise of other economies, in particular the BRIC – Brazil, Russia, India, and China. In China, for example, since the opening-up project of Deng Xiaoping, GDP grew an average 9.9 percent a year, with per capita income growing at an average annual rate of more than 8% over the last three decades. Its position in world trade is more and more hegemonic, as it continues to broaden its manufacturing and industrial base.

We also see the return of the Russian Federation as a force in Eastern Europe, threatening the former Soviet bloc and putting a brake on the expansion of the North Atlantic Treaty Organization (NATO). We already saw Russia’s military actions in South Ossetia, a territory claimed by US-friendly Georgia (a preemption of a probable US move). Also, Russia’s Gazprom strategically controls oil supply in key European areas, serving as an important geopolitical and foreign policy instrument of the Kremlin.

Global Context: The Nation-state as the Locus

Third, regional integration projects remains to be nation-state-centric. This is the reason why some attempts at regional integration, which has its end the re-organization of production and trade towards a “region-state”, has been so far stalled in many parts of the world, particularly because nation-states had opposed. In the case of the European Union (EU), the people of France and the Netherlands rejected the proposed EU constitution in a referendum, despite the prodding of their governments, with Spain and Luxemburg acquiescing only with disappointingly low margins. 

And even with regions which seem to have a mutual consensus towards a regional project, we observe that the nations of specific regions merely orbit on strong core nation-states. As such other nations perceive regional projects as often merely projects to extend the ambits of influence of particularly powerful nation-states. Or, the success of regionalization projects is seen to rest on the presence of strong nation-states.

A good case to look at is the case of the Asian Region. The Association of South East Asian Nations (ASEAN) was formed in 1967 originally as a cooperative defense of nation-states, then mostly ruled by autocratic heads of state, from the swelling tide of communism worldwide slowly affecting countries within the region such as Vietnam and Cambodia. While it began evolving into a trading bloc as early as the 4th ASEAN summit, the process had been laggard at best. Thus, the need to create an entity called ASEAN+3, which sucks Japan and China in the integration process – economies which are already lording the South East Asian economies, albeit bilaterally.

This is also true in the case of North American Free Trade Agreement (NAFTA), a project started by the US and Canada, is perceived as dominated by the US, as Germany is also seen to exert a great influence on the EU. Meanwhile, the creation of African Union (AU) is seen as a product of power assertion from both South Africa and Libya, with South Africa inevitably gaining the founding leadership.

Even the Latin American regional project follows a model centered on a powerful nation-state, which is Venezuela – a consequent of its strategic control over the oil reserves. Venezuela had actually been the leading force towards the creation of progressive Latin American regional projects such as the Mercado Comun del Sur (or MERCOSUR - Southern Common Market), an regional trade agreement which serves as an alternative to WTO-type trade mechanism, Banco del Sur (Bank of the South), which is intended to displace IMF-WB as a hegemony in South American lending, and Alternativa Bolivariana para los Pueblos de Nuestra América (ALBA - Bolivarian Alternative for the People of Our America), which is an international cooperation organization supposed to be an alternative to Central America Free Trade Agreement (CAFTA).

Fourth, the failure of integration at both the global and regional level as facilitated by neoliberalism led strong nation-states and their corporate players to explore other means of increasing trade activity. They saw the need to bypass current global and regional structures in order to get their capital to its intended markets – the developing nations. This explains the increasing bilateral and plurilateral negotiations, especially trade agreements (e.g. JPEPA) as boosted by aid for trade initiatives. 

An important indicator of the shift to the bilateral is that the infusion of capital to developing countries is increasingly being coursed through Export Credit Agencies (ECAs) rather that the traditional IFIs. We see Chinese capital flowing in Southeast Asia and Africa through mega-loans from the Chinese Export-Import Bank, an ECA. These loans go to strategic industries such as transmission (TransCo), transportation (North Rail, Tanzania-Zambia railways), energy, broadband systems (think NBN-ZTE scandal), and mining (Chambisi Copper Mine), or to forward strategic Chinese interests on key geological assets, such as the oil-rich Spratlys islands.

