Searching for a Theory of
2 Balance of Sovereignties *
By Carlo Pelanda and Paolo Savona
Excerpt from Chapter 2 of the book “Sovranita’ e Ricchezza“ (Sovereignty & Wealth), March 2001
Revised August 2002 by Brian Connerat
* Sponsored by GLOBIS, University of Georgia, Program on The New Global Political Architecture, 2000 – 2005 & Associazione Guido Carli, LUISS, Rome
To help convey the substance of the solution we are proposing to solve the problem of the existing political vacuum, it is useful to start by clearly defining what we mean by terms such as national sovereignty, international cooperation, and accumulation of wealth, the way we use them, and how they should be reformulated to a new political architecture for the global market.
Seen as an integral whole (that is, as a cycle of sovereignty-cooperation-wealth), the three concepts represent the core of the “balanced sovereignty model” on which our proposal is based.
By “national sovereignty”, we mean the opportunity to pursue goals chosen by the population through democratic means. This is not because we hold that the people are always right, as some ideologies maintain, but because we believe that, as Giovanni Sartori has acutely observed, democracy also means that people have a right to be wrong, as long as they are prepared to pay the consequences of their choices. This is another way of expressing what the British Prime Minister Gladstone, equally astutely, observed back in the Nineteenth century, i.e., that all people have the government they deserve, if it is they who chose it.
We are proposing a double mitigation of the people’s right to make the wrong choice: one based on the restrictions imposed by the global market, which is already operating, the other based on the rules established by common agreement, in the framework of planetary cooperation by nation states. Currently, this cooperation only works to a minimal extent and, in any case, is not designed to reinforce popular sovereignty.
Many of the nations that participate in the globalisation process are making the mistake of both over-exerting their sovereign powers, and of transferring such powers without gaining any respective returns. Globalisation is further retarded by the unfortunate likelihood that the two mistakes often co-exist, resulting in sovereignty itself being thrown off balance. We blame this effect for creating the current instability and risks that are bound to grow in the future.
On the conceptual level, our strategy is to redress the balance in national sovereign powers to avoid negative consequences. However, it is necessary to initially codify a type of national sovereignty that is better adapted to the new global system. We need to define more precisely what we mean by “nation” in the new global market. We cannot expect a single global supranational government to be established in a brief space of time, nor do we hope for such a development to occur if it is to be brought about through a top-down approach. Politically, this would be too authoritarian in nature and, on a technical level, its legitimacy would be based too heavily on the threat of force. Therefore, as an option, it would be more inherently destabilizing than constructive.
Besides, a policy of national sovereignty that is excessively closed to the market and global trends would make the overall system inordinately subject to national divergences from the operating standards of the world economy.
A certain degree of differentiation is both welcome and appropriate. But, for national differences to be useful and not to be sources of disorder at their confluence, they should be in the form of positive variants of interpretation of the global standard: that is, nationally appropriate ways of adapting the global standard and appropriating itself to local circumstances. This would have the effect of ensuring homogeneity within greater diversity.
In short, different models of national sovereignty should converge not so much in the direction of a single model, but should interpret locally a standard of reference that has been defined by mutual agreement, on the basis of international agreements embodied in a single prescriptive code, which we define here as a “visible global standard”. By contrast, the world now seems to be governed by an “invisible standard”.
According to our vision, nations could be defined very precisely by specifying their main mission: as bodies responsible for the local maintenance of a healthy component of the global market.
This means having an open rather than a closed national sovereignty. In exchange for the mission of presiding locally over the interests of the world community, there would be recognition of the right of every national community to diversify its own internal political model to adapt itself to the global standard. In this sense, an open national sovereignty model would be transferring its individual prerogatives of territorial control to a supranational body, but the latter would reciprocate in a way that is consistent with global interests and rules.
According to such a framework, we would be redressing the imbalance of the current process, in which the surrender of national sovereignty to the global market is not being compensated by any form of return – which creates the problems we have outlined in the volume “Sovereignty and Wealth” (in Italian, 2001), by reinforcing national powers to adapt a particular place to the wider world.
In theory, the formula of open and internationally balanced sovereignty might solve the crisis of nation states in the global market. Currently, countries that are open to global competition cannot conduct independent taxation policies, or experiment with their own ways of balancing the creation and the social diffusion of wealth, nor can they exercise any other functions of economic sovereignty because the flow of capital is governed by the invisible global standard.
In the new architecture we are proposing, nation states would no longer be allowed to use economic policies that conflict with the arrived standard for global economic health, to complete their transition from a closed to an open model of sovereignty. To respect the global standard, however, they could receive, in exchange, an individual national model suited to their own needs.
In this way, the surrender of economic sovereignty would no longer represent a real surrender but would become a reciprocal contract of concession:
It is a return journey of sovereignty with a “filtering” operation in between, thereby producing a clean sovereignty that is both locally and globally appropriate simultaneously. This relationship is what we hope and believe should take place, as a guiding logic, for the establishment of a new political architecture for the world market.
We believe that such a transition from a closed model of sovereignty, which is intrinsically in conflict with the global standard, to one which is open and attuned to it, is the conceptual pillar through which every detailed solution to the problems of global, national and local imbalances can be achieved.
By this, we are not arguing that the recipe can have magical effects on its own. It will still be the quality of individual national governments that will make healthy in practice that which looks promising on paper. Nevertheless, it seems to us that national governments have been and are still in a crisis situation because, among other things, they never did, and do not to this day, have a sufficiently strong theory that can point to a future path for bringing sovereignty back into equilibrium.
We believe it is possible to combine wealth and nations, discovering and putting into place a new form of open and globally balanced sovereignty that would restore to the nation state its lost vigour.
This is the building block upon which the new global political architecture should be founded.
By international cooperation, we mean recognition by nation states of the restrictions on their choices deriving from their voluntary participation in international arrangements and respect for the rules of behaviour that states have mutually agreed to operate by.
In our opinion, when dealing with this subject, some scholars introduce a complicating element if not actually a foundation of confusion, by making a distinction between cooperation and coordination. To the first, they attribute the narrow role of mere consultation. According to this view, cooperation means the willingness of a nation to sit around an international negotiating table before making unilateral decisions. On the other hand, they attribute to the coordination process the function of setting international rules of behavior and ensuring that they are observed. We do not believe that an intensification of consultation processes alone can fill the political vacuum of globalisation.
Therefore, if we accepted this distinction, we would be in favour of coordination, meaning a contractual formula that is strong and universally binding on the game of nations. To avoid any misunderstandings, however, we think the dichotomy between cooperation and coordination does not really go to the heart of the matter, since cooperation is only useful and significant if it is merely the preliminary part of a process that eventually becomes one of coordination, i.e., between a weak and a strong form of international relations.
