Nation states controlled by multinationals
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The end of the Cold War brought a renaissance to geopolitical thinking which coincides with the growth of our multinational enterprises. Since most of the world’s States now share the same understanding of which underlying factors give them more power, focus has shifted to a single dominant issue, economic interest.
The Cold War was a time of unchanging maps. In less than two decades after it was over, national borders and borders of political and economic interests underwent a degree of change never previously seen in history. In just a few years borders in the Baltic region, Eastern Europe, Russia, the Caucasus, and Central Asia were all redrawn. What is unique is the speed with which these changes took place; with the USA, after its perceived victory, having been acting as an accelerator of history, by deciding to take a series of unilateral initiatives in the international arena.
Foreign affairs are best understood through geopolitical analysis. Geopolitics is about how nation states follow their own interests. We must look beyond the political rhetoric and the window dressing. Nation states follow their own self-interest even when that means damaging the economic position of other nations. We can make a number of observations on the shift in balance from the political to the economic arena.
The two systems, that of the nation state and the multinational enterprise, or public and private interests, work quite symbiotically in this respect. At the same time they are also both aware of what make them competitive together, through cooperation. The nation state has always known about the importance, to assure its own survival and power, of gathering knowledge about the outside world, and the multinationals are quickly learning the same lesson.
Those Stateswhose intelligence efforts were successful, such as Britain in the eighteenth and nineteenth centuries, the Netherlands in the seventeenth century, and Spain in the sixteenth century, were all economically prosperous. Earlier many city-states demonstrated similar capacities, for instance Venice, Genoa, Wurzburg, or Augsburg.
Today, multinational enterprises are building the same capabilities. It is no longer the case that nation states consider exclusively macro factors and private-sector corporations consider exclusively micro factors. The multinationals are discovering that analysing a political situation may be as important for purposes of gaining a contract as gathering and analysing information about markets and competitors.
Multinationals have neither the time nor the inclination to go in for undercover activity. They have no patience with large bureaucratic structures. Besides, a multinational is willing and able to attract the best minds, and keep them. The CIA was able to recruit many of the ablest students in the USA when it was new, but it soon lost them. This problem is familiar to all bureaucracies, to a smaller or lesser degree (cf. Kent 1949: 64).
During their early decades, east Germany and the communist bloc were able to compete with Western car manufacturers. Likewise, Mao’s first five-year plan was a great success. Largely thanks to lack of incentives, most idealism evaporated within a generation. It does not have to sit and wait for employees whose competence belongs to a past generation to retire before it can hope to recruit new staff, as a civil service does. It has low tolerance of mistakes and a more efficient system of rewards (cf. Bacevich 2005). It took the Swedish military sixteen years to respond to the fact that the Cold War was over and to begin developing smaller, agile, international military units. Furthermore, by European standards this was not particularly slow.
Much of the delay had to do with the State’s commitment to being socially responsible for its employees, by helping staff to find new jobs, implementing early-retirement programmes, or just waiting employees out, delaying new recruitment until the current workforce reached retirement age. These are all considerations suggesting that private-sector organizations will be relatively successful in their intelligence efforts.
The differences between the nation state and the multinational enterprise lie in their goals and objectives. The perspective of the nation state is primarily political, that of the multinational primarily economic. To be more specific, the nation state has a policy perspective , the multinational has a bottom-line perspective on its interactions with the outside world. With the former, you are doing all right so long as you are conforming to directives and regulations, with the latter you are doing fine so long as you are achieving your profit targets. With the shift of power from public to private-sector initiatives, legitimacy of the social system is beginning to require that companies should look as though they are preserving the policy perspective. This is no minor task to achieve.
Western nation states, pressured as they are by private interests, will do whatever they can to make it seem that is not so, and to convince the public that politics is still in the driving seat. In reality that is largely just political rhetoric, as when EU nations today assure their citizens that the economic crisis is under control. The contradictions will be particularly obvious in Europe. Under the American model, government leadership was already weak.
De facto, for many generations now, the USA has been in the hands of its large corporations, particularly the arms industry and the health care industry. Via a range of economic incentives these organizations largely decide how senators vote, indeed even what they say. The presidency is a role with relatively little political power. Thus American politics can function successfully only to the extent that the interests of the major corporations coincide with the interests of the nation and vice versa. When voters appreciate the discrepancy they will protest, but changing the American system would take no less than a revolution, even if it were bloodless.
To preserve its economic leadership the US has adopted an aggressive policy towards the rest of the world, in particular in the south-central areas of Eurasia, i.e. the Persian Gulf–Caspian Sea area, which contains about seventy per cent of all known oil reserves. Cf. the “Wolfowitz Doctrine”, as articulated in the Pentagon’s Defense Planning Guidance document for 1994–99.
