Year XXXV, 1993, Number 1 - Page 28
PROSPECTS FOR GLOBALIZATION AND THE CONTROLLED USE OF PROTECTIONISM AS A MEANS OF INTEGRATION
The global economic order in the post-war period has been controlled by certain international institutions: international financial relationships have been handled by the International Monetary Fund; GATT has controlled the development of international commerce; the World Bank has financed investment projects, contributing to the growth of stability and to the spread of economic development.
These institutions have exercised their role within a relatively stable political context that has been provided by the United States’ leadership of Western interests, and those of most non-aligned countries. The activity of these institutions has therefore been deeply influenced by the United States: initially, American influence was decisive, but has declined over time; despite this, US control over these institutions has never completely disappeared.
US leadership supported international integration, thereby enabling growth in free trade. European integration developed within this framework, and benefited from the stability guaranteed from outside. The European Community did not oppose global free trade integration; instead it established a region where integration was highly successful.
This situation underwent its first crisis in 1968 when the customs union of Europe was fully established.
The very success of the European customs union brought the political and economic context in which it had developed to a crisis point. This happened when Europe realised that it could aspire to a role of equal partnership with the United States, at least in economic terms. Starting with a monetary crisis, the world was shaken by a series of crises in the 1970’s which were mainly due to the growing difficulty of keeping pace with the redistribution that was underway in the world’s centres of economic and financial power. These crises then widened to involve trade relations. Finally, the European ambition of gaining an international political presence which reflected its economic importance emerged.
While severe, these problems did not stretch international relations past breaking point. The bi-polar characteristics of the world did not allow for any challenge to American supremacy in the West. European ambitions had to accept this limitation on any claims for equal partnership.
A decisive change took place in 1989. Caught between Eastern European economic emancipation on the one hand and the collapse of the Russian Communist regime on the other, the Yalta world order began to crumble. The fall of the Berlin wall was the visible symbol of the quickening of this break-up. A new era opened in international politics which offered novel possibilities on all levels.
Two alternative world scenarios started to take shape. On the one hand there was the chance to accelerate the integration of all countries, no longer obliged to opt for one bloc or the other. On the other vast regional areas began to consolidate, within which co-operation and integration could aspire to greater levels than those currently practised in the new world order.
To understand which of these scenarios will prevail in the short to medium term, two factors are decisive. First, there is the issue of restructuring international bodies. Second, and closely connected with the first, is the decisive importance that Euro-US relations are destined to have in the new world order.
The first scenario, which we could term “mondialist”, requires new bodies to manage the new monetary, economic and political world order. It will only be possible to define these new organs as the fruit of the historical process. At present the only realistic option is to define the fundamental issues, and to try to single out some trends which may indicate possible solutions. The basic problem is not very different to the one already faced by Europe at the outset of its progress towards integration. This involved trying to integrate countries with different stages of development and economic capacity together in a single community. Solidarity grew in time based on institutional solutions decided upon in an increasingly democratic manner. To sustain the globalization process the following bodies must be reformed: the UN, the IMF and the World Bank. Moreover new international bodies need to be created to manage world problems which did not even exist in the 1950’s. Here I am referring especially to problems associated with the use of mankind’s common resources such as our oceans, the atmosphere, outer space, and Antarctica; to this can be added ecological problems which have now become a world-wide concern. To realise this alternative, the historical problem is to find solutions that ensure the widest possible consensus among all the countries of the world. Europe has managed to progress towards unification over the last four decades by adopting a functionalist strategy. The idea of federation, which until now no-one has attempted to define, was adopted as the final objective. Confederate structures were set up, into which federal elements were introduced gradually, sector by sector. Hence the historical process was left with the task of defining what was meant by federalism. The current widespread debate on subsidiarity is only the latest example of Europe’s ability to search for an identity in the course of events, in an innovative manner, free of any fixed model.
Differences in economic or political development in the world today are certainly greater than they were in Europe when integration began. World unity can only begin if the solutions proposed take this reality into account.
Central to this process is the issue of Euro-US relations. The reform of international bodies leading to world unity under present circumstances implies the recognition of an equal partnership between these two areas. This leading partnership will attract other continental (or quasi-continental) areas, such as Russia, Japan, China, and India on increasingly equal terms. The responsibility for starting the process, therefore, lies mostly with Europe and the United States.
The difficulty of seating all the world’s leaders around the same table together, including those from the Third and Fourth worlds and the major world powers, is self-evident. The crux of the issue is leadership. Such leadership cannot be concentrated on the US, using the same methods that were current up to 1989. Democratisation on a world scale cannot come about without American recognition of a full equal partnership with Europe.
Perhaps this will not come about soon; indeed, there is a thought provoking precedent. European integration was initially hindered by Great Britain; not by coincidence it was the only European country which could truly consider itself to be one of the winners of the second world war. Integration only really began when the continental countries decided to go ahead after accepting British self-exclusion.
There are many similarities between the British attitude to European integration in the post-war period and America’s position today regarding mondialist reform of international institutions. However, there is one important difference: other European countries continued without Britain. They expected her to follow later. Today the mondialist evolution of world institutions seems unrealistic in the face of American opposition.