Our intention is to be as particular as possible since language, especially in politics, is vitally important. The current international architecture, based on closed models of national sovereignty, has to distinguish between different kinds of relations between states at more than one level. This configuration is intrinsically unstable because the greater the number of possible situations, the more difficult things are: a nation can wage war, it can rear its head insistently and use violence against its citizens. Originally, in order to admit such nations within the international arena, it was both practical and sensible to allow a form of pragmatic negotiation in which merely talking and consulting one another was required to avoid war or worse. Nation states operated under this mode without necessarily expecting to achieve stable forms of harmonization.
In this sense, consultative organizations are a mirror of persistently weak links within the international framework that influence the structure of international organizations, giving priority to toothless forum-based structures rather than to “operational institutions”, i.e., bodies with binding external powers vis-à-vis member states.
The United Nations, for instance, is essentially a forum. In exceptional circumstances, it has binding powers, but only when one of its powers (typically the United States) decides to dress up a unilateral decision under the guise of a multilateral one. In fact, this seldom happens because other representative nations have the power of the veto within the Security Council. Essentially, the UN is like an empty glove that comes alive only when a strong hand needs to make its fist more velvety. We do not mean by this that the UN is a useless body: it is very useful, in fact, as a place where the bureaucracies of emerging countries can learn the international language, as a global launching platform for some technical standardizing procedures, and for the promotion of a cosmopolitan and globalising culture. However, for as long as the UN remains as it is, it is useless as a tool for promoting a strong degree of integration. Institutions such as the IMF and the World Bank are more effective, since they manage international public funds within pre-established rules. Precisely due to this power of intrusion into individual states from the outside, their missions are much more constrained by the prerogatives of states with closed models of sovereignty.
The IMF is a last-resort-lender or an emergency moneybox in cases of crisis, and the World Bank funds development projects in poor countries. In the final analysis, the two institutions are the global fireman and the global social worker respectively. Recently, the IMF has become more streamlined by eliminating any areas that overlap with the social support mission of the World Bank. The latter is still trying to refine its methods. Nevertheless, these two legs of the international body are frail. In fact, they often behave like little shoes that the real national powers wear when they need to perform a rescue mission or to reduce tensions, thus promoting a multilateral facade for their interventions.
Useful though they may be (and in emergency cases the IMF certainly is), these institutions are insufficient, though we have no intention of dealing here with the hotly and widely debated issues of their capabilities, methods and proposals for their reform. What is important for our purposes is to pronounce only the fact that the two instruments of international intervention of the old world order are too small in relation to what is needed.
It should also be said that the mission of preventing and managing international financial crises undertaken by the IMF necessarily implies a degree of external political conditionality. However, where it is possible to apply this conditionality, the IMF finds itself imposing restrictions upon a nation that it cannot accept or which result in crises and social tensions. In cases where a nation is very strong or highly disjointed, the condition of political change imposed by the IMF is unable to achieve the desired result anyway. These problems are not necessarily due to managerial inability. The lesson to be gleaned from this empirical scenario is that political conditions can only be dictated by an international political system that operates under a reciprocal understanding agreement with the national one.
This is a function that, frankly, cannot be entrusted to an international bureaucracy. It has to be delegated to truly political institutions which the international system currently lacks, with the result that the IMF is currently called upon to undertake missions which it is currently unable to perform satisfactorily. We obviously cannot expect the bureaucrats of the IMF, expert and competent though they are, to acknowledge this structural limitation of their organization. The political side has to arm itself with a stronger cooperative instrument of international regulation. Similar considerations can be made about the whole gamut of international institutions such as the WTO and the regional development banks. These are important instruments but they are too small and their missions have a political component that frequently precludes them from fulfilling their obligations effectively.
This problem, as we have exposed it, has so far not emerged in the form of an open debate because behind every international bureaucracy, with the exception of the UN, there has always been the political hand of the United States, which, in turn, sees these international organizations as executive instruments disguised under a formal multilateral cover, useful for implementing their decisions and for protecting unilateral interests. On the one hand, this almost imperial structure of world order has so far brought more benefits than harm, thanks to the modernizing nature of the American strong hand: Americans have expected a great deal but they have also given in equal measure. On the other hand, it is unthinkable that this kind of structure, with its concentration of power in one nation, can continue to manage without difficulties a world that is getting ever wider and more complex, and which requires an increasingly more diffused planetary government, i.e., with broader responsibilities.
To sum up, the strength of the functional provider of international order is becoming inadequate. The modest size of the political and technical systems for world order also originates from the fact that closed models of national sovereignty do not allow for too many external restricting factors, either because of their own nationalist postures or because their internal model is too distinct (undeveloped, lacking in corporate interest or hostile to attempts to reform it, and so on) from the necessary conditions. In some way, this is understandable, because the current invisible global standard (freedom of capital, unbalanced openness of the market, and so on) tends to be applied to individual nations in ways that are not diversified and adaptable to individual circumstances. These, in turn are resistant to change because, among other things, they are not being offered a more flexible alternative. Perhaps this is the reason why the phenomenon we referred to earlier, i.e., the co-existence of both extremely open and extremely closed (and extremely disordered) market levels within the same national system, arose in the first place and is now the source of very serious imbalances.
In Japan, for example, reforming the interwoven pattern of banks, firms, and politics is as necessary as it is complicated, because it involves not only comprehensive change in distinct sectors of the economy but also the modernization of the whole social structure. Doing this requires lengthy timeframes and many intermediate steps based on a three-pronged mediation process: between the national government and Japanese citizens (and interest groups), between the government and the international community at the political level, and between the basic political agreement reached in the first two steps and the technical rules to be applied and the ways in which to apply them. There is currently no sophisticated mediation system, and this illustrates more specifically, what we mean when we talk about the political vacuum and the inadequate size of the political and technical institutions of globalisation.
Going back to the original question, we need to redefine the concept and the methods of international cooperation in the sense of a stronger tendency towards global integration. Once a visible global standard is defined, governments would commit themselves to applying it, importing it into the different nations, but according to timeframes and methods that are specific to each individual case.
With this double co-evolution of surrender and re-acquisition of sovereignty, our view is that the new political architecture of the global market should turn out to be strong, flexible and evolutionary. We attempt to show this in detail in the sections that follow.
By accumulation of wealth, we mean the possibility of creating physical capital and assigning value to human capital, in the context of a free and democratic market. The content of this term is perhaps that which lends itself to the widest forms of differentiation, not only at the theoretical and ideological levels but also at the practical level, when we consider the differences that exist between the current methods of economic and social management across the world.
Our planet has differentiated situations particularly concerning the following:
a) excess of protectionist guarantees by the state which depresses wealth creation by the market (Eurozone, Japan);
b) insufficient quantity or quality of social guarantees provided by institutions to facilitate certain forms of wealth creation but that do not ensure its diffusion in a socially homogenous way (liberalized states);
c) absence of state intervention or low regulatory power exercised by the state, making the market unstable and the currency weak (South American area);
d) excess of state intervention in the absence of democracy, producing authoritarian distortions and a kind of hierarchical capitalism that is intrinsically unstable (Asian models).
