Upholding democracy in the globalized world : three fundamental policy options / [Alfred Pfaller] - [Electronic ed.] - Bonn, [2002 - 2] Bl. = 20 KB, Text . - (Policy information / International Policy Analysis Unit)
Demokratie erhalten in der globalisierten Welt
Electronic ed.: Bonn : FES Library, 2002

© Friedrich-Ebert-Stiftung

Between the Dictate of World Markets and Undemocratic Global Governance

The global integration of markets for goods, services and finance threatens to diminish the scope for democratic decision-making. If "the markets" disapprove of a decision they can punish the country and its people much more easily than was the case when markets could be subjected to national rules. The decision about what is acceptable and what is not is no longer taken by the majority of the citizens, but by those who control the production apparatus: the companies (i.e. their owners or their managers). If necessary, they will shift production – and thus the sources of income of many citizens – across to where profitability is higher. The will of the majority is replaced by a sanctioning power deriving from international mobility. Those who cannot move are forced to give way.

But the companies themselves are exposed to the pressures of the global markets and have to obey their "dictate". So who are the new lords to whom the democratic sovereign, the people, yields its decision-making power? Ultimately, they are the consumers at home and abroad. It could be said that they "cast their vote" via the market – a different sort of democracy. But there are two reasons why the concept of the consumer democracy does not hold water. Firstly, the voting rights are weighted by purchasing power. Secondly, the consumer is „structurally myopic". He is not usually bothered about the social consequences of his choices. And if he wants to make "social" choices, he has to go against his own direct interest in an optimal purchase price. So giving the market power to determine developments means relinquishing societal control over them and a priori always accepting the cheapest "solution".

However, not even the global market moves in an apolitical space. It takes up the room that is granted to it politically. When decisions are taken on the integration of markets, common rules are always stipulated to „govern" the integrated market. They determine, inter alia, the extent to which the individual state may intervene on the market. There is no market without a politically stipulated market regime. In this respect, governments have not relinquished control. But the powers which build the framework within which the market can operate and impact on society are not the constitutionally anchored democratic decision-making processes. Instead, the processes involve very different majorities than those who decide within democratically organized states. Often, a few powerful states impose their views.

The scope for democratic decision-making is curtailed not only by global markets and their governing rules, but also by other international agreements which co-ordinate the actions of states and people on a transnational basis and thus subject them to rules. This sort of global governance is coming to impinge on more and more aspects of life, because problems which need supranational – and, in the extreme case, global – solutions gain in importance.

The loss of sovereignty by the nation state in the wake of globalization represents a loss of democracy, since it shifts decisions to levels at which the democratic sovereign, the people, has little or no say in what happens.

Democratic Globalization rather than Disintegration of Global Markets

So do we simply need to accept the fact that anonymous market processes, blackmailing by the internationally mobile winners of globalization, and international sets of rules are increasingly depriving the people of its democratic rights? One answer would be: the citizens will demand the return of the lost political power. People's desire for political self-determination will impose limits on globalization. Some people take comfort in this idea. Others find it worrying. For them, a chain reaction of protectionist isolation would be an economic disaster which might easily be followed by political disaster. The world economic crisis of the 1930s provides the corresponding paradigm. So the advocates of globalization must have an interest in taking the edge off the conflict between the global market and the democratic principle.

Optimists might expect that the prosperity deriving from globalization is valued more highly than the loss of a few political options. Globalization would then be justified by the output (prosperity) rather than by the input (democratic processes). To date, however, the advantages of globalization are not sufficiently manifest to exclude the danger of a general backlash. On the contrary! But neither should those who are skeptical about globalization simply rely on a protectionist disintegration of the world markets. The better alternative is the "democratization of globalization", the formation of democratic decision-making structures for the globalizing world. Here, progress is possible on three fronts:

  • National decisions can be made more resistant to globalization.

  • The options for partial withdrawals from globality can be extended (à la carte globalization).

  • Supranational democratic decision-making processes can be developed.

Advances on these three fronts would complement – not replace – one another: they address separate aspects of the problem.

