«The globalization paradox». Reflections and findings from Dani Rodrik’s work.

by Francesco Capriglione       

Abstract: The relevant socio-political implications connected to the significative changes of the global economic situation produced by such phenomenon need to be verified. In this regard, the analysis of the relationship between market globalization and political institutions carried out by Dani Rodrik appears to be crucial. The concrete solutions seek to guarantee democratic accountability by limiting the negative impact of the phenomenon under exam in relation to the possibility for each nation to autonomously determine its own way for development and well-being. Rodrik suggests the well-known «trilemma of the world economy», according to which the impossibility of simultaneously pursuing democracy, national self-determination and economic globalisation must induce countries to make choices. An intelligent globalisation must allow the pursuit of the return of power to national democracies in such a way that a more solid basis for the world economy is guaranteed, by the implementation of a restrictive revision of international rules, in order to leave adequate operating space to national governments.

Summary: 1. Introduction. – 2. The issues connected to globalization. – 3. Continued: in particular the limits concerning mechanisms for the government of economy. – 4. Market globalization and political institutions in the analysis of Dani Rodrik. – 5. Continued: the «European dilemma». – 6. Conclusion.

1. I accepted with strong interest the advice of Giancarlo Montedoro to arrange a debate between economists and legal scholars on globalization, keeping in mind the effect that the theory of ‘smart globalization’ – which is at the basis of the seminal work of Dani Rodrik – has on such phenomenon. I believe that a common reflection from scholars coming from various disciplines can contribute to clarify the complexity of this peculiar time we are living, where the uncertainties derived from a slow economic process raise questions of different nature related to some political views which tend to mark a turning point in the traditional definition of «form of government».

More specifically, an analysis of the abovementioned phenomenon – which shall not be limited to the mere assessment of the gradual increase of economic and political relations between States occurred in the last decades – is absolutely relevant. Indeed, such analysis – if restricted in these terms – would allow to focus the new opportunities of growth that, following the globalization, interest all countries of the world^[1], but, on the other hand, would exhaust its function in identifying the operative process that characterizes the increasing integration of capital markets and in influencing the definition of the conditions which are at the base of the stability of economic systems. Therefore, even if an analysis which allows to understand the financial reality – and, in particular, the problems related to gaps of growth, to insufficient incentives deriving from lower interest rates, to uncertainty of relation between growth of economy and credibility of politics^[2] – is worth, it cannot be exhaustive because it provides only a partial view of the effects of globalization.

2. In this context, the relevant socio-political implications connected to the significative changes of the global economic situation produced by such phenomenon need to be verified. It has been argued that, as a consequence of the reduction of distances caused by the technologic revolution and the reduction of costs of transports, goods and persons^[3], a «new middle class»^[4] without territorial locations emerges, addicted to the «liquid modernity» life style ^[5], able to quickly move from one place of the globe to another, living in what Marc Augè defines «non-places or unknown places» standardized in the world (airports, hotels, etc.)^[6]. In the perspective of such middle class, multinational corporations appear to be the leading actors of global economic expansion.

It derives the complexity of the examined situation. Further, the relationship between various realities and the increase of competition due to the globalization of the economy are associated to a different behavior of market actors who must face relevant risks (such as the risk of market turbulences), and to the limits of international institutions (whose role is characterized by forms of intervention of mere formal nature). It follows the identification of criticisms which move from the substantial reshaping of domestic productions to the nexus between economic growth of few States and the relocation of industries in emerging countries with lower labor costs (which, as a consequence, see the possibility of their autonomous development reduced). In this scenario, the increasing flows of irregular immigration (that lead to a path of «hope» fostered by illusory expectations of wealth) and the subsequent difficulty of a resultant «hospitality» that ensure conditions of common growth need to be considered as well since they contribute to create – from an ethical point of view – forms of extreme individualism and an unscrupulous cynicism which often translate into the dehumanization of personal relationships.

