Democracy and Globalization

Prof. Lars Ingelstam
reviews the arguments
for and against hopeless resignation in the face
of globalization

The Gripen fighter plane is a product of Sweden's
military-industrial complex which, like its counterparts
elsewhere, has very little to do with "free market capitalism"

     Democracy and Globalization

On the need for a politics of resistance
to the excesses of system capitalism

Greater openness, and a better understanding of economic processes are essential to any renewal of democracy.
In the current debate over the implications of globalization, it is often stated that the possibilities for steering and regulating the economies of nation-states with political decisions are steadily declining. Against this, it is argued that the postulated trend toward increasing globalization has been exaggerated, and that it is still very possible to control and restrict the power of economic actors by democratic means.

The following discussion is largely concerned with the necessary conditions for a renewed mobilization of democratic forces. Among those conditions are greater openness, and a better understanding of economic processes among the general public.

At the heart of the matter are the conditions which enable international capitalism to circumvent democratic controls, and the perplexed incapacity of politicians to offer resistance.

Faithless capitalism

A cogent and ominous analysis was presented in 1997 by Hans-Peter Martin and Harald Schumann in The Globalization Trap. Subtitled, ”The Attack on Democracy and General Welfare”, the book delivers a powerful message that focuses on the question: What are the consequences of an increasingly global economy for the societies of Germany and the rest of Europe?

Their analysis revolves around three main themes, each implying a warning and a criticism:

the great mobility, extent and instability of international financial markets
the combined impact of technological development and globalization on employment and wage levels, given increasingly easy access to cheap labour
the extraordinary conditions which enable international capitalism to circumvent democratic controls, and the perplexed incapacity of European politicians and public officials to offer resistance to that power.

Martin and Schumann note that the past thirty years’ trend of making industrial jobs redundant through rationalization has been dramatically strengthened through the possibility of moving such jobs to parts of the world where labour costs are lowest: ”Global entanglements establish the conditions by which technological advances lead to the marginalization of millions of people.”

Goverments justify their grovelling for business with contrived and often false explanations-- that social expenditures have grown to unmanageable proportions, for example.
20-80 society

With examples that include giant North American corporations, the authors substantiate their warnings of an approaching ”20-80 society” in which only twenty percent of the labour force will have permanent, well-paid jobs. The remaining eighty percent will experience income reductions, temporary employment and a severe loss of financial security. In all of the countries referred to in the book, the majority of the population will have a drastically weakened negotiating position in the labour market.

Most European governments have, more or less willingly, assumed responsibility for sustaining employment levels. In order to meet that and other commitments, they must rely on businesses and their employees to pay taxes. Within the context of the global economy, this fact of political life gives businesses in general and large corporations in particular a huge negotiating advantage over governments, which are often prepared to go to any lengths in order to keep and attract jobs.

The erosion of public finances is, by and large, a consequence of the need to cope with the loss of jobs. Martin and Schumann also note that, for obvious reasons, governments are not especially eager to advertise their tractability. They prefer, instead, to justify their grovelling for business with contrived and often false explanations-- that social expenditures have grown to unmanageable proportions, for example.

All of this provides the setting for the book’s subtitle, ”The Attack on Democracy and General Welfare”. The effects of hyperactive capital and the work shortages related to technology and globalization will continue to weaken governments and render them so ineffectual that they will not even be able to repair the damage that those forces have already caused. Governments will be even less capable of engendering progress toward a better society. In short, democratic politics have lost a great deal of ground.

Europe, Japan and North America-- the three economic superpowers-- have the capacity to exert heavy political pressure on financial markets and other economic factors, especially if they co-ordinate their policies.
Hope for democracy

Naturally, the arguments presented in The Globalization Trap have not escaped contradiction. One interesting response is that of Paul Hirst and Grahame Thompson in Globalization in Question, a 1998 book which offers a more optimistic view of democracy's possibilities.

Hirst and Thompson pit the notions of ”globalizationists” against a model with a more solid empirical foundation. They conclude that the reality is a further development of the international economy which, now and for a long time to come, is dominated by North America, Europe and Japan. In their view, national economic policy is far from ineffectual which still retains the potential for a large measure of ”control and social improvements”.

