The Truth About Sovereignty
CAMBRIDGE – In the French parliament’s recent debate on Europe’s new fiscal treaty, the country’s Socialist government vehemently denied that ratification of the treaty would undermine French sovereignty. It places “not one constraint on the level of public spending,” Jean-Marc Ayrault, the prime minister, asserted. “Budget sovereignty remains in the parliament of the French Republic.”
As Ayrault was trying to reassure his skeptical colleagues, including many members of his own party, European Commissioner for Competition Joaquin Almunia was delivering a similar message to his fellow social democrats in Brussels. To succeed, he argued, Europe must prove wrong those who believe there is a conflict between globalization and sovereignty.
Nobody likes to give up national sovereignty, least of all, it seems, politicians on the left. Yet, by denying the obvious fact that the eurozone’s viability depends on substantial restraints on sovereignty, Europe’s leaders are misleading their voters, delaying the Europeanization of democratic politics, and raising the political and economic costs of the ultimate reckoning.
The eurozone aspires to full economic integration, which entails the elimination of transaction costs that impede cross-border commerce and finance. Obviously, it requires that governments renounce direct restrictions on trade and capital flows. But it also requires that they harmonize their domestic rules and regulations – such as product-safety standards and bank regulations – with those of other member states in order to ensure they do not act as indirect trade barriers. And governments must forswear changes in these policies, lest the uncertainty itself act as a transaction cost.
This was all implicit in the European Union’s single-market initiative. The eurozone went one step further, aiming through monetary unification to eradicate fully the transaction costs associated with national currencies and exchange-rate risk.
Simply put, the European integration project has hinged on restrictions on national sovereignty. If its future is now in doubt, it is because sovereignty stands in the way once again. In a true economic union, underpinned by union-wide political institutions, the financial problems of Greece, Spain, and the others would not have blown up to their current proportions, threatening the existence of the union itself.
Consider the United States. No one even keeps track of, say, Florida’s current-account deficit with the rest of the country, although we can safely guess that it is huge (since the state is home to many retirees living off benefits that come from elsewhere).
When Florida’s state government goes bankrupt, Florida’s banks continue to operate normally, because they are under federal rather than state jurisdiction. When Florida’s banks go belly-up, state finances are insulated, because the banks are ultimately the responsibility of federal institutions.
When Florida’s workers become unemployed, they get unemployment checks from Washington, DC. And when Florida’s voters are disenchanted about the economy, they do not riot outside the state capital; they put pressure on their representatives in Congress to push for changes in federal policies. Nobody would argue that US states have an abundance of sovereignty.
The relationship between sovereignty and democracy is also misunderstood. Not all restrictions on the exercise of sovereign power are undemocratic. Political scientists talk about “democratic delegation” – the idea that a sovereign might want to tie its hands (through international commitments or delegation to autonomous agencies) in order to achieve better outcomes. The delegation of monetary policy to an independent central bank is the archetypal example: in the service of price stability, daily management of monetary policy is insulated from politics.
Even if selective limitations on sovereignty may enhance democratic performance, there is no guarantee that all limitations implied by market integration would do so. In domestic politics, delegation is carefully calibrated and restricted to a few areas where the issues tend to be highly technical and partisan differences are not large.
A truly democracy-enhancing globalization would respect these boundaries. It would impose only those limits that are consistent with democratic delegation, possibly along with a limited number of procedural norms (such as transparency, accountability, representativeness, use of scientific evidence, etc.) that enhance democratic deliberation at home.
As the American example illustrates, it is possible to give up on sovereignty – as Florida, Texas, California, and the other US states have done – without giving up on democracy. But combining market integration with democracy requires the creation of supranational political institutions that are representative and accountable.
The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates.
That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.
If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.
The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid.
Democracy Beyond the Nation-State
According to the Harvard economist Dani Rodrik, it is impossible to have full national sovereignty, democracy, and globalization simultaneously. The concept of a “political trilemma of the world economy” is useful, but it becomes less binding when one takes into account levels of government above and especially below the nation-state.
