Abstract
Throughout the world today, politics lags behind economics, like a horse and buggy haplessly trailing a sports car. While politicians go through the motions of national elections — offering chimerical programs and slogans — world markets, the Internet and the furious pace of trade involve people in a global game in which elected representatives figure as little more than bit players. Hence the prevailing sense, in America and Europe, that politicians and ideologies are either uninteresting or irrelevant. (Roger Cohen, ‘Global Forces Batter Politics’, The New York Times Week in Review, 17 November 1996, p. 1)
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Notes
R. Barro and X. Sala-I-Martin, Economic Growth (New York: Macmillan, 1995).
For a preliminary analysis of developments in the rest of the world, see Geoffrey Garrett, ‘Governing in the Global Economy’, Annual Meetings of the American Political Science Association, Boston, MA (1998).
Geoffrey Garrett, Partisan Politics in the Global Economy (New York: Cambridge University Press, 1998). Studies that have focused on microeconomic policies (deregulation, most importantly) lend no more consistent support to the globalization thesis than does my evidence on macroeconomic policy. See, for example, Suzanne Berger and Ronald Dore (eds), National Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996); D. Vogel, Trading Up: Consumer and Environmental Regulation in a Global Economy (Cambridge, MA: Harvard University Press, 1995); S. Vogel,
Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca: Cornell University Press, 1996).
Of course, this is an old argument that goes back at least to K. Polanyi, The Great Transformation (Boston: Beacon Press, 1944). John Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order’, in Stephen D. Krasner (ed.), International Regimes (Ithaca: Cornell University Press, 1983) believes that this was at the core of the Brettons Woods system. More recently, it has been argued that the mix of domestic interventionism and international openness is still critical throughout the world: Dani Rodrik, Has Globalization Gone Too Far? Washington, DC: Institute for International Economics, 1997).
P. Pierson, ‘The New Politics of the Welfare State’, World Politics, 48 (1996) 143–79.
Geoffrey Garrett and P. Lange, ‘Internationalization, Institutions and Political Change’, Inleznational Organization, 49 1995) 627–55.
See also R. E. Caves. Multinational Enterprise and Economic Analysis, 2nd edn (New York: Cambridge University Press, 1996).
Paul R. Krugman, Geography and Trade (Cambridge, MA: MIT Press, 1991).
Barry Eichengreen, Toward A New International Financial Architecture: A Practical Post-AsiaAgenda, (Washington: IIE Press, 1999).
G. Corsetti and N. Roubini, ‘Political Biases in Fiscal Policy’, in Barry Eichengreen,J. Frieden and J. von Hagen (eds), Monetary and Fiscal Policy in an Integrated Europe New York: Springer, 1995).
G. Corsetti and N. Roubini Fiscal Deficits, ‘Public Debt and Government Insolvency Evidence from OECD Countries’, Journal of the Japanese and Internalional Economies, 5 (1991) 354–80.
David id Soskice, ‘Divergent Production Regimes’, in H. Kitschelt, P. Lange, G. Marks and J. Stephens, Continuity and Change in Contemporary Capitalism (New York: Cambridge University Press, 1999) 101–34.
R. M. Alvarez, G. Garrett and P. Lange, ‘Government Partisanship, Labour Organization and Macroeconomic Performance’, American Political ScienceReview, 85 (1991), 541–56.
Garrett, PartisanPolitics, Chapter 5.
Alberto Alesina and R. Perotti, ‘The Welfare State and Competitiveness’, American Economic Review, 87 (1997) 921–39.
T. Iversen, ‘Power, Flexibility and the Breakdown of Centralized Wage Bargaining’, Comparative Politics, 28 (1996) 399–436; J. Pontusson and P. Swenson, ‘Labour Markets, Production Strategies and Wage — Bargaining Institutions: The Swedish Employers’ Offensive in Comparative Perspective’, Comparative Political Studies, 29 (1996) 223–50.
Robert Wade, ‘Globalization and Its Limits’, in S. Berger and R. Dore (eds), National Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996), pp. 67–76.
Wade, ‘Globalization and its Limits’ at p. 69.
D. Quinn and M. Yoyoda, ‘Measuring International Financial Regulation’ (Washington DC; Georgetown University, manuscript, 1997).
M. Feldstein and C. Horioka, ‘Domestic Savings and International Capital Flows’, The Economic Jonrnal, 90, (1980) 314–29.
T. Bayoumi, ‘Savings-Investment Correlations’, IMF Staff Papers, 37 (1990) 360–387; M. Dooley, J. Frankel and D. Mathieson, ‘International Capital Mobility: What Do Savings-Investment Correlations Tell Us?’, IMFStaff Papers, 34 1987 503–30.
The covered interest rate is typically measured as a differential against some
numeraire such as the offshore rate for short term US debt (i.e. Eurodollar rates): Richard Marston, International Financial Integration (New York: Cambridge University Press, 1995).