The chief purpose of Hirst and Thompson is to disclose what they regard as the myths of globalization, in order to demonstrate how much potential there is for national and international regulation and control. Indirectly, they acknowledge that small countries do not have much to say in the matter. But Europe, Japan and North America-- the three economic superpowers-- have the capacity to exert heavy political pressure on financial markets and other economic factors, especially if they co-ordinate their policies.

The authors contend that it is possible to exert democratic pressure, on two conditions: that nation-states join forces at the EU and international levels; and that national elites change their negative attitude toward democratic influence over the behaviour of transnational corporations. These are difficult conditions to meet, and thus provide a somewhat dubious basis for the longed-for activism. More on this, later. But, first, some observations on the nature of the economic system within which globalization is said to be taking place.

A Norwegian public inquiry found that power in society was concentrated in so-called ”iron triangles” of tightly-knit alliances between politicians, industries, and interest groups.

Interwoven interests

In his 1961 farewell speech, President Eisenhower warned of a ”military-industrial complex” of increasingly interwoven military, industrial and political interests-- a complex which threatened to remove the entire war-making sector from democratic control. Subsequent developments have proven the old general right.

Many researchers and social critics have described the formation of similar complexes around such goods and services as automobiles, health care and pharmaceuticals, information technology, petroleum, electricity, ”big science”, air travel, etc. The control and co-ordination of such systems has been facilitated by the spread of computers and global telecommunication networks.

It is a pattern which is clearly visible in the Nordic countries. A Norwegian public inquiry conducted in the late 1970s found that power in society was concentrated in so-called ”iron triangles” of tightly-knit alliances between politicians, industries, and interest groups in such areas as health care, defence and energy. One result, according to the inquiry report, was the emergence of a ”negotiated economy” instead of a market economy.

A Swedish commission concluded that it was necessary for the government to guarantee an annual purchase-volume of at least one billion Swedish kronor to support threatened industries.
Similarly, a recent Swedish public inquiry on information technology found that the market for high technology within the defence sector was likely to decline. But instead of noting that probable development plainly and, one would have thought, with a degree of satisfaction that it was linked to a reduced risk of war, the commission expressed concern that the resulting ”loss of competence. . . will create problems for related production in such areas as civil aeronautics, high-speed electronics, advanced MMI and control systems, etc.,”

The commission concluded that it was necessary for the government to guarantee an annual purchase-volume of at least one billion Swedish kronor for affected industries. This may have been a reasonable conclusion; but what does it have to do with market economy? The chairman of the inquiry was a leading representative of the Federation of Swedish Industries, which normally is extremely prone to extolling the virtues of free enterprise.

The modern capitalist economy is almost completely entwined in a system that also includes national and supranational institutions. It does not bear any great resemblance to the textbook image of market capitalism.
System capitalism

The fact is that the modern capitalist economy is almost completely entwined in a system that also includes national and supranational institutions. It does not bear any great resemblance to the textbook image of market capitalism. There is, of course, a functioning market economy at the consumer level: Competition and other features of market behaviour in the outermost capillaries of the system do not pose any threat at the heart of capitalism’s political-economic system; on the contrary, such processes stimulate its expansion.

System capitalism is currently undergoing a transformation. In Sweden this has meant that positions previously held by members of parliament, ombudsmen and regional representatives are now occupied solely by ”experts”. This represents a retreat from the Swedish tradition by which voters and labour unions exercised a degree of influence over system capitalism. The traditional balance of power and the climate of debate are now changing, and this is clearly related to the ongoing process of globalization.

According to Martin and Schumann, the European Union offers the best hope for providing a countervailing power.

The challenge of globalization

The main thesis of Martin’s and Schumann’s The Globalization Trap is that the combined effects of hyper-mobile financial capital and the surplus labour resulting from technological developments and globalization will weaken governments and render them incapable of implementing the corrective measures that the crisis demands. They will be even less capable of taking active measures toward the development of a more humane society. Democratic politics have lost a great deal of ground.

But toward the end of the book, they pose the question as to whether European political systems really need to be as impotent and democratically illegitimate as they have become in recent decades. The essence of their concluding analysis is that the European Union offers the best hope for providing a countervailing power.