Making National Policy Decisions (World) Market-proof

Globalization enables the rich to escape the decisions taken by national majorities on the redistribution of wealth. The only way to stop this is for the powerful countries to act together.

But there is another fear: that globalization will result in a general „race to the bottom" and will thus destroy the welfare state. This fear is unfounded since, if well organized, the welfare state does not represent a burden in terms of international competitiveness.

The various security systems known collectively as the "welfare state" imply a decision on the subdivision of the wage, not its level: part of the wage is available for direct individual consumption, part goes into provision for old age, sickness, unemployment, invalidity. Another part – by far the smallest in all welfare states – is used for solidarity with less well-off fellow citizens. How the overall wage, the level of which is determined via the labor market and its negotiating structures, is divided up between these three purposes is a political decision made independently of the level of the wage. If the political will is there, it is possible to divert part even of very low average wages for welfare provision and solidarity. But it is also possible to involve all citizens, not only those who earn a wage income, in the financing of welfare-state-based provision and solidarity by means of the various taxes that they pay into the general state budget.

It is important for the political question of how to divide income between free disposition, obligatory welfare provision and contribution to public tasks (which include solidarity with the economically weak) to be kept separate from the economic question of what wage level the market will bear. It should be clear to the citizens that welfare-state protection is a matter of setting priorities, not of being able to afford certain expenses. The concept of employers' welfare contributions (basically a fictitious variable) tends to confuse the question of labor costs and the subdivision of income. And this can then mean that the costs of the welfare state do conflict with competitiveness.

All the expensive rules benefiting workers – holiday, parental leave, etc. – can be expressed as a component of the effective average hourly wage. Correspondingly, it is possible to take political decisions about them irrespective of how the country is faring in terms of international competition. There is no immanent conflict here with the interests of capital and thus there are no unavoidable grounds for internationally mobile companies to "outvote" the will of the majority.

The same goes for a large part of the costs to preserve the environment. If the citizens feel it is worth spending something on the environment, they can do so by using tax-payers' money to subsidize the production costs down to the level of the less "environmentally aware" world market, and/or pay the higher prices for "cleaner" products as consumers (with a corresponding levy along the lines of value-added tax being imposed on imports). Of course, they can also permit particularly highly polluting industry to shift its production abroad.

As a footnote, it is worth saying that intact social security systems increase people's readiness to face up to the unpredictabilities of the open world market. They protect globalization from a citizens' revolt.

Providing for Exit Options

International market regimes (in particular the world trading system) oblige the individual country to accept market results which do not always correspond to the will of its citizens. However, each international market regime in principle provides an exit option. No country has to take part. Rather, the unrestricted right to intervene politically in the market has been deliberately relinquished in order to safeguard the long-term and comprehensive advantages of a universal and reliable market system. The disadvantages of staying outside are regarded as worse than the restriction on scope for policy-making under the discipline required by the regime.

However, this in itself is not enough. From the vantage point of the regime and all its beneficiaries, it is necessary to ask whether the discipline may not be too strict, in order to prevent a revolt by the national electorates/parliaments/interest groups in the long term. From the vantage point of the individual countries and their citizens, it is necessary to ask whether the sanctions incurred by breaching the discipline cannot perhaps be reduced in order to enable greater scope for policy-making. The first vantage point is concerned with the future of globalization, and the second with democracy in the globalized world.

The extent to which breaches of discipline are sanctioned depends partly on how the regime is shaped. For example, it could be left up to the member states to decide the extent to which they wish to subject themselves to the regime. The privileges offered by the regime to its members would then have to be graduated correspondingly. A relatively flexible regime which offers options for partial withdrawal impinges less on the scope for domestic democratic decision-making. It may be that such flexibility can increase public acceptance of relatively open global markets.

