Reference: Rankin, Keith (1999) "Economic Internationalism", New Zealand Political Review 8(4):14-18.
Keith Rankin, September 1999
Internationalisation vs. Globalisation
"Globalisation, considered by many to be the inevitable wave of the future, is frequently confused with internationalisation, but is in fact something totally different. Internationalisation refers to the increasing importance of international trade, international relations, treaties, alliances, etc. Inter-national, of course, means between or among nations. The basic unit remains the nation, even as relations among nations become increasingly necessary and important. Globalisation refers to global economic integration of many formerly national economies into one global economy, mainly by free trade and free capital mobility, but also by easy or uncontrolled migration. It is the effective erasure of national boundaries for economic purposes."
Herman Daly, "Globalisation vs. Internationalisation" from a talk given in Buenos Aires, November 1998. [http://news.flora.org/flora.mai-not/8010]
"The English classical theory of international trade ... has always rested upon the distinction between external and internal mobility of [labour and capital].... The classical theory assumes as fixed, for the purposes of reasoning, the very things which, in my view, should be the chief objects of study."
John H. Williams, "The Theory of International Trade Reconsidered", Economic Journal 1929.
The argument for free trade between nations is widely misunderstood by both advocates and opponents of free trade. John Williams' seminal critique has been, by and large ignored by the economics profession. Economists continue to use the political nation as their core unit of analysis of the international economy.
The classical theory of international economics assumes that the global economy is a community of nations, and that nations interact through trade and through war. The theory was developed by David Ricardo during the Napoleonic Wars, when English investment in France would have been a capital crime. In international economics, the nation is an individual, economically rational entity; economic man writ large. Unlike intranational economics, however, international economics is the economics of a community without a government. The world economy is an anarchic community of nations.
The theory that underpins free trade has changed little since Ricardo's time. It assumes that there is no international investment and no international migration. Hence resources are allocated in accordance with an international price mechanism that is not distorted by capital and labour flows.
The theory assumes that capital and labour are fully mobile within a nation. Thus from an economic point of view, a nation is defined by the territory through which capital and labour freely flow. Nations are defined by the integration of their capital and (to a lesser extent) labour markets. (The American Civil War occurred in part, because a part of the American political nation was a part of the British economic nation; it supplied Britain with its raw cotton. The southern Confederacy went to war fully expecting Britain to intervene on their side.)
Economic nations are different from political nations, but you don't get to appreciate that from an undergraduate course in international economics. As Williams noted, John Stuart Mill, in his textbook of classical economics (Principles of Political Economy) put it this way:
"If Manchester, instead of being where it is, were a rock on the North Sea (its present industry continuing) it would still be but a town of England, not a country trading with England; it would be merely, as now, a place where England finds it convenient to carry on her cotton manufacture. The West Indies, in like manner, are the place where England finds it convenient to carry on the production of sugar, coffee and a few other tropical commodities. All the capital employed is English capital; almost all the industry is carried on for English uses.... The trade with the West Indies is therefore hardly to be considered as external trade, but more resembles the traffic between town and country, and is amenable to the principles of the home trade."
Globalisation represents the economy where the whole planet constitutes a single economic nation. That nation is a very large community of people, an economy of humankind in which the planet itself is the only boundary, and in which all trade would be "amenable to the principles of the home trade" if only the global nation had a government and a social wage. What the two communities - the international community of nations that economists see, and the global community of people that opportunistic transnational businesses would like to see - share is the absence of de jure government. The international economic community of nations and the global economic nation are both anarchies.
Internationalisation and globalisation represent alternative perspectives of economic internationalism. And each represents a state of the world which was more true in some historical epochs than in others. At the end of the twentieth century, national borders matter much less than they did at the beginning of the century.
The main driving forces for the decreased importance of national borders have been technological change (in transport and communication) and the breakdown of traditional values - eg values of racial, sectarian and gender bigotry, as Anthony Giddens noted in the 1999 BBC Reith lectures (www.bbc.co.uk/reith99/) - in favour of cosmopolitan values. Thus globalisation initially owed more to the values of the left than to the right-wing values of finance, imperialism, conquest and tribute. It was Marxian socialism that created the First International, a transnational labour movement.
Interestingly, it was the British Labour Party - from the time of Keir Hardie to that of Ramsay MacDonald - which promoted free trade as an internationalist policy that would keep Britain a cheap food country. In Britain, protectionism was seen by the left as a conspiracy by the landlords to raise the price of food, and hence their rents. Free trade vs. protection has not been a simple left-right issue.
While internationalisation extols the nation-state, and globalisation denies it, both share a cosmopolitan vision of mutual human well-being, and both forms have to deal with anarchy and the destructive opportunism that inevitably accompanies anarchy.
Anarchy, at its best, represents the best of cooperative cosmopolitan values: social and economic equality, inclusiveness, community. Yet anarchy is best known a metaphor for chaos: the breakdown of law, order and social structure. It represents an environment of opportunism, organised crime, cruelty and fear; the worst of the former Soviet Union, Sierra Leone, Colombia. When anarchy fails, it fails big. There is no sanction on whoever defects from the common good; only diplomatic protest.
Does APEC act as a force for international cooperation or for international opportunism? APEC is - or if it isn't then it should be - a kind of interregional economic hui. Cooperation requires contact and communication. Cooperation is built on diplomacy. From such a perspective, APEC represents diplomacy, not conspiracy.
The international economy is actually a reasonably robust hybrid of the internationalist and the globalist interpretations of the world economy. It is a community of a small number of very large economic nations rather than the community of many small nations that is assumed in the economics texts.
Mercantilism is the short name given to the "commercial or mercantile system" that Adam Smith was so opposed to. A mercantilist world was one which was dominated by rival empires, in which the government of each was subservient to big business interests, and in which nations competed by trying to maximise their holdings of 'treasure'. While 'treasure' today means 'foreign exchange reserves' rather than gold and silver, the name 'Treasury' certainly reflects our nation's British mercantilist heritage.
Neomercantilism is best understood as the grouping of the world's many political nations into a small number of large economic nations. The 'capital' nation of any economic nation is just that; the nation that serves as the primary source of capital within each group of nations. An anarchic community of economic nations can function without destructive opportunism so long as there are not too many nations, and those nations all maintain regular contact with each other.
The present world economy contains three established economic nations (USA, Japan, and the European Union), one emerging economic nation (China), one defunct economic nation (Russia), and a West Asian nation centred on Saudi Arabia.
APEC was conceived as a hui through which the American economic nation and the Japanese economic nation would maintain contact and resolve differences. Australia had a particular interest because it identified closely with both economic nations. APEC is more complex now, because of the new situations of China and Russia, now both members. By keeping China and Russia inside the APEC tent, those two can be dissuaded from acting in opportunistic ways that destabilise the world community of economic nations.
Neither the American economic nation nor the Japanese economic nation adopts free trade. Nor are they likely to. In the real world, trade is something that takes place mostly within rather than between economic nations. Global free trade, which is a goal that can never be realised in the absence of globalisation, forms a perpetual excuse to have regular diplomatic hui between economic nations.
I use the term "hui" deliberately, because pre-European New Zealand was an anarchic society of iwi and hapu. Each iwi was an economic nation, and semi-independent hapu were like provinces of those iwi. That anarchy could only work for Aotearoa as a whole through ongoing diplomacy. Once the intangible forces of cooperation were destroyed by the opportunities for opportunism represented by the musket and military alliances with Pakeha, the downside of that anarchy soon took over.
New Zealand's place in the Asia-Pacific-America region
APEC is also a place through which political nations such as New Zealand can locate themselves as hapu within the economic nations of the Asia-Pacific region. Historically part of the British (now European) economic nation, New Zealand became a part of the Japanese economic nation (as in Jim Bolger's "we are all Asians now" speech). Yet in the 1990s, as the American economic nation has waxed and the Japan has waned, New Zealand has crossed that threshold that locates us more in the Americas and less in Asia.
American capital now predominates over Asian capital in New Zealand. We are embarking on more joint ventures with America; eg with California for international kiwifruit marketing. We make films and television programmes together in ways that do not suppress New Zealand culture. Further, New Zealand is becoming much closer to other parts of the American economic nation; eg to southern South America to the extent that there has been talk of Chile and Argentina joining the CER arrangement with Australia.
APEC serves to maintain internal contact within each of the American and Japanese economic nations. In that sense, it is the growing contact between New Zealand and South America that is most important for us. Indeed what is needed is a degree of solidarity between New Zealand and South America to ensure that both share in the rewards that membership of the American economic nation can provide.
Each economic nation represents a form globalisation with just enough government to make it work. The Mexican-American border notwithstanding, the region represents a single labour market and a single capital market. It is an empire in all but name. The issue for us to resolve in 1999, is that of the relationship between the provinces (the principal source of labour) and the capital (sourced mainly in the USA) of the American economic nation. Is it a fraternal empire, or an empire of tribute in which economic and political power concentrate wealth in the capital?
The significance of the "safeguard" tariffs imposed by the US this year is that USA is creating an empire of tribute; wealth (and 'knowledge workers') flow from the relatively poor provinces to the capital-rich centres such as California and Massachusetts.
The contradiction of American trade behaviour can be understood, if we understand that USA relates to New Zealand as its economic tributary, whereas USA relates to the European Union and to Japan as nearly equal economic neighbours (with just enough neighbourly rivalry to keep the World Trade Organisation fully occupied).
New Zealand has little choice about being a province of the American economic nation. Much of New Zealand is owned by or is in debt to Americans. We now relate to America much as Northland and Southland relate to Auckland and Wellington.
What New Zealand has to do, and to do in part through APEC, is to help construct a fraternal empire - an American-Pacific 'commonwealth' - in which there is a more equitable sharing of the income of the American economic nation. That can only be done through 'provincial' solidarity.
The European Union (EU) was founded on the principle of internal equality. In return for some loss of member sovereignty, it pays a substantial social wage to all its members. Further, cultural and political nationalism can thrive in a commonwealth. Italy will still be Italy, and France will still be France, and Scotland will be Scotland; all within a European commonwealth.
The EU is of course defined in a formal way, and African nations which are also a part of the European economic nation are not so lucky. Nevertheless, the EU represents an important example of an economic nation that is strong enough to be able to live securely within an anarchic global community of nations, while drawing its constituent parts into its social wage umbrella.
In the neomercantilist world we actually live in, most trade (and most investment) is internal. It doesn't make a lot of sense to oppose free trade between Auckland and Southland. What does matter is to recognise that there is more than trade that binds Auckland to Southland, and to the other provinces of New Zealand. For us, one of the Southlands of the American economic nation, the challenge is to build an American-Pacific commonwealth that maintains good economic and cultural relations with Asia. The challenge is to get the United States to pay regional dividends to its contributing economic provinces. It is no different, in principle, to the challenge of getting rich people to pay more taxes.
The neomercantilist world economy is structured around a few large economic nations. That is better than the three alternatives: (i) an anarchic world containing many small nations with minimal freedom from the power plays of others, (ii) an anarchic world without nations, or (iii) a world without nations but with a government which could all too easily abuse its considerable powers.
Internationalisation with free trade does not and can not represent the real world. As John Williams showed, the internationalist model assumes the absence of the phenomena that it needs to explain. On the other hand, globalisation, other than as a tendency to foster cosmopolitan values, represents a terrifying prospect of global anarchy or totalitarian world government.
We already live in a 'neomercantilist' economic world that falls between internationalisation and globalisation. Let's push that relatively harmonious position towards an inclusive egalitarian conclusion.
What could be a better vision than that of a global economic community consisting of a small number of large economic nations; of large commonwealths? All political nations - ie countries as we know them today - would belong to a commonwealth. Each commonwealth would eventually have fixed exchange rates, full internal freedom of trade, and investment and labour mobility. The loss of political sovereignty would be no more than that lost by the members of Euroland, the subset of the European Union that has adopted a single currency (the Euro). The gains would be a commonwealth-wide social wage, in each commonwealth.
Free trade, within a commonwealth, can work for the good of all. But it will only work if there is a mixture of services, benefits and subsidies that counter the centripetal flows of wealth to the capital nations of the commonwealths. If the political conditions required to make such internal free trade - the "town and country trade" as J.S. Mill put it - work are absent, then internal protective measures are required to stop the world's wealth concentrating in the world's capital countries; in the USA, Japan, Western Europe and, eventually, China.
With APEC coming, the left in Aotearoa needs to be for something that can work - something with a cosmopolitan rather than a narrowly-focused nationalist vision - and not just opposed to free trade. The left needs to be able to say: "we'll agree to free trade once the conditions are in place by which all nations can prosper from it". Such conditions exist within a genuine commonwealth.
Herman Daly and John Cobb wrote For the Common Good a decade ago. It may be time for someone to write a sequel: For the Commonwealths.
NZPR | Rankin File