Greece and the Tri-lemma
I am a proponent of globalization and I’ll admit that my understanding of financial markets is exceedingly limited, but I have a hard time disagreeing with Dani Rodrik’s claim that democracy, the nation-state, and globalization are incompatible and that we can, at most, have only two at one time. I’ve certainly had similar thoughts before, albeit obviously far less developed than Rodrik’s. Rodrik argues that a major reason the Greek crisis has become such a problem is that the EU is still too undeveloped to have properly responded to the crisis, while Greece is still too democratic to do so. In other words, a key aspect of the problem is that the EU system attempts to retain democracy and national sovereignty while attempting to create an integrated economy.
Chris Bertram adds a giant caveat to Rodrik’s thesis, noting that Rodrik cannot merely be referring to “democracy” as a set of procedures but must also be referring to a system in which groups are politically mobilized and capable of exerting overwhelming pressure on political institutions.
I suspect Rodrik’s thesis explains quite a lot, actually. I think, for instance, it explains why the American Right is as likely to oppose free trade policy as the American Left, at least when the issue is presented without reference to partisan positions. I suspect that the division on views of trade policy is roughly the same on both sides, with the wealthier and more elitist elements of the Right and the Left willing to forgo either democracy (most often on the elitist Right) or national sovereignty (most often on the elitist Left), while the working class elements of both the Right and the Left reflect the more populist preference for national sovereignty and democracy (in my experience there are typically few who wave the American flag more proudly than your average union member, and there are few who cloak themselves more proudly in the rhetoric of democracy than your average anti-UN movement conservative).
I dunno Mark. A lot of Greece’s woes seem to be more due to their diminishing of their nation state status by turning over control of their currency to a trans-national organization. If Greece still had their own money they’d have devalued it like mad by now (and would never have been able to borrow against it like they did with the Euro) and would be getting a boost to their exports and tourism due to it.
Their peeps would of course be livid over their suddenly worthless savings and wages and pensions but that’s whatcha get. Protesting is cheep at least so they can do that for fun.Report
@North, Keeping in mind that I’m way outside my comfort zone here, I think that’s actually implicit in Rodrik’s point. By going with the Euro, but with the EU still a fairly weak organization that allows for a significant amount of national sovereignty, they were trying to have it all three ways – get the benefits of a merged economy via the Euro, retain national sovereignty over economic affairs, and retain democracy at home. In so doing, they’re left in a state of limbo – an EU that lacked the institutional capacity to respond quickly because of its respect for sovereignty, a sovereign government whose tools for dealing with the problem were limited by its involvement in an integrated economy (ie, adoption of the Euro), and a democracy that made it almost impossible for its government to deal with the problem in the only way that it retained the tools to do so. Get rid of the integration via the Euro, and the Greek government could inflate without angering its democracy; have a system of government in which groups are less willing/able to mobilize, and the Greek government could enact austerity measures without much of a backlash; or have a stronger EU, and the EU could have nipped the problem earlier in the game. None of these would have, by themselves, prevented the problem, but each would have mitigated it significantly. At least, that’s how I take Rodrik’s point.Report
@Mark Thompson, okay Mark, I’ll read him again.Report
@Mark Thompson, From what i have been reading the hard part of Greece in the EU is they are a relatively weak economy in a group that is designed for strong economies. The rich EU were not quick to act, but the EU is not really designed for that. The EU is likely a good fit for all the rich countries, but not the weaker ones, or at least when the scata (greek word for poopie) hits the fan.Report
There are a couple of very important implications of this as well. The first whether by excommunicating bad states like Iran and Cuba, the eroding influence of a more interconnected economy is kept at bay. Thereby keeping the states more discrete, more sovereign. Leaping further than logic should take me, that would suggest that the west’s cold war stance only worked because former communists states could choose to partake in the global economy without making the same trade offs in terms of national identity that we associate with parts of the developed world.
The second implication is more of a question/implication, doesn’t Rodrik’s claim have rather specific geo-political limits. Societies without a tradition of liberalism, which is the beating heart of the description of democracy given, can simply bypass that whole democracy business with nary an existential/fiscal worry.Report
@Kyle, I agree with your second paragraph, but I’m not sure I understand your first.Report
@Mark Thompson,
Basically, I’m speculating -assuming the premise is correct – that the reverse holds true. That by keeping certain countries out of the global marketplace/globalization – we end up strengthening their nation-statehood and linkages between domestic institutions and nationalism – even if they aren’t strictly democratic.
Speculating even more so, I wonder if the collapse of cold-war era communist governments to form more market friendly countries were more successful because the sovereignty eroding elements of globalization mattered less/were still in their infancy.
Is any clearer? (sorry I’m commenting and reading US v. Comstock at the same time)Report
@Kyle, Actually, that sounds about right to me. I don’t know whether Rodrik would agree, but it makes sense to me now that you’ve put it that way.Report
The author is correct when he mentions how the collapse of Breton-Woods fundamentally changed the international system.