Wherever we turn, there appear to be unbalanced relationships – at higher or lower levels – between state, market and society. This is the main structural cause of technical problems that distort the cycle of national and international accumulation of wealth, preventing its proper functioning and making it socially selective.
The search for a new architecture for the global market must obviously find, in every nation, a relationship between state and market that makes the creation of wealth a balanced and stable process by ensuring its social distribution.
By this, we do not mean that there could or should exist a single world political model. However, each national system needs to gain the ability to find a productive combination between capitalist efficiency and social efficiency, with its own sovereign variations (in the sense we have pointed out above). Without an evolutionary tendency toward this goal, the reformulation of sovereignty we propose would not make sense and, therefore, would not solve the problems of the political vacuum in the current globalisation process.
In an attempt to simplify a subject that is otherwise complex, we use the language of political and economic analysis, which contains the general problem of the functions of wealth in the context of the relationship between state and market. What clearly emerges in every case is that this relationship has still not achieved a satisfactory balance. There is a somewhat incomprehensible tension in the world – at least from a rational perspective – between the state and the market which, in reality, should have no reason to exist.
The argument should be formulated in different, albeit convergent, ways, separating cases of countries with advanced democracies from the emerging democracies of developing countries that continue to be subject to widespread phenomena that are typically found in situations of underdevelopment.
The conflict between state (the locus for providing and managing guarantees) and market (the locus for the generation of wealth) can no longer exist. The two, on the contrary, should form an alliance and integrate with each other in a complementary way and a mutually satisfying synergy. Indeed, realistic analyses show that this lack of balanced reciprocity is precisely the reason for the inability to balance the process of wealth creation with the social diffusion of wealth itself.
In cases where the state expects to create wealth (social democracies, or, generally, welfare state models), the market is made responsible for a mission that it cannot accomplish, that is, to provide economic guarantees. Hence, growth is lower than it would otherwise be during the healthy periods of international cycles, and is subject to greater strains during difficult periods, so that society remains condemned to an endemic stagnation, which does not allow a constant modernizing evolution to be achieved. Continental Europe provides a significant example of this inadequate relationship.
In cases where the mission of spreading wealth is left to the market alone, on the other hand, a different kind of mistake is being made: the capitalist market is an excellent creator of opportunities, but it does not have direct means – or, in any case, they are insufficient – to provide everyone with the opportunity of taking advantage of them.
No one expects the market, for example, to fund directly young students so that after the age of twenty, for the sake of argument, they will become excellent producers and consumers: that is, that they should have a market value and the ability to reproduce it in the shape of an expansive economic cycle. As a market investment, it would be too remote and indirect, as well as being financially unacceptable.
The market does not possess all the necessary capabilities for constantly reproducing and maintaining its growth rate. It needs a complementary support system to organize and allocate resources according to criteria that are different from those of direct remuneration: a sort of non-financial merchant bank (an ugly term, but helpful to render the meaning), which invests beyond the horizon of the market itself (infrastructure, security, law and order, mass education, social rehabilitation of weak members of society, and so on). We could call this support system a state, defined as the locus for managing the resources that benefit the market but which the market itself is not able to manage within its own capabilities.
According to this approach, state and market, in theory, would have clearly defined and perfectly complementary missions: the state has to guarantee the indirect conditions for ensuring the productive gains of the market, and the market should be responsible for the direct processes of creating wealth.
The difficulty in finding a balance between wealth creation and diffusion, that is, in creating the conditions for true mass capitalism, derive from the fact that the political models of Western democracies are not able to define with any precision the specific missions that belong to the state and the market, and, in particular, they have difficulty in identifying the interface that would integrate the complementary functions of each.
Consequently, the state, in the form of the machinery that Western democracies have experimented with, which is either too heavy or too weak, is not a useful instrument either for the creation or for the social diffusion of wealth. Economic wealth is thus achieved at the expense of society, or social security goals are achieved through losses of wealth. In order to avoid both of these flaws, what is needed is a state that is useful for ensuring a constant and socially homogenous growth.
The technical point concerns the transfer of guarantees that detract something from someone, to those that add something to someone. In particular, it is a question of conceiving an institutional mechanism that allows mass participation in the market, without burdening the latter with an excessive load (in terms of taxation and regulations).
The guarantees that have evolved in the last century are all substantiated by protectionist or welfare-based flaws, financed by a direct or indirect deduction of wealth from the market. They are called redistributive guarantees, but it would be more accurate to call them “expensive” guarantees because many acts of redistribution (labour laws, free and inefficient public services, direct public funding, and so on) involve a straight destruction of wealth. In such a model, the costs of these guarantees are disproportionate with the benefits gained.
In particular, economic guarantees aimed at safeguarding incomes of individuals have a tendency to keep those individuals at the lowest end of the social scale, without in any way improving their status. This shocking fact, obtained by analysing all the performances of all the different varieties of welfare states, suggests that the straight deduction from wealth should also include losses of potential human capital.
In conclusion, the system of redistributive guarantees – assessed after decades of application, even in the best cases – is a failure and leads to a political model which stifles growth and stymies maximum potential participation in political and economic opportunities.
However, the absence or the inadequacy of guarantees also has a similar effect, though in different ways. It allows excessive concentration of wealth, making it less fluid, and keeps too much human capital in conditions of under-capitalization, i.e., of lost potential. Therefore, there have to be political mechanisms to ensure the diffusive effects of social guarantees.
It is precisely the deductive nature of the redistributive guarantee system that prevents the right mix between the creation and diffusion of wealth from being achieved. This scenario occurs because the system attempts to combine a plus factor (the free market) with a minus factor (welfare-style redistribution). The result, in fact, is a constant process of deduction which makes it necessary to find positive guarantees, i.e., a plus on the state side that can maximize the intrinsic plus value of the market. These kinds of positive guarantees must be in the form of investments: I take a certain quantity of wealth away from the market through a tax drain, but the prospect is that I will return it to the market in a multiplied form. In this case, the tax, if it is not so great as to distort the market immediately, does not have a deductive connotation, indeed, it becomes an investment.
This raises the question of deciding which guarantees provided by the state have the power to be translated into investments and avoid becoming deductions. Taxes to guarantee security and the rule of law are necessary in all circumstances. However, once expanded beyond a certain size, the bureaucratic apparatus is a useless expenditure. Labour protection expenditure is even worse.
Is there a category of public guarantees that is obviously not a deduction?
To be sure, with the exception of macro investment in infrastructure that can only be evaluated on a case-by-case basis, public resources (not necessarily managed by public bodies) used to enhance individual abilities to procure an income in the market, i.e., basic education and life-long training, are certainly positive investments which the market is unable to perform in any direct way. In this sense, there is a relatively simple answer to the search for new, non-deducting guarantees. The mission of the state is to organize the educational and training resources and related services that would allow all its citizens to acquire the skills to maximize their market value.