The shifting of Official Development Assistance (ODA) framework away from international humanitarian concerns towards that which explicitly asserts the national interests of donor countries is another indicator. This shift was spearheaded by Japan’s Revised ODA Charter which states that Japan ODA will be used to meet the country’s external need for resources and energy to be sourced from ODA recipients.

Fifth, the rise of the Latin American progressive movement capturing state power, presents an empirical evidence of the viability of utilizing the nation-state as a jumping board towards an international solidarity projects. Preceded by the victory of progressive forces in Cuba, Venezuela, Argentina, Brazil, Paraguay, Bolivia, Nicaragua and others, the coalescence of progressive Latin American states into a “Southern” haven centered on a left-wing programme, albeit loosely, is a manifestation of this. 

The Return of the Nation-State?

It is with these contexts that certain sectors proclaim the return of the nation-state, the prodigal son that was banished and almost forgotten in exchange for the esoteric values of the then new child wonder—neoliberalism. Renewed faith for state intervention and regulation was so strong that it even became one of the major points of debate during the Obama-vs.-McCain bid for the US presidency. It was widely believed that market fundamentalism and “small governments” are considered the fundamental characteristics of the neoliberal orthodoxy.

However, the million-dollar question is: is this really a nation-state resurgence?

We are of the idea that while there is a realistic diminution of government’s role, nation-states, its power and influence did not wither away under the neoliberal order.  Even globalization, as explained in the contexts above, is mainly powered by multilateral agencies revolving around the US. It is not surprising that neoliberalism is equated with an unfortunately undiplomatic term “Washington Consensus”, which already explicitly identifies the force behind its creation. 

In fact, we go as far as to assert that the nation-state is an integral part of the neoliberal paradigm and any anti-neoliberal analysis that puts premium to the proposition that neoliberalism simply  equates to “less government” is a distraction as it treats the neoliberal paradigm as a mere thought devoid from the essential capitalist sectors. More importantly, it limits our options and our search for alternatives between a regulated and a deregulated form of capitalism. 

Even Milton Friedman, the acknowledged guru of neoliberalism agrees stating that “government is essential both as a forum for determining the rules” and to “to enforce compliance.” Without doubt, nation-states are far from being a diminutive figure in the current neoliberal order. It plays the important role of an adjudicator to amend the needs of the market and capital as seen in the functions of the Word Trade Organization (WTO), the G8 and the Washington Consensus. It also plays the role of an “intimidating bouncer”, the strikebreaker, the coercive instrument tasked to impose obedience and discipline to those who would otherwise resist the framework set before them. In the final analysis, when things turn for the worst, it is still governments which reign over “free market economies” and seemingly “untouchable” financial banks.

Nonetheless, there is a real and palpable relapse to what is tantamount to “nation-state centrism”, as the thin veil globalization and regionalization is being stripped out and shredded to pieces by the forces of the neoliberal crisis. 

The Relapse on Nation-State Centrism: Dangers and Opportunities

The danger of relapsing into the nation-state centrism is that as much as it can favor progressive alternatives in lieu neoliberal globalization, it could also easily favor fascistic and nationalist sentiments. Right-wing ideologues will be expected to discredit the progressive paradigm as they prop-up their conservative outlooks. We can already see the parliamentary victories and gains of conservatives and “nationalists” in European parliaments, formerly dominated by social democrats. If we are to imagine a little bit more, this is akin to what happened prior to World War II, when forces of the radical right began capturing state power in Germany and Italy.

This possible resurgence of right-wing politics may lead to another thing: increasing state terror as economic malaise translates to heightened political activity, and in some areas, political upheaval. The most developed nations which already made technological advances may transform themselves into “surveillance states” or “police states”, still using the context of anti-terrorism. In United States and United Kingdom, the two staunch advocates of War against Terror, national and homeland security acts were already passed and are being implemented. In other nations, anti-terror laws are still being peddled to those who haven’t passed them yet.