For hundreds of years, it was a basic tenet of classical economics and economists such as John Locke and Adam Smith, that the stability of the international financial system utterly depended on a fixed medium of exchange for international commerce .
Fiat currencies are one of the supreme instruments of *sovereign political* authority of the issuing nation (which the E.U. is not and does not have). They require legal tender laws giving the issuing government a monopoly in it’s own country (otherwise it would be a free banking system as non-inflationary currencies would easily outcompete it). Fiat currencies are beneficial to individual countries that adopt them because it gives them monetary control, but are detrimental to the international system as a whole unless a single worldwide one is adopted.
The market cannot properly price currencies because it can never know with certainty the true financial state of a country, and the issuance of fiat currency by central banks is rarely done transparently (the fed is almost entirely opaque). That is why these currencies are the tool of arbitrary *political authority*.
Thus, the international system based on such national currencies is unstable because it essentially represents imperfect political cooperation.
Cooperation between nations can be perfect when it is transparent, defined, and contractual, the gold standard was such an example. Another example is treaties. Treaties such as free trade agreements, are a contract ratified between two or more sovereign nations. Clear defined, their authority is limited. They may require an international enforcement mechanism, but that ceding power to a judicial function, not the ceding of political legislative authority. A fundamental aspect of treaties is they they can be withdrawn from. If they can’t be withdrawn from, then entering into into it *does* represent the loss of sovereign national authority.
The E.U. began as a free trade agreement of the Coal and Steel industry, in 1950, consolidating with other agreements into the European Economic community in 1957. It only because a political union after politicians, always hungry for political power, formed the E.U. in 1993 and subsequently the Euro.
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To summarize, arbitrary political/legislative authority requires total sovereign control over an area. National currencies create an unstable financial system because they represent the arbitrary, un-transparent political power of sovereign governments.
Defined and contractual cooperation, such as the international gold standard system, or treaties, are free agreements and do not require loss of national sovereignty.Report
Is there any political system where this is not the case?
Monarchs had scheming viziers and self-interested nobles to deal with, fascist dictators had cabals of generals, and even the Tsar had Rasputin. this is not to mention the church, peasant revolts, outside powers, etc, etc.Report
I don’t think I buy the democracy horn of the tri-lemma at all. I see there’s a conflict between globalization and the nation state, or at least the nation state as an entity that’s perfectly free to set its own policies. To the extent that’s true I tend to side with globalization since nation states don’t have a shining record of promoting human development and globalization has a rather better one.
But what’s the role of democracy in this? States oppose globalization when they try to restrict the free movement of capital, goods, labour, information, etc. The implication is that democracies do this more, but that’s not true. Rather autarky and authoritarianism tend to go together. Myanmar doesn’t seem terribly keen on the free movement of people, and correspondingly capital seems rather hesitant to get involved there. Venezuela is getting less democratic and less welcoming to foreign money more or less in lock step. China keeps out foreign money and keeps dissent in line both as mechanisms for maintaining the party’s grip. India slid towards authoritarianism when it tried to be self sufficient, but free-er trade has if anything reinforced democracy.
I think the author is extrapolating from the fact that certain anti-globalization policies are electorally popular in democracies to the idea that there’s a conflict between democracy and globalization. For example, restrictions on immigration and restrictions on trade. But this is like arguing that democracies cause wars because they still fight them. In both cases the evidence is the contrary – democracies fight fewer wars. They also have fewer restrictions on trade and immigration. Authoritarian regimes tend to restrict both to a much greater extent, and the movement of capital and information to boot.Report
@Simon K,
I don’t know if this helps but from what I gather, democracy here is being used very loosely. The concept described is more of a “having politically relevant domestic constituencies that (1) are not part of the government and (2) can challenge, oppose, or demand changes from the government without precipitating the fall of the government.
Which, to respond to another comment, is what differentiates these societies from dictatorships where the military is the only politically relevant domestic constituency.
What isn’t possible is achieving a trifecta, keeping domestic groups with varying agendas politically relevant, maintaining distinct (I would use discrete) spheres of sovereignty, and achieving international economic integration.
I don’t think that democracy matters with respect to being pro or anti globalization but it matters in that a nation can’t serve masters with divergent interests, and barely can serve two masters with concordant interests. Democracy matters – in this context – because it can’t be considered as such if the opposition becomes politically irrelevant.
Yet globalization requires a consistent level of political/legal support that isn’t reconcilable with the dynamism of a fractured political society. That is unless you eliminate the nation-state and create a larger nation-state. In both states, the opposition loses but the difference is whether it’s because they’re stymied by an elite or overwhelmed by newly added stakeholders.
IOW it’s not democracy if abolitionists ought to have political relevancy on the basis of numbers and influence but don’t in antebellum Georgia. It is democracy if abolitionists have political relevancy in an antebellum United States of America.
All of this is based on a premise of democracy that sees politically relevant extra governmental opposition as a necessary condition of democracy. A premise that is probably worth challenging. The question to ask is whether democracy requires such opposition or whether it simply permits the circumstance to arise?Report