The End of the Free Market Page 2

  In 2008, the nonprofit organization Freedom House rated 121 of the world’s 193 countries as “electoral democracies,” but only 90 of them as “free” countries. In the same year, the Economist Intelligence Unit’s (EIU) Democracy Index classified just 30 of 167 countries as “full democracies,” 50 as “flawed democracies,” and 87 (accounting for about half the world’s population) as either “hybrid democracies” or “authoritarian” states. In fact, the EIU warned in its 2008 report that, “following a decades-long global trend in democratisation, the spread of democracy has come to a halt.”

  Freedom House and the EIU acknowledge that democracy is defined in different ways; there is plenty of gray area between Norway and North Korea. The Freedom House survey focuses on the conduct of competitive multiparty elections that are transparent, free, and held on a regular basis. EIU adds respect for civil liberties, good governance, and measures of a society’s openness. Whatever the metric used, when definitions of democracy expand beyond the conduct of elections, the number of countries that have reached democracy’s final destination dwindles sharply.2 Dictatorship is alive and well.

  The third obituary was for the nation-state, which a 1993 United Nations Human Development Report described as “too small for the big things and too big for the small things”3 and author Kenichi Ohmae dismissed in 1995 as a “nostalgic fiction.”4 To understand why some believed that nation-states were headed for history’s junkyard, it helps to define the word globalization. It’s essentially a catchall term for all the various processes by which ideas, information, people, money, goods, and services cross international borders at unprecedented speed. Together, these processes have created a much more integrated global economy through trade, foreign direct investment, large-scale capital flows, the construction of global supply chains, innovation in communications technologies, and mass migration. None of these individual elements is entirely new. Global trade has existed for centuries. But the multiplier effect these forces create and the velocity with which they move make this phenomenon qualitatively different from anything that has come before. Globalization, like capitalism, is powered by the individual impulses of billions of people. It is not the result of someone’s economic reform plan, and it can’t be reversed by decree.

  In recent years, we’ve been seduced by an argument that goes something like this: It isn’t simply the Berlin Wall that has fallen; globalization’s relentless progress is ripping down all kinds of walls. All that movement across borders will eventually strip nation-states of their power, because governments will never be able to manage the international commercial, political, social, and environmental challenges that globalization creates. Even the governments of the world’s most reclusive states can’t lock their citizens away forever. If cell phones from China are now flowing into North Korea, what hope does any despot have of ever again fully isolating his people from the world or from one another?5 According to the theory, it’s not just the world’s most brittle regimes that won’t be able to respond effectively to changes wrought by globalization. Even the governments of the world’s wealthy democracies won’t be up to the task. The accelerating, round-the-clock, cross-border flow of information, people, products, and cash can only really be regulated on a regional (or even a global) scale. When governments gather to agree on new rules to regulate all this activity, they will have to accept changes that compromise their sovereignty. How can China’s leaders create economic growth without opening their once-isolated country to the power of the Internet? How can French legislators maintain rigid labor laws when workers from less prosperous corners of the European Union are free to enter the country and compete for jobs? Will America still be America when other countries own key U.S. assets and entire U.S. industries are outsourced to Asia and Africa? This cross-border traffic will undermine the integrity of the state in all kinds of ways. That’s the theory.

  But advances in communications technology have not yet proven their ability to topple dictatorships. Sometime during 2009, the number of Chinese citizens online (more than 300 million) surpassed the total population of the United States. The Chinese government has so far kept technological pace via its “Great Firewall,” the system of filters and rerouters that restricts access to information on Taiwan, Tibet, Tiananmen Square, and other forbidden subjects. Foreign visitors to the Beijing Olympics in 2008 found a degree of online freedom unknown for most Chinese—though a lifting of many restrictions proved temporary. But when protests gripped Tibet in 2008 and race riots erupted between Muslim Uighurs and Han Chinese in Xinjiang province in 2009, the government quickly and efficiently restricted the flow of information into and out of the affected areas. In Iran in 2009, Facebook, Twitter, and text messaging helped shape our opinions of the Islamic Republic’s politics—but they did not change the outcome of its presidential election. For the moment at least, authoritarian governments have proven up to the challenge of restricting online speech. Furthermore, new communications technologies are not inherently prodemocracy. They’re simply a kind of force multiplier for messaging. If grassroots nationalism, fed by state propaganda, was a powerful force shaping public opinion in China or Russia before millions first logged on, the Internet will promote an unprecedented number of nationalist messages. Unless and until there is widespread, public demand for democracy, these new tools will simply be used for other purposes.