We may observe that the discrediting of the neoliberal may not necessarily lead to a victory to the progressive. Neo-conservatism is still a potent force, and should they be able to capture power, we are in danger of seeing a fallback on Bush-led 21st century imperialism –“shock/disaster capitalism” with military spending as the new economic bubble. We have already seen the hawkish Republican presidential candidate John McCain still proposing a continuation of war on Iraq, and if he had won, possibly a waging of war on Iran and Pakistan.

But we should remain watchful and hopeful, of course, for opportunities. The re-clarification of the important role of nation-states in shaping the collective global destiny paved the way for the creation of “new states” – progressive states which implement radical, pro-people reforms and govern via models of deliberative democracy and participation. The Latin American experience in governance and alternative economic systems provide us with directions as the sentiment shifts back to state intervention and regulation.

Clearly, the history of the Latin American movement tells us that the best refuge and weapon of the progressive movements in countering the transnational movement towards neoliberal globalization is the domestic state, the locus of immediate power. 


Anonymous said...

nice article. can i cite this for my term paper?

mark said...

And how does shifting to a more protectionist and interventionist government benefit our people? You seem to be ignoring the fact that increased globalization oversaw one the greatest reductions in poverty and inequity of income and standard of living between the developed and developing world ( China could not not have brought out 1 million people out of poverty every month without globalization.

Whoever says capitalism isn't perfect and subject to fallouts seem to forget how much more uncertain life can be without it. A disastrous harvest can mean death to subsistence societies. To a capitalist society it means higher prices.

I agree that this recent crisis doesn't help the cause of globalization and free markets. It may result to what you call a return to where nation states have a more prominant role. But how is that a good thing?

James Miraflor said...

Hi Mark,

Notice that I do not, at this level, argue against capitalism per se. I believe that is another debate altogether. I am just stating a fact that one of the directions of the capitalist order (in its crisis), had been to compromise the globalization project in favor of the nation-state one - the other being the continued reliance of globalization and the avoiding the temptation of protectionism (as APEC and G20 did, at the prodding of Bush but without the blessing of Obama).

Your second question is how can a relapse on the nation-state as the locus of the world order be a good thing. I've already hinted on this on the article. But the most brief answer to this would be: that the nation-state apparatus is more accessible to the people than globalized corporate apparatuses are. You can vote (or revolt) away a government, but you cannot necessarily do the same to a global corporation which has many markets - and if there is an oligopoly, you cannot even choose which global corporation will sell you stuff. In this case, the nation-state acts as the primary "consumer protection" agency.

mark said...

"Notice that I do not, at this level, argue against capitalism per se. I believe that is another debate altogether."

Ok that's fair.

"We are now seeing how this paradigm works on how the rice crisis managed to do what trade talks failed to do – a unilateral reduction of crop tariffs of several countries – a solution forwarded by IMF-WB. Neoliberalism is still being presented as a solution"

Ok I cannot let this slide and need clarification, are you implying that free trade brought about the rice crisis? I say no. The trade distorting subsidies (completely anti-free trade) given by to US and EU farmers brought about the crisis. This brought about dumping that reduced incentives for developing countries to developed their own agricultural sector and undermining food self-sufficiency. However, under free trade, this could've been turned into the developing countries' advantage. If they allowed the US and EU to dump food on them and only maintain enough farms to see them through crises, it would've freed up resources to develop their industries and services (ie move up the value chain) more cheaply than if they had to develop an agricultural sector first. Once they achieve a comparable level of development, then they could better afford to maintain a buffer of farms to support them in times of crises.

"that the nation-state apparatus is more accessible to the people than globalized corporate apparatuses are. You can vote (or revolt) away a government, but you cannot necessarily do the same to a global corporation which has many markets - and if there is an oligopoly, you cannot even choose which global corporation will sell you stuff. In this case, the nation-state acts as the primary "consumer protection" agency."