There are obviously other positive guarantee missions that would characterize a new model of “useful state” or “balanced growth-based state”, as coined by one of the authors in a previous work. However, the policy of investing in human capital is the most important one because it concerns the political lever that determines both the greatest potential for economic growth, and the mass configuration of capitalism.
It means restructuring the state as a factory of human capital, giving it a special skill in the function of providing indirect and aggregate economic guarantees and ensuring that direct and deducting guarantees can be eliminated. In practice, the mission of the new welfare state we are hoping for is to guarantee that every citizen will undergo continuous professional training and re-training to the highest possible standard. In this case, the number of individuals needing social security benefits in the future will be minimal. The money spent on this sort of investment on human capital will then come back as a multiplied return in the form of market growth and optimistic expectations (which is essential for the financial capitalist cycle) that it will continue in the future. This will essentially represent a net gain.
If, on the other hand, I do not spend much on educating young people and adult life-long professional development, but I spend a great deal on social security provision for them because the market value of this human capital has not been accurately perceived, then we all suffer a loss.
It is a question of introducing the professional development cycle of human capital into a state model defined specifically as provider of additional guarantees, i.e., of indirect support to the market, as a matter of the greatest priority. To be sure, it is not going to be easy to transform tangibly and swiftly both existing welfare states and liberalized ones with a low propensity to provide guarantees into new “useful states”. It is not simply a question of “spending a little more on schools” or increasing teachers’ salaries to achieve this goal, as some may trivially argue.
The new model implies a complete reallocation of tax resources in favour of large-scale individualized investments. This is because setting and implementing – initially and continuously during the lifetime of an individual – high standards of education at the mass level involves committing the majority of public resources, based on the criteria that tax burdens should be reduced to the lowest possible level to promote internal economic expansion and a nation’s international competitiveness.
Lowering taxation and investing most of the public revenue to construct economic quality, person by person, for example, means cancelling or reducing public expenditure in other areas. Such a transition can be a nightmare in terms of political support for the politicians who have to administer the new system. This might be the reason why the concept of investing in human capital as a priority of public expenditure, sensible though it may be, has still not succeeded in emerging fully as a platform of government policy in advanced and emerging democracies.
There are signs, however, that the idea is gaining ground in the most advanced countries.
The technological economy is becoming increasingly aware of the extent to which a growing supply of qualified human capital allows increases in productivity, therefore, giving greater non-inflationary room to continuous expansion. All the parties from the Right and the Left (with centrist variations) are placing greater emphasis in their political programmes to education, in Europe as in the United States. These choices indicate the beginning of a possible process of substituting the old guarantees (or of the model that includes few of them) with the new ones we have conceptualised above.
Based on this stimulus, it is a matter of taking matters a step further: realizing that the bold closure of an economic cycle can be achieved through mass investments in human capital, that is, through a reformulation of the state’s mission of providing guarantees in that direction. It will not be an easy task, but we trust that this re-configuration of the existing national political models is technically capable of taking place in the not too distant future, with significant intermediate steps.
On this hope, which we put forward as a proposal plan, we base the prediction that advanced countries could find a state model that is useful not only to themselves, but also and especially that this will become a point of reference for the rest of the world. The useful state (or the growth-based state) is the visible and explicit standard that should be spread throughout the planet, albeit with different national variations.
It might seem like far fetched science fiction to think that it may be possible, in the near future, to bring the models of countries that are still bogged down in underdevelopment to adopt such an advanced framework of society and state; a framework in which the cognitive revolution fuels the technological revolution and where both lead to an ever more refined, productive and expansive economic cycle. But the objective does not seem too far out of reach if we consider the following encouraging factors:
It has to be acknowledged, however, that it is not necessary to transform all the countries that belong to the global market into states with a proven model all in one go and immediately. Even just moving in this direction and achieving even minimal successes in the medium term would have a positive effect. In order to introduce this directional trend in global affairs – transforming it into a national self-directional trend – it is nevertheless necessary to reckon with a formidable obstacle, which seems to us to be the nub of the issue.
The model of the New State is certainly a refined development of a democratic system of government. It is essentially founded on the principle that the population is willing to provide sufficient support and taxes to a legitimate institution that will use them efficiently to improve the general conditions of life.
This development is technically possible even in the absence of democratic systems, because economic freedom can actually be achieved outside of the democratic institutional cycle. However, this kind of development is intrinsically unstable because it lacks the best instrument for ensuring the constant social consolidation of economic processes. These processes, in fact, can take on an unbalanced, hierarchical form, which, in any case, would be inefficient in terms of the redundant reproduction of the expansive capacity of the market, which itself requires increasingly sophisticated forms of mass guarantees.
In conclusion, even leaving moral considerations aside, the idea that, ultimately, democracy is unnecessary is technically unfounded, especially in terms of the requirement of constant market growth.
Anarchical capitalists, for example, who argue that political mediation is unnecessary for performing economic functions, are paradoxically guilty of the same mistake as Communists: they fail to understand that money is a political object. Without the mass diffusion of political responsibility – either because possession is concentrated within a single party, or because there is a belief that the market does not need the state or again, because, it is excessively costly –, there cannot be a healthy basic financial development of economic cycles. It is like thinking of a human body without any blood.
A functioning democracy is an intrinsic part of the monetary cycle and not an optional factor in it. Little or no democracy is equivalent to little money or an incessantly destabilized monetary value. This fact, which appears clearly in systemic analyses (that include political and anthropological variables within the economy) of the regular cycles of the market, is not so stringent at the time of initial creation of the market. Indeed, as we have argued earlier, a great deal of capital has flowed into emerging countries thanks to the absence of democracy, which enabled low costs to be maintained since people did not have the tools (the vote) to increase them.
But this kind of negative competitiveness, which we can admit to being beneficial in cases with a zero, or almost zero starting point in their development cycle, eventually turned out to be a trap since it does not allow the leap between the first and second step in growth to be easily achieved. This is because society has not improved sufficiently to make such a leap and remains a prisoner of the first stage.
In conclusion, the absence of the democratic factor, which gives the impetus to search for more refined, socially oriented forms of capitalism, prevents the fruition of social capital in the market and, therefore, depresses economic growth. Developing countries with this political pattern are thus condemned to remain suspended between the first and the second steps, with serious risks of regression.
In this sense, we believe the theories based on development without democracy which dominate the Asian system to be technically wrong as well as morally unacceptable.
However, even those who agree with this analysis still raise the question of when an emerging country has reached the right time to introduce democracy in its political system.
The case of India, which became a democracy before embarking on economic development thanks to its colonial heritage, frightens everyone: the absolute pauper gives his or her vote to all-encompassing welfare programs that do not alter and, indeed, maintain underdevelopment as well as a high degree of polarization between the very rich and the very poor in society.
The problem of the relationship between the market and democracy is inescapable, but it cannot be resolved by forcing all such countries to democratize immediately. It would be sufficient for their commitment to do so in the future to be absolutely certain and made a condition of access to the international community even during the intermediate stages of the process.