This document, the language and content of which was considerably altered after strong reactions by America’s allies, asserts that the USA must use any means necessary to prevent the rise of a competitor. This is also the central message of a document called the National Security Strategy of the United States of America, published in September This has set the pace in international politics, for other countries to respond to. This style did not start with the Bush administration; it was clearly visible much earlier, even under Clinton.
With Clinton it was evident that from now on the agenda was to be more about economics than politics, or, as he said in the 1992 presidential campaign, “It’s the economy, stupid”. With Obama, only the facade has changed. Everything just looks more altruistic and sounds much nicer. Obama was elected to change things inside the USA. US foreign policy remains largely unchanged, as illustrated by the fact that Obama kept most of Bush’s senior military advisers on, did not make an immediate move to close Guantanamo, and has been stepping up the country’s military commitment in Afghanistan. If the US and NATO are redrawing now it is because we have lost
to the Taliban and because it became impossible to support the puppet regime any longer with its support of the drug industry and its corruption. If the Americans left Iraq, that was because they had lost the war and were outmanoeuvred by their own Sunni allies. Do not expect Obama to challenge the interests of the American military complex or American multinationals. Their interests will be the same. Obama is an excellent politician, but he is a politician (not an idealist), and known for compromises. What Obama and many others understood after the failure of the Bush administration was that US involvement in the world could not look unilateral.
The US needed to restore its moral position in the eyes of the world, to regain the moral high ground. For this, it was important first to re-establish good relations with the other leading Western powers, to rebuild the voice of the “international community”, backed by real force, by the US military, particularly its navy, and by NATO. From a scientific perspective the problem is that there are few empirical articles which explain this, despite all the research conducted. Of 112 journals in the area of political science there are a few which are not based on empirical experimentation but are more exploratory in nature, for instance Geopolitics and Nation; but their impact factors are much lower.
What is lacking is critical dialogue. Thus, the project to create a representative, fair, and equal UN General Assembly continues to be hobbled by the balance of power in the Security Council. The USA insisted on having the UN on its own territory but refused to pay its membership fees for a long time, until it finally did so in 2009. American influence over the IMF and the World Bank is considerable, and the USA has forced other countries to use the American dollar as a reserve and as a currency for trading in major commodities. Its control mechanisms such as the Federal Reserve and the SEC are not impartial, but answer primarily to industry.
They are merely made to seem impartial, comprising boards whose members look like people who have been chosen in terms of their ability to defend the public interest. In the West we have no end of such self-regulating bodies. The Chinese say “You ask your children where they want to go on holiday, and then you decide”. China may be more authoritarian, but it does not play these games with its own population.
We should not fall for Asian rhetoric either, that is not what I am saying; but we do need to prepare for the rise of the new superpower. Asian financial leadership is now a reality, and that means we can expect to be exposed to more of its political discourse. When Obama met his principal creditor in November 2009, he encountered a confident Chinese leader. He was there to ask for money, hat-in-hand. When Angela Merkel was in Beijing in February 2012 it was also to ask for money, to save the euro. You have to understand the significance of these visits.
The entire Western world has now capitulated economically in front of China. The following trip by the vice-President Xi Jinping to the Western world was a victory parade, preparing for his own position as the most powerful man in the world. In a while, probably sometime in the second half of the present century, China will surpass the Western world in political strength.
Long before that it will have built its first aircraft carriers, then it will slowly press the US back militarily, first in the South China Sea, then in the Indian Ocean. American military superiority is still overwhelming, but it is on the retreat, if slowly. Provided the USA does not provoke some incident the transition will be smooth, as it was when China repossessed Hong Kong. Real power is a function of who can gather most resources at a critical pressure point, just as it was in the competition between the USA and the Soviet Union. This time it will happen without the ideology, just with the rhetoric and the forces of economics.
China will compete against the West mostly on Western premisses, so long as the West accepts “China’s special features”, that is, their political system based on Confucianism. China will continue to complain about US protectionist policies (an odd complaint, when one considers that China is one of the world’s most protectionist markets). This, we may recall, was also the strategy of the Japanese.
Multinationals controlled by the nation state
The nation state can no longer underwrite our way of life, only companies can. Thus the nation state is finding itself challenged in areas where it anticipated no threat. At the same time it has become increasingly dependent upon tax income from companies and multinationals. This means that national economic interest is no longer a question of whether multinationals should be allowed to operate, but how. Putting it differently, the issue is about finding the right harness and knowing when to use it.
