by Peter Joyce
The UN performs a number of important roles. UN peacekeepers have been sent to areas of conflict throughout the world. The organization provides humanitarian aid and seeks to promote human development through a very wide range of specialist agencies that include the World Health Organization, the UN Educational, Scientific and Cultural Organization, the International Labour Organization, the International Monetary Fund and the World Trade Organization. The UN also helps to negotiate international treaties and agreements (such as the UN Convention on the Law of the Sea that was drawn up in 1982 to establish rules governing the use of the world’s seas and oceans) and may reconcile disputes between members using the International Court of Justice.
THE EMERGENCE OF A GLOBAL ECONOMY
In addition to the existence of various formal institutions that have undermined national sovereignty by encouraging nations to co-operate, economic factors have also served to undermine the significance of national boundaries. These factors have given rise to the emergence of a global economy which has been brought about by international trade and the international character of contemporary commerce and finance. This may result in a ‘governance gap’ whereby nation states are powerless to control processes that occur at global level.
The concept of a global economy rejects the view that the economies of nation states can be seen as independent entities and instead places emphasis on their inter-relationships. This was apparent in connection with the world-wide recession of 2008 onwards, when economic difficulties which were partly attributed to reckless borrowing and speculation by banks and other financial institutions had impacts which went beyond the boundaries of individual nations. Globalization emphasizes that the success or failure of the economy of one nation, or bloc of nations, has a major impact on countries throughout the world: the decline of international trade, for example, will cause unemployment in countries that rely on exporting manufactured goods.
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Globalization
Globalization refers to the increasing integration of nations and the people who live within them. It affects a wide range of issues including economic, social, cultural and political affairs (especially the spread of liberal democratic political values). It has arisen as the result of a number of developments. One of these is communications technology, such as the internet, and satellite television, which has made it difficult for governments to censor the spread of ideas and has also facilitated the organization of protest on an international scale (such as the worldwide anti-capitalist movement).
A particularly important aspect of globalization is the emergence of a global economy.
The international political economy embraces a range of issues that include trade, the financial relationships between nations, economic dependency and debt. The cultural aspects of globalization have been enhanced by developments affecting communications. Developments such as satellite and cable television, and particularly the internet, have transformed the media into a global mechanism which transmits across national frontiers. These new forms of communication have made it difficult for governments to exercise control over the spread of information to their citizens, since it may be transmitted from installations which operate outside their frontiers and which are thus beyond their supervision or control.
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We consider some of the main ways in which economic factors have undermined the relevance of the boundaries of nations in the sections that follow.
International trade
Globalization was initially driven by post-Second World War attempts to promote trade between nations, in which the General Agreement on Tariffs and Trade (GATT) played an influential role. This was a multilateral treaty negotiated in 1947 that sought to reduce trade barriers and promote a common code of conduct in international trade. It led to goods and capital being more easily transferred across national boundaries, resulted in the emergence of world money markets and aided the development of transnational corporations. It was succeeded by the World Trade Organization (WTO), a permanent trade-monitoring body, in 1995.
International trading agreements have placed restraints on the actions of national governments. Membership of regional trading blocs, such as the European Union, or wider arrangements, such as GATT and the WTO, limit the ability of member countries to pursue policies such as tariff protection against other participating nations. Broader agreements have also been made to regulate the world’s trading system through international actions, which included the 1944 Bretton Woods Agreement (which sought to create an international monetary system until its collapse in 1971) and the Group of Seven (G-7) summit meetings consisting of America, the United Kingdom, France, Italy, Canada, Germany and Japan. These initiatives restrict the control that individual nations can exert over economic policies. This discretion is further reduced by the need to consider the reaction of financial markets to political decisions taken by individual governments.
It has often been assumed that international trading agreements have a detrimental effect on the poorer nations, for example by enabling industrialized nations to advance rules of trade that are advantageous to themselves. However, global institutions such as the World Trade Organization have the ability to create economic growth for developing countries by insisting on more open trade. This situation may help to reduce the inequalities between rich and poor nations provided that the benefits of increased economic growth are fairly distributed.
Multinational companies
The concentration of large-scale economic activity has resulted in the formation of multinational (or transnational) companies. These have their headquarters in one country but their commercial activities are conducted throughout the world. Incentives for them to do this include access to raw materials and (in the case of firms locating in the third world) the availability of cheap labour. Such multinational companies (many of which are American or Japanese owned) possess considerable influence over the operations of the government of the countries in which they invest, thereby undermining the economic and political independence of such countries. In return for providing jobs and revenue derived from taxing their operations, multinational companies may demand concessions from governments as the price for their investment in that country. They may seek direct or indirect control over a country’s political system to ensure that government policy is compatible with the needs of the company. If these conflict, the government may suffer: in Guatemala, for example, President Jacobo Arbenz’s quarrels with the American United Fruit Company resulted in his replacement by an American-backed military government in 1954.