Jeffrey Frankel, On Exchange Rates (Cambridge, MA: MIT Press, 1993) pp. 58–9. Frankel analyses average covered interest rate differentials for the 1982–8 period (the local three month interest rate minus the Eurodollar rate, less the forward discount on the local currency). Countries with negative covered interest rate differentials were able to offer lower effective rates of return than were available in the euromarkets undoubtedly because their domestic conditions created impediments to outflows of capital.
Perhaps the prudent conclusion to draw from these data is that flow measures are at best ‘noisy’ indicators of real capital mobility because they may simply reflect short-term volatility in market condition. This ‘noise’ might be muted when countries are aggregated, resulting in a strong correlation between capital flows and the reduction of barriers to capital movements (see Figure 5.2).
A. Wagner, ‘The Nature of the Fiscal Economy’, in R. A. Musgrave and A. R. Peacock (eds), Classics in the Theory of Public Finance (London: Macmillan, 1958) 1–15.
D. R. Cameron, ‘The Expansion of the Public Economy: A Comparative Analysis’, American Political Science Review, 72 (1978) 1243–61; D. R. Cameron, ‘Social Democracy, Corporatism, Labour Quiescence, and the Representation of Economic Interest in Advanced Capitalist Society’, in J. H. Goldthorpe (ed.), Order and Conflict in Contemporary Capitalism (Oxford: Oxford University Press, 1984); Geoffrey Garrett and P. Lange, ‘Political Responses to Interdependence: What’s “Left” for the Left?’, International Organization, 45 (1991) 539–64.
Garrett, Partisan Politics, chapter 4; E. Huber and J. Stephens, ‘Political Power and Gender in the Making of the Social Democratic Service State’ (Canberra: Research Committee 19, International Sociological Association, Australian National University 19–23 August 1996).
Garrett, Partisan Politics, chapter 4.
Elsewhere, I have presented more sophisticated analysis (using panel regressions with multiplicative interactions between globalization and partisan politics) that supports this interpretation: Garrett, Partisan Politics. Essentially, strong left-labour regimes have mitigated the distributional asymmetries generated by capital market integration with ever-higher levels of public spending. In contrast, governments in countries with much weaker left parties and trade unions have chosen to exacerbate the effects of market forces by combining openness to international financial markets with cut backs in the public economy.
Ruggie, ‘International Regimes’.
E. Mendoza, G. Milesi-Ferreti and P. Asea, ‘On the Effectiveness of Tax Policy in Altering Long-Run Growth’, Journal of Public Economics 66 (1997) 99–126.
D. Quinn, ‘The Correlates of Change in International Financial Regulation’, American Political Science Review 91 (1997) 531–52; D. Swank, ‘Funding the Welfare State’, Political Studies, 46 (1998) 671–92.
Geoffrey Garrett, ‘Globalization and Taxation’ (New Haven: Yale University/manuscript, 1997).
J. G. Cummins, K. A. Hassett, and R. G. Hubbard, ‘Tax Reforms and Investment: A Cross Country Comparison’, NBER Working Paper Series No. 5232 (1995).
Swank, ‘Funding the Welfare State’.
A. Auerbach and J. Slemrod, ‘The Economic Effects of the Tax Reform Act of 1986’, Journal of Economic Literature, 35 (1997) 589–632.
OECD, Consumption Tax Trends, 2nd edn (Paris: OECD, 1997).
Garrett, Partisan Politics.
Dani Rodrik has recently sought to challenge both of these shibboleths of mainstream economics: F. Rodriguez and Dani Rodrik, ‘Trade Policy and Economic Growth: A Sceptic’s Guide’ (Cambridge, MA: Harvard Kennedy School of Government Manuscript, 1999). Dani Rodrik, ‘Who Needs Capital Account Convertibility?’ (Cambridge, MA: Harvard Kennedy School of Government Manuscript, 1998).
See also Quinn, ‘The Correlates of Change’.
J. Slemrod, ‘What Do Cross Country Studies Teach Us about Government Involvement, Prosperity and Economic Growth?’, Brookings Papers on Economic Activity, 2 (1995) 373–431.
Geoffrey Garrett, ‘The Transition to Economic and Monetary Union’ in Barry Eichengreen and J. Frieden (eds), Forging an Integrated Europe (Ann Arbor: University of Michigan Press, 1998); and Geoffrey Garrett, ‘The Politics of Maastricht’, in Barry Eichengreen and J. Frieden (eds), The Political Economy of European Monetary Unification (Boulder: Westview Press, 1994) 47–66.
Rodrik, Has Globalization Gone Too Far?
Garrett, ‘Governing in the Global Economy’.
Alesina and Perotti, ‘The Welfare State and Competitiveness’.
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© 2000 Geoffrey Garrett
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Garrett, G. (2000). Shrinking States? Globalization and National Autonomy. In: Woods, N. (eds) The Political Economy of Globalization. Palgrave, London. https://doi.org/10.1007/978-0-333-98562-5_5
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