Hirst and Thompson argue that even more far-reaching conditions must be met if democracy is to be restored.

A fully integrated EU would eliminate the possibility of speculative attacks on small national currencies, and it would no longer be possible for companies to play the member-states against each other. Only a unified, democratic Europe would be able to offer the kind of resistance that individual nation-states have been unable to muster. This implies, of course, the need for a strong federal system and a common economic policy.

Hirst and Thompson, on the other hand, present the case for moderate activism. They argue that even more far-reaching conditions must be met if democracy is to be restored, on the grounds that ”. . . the level of ambition and the goals for regulation and control of the economy are at present limited by the divergent interests of the major powers and the prevailing economic doctrines of national economic elites”. Only co-ordinated action on the part of Europe, the U.S. and Japan can restore to political systems the regulating and moderating powers which, according to the authors, they ought properly to possess.

Thus, on the basis of different premises, these various authors argue for a ”politics of resistance”. But it must be conducted at the level of the EU or even higher, i.e. through the co-ordinated action of the ”major economic powers”. Other analysts supplement this line of reasoning with the assertion that co-ordinated international action by labour unions is also necessary.

A strong public reaction against injustice, arrogance and the abuse of power cannot be ruled out.

Threatening disapproval

How realistic are these proposals? Will the national elites of system capitalism abandon their prevailing economic doctrines? And even if that were to happen, how could sceptical voters be convinced to relinquish their rights to a more integrated Europe or to the major economic powers? Can those entities be trusted to strive for political control and social improvements, instead of even more quickly and effectively providing international capitalists with the solutions which they claim are necessary? As things now stand, such questions are unavoidable, clearly demonstrating that the democratic deficit has already left its mark.

Furthermore, a strong public reaction against injustice, arrogance and the abuse of power cannot be ruled out. ”General disapproval” is a venerable, if often unspoken, threat to the capitalist system. Of course, there is the possible that leading figures within the system will initiate corrective measures, without the need for pressure from national and supranational authorities. Percy Barnevik, who is quoted in The Globalization Trap, has warned of the risk that societies may otherwise be torn apart: ”If the business community does not deal with unemployment and poverty, the resulting tensions between capital-owners and the poor will lead to a substantial increase in violence and terrorism.”

Is that what will happen if the pressure that is steadily building up does not find, or is not permitted to find, democratic means of expression? It would be tragic and embarrassing if globalization and technological development-- both with the potential to confer great benefits-- were to wipe out the great material, social and democratic progress made in Europe during the 20th century.

Democracy presupposes an active and engaged citizen, not a passive ”demand machine” and voting robot.

Grassroots counterforce

Another alternative is that a civil society of international grassroots movements and action committees could be called upon to develop a counterforce. This has been expressed in the slogan, ”To think globally and act locally is good, but to act in concert across boundaries is better.”

If more social and educational services can be expanded at the local level in co-operation with municipalities and civil-society organizations, they would be somewhat more independent of the globalized economy with its erratic fluctuations and democratic deficiencies. Elements of democracy could be developed in an excellent and, for most people, natural manner by means of co-operative forms of organization in such areas as child care, park supervision, theatre societies, basic education, etc. This type of arrangement is increasingly referred to as ”social economy”. It would not take much to strengthen the quality and extent of this important but often obscured sector of the economy, which could provide the setting for a renaissance of democracy and social capital.

Democracy presupposes an active and engaged citizen, not a passive ”demand machine” and voting robot. This implies the reasonable expectation that everyone will learn about matters of general importance. But there must also be a common effort to increase the transparency of society. It is of mutual interest to the public and private sectors to develop a style of social engineering and expertise that places great emphasis on intelligibility and openness. Building a society that is easier to understand than hitherto is a vital task of politics. Democracy is a matter of both ends and means.