This does not mean that in the future, or even perhaps soon, mondialism will not develop without the United States, at least initially. But the right conditions do not yet exist.
These considerations lead us to the historic responsibilities that the two most highly developed areas in the world shoulder today in international relations. Of the two, Europe has the greater burden because it can influence the US more than the US can influence Europe. By completing its progress towards integration, Europe will be able to exercise a greater role in the evolution of international relations than any other area.
European integration began as a Franco-German initiative. Each advance made towards greater integration was due to the initiative of these two countries. The United States and Europe, on condition that the latter reaches full unification, could adopt an analogous role on a world scale.
The launching of a new Atlantic treaty could be the turning-point in the development of a scenario which we have hitherto defined as mondialist.
The alternative is the breaking-up of the world into cohesive continental groupings. Relations between these areas could evolve in two different directions: either towards competition and conflict or towards co-operation. The fundamental problem is understanding the forces that are pushing in these directions and singling out the factors which lie behind this process. In particular we need to find solutions that can reduce the danger of conflict between these regional groupings.
International relations run the risk of undergoing a withdrawal from economic exchange concurrent with a tendency towards autarky.
Once the old order, characterised by US leadership in world free trade, has entered its final crisis, an uncertain transition period with no clear outcome may ensue. In this event regional systems, needing security in the face of international disorder, may react hastily by closing themselves off from other groupings. The resulting world order would be highly unstable. While in the long run this situation would be destined to change, given the tendency of world economic development to create increasingly stable and larger markets, it is nevertheless difficult to foresee exactly when this change will come about. Nor is it possible to predict how serious the conflict between groupings could become. The line dividing commercial wars from armed conflict could be crossed.
A return to autarky may not always be the result every time protectionist policies are implemented.
Protectionism distorts the international economic system; yet at the same time it can be the result of distortion, and as such have a neutralising effect.
The competitiveness of goods on the world market depends not only on the competitive capacity of producers but more generally on the competitiveness of the political systems that producers belong to. The ability of systems to compete also depends on socio-economic policies. Free circulation of goods and services in the absence of coordination between political, social and economic policies in any given system tends to impose a realignment in line with the conditions which prevail in the least-regulated system.
This outcome is not necessarily the best. For example let us take the case of a country that has no old-age pension scheme, no national health service, no welfare for its poorest citizens, no environmental protection laws and other similar laissez faire policies. It is obvious that products from this country would invade the world market. In such an event the adoption of protectionist barriers by other countries would put producers on an equal footing by lessening the impact of unfair advantages or disadvantages due to the area they live-in.
Economic theory has long concerned itself with protectionism, which is an instrument of political economy that can only be evaluated from the context within which it is applied. The abuse of protectionism should not lead us to think it is necessarily evil.
The problem is that it is very hard to distinguish “good” protectionism, which corrects pre-existing imbalances, from “bad” protectionism, which distorts the world economic system. Hence the reluctance to approve of an instrument which by its very nature is susceptible to discriminatory uses.
Such observations lead us to a possible solution. If the world forms large economic blocs, protectionism will inevitably ensue. The basic problem will then be how to regulate its application world-wide, to ensure that protectionism will be used to support fair competition between economic blocs and to help maintain the balanced development of international relations by managing resource redistribution.
A partial overlap thus emerges between the mondialist scenario and the multi-polar one. The global control of protectionism could force regional economic areas to converge, thereby avoiding serious conflicts between them.
Once again, the history of European integration provides many lessons. Take for example the European Monetary System (EMS) which has enabled progress towards a currency union. When the EMS was created, the hitherto exclusively national power of devaluating or revaluating currency was transferred to the European level. Such currency value changes have the same practical effect as customs duties. European governments have continued to use these conventional instruments of political economy, but the EMS has obliged them to use them “virtuously.” That is, it has obliged them to use these powers in a manner compatible with the overriding objective of increasing integration.
If the world consolidates into large economic blocs, it will become an urgent priority to guarantee that currencies from different areas are not used to create distortions. Freedom of capital investment should be regulated according to the level of economic integration. Otherwise speculation could provoke autarkic countermeasures.
The mondialist scenario means reforming the IMF into a Central World Bank. Increasing integration will be possible in a world organised into economic blocs if the lessons learnt in Europe regarding gradual integration are applied. An example of this would be the establishment of a “super-EMS” to co-ordinate regional currency unions.
In the monetary field the argument on European and US responsibilities can be applied in a concrete way. A prerequisite for a world currency agreement is the full monetary union of Europe. Moreover a “super-EMS” cannot be established in the short term without an agreement between the Unites States and Europe which is open to all regional economic systems.
The same applies for all the international organisations needed to manage the commercial, environmental and other aspects of the world economy.
The history of Europe’s integration shows that the solutions needed to continue the process have emerged from the process itself. When we examine the various possible future scenarios for the world, we must appreciate that any route taken, even if we take the evolution towards growing world solidarity for granted, cannot be concluded if we adopt a fixed model of development.
To assume the moral responsibility of contributing to social, economic and political development in the current situation means having the foresight and determination to take part in the process, and to act upon it in such a way as to ensure that the most progressive solutions are adopted.
Dario Velo