It is self-evident that, at present, the global market induces the research of interpretative methods applicable to the socio-economic reality and implies a regulatory system which should be aimed at identifying effective financial mechanisms based on a normative system characterized by rationality and fairness. In other words, the need to identify an agere criterion which, projected in an international context, implies (with reference to the action of single States) transparency of conducts and the respect of counterparties is perceived with much more pressure in an operative framework qualified by professionalism and by the preparation of a code of practice.^[7]

3. On the other hand, the creation of a globalized market reflects the characteristics of a new ius publicum, «of modern imperium maritime investigated by Schmitt, without limes, without fixed boundaries, but based on the hegemony of a way of production, based on exchanges, on progress of lex mercatoria».^[8]  Indeed, globalization, on the one hand, acts as an incentive to enhance financial innovation (determining growing interdependences between market actors), but, on the other hand, determines the depersonalization of social relations. Such phenomenon affects the concept of civitas, in which – because of the diffusion of a generally homogeneous organizational model – the rights of communities tend to a minimal level of services, which, however, may present some exceptions.

Hence, the crisis of the fundamental framework on which the modern legal positivism is based – centered on the «unity of law» as an essential aspect of completeness of legislation – emerges.^[9] In particular, there are problems related to the structure of a legal polycentrism linked to the processes of globalization which is often hard to analyze under the light of past experiences of systems centered on sovereignty of state–nations. On the contrary, it seems clear that economic expansion is not only subject to market rules, which are unsuitable to ensure appropriate guarantees for all the members of civil society. Specifically, while evaluating the European context, the harmonization of domestic regulations shows inherent limits; furthermore, the options allowed to member States in the implementation of directives and their different transposition at the national level affect the ‘system of legal sources’, undermining the so-called juridical convergence (obstructed by the presence of intrusive control of effectiveness of the normative process, traditionally carried out by the political power).^[10]

In addition, the clear changes in the public sphere should be mentioned. With the new economic constitution, based on principles of competition and market, we assist to a reshaping of the relationship between public and private, as well as of the administrative architecture. This distinction tends to progressively fade, causing indirect implications on the framework of results achieved by political regimes of various countries (in particular: the research for proper equilibrium between protection of the individual and safety of community values). The fact that the changes provided by globalization to international financial system stimulate the research of higher levels of efficiency cannot be neglected. In particular, efficiency is reached through competition between intermediaries and elaborated forms of risk allocation. In addition, the intense acceleration of the «process of financialization» in all economies should be underlined since, if excessive, it determines the disconnection of market activity from reality and contributes to spread a short-term perspective in all the players involved who expect benefits which may derive, for example, from a fluctuating variation of share prices.^[11]

This operative context – even if intended to reflect positively on real economy – is not exempted from the imbalances caused by the growth of financial relations between countries in different conditions. The global market, despite an increase of production and consumption (adequately supported by a greater mobility of savings and by a significative contribution of funds to investments), still exacerbates the condition of dependence of certain countries against others (notwithstanding the expansion of developing countries productive capacity).

Therefore, the relevant opportunities of growth achievable by those countries are counterbalanced by negative effects. First of all, the risk of financial instability, which results amplified as a consequence of the fact that the extension of operativity on more markets determines the amplification of risk of shock that may spread producing a dangerous domino effect. The need to govern globalization in the examined context is a problem of fundamental relevance, which implies the possibility for fragile economies to recover and, more in general, the start of a phase of development of international systems which may determine the achievement of social objectives through a more equal division of the resources of the globe.^[12] In this perspective, the circumstance that the analyzed process deteriorates in a wild liberism that leaves unchanged or exacerbates the inequalities between States and between different areas of planet shall be avoided.

In light of the above, the considerations formulated a few years ago by Giuseppe Conte in a seminal work where I acted as editor seem to be relevant. In order to illustrate the ‘new paradigms of legal and economic research in the era of globalization’, Giuseppe Conte emphasized the need to open a dialogue between «ethics law and economics» because «ethics introduces the principle and the practice of responsibility. Responsibility towards other citizens of the world, towards future generations and towards the entire context of biosphere». This is the premise for a plausible return of the politics to «that ability of synthesis and choice … that arises from the foresight of thought and from the capacity to turn the initiatives to the benefit of entire collectivity».^[13]

4. The inequalities caused by globalisation, the exploitation of labour and the poverty resulting therefrom, the undue profits of multinational companies which often take advantage of the economic processes thus triggered, the openness towards financial crises and other critical elements that characterize the phenomenon under exam have been subject to extensive analysis in literature. ^[14] The inadequate response of governments to the excesses of globalisation (especially in terms of social divisions and failure in establishing fair distribution processes) contributes to increase the intrinsic ‘destructive’ nature of globalization, and raises the problem to identify possible remedies for the preservation of democracy, without prejudice to economic progression.

In this regard, the analysis of the relationship between market globalization and political institutions carried out by Dani Rodrik appears to be crucial. The concrete solutions seek to guarantee democratic accountability by limiting the negative impact of the phenomenon under exam in relation to the possibility for each nation to autonomously determine its own way for development and well-being.^[15]

Rodrik’s mindset is focused on the connection between capitalism and democracy which has traditionally long characterized the essence of a model in which the socio-economic order is linked to the typical logic of liberal democracies. Indeed, the Author argues that it is possible to tolerate the process of ‘creative destruction’ induced by globalisation provided that political regimes are able to guarantee shared benefits, subject to the application of (technocratic) rules set out by a global government.

Hence, therein lies the «paradox» – pointed out by Rodrik – which consists in the conditionings – to which the positive function of the phenomenon under consideration is subordinated – deriving from the necessary uniformity of the aforementioned rules. This represents the logical premise in order to recognize a conceivable waiver of national sovereignty by the States and the possibility of autonomously determining the management guidelines of their economy. The reference to the difficulty of achieving this goal induces our Author not to consider a hyper-globalisation as unattainable tout court, having to clarify first some questions about the possibility of «restoring a healthy balance between national governance and global governance».^[16]

While finding out the answer to such questions, Rodrik takes into account the socio-political reality that characterizes the current pluralistic system where «the various States keep having a sufficient degree of autonomy to resolve upon their social contracts and develop their own economic strategies». It follows the proposition of the well-known «trilemma of the world economy», according to which the impossibility of simultaneously pursuing democracy, national self-determination and economic globalisation must induce countries to make choices. If we want globalisation to progress – states Rodrik – we must choose between the different models of the nation-state or political democracy; and indeed, if «we want to defend and extend democracy, we will have to choose between the nation-state and international economic integration. And if we want to preserve the nation-state and self-determination, we shall make a decision between strengthening democracy and strengthening globalisation».

There is no point in stressing the complexity and difficulty of the way indicated by Rodrik, whose construction interacts on the problematic issues which, in recent times, have affected our country. The following is considered: (i) the criticism towards the technocratic elite due to its tendency to pursue hyper-globalization without adequate evaluation; (ii) the unknown variables of a sovereign logic aimed at the bringing to light national-statist concepts neglecting any possible negative repercussions of this political option; (iii) the prospect of an economic downsizing – related to hypothetical forms of ‘happy degrowth’ – inspired by the view of Serge La Touche, which is aimed at concreteness for the realization of a socio-economic egalitarianism, levelled downwards^[17].

Rodrik does not hesitate to clarify that in «combining market and democracy integration»^[18], the protection of social systems, in the presence of possible conflicts with the necessities of global economy, leaves no room for the need to proceed to the retreat of the latter. An intelligent globalisation must allow the pursuit of the return of power to national democracies in such a way that a more solid basis for the world economy is guaranteed, by the implementation of a restrictive revision of international rules, in order to leave adequate operating space to national governments. This construction may tend to overcome the negative aspects of an ‘extreme globalisation’, without affecting the economic benefits deriving from it, even if the suggested recipe could be mistakenly maintained as supporting populist positions, while the proposition of a less binding international regulatory system relies on the foundation of sovereign theses aimed at renouncing to political economy.

In particular, Rodrick’s writings essentially aim at criticizing the strict neoliberalism dogma. He is fully aware that his analysis concerning the negative aspects of globalization could offer useful arguments to protectionists’ positions, namely to the populist demagogues.^[19] Therefore, he does not fail to emphasize that the maintenance of democracy implies the waiver of economic sovereignty in order to build a democratic space above the level of Nation-State.

There is no doubt that the crucial aspect of his research consists in finding out a rational point of equilibrium between economic progress, democracy and safeguard of national characteristics. All of the above is in accordance with what long time ago Hayek said, namely that, in a federation of national States, the difference among interests is larger than within a single State while, at the same time, the feeling of belonging to an identity through which overcome the conflicts is weaker.^[20] Therefore, even the opinions of those who see the possibility to overcome the dichotomy between international markets and national laws by adopting more international rules through the Institutions governing global markets contrast with Rodrik’s view; these opinions, in turn, show a clear distrust in the national laws, the regulatory limits of which are considered to be among the main reasons of the global financial crisis.^[21]

Clearly, many have not realized that the primary purpose of our Author is to achieve a more ‘human’ and politically acceptable version of the globalization in relation to a renewed relationship between national entities and supranational entities. The pattern arising from his view may be realized through a sovereignty reduction to be achieved by means of the so-called democratic delegation, namely the self-limitation of sovereign entities’ powers in light of the achievable benefits. It is not a coincidence that this view is led by the American example, in particular looking at the relationship between Federal dimension and State dimension, which is often taken into account in his writings!

5. I will conclude these considerations by mentioning the impact of Rodrik’s theories on what he defines as the European dilemma, only after having underlined the difficulties – in terms of governing capacity and democracy – arising from the process of economic integration.^[22]

It is well known that the European Union is currently divided between national-statist centripetal tendencies and the expectations of reforming the Treaties according to a more federalist and liberal-democratic logic. In the first case, the purpose of achieving progressive forms of cohesion induces to modify (rectius: to erode) from the inside the neo-functionalist setting, whereas, in the second case, the intention to maintain the values of cohesion and solidarity among people of the different Member States emerges.

Hence, the question is how to avoid anti–democratic drift risks which can end up in dissolving the EU, by ensuring, on the opposite, a ‘new’ path of unitary growth that in turn will create a social status and economic conditions which are suitable for the competition with the other giants of the global era.^[22] The solution that has been proposed by Rodrik, according to his reconstructive logic, is of clear simplicity and consists in transferring part of national sovereignty without giving up democracy. The reference to the principle of subsidiarity – characterizing the EU’s structure – is useful, since it allows self-regulation at local level and, at the same time, contributes to the creation of a common market, by limiting the European Union’s functions to the regulation of the cross-border dimension.^[23]

This is therefore the ‘Gordian knot’ that politics should untie: making a difficult choice, based on the knowledge of the different possible outcomes and consequently based on the convincement that sincerity towards voters (to use a Rodrik’s expression) is betrayed if democratic statements which are not compatible with the above mentioned ‘trilemma’ are made. Perhaps, the real essence of ‘change’ lies in the ability to find out a suitable solution, also by giving up previous strategic preferences if necessary. This has been for long time a flag waved by populist movements, which have become popular over the last few years.

6. In light of the above, it is clear that, in Italy, Rodrik’s theories are particularly interesting since they seem to contribute to the reflection and clarification concerning the difficult choices which – as I underlined at the beginning – should be made by politics in this difficult period of ‘transition towards the new’.

In this regard, those – like me – who have believed (and still believe) in the building of a more unified Europe and, therefore, in the completion of the project started half century ago – certainly hope for the affirmation within the Union of a pluralistic context based on a democratic logic and for a better economic integration based on both cohesion and solidarity. And these objectives should avoid intermediate solutions, which are considered by Rodrik inadequate and inefficient.^[24]

Author

Francesco Capriglione is Full professor of law and ecoomics, Università degli Studi Guglielmo Marconi, Roma.

^[1] See Prasad-Rogoff-Wei-Kose, Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, LMF Occasional Paper, No. 220, 2003.

^[2] See Asso P.F., Globalizzazione reale e globalizzazione finanziaria: aspetti teorici e problemi di regolamentazione, in Ragion pratica, X, 2002, No. 18. At the institutional level, the reflection must be focused on the possibility to recognize permanent validity to the global economic order that lies in the management of monetary and economic relationships (FMI, General Agreement on tariffs and trade-GATT, World Bank). It seems self-evident that the realization of the «single currency», on the one side, and the crisis of communist regime, on the other side, call for a definition of the examined reality, subject to the specification of roles and competences of individuals which, in the new international context, are called to carry out relevant functions. See on this argument Prasad-Rogoff-Wei-Kose, Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, LMF Occasional Paper, mentioned.

^[3] With the achievement of an integrated system of telecommunications improved by the information technologies we experience a development of new forms of commerce on «cyberspace»: on this discussion see Rifkin, L’era dell’accesso, Milano, 2000, passim, but in particular 22 and following; Alpa, Relazione introduttiva held at the conference “Cyberlaw. Problemi giuridici connessi allo sviluppo di Internet”, organized on 9 July 1998 by the Cnel with the support of the Lawyers Council of Rome.

^[4] See. Deaglio, Postglobal, Bari, 2004, where it is observed that globalization makes sense and advances only if the costs of production are lower than the costs of transport.

^[5] See Bauman, La modernità liquida, Bari, 2002, who, in light of this terminology, underlines the metamorphic nature of modern humanity which releases from predetermined social roles as a member of a community, and becomes an individual who acts in the absence of norms moving from a material state to a liquid one.

^[6] See Augè, I non luoghi, Milano, 1996.

^[7] See Capriglione, Etica della finanza mercato globalizzazione, Bari, 2004, Chapter V.

^[8] On the themes of globalization see Montedoro, Attualità di Carl Schmitt nella lettura di Giannini e Nigro, available at http://www.giustizia-amministrativa.it.

^[9] See, inter alia, Balley, Le Droit comme terra incognita: Conquerir et construire le pluralisme juridique, in Rev. Canadienne droit et societè, 1997, 1 and following.

^[10] See on this argument Cassese S., Quattro paradossi sui rapporti tra poteri pubblici ed autonomie private, in Riv. trim. dir. pubbl., 2000, 390 ss.; Vilella, Dove va lo Stato contemporaneo?, in Riv. it. dir. pubbl. comunit., 2000, 43 and following.

[11] See. Capriglione, Mercato regole democrazia, Milan, 2013, 19.

^[12] See Onida F., La globalizzazione aumenta o riduce disuguaglianze e povertà?, in Il Mulino, 2002, No. 1.

[13] See I nuovi paradigmi della ricerca giuridica ed economica nell’epoca della globalizzazione, in Aa.Vv., Finanza impresa nuovo umanesimo, Bari, 2007, 139 and following, in particular pages 161-162.

[14] See Stiglitz, La globalizzazione e i suoi oppositori, Turin, 2002; Id., La globalizzazione che funziona, Turin, 2006; irti, Le categorie giuridiche della globalizzazione, in Riv. dir. civ., 2003, 1, p. 625; prasad-rogoff-wei-kose, Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, LMF Occasional Paper, mentioned; Galgano, La globalizzazione nello specchio del diritto, Bologna, 2005; Esposito, Istituzioni economiche internazionali e governance globale, Turin, 2009.

[15] See, among the other works of Rodrik, Has Globalization Gone Too Far? Institute for International Economics,1997; Id., The Globalization Paradox. Democracy and the Future of the World Economy, 2011. (Italian translation by Cafiero, La globalizzazione intelligente, Bari, 2015); Id., Dirla tutta sul mercato globale, Turin, 2018 (Italian translation by Restani).

[16] See Rodrik, Dirla tutta sul mercato globale, quote p. 15.

[17] See, in particular, Breve trattato sulla decrescita serena, Italian translation by Grillenzoni, Turin, 2008, passim.

[18] See Rodrik, Dirla tutta sul mercato globale, cit.

[19] See Rodrik, Populism and the economics of globalization in Journal of International Business Policy, 2018, available at https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/ populism_and_the_economics _of_globalization.pdf.

[20] See Rodrik, The Economic Conditions of Interstate Federalism, Chicago, 1939, p. 121.

[21] See Lastra, The Globalization Paradox: Review of Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy, International Journal of Constitutional Law, 2013, p. 809.

[22] See supra note 3.

[23] See Rodrik, supra, p. 66.

[24] See Rodrik, supra, p. 67.