Global Economy Regulated
Global Economy Regulated
Why is the global economy so poorly regulated? And what consequences follow from this state of affairs?
It is regularly asserted that the global economy is poorly regulated. This is due to a number of factors, which primarily stem from the conflict of interest apparent between multinational corporations (MNCs), who operate on the basis of generating wealth on a global platform, and the regulatory mechanism that attempts to curtail it, namely the sovereign state.
The importance of the sovereign state is linked to territoriality: because nation-states control territory, they also control the corporations that operate within that territory. However, governments tend to be bureaucratic, authoritative, and vertically integrated. They are also, in democratic systems at least, solely responsible to the people who elect them. By contrast, MNCs are responsible to a global agenda that maximises wealth and economic growth.
As such, they are inherently set against the institutions that house them. This essay will look firstly at why the modern economy tends to be so poorly regulated, and secondly at what the implications this poor regulatory structure is likely to warrant in the future.
The creation and development of the modern nation-state was brought about as a direct result of the Treaty of Westphalia written in 1648. According to Krasner (1993), the shift that this created in the way in which international relations was practiced was indicative of the end of medieval universalism and feudalism and the beginnings of the modern state system. In this new system, politics became territorialized and borders became more intransigent and impermeable. The nation-state was seen as a politically autonomous and sovereign entity ruled by one ruler.#p#分页标题#e#
It allowed for national policy to be regulated with a relative degree of autonomy, and for taxation and regulation to be practiced by the state with relative ease. This differed from the previous system in the following ways: Strayer (1970 30, p. 31) suggests that prior to the enactment of the Treaty of Westphalia, political geography was limited to what he coins “scattered islands of political power”, which made regulatory consistency difficult to manage, and created greater levels of transience regarding population and trade.
In its place, the cementing of the treaty allowed for “solid blocks of authority” (Kobrin 2005, p. 4) to be created, which in turn allowed for greater levels of control and authority over national policy, be that trade, taxation or general policy. The establishment of a vertically integrated political system, therefore, allowed regulatory control to occur on the national level, and because the majority of trade until relatively recently was technologically limited to national boundaries, this system was effective enough for maintaining a relatively high degree of state sovereignty and control.
The establishment of the multinational corporation (MNC) served to gradually erode the traditional role of the nation-state in dictating policy. The MNC is defined by David Lilienthal (1960) as the following: multinational corporations “have their home in one country but […] operate under the laws of other countries as well” (from Fieldhouse 1986).
Additionally, according to this definition, the MNC differs from traditional business because of the MNC’s relatively rootless base of operation – because they can operate freely under the laws of any country that suits them, the economic policy and regulatory mechanisms and the sovereignty of nation-states under a system of increased internationalism are significantly eroded. The degree to which this erosion occurs has been the source of great debate, and is regularly tied to the degree to which the deregulatory trends of globalization on the whole affect state-level policy on the whole.
On the one hand, it can be argued that the effects of MNCs on the nation-state effectively erode prior assumptions of the validity of authority and sovereignty in the nation-state. Vernon (1971, p.3) suggests that, in the wake of increased internationalism, “concepts such as sovereignty and national economic strength appear curiously devoid of meaning”.
However, while it is clear that internal sovereignty and autonomy is potentially threatened by the increased exploitation by MNCs of legislative and regulatory loopholes and discrepancies, it remains difficult to ascertain precisely what is meant by sovereignty and regulatory consistency in the first place.
Indeed, the presence of the MNC may have eroded the internal sovereignty of the state but, as Kobrin argues, may have had the opposite impact upon the establishment of external sovereignty. He argues that:#p#分页标题#e#
The traditional MNE did not compromise sovereignty in any fundamental sense. It certainly did constrain autonomy and control and thus may be said to have placed some limits on the implementation of internal sovereignty. However, it reinforced the critical system defining construct of external sovereignty: mutually exclusive territoriality, borders, and geographically-based political and economic governance.
The poor regulatory system, therefore, could be argued as being viable as a means of maintaining the integrity of international trade simply because an international framework of concrete regulation and autonomy, as demonstrated by the manner in which the state itself operates, is unnecessary in a system which reinforces the external sovereignty of the state through the strengthening of their trade relations, roles and territorial prescience.
Indeed, many more conservative critics of globalisation point to its international rather than global proclivities. Vagts (1970, 740) comments that the “multinational enterprise must content itself with stringing together corporations created by the laws of different states”, while Berle and Means (1939) suggest that multinational corporations are themselves products of the actions of the nation-state, and are “conditioned upon a grant from the state” (4).
As such, while internal sovereignty and regulation is compromised by the internationalist agenda of the MNC, the presence of rigid external sovereignty relating to trade serves to create a relatively stable set of trading legislation among developed nation states. This serves the interests of those states who hold the largest stake in any multinational corporation, thus serving an internationalist rather than a globalist economic agenda.
The absence of regulatory, international law as a result of what Ball (1968, 164) calls the “lack of phasing between the development of our archaic political structures and modern business structures” has created a system in which MNCs appear to operate outside of domestic law by exploiting the sizable asymmetries apparent between different localised governmental structures. This could be seen as an inability for national governments, encumbered by notions of state-level sovereignty, to respond to the threats posed by multinational organisations, corporations and entities.
Of course, the absence of international law governing the actions of MNCs as a result of post-Westphalian nation-state politics has created a great deal of economic difficulty for less powerful states. The exploitation of “jurisdictional conflict” and asymmetry, while not threatening the sovereignty of powerful states, serves to threaten the degree to which they can maintain state-level autonomy and control.
Because the state is geographically oriented and localised, and MNCs have been capable of shifting from state to state in order to exploit legislation in particular ways, the economic power MNCs have over external sovereignty remains relatively dominant in relation to other sectors of the economy. The increased interdependence between nation-state hierarchies and the economic significance of MNCs to the functioning of the nation-state has created a conflict of interest between nation-states and MNCs. Firstly, the localised interests of the nation-state tend to be concentrated upon the welfare of its population.#p#分页标题#e#
As such, it is generally in the interest of sovereign states to expand this interest into other areas through the establishment of international laws. However, because this is against the motivations of the MNCs that work interdependently with governments, the establishment of a coherent regulatory mechanism on an international level that would inevitably curb the exploits of MNCs, along with the “archaic” and bureaucratic nature of the great majority of nation-state governments, serves to make such an act difficult to achieve. And as the actions of Westphalian governments are territorially and geographically oriented, the development of virtual economies independent of territory has served to further undermine the prior dominance of state-level law and regulation.
Indeed, the development of e-commerce and other forms of economic behaviour has served to further erode the relationship between MNCs and the state-level laws under which it operates. The development of electronic supply networks serves to undermine the national system of territoriality further; according to some critics, it entirely undermines the concept of locality and creates new avenues for the exploitation of general weaknesses inherent to a post-Westphalian economic system. Kobrin (2005) suggests the following:
If an Indian programmer located in New Delhi edits a program on a computer in New York there is no question that economic value has been created. Did the transaction take place in India or the US? Which jurisdiction gets to tax it or control it? Does either government even know that this sort of transaction has taken place?
Naturally, the consequences of the continued authority of the nation-state in an age of increased global interdependency poses significant problems for both the nation-state and those to whom that state is responsible for. While the effects of the MNC in exploiting asymmetry between nation-states posed a number of problems that circulated around ironing out deficiencies and inconsistencies between the policy of those nation-states, the prevalence of virtual commerce poses an even greater threat: because territoriality is completely redefined by the presence of cyberspace, and territoriality is no longer defined by geographical location, are the regulatory mechanisms that begin on a territorial, internationalist basis still relevant?
This shift in relationship has further implications for the authority of the nation-state and the regulatory mechanisms that previously asserted control and authority over the actions of international business: the blurring of boundaries between the domestic and the international have created a global scenario in which domestic policy can no longer serve to regulate the needs of the actors contained therein.The consequences of relatively lax international regulation as a result of the continued prevalence of policy dominated by the nation-state has created a scenario in which territorially defined policy regarding labour, capital and other forms of asserting sovereignty have been systematically eroded by international trade.Firstly, the effects of globalization in a poorly regulated market have increased levels of economic interdependency and made non-cooperation with the global economy nearly impossible for nation-states. Kobrin (2005) suggests that “The deepening of integration, fusion of markets, shift to networked organizations, and migration to cyberspace have dramatically changed the relationship between states and firms” (25).#p#分页标题#e#
Secondly, Kobrin (2005, 26) argues that political and economic space no longer coincide: the existence and continued growth of a non-territorial region that operates in virtual independence to the territorial nation-state creates significant problems in establishing an effective international jurisdiction to control and manage trade relations. Thirdly, MNCs have emerged to play a significant role in the rise of what Kobrin calls the “international civil society” (26). This in turn challenges the role and the dominance of the sovereign state in international politics.
The increased autonomy of the MNC as a result of increased levels of virtual, non-geographical trade has emphasised their importance as significant global players in the international political system. Finally, the increased dominance of cyberspace and e-commerce has generated an extraterritorial region in which the laws of the sovereign state are no longer applicable.
While prior to the development of this virtual region, post-Westphalian nation-state sovereignty could be determined by external rather than internal sovereignty in an international system of trade, the diffuse nature of territorial placement in a virtual community significantly erodes this need for corporations to operate within a given territory.
Overall, the lack of regulation in the global economy can be seen to have stemmed from the juxtaposition between modern business structures and Westphalian nation-states. The increased power of MNCs to intercommunicate and shift across boundaries in order to exploit economic asymmetry has served to create a scenario that has eroded the internal sovereignty of the state in favour of an increasingly prescient external sovereignty built upon increased dependence by nation-states upon MNCs to generate wealth.
The lack of cooperation among nation-state governments to create international law to govern these actions stems from the notion that the nation-state is responsible only to the members of that particular nation. In addition, the trade system developed by increased interrelatedness at this stage greatly contributed to economic growth. The implications of this poor regulation, however, is widespread. The emergence of an entirely non-territorial system of commerce via cyberspace erodes the significance of the territorially based nation-state.
Furthermore, this serves to undermine the sovereignty of the nation-state, as well as the authority and control it exercises, by undercutting the prior need for a corporation to exist within state territory. Also, increased interdependency and non-territorial systems of autonomy for MNCs have increased the significance of the role they play on a state level.
As such, while poor regulation of global markets in a state-level system of territorial conflict is an inevitability; simultaneously, the emergence of an extraterritorial corporation further undermines the role of the nation-state as a sovereign actor in the 21st century.#p#分页标题#e#
Ball, G. W. (1968). ‘COSMOCORP: The Importance of Being Stateless’, The Atlantic Community Quarterly, IV: 163-70.
Fieldhouse, D. K. (1986). ‘The Multinational: A Critique of a Concept In Teichova,’ Alice, Financial Times (2000). E-Procurement: A Network of Suppliers to be Woven on the Web, accessed electronically.
Kobrin, S. J. (2005). ‘Sovereignty@Bay: Globalization, Multinational Enterprise, and the International Political System.’
Krasner, S. D. (1993). ‘Westphalia and All That.’ In Goldstein, J. and R. O. Keohane, eds. Ideas and Foreign Policy. Ithaca: Cornell University Press.
Strayer, J. R. (1970). On The Medieval Origins of the Modern State. Princeton: Princeton University Press.
Vagts, D. F. (1970). ‘The Multinational Enterprise: A New Challenge for Transnational Law’, Harvard Law Review, 83.
Vernon, R. (1971). Sovereignty At Bay. New York: Basic Books.