-- 14 November 2000

Prof. Lars Ingelstam
Inst. for TEMA
Linköping University
Sweden

Note: This is an abridged version of a more detailed contribution to an anthology, Ekonomi och demokrati (”Economy and Democracy”), published 2000 by the Swedish National Inquiry on Democracy (”Demokratiutredningen”)



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Prof. Lars Ingelstam reviews the arguments for and against hopeless resignation in the face of globalization		The Gripen fighter plane is a product of Sweden's military-industrial complex which, like its counterparts elsewhere, has very little to do with "free market capitalism"
		Democracy and Globalization On the need for a politics of resistance to the excesses of system capitalism
Greater openness, and a better understanding of economic processes are essential to any renewal of democracy.		In the current debate over the implications of globalization, it is often stated that the possibilities for steering and regulating the economies of nation-states with political decisions are steadily declining. Against this, it is argued that the postulated trend toward increasing globalization has been exaggerated, and that it is still very possible to control and restrict the power of economic actors by democratic means. The following discussion is largely concerned with the necessary conditions for a renewed mobilization of democratic forces. Among those conditions are greater openness, and a better understanding of economic processes among the general public.
At the heart of the matter are the conditions which enable international capitalism to circumvent democratic controls, and the perplexed incapacity of politicians to offer resistance.		Faithless capitalism A cogent and ominous analysis was presented in 1997 by Hans-Peter Martin and Harald Schumann in The Globalization Trap. Subtitled, ”The Attack on Democracy and General Welfare”, the book delivers a powerful message that focuses on the question: What are the consequences of an increasingly global economy for the societies of Germany and the rest of Europe? Their analysis revolves around three main themes, each implying a warning and a criticism: the great mobility, extent and instability of international financial markets the combined impact of technological development and globalization on employment and wage levels, given increasingly easy access to cheap labour the extraordinary conditions which enable international capitalism to circumvent democratic controls, and the perplexed incapacity of European politicians and public officials to offer resistance to that power. Martin and Schumann note that the past thirty years’ trend of making industrial jobs redundant through rationalization has been dramatically strengthened through the possibility of moving such jobs to parts of the world where labour costs are lowest: ”Global entanglements establish the conditions by which technological advances lead to the marginalization of millions of people.”
Goverments justify their grovelling for business with contrived and often false explanations-- that social expenditures have grown to unmanageable proportions, for example.		20-80 society With examples that include giant North American corporations, the authors substantiate their warnings of an approaching ”20-80 society” in which only twenty percent of the labour force will have permanent, well-paid jobs. The remaining eighty percent will experience income reductions, temporary employment and a severe loss of financial security. In all of the countries referred to in the book, the majority of the population will have a drastically weakened negotiating position in the labour market. Most European governments have, more or less willingly, assumed responsibility for sustaining employment levels. In order to meet that and other commitments, they must rely on businesses and their employees to pay taxes. Within the context of the global economy, this fact of political life gives businesses in general and large corporations in particular a huge negotiating advantage over governments, which are often prepared to go to any lengths in order to keep and attract jobs. The erosion of public finances is, by and large, a consequence of the need to cope with the loss of jobs. Martin and Schumann also note that, for obvious reasons, governments are not especially eager to advertise their tractability. They prefer, instead, to justify their grovelling for business with contrived and often false explanations-- that social expenditures have grown to unmanageable proportions, for example. All of this provides the setting for the book’s subtitle, ”The Attack on Democracy and General Welfare”. The effects of hyperactive capital and the work shortages related to technology and globalization will continue to weaken governments and render them so ineffectual that they will not even be able to repair the damage that those forces have already caused. Governments will be even less capable of engendering progress toward a better society. In short, democratic politics have lost a great deal of ground.
Europe, Japan and North America-- the three economic superpowers-- have the capacity to exert heavy political pressure on financial markets and other economic factors, especially if they co-ordinate their policies.		Hope for democracy Naturally, the arguments presented in The Globalization Trap have not escaped contradiction. One interesting response is that of Paul Hirst and Grahame Thompson in Globalization in Question, a 1998 book which offers a more optimistic view of democracy's possibilities. Hirst and Thompson pit the notions of ”globalizationists” against a model with a more solid empirical foundation. They conclude that the reality is a further development of the international economy which, now and for a long time to come, is dominated by North America, Europe and Japan. In their view, national economic policy is far from ineffectual which still retains the potential for a large measure of ”control and social improvements”. The chief purpose of Hirst and Thompson is to disclose what they regard as the myths of globalization, in order to demonstrate how much potential there is for national and international regulation and control. Indirectly, they acknowledge that small countries do not have much to say in the matter. But Europe, Japan and North America-- the three economic superpowers-- have the capacity to exert heavy political pressure on financial markets and other economic factors, especially if they co-ordinate their policies. The authors contend that it is possible to exert democratic pressure, on two conditions: that nation-states join forces at the EU and international levels; and that national elites change their negative attitude toward democratic influence over the behaviour of transnational corporations. These are difficult conditions to meet, and thus provide a somewhat dubious basis for the longed-for activism. More on this, later. But, first, some observations on the nature of the economic system within which globalization is said to be taking place.
A Norwegian public inquiry found that power in society was concentrated in so-called ”iron triangles” of tightly-knit alliances between politicians, industries, and interest groups.		Interwoven interests In his 1961 farewell speech, President Eisenhower warned of a ”military-industrial complex” of increasingly interwoven military, industrial and political interests-- a complex which threatened to remove the entire war-making sector from democratic control. Subsequent developments have proven the old general right. Many researchers and social critics have described the formation of similar complexes around such goods and services as automobiles, health care and pharmaceuticals, information technology, petroleum, electricity, ”big science”, air travel, etc. The control and co-ordination of such systems has been facilitated by the spread of computers and global telecommunication networks. It is a pattern which is clearly visible in the Nordic countries. A Norwegian public inquiry conducted in the late 1970s found that power in society was concentrated in so-called ”iron triangles” of tightly-knit alliances between politicians, industries, and interest groups in such areas as health care, defence and energy. One result, according to the inquiry report, was the emergence of a ”negotiated economy” instead of a market economy.
A Swedish commission concluded that it was necessary for the government to guarantee an annual purchase-volume of at least one billion Swedish kronor to support threatened industries.		Similarly, a recent Swedish public inquiry on information technology found that the market for high technology within the defence sector was likely to decline. But instead of noting that probable development plainly and, one would have thought, with a degree of satisfaction that it was linked to a reduced risk of war, the commission expressed concern that the resulting ”loss of competence. . . will create problems for related production in such areas as civil aeronautics, high-speed electronics, advanced MMI and control systems, etc.,” The commission concluded that it was necessary for the government to guarantee an annual purchase-volume of at least one billion Swedish kronor for affected industries. This may have been a reasonable conclusion; but what does it have to do with market economy? The chairman of the inquiry was a leading representative of the Federation of Swedish Industries, which normally is extremely prone to extolling the virtues of free enterprise.
The modern capitalist economy is almost completely entwined in a system that also includes national and supranational institutions. It does not bear any great resemblance to the textbook image of market capitalism.		System capitalism The fact is that the modern capitalist economy is almost completely entwined in a system that also includes national and supranational institutions. It does not bear any great resemblance to the textbook image of market capitalism. There is, of course, a functioning market economy at the consumer level: Competition and other features of market behaviour in the outermost capillaries of the system do not pose any threat at the heart of capitalism’s political-economic system; on the contrary, such processes stimulate its expansion. System capitalism is currently undergoing a transformation. In Sweden this has meant that positions previously held by members of parliament, ombudsmen and regional representatives are now occupied solely by ”experts”. This represents a retreat from the Swedish tradition by which voters and labour unions exercised a degree of influence over system capitalism. The traditional balance of power and the climate of debate are now changing, and this is clearly related to the ongoing process of globalization.
According to Martin and Schumann, the European Union offers the best hope for providing a countervailing power.		The challenge of globalization The main thesis of Martin’s and Schumann’s The Globalization Trap is that the combined effects of hyper-mobile financial capital and the surplus labour resulting from technological developments and globalization will weaken governments and render them incapable of implementing the corrective measures that the crisis demands. They will be even less capable of taking active measures toward the development of a more humane society. Democratic politics have lost a great deal of ground. But toward the end of the book, they pose the question as to whether European political systems really need to be as impotent and democratically illegitimate as they have become in recent decades. The essence of their concluding analysis is that the European Union offers the best hope for providing a countervailing power.