The economy of the Western world failed in 2008 and again in 2011 largely because our banks and financial institutions, supported by our own regulatory bodies, were allowed to rob and cheat. Unfortunately, the problem runs too deep to be mended in a moment, particularly in countries where private-sector companies are literally calling the shots.
So long as private-sector companies have the upper hand, the rules of the game will not change. We see this most clearly in the USA, but also in France and Germany, where politicians have favoured stricter regulation but have only achieved minor changes. The multinationals are too powerful in this part of the world vis-a-vis the nation state.
This situation is somewhat different in China, where the State is currently the owner of most major businesses and can impose very strict rules on the market. At the same time, China’s ownership structures today are in flux. They are not a permanent solution, but are functioning more like a rocket motor getting their payload up to orbit, until Chinese multinationals are strong enough to compete on their own. Looking at the total number of businesses in China over the past two decades we find that numbers of employees in State-owned enterprises are falling significantly relative to numbers in private-sector companies. Most of the new private-sector companies are also Chinese-owned.
According to the China Statistical Yearbook 2008, only about ten per cent of employees were working for foreign joint ventures or enterprises capitalized from Hong Kong, Macao, or Taiwan (Fernandez and Jenster 2010: 7). According to the World Bank ranking, two of the world’s four most favourable countries for entrepreneurship are now in the Chinese cultural sphere, namely Singapore and Taiwan (op. cit.: 8). Between 2007 and 2008 it became much easier to do business in China (up nine places – op. cit.: 9). It has also become easier to get credit (up ten places), and it easier to close a business (up nineteen places). But there are also aspects less favourable for economic growth, e.g. ease of starting a business (down seven places), and trading across borders (down eleven places). Thus we should not expect the shift of power from SOEs to private-sector players to continue at the same pace.
The Chinese dragons look as though they are running free, but in reality they are on a long leash. Enrich yourself, but only to the extent that you contribute to the common good. Use this piece of land, but we shall want it back in seventy years’ time – or maybe even forty (we might change our minds). Start this business, but we want fifty-one per cent, or at any rate forty-nine per cent, of the shares. This formula has worked wonders in China for close to two decades now. As a result, while the poor people in the world have been getting poorer, there is one exception: about 400 million Chinese have been lifted into the lower middle class.
Foreign direct investment and economic growth in China is doing more to fight poverty than all the political initiatives undertaken by the entire Western world over the past century. Does that mean that Chinese workers are not being exploited, even mistreated? No: it is true that conditions are improving dramatically, but it is also true that employees are being asked to work under conditions which remain strenuous. Many of these conditions would be unacceptable to the average worker in the West. For a Chinese peasant, though, they often represent an improvement. We should remember that these adverse working conditions are very much like conditions in Europe when it was first becoming prosperous, during the Industrial Revolution. In fact, conditions for labourers during the Industrial Revolution in Europe and North America were in most cases worse than what we see in China today.
While the nation state is growing weaker in the West, the reverse holds in China, where the State is growing stronger. Much of this is due to the fact that our States expanded into areas which they were not able to manage and control. As a result they find themselves threatened in areas where they never thought they would be challenged, where they used to have a quasi-monopoly, if not always clear legitimacy.
For instance, private individuals are questioning State overseas-aid programmes, preferring to give economic aid and help poor people directly through small direct loans over the internet, so-called micro-loans. Suddenly the State is no longer competing with other aid-giving organizations in other countries, but with its own taxpayers. The large bureaucratic structures we have created to administer overseas aid, filled with whole series of corrupt middlemen, whether public or private contractors, have now been challenged.
If the nation state is gradually forced to give up its massive overseas-aid budgets, it will lose one of its most effective foreign-policy tools. This will further undermine its strength in the arena of international relations. Much depends on how capable the private sector will prove to beat handling sectors which have traditionally been managed by the State.
The new nationalism of nation state and trade unions
Unlike overseas-aid workers employed by nation states, many employees of multinationals have to be respectful in their treatment of people of other cultures: not because they are out to do more good, but because good behaviour is a necessary condition for entering new markets. International companies cannot afford to show anything but respect to citizens of countries where they want to do business. For a businessman all consumers, whether Indians, Danes, or Portuguese, are equally valuable: not because the businessman has higher ideals than the rest of us, but because customers provide an income, and that demands respect. It is part of the logic of the free market, an indirect consequence of the system in which companies operate and hope to make a profit. Unlike nation states, companies always need to co-operate and fit in order to succeed.