It could take many decades for countries that are now in a state of hunger and absolute disorder (about fifty worldwide) to achieve the transition to a democratic model, but this is not the problem. The point is that politics in every nation should be based on the prerequisite of democratisation, to be enacted as swiftly as possible, to ensure that every evolutionary step can be negotiated between a democratising global standard and an agreed level of national flexibility in order for it to be applied. When the time is ripe, the groundwork for the useful state model should then be introduced.
In our opinion, this game of directional flexibility could work and represent the solution for stabilizing the process of wealth accumulation in different areas of the global market, making it a mass phenomenon at the global level.
The time has come to answer the most critical question of all at the political level: who should conduct the game and how should they conduct it?
Our thesis holds that any attempt to resolve the problem of the political vacuum of globalisation through the imposition of sovereignty by one country on all the others cannot be successful, and if it were to be, it would not last very long.
If we could simplify such a complex problem as the relationship between national sovereignty and the global market and its consequences for the development opportunities offered to undeveloped countries, we would summarize our thoughts by pointing precisely to the danger of a return to the past.
The way globalisation is contemporarily perceived is as a restriction to national sovereignty imposed by the seven hegemons of international society (the G7+1), with a tendency to being reduced to only three (the US, Germany, and Japan), but, de facto, under the leadership of only one (the US). In practice, this is experienced by “subordinate” states as an absence of “democracy among nations,” and generally as a low degree of international cooperation (that is, of equal participation among states). This state of affairs can be concealed for a time by the creation of wealth and the increase of employment due to the recent expansion of the world market, but under conditions of external control that are perceived by many countries as the strongest form of blackmail.
Overall, the world order appears intrinsically unstable because it is too dependent on a single actor for the maintenance of order. In addition, we have already pointed to the waning ability of the US to continue to perform this ordering function because the global bed is becoming wider than the American blanket.
Moreover, the international community is experiencing tension due to the application of a unilateral globalising standard that is perceived as being rigid as well as a source of an endemic reassertion of rights and instabilities.
Clearly, a number of restructuring changes are urgently needed. Which ones are possible?
a) A preliminary “weak” alternative would be the continuation of the current system with a number of minor improvements. In some respects, this is the most likely scenario in realistic terms, but it would not change to any significant extent the situation of vacuum we have described and the likelihood that this would generate destabilizing incidents combined with economic regression. We believe, therefore, that the continuation of the status quo would be imprudent, even in the presence of incremental measures to fill some of the most urgent political shortcomings.
What is needed is a substantial change, a change of gear in the construction of the global political architecture.
b) A second “strong” alternative would be for nation states to gather in a kind of world constituent assembly to devise, first of all, the mechanisms for choosing the rules of the international game, and, subsequently, the rules themselves. What kind of principles would this option be based on? Obviously on those associated with the dangers of maintaining the political vacuum of globalisation, with its attendant risk that public opinion will turn against it; but also on those that point to ways of filling the vacuum with greater guarantees for a balanced development for all. However, it is undeniable that political reality only moves under the pressure of emergencies, making it unlikely that a pre-emptive and rational approach will be adopted. Knowing the ways in which international organizations work, we are under no illusion as to the likelihood that they will proceed in this direction. However, we believe that once it is understood and accepted that the new international order is inspired by the principle of transferring national sovereignty to international institutions, so that they can then return it to national authorities in a strengthened form, then this hypothesis can acquire solidified empirical foundations.
c) A third, even “stronger” alternative is to establish an order flowing from the top, that is, starting from a Great Power agreement, followed gradually by the voluntary adhesion of a growing number of nations. These would do so following a (self) co-optation mechanism into a summit conference system of emerging states, as they begin to participate in the global market. On the one hand, this route appears to be realistic and strong since it relies on a concentration of power, should the leading states demonstrate that they have a sufficiently strong will to produce a generalized co-opting effect. On the other hand, this kind of ordering strategy based heavily on a concentration of power at the top would be exposed to suspicions, dissent, counter-reactions, and probably even conflicts. It would therefore be imprudent to follow such a course based on a strong stick and a weak carrot.
In conclusion, an international system that relies on Great Powers still retains a degree of ordering power, but is running out of steam and as a stopgap system, paradoxically, it breeds inertia in terms of working towards new, more significant evolutionary steps.
If we searched for a solution, hoping for some sudden political event that would generate a new era, we would risk disappointing both ourselves and the scholarly reader who is probably subtly curious to see how we propose to deal with this devilish problem.
We believe that vision and realism can be combined in a productive manner: the first defines a point of arrival, while the second determines, at each historical point in time, a step that comes as close to it as possible, given the circumstances. If the evolutionary process can keep up a certain pace and, gradually, increase general agreement as to what the final aim should be, then in some way, at least the structuring stage is already under way.
This is what we have in mind, and is broadly inspired by the European integration experience, which, in spite of the fact that it has not been an optimal process and has been riddled with mistakes, has nevertheless inaugurated a new, rather significant method in generating internationally cooperative systems.
The vision is the one we have outlined above, as an abstract synthesis of the new terms of reference for the world political architecture.
Let us now analyse it in more pragmatic terms.
We start from the existing architecture and the recognition that no project for international order can be separated from the willingness of the strong powers in the global scene, especially that of the United States, to relinquish the current arrangement. On this subject, there are some better news than one might suppose, but also some worse ones.
The idea that the United States cannot carry by itself, like Atlas, the weight of the whole world is certainly not new. At the beginning of the 70s, this was already the main preoccupation of Henry Kissinger and the Nixon Administration. On the monetary front, the rigid structure of the Bretton Woods system (born in 1944), based on the US dollar as the world support pillar and on the convertibility of gold, had become unsustainable. The US decided to reject it, almost in an emergency. This was a negative event, in the sense that the abandonment of a monetary order that was too concentrated on one power/currency was out of tune with the ambition to adopt a new order that would be equally robust but more diffused and capable of sustaining the stability of an expanding international market. Since then, the global market remains in a stage of turbulent transition between the old and the new monetary order.
It is important to remember another more distinctly geopolitical aspect of the American crisis of the early 70s. Henry Kissinger was perfectly aware of the need to move from a unipolar management of world affairs to one that would be more inclusive, at least in terms of US allies in the context of the Pax Americana (an epithet the Americans do not like to use due to its imperial overtones but which, in truth, describes the situation most accurately). This, however, gave rise to a system based on collective management. Initially, it stimulated a tri-national agreement with Germany (Library Group, 1973) and Japan: the idea being to delegate greater powers to these two countries and to obtain a greater contribution from them, in exchange, in order to strengthen the alliance. Subsequently it developed into the G5 and later into the G7 until it took on the current form of G7 + 1 (Russia) and, in perspective, of a “full” G8.