Foreign aid
Some countries, especially in the developing world, are in receipt of aid. This includes grants, loans or gifts, which may stimulate agricultural and industrial development or be concerned with military purposes. Aid of this nature is provided either by individual governments (termed ‘bilateral aid’) or by international bodies such as the World Bank or the International Monetary Fund (termed ‘multilateral aid’). Foreign aid may be awarded subject to conditions which the receiving government is forced to adopt. These may include fundamental alterations in domestic policy. Aid provided by Western liberal democracies, for example, may require improvements in the receiving country’s human rights record.
DEPENDENCY
Dependency seeks to explain the unequal relationship that exists between first world countries over those in the third (or developing) world. It suggests that the overt political control formerly exercised by developed nations over their colonies (which were sometimes referred to as ‘dependencies’) has given way to a new form of dominance exerted over third world countries based on the economic power of the first world. Factors such as the superior market position of first world countries, and the reliance of the third world on foreign aid and development loans from the first world, form the basis for the economic imbalance between countries of the first and third world, from which the latter find escape hard.
Dependency suggests the existence of
an economic form of colonialism which seeks to ensure that third world countries serve the economic interests of the industrially advanced nations by supplying raw materials required by the industries of the first world, and latterly by serving as a market for the goods they produce. This tends to distort the pattern of economic development in such countries, which is typically concentrated on agriculture and the mining of minerals to the detriment of the development of domestic manufacturing industry. Dependency is buttressed by loans made available to third world countries by bodies such as the International Monetary Fund. The interest rates charged and the conditions stipulated by the lending body erode the sovereignty of the receiving country and may result in the pursuance of policies which are to the detriment of many of its inhabitants. The need to export agricultural produce to pay the interest on foreign loans may, for example, result in the local population suffering from hunger and starvation, and place the country in a very weak position from which to pursue economic development.
Question
Illustrate with examples of your own what you understand by the term ‘globalization’.
The end of sovereignty?
In the previous sections of this chapter we have documented some of the restrictions imposed on the freedom of action possessed by national governments. But it would be wrong to assert that nations now have no meaningful control over their internal or external affairs. For although national economies are subject to broad global considerations and restraints, individual governments retain the ability to manage their economies, at least in the short term. In many liberal democracies incumbent governments will initiate policies such as taxation cuts or reductions in the rates of interest in order to court popularity with the electorate.
Although the economic policy of a nation may be subject to a wide range of external forces, it possesses freedom of action in other policy areas. Individual governments may pursue actions regardless of the opinions of other countries. Further, sovereignty remains a term which enters into the rhetoric of political debate and influences political behaviour. In the UK, allegations that sovereignty is threatened by the policies of the European Union mean that it remains a potent argument that crosses traditional political divisions.
The European Union
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Insight
The European Union (EU) is an important example of a supranational governmental body whose activities have considerably expanded since 1957.
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Countries that join the EU forgo control over their own affairs in areas which are encompassed by its treaties. Decision making in these areas becomes a collective exercise involving representatives of all the member countries. The UK’s voice in the European Union, for example, is put forward by its 84 members of the European parliament, one commissioner (who is nominated by the UK government) and the one vote it possesses in common with every other member in the Council of Ministers.
In the following section we briefly discuss the evolution of the European Union and describe how its work is performed.
THE EVOLUTION OF THE EUROPEAN UNION
The Second World War provided a key motivating force for the movement towards closer co-operation between the countries of Europe. There was a desire by leading politicians from the victorious and defeated nations to establish institutions to avoid a further war in Europe. The first step towards co-operation was the establishment in 1951 of the European Coal and Steel Community. It was envisaged that the sharing of basic raw materials that were essential to the machinery of war would avoid outbreaks of hostilities. This initiative was followed in 1955 by the formation of the European Investment Fund. The body now known as the ‘European Union’ developed from an organization initially popularly known as the ‘Common Market’. The main developments in the progress of the EU are as follows.
The Treaty of Rome (1957)
This treaty established the European Economic Community (EEC) and Euratom (the European Atomic Energy Community). The EEC initially consisted of six countries (France, West Germany, Italy, the Netherlands, Belgium and Luxembourg). The UK, the Irish Republic and Denmark joined in 1973, Greece in 1981, Spain and Portugal in 1986 and Austria, Finland and Sweden in 1995.