The only significant kind of discrimination known to the ideology of the free market is the distinction it makes between those who have money and those who have none or little. Their ethnic background or nationality is unimportant. The nation state defines its identity and growth largely in opposition to other nation states.
The multinational defines its growth in co-operation with foreign nation states. To the multinational, another State means another market. It has a direct interest in the development of other countries, in seeing the living standards of their citizens rise, in seeing new infrastructure built. These things mean that those countries’ population will be able to consume new and more expensive products. This non-discriminatory aspect of market ideology (result of corporate greed though it may be) is not well explained in the current literature on international relations. In the literature on international business it is often ignored altogether. The international-relations literature often focuses instead on the discrimination and suffering caused by globalization, on exploitation.
There is some truth in that, but the reality is that private-sector companies are far less guilty of exploitation under globalization than nation states used to be under what we call colonialism. To the extent that this criticism is coming from state employees, protecting the interests of the nation state and its ureaucracy, they are like people in a glass house throwing stones. Colonialism and globalization are at base the same geoeconomic strategy. Only the players are different, the former being promoted by the nation state, the latter by the private-sector company.
The methods are different, too: where the State controls by force, the multinational controls by trade. Globalization has reshuffled the cards in more ways than one. It is now the bureaucrats and the unions which form the more self-protective, nationalistic elements in society, since it is in their interest for national borders to be kept closed. The reverse has happened in the large companies, which are now less concerned about putting up obstacles to the entrance of foreign companies and more interested in gaining access themselves to foreign markets. Suddenly it is in the multinationals’ interest to help developing countries improve their infrastructure, since the companies need that development in order to engage in future business, to build plants and factories. It has also come to be in the multinationals’ interest to lower barriers to immigration.
The trade unions are in much the same situation as the nation state, tied to a geographical logic of national borders. Because of that, they are demanding that all workers should be paid the same regardless of where in the world they live. International solidarity has come to imply that workers overseas should refuse to accept pay that is lower than what they themselves earn.
This makes no sense to a worker overseas who needs the job and is willing to take it for less because he lives in a country with a lower cost of living. With lower pay he can live much better than our workers at home. Thus the trade unions have largely missed the point of the argument about exploitation. They are instead insisting on equal pay regardless of country, which makes no sense in a world where standards of living vary from country to country. In effect the unions are asking workers overseas to show solidarity with workers in the home market, rather than vice versa. Thus the unions’ definition of solidarity has become synonymous with their own self-interest as a group. Internationalization has become a threat, and the Internationale is now a hymn in dubious taste. In consequence, some unions in Europe are moving towards a nationalistic agenda, and many workers are once again flirting with extremist right-wing parties. That is, the new extreme-right parties are attracting members not mainly from the ranks of conservative parties, but from disillusioned working-class voters, the old Lumpenproletariat.
Over the past few decades the nation states – supported chiefly by parties of the centre and the left – have built up huge bureaucratic sectors, which have become increasingly expensive to run. In consequence, any public activity has become increasingly dependent upon tax revenues from the private sector, demanding ever higher taxes while simultaneously cutting costs.
England under David Cameroon is here a good example. As the public sector has become more dependent, it has been forced to give the private sector a freer rein, simply in order to underwrite its own existence. The example of Sweden is striking. Never before have there been so many private-sector initiatives. This development has occurred only because those who work in the public sector know that their interests are ultimately being best served through increased privatization. The alternative would be to dismantle much of the bureaucratic sector.
Many functions are now changing hands from public to private, whether in the fields of healthcare, care of the elderly, or education. The problem has been that many of the privately owned companies are less expensive, but also less concerned with customer satisfaction, at the end leading great sums of profits out of the country. Backlashes are already a problem. A main reason why Social Democrats in Sweden and other Scandinavian countries built up a large bureaucracy in the first place was to create a stable and loyal voter base: to win elections, by making workers dependent upon special favours and trapping them in social-security schemes (e.g. disability programmes) and impermanent-jobs-for-votes arrangements (the large percentage of insecure jobs in the public administration).
Now they find themselves forced to drop some of these special arrangements. The left and centrist parties have even gone so far as to give up their full-employment policy. In that respect they are no longer in reality “workers’” or “labour” parties demanding zero unemployment. They have had instead to accept that a certain level of unemployment is beneficial for competition in the job market, and hence good for the national economy, even though they would never say so out loud. There is a distant parallel with Stalin’s coming to power, when the realities of social life quickly demanded policy reversals: the Communist agenda changed and Communist ideals became mere rhetoric.
