Governance in a Global Economy: Political Authority in Transition / Edition 1

by Miles Kahler, David A. Lake

Overview

Critics of globalization claim that economic integration drains political authority from states: devolving authority to newly empowered regions, delegating it to supranational organizations, and transferring it to multinational firms and nongovernmental organizations. Globalization is also attacked for forcing convergence of state institutions and policies and threatening the ability of societies to chart their own democratically determined courses. In Governance in a Global Economy, Miles Kahler and David Lake assemble the contributions of seventeen leading scholars who have systematically investigated how global economic integration produces changes of governance. These authors conclude that globalization has created a new and intricate fabric of governance, but one that fails to match the stark portrait of beleaguered states.


Exploring changes in governance across several policy areas (such as tourism, trade, finance, and fiscal and monetary policy), the authors demonstrate that globalization changes the policy preferences of some actors, increases the bargaining power of others, and opens new institutional options for yet others. By reintroducing agency and choice into our understanding of globalization, this book provides important new insights into the complex and contingent effects of globalization on political authority and governance.


The introduction and the conclusion are by the editors; the contributors are James A. Caporaso, Benjamin J. Cohen, Barry Eichengreen, Zachary Elkins, Geoffrey Garrett, Peter Gourevitch, Virginia Haufler, Michael J. Hiscox, Robert O. Keohane, Lisa L. Martin, Walter Mattli, Kathleen R. McNamara, Joseph S. Nye, Jr., Jonathan Rodden, Ronald Rogowski, Beth A. Simmons, and Peter Van Houten.

Product Details

ISBN-13:	9780691114026
Publisher:	Princeton University Press
Publication date:	10/12/2003
Edition description:	New Edition
Pages:	512
Product dimensions:	6.00(w) x 9.25(h) x (d)

About the Author

Miles Kahler is Rohr Professor of Pacific International Relations at the Graduate School of International Relations and Pacific Studies and Director of the Institute for International, Comparative, and Area Studies at the University of California, San Diego. His books include Leadership Selection in the Major Multilaterals. David A. Lake is Professor of Political Science at the University of California, San Diego. His books include Entangling Relations: American Foreign Policy in Its Century (Princeton).

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Governance in a Global Economy

Political Authority in Transition

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By Miles Kahler and David A. Lake

Princeton University Press

Miles Kahler and David A. Lake
All right reserved.
ISBN: 0691114021

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Chapter One

GLOBALIZATION AND GOVERNANCE

MILES KAHLER AND DAVID A. LAKE

CONTEMPORARY DEBATE over globalization casts its political effects as both revolutionary and contradictory. In a "power shift" of historic proportions (Mathews 1997), some analysts claim that we are entering an age of the "virtual state" (Rosecrance 1996). Globalization, they argue, drains political authority from nation-states, long the dominant form of political organization in world politics. The state's monopoly of familiar governance functions is ending as governance migrates down to newly empowered regions, provinces, and municipalities; up to supranational organizations; and laterally to such private actors as multinational firms and transnational nongovernmental organizations (NGOs) that acquire previously "public" responsibilities. In this view, globalization not only transfers the location of governance, it also forces a convergence of state institutions and policies. In exercising their residual authority, states are constrained to look and act alike. Although a transfer of governance to subnational units may increase democratic accountability, these governance changes and the accompanying pressures for convergence are more often seen as a threat to the ability of societies to chart their own democratically determined courses.

Skeptics contest each of globalization's alleged effects. National governments jealously guard many traditional spheres of governance, particularly defense, criminal justice, and immigration. Rather than promoting new forms of political organization, groups who demand self-determination define their claims as possession of a nation-state. If the nation-state is a beleaguered and ineffectual fossil, its enduring popularity at the dawn of the new millennium is baffling. A skeptical view of deregulation regards the award of enhanced authority to private actors as partially or wholly offset by public intervention in new areas such as environmental or consumer protection. In Seattle, Washington, D.C., and Genoa, new transnational political movements protest a deregulated and integrated international market. Although some press for reformed and transformed international institutions, others, somewhat paradoxically, rely on national governments for policy change or urge those governments to withdraw from pro-market international organizations (O'Brien et al. 2000).

Sorting through these contradictory claims requires careful definition of globalization and governance, identification of the range and dimensions of variation in both, a preliminary survey of changes in governance that appear to result from increasing globalization, and a theoretical frame for examining more systematically the links between globalization and governance. We begin these tasks of definition, identification, and explanation in this introductory chapter. The authors in the volume build on the common definitions developed here. They also share a common baseline: an increase in globalization that sets the last four decades apart from both an earlier era of globalization (the decades before 1914) and the period of economic disintegration produced by depression and world war.

Collectively, the chapters in this volume find that the effects of globalization on governance are more complex and contingent than many observers claim. Globalization exerts a profound effect on economic and political life. Important shifts in the locus of governance have occurred in all three directions-downward, upward, and laterally. Some measure of convergence can be observed. These trends are neither universal nor uniform, however. Variation occurs from issue-area to issue-area. As Benjamin J. Cohen describes in chapter 6, authority over monetary policy has in some cases been delegated to other governments and to regional entities. In international financial regulation, however, Barry Eichengreen (chapter 7) confirms the persistent dominance of national authorities. Some important political effects appear unrelated to the advance of globalization. Pieter Van Houten (chapter 5) argues that international economic integration has not been an important influence on demands for increased regional autonomy in Europe. Walter Mattli (chapter 8) and Virginia Haufler (chapter 9) contend that private forms of governance, of growing importance, are often dependent on national political authorities for their effectiveness. In addition, although governments appear to converge on policies of economic openness, there appear to be few pressures for convergence on other policies-and, as Ronald Rogowski (chapter 10) argues most forcefully, few good theoretical reasons for expecting such convergence. Finally, as James Caporaso (chapter 14) and Robert Keohane and Joseph Nye (chapter 15) note, there are multiple forms of accountability. Although traditional mechanisms of democracy may not apply at the international level outside of the European Union, other means of monitoring and constraining authorities remain important.

General conclusions about the changing nature of global political authority remain elusive. The chapters that follow demonstrate that neither globalization nor governance is homogenous. Rather, international economic integration-itself differentiated and uneven-is producing a new fabric of global governance that displays many variations and shadings.

To explain this diversity, the authors adopt an explicitly actor-oriented and political theory of globalization. Globalization is often portrayed as an inexorable, impersonal set of market forces that compels passive states to comply with its dictates-an environmental constraint that states ignore only if they are willing to be left behind in the new global competition. Existing theoretical accounts are largely functionalist or efficiency-based. In contrast, the authors in this volume emphasize globalization's effects on governance through political actors. Globalization changes the policy preferences of some actors, increases the bargaining power of others, and opens new institutional options for still others. For modern actors, the most important effect of globalization often lies in its effects on other political actors, their strategies, and the institutional settings in which they interact. In this way, we seek to reintroduce agency and choice into the story of globalization.

GLOBALIZATION AND GOVERNANCE: DEfiNITION AND VARIATION

Globalization Defined

Globalization is often defined expansively as networks of interdependence that span intercontinental distances (Keohane and Nye 2000a, 105). As such, the term incorporates a host of profound changes in world politics: growing political linkages at the global level, erosion of local space and time as structures of economic life, and homogenization of social life through global standards, products, and culture. Typically, these broad trends are attributed to radically reduced communication and transportation costs. Conceived in this way, globalization is an umbrella term, covering a wide variety of linkages between countries that extend beyond economic interdependence. No single volume could coherently examine how globalization, thus defined, affects governance.¹ Equally important, this broad definition includes elements of governance within it, and thus risks confounding the two crucial variables of this study.

We therefore focus on a central aspect of globalization: economic integration at the global level. The reduction of barriers to economic exchange and factor mobility gradually creates one economic space from many, although that process remains far from complete. Most economists and most authors in this volume adopt this meaning. Although he attaches profound systemic significance to globalization, Thomas Friedman (1999, 7-8) also adopts this meaning when he defines globalization as "the inexorable integration of markets, nation-states and technologies to a degree never witnessed before-in a way enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before." This definition has an important, if implied, political dimension, as well. Although facilitated by lower communication and transportation costs, globalization rests on the decisions of national governments to open their markets to others and to participate in a global economy. It is this political dimension, we argue, that is crucial for understanding globalization and its effects on governance.

Several chapters in this volume focus on "Europeanization" as what Caporaso (chapter 14) calls the "leading edge" of globalization. Economic integration displays important regional variations. Through what is clearly a politically driven process, Europe has traveled farthest in opening national economies to goods and factor flows between neighbors. The supranational institutions of Europe, which encouraged economic integration and were deepened by it, are in certain respects unique. As Kathleen McNamara (chapter 13) points out, however, European integration is a "most likely case" for investigating globalization's effects on governance. For this reason, Europe serves as a central case in several chapters that follow.²

Variation in Globalization

Those who define globalization broadly often portray its changes as revolutionary and unique, incomparable to any previous historical period. Economic historians, endorsing the narrower definition of global economic integration, beg to differ. They do not view globalization as either an inexorable trend or as a sharp rupture that divides contemporary history from the past. Instead, historians find substantial variation in economic globalization over the past century, as well as similarities between the present and the decades before 1914. For many, that earlier era represents a level of integration that has been surpassed only recently, if at all. Sachs and Warner (1995), for example, portray the contemporary global economy as reestablishing a process of integration that had been disrupted in midcentury by decades of war and depression.

Claims of comparability between globalization then and now are in turn qualified by more detailed investigation of the pre-1914 world economy. Simple measures of gross economic flows and other standard measures of economic integration may not capture the greater "depth and diversity" of trade and capital market integration today (Irwin 1996, 45). Manufactures play a much larger role in trade and a larger share of the economy, particularly services, is exposed to international competition today (Baldwin and Martin 1999; Bordo, Eichengreen, and Irwin 1999). Capital markets also differ. Short-term capital flows are far more important than they were before 1914; the enormous contemporary foreign exchange market did not exist in the earlier period.³ In addition, borrowing by the private sector and by financial institutions, particularly in the then-emerging markets, was far less important than long-term public borrowing for infrastructure development (Bordo, Eichengreen, and Irwin 1999; Obstfeld 1998). Foreign direct investment is strikingly different in the two periods. Investment by multinational corporations before 1914 was typically in the agricultural and mining sectors through freestanding companies; multinational investment today is more likely to be in manufacturing and to display the characteristics of the global factory-parceling out production chains across jurisdictions (Feenstra 1998; Prakash and Hart 2000, 2). An ability to disaggregate the production process across national borders was far more difficult in the technological conditions of a century ago.

On the other hand, labor was clearly more globalized in the pre-1914 era. Indeed, levels of labor migration were "staggering by modern standards" (Baldwin and Martin 1999). Migration flowed from Europe to the United States and other territories of settlement; it also flowed among colonial and quasi-colonial territories, expanding Chinese populations in Southeast Asia and Indian populations in the Caribbean and Pacific islands. At the same time, immigration provided the first evidence of backlash against globalization, as restrictions were first imposed in the United States and elsewhere during the 1880s (O'Rourke and Williamson 1999, chap. 10; Williamson 1998).

One critical difference underlies this more nuanced and disaggregated portrait of old and new globalization: information. Although trade in goods was spurred by falling ocean transport costs in both periods, radical and persistent reductions in the costs of cross-border communication are far more significant in the second. These cost reductions shrink the information asymmetries that had hindered development of more diverse and transparent international capital markets before 1914 (Bordo, Eichengreen, and Irwin 1999). They also open novel techniques of organizing production across borders, whether integrated vertically in global factories or through looser cross-border production networks (Borrus, Ernst, and Haggard 2000). Sharply reduced communication costs and technological innovation also affect cultural integration through trade in digitized images, absent before 1914. The costs of cross-border political organization have also declined, although transnational politics-women's suffrage, peace, labor rights-first flourished at the turn of the last century (Keck and Sikkink 1998).

Globalization before 1914 differed from contemporary globalization. The intervening decades, however, brought a sharp retreat from globalization of all kinds. Between 1914 and 1945, the global economy disintegrated. Barriers to capital mobility-suspension of the gold standard and imposition of foreign exchange controls-increased during the Great Depression of the 1930s. International capital mobility reached its lowest point during World War II and the immediate postwar years (Obstfeld and Taylor 1998, 381). Trade protectionism, which had existed in pre-1914 Europe and America, also intensified and spread during the years of depression and war. Relatively closed trading blocs, typically based on colonial empires, became the new norm. Restrictions on immigration proliferated, strangling the previously robust movement of labor (O'Rourke and Williamson 1999, 185-86).

After 1945, this trend toward closure gradually reversed itself among the industrialized countries. Beginning in the 1950s, the rich countries removed exchange controls, reduced tariffs and other trade barriers through multilateral negotiations, and, as the postwar boom tightened labor markets, relaxed restrictions on immigration. A shift to flexible exchange rates in the early 1970s led to a gradual removal of capital controls. By the 1980s, economic integration in the industrialized world met or surpassed the levels seen before World War I.

Globalization, however, required the embrace of economic openness by developing and formerly socialist economies, as well.

Continues...

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Table of Contents

List of Contributors vii

Acknowledgments xiii

Chapter 1: Globalization and Governance by Miles Kahler and David A. Lake 1

Part 1. Globalization and Changing Locations of Governance

Chapter 2: The Leverage of Economic Theories: Explaining Governance in an Internationalized Industry by Lisa L. Martin 33

Chapter 3: Political Integration and Disintegration in the Global Economy by Michael J. Hiscox 60

Chapter 4: Globalization and Fiscal Decentralization by Geoffrey Garrett and Jonathan Rodden 87

Chapter 5: Globalization and Demands for Regional Autonomy in Europe by Pieter Van Houten 110

Chapter 6: Monetary Governance in a World of Regional Currencies by Benjamin J. Cohen 136

Chapter 7: Governing Global Financial Markets: International Responses to the Hedge-Fund Problem by Barry Eichengreen 168

Chapter 8: Public and Private Governance in Setting International Standards by Walter Mattli 199

Chapter 9: Globalization and Industry Self-Regulation by Virginia Haufler 226

Part 2. Convergence in National Governance

Chapter 10: International Capital Mobility and National Policy Divergence by Ronald Rogowski 255

Chapter 11: Globalization and Policy Diffusion: Explaining Three Decades of Liberalization by Beth A. Simmons and Zachary Elkins 275

Chapter 12: Corporate Governance: Global Markets, National Politics by Peter Gourevitch 305

Chapter 13: Globalization, Institutions, and Convergence: Fiscal Adjustment in Europe by Kathleen R. McNamara 332

Part 3. Democratic Deficits and the Problem of Accountability

Chapter 14: Democracy, Accountability, and Rights in Supranational Governance by James A. Caporaso 361

Chapter 15: Redefining Accountability for Global Governance Robert O. Keohane and Joseph S. Nye, Jr. 386

Chapter 16: Globalization and Changing Patterns of Political Authority by Miles Kahler and David A. Lake 412

References 439

Index 481

What People are Saying About This

From the Publisher

"This well-crafted and timely volume challenges the common assumption that globalization is an inexorable force severely circumscribing the policy autonomy or sovereignty of national governments. Its chapters make for a rich collection of ideas, evidence, and rigorous social science theorizing about the causes and consequences of global change. Following the terrible events of September 11, 2001, some observers speculated that 'globalization is dead.' But this has proven not to be so. Indeed, the issues addressed in this book are more important than ever for those concerned with pursuing an understanding of contemporary international affairs."—Timothy J. Sinclair, University of Warwick, coauthor of Approaches to World Order

"This book includes a number of excellent chapters by many of the leading scholars in international political economy that advance important and innovative arguments for globalization's impact on governance as being indeterminate. The editors are to be commended on bringing together such a high quality group of researchers in one volume."—Eric Helleiner, Trent University, author of States and the Re-emergence of Global Finance

Eric Helleiner

This book includes a number of excellent chapters by many of the leading scholars in international political economy that advance important and innovative arguments for globalization's impact on governance as being indeterminate. The editors are to be commended on bringing together such a high quality group of researchers in one volume.
— Eric Helleiner, Trent University, author of "States and the Re-emergence of Global Finance"

Sinclair

This well-crafted and timely volume challenges the common assumption that globalization is an inexorable force severely circumscribing the policy autonomy or sovereignty of national governments. Its chapters make for a rich collection of ideas, evidence, and rigorous social science theorizing about the causes and consequences of global change. Following the terrible events of September 11, 2001, some observers speculated that 'globalization is dead.' But this has proven not to be so. Indeed, the issues addressed in this book are more important than ever for those concerned with pursuing an understanding of contemporary international affairs.
— Timothy J. Sinclair, University of Warwick, coauthor of "Approaches to World Order"

Editorial Reviews

"This book provides important insights into globalization's complex and contradictory effects on political authority and governance in general and on new institutional options in particular."—-Donald E. Klingner, Public Administration Review

From the Publisher

This book provides important insights into globalization's complex and contradictory effects on political authority and governance in general and on new institutional options in particular.

Public Administration Review - Donald E. Klingner

This book provides important insights into globalization's complex and contradictory effects on political authority and governance in general and on new institutional options in particular.
— Donald E. Klingner

Public Administration Review