Globalization and institutions

1. Why globalization?

Globalization did not occur by chance. People often say that it has become irresistible because of the progress made in transportation and communication techniques. Those techniques have shortened distances, crossed traditional frontiers, and freed men from the constraints of geographical location. The economy is less and less dependant upon the soil and the natural resources it conceals. But this thesis raises two questions:
1° Why technical progress ? Is it just an autonomous phenomenon that can be generated and accelerated without human innovation and a proper environment?
2° Why would technical progress be first spread among large spaces, among nations that already reached a high level of wealth?

2. Globalization, the consequence of economic freedom

Globalization is simply the extension of economic, scientitic, and cultural relationships to the world space. Those connections were already tied among nations that had accepted the free circulation, without any discrimination of products, capital, persons and businesses.
What has happened for twenty years is just the repetition on a larger scale of what happened ill 12th and 13 th century Europe or during the period that followed the industrial revolution. Today , just as in the past, the process described by Adam Smith is at work: the wealth of nations is the fruit of the extension of the network of exchange.
Twenty years ago it was the fall of the communist block, the discovery of the benefits of the market and competition, the opening of the Pacific area to world trade. Those events have launched the world economy in a world of innovation and competition.

3. Economic freedom, Growth and Development

Globalization was thus accompanied by profound institutional changes, by new rules of life in
society, which implies new behaviours. Those changes amount to the institution of economic freedom.
The degree of economic freedom today is measured by an index, and countries with the highest index are the most integrated into world trade.
Such countries have the highest growth rates, resulting in the long run in the highest per capita
incomes.
When countries are sorted within four categories : free, mostly free, mostly unfree, unfree, we can see the map of wealth and poverty on the globe.
We can also see the pace at which what were once poor countries initiated their development and attainted success.
But could that be just a matter of statistical correlation?

4. Would it be a miracle ?

There are no miracles. The parallel development of globalization and economic freedom comes  from the fact that the institutional environment quickly and profoundly changed. The most visible signs are the following :
- privatizations: a noticeable rollback of the State in the economy and the replacement of State monopolies by competing business firms.
- Openness: free entry of business and foreign capital, widening of the home market and discovery of markets abroad
- Trust: more reliable relationships in trade thanks to the transparency of prices (hence monetary stability) and contract enforcement.
- Incentives and motivation: the recognition of the right to initiative and its remuneration stimulate innovations and success.

5. Is it a model ?

Observers of globalisation might still have one crucial question. Are not those institutional changes only the (more or less consented) adoption of an economic and social.model which is that of western capitalism? Did not the USA, the embodiment of capitalism, export their political, legal and economic rules?
Actually, the concept of "model" is related to two ideas: if there's one model, there can be another one, or even several ones and thus -second idea -there could not be universal institutions.
According to this view, a model of world markets regulated by international organizations should thus be preferred to the " American" capitalist model.
The first generation of such organizations appeared at the end of the Second World War: IMF, World Bank, GATT etc.
A new generation was born with globalization, and especially the WTO, set up after a French initiative during the Marrakech Conference, with the pretext of regulating and "moralizing" competition.
ln spite of the failures of these attempts to create an economic world order, some people would like to go farther than that and establish a "world economic government", which they hope will compensate for the "market failures".

6. A universal spontaneous order

But what support is there for the idea that the market would be unable to coordinate economic
decisions and institute a spontaneous order?
The supporters of a world regulating system do not believe in the possibility of universal institutions spontaneously generated through social experiment and evolution. They argue that
institutions are embedded in the culture where they were born, and globalization erases cultural diversity because the different peoples are forced to adopt a dominating culture.
The answer to this objection consists in going beyond the inescapable cultural diversity in order to look for what is universal in any human institution. Regardless of the cultural milieu where it was generated, an institution has to respect the nature of a human being, her aspirations and her rights.
Only universal institutions will be able to meet the challenges of globalization: for beyond borders, cultures, religions, there is an imperative of human universality.
We thus have to look in that direction for the institutions necessary for the emergence of a world spontaneous order.

7. Which political institutions?

Let us start by asking which political institutions could have a universal scope and fit with globalization.
One the one hand the re-emergence of globalization with the fal1 of the communist block seems to support the idea that democracy is a primary condition to world free-trade. On the other hand, the situation in China and Viet-Nam suggests that globalization can sometimes be married to political dictatorship. The question is thus: do political institutions matter in the end?
A first aspect to take into account to answer this question is the issue of the free circulation of
men and ideas. It is a crucial element of globalization which dictatorial regimes do not respect. Howlong can economic freedom survive without political freedom?
Another aspect is the recognition of individual rights, the right to life, to liberty and property. Globalization without private property is meaningless, for only property makes contractua relationships possible.

8. Is a constitution enough?

Can we by principle argue that ,constitutional democracy is the typical institution of globalization? The role of a constitution is to protect fundamental individual rights. There is no freedom without a constitution: that is the message of Benjamin Constant. He saw constitution as a safeguard against power. It generates the "rule of law". Not only does it protect the fundamental rights of the human person, but it also constraints the govemment under the rule of law and forces them to respect and protect the rights of the citizen.
But, as Constant noted, a constitution performs its task only if it is accompanied by a "Democracy of the Moderns". However, today, it is rather the "Democracy of the Ancients" that prevails, that is the reign of the majority elected with universal suffrage.
We sometimes call "democracies" political regimes where the rights of the minority are simply ignored, and where the smallest minority -that is, the individual- is the victim of tyranny.
It is thus a mistake to believe that the organization of "free democratic elections" is enough. Some "democratic governments" can lead to the denial of the rule of law.

9. Questioning the State

We can actualy find many "globalized countries" which have a huge public sector. Bureaucracy, centralism, and monopolies have created regulatory and financial burdens which
are bad for competitiveness. The presence of the State has reduced private initiative and responsibility, discouraged innovation and destroyed property.
Globalization no doubt calls for decisive reforms in the field of political institutions:
- from Jacobinism to federalism
- from concentration of powers to their separation
- from public administration to private initiative
More generally the dividing line between the public and private spheres has to be revised according to the principle of subsidiarity. The central government should concentrate on the tasks only they can perform.

10. Governments try to escape competition

It may seem that the debate over constitutionalism is old fashioned in the context of globalization. Indeed, globalization is by itself a bulwark against political absolutism.
For countries without the rule of law, where politicians, their administrations and clientele have absolute power, access to globalization is difficult or even impossible.
More generally, globalization gives individuals autonomy, and the possibility to choose. It reduces the sovereignty of States and makes them submit them to a generalized institutional competition.
That is the reason why States want to control it. They set up regulations and protectionism under the pretext of "harmonization", on the basis of the idea that competition requires equality among competitors -when by nature competition implies diversity. They organize themselves as cartels.
After the Welfare State, here cornes now the "Shield State". The temptation of a "Fortress Europe" is great. It enables politicians and statesmen to retain their powers, to stop privatizations and maintain structural rigidities. But for how long can this last?
As Bastiat predicted, free trade always ends up reducing the State by breaking the garne of rnonopoly unions and lobbies. Instead, politicians should accept the adaptation of political institutions toward a reduction of central power and the improvement of the rule of law.