For instance, Stalin soon realized that it was best to let the Orthodox Church continue holding services. Idealistic Communists, like Tito, were seen as a nuisance. Power tends to make political parties and idealists pragmatic, but ideals are excellent vote-winners: so you duck and weave. As Stalin and as Putin would have agreed, the important thing is who counts the votes.
All political parties in Europe are now more or less in agreement about the question of how much unemployment is acceptable. The precise limit will depend to an extent on a country’s individual culture, but the principle is the same. Thus, in France people will take to the streets at about fifteen per cent unemployment and there will be riots at about twenty five per cent.
Eastern Europe can tolerate about thirty to forty-five per cent. In Sweden any unemployment rate greater than seven to ten per cent will usually make the governing party lose the next election, but riots would be un-Swedish at any rate of unemployment. Knowing this, governments find ways systematically to lower the unemployment level by arranging for Statesubsidized, short-term work-experience arrangements and by sending citizens, even relatively young people, into early retirement.
At the same time the state wants those who are qualified to work longer, to increase taxes and reduce retirement expenditure. Through these measures Western democracies are able to keep unemployment rates down to a politically-acceptable level. In Sweden, for instance, the true unemployment figure is probably twice as high as the official figure, if you subtract the artificial life-support system (as one might call it).
For the same reason, Eastern European EU member States employ a large proportion of their inhabitants on essentially pointless tasks, such as having numerous people supervising car parks, toilets, and public buildings; it all keeps unemployment figures down. These categories of job would not even be acceptable in Western Europe. Politicians in these countries have to adapt to the differing cultural sensitivities, but they all acknowledge that a certain rate of unemployment is good for the overall health of the labour market.
When multinationals move jobs out to low-wage countries, this has a direct negative impact on the economy of the home State, which as said above has become ever more dependent on tax revenues received from these companies. Consequently bureaucrats want more control over their borders to ensure that no more jobs are moved out, and to ensure that taxes are paid in their home country. If companies continue to move out and high earners continue to deposit their funds in tax havens, and if refugees who are not self-supporting continue to flood into Western countries, then our Western democracies will soon be a thing of the past. We will be out competed by more authoritarian states with more effective models of public management. To some extent this is already happening.
In consequence the welfare state is being dismantled. Europe will not let go of its healthcare system, but the Social Democratic model is already changing in other respects. Thus, in Sweden even the Social Democrats themselves encourage the creation of private schools, since they have come to realize, if not to admit openly, their own role in the failure of the State school system.
So when a previous Social Democrat Swedish prime minister, Goran Persson, permitted privatization in the school sector this was out of necessity, for the sake of Sweden’s competitive advantage, and certainly not out of ideological conviction. In terms of the country’s interests this was a courageous decision. (By contrast, the Soviet leadership did not alter their social model until it was too late.)The men who run Swedish industries could not accept their children falling behind in important subjects such as mathematics and Swedish language, and without competitive industry Sweden would not be able to pay for its large public sector. Persson understood this better than most; his party however did not. As a result, in 2007 he was forced out to make way for a new party leader who stood further to the left, Mona
Sahlin (who subsequently lost the election of 2010). The same privatization policy is being continued by the rival party, the New Moderates, and their coalition government now in power. National interest comes before political differences. We see this in a number of well-run countries that find themselves hard-pressed by the new force of globalization, e.g. Japan, Germany, the Netherlands, but also to some extent in France and Britain. In extreme cases ordinary politicians will be replaced by expert technocrats, as in Italy after Berlusconi or now in Greece.
The arrival of the World State
The era of globalization has marked the end of the dominance of the nation state. During this transitional period we are experiencing turmoil. We have entered a period of a new logic which requires new answers, answers we are not yet ready to give. The nation state has been outgrown as apolitical organism; it has lost much of its power and many of its resources. The turmoil will not calm down until a successful new supranational political body manages to replace the power vacuum left by the nation state.
For Europeans this is likely to be a future version of the EU with increased powers. How long it will be before this Union becomes an efficient governing instrument for all Europeans citizens is hard to foresee. At present the EU is suffering from lack of popular support and an inability to make decisions effectively. Other continents are developing their own versions of supranational political unions. They are all trying to make up for the political deficit caused by globalization. Only through supranational co-operation can the nation state hope to regain its political power. Only then can it fully come to grips with its economic problems. Until then we shall have to live in a world where economics has the upper hand over politics.
In future we shall see more publicity campaigns instigated by multinationals to influence people to vote against anything that weakens their position, as the American healthcare industry did when Obama set about healthcare reform. It happens through the process we call lobbying, a political mechanism whereby private-sector companies can offset democratic preferences through donations and financial support (bribes and favours).