Hirst and Thompson argue that even more far-reaching conditions must be met if democracy is to be restored.		A fully integrated EU would eliminate the possibility of speculative attacks on small national currencies, and it would no longer be possible for companies to play the member-states against each other. Only a unified, democratic Europe would be able to offer the kind of resistance that individual nation-states have been unable to muster. This implies, of course, the need for a strong federal system and a common economic policy. Hirst and Thompson, on the other hand, present the case for moderate activism. They argue that even more far-reaching conditions must be met if democracy is to be restored, on the grounds that ”. . . the level of ambition and the goals for regulation and control of the economy are at present limited by the divergent interests of the major powers and the prevailing economic doctrines of national economic elites”. Only co-ordinated action on the part of Europe, the U.S. and Japan can restore to political systems the regulating and moderating powers which, according to the authors, they ought properly to possess. Thus, on the basis of different premises, these various authors argue for a ”politics of resistance”. But it must be conducted at the level of the EU or even higher, i.e. through the co-ordinated action of the ”major economic powers”. Other analysts supplement this line of reasoning with the assertion that co-ordinated international action by labour unions is also necessary.
A strong public reaction against injustice, arrogance and the abuse of power cannot be ruled out.		Threatening disapproval How realistic are these proposals? Will the national elites of system capitalism abandon their prevailing economic doctrines? And even if that were to happen, how could sceptical voters be convinced to relinquish their rights to a more integrated Europe or to the major economic powers? Can those entities be trusted to strive for political control and social improvements, instead of even more quickly and effectively providing international capitalists with the solutions which they claim are necessary? As things now stand, such questions are unavoidable, clearly demonstrating that the democratic deficit has already left its mark. Furthermore, a strong public reaction against injustice, arrogance and the abuse of power cannot be ruled out. ”General disapproval” is a venerable, if often unspoken, threat to the capitalist system. Of course, there is the possible that leading figures within the system will initiate corrective measures, without the need for pressure from national and supranational authorities. Percy Barnevik, who is quoted in The Globalization Trap, has warned of the risk that societies may otherwise be torn apart: ”If the business community does not deal with unemployment and poverty, the resulting tensions between capital-owners and the poor will lead to a substantial increase in violence and terrorism.” Is that what will happen if the pressure that is steadily building up does not find, or is not permitted to find, democratic means of expression? It would be tragic and embarrassing if globalization and technological development-- both with the potential to confer great benefits-- were to wipe out the great material, social and democratic progress made in Europe during the 20th century.
Democracy presupposes an active and engaged citizen, not a passive ”demand machine” and voting robot.		Grassroots counterforce Another alternative is that a civil society of international grassroots movements and action committees could be called upon to develop a counterforce. This has been expressed in the slogan, ”To think globally and act locally is good, but to act in concert across boundaries is better.” If more social and educational services can be expanded at the local level in co-operation with municipalities and civil-society organizations, they would be somewhat more independent of the globalized economy with its erratic fluctuations and democratic deficiencies. Elements of democracy could be developed in an excellent and, for most people, natural manner by means of co-operative forms of organization in such areas as child care, park supervision, theatre societies, basic education, etc. This type of arrangement is increasingly referred to as ”social economy”. It would not take much to strengthen the quality and extent of this important but often obscured sector of the economy, which could provide the setting for a renaissance of democracy and social capital. Democracy presupposes an active and engaged citizen, not a passive ”demand machine” and voting robot. This implies the reasonable expectation that everyone will learn about matters of general importance. But there must also be a common effort to increase the transparency of society. It is of mutual interest to the public and private sectors to develop a style of social engineering and expertise that places great emphasis on intelligibility and openness. Building a society that is easier to understand than hitherto is a vital task of politics. Democracy is a matter of both ends and means. -- 14 November 2000
Prof. Lars Ingelstam Inst. for TEMA Linköping University Sweden		Note: This is an abridged version of a more detailed contribution to an anthology, Ekonomi och demokrati (”Economy and Democracy”), published 2000 by the Swedish National Inquiry on Democracy (”Demokratiutredningen”)

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