  A wide variety of analysts, scholars, and authors warned that as a result of all this global traffic, national governments would eventually lose much of their decision-making power to organizations large and small. They would surrender sovereignty to supranational political institutions like the United Nations, European Union, International Criminal Court, International Monetary Fund, and World Bank, organizations that are not states, not sovereign, and not directly accountable to local voters. Over the past several years, we’ve seen the emergence of an alphabet soup of regional groups: Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN), the African Union (AU), the Commonwealth of Independent States (CIS), Mercosur (a South American trading bloc), the Shanghai Cooperation Organization (SCO), and many others. Most of these groups amount to little more than talk shops and “free trade blocs” in which plenty of trade barriers remain. Some include discussion of political, security, and defense cooperation. But these institutions continue to depend on the inclinations of those who govern their most powerful member states and on the political calculations that guide their actions. The G20 Group of Industrialized Nations is no different. The public officials seated at the negotiating table are concerned first with promoting the interests of their governments. Members of the North Atlantic Treaty Organization (NATO) are bound to treat an attack on one member as an attack on all, but that doesn’t mean that their elected leaders will ignore popular opinion at home when deciding how many troops to commit to NATO operations abroad. As we learned again during Russia’s war with Georgia in August 2008, the Organization for Security and Cooperation in Europe (OSCE) can’t prevent conflict when a single powerful member state, in this case Russia, stands in the way.6 Whenever UN officials are called on to defend institutional inaction on this or that problem, they usually remind critics that the organization is little more than an expression of the collective will of its member states. The intricate web of rules and regulations that make up the body of international law still depends on agreements among individual national governments. Only they can direct the resources needed to tackle transnational issues like climate change, nuclear non-proliferation, terrorism, and reform of the global financial system.

  The twenty-seven-member European Union has become the world’s most successful multinational organization, because member states have surrendered control of several key levers of national power (like monetary policy) to achieve an unprecedented level of cooperation, peace, and security—and to create a free-trade zone that takes in more than 500 million people. Via its bureaucratic center, the European Commission, the union presents a single collective face in global trade negotiations. But on many important issues, the EU can’t override the veto of even a single member. Some members have opted out of core EU features like the Eurozone, where the euro is the official currency, and the Schengen agreement, which eliminates border controls between member states. And anyone who doubts that the nation-state lives on inside the European Union need only watch the crowd during a soccer match between Holland and Germany, England and France, or Portugal and Spain.

  Then there was the threat from small organizations. After September 11, 2001, it appeared that militant groups and individuals empowered by globalization-assisted technological development could undermine a country’s sovereignty and inflict enormous political and economic damage with relatively low-cost terrorist attacks. Some have predicted the rise of the “global citizen” as a challenge to the nation-state. The logic is simple: If you no longer depend for information on news sources broadcasting or publishing within one country, if you can quickly and easily form electronic social networks with people all over the world, if outsourcing and the advent of the global supply chain allow you to work for a company that is headquartered ten thousand miles from your home, if travel to foreign countries becomes ever easier and more affordable, and if more members of your family live and work elsewhere, won’t these globalization-generated changes weaken the ties that bind you to any one country?

  Maybe one day. But there is no evidence that those 300 million Chinese netizens have become any less Chinese since they first logged on. Much of what they wrote before, during, and after the 2008 Beijing Olympic Games suggests otherwise. In fact, in many ways, what they see and hear on the Internet may reinforce their sense of national identity as they decide for themselves where to travel online. Many of th
em have found clever ways to evade state censorship, and a few have become bolder in challenging their government to better provide for the Chinese people—though precious few are willing to openly challenge the Communist Party’s political authority.7 China’s vast online community exploded with wounded national pride in early 2008 as protesters in several countries targeted the Olympic torch to protest the actions of the Chinese government. In that moment, these were not citizens of the world. They were Chinese patriots. When governments provide citizens with security and opportunity, as the Chinese Communist party has done over the past several years, large numbers of people accept a common set of values, institutions, and laws—and define themselves in opposition to those who are governed by others.

  The state’s most useful attribute is its ability to maintain order. In that sense, it has served the interests both of those who favor democracy and of those who don’t. For those who believe that government’s primary obligation is to protect the rights of each individual citizen, only the nation-state can provide a stable legal framework. For the vast majority of those who pledge loyalty to this presidential candidate or that political party, the deeper allegiance to the nation ensures that power can change hands peacefully. The nation-state also allows tyrants to project power and rally public support for their regimes. Faced with the advancing Nazi war machine and afraid that Leninist principles alone would not sustain his people’s determination to fight, Joseph Stalin donned a military uniform and appealed directly to Russian national pride. Saddam Hussein, Fidel Castro, and Venezuelan President Hugo Chávez have adopted much the same strategy when times are tough. Elected officials in liberal democracies regularly advance policy goals with public appeals to patriotism. Finally, for tribal, ethnic, or sectarian groups—whether Croats, Kurds, or Northern Ireland’s Catholics—achievement of an independent nation-state remains the most tangible form of universal recognition.