Beyond that, there is the question of how immune a country is to the sanctions imposed by the regime – in the extreme case, exclusion from the regime. Here, large countries (the US!) are generally at an advantage. Since they are less dependent on the world market, trade disadvantages play less of a role in the cost-benefit comparison behind domestic decision-making than in the case of small countries which are highly dependent on the world market. Viewed in these terms, the association of states to form larger state units (the EU) would be one way to maintain scope for democratic decision-making in the globalized world.

Whether or not this makes economic sense is another question. The call for the widening/safeguarding of scope for democratic decisions can be set against the argument that enforced discipline from the market ensures the highest level of prosperity in the long term. The related political position requires the self-disciplining of government by subordination to a – good – market regime. But anyone maintaining this argument should distinguish between temporary unpopular adjustment costs which need to be implemented in the interest of long-term welfare, and genuine political preferences (e.g. for a clean environment or for greater equality). The global market regime should allow as much scope as possible for the latter (e.g. by permitting a compensatory tax on pollution-intensive imports).

Developing Supranational Democracy

Still, the problems which cannot (any longer) be resolved at national level are increasing in significance. This is not readily compatible with the democratic principle that power rests with the people. The customary approach to international agreements grants national parliaments the right to veto solutions, but not really to shape them. International negotiations aim at consensus, and where this is lacking, the problem tends to remain unresolved. An odd combination of relatively uncontrolled government action (undemocratic) and a relative inability to make decisions (ineffective)!

The solving of problems needs majority decisions. But the principle of „one state, one vote" is not compatible with the basic concept of democracy. On the other hand, the principle of „one person, one vote" means that people will have to accept being outvoted by foreign majorities. How can this willingness be developed?

Certainly, undemocratic governments cannot be allowed to vote on behalf of their populations in international arenas. National democracy is a precondition for participation in international democracy. But beyond that, there must also be a feeling of communality.

We are unlikely to see a world „demos" for a long time. But the shared destiny, the communality that is invoked by the concept of a nation forming a democratic citizenry can also be understood as partial, to mean e.g. that one is „sitting in the same boat" in terms of certain problems, that joint solutions are needed and that the insistence on sovereignty (i.e. the refusal to accept being outvoted by foreigners) will mean that urgent problems are left unresolved. With regard to such problems – and only in this regard – democratic governments can agree on taking the inevitable, but nonetheless contentious, decisions in a democratic manner.

The European countries have started out along this very path. They are benefiting from the fact that not only can they mobilize the abstract communality of new problems which exceed the power of the individual country, but that they also have a deeper feeling of sharing a common culture, of belonging to a community of values, to a historic community, or whatever one may wish to call it.

But the European example also shows how difficult it is to make progress along this path. The nations are very hesitant to relinquish even a part of national sovereignty. The inevitable consequence is, however, that the solution of problems regarded as pan-European is left to intergovernmental negotiation processes and all their democratic deficiencies.

But it is not only the national „sovereignty reflex" which hampers progress towards the supranational democracy that would be appropriate in view of the supranational problems. The powerful nations (the G7) have an interest in the existing decision-making structures, which ensure that their influence is greater than would be the case under democratic procedures.

The Direction for the Future: Superstate and Subsidiarity

In many questions, and particularly distributive questions, the nation states can, if they go about it properly, realize the will of the majority even in the context of integrated world markets. Nevertheless, the demand for supranational decisions is growing (this includes international regimes to which states subordinate themselves and which can be designed in various ways). These decisions can only be taken in a democratic manner if sovereign rights which are traditionally allocated to the state are selectively transferred to supranational bodies. Seen in this way, the preservation of democracy in the globalizing world is tied to the formation of supranational statehood. But that is far from implying the demise of the nation state. Different groups of people will continue to be able to give their own answers to most questions, even in the globalized world. The symbols of identity, too, can well remain at the level of the nation state, i.e. of relatively small political entities. This concept of subsidiarity would need to be strengthened simultaneously with the development of global governance structures.

Alfred Pfaller

Friedrich-Ebert-Stiftung, 5310 Bonn, fax: 0228 / 883 625, e-mail: PfallerA@fes.de

© Friedrich Ebert Stiftung | technical support | net edition fes-library | Februar 2002