This is the reason why some banks were saved and others sacrificed. It was not primarily a matter of assets, but of trust, which is ultimately very much a question about personal relationships. For example, Henry Paulson, former Secretary to the Treasury, had previously been chief executive of Goldman Sachs, so Goldman Sachs was calling the shots.
In the next phase we can expect increasing co-operation between political and economic unions, for instance between the EU and MERCOSUR.80Ultimately only a World State (the model for which model is still the United Nations, however fragile that organization may seem at the moment) can hope to be effective in returning power to a democratically-elected public body or institution. This is a struggle for the 22nd century, at the earliest.
For three centuries Europe and the Western world have had no real competition. During this period it has been possible to develop and indulge in all kinds of political ideologies, without ever losing the lead position. Japan was the first non-Western country to understand and imitate the scientific–industrial logic of the Western world; but Japan did not have sufficient firepower, not enough resources, to challenge the West single-handedly. It has had to accept US military and economic dominance. That was however a foretaste of the geoeconomic era. Now China has become the first nation to offer a real challenge to the West, not just economically, but politically, ideologically, and soon also militarily. Unlike Japan, china has got the necessary firepower.
Some see this in terms of China arriving. Others see it as China reviving, after three centuries of sleep. Now it wants to regain its old position as the centre of the world. On one hand this means that we in the West no longer have the luxury of indulging in political ideologies. Intellectual spin-offs from the French Revolution have had their day. All our efforts will need to be devoted to the technological–industrial race – if we want to continue as a leading civilization, that is.
On the other hand, Chinese leadership will not necessarily be so bad. It could imply greater political stability and fewer military interventions. Unlike the USA, China has no taste for military adventurism. Harmony is the ideal, not the cowboy. Only implementation of a World State will mark the end of the era of globalization where political outcome will be the results of economic strength.
Only then can there be no more large-scale wars, no more cut-throat competition between nation states and multinationals. Instead there will be elections and parliamentary discussion, which will trigger a different kind of power struggle, between individuals and organizations. The State will then again be able to provide a safety-net for those who stumble. It will not mark the end of self-interest or competition: we must assume that companies will continue to compete after the world is united politically, if that ever happens, but competition will occur in more organized forms.
A number of forces work against globalization in the long run. The strains on the planet are too great, the distribution of goods is unfair, and we are seeing increased collaboration among private-sector and public-sector organizations which might imply that politics will at some point get the upper hand over economics again.
This scenario, however, lies in what we must call the unforeseeable future; and even then there would be competition between individuals, simply because that seems to be human nature. Socialization can only change some of this and only slowly, over time. True, we will soon be able to breed humans to match our ideal by selecting among DNA sequences, but even then one must assume that some will want golden retriever-like babies while others will want alsatians.
The move towards ever-larger political bodies will not solve all the nation state’s problems. For instance, it will do nothing to bridge the gap between voters and politicians; on the contrary, it is likely to make the gap wider. Instead, the development of the nation state will need to be supported by two new levels of organization; one supranational, as discussed above, the other local. Both of these developments can be seen as responses to failure by the nation state to meet the future demands of its citizens. Supranational bodies are needed to regain control over the economic sphere.
Development of smaller political units or local-level structures is needed to re-establish the political contract with the people, in order to regain trust and support for the political agenda – to make people feel that they matter and are listened to. After decades of centralism, which has led to massive bureaucratic inefficiencies and corresponding cynicism among voters, there is a feeling that society needs to renew its contract with the voters, in something like a modern version of Rousseau’s Social Contract.
This cannot be done on the supranational level. In China it was Deng Xiaoping who introduced direct local elections. In China today there are direct elections for village leaders in some 1 million villages and elections for the local people’s congresses. Popular complaints often remove these elected officials from their seats.
The region is in many places replacing the nation state as an identity marker. So, we don’t come from Sweden, but from Skane or from Smaland. Instead of strong national economies we see the reappearance of strong regional centres, like Catalonia in Spain, Rhone-Alpes in France, Baden-Wurttemberg in Germany, and Lombardy in Italy. Competence today is more and more centered in clusters attached to certain regions.
This development makes sense also for the multinational enterprise, which will choose to site its business in a specific region rather than in a specific country. It will cultivate contacts with local authorities, rather than with national governments. Many of these new regions are also transnational, that is, they pay less attention to national borders than to economic realities. Examples are found on the French–German border, and between Skane in Sweden and the Copenhagen region.
The competition between regional and national influences is not always friendly. A number of regions are striving for full or at least increased autonomy against the will of their nation states, in some cases violently. In Europe we have violent secessionist attempts by the Basques on the Spanish–French border (ETA) and in Corsica (FNLC). Members of both organizations see the supranational level as an answer to perceived oppression by the nation state. Nonviolent campaigns are occurring in Brittany, Catalonia, Wales, Scotland, Lombardy, and Venice, and to some extent among the Lapp or Sami people of northern Scandinavia. All these regions enjoy greater autonomy than most other regions of Europe.
In the end the nation state will have to come to terms with voters’ need for more local geographical and cultural identities if its wider, supranational ambitions are to succeed. There must be development in two directions at once: one towards larger political entities, and one towards smaller entities. Voters will want a more direct form of democracy; they want a bigger say in political decisions that affect their lives. Here, Switzerland has been showing the way for centuries. We often see the nation state as the one true, or natural, political structure: something fixed, like a destination or terminus.
Of course that is not true. Our political borders are subject to continual change and sometimes develop into smaller units, sometimes into larger ones. We remember that the Ancient Greeks lived in city-states, and Italy and much of the rest of Europe was divided into small States during the Renaissance. The regional system can be seen as a continuation of the break-up of empires into ever- smaller political units. In this perspective nation states are only one stage in the long-term evolution of political–geographical units.
The Europe of 1914 was dominated by three big blocs: Germany, Austria-Hungary, and Russia. Today the area they covered has become some twenty autonomous States. The formation of these political entities has been changing and continues to change with the changing needs and constraints set by their population. By and large we have been moving towards ever-smaller politically-autonomous units for a century already, more or less without anyone planning it. It seems rather to have been happening as a natural process of human social and political evolution.
Likewise, globalization is not a conscious policy adopted either by national governments or by multinationals. It is not a social, political, and economic process that anyone has sat down to think through and then implement. As such it has no ideological father, either. Rather, it is very much a development which has emerged as an unplanned consequence of increased competition and new technologies. It is true that we are not puppets in this game; but we do not fully control it either. We are more akin to helmsmen in a storm.
We have transferred power from nation states to international institutions (EU, UN, World Bank, IMF, UNESCO, World Trade Organization, NATO, but also non-governmental organizations like the Red Cross and Amnesty). These decisions have been made as our needs for better forms of organization have evolved.
Allowing the nation-state system to retain a monopoly on political decisions would have made our societies increasingly ineffective. In the future, new structures must be built which can both control free-market capitalism and also secure the political rights and express the will of all citizens. How long the geoeconomics era lasts will depend largely on the ability of these new international institutions to develop and gain in influence. Over the past decade they have faced challenges from some quarters; but others see them as an important development to fight the world’s growing poverty (see e.g. Stiglitz 2006: 19–25).
Until the current financial crisis, we were in a largely unrestrained economic race. The global marketplace allowed companies to grow ever bigger, and our political organs were only too glad to encourage that development. From now on there are likely to be more restrictions on the financial industry. But this will not alter the logic of our system of economic growth through trade. It will not make the multinationals any less relevant to economic growth.
We are witnessing a new form of colonialism, this time led not by the State but by private-sector companies, directly assisted by more or less self-imprisoned nation states, as the State has set the rules only to be trapped in them. Their joint strategies have come to express two sides of a single plan: profits for the multinational, and taxes for the State. This development is most marked in countries with relatively liberal trade policies.
The USA is a special case here, where politics in practice is in the hands of the multinational enterprises. There are no real independent politics separate from corporate interests, only individual voices of protest, and these are seldom heard or sound irrelevant to the bulk of voters, like remarks emanating from the ivory tower of academia. The people Obama represents are not those who criticize this system in general, but those who are less well off today than they were a few years ago, those who feel things have been going downhill, who have perhaps lost their homes and jobs.
The logic of the free market has not been challenged, not even the brand has been touched. And the gospel is a long-familiar one (“change”); only the evangelist is new. If Obama does not solve his voters’ problems they, the squeezed middle classes, will soon change horses again; not that it makes much difference where they place their bets.
The globalization process is not a strategy devised between two harmonious parties, the public and private sectors. It is the nation state that depends on the multinational, not vice versa, and they are playing a sort of cat and mouse game. For instance, politicians know that multinationals use bribes to win contracts, but they do not respond to this before they have to, that is before there is a scandal, some incident which comes to public attention via the mass media. Then there will be a brief reaction, some official exchange of words, and after that everything will go back to how it was before.