WASHINGTON, DC – According to the Harvard economist Dani Rodrik, it is impossible to have full national sovereignty, democracy, and globalization simultaneously. The concept of a “political trilemma of the world economy,” which Javier Solana also recently explored, is useful, but incomplete.
Rodrik’s argument, elaborated in his new book, is that too much globalization erodes the sovereignty of democratic nation-states, by increasingly subjecting them to economic and financial forces that may not correspond with the wishes of the domestic majority. By this logic, an authoritarian state may function better in a globalized world, because it is unconstrained by, say, electoral concerns.
With less globalization, democratic decision-making within the nation-state would be less constrained by external forces – particularly financial markets – meaning that its scope would be wider. Globalization and democracy, without the nation-state, is also possible, though Rodrik is skeptical about whether democratic institutions could function on a global scale.
Of course, Rodrik does not portray this trilemma as a hard-and-fast rule. Rather, his goal is to highlight the challenges associated with fostering or maintaining these three institutional arrangements, partly or fully. But, to get the most out of Rodrik’s concept, it is necessary to account for another dimension: the many levels of governance that exist in today’s world.
The nation-state, managed by national government, remains the fundamental building block of the international order. But below the nation-state are states (or provinces), cities, and regions, which may have their own governance structures. Above, there are supranational blocs like the European Union and global institutions like the United Nations. Any discussion of the trilemma must take into account these various levels of governance.
It is true that today’s widespread disillusionment with government is partly a backlash against globalization, which has seemed to impose itself on nation-states. But another reason for the disillusionment may be that citizens feel disconnected from their national governments.
Yet subnational governments are not so far away, and citizens often feel that they can still exert significant influence over them. As a result, the tension between democracy and globalization seems to be less acute at, say, the municipal level. It helps that subnational governments tend to be focused on more local-level concerns – such as infrastructure, education, and housing – that are not perceived as being strongly influenced by globalization.
On the opposite end of the spectrum are supranational governance structures, such as the EU. Not only does the EU often deal with globalization-related issues like trade; Europe’s citizens feel that the distant and disconnected “Brussels,” over which they have little influence, is infringing on the sovereignty of nation-states. This sentiment, exemplified in the Brexit vote, can be observed across Europe.
The ways in which these dynamics can complicate Rodrik’s political trilemma have been on stark display in Catalonia, where the tension between local democracy and the nation-state is even more acute than that with globalization. Indeed, many Catalans are more frustrated with Spain’s national government than they are with either globalization or the EU. The same can be said of Scotland vis-à-vis the United Kingdom.
In this context, a retreat to the nation-state that rejects globalization, as is occurring in the United States under President Donald Trump, becomes even more problematic, because it threatens to resurrect all of the economic and political pathologies that nationalism incited in the past, and then some.
But what if we adopted a new approach, in which local-level democracy and sovereignty were strengthened instead?
In many countries, if not most, cities are the centers of innovation and progress, as the promise of agglomeration, economies of scale, and positive spillovers attract high-performing firms. Citizens feel close to their municipal governments and proud of their cities, but their pride in their identity does not have the damaging qualities of nationalism.
As the nation-state cedes some of its power to regional, state, or municipal governments, the trilemma weakens. Both democracy, with its concomitant sense of belonging, and globalization, driven by cosmopolitan cities open to the world, can thrive, without causing any country to lose sovereignty.
The benefits of such an approach could be profound. But there are serious risks. As successful metropolitan areas attract a growing share of a country’s capital, skilled labor, and innovative capacity, rural areas, in particular, are likely to face economic decline: fewer job opportunities, closure of hospitals and schools, and deteriorating infrastructure. That trend, as we have seen, creates fertile ground for populist politicians to offer simplistic solutions, rooted in extreme ideologies that sow division and undermine progress.
That is why it is vital to find ways to help, from the start, those who may be left behind by such a system. Here, the nation-state would retain a major role, though an appropriate balance must be struck, in order to prevent the trilemma from reasserting itself.