Monday, June 27, 2016

Liberal democracy in the age of globalization

Since the fall of the Berlin Wall in 1989, politics and economics have mostly moved in one direction, with the elites on both sides of the Atlantic favoring policies like the North American Free Trade Agreement with Canada and Mexico, the introduction of the European currency and the entry of China into the World Trade Organization. Business has applauded these moves, but voters are not necessarily on board as they once were... The Brexit vote... reflects a deep distrust of the benefits of the global economic system among a wide swath of voters in Europe and the United States, and a broadly held view that government institutions — whether in Washington or Brussels — are calcifying and don’t work well.
As more analysis of Brexit pours in, I am reminded of Dani Rodrik's "inescapable trilemma". It claims that "democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full."

As I argued yesterday, in the case of Britain, increased integration with Brussels unleashed both economic and political insecurities. At the economic level, the competitive pressures engendered by migration and imports hurts at least some sections of both labor and capital. Politically, the erosion of "the symbols and benefits of national citizenship" amplifies the adverse effects of economic competition. Democratic governments will invariably feel the backlash from this constituency.

Assuming that democracy is a non-negotiable attribute, we are left trading off national sovereignty and economic integration. It is here that the broad sweep of time and historical perspective assumes significance. The trade-off is done most seamlessly if economic and political integration happens gradually over a few generations. But such scripts rarely pan out as planned in the real world. Instead, such transitions are invariably a series of back-and-forth movements between progress and setbacks. And Brexit is no more likely to be one more such setback in the sixty year European Project.

One could argue whether the single currency was introduced too soon. Could they not have waited longer for the norms of economic integration to have become more internalized? Should the forces of financial market integration have been allowed to play out more before the currency union was introduced? Should greater fiscal integration have preceded a currency union? Should Europe have waited for its political institutions to attain more credibility before its push forward with monetary union?

I would be inclined to answer in the affirmative to all these questions. But the political dynamics of European integration expedited the transition. The push-back was therefore inevitable. The supporters of the European Project will now have to assess their failings, address them, and resume the path towards integration. 

No comments: