The New World Order Incorporated: The Rise of Business and the Decline of the Nation State
Schmidt examines the effect of the current trends of the global economy on the nation state and societal groups within it. He argues that the policies promoted by regional and interantional organizations (EU, NAFTA, World Bank, IMF, WTO) as well as the internal economic and political reforms (privatization of enterprizes, deregulation of the economy , decentralization) have given unprecedented freedom to buisness actors (particularly transnational corporations) to the detriment of the autonomy and power of the Nation-state. For Schmidt the latter is clearly “in decline” or “on the defence”, a fact which notably reflects on a weakening of the voice of the people through legislatures and non-buisness, societal interests.
Schmidt addresses a common counter-argument according to which states will actually profit from the regional and interational organizations as this will strengthen the executives in individual nations. Schmidt grants that the executive may me strengthened but autonomy diminishes as governments can no longer afford unilateralism (they always have to negotiate with others their policy-choices). Regionalism and multilateralism limit the control national governments have over their territory and over the activities of their multinationals elewhere. They simultaneously lose policy tools and resources formerly employed to avoid domestic crises (unemployement, balance of power disequilibria, etc). By weakening domestic legislatures as well as the voice of domestic groups the new economic system is infact threatening deliberative democracy (cf. P2 :“Overall, however democracy is at risk”). Schmidt later returns to this argument when he talks of the democratic deficit of the EU. Thus the real challenge becomes how to ensure that “nation-states provide for new vehicles for democratic expression at the national level and for access to supranational decision-making.
Pressures on the Nation-state by the rise of buisness:
In the 90s, multinational cooperations have come very close to the “stateless ideal”. Statelessness manifests itself in a) the dispersion of operations; b) the loss of loyalty to home or host country when it comes to jobs and operations and c) the ability to avoid taxes. Furthermore Multinationals have gained considerable influence on decision-making at the supranational level both through their governments and through direct lobbying to the bureacracies of supranational organizations such as NAFTA and EU. (His examples of “Eurocrats” are I think pretty accurate). Nevertheless despite the rhetoric that creates the opposite impression, multinationals maintain significant links with their countries of origin.
Pressures from the Rise of Supranational Organizations:
NAFTA, the EU and the WTO have all been seen as a threat to the sovereignty of the state. We are reminded that the results of various post-Maastricht referendums accross Europe ranged from a close affrimation to a clear rejection. And US Congress has repeatedly objected to decisions at the WTO, on the grounds that they undermine US trade interests such as the famous Super 301, the article in the US constitution, according to which the US can impose unilateral trade sanctions on other states, if vital American interests appear to be threatend. The main difference between the EU and NAFTA is that the latter is lacking an ellaborate institutional setting that allows states to have an autonomous saying in the reaching of aggreements. But the EU has been equally unsuccessful as NAFTA in linking trade- with labor issues and guaranteeing some basic rights and common standards for workers. Most importantly power has shifted away from the nation to the supranational (EU) institutions with respect to the Economic Regultion area. By relinuishing control over exchange rates, the opening of financial markets, and price controls, have lost autonomy over economic policy. This has been coupled by an increase of the EU executive (Comission) and judicial (ECJ), while the Parliament has near-zero power.
National Responses to the Pressures:
The responses of states to these pressures vary according to a series of factors, such as a) the particular state-society relation (corporist, statist, pluralist), b) country size, c) culture and history, d) governmental structure (federal or unitary), e) capacity to reform, f) labor history (conflictual or not) and organization (cohesive or fragmented) g) buisness size and organization and orientation (domestic or international. Overall, Schmidt talks of a democratic deficit as corporations increase their autonomy and power, states strengthen their executives to the detriment of legislatures and the voice of societal interests, and especially labor who find themselves increasingly excluded from decision making both at the domestic and supra-natural levels.
The dissatisfaction with this exclusion has become a potentially disrruptive force. In smaller Europen countries such as Netherlands, Austria and Sweden the dissruption has talken the form of an unbalancing of the traditional corporatist system. Unable to resort to public spending and cetralized “class compromise” these states can with great difficulty proceed along corporatist lines. In Germany, dissruption has been felt less and corporatism has provenmore resistent. This was due to its central role in EU institutions, the importance of its currency, the degree of industrialization, as well as the size and diversity of the German Economy. Dramatic changes have occurred to France, which had to change its economy from a statist to a market one. The 1990s saw the end of the traditionally French economic system of dirigisme, according to which the economy had been directed by the state, allowing for flexibility at the implementation stage so as to satisfy societal interests. As result of the increasing freedom of the state this system is at risk. Britain has witnessed little disruption because as a traditionally laissez-fair state, Britain anticipated the changes called for by the EU. Italy has failed to implement the necessary reform due to the peculiarities that characterized its political life: corruption, combined with partitocrazia (party-dominance) and parliamentary paralysis; in other words a statist, but weak policy-making. Japan also has been receiving pressures to change her idiosyncratic statism, founded on leadership by elite civil servants and a close relationship between buisness and government, with the second guaranteeing cheap credit and a bail-out in case of bankruptcy. Pressures for change are coming both from the outside (Bilateral trade agreements with the US and multilateral aggreements within teh WTO) and the inside (the economy’s move from manufacturing towards service and information-based industry). Due to its hegemonic position in the world economy the US has felt the least ammount of change, since it is a source rather than target of these pressures. However some changes can be seen, in American shift from a quasi-statist (tension between domestic-orientated Congress and international-oreintated executive) to a pluralist model, since American societal interest-groups enjoy privilleged lobbying access to the most powerful national government in the world as well as international organizations.