From one point of view, the good news is that Washington seems to be aware of the fact that it is unable to manage the planet by unilateral means. This – if confirmed - increases the credibility of our proposed plan. From a different point of view, however, the G7 has never worked as a real place of shared government, i.e., as an agreement between nations that would induce them to converge toward an ambitious program for constructing something tangible. It has only worked as a particularly friendly circle for the common management of emergencies, that is, as a consultation arrangement that cooperates effectively only when there is a clear problem that is recognized as threatening to all its members. This, in itself, is quite significant, but we certainly cannot expect this kind of framework to result in the natural evolution in the structural direction we are hoping for. And this is bad news.
What is the nature of the problem?
Americans have always meant collective management to be a system in which they agreed to consult with their allies on important decisions, but without it preventing them from pursuing their unilaterally defined national interest. In addition, they have never wished to conceive an international cooperative framework in which the opportunity for them to take unilateral options would be limited. For reasons related to their political culture, every definition of US national interest is underpinned by the prerequisite of being able to act alone at all times, without any rigid restrictions.
On a nominal level, the platform of the US Democratic party is traditionally softer on this point than the Republican one, which adopts a more hawkish stance. However, where the stark reality of US government life is concerned, the principle is applied in the same way by both parties. Thus, collective management as conceived by Washington is not satisfied with recognition that, within a negotiating framework, the US will be primus inter pares – a role that nobody could deny in any case. Within any alliance, the US demands the role of alter inter pares, or, rather, of dominus inter clientes.
It is not easy to change this attitude in US foreign policy because it is based on the idea – shared by the whole electorate – that the US is the only place of civilization on the planet and is constantly besieged by hostile and inferior countries. Even the best ally is an entity that is temporarily not hostile. Unfortunately, the G7 Allies have not given the US much reason to believe otherwise.
The Europeans and the Japanese have held and still hold a position that is in marked contrast with the core of the empire. Partly, this is because their economic models are less efficient and more protectionist than the American market and, therefore, cannot accept all the requirements of openness to the outside. However, it is also because there is little convergence between the American and European levels of modernity, and, consequently their reciprocal interests often diverge; and, finally, because of unbridgeable differences in their military potential – and in their willingness to wage war and wage it well. To all this, we have to add the open hostility of France to American global dominance and the competitive rancor of Japan.
In brief, the G7 can be described as follows: in emergencies, it is able to cooperate, but as far as all the rest is concerned, opinions are exchanged in an atmosphere of suspicion.
Another reason for this is the American strategic plan to align as many countries as possible within bilateral agreements. Again, we have a kind of constellation system with the US at the center, unrestricted and free to act unilaterally (a sort of divide and rule system, whereby you divide by creating separate alliances).
Therefore, should we close off the option altogether?
Not in the least. The positive fact is that the G7 can, in fact, analyse and resolve the problems that they recognize as being significant according to a common method. Moreover, the American imperial attitude is considerably toned down by an awareness that the US cannot manage things alone, even though it stops short of bending to any binding multilateral obligation. Our assumption is that if it were to become clear to the US and the G7 that globalisation is highly unstable – and we trust to the power of the data in this respect –, this would create problems for all and spark off a cooperative reaction.
This is the critical political and technical point.
At the moment, this kind of action would only appear possible as a stopgap procedure for exceptionally negative events through selective and short-term cooperative measures. Is it possible to take a step forward that will leave a deep footprint, into which water will flow to feed the growing shoots of the future global cooperative tree?
This could be achieved through the following course of action: if one were to attempt to force the current G7 framework to take direct and permanent action in the sense of changing its internal structure and constitutional modus operandi, nothing whatever would be achieved. If, on the other hand, the G7, without altering its current structure, were to give rise to another international body – a body that was intergovernmental and technical (a word whose political weight is of a lesser order) – devoted to compensating measures and to redressing the global equilibrium, then the option confronting us would be a little more practical.
What exactly do we trust in?
We trust in the ability which the G7 already has to act as a coordinated body for emergency intervention and in the fact that this could and should be extended to formulating a delegated structure to manage permanently the need for economic compensation in the globalized world. It is not within our competence to say what specific political event might spark off this development, but there is a growing feeling that a sensible proposal might provide a breakthrough in this. This is what we are going to attempt to provide in the next chapter. First, however, we need to give some clarification regarding the new architecture that we are proposing in relation to the development of the European system.
The reader might be curious to see how we propose to reconcile a global architecture based on nation states endowed with sovereign powers with the one adopted by the European Union, which –theoretically, in the practical attempts and declarations of European governments – tends to reduce the sovereignty of member states as much as possible, concentrating powers in its supranational organizations (Central European Bank first and foremost, but also in the Brussels-based Commission or other institutions).
We should state immediately that we are completely in favour of the creation of a “real” European Union. So much so, that we are seriously worried by the fact that this Union is not actually being created according to a method that will perpetuate its existence: for example, by creating from the inception an agreement to construct a single state – clearly on a (con)federal basis – setting sufficiently precise and binding steps to achieve it within a few decades. Yet, at the same time, with structures that are compatible, from the start, with the wish on the part of its component members to respect the same rules of the game (which are often lacking) without being expropriated from their sovereign powers.
If this kind of new state had come about, we would see it play, as a single entity, the global game we have previously outlined. Yet, reality has gone in a completely different direction. The European Union has followed a path that makes it act more like an economic alliance than a true political union. Reviewing and clarifying the game of sovereignty in the context of this trend, therefore seems to us to be an entirely pragmatic approach. All the more so since, at the time of completing this manuscript, toward the end of the year 2000, there seems to be utter confusion due to the system being structured in such a way as to allow powers which exercise a strong degree of sovereignty to co-exist with European institutions designed to be supranational.
We believe this confusion to be the principal cause of the current disorder. The European Union is more than an alliance, but it is far less than a union. We put forward a few test cases.
In 1997, in the forum for discussion and approval of the Treaty of Amsterdam that established the “Stability Pact”, the Union resolved the doubt left open by the Treaty of Maastricht and, de facto, interrupted the tendency to adopt a supranational structure. In fact, it was decided that the duty to audit the budgets of states taking part in the single currency should be delegated to a merely procedural entity and not to a federal body endowed with discretionary political powers. Most importantly, each state accepted the condition of having to balance its public accounts, with each reserving the right to choose freely a different composition of income and expenditure. This agreement was hailed as a founding step of European integration, in truth, however, the principle it established was the exact opposite. The principle would read as follows: since it is impossible to create a common European government, we ought to delegate to a pseudo-political automaton the control of an important pillar of the single currency, i.e., to balance the budgets.
The message was extremely clear: there is to be no European government, consequently, no control powers are to be conferred to the European Parliament. Ruling power lies in the hands of the members of the Council of European Ministers and the Intergovernmental Conference. European policy will exist to the extent that nations are able to agree on a case-by-case basis and on specific issues.
This was a decisive step for framing what is, in fact, a strong economic alliance among nations, but certainly not a union.