  The Multinational Menace

  No organization has been singled out as a threat to the nation-state more often or with more theatrical flair than the multinational corporation. In her 2000 book, No Logo, author Naomi Klein warned that “corporations have grown so big they have superseded government.”8 For a more colorful obituary of the nation-state, look back to one of the great American films of the 1970s. If you were around in 1976 to see Network when it was first released, you probably remember Ned Beatty as Arthur Jensen, standing in a darkened corporate boardroom and thundering at Peter Finch’s disturbed and cowering network news anchor, Howard Beale:You are an old man who thinks in terms of nations and peoples. There are no nations; there are no peoples. There are no Russians. There are no Arabs. There is no third world. There is no West. . . . Am I getting through to you, Mr. Beale? You get up on your little 21-inch screen and howl about America and Democracy. There is no America. There is no democracy. There is only IBM and ITT and AT&T and DuPont, Dow, Union Carbide and Exxon. Those are the nations of the world today.

  To see the film more than thirty years later and listen again to Paddy Chayefsky’s darkly comic Oscar-winning screenplay, so much of it seems painfully prophetic—the corporate takeover of American television news, the public fascination with reality TV, the mass marketing of public outrage. But Chayefsky was absolutely wrong about one thing: Multinational corporations have not made nations and governments irrelevant. Why did anyone think they might?

  True, the largest of the multinational companies do have the money, resources, and influence to play a substantive role in international politics, and their ability to operate in multiple countries limits the capacity of any one government to regulate their actions. If an international conglomerate can operate in dozens of countries at once and headquarter wherever taxes and regulatory oversight are least burdensome, what chance do governments have to attract business and create new jobs? How can government fill state coffers with the tax revenue needed to provide services like security, schools, roads, ports, and other public goods?

  The establishment of subsidiaries outside their home markets has helped companies avoid taxes, cut production costs, and target new customers. An explosion in the number of privately owned or publicly traded modern commercial powerhouses operating internationally began in the 1960s with McDonald’s selling burgers outside the U.S. market for the first time in 1967. Soon after, Japanese, German, French, and British brands began to challenge U.S. dominance. The removal of exchange controls in Europe and the sudden OPEC-generated oil profits after the 1973 oil crisis sharply increased the size of capital markets, tempting more banks and financial-service providers to go international. The growth of emerging markets, developing countries with newly dynamic economies, began to add hundreds of millions of new consumers to the global marketplace, creating unprecedented commercial opportunities in once-isolated states. Between the mid-1980s and mid-1990s, foreign direct investment by multinational corporations grew by about 30 percent per year.

  In 2000, a report by the Institute for Policy Studies dropped a bombshell: Comparison of corporate sales of the largest multinational companies with the gross domestic products of the world’s wealthiest countries revealed that 51 of the world’s 100 largest economies were corporations; just 49 were countries.9 According to the report, General Motors had become bigger than Denmark, Daimler/Chrysler bigger than Poland, Mitsubishi bigger than Indonesia, Walmart bigger than Israel, and Sony bigger than Pakistan. In January 2006, a report from a respected commentator estimated that the top 100 multinationals collectively accounted for one third of world economic output and two thirds of global trade.10 In 2008, the UN’s World Investment Report noted that the number of multinational companies had grown from 7,250 in the late 1970s to more than 60,000 three decades later.11 These numbers set off alarm bells among critics of large corporations, who charged that they were using their enormous economic and political clout to destroy competition from small and medium-size businesses and to bribe or bully national governments into easing labor and pollution standards to help companies maximize profits at the expense of local workers and the environment.12 Multinational corporations, they warned, had outgrown the ability of governments to regulate their actions. As a result, the state would no longer be able to meet its first responsibility: to safeguard the rights and well-being of the individual.

  The list of the world’s largest private companies continues to include familiar names from the United States, Europe, and Japan, but over the past decade, a wave of multinationals has begun to emerge from the developing world. Between 1990 and 2007, the percentage of global foreign direct investment originating in developing countries increased from about 5 percent to about 16 percent.13 Some of these companies are fully public or privately held companies: Hutchison Whampoa, New World Development Co., and Jardine Matheson in Hong Kong; Formosa Plastic Group, Taiwan Semiconductors, and Quanta Computers in Taiwan; and Samsung, Hyundai, and LG Corp. in South Korea. As Antoine van Agtmael, the man credited with coining the term emerging markets, noted in his 2007 book, The Emerging Markets Century: How a New Breed of World-Class Companies Is Overtaking the World, barely a single one of these companies would have been considered world class before 2000.14