Whoa... How hard was it for Hugo Chavez to nationalize private businesses? How hard was it for Putin to nationalize Gazprom? How hard was it for Argentina's Fernandez to raid the private insurance companies? How hard was it for Ferdinand Marcos to nationalize Philippine businesses? How hard was it for Fidel Castro to nationalize Cuban businesses?

And how easy was it for consumers to demand better services from these government entities (note: many Valenzuelans are dissatisfied with Hugo Chavez's gov't services)? How easy was it to set up a competing business offering better services? How easy was it to leave and set up your own competing business with other suppliers? etc. etc. My guess is, anytime you tried to do any of these things you either got shot, disappeared, or starved to death (you can't compete with a subsidized firm).

I guess I want to ask, where did your get your assertion that it is easier to vote or revolt away a government than to no longer patronize a particular corporation. We had an earlier debate, and your premise of corporations becoming global oligopolists has no empirical backing. Much like a state cannot run an economy efficiently because of the sheer scale of the problem, larger corporations can only grow so big before they have outsource many of their activities to smaller firms or even give them up to competitors. Even as technology may make previously unviable backward/forward integration possible, it can also make it cheaper for up-start firms to challenge them (e.g. owners of the spinning jenny initially monopolized the textile industry. However, demand for it was so great that the cost of its manufacture dropped allowing competitors to come in). You may say you're against even any sort of government being used by the fascist right to create monopolies or oligopolies that you so detest, but unless you can state clearly and specifically what sort of limits governments ought to have (as Milton Friedman did) then you are no better than them. Simple democratic participation isn't enough (that's what brought Hitler to power). And adding a qualifier such as "geniune" democratic participation without defining what genuine means and how it can be applied is just as irresponsible.

James Miraflor said...

The first thing I want to rebut is the comment on industrial restructuring. In your theory, given that industries will die because of liberalization, industries will be born in order to provide. Empirical evidences show that neither labor nor demand is that elastic, or if they prove to be, that social costs must be incurred (like poverty, but of course for some its ok to let even one person die in poverty if it is to conserve an efficient market system). In fact, if there is anything that liberalization achieved after it had destroyed "inefficient" industries, is to compel people to go towards the informal economy - some of which are engaged in outright criminal activities. Consider Mexico, for example. Of course, that's labor restructuring for you.

As for government's being undemocratic, I would think it would be more a matter of institutional design. A government designed to be corrupt would naturally be undemocratic, as any institution be. In fact, undemocratic organizations tend to be the most corrupt. Corporations, which you purport to be the haven of efficiency, being one of most undemocratic organizations ever conceptualized (it's obvious, and we don't need Dilbert to remind us that), had developed into one of the most corrupt. Remember Madoff, for example.

But more than that, and this is extending the argument a little bit, the crisis of financial markets had been caused by the tendency of the undemocratic corporation to steer from its supposed mandate - to satisfy the consumer. By design, it is made to satisfy stockholders (which was also partly responsible with the corporation being designed to be undemocratic). The undemocratic corporate management has then all the incentive to engage in "legal" or even illegal means to increase shareholder value.

Anonymous said...

Thank you, that was extremely valuable and interesting...I will be back again to read more on this topic.

mark said...

by the way James, corporations/firms/businesses have no "mandate" to serve the consumer. They do so voluntarily for as long as governments ensure the only way they can satisfy their desire to get rich is satisfy the consumer.

The sooner you appreciate that and all that it implies the better.

mark said...

Hmmm... my previous comment to which my addendum applies keeps getting erased.

Let me put it this way:
Firms in free markets have no mandate to help society and consumers. Yet they have done more to raise the standard of living of everyone than a politician, bureaucrat, or NGO with a mandate to help the people.

People are selfish animals. Giving them a mandate will never change that. Best you designed your system based on that inescapable fact.

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