The very nature of a binding economic alliance rather than a political union can be found in all the steps that aimed to make the behavior and situations of European states more homogenous. The emerging structure of European common defense, for example, is framed as a second NATO, though considerably less coherent than the latter regarding the chain of command. The fledgling arrangement consists of a partial transfer of resources from nation states toward a common effort, and not for the integration of all the armed forces, as would be the obvious thing to do in a process aimed at constructing a single political entity, albeit a slow one. The very figure of “Mr Cfsp”, that is, the person who is supposed to speak with a single voice on issues of common foreign and security policy, seems, in certain respects, to be undefined, while in other respects, seems over-defined. One is actually inclined to suspect (if not to be certain!) that he is to be more important than the President of the Commission.
Germany, France, Italy and Spain, and all the other member states decide autonomously on the core issues connected with their place in the global context, without taking into account common principles. The latter come forth in secondary decisions. In cases dealing with a European theme necessarily requiring a European decision – like European Union enlargement, for instance – nations negotiate as if they were in Vienna in 1815, that is, through the informal language of balance of power and balance of interests, rather than within the institutional procedures of a common government.
Briefly, the point we wish to make is that, in this kind of situation, national sovereignty continues to remain strong and this phenomenon has to be reconciled. It may be objected that, by this, we may seem to be overstating the obvious. However, it should also be remembered that many readers may have been persuaded by European advertising and believe that a European Union truly exists, with nation states becoming decreasingly important. In our opinion, this idea is the origin of confusion since, in truth, the Union is and will remain for a long time to come, an alliance between sovereign nations, characterized by elements of supranational control that are both strong and weak. In areas where there has been an attempt to go beyond this, such as a monetary union, the irreconcilability of sovereignty and supranational interests has been witnessed in the facts that lie before our eyes: with the basic requirements in order (we hear the music of “restraint” being played daily by our politicians) the euro has lost a quarter of its value while the European authorities have lost face.
The scenario we can envisage is not one of the best, neither in relation to the framework we have suggested for filling the political vacuum of globalisation, nor for putting the European Union on the right track.
The principle of respect for national interests is inconsistently observed. Any member state can block a common decision by casting a veto. The solution of moving to a majority vote that is being discussed at the time of writing would make the situation even worse. However, what would the nation whose interest would be damaged by such a decision do? It would draft a plan concerning another issue, or, more probably, try to set up a majority coalition on a different matter, to avoid being in a minority on the issue that affects its own interests. We might contend that “democratic methods” need to be respected, but this would be an inadequate shield behind which to hide.
The current state of affairs is that the smaller nations have not transferred their political sovereignty to a pan-European government with a constitution to safeguard their interests. Instead, they have relinquished their sovereignty to the larger and more powerful countries, de facto France and Germany, or to supranational authorities, like the Central European Bank in Frankfurt, which rule by means of voting, putting the great powers in the position of minorities.
The result is Eurochaos.
If there were not an intelligent style of reciprocal diplomatic understanding, it might seem like self-annexation. In the case of Austria, in the first half of the year 2000, this kind of intelligent/subtlety did not start working immediately. Austria had to threaten a fracas repeatedly to obtain the lifting of the sanctions that other members of the Union had imposed against it because of the supposed moral illegitimacy of one of the Austrian ruling parties. All ended well on that occasion, but the case gives an idea of the potential disasters that can arise from this partially realized situation between economic alliance and real political union, where sovereignty is, de facto, transferred, but is not returned in the form of official guarantees of management autonomy.
There is also ambiguity at the economic level, although the alliance in this sense is much farther ahead than at the political level. The intra-European taxation regimes, for example, are highly differentiated, and national sovereignty in this context has only been surrendered in a minor way (value added tax). So much so, that a number of countries in the Eurozone, France and Germany in particular, have announced important sovereign tax reform without first addressing the problem of harmonizing them with the rest of the Union. Many countries maintain strong prerogatives of institutional diversity, from “tax havens” to welfare systems. All of them, in fact, can still exercise a high degree of protectionism by giving informal but effective priority to national companies bidding for procurement contracts, for example.
In conclusion, the overall situation appears to be dangerously unbalanced:
Sovereignty is clearly undergoing a short-circuiting process.
This situation of great and dangerous structural ambiguity could only be accepted if it represented a stage of transition toward the construction of a single European nation. This kind of future prospect would introduce order in a situation that is currently lacking it. The problem is that there is no such visible tendency; on the contrary, the European system framed as an alliance of nation states, rather than a Euronation, is becoming further entrenched. Those who argue that monetary union is a lever that, sooner or later, will make it necessary for a European federation to be established, unless the machinery gets jammed, are not entirely wrong: a currency cannot last very long without a government.
However, the very Stability Pact referred to above indicates that European countries actually have a different view: an automatic external restriction on the possibility of national governments to incur debt is thought to be sufficient to ensure the basic stability of the currency.
As to the things that are lacking, they will be decided on, as they arise, by governments within their informal consultation systems. This is the reason why the stronger countries insist on arriving at decisions by a majority system: should anything else still be needed, they will impose it and the others will remain silent. What if France and Germany should quarrel, which occurred in the case of enlargement? The issue will be postponed, it will be softened, and compromises will be found. To summarize, the current idea is that a European government already exists: it needs to be refined as an “alliance between (recognized) powers”, but not invented or constituted from scratch. This is the realistic fact; the rest – without wishing to be disrespectful toward anyone – is propaganda. Given this situation, it would be rational to correct the system of alliance between states in such a way as to reduce the chaos in managing the different levels of sovereignty, giving priority to resolving the aspect of disorder that could create serious economic troubles.
The first critical step would be to formalize more appropriately the surrender by nations of their economic sovereignty, in terms of the openness of their internal markets to the outside:
This would help to clarify the terms for surrendering economic sovereignty and to correct the bad habit of retaining “unbalanced sovereignty”, where the expropriation of sovereignty affected by the market and supranational institutions co-exists with extended forms of protection.
The second step would be to think of institutions that could compensate negative national situations due to the standard of openness in the internal market. The European Commission has the mission of homogenizing the continent, that is, to promote harmonization and cohesion. This mission has a burden of ambition that is both excessive and redundant. It would be much more useful for it to become a technical secretary to the European Council of Ministers instead, with its main mission being to be the place where governments can efficiently negotiate the systems of compensation for national disadvantages, either in the shape of redistributive compensation or of a special transition regime.
The problem is not the lack of homogeneity within the European system: it can be very varied and still work extremely well. The key issue is that every variation in the rules should have a well-founded underlying reason for seeking equilibrium, and it should be necessary to safeguard support for the free market. Above all, it is important that the variation should be decided on through an agreement among the states that have an interest in compensation and those that have to grant it. This way, every government will be responsible for explaining to its domestic electorate the reason why certain decisions have been taken. This change in the political mission of the European Commission would in no way be a weakening of the European trend toward integration. Rather, the arrangement would only be a clarification that would return responsibility to the locus of true power: the democratically elected national governments.