The political establishment is not naive, but it knows that the agenda will always be set by the logic of economic interests. Members of that establishment are often trapped in the middle, between voters and corporations, not wanting to express allegiance to either one in fear of an immediate reaction by the other. If a multinational enterprise is dissatisfied with a nation state, it can relocate. It can set up its factory in another country or another region, and it can transfer its profits to a third country, say to Switzerland, which does not allow foreign governments to retrieve information about banking clients unless they are suspected of fraud, and even then puts great difficulty in the way.
When UBS signaled that it was going to need to pass information to American tax authorities about accounts belonging to US citizens, most of the money was transferred to Credit Suisse, another Swiss bank. There is a market for everything, and all these markets are becoming ever more efficient. In this race for power, the multinationals are getting ever stronger, the nation states weaker. As a result the economic size of the former, and the personal wealth of their owners, often exceed the gross national product of many countries.
The estimated fortune of the Walton Family (Walmart) is estimated at about$100 billion, similar to the GNP of Egypt with 72 million people. The owners of Microsoft have an estimated fortune equal to the GNP of Pakistan. Warren Buffet’s fortune alone is equal to the GNP of Rumania; the Mars family’s (confectionery) to that of Morocco; Anne Cox Chambers and Barbara Cox Anthony’s (media) to that of Uruguay; Larry Ellison’s (Oracle) to that of Slovenia; the New houses’ (media) to that of Costa Rica; the Pritzkers’ (hotels and investment) to that of Oman. Consequently these owners’ actions and visits often matter more to people in general than the actions and visits of prime ministers or presidents, since they mean real investments and new jobs.
Political leaders can seldom promise this kind of growth. Instead they will often choose to promote their multinational enterprises in a joint effort, as when we see diplomatic planes filled with business executives. Foreign ministries often function rather like errand-boys for their multinationals, with their royal family as head salesmen. In many Western monarchies there are unofficial estimates suggesting that having a royal family makes economic sense. Royal schedules are often as full as those of chief executives, and their pay, or allowance, often lower.
The largest concentration of multinationals is found in the USA, followed by Japan, the UK, France, Germany, and Sweden (Atlas der Globalisierung 2003: 30–1). In many of these countries business life has achieved quasi-independence from the nation state. Financial markets area striking example. Their products are transferred to all corners of the world within seconds, virtually without anyone noticing the transactions or knowing where they originate. If the nation states cannot bring the world’s tax havens under control, there may soon be very little dirty money visible: just money.
The super-rich constitute their own social class, consisting of people who pay little attention to national identities and borders. If they like Paris, they will go and live there for a while, if they want to gamble they will fly to Las Vegas or Macao in their private jets, or they will be off to any other part of the world, treating the world as a giant a la carte menu. You would not know they were there, if it were not for the long rows of private jets parked at the airport.
Governments are losing influence not only over major companies but also over economic policies. The exception is when these same people and companies falter and need help. Then they will get financial support, by describing the impact their bankruptcy would have on the common good; or, as we say now, “too big to fail” – in other words, the bigger you are, the more failures you are allowed to get away with. This is even contrary to traditional Western moral, which says that the older you are the more responsibility you should take.
All this does not mean that the nation state is on the way out, or that it is about to be entirely replaced by an inter-regional political system (Ohmae 1995). The nation state will go on playing an important role, in areas which have not yet been taken over by other entities: making and enforcing laws and regulations to provide a framework for the operation of the free market, building and maintaining infrastructure, and providing social security for a growing number of citizens excluded from productive society.
The nation states have also taken an active role in fostering small businesses and in supporting their companies overseas. These things make the nation state currently more a partner than a competitor. The present situation is not one of naked conflict between multinationals and nation states, but one of gradual shifting power, in which both entities recognize that they depend on the other.
Besides, there are many problems with the multinational-enterprise system which might alter the equation at any time. For one thing, the multinational is not the perfect money-making machine it would like us to think, but consists of people of flesh and blood, who feel national identity, pride, and sometimes even social responsibility.
All multinational owners have their special attachments. As they get richer they will acquire more non-economic objectives, in line with the goal of self-actualization from Maslow’s hierarchy of needs. They are eventually going to want to give things away and help others. That is why it is often more important for a nation state to win a multinational’s heart than to chase after its taxes, factories, and offices.
Likewise, a tax refugee or a criminal on the run in exile may enjoy sitting on a sun-lounger and sipping pina coladas for a year or two, but sooner or later his money will run out and/or he will start to feel homesick. Then he will want to come home. That is when we should tax him, if he still has the funds. Coming home should come at a price.
Above all we should make our citizens feel more responsible for the nation’s future. We should make clear that citizenship means not just that one has rights, but that one also has obligations, duties. To achieve this we need a new political structure. This can come only through a period of new crisis.