The Single European Act (1986)
This Act sought to remove obstacles to a frontier-free community by providing the legal framework to achieve a single market by 31 December 1992. This would entail the free movement of goods, services, capital and people between member states.
The Maastricht Treaty (1993)
This treaty was drawn up by the heads of member governments at a meeting of the European Council and sought to provide a legal basis for developments concerned with European political union and economic and monetary union. The treaty laid down the conditions for member countries joining a single currency. These required a high degree of sustainable economic convergence, measured by indicators which covered inflation, budget deficits, exchange rate stability (which would be guaranteed by membership of the Exchange Rate Mechanism) and long-term interest rates. Moves towards common foreign and security policies and an extension of responsibilities in areas which included justice, home affairs and social policy were also proposed.
The then Conservative government in the UK objected to the ‘Social Chapter’ designed to protect workers’ rights and had reservations concerning the terms and timing of monetary union. It thus signed the treaty only when it was agreed to exempt the UK from the former and leave parliament to determine the latter issue. It was further satisfied that the inclusion of the subsidiarity principle in the treaty would limit the scope of future policy making by the EEC. Subsidiarity was the principle that decisions should be taken at the lowest possible level of the political system. Although this term was subject to diverse interpretations across Europe, it implied that member states remained responsible for areas that they could manage most effectively themselves and that the EU would only act in those areas where member states were unable to function adequately. Other countries also experienced problems with this treaty. It was rejected in 1992 by a referendum in Denmark, a result that was reversed after this country succeeded in securing four opt-out provisions. In the UK, it was ratified by legislation in the form of the 1993 European Communities (Amendment) Act.
Following ratification of this treaty in 1993, the term ‘European Union’ was employed, implying the creation of an organization that went beyond the original aims of the EEC.
The Treaty of Amsterdam (1997)
This was agreed at an intergovernmental conference in 1997 and amended and updated the Treaties of Rome and Maastricht. It sought to strengthen the commitment to fundamental human rights and freedoms, expressed opposition to discrimination, racism and xenophobia and aimed for greater foreign policy co-ordination between member states and the development of a common defence policy. It also proposed enhanced policy and judicial co-operation. It promised a move towards common decision making on immigration, asylum and visa policies, although Britain and Ireland were given opt-outs in these areas. The treaty also extended the scope of qualified majority voting in the Council of Ministers.
The Brussels Summit (1998)
At a summit of the European heads of government in May 1998, the finance ministers of 11 countries agreed to implement the objectives of the Maastricht Treaty and create a single European currency, the euro. On 1 January 1999, the currency of these 11 countries was fixed in relation to the euro and a new European central bank established to manage monetary policy. The euro was used for paper and electronic transactions after January 1999 and went into general circulation in 2002 when national currencies were withdrawn by the participating nations. The United Kingdom, Denmark and Sweden remained outside the single currency. However, the United Kingdom had joined the Exchange Rate Mechanism in 1990, which required it to maintain the value of the pound against other EU currencies, using interest rates to achieve this, regardless of domestic considerations. The United Kingdom left in 1992 in the belief th
at high interest rates were prolonging recession.
A single European currency places restrictions on the sovereignty of those nations that join. The ability of individual governments to use interest rates to control the growth of their economies was ended and it seemed likely that, as the economies of participating countries converged, there would be intense pressures for equalization to take place between wage rates, taxes and social security systems.
Political union, possibly leading to the creation of a European state, was a logical development stemming from the creation of single currency. However, the subsequent adoption at the 1998 Cardiff summit meeting of a proposal to establish a council of deputy prime ministers to co-ordinate the work of EU institutions and national governments was designed to enhance the degree of political control exerted by individual governments over Brussels.
The Treaty of Nice (2003)
An intergovernmental conference took place in Nice in 2000 when a number of major decisions were made relating to the constitutional and administrative arrangements of the EU following enlargement (that is, the admission of ten new member states) scheduled for 2004. These were embodied in the subsequent Treaty of Nice. The changes put forward altered the weighting of national votes in the Council of Ministers in favour of the more populous states. This was designed to prevent the larger countries from being outvoted by a combination of smaller ones. Changes were also proposed to the system of qualified majority voting, which was also extended to a number of new areas (which included international trade agreements, external EU border controls and state aid to EU industry), but was retained for matters affecting tax, social security, regional aid and state subsidies and core immigration policy. It was agreed to cap the number of commissioners, which would require the United Kingdom, France, Germany, Italy and Spain each to lose one commissioner. It was also agreed to impose a limit on the number of members of the EU Parliament following enlargement, which entailed reducing the representation of existing member states. However, this loss of members would not become fully applicable until the 2009 elections to the European Parliament.