The most critical organizational clarification, however, concerns the remaking of the European Central Bank. In order to soften the impact of a “monetary rule” that is not connected with a strong political government, the only course is to allow the system to be led by a council made up only of all the governors of the central banks in the Eurozone who would elect a chairman, chosen amongst themselves, every two (or four) years, with a renewable mandate. This, or a similar kind of formula, might give the process the identity of a central Bank that is strongly anchored to the national monetary authorities. This kind of body, therefore, would be much more sensitive and reactive to the specific situations within different areas. It would also improve its ability to carry out the essential function of banking surveillance, which is an essential requirement of an ordered and credible capital market. A better-planned Central European Bank would increase its own credibility.
Briefly, the critical points are the following:
It is not our intention here to redesign the European institutions
However, our exhortation is that they should be rethought, in light of the criteria we have outlined, to foster a rebalancing of national sovereignty in a European system based on these criteria so that they will not be abrogated any time soon. Our canon on the subject is the following: for every act of surrender of economic sovereignty there should be a corresponding internationally negotiated return represented by means useful for managing the consequences of such an act on the surrendering territory. This principle, which we consider useful in general, should be applied in Europe with special urgency and practical sense.
We conclude, therefore, by inviting readers to hold all judgment on the European case and the ways it has been dealt with, until they have read the rest of our analysis. This is because the European institutional framework cannot be understood separately from the solutions we propose to the problem of the political vacuum of globalisation.
5. Conclusion: the essential points in the cycle of sovereignty-cooperation-wealth
We have developed the premise of the theory of balance of sovereignties with the ambition of being innovative, and we invite our fellow researchers to put this to the test and possibly suggest to us ways in which to develop it further.
However, this is not the task we have set out to accomplish here. Our goal, in fact, is to give priority to a message aimed both to public opinion and the political world: globalisation lacks any rules of the game and this is why (all) the players are not entirely sure of which game they are playing, so they cheat, they go wrong, or they become victims without a second chance.
This is not an absolute criticism of current policy on the subject, despite evidence that shows there is none, as such, but is only recognition that in the absence of any rules of the game, no player can perform consistently. Our criticism, therefore, becomes the basis for a consequent appeal: we need to create new rules to ensure that the policies for rebalancing the imbalances produced by the globalising standard can be put into effect.
We would only react strongly if a politician were to say to us that we are exaggerating, arguing that our approach is not useful or that there is no need to have new global rules. Our only certainty, in fact, is that the problem exists and that the solution involves the creation of a new institutional framework.
We also believe in the strength of the specific solution we put forth, but we would be glad if others, reacting to our idea, would develop a better one. As far as the experts on the subject we have dealt with are concerned, we would simply state that the definition we have used for “rules” and “players” is the one formulated by a Nobel Prize winning economist, Douglas North. Purely as an example, the Maastricht Treaty is a collection of rules, and the Central European Bank and Ecofin (the European Council of Finance Ministers) are players; likewise, the IMF is a player, but it has no rules for the global creation of money.
Our analysis, therefore, follows the footprints of the “institutional economy:” it observes the behaviour of social processes, it assesses the extent to which public and private organizations function effectively, and calculates the probability that they will be successful in relation to the objectives (or missions) they have been appointed to carry out.
Coming to the key point, the analyses and proposals we have put forward are inspired by a number of general cautionary concepts that are worth stating and underlining again.
Firstly, it should be explained that national sovereignty is not going to be transferred to another supranational institution, but delegated in the context of a negotiated agreement which provides for a two-way journey: a kind of “round trip sovereignty”. This reciprocity is possible if sovereignty is allowed to leave states and return to them not in a weakened but in an enhanced form. It is not a change of residence but a holiday away from home to invigorate the structure of the system. Nations should be careful not to surrender economic sovereignty in an impulsive way because, in democracies, it belongs to the people and is only given to politics on a conditional basis. Sovereignty and democracy, in conclusion, are two sides of the same pillar that supports society and should be handled with care.
We reject any solution that entrusts to the market a distorted exercise of sovereignty in matters for which only politics can be responsible, such as the rules for fair competition, monetary policies and jurisdiction, and the institutions connected with social policies and environmental protection. These are points of vulnerability for national sovereignty that have always led markets into temptation and are easy for the global market to expropriate, a market which is itself characterized by weak policies and by nations being thrown into confusion by the immense power of capital that is free to circulate internationally. As we have stated above, the state and the market have different missions, which are complementary and should not be juxtaposed with one another. The state cannot remotely dream of being able to create wealth directly, and the market, which can nurture such a dream, does not have its own strong self-balancing mechanisms (it has weak ones, but only in markets that are already well-regulated by institutions).
We have already professed our faith in the market, as well as in its current global structure in the introductory chapter. However, we do not believe it has altered its natural characteristics; at the most it may have strengthened them. It is undoubtedly the best mechanism for increasing wealth because it manages resources rationally, it enables individual abilities to yield results, it makes operators take responsibility for their different roles and creates the economic base for providing social guarantees. The market is neither classist nor racist, since it is able to function in any system and national ethnic base. When the market is characterized by free and proper competition, it is a very efficient educational system in that it prevents laziness, it condemns wastefulness, it rewards the best, punishes wrongdoers, and improves prospects for a better life for current and future generations. This cautions against ever regulating the market using means that would weaken its entrepreneurial economic power. Nevertheless, if left to its own devices – i.e., it is unregulated by politics – the market tends to structure itself in the form of a monopoly and not to sanction unlawful behavior. It is unable to regulate the quantity of money, systematically creating monetary excesses (this negative characteristic is also shared by democratic bodies, this being the reason why the exercise of this controlling power has been delegated to an independent public authority). Moreover, it tends to establish income distribution based on relationships of strength rather than social equilibrium. It neglects protection of the ecosystem; indeed, it exploits its resources relentlessly and without judgment. The free market, therefore, both in order to remain free and to avoid producing more damage than benefit, needs to be constantly watched and directed by balancing rules.
We have stigmatized the vocation of the market as being to appropriate itself of the national sovereignty of states in the areas mentioned, and we have judged equally harshly states that passively accept this state of things.
It is now time to criticize the tendency of international organizations to do the same, as if they possessed the virtue that the market or individual states lack as a divine gift.
One of the founding rules of the new planetary architecture for governing the market is that the aim of international organizations, whether they be the existing ones or those that are to be created, should be to return to each state its sovereignty in an enhanced form, and not to expropriate it and keep it for themselves. Equally, the sanctioning function at the international level cannot be exercised by the same body that has responsibility for setting the rules. The best solution is to maintain the two functions as separate and under different organizations.
In the simplified and schematic style of this text, these clarifications complete the framework of the theory of the detailed sovereignty-cooperation-wealth cycle, for each individual stage of the cycle itself, referred to at the beginning of the chapter.
The vision of the world order we have in mind and that we put forward as the point of arrival in a process of building a new international structure is the following: