Globalisation and social governance in Europe and...

EUROPEAN COMMISSION

FORWARD STUDIES UNIT

Globalization and Social Governance

in Europe and the United States

Paper presented at a Round Table organised by The Forward Studies Unit

and The Center for Applied Policy Research, C•A•P, (Munich) and with

the support of the German Marshall Fund of the United States

Edited by Wolfgang Bücherl and Thomas Jansen

WORKING PAPER, 1999

The contents of this publication do not necessarily reflect the opinion or position ofthe European Commission.

2 Globalization and Social Governance in Europe and the US

Globalization and Social Governance in Europe and the US 3

Table of contents

LIST OF CONTRIBUTORS............................................................................................................... 7

INTRODUCTORY PAPERS........................................................................................................... 9

GLOBALIZATION: ONE WORLD, TWO VERSIONS................................................................... 11

KENAN PATRICK JARBOE .............................................................................................................. 11

GLOBALIZATION AND SOCIAL GOVERNANCE IN EUROPE AND THE US........................... 21

MARIO TELO ................................................................................................................................ 21

GOVERNANCE IN A POST-INTERDEPENDENT WORLD.......................................................... 29

WOLFGANG H. REINICKE.............................................................................................................. 29

OPENING THE WORLD TO OMNILATERALISM – EUROPEAN VIEW..................................... 39

WOLFGANG PAPE ......................................................................................................................... 39

DISCUSSION PAPERS THE FUTURE OF LABOR RELATIONS – OPTIONS ANDSTRATEGIES................................................................................................................................ 53

STATEMENT BY OLIVER WIECK, .............................................................................................. 55

FEDERATION OF GERMAN INDUSTRIES, COLOGNE.......................................................................... 55

WHAT IS THE IMPACT OF GLOBALISATION ON EUROPEAN INDUSTRIAL RELATIONS? . 59

STATEMENT BY BERNADETTE TESCH-SÉGOL EURO-FIET (UNION), BRUSSELS................................. 59

STATEMENT BY MARINO MARCICH......................................................................................... 63

NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, D.C.............................................. 63

U.S. WORKERS IN A GLOBAL ECONOMY: A TRADE UNION PERSPECTIVE........................ 69

STATEMENT BY LINDA EWING INTERNATIONAL UNION, UAW....................................................... 69

DISCUSSION PAPER: WELFARE AND EDUCATION- THE MOMENTUM FOR REFORM73

GLOBALIZATION, THE WELFARE STATE, AND RECOMMODIFICATION ............................ 75

GIULIANO BONOLI........................................................................................................................ 75

‘EDUCATION IS MORE’: THE MOMENTUM FOR REFORM ..................................................... 87

STATEMENT BY LYNNE CHISHOLM EUROPEAN COMMISSION, DGXXII (EDUCATION, TRAINING,YOUTH) ....................................................................................................................................... 87

FURTHER STATEMENTS/COMMENTS ................................................................................... 93

RESPONSIVE GOVERNANCE IN A GLOBALIZING WORLD .................................................... 95

WOLFGANG BÜCHERL .................................................................................................................. 95

GLOBALIZATION AND SOCIAL GOVERNANCE IN EUROPE AND THE US........................... 99

GARY GEIPEL ............................................................................................................................... 99

GLOBALISATION AND SOCIAL GOVERNANCE IN EUROPE AND THE US ......................... 103

KRISTEN E. SUKALAC ................................................................................................................. 103

GLOBALIZATION AND SOCIAL GOVERNANCE THE EMPLOYMENT CHALLENGE.......... 105


MARIÀNGELS FORTUNY .............................................................................................................. 105

GLOBALIZATION AND SOCIAL GOVERNANCE IN EUROPE AND THE US......................... 109

AGNIESZKA PAWLOWSKA ........................................................................................................... 109

GLOBALIZATION AND SOCIAL GOVERNANCE IN EUROPE AND THE US......................... 111

BRIAN M. MURPHY .................................................................................................................... 111

CONSEQUENCES OF GLOBALIZATION FOR SOCIAL GOVERNANCE................................. 113

JONAS TALLBERG ....................................................................................................................... 113

SUSTAINABLE GLOBALIZATION............................................................................................. 117

FRÉDÉRIQUE SACHWALD ............................................................................................................ 117

CONCLUDING PAPERS ............................................................................................................ 121

CONCLUDING THOUGHTS........................................................................................................ 123

HOWARD ROSEN ........................................................................................................................ 123

SUMMARY OF THE DISCUSSION ............................................................................................. 127

STEPHAN BIERLING .................................................................................................................... 127

CONFERENCE SUMMARY......................................................................................................... 129

WOLFGANG BÜCHERL ................................................................................................................ 129


Preface

Globalization is proving to be a confusing experience in many ways for almost everyactor involved in the process, whether this actor is a nation-state, an internationalorganisation or simply an individual. One major reason that many fear„globalization“ is the ambiguity inherent to the term. Although few hesitate to use it,most would not be able to offer an answer to the simple questions of „What isglobalization?“ and „What does globalization mean for the actors involved?“. In anattempt to tackle these questions and to stimulate debate regarding the process ofglobalization, the Forward Studies Unit of the European Commission and the Centerfor Applied Policy Research at Munich University held a transatlantic round table on„Globalization and Social Governance in Europe and the US“ primarily designed foryounger policy makers from these two principle actors in both the world economy andworld politics today. The conference, which took place on November 19-20, 1998 inBrussels, set an explicit goal of gaining a better understanding of the changes in botheconomies and societies in Europe and the USA caused by this process ofglobalization.

One of the major points of divergence in the debate that surrounds the term„globalization“ is the perception of the role of the nation-state now and in the future.Many have argued that globalization has rendered the nation-state in many respects,especially in the economic domain, hardly able to effectively wield real power. Manywould in fact perhaps welcome this change, as it could allow market tendencies todictate economic policy, thereby replacing the nation-state as the central economicactor in the world economy. The problem with such a movement away from powerfor the state is of course, that while many will reap benefits from this newly„globalized“ economy, others will be hurt by the stiff competition that it also implies.A tendency towards conflict between the nation-state and the global economy willthen naturally arise, according to many. If national governments feel the need toprotect the citizens or business from globalization in order to protect the social fabricon which the nation-state is based, then tension will arise between these twocontradictory actors. Therefore, this conference asked the participants to offerexplanations and policies as to how the globalized economy can be allowed to run itscourse without alienating too many. The participants also debated the future role ofthe nation-state, and if it will be able to maintain its current status in the internationalsystem. Finally, the participants tried to analyze various factors and put a spin onglobalization as a whole: is it a process that should be promoted or hindered by bothnational governments and transnational actors as for example the European Union?

By offering papers on the various topics and then promoting vigorous discussion anddebate between the participants of the Roundtable on „Globalization and SocialGovernance in Europe and the US“, it was hoped that an often vague debate that canhinge upon cliches would be given substance in regards to policy choices that willhave to be made. It is important to note that this conference was specifically designedfor younger policy makers. In many ways their opinions are especially valuablebecause the arguments of the participants in this roundtable represent a cross-section


of these opinions and arguments that will be used in this debate as it intensifies in thenext decade.

The conference was designed as a roundtable of the programme "ImprovingResponsiveness to International Change" which the Center for Applied PolicyResearch conducts in order to regularly gather primarily younger policy makers andacademics from Europe and the US. We are grateful to the German Marshall Fund ofthe United States for their generous support.

Thomas Jansen Wolfgang BücherlAdvisor Research FellowForward Studies Unit Center for Applied Policy Research


List of contributors

Jean-Claude ThébaultDirector of the Forward Studies Unit, European Commission, Brussels

Josef JanningDirector of the Research Group on European Affairs, Center for Applied PolicyResearch (C.A.P), Ludwig-Maximilian University of Munich

Thomas JansenAdvisor, Forward Studies Unit, European Commission, Brussels

Mario TeloResearch Director of the Institut d'Etudes Européennes, Université Libre, Brussels

Kenan JarboeSenior Fellow, Progressive Policy Institute, Washington, D.C.

John MorleyAdvisor to the Director General, Directorate General V, European Commission,Brussels

Douglas MerrillResearch Fellow, C.A.P, Research Group on the Global Future, Munich

Reiner HoffmannDirector, European Trade Union Institute, Brussels

Frédérique SachwaldSenior Research Fellow, Institut Français des Relations Internationales, IFRI, Paris;University Paris XIII

Alexis JacqueminAdvisor, Forward Studies Unit, European Commission, Brussels

Oliver WieckRegional Director, North and Latin America, Federation of German Industry, Cologne

Bernadette Tesch-SegolSectretary General, Euro-Fiet, Brussels

David SmithPolicy Director, AFL-CIO, Washington, D.C.

Marino MarcichDirector, International Investment & Finance, National Association of Manufacturers,Washington, D.C.


John ClarkDirector, Public Policy Institute, Hudson Institute, Indianapolis

Giuliano BonoliResearch Fellow, University of Bath

Sharon DalyChief Lobbyist, Catholic Charities-USA, Washington, D.C.

Lynne ChisholmAdvisor, DG XXII/U2/Coordination and Planning, European Commission, Brussels

Wolfgang BücherlResearch Fellow, Center for Applied Policy Research, Research Group on EuropeanAffairs, Munich

Wolfgang ReinickeSenior Fellow, The World Bank, The Brookings Institution, Washington, D.C.

Wolfgang PapeAdvisor, Forward Studies Unit, The European Commission, Brussels

Stephan BierlingAssistant Professor, Ludwig Maximilian University of Munich

Howard RosenMinority Staff, Director, Joint Economic Committee, Washington, D.C.

Lucio PenchProject Coordinator, Forward Studies Unit, European Commission, Brussels


INTRODUCTORY PAPERS


Globalization: one World, two Versions

Kenan Patrick Jarboe

Introduction

That the world is changing seems obvious to most observers. What is less obvious isthe structure of those changes. Individuals, communities, and firms are alreadystruggling with how to cope with an increasingly globalized economy. Many feel thatthey are unable to determine their own destinies in the face of what seems to berelentless world-wide economic integration. Options presented range from theenthusiastic embrace of the global village to advocacy of community self-reliance.We are just beginning to fathom the emergence of what is commonly referred to asthe global economy.

I will suggest in this essay that there are really two versions of economicglobalization: the late-industrial age form, and the early-information era variant. Itremains to be seen whether these two versions of globalization are mutually exclusive,competing models or whether they are complementary. At least in the near term, bothversions will be found in the global economic system, resulting in a mixed mosaic. Itis clear, however, that the two are very different and have different ramifications forgovernance and society. Note that I will be addressing globalization as an economicand a political phenomena, even though it is the cultural dimension which may beresponsible for much of the public reaction.

The industrial age gave us a centralized, hierarchical, technocratic form ofgovernment management. The information era is creating a decentralized, networksystem of governance. To use an American sports metaphor:

If baseball is the remembrance of our pastoral past and football is based on the mythology ofour industrial-corporate present, then basketball is the metaphor for our information-entrepreneurial future. Basketball combines creative individual expression and initiative with afluid team approach in a fast-paced environment. The same description applies to the modern“high-performance” work organizations needed in today’s knowledge-based economy.1

While the forms of governance do not correspond directly with the forms of economicglobalization, they are connected and derivative. However, that is not to say thatcentralized forms of governance are inappropriate for information-age problems, orthat network forms of governance may not be applicable for problems of industrialglobalization. Governance in the 21st century is likely to be a varied pattern ofcentralized-decentralized models, similar to the emerging rich mosaic of economicstructures.

1 Kenan Patrick Jarboe, Letters to the Editor, New York Times, September 9, 1998.


Industrial-era globalization

Economic activity has always meant meeting human needs – either by directlymeeting those needs or indirectly by supplying the productive means with which tomeet those needs. In the industrial era, a revolution took place with respect to themeans of production. Machine made interchangeable parts assembled in a factorysystem led to an explosion of productivity and a new emphasis on volume production.Key to this system was the division of labor, including the division between thinkersand doers – labeled “Taylorism” in America and “Fordism” in Europe (although thereare differences implied in those terms). Managers were thinkers and workers weredoers.2

Of course, the process was more than just the rise of the factory system and massproduction. A number of changes occurred that can be loosely labeled as“modernization”. These changes include urbanization, increased individual mobility(both geographically and socially), the replacement of a self-sufficient economy witha market economy, increased prosperity and materialism, and the rise of the middle-class.3

Much of the economic history of the 20th century has been the slow emergence of aglobal version of the modern industrial economy. This process of globalization is welldocumented, if not well understood. As one commentator succinctly described it:

For the first time in human history, anything can be made anywhere and sold everywhere. Incapitalistic economics that means making each component and performing each activity at theplace on the globe where it can be most cheaply done and selling the resulting products orservices wherever prices and profits are highest.4

This vision is an apt representation of the late industrial-era model of production –even though it is not exactly true.5 A modern assembly-line type factory, highlycapital intensive and “dumbed down” by design to eliminate the need for workerskills, can be built in any location where there is cheap labor yet an adequateinfrastructure. The resulting implied competition between production locations gaverise in the 1980s to the concern of governments, both nationally and locally, abouttheir economic competitiveness – a concern that continues in a different form in lightof rapid movements of investment capital.

2 Of course, this theoretical division never really existed in its pure form. Part of the managers job was doing –translating information and following of procedures. Part of workers job was always thinking – using their tacitknowledge to make the system work.

3 For a succinct description of modernization, at least from a European perspective, see Norman Davies, Europe:A History, Oxford University Press, New York, 1996, pp. 764-782 and Appendix III, “Modernization: TheComponent Processes”, p. 1293.

4 Lester C. Thurow, The Future of Capitalism, William Morrow and Company, New York, 1996, p. 115.

5 In industrial era globalization, costs, especially labor costs, are not the only factor in determining the location ofa production facility. Other factors, such as resources, transportation, closeness to market, and preferences of theowners/managers all play an important part.


This current late-industrial era version of globalization differs in detail from theearlier models, i.e. La Belle Epoch and post-World War II. Most importantly,globalization has changed from trade to economic integration. The difference is bestseen in the shift of trade policy from issues concerning at-the-border activities (tariffsand customs regulations) to questions arising from internal operations of a nation’smarket. The major new topics of trade and international economic policy reflect thisshift: currency controls and capital flows, intellectual policy, competition policy, anti-corruption policy, investment policy, labor standards, and environmental standards.

But the basic framework of industrial era globalization is still the same. Capital (bothphysical capital and financial capital) is mobile, while labor is not. The result is “theevisceration of ties between place and capital.”6 In this sense, the current concernsabout so-called casino capitalism is nothing new. The imbalance leads some to call forrestrictions on the mobility of capital in order to allow individual (workers) and localgovernance structures to assert some degree of control. Such restrictions, however, flyin the face of the economic rationale that production should be located wherever it ismost efficient. Thus, the debate over globalization is often set up as one betweeneconomic values and social values.

Globalization in the information age

Over 200 years ago, Adam Smith argued that the wealth of nations consisted of itsproductive abilities, not its hoard of gold or other precious commodities. Today, thatlesson is still relevant – with a new twist. The wealth of nations (and communities andindividuals) still lies with their productive capability. But, productive capability is nolonger completely depended on capital and equipment. In the information era,productive capability is becoming more a function of workers’ skills, knowledge, andexpertise. As Peter Drucker has recently observed:

Increasingly, the human being does not work in mass production, but in what might be called‘team production.’ And that means that increasingly the producing human being is aknowledge worker. Workers as they did before the Industrial Revolution, own the means ofproduction. The means is between their ears.7

In part, the rise of the information age has been made possible by advances incomputer and telecommunications technology (tele-informatics). Tele-informatics hasenabled all individuals involved in a production process, from customer to supplier toengineer to worker, to have access to the same information and cooperatively shareideas. This ability to work together through computers on a real time basis hasallowed firms to sharpen their core competencies, or to increase their specialization,and find and work with other firms that have critical competencies which complementand bolster their business efforts.

6 Michael H. Shuman, Going Local: Creating self-reliant Communities in a Global Age, The Free Press, NewYork, 1998, p. 43.

7 Quoted in Patricia Panchak, “The Future of Manufacturing: An exclusive interview with Peter Drucker”,Industry Week, September 21, 1998, pp. 102-104.


Companies and other institutions are using these technologies to re-structure theiroperations. In essence, we are seeing the creation of a new decentralized socialorganization of work – variations of which have been tried before with only limitedsuccess.8 In this new system, success depends on the ability to capture and use theskills and knowledge of the entire workforce, rather than rely on the knowledge ofsome small specialized information elite to direct the organization from above.Empowerment, flattening and decentralization of the organization, and a focus oninnovation and continuous improvement are all hallmarks of the modern enterprise.Even in what might be considered lower-level activities, information and knowledgeplays an increasingly important role as this new social organization of work drivesfront-line workers to assume greater and greater responsibility for their own tasks. Inan information-driven economy, the key to success is so well known that it hasbecome a cliché: “working smarter.”9

Hand in hand with the changing nature of the production process is a switch inbusiness strategy: from lowest cost mass produced good to “total customersatisfaction” and high valued-added. As one observer described the process in thecomputer industry:

Businesses paid new attention to total customer satisfaction by delivering a complete systemof hardware, software, and service. Like IBM, many discovered that offering service maybring more profit to the firm and more value to the customer than simply selling hardwarewhose price continues to fall.10

As a result, the traditional barrier between goods and services is increasingly blurred.As one business analysts puts it, “Producers think they are making products.Customer think they are buying services. From the customer’s standpoint, a product isnothing more than a tangible means of getting a service performed.”11 In such asystem, customization becomes a key competitive advantage. The result is morecompetition on intangibles (quality, features, etc) as companies seek to avoidinformation-heighten competition based on price (the so-called frictionlesscommerce) for those products and services which remain indistinguishable, i.e.commodities.

A third component of the information age is the rise of the value of information as anend commodity, in and of itself. The output of those empowered workers is morelikely to be an intangible – such as ideas, services, music, literature, etc. – rather than

8 Much of the current attempt to create “high performance work organizations” is a direct descendent of earlierexperiments under the rubric of sociotechnical systems.

9 For two perspectives on working smarter, see David A. Garvin, Working Smarter, Harvard Business SchoolVideo Series, Boston, MA 1997; andRay Marshall and Marc Tucker, Thinking for a Living: Education and the Wealth of Nations, Basic Books, NewYork, 1992.

10 Lewis M. Branscomb, “America’s Industrial Comeback: a Review of ‘The Productive Edge: How U.S.Industries Are Pointing the Way to a New Era of Economic Growth’”, Scientific American, August 1998.

11 Rosabeth Moss Kanter, World Class, Simon & Schuster, New York, 1995, p. 49.


a physical good. In this sense, advanced economies are becoming “weightless.”12

Information previously available only as a service becomes a mass produced good.Information services (both customized and mass produced) are increasingly anintegral part of a manufactured good.

However, in this new system of production, utilization of information and knowledgeis what counts, not just its production or manipulation. The future belongs not solelyto the computer programmer and the knowledge creator – but, as importantly, to theknowledge user. That includes the ability to use both formal knowledge (which isexplicit and codified in books, manuals, and databases) and tacit knowledge (which isexperiential and intuitive).

Economics and business under this new system will be fundamentally altered, eventhough some of the changes may be gradual enough so as to not appear radicallydifferent. In the new information age, the rules of industrial-era production no longerapply. A major rule of economic efficiency is the substitution of expensive resourceswith cheaper resources. In ancient times, this may have meant the use of slaves ratherthan freemen. In industrialization, it clearly meant the substitution of mechanicalenergy for human/animal energy, as manifested by the substitution of machinery forlabor (or as economists would say, capital for labor). In the information age, it meansthe substitution of information (which has no reproduction costs, only creation costs)for capital and labor.

Economists are gradually exploring the results of this shift. New rules of economicgrowth are emerging that focus on skills and information as the drivers of increasedproductivity and economic growth and as the key commodities in the market place.For example, previously knowledge was assumed to be a pure public good that movesfreely. More recently some economists have pointed out that information andknowledge is different from other forms of resources (land/financial capital/physicalcapital/labor).13 Information and knowledge varies in terms of both rivalry (ability ofmore than one person to use the economic good at the same time – a non-rival good isone that can be used by more than one person at a time, such as a software program)and excludability (the ability of someone to prevent others from using the economicgood). Knowledge is infinitely expandable and inherently uncertain concerning itsvalue. As a result, spillovers from knowledge and the context in which knowledge isused are key to its potential contribution to economic activities, unlike for other formsof resources. Because of these differences, some basic assumptions about economicpolicies are subject to careful reexamination.

These changes in the nature of economic activity result in a new form ofglobalization. In this new information driven economy, the importance of physicalcapital is diminished with respect to human capital, skill, local relationship, andknowledge, etc. Physical capital is easily transferable from one location to anotherlocation; knowledge and human capital is not. A worker’s skills and formal and tacit

12 See Danny Tyson Quah, “Policies for the weightless economy,” Social Market Foundation Lecture, London,April 21, 1998.

13 For example, see Paul M. Romer, “Endogenous Technological Change,” Journal of Political Economy, 98(5),October, 1990, pp. S71-S107.


knowledge is as mobile or immobile as the worker. Codified knowledge is easilyshared, especially given advanced tele-informatics technology. But, as it is a non-rivalgood, knowledge is not transferred in the sense that it leaves a location (and istherefore no longer of economic value in that location) when it is shared.

If the new key factor of competitive economic success is that cluster of human capital,skills, knowledge, and local relationships, etc., then production may not be as mobileas physical capital. In the new economy, production may be rooted in place to agreater extent then it was in the industrial age. In this new economy, place-basedcomparative advantage is rooted not in a place’s natural resources or in its currentphysical capital (which may flee at any moment) but in its (relatively immobile)human resources. Thus, as the regional school of economic development asserts, thenew key factor of competitive economic success is clusters of human capital, skills,knowledge, and local relationships.14

Yet, in the new information age, individuals and information appear to be moremobile than ever. People can fly anywhere in the world and communicateinstantaneously. Tele-informatics allows human resources to be utilized and sharedacross traditional boundaries of time and space– resulting in what some call the death-of-distance. This has lead some to argue that new information technologies will causeservices to follow manufacturing toward footloose production.15

It is not clear that this death-of-distance argument holds true in an information-richproduction system, given the importance of both tacit and formal knowledge. Tacitknowledge is needed for customization and the ability to adapt to rapidly changingsituations that are the hallmark of the information age. Tele-informatics does notpreclude or substitute for face-to-face interactions – both planned and serendipitous.Face-to-face interaction remain the most information intensive means ofcommunications, an important factor in an information-rich economy. As onecommentator put it: “Paradoxically, location matters more than ever in high tech. Tobe a player in Silicon Valley, you have to be in peoples’ faces.”16

Rather than the death-of-distance, we are seeing the localization of global knowledge– the importance of being there. Customized services depend on the combination oftacit localized knowledge and information from global sources to meet the needs oflocal customers. For example, a local insurance agent can tap into the company’sknowledge base (formal and informal) to better custom design coverage to meet thespecialized needs of a local client. The result is the creation of a system of productionthat is strongly rooted in its local market and local knowledge-based comparativeadvantage, while drawing upon resources from, and contributing resources to, globalnetworks.

14 For example, see Michael E. Porter, The Competitive Advantage of Nations, The Free Press, NY, 1990.

15 See Frances Cairncross, The Death of Distance: How the Communications Revolution Will Change Our Lives,Harvard Business School Press, Boston, MA, 1997, andWilliam Knoke, Bold New World, Kodansha International, New York, 1996.

16 Paul Saffo of the Institute of the Future in Menlo Park, CA quoted in G. Pascal Zachary, “MegacommutersBegin to Thrive As They Head to Silicon Valley”, Wall Street Journal, September 9, 1998, online edition.


Implications for governance

How the interaction between these two systems of globalization plays out willinfluence (and define) the challenge to governance. The problems and concernscreated by one form of globalization are likely to be very different. Likewise, theorganizational forms and political economy developed under each system will createalternative ways of grappling with the various problems and concerns. What mayevolve is a mosaic of economic organizational forms and governance models – ratherthan one universal model.

Problems of governance in the industrial-era

Social governance in the industrial age closely mirrored the corporate governancemodel that evolved in the transformation from individual/family capitalism tomanagerial capitalism.17 In the United States, the good-government movementcoincided with the rise of the large corporation and the spread of professionalmanagement. This trend was accentuated as government moved from an activity ofmaking the rules and dispensing justice to a provider of public services. Governancebecame management. Professionally trained civil servants replace politicalfunctionaries. It was (and is) the age of the bureaucrat and eventually the technocrat.It was also corporatist. Operating under such a system, the obvious solution to the riseof large, powerful corporations was the creation of countervailing powers in “biggovernment” and “big labor.”18

Under this system, the logical response to the problems of globalization is hierarchicaland bureaucratic. Such a response I will call “internationalism” – or what others mightlabel “one-world-ism.” It involves the granting of government powers andresponsibilities to supra-national organizations. This may be an appropriate solution tothat set of management problems that cross national boundaries and have thereforebecome international or global nature.

Adoption of an industrial-era form of governance at a global level may provide thesame mitigation of the problems of industrialization and modernization that national-level forms of industrial-age governance accomplished. Comparing the problems ofthe earlier days of managerial capitalism to today, those accomplishments have beensignificant – regardless of the what the critics on both the left and right have said. Inthe United States, the Roosevelt to Roosevelt reforms (from Teddy to FDR) created amixed-economy of private enterprise and government regulation/management that hasworked. The extension of some of those same forms of governance to the global level– and to areas only now being touched by managerial capitalism, i.e. emergingmarkets – may be called for, and may go far to quell the fears of casino capitalism.

17 For a history of the rise of managerial capitalism, see Alfred D. Chandler, Jr., The Visible Hand: TheManagerial Revolution in American Business, Harvard University Press, 1977.

18 For a classic description of “the system”, see John Kenneth Galbraith, The New Industrial State, HoughtonMifflin, Boston, MA, 1967.


Such an extension of ways of coping with industrialization will not, however, answerthe fundamental critics of globalization. Much of the fear and loathing ofglobalization is not necessarily a nationalistic phenomena. It is more likely locally andregionally based. Those who disdain global government also dislike distant nationalgovernment. They ask the question “Can we possibly benefit from a system thatdestroys local and regional governments while handing real power to facelesscorporate bureaucracies in Geneva, Tokyo, and Brussels?”19 Substitute Washingtonand New York, and that statement would have made sense to 19th and early 20th

century American populists. Thus, the issue is not globalism but the global spread ofmodernization – with all of the concerns over loss of control, alienation,environmental degradation, etc.

It is also unclear that an extension of the industrial-era form of governance is suitableto address the problems of information-age globalism. A more networked,decentralized form of governance may be more appropriate. The current debate overinternational flows of financial capital illustrates the myriad of possibilities of thecombination of industrial-era and information-age governance. Alternatives proposalsrange from greater local control to greater coordination of local/national regulatoryauthorities to the creation of a supra-international regulatory body. How this systemevolves will help elucidate both the forces at play and the possible outcomes to otherissues of globalization.

Governance in the information age

Governance in the information age is likely to move in the same direction as privatesector organizational forms. In the United States, this is evidenced in the anti-government focus of the Republican party and the “third way” anti-bureaucracy,decentralization orientation within the Democratic party, especially the so-called NewDemocrats.

These forms of governance are decentralized and operate at the local/regional (sub-national) level. They are networks rather than hierarchies; coordination rather thancontrol. Under such a framework, the response to problems of globalization arenetwork based and outside of the traditional hierarchical forms of government. It willnot, however, resemble the hyper-individualistic model of the techno-libertarians. Keyto this decentralized form of governance is the role of intermediaries and mediatingstructures. These mediating structures include neighborhood groups, churches, unions,and other civic organizations.

The U.S. has a rich history of local level intermediaries.20 But, this is not simply anAmerican phenomena. The “velvet revolution” in East Europe is a testimony to thepower of civic organizations. European governance also has a recognized placeestablished for the so-called social partners. We have also seen the rising of theimportance of non-governmental organization (NGOs) in international affairs.

19 Jerry Mander, “Facing the Rising Tide,” in The Case Against the Global Economy and for a Turn Toward theLocal, edited by Jerry Mander and Edward Goldsmith, Sierra Club Books, San Francisco, 1996, pp. 5-6.

20 For example, see Alexis de Tocqueville’s Democracy in America.


However, only recently has renewed attention been paid in the U.S. to the concept ofcivil society and civic renewal.21

One important role of such intermediaries is as a mechanism for the delivery ofservices. As such, the operation of intermediaries is relatively straightforward.Questions arise over efficiency, effectiveness, and accountability in the use of publicfunds. But, as non-governmental organizations have long delivered social services inthe United States, these questions are answerable within the context of existingexperience.

What is not so straightforward is the implications of the broader economic shift on thenature of the governmental services needed. For example, the information-agedemands on the educational system are different from those of the past. As LynneChisholm remarks, this shift “would imply an across the board and a root and branchreformulation of the structures, contents and processes of teaching and learning as wehave come to know them.”22 Part of that reformulation may well be a new set of rolesand responsibilities for intermediaries – as well as new organizational structureswhich intermediaries might assume to carry out those roles and responsibilities.

More importantly, these intermediaries take on a significant role not only in thedelivery of services but also in the conduct of governance itself. Wolfgang Reinickedescribes this as a process of horizontal subsidiary: the delegation of aspects of publicpolicy making to non-state actors such as business, non-government organizations,foundations, and other interested civil society participants.23

Intermediaries have often been seen as antithetical to governance, rather than as anecessary component. In some cases, unfortunately, intermediaries have not beenhealthy for the democratic process. A number of questions remain to be answeredabout the role of intermediaries in governance within the democratic process. Keyamong those are concerns about access and capabilities. In order to work, the processmust be highly inclusive – so that all interested parties have both the opportunity andthe resources with which to fully participate. However, all interested parties mustdisclose their interests and have a legitimate stake in the process – especially if theprocess is to avoid manipulation and “astro-turf” politics.24 Likewise, those whomight be affected by the decision but may not understand their stake in the outcome,and the public at large, must also be represented in the process. Otherwise, the process

21 See numerous articles in the Brookings Review, Fall 1997 Vol. 15 No. 4, andA Nation Of Spectators: How Civic Disengagement Weakens America And What We Can Do About It, The FinalReport of the National Commission on Civic Renewal, Washington DC, 1998, available athttp://www.puaf.umd.edu/civicrenewal

22 Lynne Chisholm, “‘Education is More’: The Momentum for Reform”, presented at Globalization and SocialGovernance in Europe and the US: Improving Responsiveness to International Change Project Round Table,Brussels, 19/20 November 1998.

23 Wolfgang H. Reinicke, Global Public Policy: Governing without Government?, Brookings Institution Press,Washington, DC, 1998.

24 “Astro-turf” politics is a term used to describe artificially created grassroots politics, whereby local interestgroups are covertly sponsored by or recruited by public relations apparatuses to give the appearance of anoutpouring of local support for one side of an issue.


can easily devolve to business-as-usual interest group politics and the rule of irontriangle.25

Thus, the current resurgence of civic groups (or special interests) looks like a crisis oflegitimacy for the traditional governance forms. It need not be. It may instead be anevolution to a rich new mosaic. It is a mosaic that is still developing, and deserving ofrenewed scrutiny.

Conclusion

Just as new forms of economic organization are emerging to characterize theinformation age, so to are new forms of governance arising. It would bepresumptuous, naïve, and most likely wrong to argue that the movement to a newform of work organization and a decentralized network form of governance willanswer the problems of modernization and industrialization. It would be correct,however, to assert that it may help alleviate some of the concerns – while creatingnew ones.

Thus, the problems of governance in the global economy of the 21st century are likelyto be a mix of new and old. The struggle between these various forms is likely todefine the political economy for the next few decades, as the world seeks to create themost appropriate structure for the specific problem at hand. In the final result, we arelikely to see a rich mosaic of governance forms – mirroring the blend of forms ofeconomic organization.

Models Compared

Industrial Age

Centralized command and controlHierarchy and bureaucracy

Mass production – mass consumptionStandardizationEconomies of scale and scope

National and international governance

Corporatist

Direct government management andServiceDelivery

Internationalism/one-worldism

Information Age

decentralized coordinationnetwork

flexible productioncustomizationeconomies of flexibility and speed

local and regional control

proliferation of non-governmentalactors

rise of “intermediaries”

regionalism

25 The “iron triangle” is used to describe an exclusive system of public policy in the United States, whereby policyis made by negotiations among a governmental agency, the Congressional committee or subcommittee withjurisdiction over that agency and selected interest groups with a stake in the policy. See J. Leiper Freeman, ThePolitical Process, Random House, New York, 1965.


Globalization and Social Governance in Europeand the US

Mario Telo

Globalization is a challenge for the social sciences: while political scientists oftenignore the economic transformations, technological and financial changes or hugecapital movements, the economists ignore the socio-political implications ofeconomic and technological changes. Capitalism has been since its earliest stages aninternational revolutionary force unifying the world economy and breaking obstaclestowards a worldwide economic system.

1945 is a milestone in the history of the construction of a transatlantic marketcharacterized by common institutions (IMF, World bank, NATO, etc.) and by acommon currency (the dollar in the framework of the Bretton Woods system until1971). The European communities would never have been born without such apositive international environment. So, what is really new, making "globalization" theword of the year ? What is the difference between the former economic, financial,technological interdependence in the ‘70s and the ‘80s 1 and the current globalization?I would like to stress two elements, a quantitative one and a qualitative one.

One of the main causes of the current globalization wave is a political one: the break-down of the communist bloc in 1989-91 and the fall of the political division of theworld economy, with its huge implications not only for the second world, but also forthe so-called third world (India, China, part of Latin America, etc. are no longerlooking for alternative economic models to the market economy). Between 1989 and1998 we had two parallel processes: diffusion of the western economic patterns anddemocratization2, including an enlargement of the international organizations createdin the West after World War II.

Secondly, the unification of the world markets combined with new technologies isprovoking a retreat of the state3, the transformation of world power hierarchies andthe move of influence centers away from nation states, still the main regulating factorduring the previous decades. Of course, some states are declining more than others;and the end of state's traditional sovereignty does not negate other important functionsof the state. But it is a matter of fact that the era of national Keynesian regulation isover and that economic authority and governance are more and more shifting fromnational states to other institutions:

- to private transnational companies and private networks with the consequentincreasing privatization of social governance (micro-regulation);

1 Robert O. Keohane, Joseph S. Nye, Power and Interdependence, Harvard, 1989.2 Samuel Huntington, The Third Wave, 1993.3 Susan Strange, The Retreat of the State, Cambridge, 1996.


- to supranational and international organizations and public authorities,which often provokes a democratic deficit due to the growing distancebetween citizens on the one hand and supranational technocracies and"cosmocracy" on the other hand (macro-regulation);

- to global actors and to global strategies, which can lead to "triadicgovernance" but also to international and interregional conflicts, botheconomic and political. The USA has a global strategy for a "new worldorder"; the EU has an African policy (Lomé and Yaoundé, BarcelonaProcess), an Asian policy (Asem), a Latin-American policy; and Japan istrying to build up its Asia-Pacific strategy.

The new territorial dimensions

Globalization strengthens functional links, transnational connections and overlappingallegiances. But what about the territorial dimension of interest representation anddemocratic participation ?

Globalization provokes convergences (common patterns and new technologies,communications, standards, "Macdonaldism", global village) but at the same time alsodivergences: new identities and new social demands are arising at different scales.They often have one similar feature in common: to put on the agenda the territorialdimension of interests and identities against the anonymous functional dimension oftechnological, economic and social change:

- Localism and fragmentation - countries are shaped in new hierarchies anddifferentiated according to the international performance of their regions ortowns while at the same time many territories are not integrated into theworld economy. Furthermore, the best performing towns or regions arebecoming direct channels (often with support of state) to success on theinternational market. That can lead to infrastate-secessionism: microregionsdemanding independence to cope better as a unit with globalcompetitiveness (Flanders, Lombardy, Catalona, etc.).

- Neo-nationalism, ethnocentrism, intolerance and fundamentalistic refusal ofglobalization, modernization and democracy.

- Macroregionalism - suprastate regional economic and political integration(European Union, NAFTA, Mercosur, Asean, etc.). I will particularly focuson the last one and try to answer the question of how far can regionalgovernance cope with globalization and democratization?

Regionalization and neo-regionalism: three scenarios

My answer is that regionalization is an ambiguous phenomenon needing both acomparative analysis and an international relations theory.


First, one must distinguish between regionalization as a spontaneous trend of theworld society and trade liberalization and neo-regionalism as a policy, decided bysocial, economic and political actors or even more as a strategy.

Since the middle 1980s we have witnessed in each continent a quantitative andqualitative growth of various forms of regional cooperation, regional organizationsand associations.4 This new phenomenon can be explained:

- as a reaction to increasing international competitiveness;

- as a consequence of the interest of national economies to make themselves fitto face globalization (limited free trade areas and so on);

- as a forum of intergovernmental cooperation;

- as an imitation of the well performing EU, supported by the EU itself (as inthe case of Mercosur);

- as a consequence of a functional spillover of companies and branch-cooperation, interest-networks, etc. (namely in the case of ASEAN).

Regional cooperation provides public goods that are very useful for peace keepingand conflict prevention:

- reducing nationalism and intolerance, diminishing localism, breakingfragmentation, regulating migration flows in the name of cooperation,promoting people’s understanding and good neighbourship;

- fostering dialogue between center and periphery countries belonging to thesame region (USA and Mexico; EU and Eastern Europe; Japan and Asean;South Africa and neighbouring countries);

- reducing the number of international players and simplifying the worldgovernance.

It is interesting to observe that the current financial crisis did not break regionalorganizations. To the contrary, they have partly been strengthened.

Nonetheless, we can observe limits and problems of regional cooperation:

- the main limit is quantitative - only around forty-fifty countries are included.The number of outsiders is still enormous either because of a local conflictpreventing regional cooperation from progressing substantially (SAARC,because of the strategic security conflict between India and Pakistan), orbecause of economic marginality (as in Africa).

- the heterogeneity of the different regional cooperation patterns is trivial andobvious. The problem is that in the current uncertain international economicand political environment, diversities and ambiguities are arising in each

4 Paul Taylor, International Orgalizations in the Modern World: the Regional and Global Process,New York, 1993


regional organization and in the middle-long range, this phenomenon can playthree different roles as world governance is concerned.

v First scenario: we prefer to use the word of "regionalization" if it is a simpleby-component of the current globalization. Pure regional free trade areas couldbe perfectly compatible with the Bush-Clinton global strategy of "emergingmarkets". Interregional organizations like APEC (in the case of Asia-Pacific)and AFTA (in case of Latin America) could very well incorporate regional orsubregional cooperation organizations (like respectively Asean and Mercosur).

However, such a scenario is facing two kinds of problems:

- how compatible are such interregional bilateral agreements with WTO rulesand with a symmetric multilateral pattern ?

- free trade has many implications and regional organizations are dealing notonly with free trade areas. Domestic constraints are arising and they do breakthis trend in the USA (for example, the "fast track"), Europe, and the partners'regional organizations (in the name of MERCOSUR identity or of ASEAN‘common values’). As far as Asia-Pacific is concerned, problems that arose inKuala-Lumpur during the November meeting of APEC can prove it.

v Secondly, the opposite scenario would mean neo- regionalism as a reactionagainst globalization, as a channel of domestic fears, a kind of shield ensuringeconomic security, framework for demands of trade protectionism. Geo-economic conflicts between regional blocs are already a common experience inmany parts of the globalized economy.5 They are characterized by economic,trade or strategic goals that could even degenerate into political conflicts.Given the failure of protectionism throughout the world, a "benevolent neo-mercantilism"6 seems to be a more realistic variant: as a kind of defensive tradepolicy with the goal of keeping the domestic market protected from overburdensome global competitiveness and to answer social demands (fullemployment, etc.).

v The third scenario is "open regionalism": it is less optimistic than the firstbecause it does not conceive world governance as a pure result of tradeliberalization and privatization nor does it take into account social demands andidentity needs arising in the framework of regional organizations. Regionalorganizations are indeed seen as an important actor as governance is concerned,both in re-regulating through democratic rules the regional markets and inaffording a crucial contribution to reforming the world economic and politicalinstitutions as well. However, it is less pessimistic than the second regionalistscenario: globalization is not seen at all as a danger, but as a chance, anextraordinary opportunity both for economic growth and democratization, but

5 Edward Luttwack, From Geopolitics to Geoeconomics. Logic of Conflict and Grammar of Commercein National Interest, 1990.6 Barry Buzan, Peoples, States and Fear: an Agenda for International Security Studies in the Post-ColdWar Era, 1991. Robert Gilpin, Politcs and Econoly in International Relations, 1987.


under the essential conditions of setting clear common rules and a multilateralsymmetric governance. Open regionalism strengthens the politics ofglobalization and deepens international civil society: cooperation betweenstates, macroregions, private actors, NGO's, etc.

Europe: deregulation and supranational reregulation.

European communities history shows very well how the role of acceleratingderegulation and globalization has been and still is mixed to the role of substitutingnational with supranational regulation. In Euro-jargon since Timbergen and Spinelli,we use to differentiate between "negative" and "positive" integration. G.D. Majoneunderlines that often the role of the EU is "to regulate the deregulation process".7 Onthe other hand, the famous J. Delors' Commission’s White Book of 1986 for theachievement of the European Single Market (Programme 1992) gave birth to manyhundreds of directives, substituting national regulations with supranational rules andleading many American opinion leaders to talk about a "European fortress". Such arare and curious reality is best explained through the sui generis nature of the EU,neither a state, nor a simple intergovernmental organization coordinating a mere freetrade area. On the one hand, the economic and legal integration has proceeded to anirreversible level. On the other hand, in spite of rhetoric and original teleologicalapproaches, the European construction is far from being a state building processtoward a kind of United states of Europe. Its socio-economic regulation is differentfrom traditional national government rules and a European social model as a singlesupranational model does not exist. Indeed, it just cannot exist because of the verysimple fact that the budget of the EU represents less than 2 per cent of the GDP of themember states, which is very far from a federal budget, and from the huge partallocated to social system by every nation state.

The real existing European social model is mainly composed by national socialsecurity systems plus the implications of the macroeconomic convergence createdboth by the single market, and the common policies (including the convergencecriteria for the single European currency). It works both by harmonizing nationalsystems and regulating them supranationally. The national social systems arevariously performing, and the social and employment policies are still mainly anational competence. Since their ability to cope with international competitiveness,very high during the "Golden Age" of the three decades after WWII, is currentlychallenged by the growing globalization and demographic trends, the question of thereform of European social governance is on the agenda of every Europeangovernment. The very high European unemployment rate (11 to 12 per cent) is thesymbol of this common challenge, but the therapies are still quite different accordingto national preferences. The European Commission’s White Book of 1993 was thefirst attempt to go beyond the limits of the past both in coordinating national socialand employment policies and in suggesting the guidelines of a subsidiariansupranational governance. Unfortunately, the European Council and the Council ofMinisters seemed only to have prepared to implement such proposals in 1997/98: theAmsterdam Treaty includes an improved social chapter and a new employmentchapter and the October meeting in Pörtschach (September ‘98) has apparentlyopened the door to a new deal for the employment policy. 7 Giandomenico Majone, La Communauté européenne: un Etat régulateur, Paris, 1996.


Why ?

I do share doubts concerning automatisms and spillover effects provoked by the singlecurrency. The political will could change radically, because problems of socialgovernance do matter and affect the legitimacy of political rule. The success story ofEuropean integration has been possible thanks to the implementation of the commonvalues of democratization, peace and prosperity in the period between the 1950's andthe early 1980's. Democratic control used to be considerably less developed thannowadays: the Treaties of Maastricht and Amsterdam enhanced the co-decision powerof the EP and other democratic provisions (European citizenship, Europeanombudsman, social chapter, petition right, etc.), but in spite of such a progress, in theprocesses of democratization the feeling of an increasing democratic deficit (as shownby Gallups, Eurobarometers and national referenda of 1993) is stronger and morewidely shared now than ever.

I see three reasons to explain this fact:

- economic performance and social prosperity are no longer satisfying enoughto supply a "substantial legitimacy" to European institutions; no progress inintegration is possible without such an "output legitimacy";

- centralization of decision making, namely in currency and macroeconomicpolicies is affecting national parliaments and national public sphere,mobilizing new democratic pressures from below;

- the European supranational law and the technocratic powers of EU,traditional driving forces of the integration process, are more and moreaffected by problems of legitimacy (for example, the Euro-Bank without asymmetric political counterbalance) .

That is why "Euroland" is currently characterized by the emerging new social andpolitical demand for "re-regulation", which explains the recent electoral trend (1996-1998: 13 center-left governments in the EU) and the current increasing will to look fora change in the sphere of social governance. But Europe is not an island, it is a part ofa globalized economy and of a transatlantic market. The transatlantic dialogue couldprovide an essential contribution to the evolution of European open regionalism.

Its starting point is to take into account that differences and convergences betweenEuropean and American governance cannot be interpreted according to traditionalover-simplified theoretical patterns. During the last fifty years convergence has grownenormously not only thanks to common historical roots and common values, but alsoto the common experience of market economy and common fight against nationalismand protectionism, intolerance and fundamentalism. However, the reality of differentmodels of society and governance can be explained through the different socio-political environment of the economies (mobility and flexibility of productive factors,demographic trends, welfare systems, labor relations, education, institutions, lawsystem, democratic life) but also through different strategic options in shapingglobalization "at home". I do find interesting that many center-left politicians arecurrently wishing Europe’s conjunctural policy to converge with US growth policy.


As for Europe, the old vision of M. Albert (two divergent capitalisms, a consensualone, the "Rhein model" rooted in Erhardt's concept of a "Social Market Economy"distinguished from the competitive one) has been recently deepened by Europeanscholars with the concept of "capitalist diversity". In spite of the globalizing economy,the public goods would be provided in Europe thanks to a peculiar balance betweenthe public authorities and private economic actors. Under which conditions couldChristian political doctrine, social liberalism and social democracy, despite the hugechanges of the 1980s and 1990s, still be inspiring sources of such a Europeandiversity of social governance at intranational, national and supranational scales?

On the one hand, Europeans did learn during the last decades that solidarity and socialpeace are not only abstract values but also long term productive factors, increasingproductivity of the society as a whole. On the other hand, huge demographic changesand globalization are pushing every government to reform previous national welfaresystems.

As much as the national governance is concerned, a new mix between social securityand flexibility is still working in Holland, Denmark, UK; voluntaristic employmentpolicies are announced or carried out in France, Italy and Germany. In both cases themethod of national tripartite social pacts has been revived and plays a crucial role instabilizing domestic consent. But it would be wrong to stress the continuity with thepast, state-centred neo-corporatist patterns. What is new is that they often aredecentralized (at local-regional level, meso-level), temporary and regularlyrenegotiated, open to new actors (social movements, consumers, small and medium-sized enterprises) and new issues (environment policies, urban policies).

In both cases, important branches of the public sector have been privatized but the"universalistic" welfare state is still preferred to the "residual" one. As far as fiscalpolicy is concerned, the balance between tax reduction, reduction of indirect costs oflabor and new progressive taxations (eco-tax, euro-tax, etc) or increasing financing ofpension funds, varies very much from country to country.

What is absolutely new, is the will of national governements of Euroland to give ananswer to the increasing demand for a more active European supranationalgovernance. With the "Essen process" and the Amsterdam Treaty, three forms ofsocial regulation are working at European level: directives, social dialogue betweenthe social partners, multilateral survey of national employment policies.

As the topics of supranational regulations are concerned, new issues are on theagenda. Recently the German Finance Minister warned the Euroland member statesagainst transferring their competitivity problems to a social dumping based on lowwages and proposed to harmonize the wage policies at supranational level. Thatwould go far beyond the coordination of minimal standards!

Something has to be stressed: the result of all these supranational regulations will notbe a single European welfare state, but could be a new multitiers, subsidiarian,European system of social governance. Although the discussion between benevolentneo-mercantilists and soft globalizers is still open in Europe, the extremes of the"European fortress" and of the wild deregulation of the 1980s are over.


European governments are at stake: if they are not able to get dramatic improvements,as the unemployment policy and welfare reform are concerned, in the next few years,not only will the legitimacy of the European integration process and of the Euro beput in question, but also the chance of constructing EU as a new civilian power,providing new actions and ideas for the social governance of the globalization.

Since many years the EU has conceived and partly implemented aninternationalization of its conception of social governance: trade agreements,cooperation agreements, conditionality (democracy, human right and social right;recently the E. Commission proposed developing countries to exchange access to thesingle market with acceptance of social and environmental rules) are the pillars of a"self styled foreign policy" in the framework of a global strategy of strengtheningregional organizations and interregional cooperation and to reinforce multilateralismand international organizations. But the history of the XXth Century tought theAmericans that Europe’s essential contribution is to keep the internal peace betweenmember states and the domestic consent as society is concerned. A good domesticgovernance is necessary to become a pillar of an improved world governance.

The transatlantic dialogue can contribute to the development of open regionalism andof a more symmetric multilateralism. As the transatlantic dialogue is concerned, animportant issue is to improve and to deepen the many, various dimensions ofcooperation and political dialogue: Transatlantic Market, relations with Latin Americaand so on in order to overcome the contradiction between the too limited developmentof transatlantic organizations (with the exception of NATO) and the objective linkagebetween the security issues and the others. Secondly, deepening bilateralism can beharmonized with multilateralism: reforming world's main institutions, G7 (reduced toG4, resolving the problems of external representation of Euroland), WTO and IMFand restructuring the Security Council of the UN on a regional basis.


Governance in a Post-Interdependent World

Wolfgang H. Reinicke*

Introduction

Governance in a post-interdependent world - another new catch phrase? The choice ofthis terminology reflects a desire to indicate that the world economy is undergoing aprofound structural transformation that, as far as policy implications are concerned, ismarkedly different from the period of interdependence in the 1970s and early 1980s.

Considering the current linkages of global production and consumption, and theemergence of cross-border societal and identity networks, it is difficult to imaginehow we could ever return to the status quo ante, short of a major economic, political,or social crisis. Indeed, the private sector, civil society and individuals continue toadapt to these new and still changing circumstances. But learning to operate in andidentify with such a non-hierarchical, highly dynamic, and increasingly non-territorialenvironment, and to cope with the many pressures it generates, has turned out to be abigger challenge than many would have predicted in the immediate aftermath of theCold War. To the contrary, there is a growing recognition that the central challengefor public policy in the twenty-first century will be to ensure that post-interdependence remains sustainable, from a social, political and environmentalperspective.

The term much more commonly used for this post-interdependent world is, of course,globalization. But upon reflection, it is striking how little is known about it. In mostcases, the condition is asserted but never defined. Most would and do characterize itas a continuous increase of cross-border financial and economic activities leading tohigher degrees of economic interdependence. Essentially, interdependence andglobalization are used interchangeably. And yet, if we can capture the current shift inmere quantitative terms, there may be little need or incentive for governments toreassess, in light of globalization, either their own role or that of multilateralinstitutions and principles that have governed the world economy since the end ofWorld War II. On the other hand, if we are in the midst of a truly qualitativetransformation, then it becomes necessary to draw a more formal distinction betweeneconomic interdependence and globalization, in order to help us assess not only theneed but also the appropriate direction for change.

* Wolfgang H. Reinicke is a Senior Economist in the Corporate Strategy Group at theWorld Bank and a Nonresident Senior Fellow at the Brookings Institution. The viewsexpressed in this paper are solely those of the author and should not be ascribed to theorganizations above. The paper draws on the author's publication Global PublicPolicy: Governing without Government? (Brookings Institution Press, 1998).


What is that key distinction?

Contrary to economic interdependence, which narrowed the distance betweensovereign nations and necessitated closer macroeconomic cooperation among publicsector actors (i.e., governments), the principal drivers of globalization aremicroeconomic actors, requiring us to reconsider traditional forms of internationalcooperation that were suitable for managing economic interdependence. Globalizationis a corporate-level phenomenon. It commenced during the mid-1980s as companiesresponded to the heightened competition brought about by deregulation andliberalization during the era of economic interdependence. Thus, globalizationrepresents the integration of a cross-national dimension into the very nature of theorganizational structure and strategic behavior of individual companies. The growingamount of cross-border movement of increasingly intangible capital, such as finance,technology, information, and the ownership as well as control of assets, allowscompanies to enhance their competitiveness and creates a cross-border web of inter-connected nodes in which value and wealth are being generated.

Data on corporate activity substantiate the emergence of such global corporatenetworks and signal a truly qualitative transformation. In the 1960s and 1970s, forexample, foreign direct investment grew in close correlation with tangibles such asworld output and trade. But from 1985-95, it expanded at an annual average rate of16 percent compared to 2 percent and 7 percent for output and trade, respectively.Most of this additional investment was concentrated in the OECD countries and a fewselect developing countries, and consisted of mergers and acquisitions in R&Dintensive industries. Controlling for the opening of both China and the former Sovietbloc, which attracted almost no investment prior to 1985, the share of foreign directinvestment going to the developing world actually dropped. This picture is confirmedby the pattern of corporate alliances and collaborative agreements, which have growndramatically during the past decade.

International trade is also undergoing a qualitative transformation, restructured byforeign direct investment and international alliances. The OECD estimates that about70 percent of world trade is intra-industry and intra-firm trade. In the financial world,the advent of securitization meant a qualitative transformation facilitating globalcorporate strategies that gave foreign debtors and creditors access to domesticfinancial markets. In particular, the market for derivative instruments has led to thegreater growth and volatility of international capital flows, evidenced by the fact thatin 1995 the combined annual value of global trade and foreign direct investment wasequal to only six days of turnover on the global foreign exchange markets.

What all of this indicates is that a growing share of international economic activityduring the past decade reflects the internal but cross-border restructuring of corporateactivities. In many cases, corporations absorb foreign capital stock, internalizingeconomic activities that were once conducted on the open market. Alliances such aslong-term supplier agreements, licensing, or franchising contracts are not fullyexposed to market forces. As far as the growing importance of mergers andacquisitions is concerned, the OECD reminds us that ”even the largest singleinvestment in any given year may represent nothing more than the change ofownership, with no effect on resource allocation between two countries.”


Turning to trade, reasonable data exist only for the United states, but in 1995approximately 40 percent of total U.S. trade was accounted for by intra-firm trade --or as the OECD calls it, off-market trade. Governments continue to register theseinternal transfers of corporations not because they are traded but because they cutacross multiple political spaces. Thus we should be more careful in automaticallyequating globalization with the emergence of a global market economy, unless we canassure that there is an appropriate infrastructure in place, a global public space, withinwhich these corporate networks can compete.

By no means does this imply that macroeconomic performance and management is nolonger important. To the contrary, interdependence and the need for closermacroeconomic cooperation was an important precursor to globalization and remainsthe most critical factor in sustaining it. Along with technological innovation, thisliberalization of cross-border economic activity created an environment that not onlypermitted but compelled companies to adopt global strategies. And yet, the growingimportance of non-tariff barriers to trade and the need to focus our attention on globalcompetition policies are but two examples indicating that the microeconomicdimension needs greater attention. Indeed, nowhere has the importance of thestructural, institutional, and legal dimension of a market economy -global and local -become more apparent than in the current global financial crisis. Not surprisingly,many of the responses to the crisis will have to focus on this structural andinstitutional aspect of market economies. Before considering some of those responses,it is useful to provide a short analytical framework to examine the political economyof globalization.

Defining the challenge

What kind of challenge does globalization present to governments and how - if at all -does that challenge differ from interdependence? Does globalization challengesovereignty? The intuitive answer is yes - but then so does interdependence, and soonce again we must differentiate. To do so, some crucial distinctions must be made.First, neither interdependence nor globalization can challenge the legal sovereignty ofa state - only other states can. If anything, these forces challenge the operationalsovereignty of a government (i.e., the ability of a government to conduct publicpolicy). Second, the concept of sovereignty has two dimensions - an internal and anexternal. The internal dimension depicts the relationship between the state and civilsociety. Paraphrasing the sociologist Max Weber, a government is internallysovereign if it enjoys a monopoly of the legitimate power over a range of socialactivities, within a given territory. With respect to the economy, governmentsoperationalize their internal sovereignty when they collect taxes or regulate privatesector activities.

The external dimension of sovereignty refers to relationships among states in theinternational system. For example, countries exercise external economic sovereigntywhen they collect tariffs and alter their exchange rates. Economic interdependence isconsidered a challenge to the external dimension of sovereignty. Responding to thischallenge, governments have followed the principles and norms of liberal economicinternationalism, endorsing the gradual, but reciprocal, reduction of their external


economic sovereignty by lowering tariff barriers and capital controls in the context ofinternational regimes.

Global corporate networks do not challenge the external sovereignty of a country, butthey do challenge the internal sovereignty of a government by altering the spatialrelationship between private and public sectors. Since globalization inducescorporations to fuse national markets into a single whole, they operate in an economicspace that now subsumes multiple political spaces. As a result, a government nolonger has a monopoly of the legitimate power over the territory within whichcorporations organize themselves, undermining its internal sovereignty. The risingincidence of regulatory and tax arbitrage is a telling indicator that this monopoly iswaning. This by no means implies that private sector actors always make a deliberateeffort to undermine internal sovereignty. Rather they follow a fundamentally differentorganizational logic than states, which are boundary-maintaining systems. Indeed,states’ legitimacy derives from their ability to maintain boundaries. Markets, however,do not depend on the presence of boundaries. Thus, at the very same time thatglobalization integrates markets, it also fragments politics.

And while it is true that this threat is only to the operational dimension of internalsovereignty, we should not underestimate the challenge. Why? Because a threat to agovernment’s ability to exercise internal sovereignty implies a threat to theeffectiveness of democracy. Although individuals may exercise their legal right tovote, the actual power of that vote in shaping public policy decreases with the declinein internal sovereignty. A persistent weakness in internal sovereignty will cast doubton democratic institutions. And while this dynamic is not the only explanation for thedeclining trust in institutions of governance in many OECD countries, it is animportant contributing factor. Governments, which see their legitimacy, their veryraison d’être undermined, have no choice but to respond.

Responses to globalization

To date, these responses to globalization for the most part have been reactive and fallinto two camps, both variants of what are essentially interventionist strategies. Thosewho consider globalization a threat call for defensive intervention, advocating sucheconomic measures as tariffs, non-tariff barriers, and capital controls force companiesto reorganize along national or regional lines. Though this phenomenon was alreadyobservable before the global financial crisis, it no doubt will increase in its aftermath.If economic nationalism fails to arouse broad popular support, its political counterpartmay be more successful. Increasing calls for greater regional independence not justwith respect to economic but also foreign policy or even territorial secession andpartition in the hope of regaining internal sovereignty is a political strategy that hasgained in popularity around the world during the past decade.

Others have called on policymakers to intervene offensively with investmentincentives and competitive deregulation. Under these circumstances, states themselvesbecome global competitors, seeking to entice corporations to operate within their ownterritory. Offensive intervention has also become popular as a political tool, as somecountries attempt to broaden the reach of their internal sovereignty to match theeconomic geography of global corporate networks. Two of the more prominent


examples are California’s attempt to tax resident companies on a global basis and theHelms-Burton Act.

None of these responses bodes well for the future of international relations or for oureconomies. Protectionism by a country or a region leads to retaliation and puts theworld economy on a path of disintegration. Subsidizing an industry with the solepurpose of gaining competitive advantage will not advance integration but ratherdivert scarce public funds from important public policy goals. Competitivederegulation may not lead to disintegration, but it defeats the original purpose of thepolicy; a fully deregulated market further reduces government’s internal sovereignty.By no means does this question the importance of structural reforms, which are longoverdue in a number of European economies. But it is a reminder that an obsessionwith competitiveness among nations will lead to a win-lose situation and strengthenthose political forces that favor economic nationalism (i.e., defensive intervention),making structural adjustment even more difficult.

Extraterritoriality, as in the case of the Helms-Burton Act, is no friend of deeperintegration either. Other states will retaliate against such a dictate. Finally, redefiningpolitical geography through partition only gives the appearance of greater control ofpolicy. Partitioning a country focuses exclusively on the external dimension ofsovereignty. In no way does it insulate governments from the challenges ofglobalization. If anything, it makes them more vulnerable.

Note that all of these responses re-emphasize territoriality as an ordering principle ofinternational relations, a condition that interdependence has tried to overcome. Allare at odds with globalization and will succeed only if the achievements of thepostwar era are reversed. To some this possibility seems remote, but one cannot fail topoint out that the popularity of these policies has increased considerably since theearly 1990s. In many countries, political opportunists have taken advantage of thepublic’s fear concerning the declining effectiveness of internal sovereignty and areadvocating greater economic nationalism and/or closed regionalism. Unless we find abetter alternative, governments will soon be forced to rely on these interventions tohalt the loss of internal sovereignty and the further erosion of confidence in ourdemocratic institutions.

Shaping globalization

What are the broad contours of such an alternative? If governments want to shapeglobalization rather than react to it, they will have to operationalize internalsovereignty in a non-territorial context. Forming a global government is one response,but it is unrealistic - it would require states to abdicate their sovereignty not only indaily affairs, but in a formal sense as well. It is also undesirable for reasons ofaccountability and legitimacy. And while global government may be a technocrat’sanswer to the shortcomings of territorially-based approaches to public policy, it couldnot possibly match the dynamism of global economic and social networks; nor is thereany reason to believe that a global government is in any way better equipped to dealwith the technical complexities of public policy at the end of the twentieth centurythan its national counterparts.


A more promising strategy builds on the earlier differentiation between operationaland formal sovereignty. Governance, a social function crucial for the operation of anymarket economy - national, regional, or global - does not have to be equated withgovernment. Accordingly, a global public policy would de-link the operationalelements of internal sovereignty (governance) from its formal territorial foundation(the nation-state) and institutional environment (the government).

To implement such a strategy, policymakers would invoke the principle ofsubsidiarity but use the concept in a much broader sense than we know from the EU,the Tenth Amendment to the U.S. Constitution, or other federalist structures. The”sub” in subsidiarity is used in a functional sense and refers to any actor or institutionthat is well-positioned to support the operationalization of internal sovereignty in theglobal context. We can further distinguish between two forms of subsidiarity.Vertical subsidiarity delegates public policy making to other public sector actors. Asfar as globalization is concerned, this refers mainly to multilateral institutions. Thoughlittle acknowledged, the changing roles and mandates of the IMF, the World Bank,and the WTO, - now dealing with corruption, financial regulation, and environmentalstandards - suggest that they are in fact becoming increasingly involved in matters ofinternal sovereignty.

This enhanced role of multilateral institutions will only succeed, however, if nationalbureaucracies establish permanent channels of communication and interact on aregular basis to facilitate the exchange of information in the open, transparent fashionnecessary for informed global public policy. In the domain of global finance this hasbecome evident at the institutional level in cases such as the collapse of Barings or theproblems at Daiwa. At the systemic level, the financial crisis in Asia has alertedpolicymakers that these linkages are long overdue. There should be no doubt,however, that cross-national networking needs to go far beyond the domain of globalcapital markets and cover a broad range of policy issues, including the growingnumber of non-tariff barriers to trade that the WTO and the OECD have begun toaddress.

The establishment of cross-national bureaucratic networks is an important andnecessary first step in establishing a global public space, but it is not sufficient. Thesebureaucratic networks will not be able to eliminate all such disparities. Such venueswould continue to lack the dynamism, agility, and knowledge base that characterizesglobal economic and social networks. Adaptive and intelligent public policy systemscan only arise if public policy is prepared to make extensive use of horizontalsubsidiarity, that is if they delegate or outsource aspects of public policy making tonon-state actors such as business, non-governmental organizations, foundations, andother interested participants of civil society. These actors have a direct stake in theoutcome of public policy. Equally important is the fact that their range of activity isnot constrained by political boundaries. In addition, better information, knowledge,and understanding on the part of these actors of increasingly complex, technology-driven and fast-changing public policy issues will not only generate greateracceptability and legitimacy of global public policy; these network based public-private partnerships, which is in effect what horizontal subsidiarity creates, will alsoproduce a more efficient and effective policy process. Finally, by building bridgesacross civil societies, horizontal subsidiarity creates a real international community, a


true global civil society by encouraging mutual learning systems and openness tochange among public policy. With regards to global financial regulation,environmental protection, social protection, the fight against transnational crime, andmany other global policy issues, horizontal subsidiarity would become one coreprinciple of global public policy.

Critics of such an idea will question the wisdom of placing private and public interestsunder the direction of the same institution, charging that the public’s interest is likelyto be neglected. And indeed, the limited experience of mixed regulation supportsthese skeptics to some degree. But rather than abandoning global public policy, thecurrent shortcomings of mixed regulation should be addressed. First, greatertransparency is necessary. Strict principles of disclosure-based regulationguaranteeing other groups sufficient access to ensure that their interests are adequatelyrepresented would raise confidence in such a structure. Second, corporations mustfacilitate public-private partnerships by improving their own internal control andmanagement structures. Independent audits and incentive as well as reward structuresthat discourage excessive risk-taking are examples of measures readily available tothem. The greater the focus on corporate governance, the lower the risk of marketfailure and the need for outside regulation. Those with doubts about public-privatepartnerships and global public policy should consider the danger of alternatives

A second source of criticism is that global public policy networks will suffer from ademocratic deficit, a term familiar to observers of European integration. In otherwords, decoupling public policy formulation and implementation from its territorialbase may provide a technical answer to the challenge of sustaining globalization, butit cannot provide a political solution— to the contrary, by separating the public policyprocess from its territorial base its legitimacy and democratic character is underminedeven further. This requires that we make a concerted effort to conceptualizedemocratic theory and the concept of pluralism no longer solely in the context of theterritorially defined polity. Given the difficulty of operationalizing representativedemocracy in the global context in the foreseeable future, a greater emphasis onparticipatory and deliberative models of democracy, relying on the public-privatepartnerships outlined here, seems a promising first step. Nevertheless, it is here whereglobal public policy will face its greatest challenge, and much analytical andoperational work lies ahead.

Finally, to reiterate, for now, formal sovereignty remains in the hands of the publicsector. Horizontal subsidiarity merely permits policymakers to create a more flexible,and dynamic, but also more effective and efficient, public policy structure that canrespond to the demands of a global economy and allow governments to regain theirlegitimacy as the principal providers of public goods.

Changing demands on international security

But globalization also places new demands on the concept of international security.Note that external sovereignty depends on the ability to exclude others (here, ofcourse, the bipolar conflict was the most vivid example). However, internalsovereignty, as we have learned, depends on the ability to include, to create a sense of


community and belonging; it is at the root of citizenship, it shapes our identities. Butif we take a closer look at the data on foreign direct investment and corporatealliances that were cited previously, we see that large parts of the world economy andits participants remain excluded from globalization. If globalization continues and, inresponse, the maintenance of internal sovereignty increasingly becomes an issue ininternational relations, then inclusion will become one of the central themes ofinternational security in the years to come, placing the international financialinstitutions, and the World Bank in particular, at the center of international security.Five decades ago these institutions were given the mandate to manage growinginterdependence. Their future lies in the management of globalization and globalpublic policy.

Some are likely to reject an agenda as ambitious as laid out here. They might arguethat the formation of global public policy networks transfers too much power tomultilateral institutions and that this transfer undermines the sovereignty of nation-states. Such a posture highlights a dangerous fallacy that is committed with growingfrequency in political circles. Charging multilateral institutions to provide platformsfor global public policy networks to ensure that globalization proceeds on asustainable path does not lead to a loss of sovereignty. To the contrary, as has beenshown, nation-states have already lost sovereignty, and the establishment of globalpublic policy networks is a collective way to regain it while avoiding the economicand social repercussions of defensive intervention. Moreover, this does not mean thatlocal actors may not play an important role in enforcing and monitoring globallyagreed rules and standards. By ensuring these networks are based on partnerships withcivil society and the private sector, they provide practical meaning and guidance tothe oft-quoted line, ”think globally-act locally.”

Others would remind us that establishment and administration of such networks willbe impossible given the difficulty in rationalizing foreign aid after the Cold War andthe variety of political interests involved. But resource transfers that support theestablishment of and broad participation in public policy networks that promoteinternational financial stability, protect the global environment, fight transnationalcrime, and provide other global or regional public goods are in truth neither ”foreign”nor ”aid”, but rather an investment that generates a return, one that is shared by all.

Conclusion

Global public policy networks do not contest internal sovereignty as an organizingprinciple of political and social life, but they do contest its organization alongtraditional territorial lines. This requires political leadership and institutional change,both of which are in short supply, although crises such as the current have hadpositive (temporary?) effect. But it also requires the willingness and close cooperationof private and non-governmental actors to share responsibility in exercising publicpolicy. In particular, the degree to which the global corporate community is ready andable to take on some public policy functions in conjunction with other non-state actorswill be decisive in determining success.


Finally, global public policy is not some distant goal - the time to start taking practicalsteps is now. There is a tendency to perceive globalization as something inevitable, assomething that cannot be reversed, or even as the end of history. But it is not. Theworld economy experienced similar levels of integration from 1870-1913, a periodoften referred to as the golden age of international economy. It ended differently.Today, interdependence risks becoming the victim of its own success. The currentstructural discrepancies between private and public forms of social organization arenot sustainable. The interventionist strategies outlined above should not be dismissedas inapplicable. To the contrary, their popularity is on the rise and has entered themainstream of the political debate. Moreover, we are only now beginning tocomprehend the longer-term implications of the global financial crisis, though Ipredict that it will lead to a sharp rise in the general apprehension about globalizationin Asia and elsewhere.

Probing further into the future, including the future of the nation-state itself, one mustrecognize that globalization has ended the nation-state’s monopoly over internalsovereignty, which was formerly guaranteed by territory. Outsourcing anarchy to theinternational system, as Hobbes did, will no longer guarantee internal sovereignty athome. This change deprives even external sovereignty of its functional value. But thiswill only happen if internal sovereignty is realized through global public policynetworks. This requires political elites to dissociate themselves to some degree fromterritory and create more dynamic and responsive mechanisms of governance asoutlined here while ensuring their continued legitimacy and accountability.


Opening the World to Omnilateralism –European View

Wolfgang Pape∗

Not only in the mass media, we are used to seeing neologisms spring up every once ina while to describe new phenomena as they evolve. During the last few years, in theinternational press we thus have experienced the shift from geo-politics to geo-economics and now even to "geo-psychology"26 in order to better understand what ishappening in the world from France (from de Gaulle to soccer) to India (fromdisregard to the bomb).

However, rather than depict a situation of past or present, I have dubbed as “Omni-lateralism” an appeal for a better "geo-future."26

Just consider the case of Japan: It has been repeatedly exposed to u n i-lateralAmerican measures (victimisation?). It has negotiated numerous treaties with othercountries on a b i- lateral basis (zero-sum games?). Japan is also a member of most ofthe so-called m u l t i-lateral institutions (passive listener?). Is it not time now that itfinally contributes to an all-comprising o m n i- lateral system (commensurate with itseconomic power)?

As the logic of Europe as “Weltkind in der Mitten” (Goethe) indicates, there has to besome balance of weight on both sides, in the East as well as in the West for usEuropeans. Without a doubt, America on the Western side of Europe has contributedenormously to the setting-up of the multilateral system.

The multilateral system as it evolved over the last decades can be seen also as aproduct of the Cold War27 in as far as it has been very much influenced by theconfrontational bilateralism between East and West in the ideo-political sense. Withthe fall of the Wall in Berlin, it is therefore the correct time now to allow growthbeyond the icy attitudes and warm up to new ideas, such as omnilateralism.

By just mentioning the main institutions such as the United Nations, the GATT/WTO

∗ This presentation reflects only the personal view of the author and cannot be attributed to anyinstitution.26 See Flora Lewis, International Herald Tribune, 10.7.98

26 The concept of "omnilateralism" was first developed by Wolfgang Pape in World Affairs, Jul-Sep 1997, p.94-109, following his fellowship at Brookings Inst. Washington DC.

1.1.1. 27 Chalmers Johnson (JPRI Working Paper No.22, July 1996, p. 15) even writes that“for most of the Cold War, GATT was part of an American grand strategy againstthe USSR in which the U.S. traded access to its market and technologies in return forthe support of nations such as Japan, South Korea, and Taiwan againstcommunism.”


and the so-called Bretton-Woods system28, it is of course difficult if not impossible toimagine their creation without the pro-active participation of the US. Similarly West-Europeans have contributed to the establishment of these organisations, for instancethrough the Atlantic Charter with the UK. These contributions can be tracked to apoint that the multilateral system easily appears as not only Western inspired, buteven as an outgrowth of almost pure Western thinking, including of course itstolerance of otherness in pluralism.

For the average newspaper reader and non-expert, it is hard to make out the influenceof non-western and in particular Asian countries on the establishment and even on theworking processes of these institutions. Although some of those countries havealready been members or even founding fathers of the institutions, the Asians’ impacton these multilateral institutions so far seems to have been minimal.

Often in the past, this was explained with the Asian countries economic backwardnessand poverty, until Japan first caught up with the West after having joined the IMF in1952 and GATT in 1955 (OECD in 1964) and subsequently benefited considerablyfrom that multilateral system.

Most of the EC countries applied Art. 35 of GATT against Japan early on, thusdenying her relations that were assured to the other contracting parties. As theserestrictions were gradually lifted over the following years, Japan’s trade partnersperceived the need to at least partly replace those restrictions by Voluntary RestraintAgreements and similar arrangements.

In doing so, there remains evidently the question even after decades of membership:Has Japan really adapted its internal economic patterns to the basic principles of thisWestern-made multilateral system?29

Following the debate on Japan’s industrial policy30, some critics argued that GATT’straditional market-based and non-discriminatory orientation showed weaknesses andthus needed modification. The West then demanded from Japan to play a more activerole on the international stage “commensurate with her economic might.”

However, as a matter of fact, the Japanese mainstream understanding ofinternationalisation or “kokusaika” is still too passive to lead to any pro-active inputinto the multilateral system which would help it also to encompass the particularitiesof the internal workings of their naturally very Japanese society. The process of so-called deregulation might render the country’s legal basis seemingly more similar toAnglo-Saxon concepts.

28 It is symptomatic that currently in the aftermath of the Asian Crisis there is a growing call to overhaul "thearchitecture of the global financial system" (R.Rubin, US Treasury) and to bring the Bretton Woods institutions upto date. Even Japan's Sakakibara is quoted as saying that the IMF's "checks and solutions are insufficient". (FT,5.3.98)

29 Lei A. Nefiodew (“Der fünfte Kondratieff”, Wiesbaden 1991, p.201) bluntly denies such adaptation bydescribing “Japans Unangepasstheit an die internationale Wirtschaftsgemeinschaft”.

30 Cf esp. Chalmers Johnson’s concept of Japan as a “developmental state” (see his book Miti and the JapaneseMiracle, Stanford 1982, passim) and the ensuing discussion


However, it will hardly or at least only in the long term alter ingrained patterns ofbehaviour on the Japanese islands. “Kisei kanwa: soron sansei, kakuron hantai!” or“Softening of regulations: agreeing in principle, but opposing the details:” This sloganwas recently confirmed when 80% of the Japanese wanted further deregulation, whileat the same time 70% believed that certain areas with implications for their daily lives,like public security, welfare and culture should be deregulated only “with caution.”31

Phrases taken from models elsewhere like "Big Bang" (from First of April!) and thelike often sound hollow when scrutinised for actual substance of implementation andmeasured against the original idea.

One is sometimes tempted to compare this slow process with the speedy adoption ofcontinental European laws during the Meiji period (e.g. German BGB). Those alienrules were also without roots in the country’s social culture which thus in manyinstances remained on the surface of the burnished dualism of “tatemae” and“honne”.32 The German scholar Josef Kohler once explained law as a culturalphenomenon. Hence, if it is alien in a given society, such incompatibility createsfriction or might even lead to forms of schizophrenia33.

Futhermore, the OECD points out in its “Vision 2020” that the prospects for the NewGlobal Age, in which all countries can be active players, depend on the ability toadapt to changes and emphasises first the many ‘behind-the-border’ barriers whichneed to be tackled.34

There is now reason for some to fear a similar dualism could sharpen in a Chinawhich under outside pressure precipitately and superficially adopts Western rules35,but internally still cannot equally quickly alter her traditional patterns of behaviour.36

That for some --young people especially in China-- the reception of western thinking

31 see Yomiuri Shimbun, 27.6.97

32 Time and again Japan used “cultural differences” against “universal fairness” as an argument in WTO, GATT,ISO etc. to defend particular rules in Japan from “culturally different snow” demanding divergent standards forskis (see for details W.Pape, “Nichttarifäre Handelshemmnisse in Japan,” in: Recht der Internationalen Wirtschaft,Heidelberg September 1990 ) and recently alcohol as a “social lubrication” justifying a lower tax on Shochu thanthe “more moral stance” allows in the West ( cf. Tokyo Shinbun, 22.2.97).

33 The increasing importance of cultural issues in international relations is exemplified by the fact that ethnic andreligious strife figured prominently in all but 3 of the 31 major armed conflicts under way in 1994, according tostudies by the Stockholm International Peace Research Institute (SIPRI), see Michael T. Klare, “The New GlobalSchisms,” www.mfa.gov.tr/NEWS/selti/11-96/04.htm, 1.11.96

34 OECD Document “Towards a New Global Age,” C(97) 80, Paris 1997

35 According to the director-general of the WTO, Renato Ruggiero, “....by the year 2005 all developing countriesin the WTO will have the same degree of protection for intellectual property as the United States.” (IHT, 27.11.96)However, thereby he neglects the considerable gap in most countries between the Western-inspired internationallaw and its actual implementation in culturally divergent societies. It has taken Japan, for instance, decades and therealisation of Sony’s trademark being copied in Latin-America in the mid-1980s in order to effectively act againstcounterfeiting at home in Japan itself.

36 cf. International Herald Tribune, 2.I.97: “China’s Legal Reforms May Backfire for Some, Little Effect Seen onAbuse by Police”


has already gone too far finds its expression in the recent list of the “No!” shoutingbest-sellers from first “Japan that can say No” to similar titles for China and Asiaaltogether. From the experience with “gaiatsu” on Japan to open up since the mid19th century37 to similar pressure from the outside on other countries, one might easilyconclude that civil liberties in a state are inversely proportional to the impact of suchexternal pressures38. Others go even farther in drawing a worst-case scenario, arguingthat the economic determinism of the West could well cause “violent efforts to throwoff, to master, or to revenge, the invasive influence ... of disruptive Western ideas andvalues.”

According to this view of William Pfaff “The internationalisation of any non-Westerneconomy automatically undermines social practices, and religious and cultural norms.It is a literally subversive force.... There will sooner or later be a reaction.” At thispoint, I should like to qualify Pfaff’s analysis, as we in Europe and America also firsthad to develop these concepts, one of the major problems for East Asia is theincomparable speed of development.

First in Japan, followed by the “Four Tigers” and then with South East Asia, theacceleration to reach industrialisation and subsequently move beyond it hasdramatically progressed with each ‘wild goose’ following Japan and now even the‘Dragon.’ Social advances that have taken centuries in the UK to grow internally arenow pushed into those countries within a few years. Backlashes at a minimum,therefore, cannot be avoided, even in tightly controlled societies like in South Korea(cf. New Labour Law at issue to meet OECD standards, government hardly disowning- if not even guiding - anti-import bids as “frugality campaigns” for reasons of tradebalance, thus possible violating basic principles of WTO). Furthermore, there is agrowing realisation not only in Asia that nowadays modernisation does notnecessarily mean westernisation anymore.

Contrary to superficial appearances, the recent Asian Crisis has only exacerbatedthese tendencies, as can be seen particularly in Indonesia. US-made medicinesprescribed by the IMF ("social-engineering")--- although heavily sweetened with asugar coat of billions of dollars - are not easily swallowed even by the sick economiesof the region.

The imposition of harsh and ruthless austerity policies by the IMF as well asundifferentiated pushes for de-regulation without regard to regional or nationalparticularities could aggravate a growing Asian backlash. Negative sentimentsresulting especially from the so-called “Rubin Doctrine” in favour of (Western) bankshaving lent only in dollars to Asia are already growing.39

37 Partly as a reaction there is already talk of a “reverse gaiatsu” by EU and Japan that is “multilateralised” againstthe US to see US policymakers forswear a negative hegemony and short-term unilateralism (cf. Susan Strange,EUI Working Paper RSC No. 94/10, p.4)

38 Such conclusion is drawn also in the context of NATO enlargement by Ernst-Otto Czempiel, in Dieter Senghaas(ed.), Frieden machen, Frankfurt am Main 1997; cf. also EU Ambassador E. Wilkinson, 26.3.98 at EuropeanParliament.

39 cf. The Economist, 10.1.98


"Some Asians are beginning to perceive such Western participation as nothing morethan blatant exploitation."40 A new breed of financial professionals in Korea has takenup jobs as "Shark-Watchers" helping companies to fend off hostile take-overs byforeigners as legal changes make hostile bids much easier.41 These reactions might addto mob opposition to sharply rising prices, thus stirring up more ethnic and nationalistviolence.42 "As more people lose their jobs, and once-regular purchases becomeunaffordable, the temptation to blame foreigners will become more acute."43 As aconsequence, warnings of virulent anti-Americanism are growing louder, from HenryKissinger and others, also in Asia itself.

Setting aside the more recent example of the Asian financial crisis, the reoccurrenceof such direct clashes of domestic and international models cannot be entirely ruledout for the future. Their impact, however, can and should be mitigated by involvingthe non-Western countries much more as pro-active stakeholders in the internationalsystem.

For instance, returning to the experience with Japan in GATT/WTO, such unmitigateddiscrepancies between inside and outside in the case of China would not only causemuch greater problems for the West than in Japan's case in view of China’s size,44 butit would create even more problems, because China is clearly more assertiveinternationally, as the re-emerging “Middle Kingdom” (in its own naming)45 supportedby a highly active overseas network of another 50 million46. China is already now the

40 See IHT, 20.1.98: "Think Twice About Forcing Change in Asia" in particular in view of increasingunemployment in those economies; cf. also the danger of China becoming less open as indicated by Rone Tempestin IHT 26.11.97 "China's Trade Barriers Provide Shelter in Asia's Storm," and The Economist 24.1.98, p.76 "Chinais now likely to learn from its neighbours' experience and proceed more slowly in opening up its own financialsystem and making its currency fully convertible." Also Taiwan plans "to tighten the country's financial regulatoryenvironment" (Oxford Analytica Brief, 27.11.97) and its "Currency Controls May Be Kept Beyond 2000." IHT,19.1.98

41 See IHT, 5.2.98

42 cf. IHT 10.2.98 "Suharto Talks up Economy as Unrest Spreads" in Indonesia where protesters carried nationalflags and vented their anger on the richer minority of Chinese descent.

43 See The Economist, 24.1.98, p.64 ; but already before the Asian Crisis, David A. Hitchcock described how“positive images of the US are beginning to fade in that region” based on 100 interviews in seven East Asiancountries (Factors Affecting East Asian Views of the United States, CSIS Report, Wash. DC 1997)

44 With its trade surplus with the US expected to be greater than that of Japan’s in 1997, China has already boughta sizable amount of US Treasury bonds exceeding that of Japan in 1996. ”China could jolt the US financial marketas well as the world economy by dumping those bonds.... such a danger involving China is much greater comparedwith Japan’s holding of US bonds.” (see Mainichi Shinbun, 24.2.97).Harou Shimada, who advises the Japanese government, fears “If you bring in 1,2 billion workers at those wages,that can destroy the global trading system.” (IHT, 7.3.97)

45 Prof. Yuan Ming of the Chinese Academy of Social Science expressed this sentiment during an internationalconference in Beijing early November 1996 with the traditional saying “China changes the world by changingitself!” Cf. Also the recent campaign in China for a “spiritual civilisation” (Wash. Post, 30.1.97). The China-expertProf. Lucian W.Pye of the Mass. Inst. of Technology sees a “xenophobic nationalism and combative pragmatism”move into the country’s spiritual wasteland at present (IHT, 27.11.96).

46 This network is most obviously spear-headed by Singapore which seems to have served as a modelnot only for the late Deng Xiaoping (see Andreas Huber, Die wirtschaftlichen und politischenBeziehungen der VR China zu den ASEAN-Staaten am Beispiel Singapurs, Hamburg 1995, p.86-89).


world’s second largest holder of foreign exchange reserves, trailing only Japan 47.

This basic attitude of the Chinese, who see themselves still in the centre is clearlycoming to the fore again. “What interests China with regard to foreign countries isabove all the resources and methods of enrichment. Yet the Chinese are hardly moreinterested than before in cultures and lifestyles. Modern-day China does notexperience the tremendous cultural curiosity which Japan has always felt for the Westever since the Meiji era”.48

Unless China joins as an integral ‘stake-holder,’ and not only passive listener in theexisting multilateral system,49 such system remains only ‘multilateral Western.’ Thatclaimed ‘world order’ would not be truly all-comprising and thus would remainunable to claim genuine universal values for all.

Without going into the details of underlying philosophies, there are good reasons toshed doubt on the absolutism that we have reached the “end of history.” Rather wecan see culturally divergent identities increasingly re-emerge, after the contentions ofthe hot and cold wars of our century had covered them up under superficial layers ofideologies. Not only in terms of geo-politics, there is a multipolar50 constellationemerging.

The mobile individuals of our days are seeking their personal roots more and more inregional and even local cultures in order to balance their loss of identity in theglobalising economies. This is the case in Europe as well as in Asia where evenAnglo-saxon pop music is losing ground to local or regional hits51. Thus eroding theAmerican and British dominance, a new group of singers like Eros Ramazotti andAndrea Bocelli reflect today's "Eurotaste" to a degree that even The Economist ofLondon elevates them to "pan-European stars".52

In order to balance such re-orientation towards regional and even local culturalphenomena (cf. also the American bestseller Jihad vs. McWorld), world bodiesrightfully deserve their name only if these organisations fully encompass the pro-

47 FT, 4.3.97, p.4: “China joins forum on forex”

48 See Jean-Luc Domenach, China and the World: Uncertainties and Ambivalences, IFRI, Paris December 1997,p.3

49 David Shambaugh (IHT, 31.1.97) similarly calls for China to be a “productive partner in the community ofnations.”

50 Multipolarity pops up frequently now in international declarations without US participation; especially cf.Russo-Chinese Joint Declaration of 23.4.97 in Moscow on “multipolar world” e.g. reinforcing role of UN andpromotion of the dialogue with the Third World, particularly in view of amending the world trading system

51 Cf. for instance the recent phenomenal growth of ethnic music particularly in East Asia with the “Queen ofDangdut” selling 500.000 records, far more than the Spice Girls, the most popular Western group across Asiawhere now 70% of record sales are generated by local artists (see IHT, 30.5.97). This trend of localisation of musicbalances the globalisation of visual communications in the computer age where symbols from icons to kanjiincreasingly cross cultural borders (for details see Wolfgang Pape, Shaping Factors in East Asia by the Year 2000and Beyond,” Hamburg 1996, p.29-32).

52 See The Economist, 21.2.98, p.81


active partnership of all players on this globe, from occident as well as orient.

The absolutism of neither Hegelian nor more recently Fukuyama’s claimed “End ofHistory,” but the forces of pertinent, traded cultural notions and new patterns ofcommunication (for example “death of distance” through the Internet) are too strongto be any longer neglected in global governance. These divergent culturalpresumptions have to be understood first in order to establish a sense of “co-ownership” and an inclusive approach for international institutions which couldprovide an additional source of legitimacy. The need for such legitimacy has becomeobvious again particularly in the recent Asian Crisis when IMF measures occasionallywere opposed as solely Western-made. Therefore, only stake-holding through pro-active contributions by all members would allow the international system to evolveinto a modern form of participatory governance, to be dubbed omnilateralism.

One example where Eastern concepts might greatly contribute to world-wide problemsolving can be derived from their more holistic approach to nature and consequentlymore direct comprehension of the interdependence in our common ecological system.

On the highly topical issue of the protection of the environment, it is the old Buddhistprinciples of interdependence in nature and cycles of reincarnation that lendthemselves much better to understand the need for recycling of materials than ourWestern concept - or rather illusion-- of creation from zero. Holistic views of naturewould rather conserve, whereas our analytical approaches often tend to divide beforeconceiving common elements.

If some East Asian economies have not yet manifested these holistic values as greatlyas could be expected from such religious background, it should be explained mainlywith the rapid speed of development and the resulting social transformation thatpresently does not yet fully allow the reflection of traditional values. In general, poorcountries have the world's worst environmental problems. They cannot afford to dealwith them53. With the stabilisation of a broader middle class in society, there will re-emerge a stronger identification with original values, as we have seen already in Japanin the late 1980s.

Concrete cases on how the Chinese have practised for over thousand years the conceptof recycling can be found in their traditional --now called bio-intensive-- techniquesof agriculture. Normally, several life-systems are co-ordinated on top of each other:For instance rabbits excrements fall into a pool of ducks and fish to fertilise it, and thepool then irrigates fields for rice and vegetables, the waste of which in turn feeds therabbits. Many people might think that this might be good only for the Chinese. Butthe surprise lies in the fact that it seems to be truly good for all, i.e. “omnibus”.Namely, basically the same techniques are now applied by John Jeavons and hiscolleagues of “Ecology Action” in their “bio-intensive mini-agriculture” in Willits,Northern California.54

53 See The Economist's Survey of Development and the Environment, 21.3.98, p.3

54 see E.von Weizsäcker, A.B.Lovins and L.H.Lovins, Factor Four - Doubling Wealth, Halfing Resource Use,Earthscan, p.131-132: “Many techniques of bio-intensive agriculture and horticulture are known since overthousand years in China.... Normally, several life-systems are co-ordinated on top of each other: Rabbitsexcrements fall into pool of ducks and fish to fertilise it, and the pool irrigates fields for rice and vegetables, the


Another concrete manifestation of the holistic approach that could serve “omnibus”and enrich all our lives can be seen in the long-established Japanese horticultural artof only reducing in scale an otherwise intact whole landscape (cf. Sansui; Bonsai alsofor China), whilst gardening in the West traditionally amounts to systematic cuttingdown into geometric separation of the elements and sorts of plants etc. (cf. Parc deVersailles). Seeing “nature as the mother”55 is now perceived as one of the reasonsfor Japan's success to go beyond modernisation. Not by accident, the WorldwatchInstitute gave Japan (“an impressive record”) and China (“one of the most elaborate,ambitious national Agenda 21 plans”) relatively good marks on their environmentpolicies56. The fact that Chinese cities have relatively few polluting motorised bikes,mopeds, etc; but still millions of human-driven non-polluting bicycle nowadays seemsto be the result less of technical and economic backwardness, but the intendedoutcome of a strict license system. Apparently, it is “very difficult to get a license fora motorcycle and frequently it is refused”57.

Looking for other examples of possible oriental contributions to mend extreme and inthe long-term harmful behaviour in the international, but also internal context, one istempted to cast a critical eye in this context also on exaggerations of the “private” (cf.privare, lat.= robbed from the public) individual centring on a relationship with anabsolute god of the book which often leads to righteousness and overdone litigation(hence new trend in US towards more arbitration etc.58).

This contrasts in Confucian-Buddhist Asia with the idea of “messhi boko” (Japanesefor self-sacrificing for the public good). Similarly indicative is the basicunderstanding of humans being in-between (Japanese “ningen” as wo-man in-between) and the strong identification with the “ie” or house as a group rather thanonly the individual in isolation.

Not entirely unrelated is the generic nexus of “guanxi” or connections in China whichis increasingly seen as a traditional way of the modern concept of networking, be it inpersona or by digerati only virtually through the Internet. Some go even farther andsuggest the linked verses in dialogue of the Japanese “renga” tradition of multi-dimensional unity as the possible structure for networking in the information age. Forthem there is a need for ‘synthetic’ perspectives with a concept of ‘circulation’ {cf.‘recycling} and ‘symbiosis’ instead of the Western ‘analytic’ methods with anextreme belief in {linear}‘progress’ through ‘competition’ of individuals59.

There must be numerous further examples for the comparative researcher, also in theArabic world. For instance, it would be perhaps instructive to study the concept of

waste of which in turn feeds the rabbits.” Similar techniques are now applied by John Jeavons and his colleaguesof “Ecology Action” in their “bio-intensive mini-agriculture” in Willits, Northern California.

55 See Takeshi Umehara, Voice, Tokyo July 95, p.166; in Japanese

56 See State of the World 1997, New York 1997, p.9

57 Prof. Lijun WANG, EUVP, Bruxelles, 22.5.97

58 See IHT III.97

59 Cf. Kenichi Ito, Non-European Civilizations Rediscovered, Symposium at the JDZ Berlin, 1.6.96


interest-free loans as prescribed under Sharia for Islamic banking which is clearly onthe rise now60. "Money cannot make more money. Money must be used productively.And risk has to be shared." These are the slogans of the 'Islamic Banker' that might beworth to consider, in particular in the wake of the so-called Asian Financial Crisis.

Of course, Muslims also recognise that interest plays a very important role in themodern economic system in the western world. It has been viewed not only as anintegral part of the price mechanism, but also as an important policy instrument forgovernments' control over the economy.61 Samuelson defines interest simply as "theprice or rental for the use of money". Keynes goes a step further in stating that the"money rate of interest is the percentage of excess of a sum of units of moneycontracted… ." Seen from Islamic economics, Abu Saud also emphasises the aspect ofexcess when he regards "interest as the excess of money paid by the borrower to thelender over and above the principal" for its use over a certain period of time.62

Muslims consider the excessive nature of interest ("riba") to breed exploitation andinequalities that run counter to the egalitarian objectives of Islam. Hence lendingmoney for interest was depreciated, and in most cases prohibited, by all the biblicalreligions.63

Islamic banking is based on equity ("musharakah") in a profit-loss-sharing system("mudarabah") which aims at more stability and efficiency in allocating resources.Such partnership-financing shall make the financier participate in the risk togetherwith the entrepreneur in the business venture.64 However, in spite of more than twodecades of Islamic financial institutions working in the field of banking with a world-wide growth now of 15%, "interest-free techniques and the specifications of basicratings are still under discussion".65

We have seen the failure of the systems of state-planning and become increasinglyaware of the great burden levied upon major parts of the population in the name of themarket economy. Therefore, it is not only for Muslim experts that the Islamic systemsseem to be the only credible alternative concept not yet discredited by practicalexperience.66 The debate on these systems should be pursuit also by non-Muslims inan open spirit with a view towards enriching the omnilateral system with appropriateelements from Islamic economics, not at least also in order to avoid clashes of 'theWest against the Rest'.

60 See IHT22.9.98, Not for Muslims Only: Islamic Finance on the Rise.

61 Cf. Saad Abdul Sattar Al-Harran, Islamic Finance, Malaysia, 1993, p.5

62 Cf. Abu Saud, M."Money, Interest and Qirad in Islam", in: Studies in Islamic Economics, Leicester, 1983, p.64

63 Cf. Saad Abdul Sattar Al-Harran, Islamic Finance, Malaysia, 1993, p.6

64 Cf. Dr.Saad Al-Harran, Leading Issues in Islamic Banking and Finance, Malaysia, 1995, p.VII;Western investment banks that take up equity of the recipient of the loan in a similar fashion share at least part ofthe risk of the entreprise to be financed.

65 See Volker Nienhaus, "Islamische Wirtschaftsordnungen", in: Internationale Politik, Bonn August 1997, p.17

66 Idem, p.14


There are certainly other elements to be drawn not only from Asian cultures not yetexplored here like for instance India, but also from other continents that couldenhance global governance “omnibus” as co-owning and thus pro-active stakeholders.

The search for such constructive elements in emerging societies as contributions tobuild a truly omnilateral system, of course, will remain an ongoing task that will neverbe finished as long as history flows and does not end, which is our basic axiom as astarting point.

If omnilateralism --in contrast to the ‘only multilateral system’ of today-- cannot berealised, there is a danger that at some point in the future, not only China in view ofits own importance67 either does not see anymore a need to join the “Western-made”institutions. Or if entering as only a ‘passive member’ (like Japan 1955 in GATT),China might sooner or later break up the inculcated purely Western concepts from theinside like an alien and outgrown cuckoo in a nightingale’s nest....Admittedly, such “omnilateralism” seems to be a rather idealistic vision whichunderrates the urgent need and this year’s window of opportunity to “constructivelyengage” China into the world trading system. However, it is precisely the‘constructive’ nature of the engagement (i.e. building together) which should reflectChina’s input to build an omnilateral system. Otherwise, there is clearly a risk oftaking non-westerners only into the existing system tel quel like in a conservative clubwhich accepts a new member who just happened to move into the “neighbourhood” ofthe club, in terms of development (like South Korea into the OECD) or have grownsufficiently important as the new boy on the block (Russia into “Group of 8” andChina into WTO etc.?).

The multinational organisations, however, are expanding their geographical andthereby also cultural reach and hence should likewise encompass their new members’particularities. This, of course, does not at all exclude the existence of universalfundamental values, as then agreed upon by all “omnilaterally.”

When I quoted Goethe’s “Weltkind in der Mitten” at the beginning to locate aEuropean in between America and Asia, I wanted to indicate the relative distance andnearness of Europe to both. As we physically or the electrons on the Internet travelover the continents nowadays, one might start to wonder, if there is really anybody‘unique’ in this world: the Japanese islanders at the periphery of Asia who have oftenso pretended, or the pioneering Americans now as “cultural creatives”68 on theirseemingly endless mainland with their exceptionalism?

Seymour Lipset in his book “American Exceptionalism” indirectly confirmed us in thebelief that we Europeans are in many respects somewhere in the middle between theextremes at both ends of this shrinking world.

If one accepts Europe as “Weltkind in der Mitten,” then naturally there evolve

67 China is already now the world’s second largest holder of foreign exchange reserves, only after Japan (FT,4.3.97, p.4: “China joins forum on forex”).

68 see Paul Ray, 1995, (24.6.97 at Cdp, Bruxelles) pointing out the fast growth of this new idealistic group ofpeople in the US.


opportunities for us Europeans to assume a role as mediator.69 This is a role Europecan should play much more often. But its preoccupation with its own integrationprocess (now in particular with its East) has hitherto prevented it to fulfil thatfunction. The Cold War had strengthened the alliance with America, but left the“missing link ”with East Asia. It is time the “Weltkind” regains its balance and opensup to omnilateralism!

One important step in that direction was taken with the establishment of ASEM, theAsia-Europe Meeting, which took place in Bangkok 1996 for the first time and hasbecome a point of crystallisation in recent European policy towards East Asia. In viewof the second ASEM summit in early April in London, it is certainly timely to exploreits background somewhat more in detail.

The traditional ‘leanings’ of the United Kingdom towards Asia and in particularGermany’s evolving enthusiasm for the increased opportunities in that region (Bonn’s“Asien Konzept” of 1993) had already prepared a fertile ground upon which theEuropean Commission in early 1994 had planted its comprehensive policy paper“Towards a New Asia Strategy.” The goals of this basic document were in a nutshelltwofold: to raise the EU’s profile in Asia and to promote better mutual understanding.

With this strategy, co-operation had become the keyword in EU-Asia relations, andunlike US Secretary of State Christopher in November 1996 in Shanghai, Europeansdo not regard it as too “hackneyed” or even lacking credibility to link it with the term‘partnership.’ The word ‘co-operation’ is now omnipresent in the ‘Communications’of the EU on Asia.

These so-called ‘Communications’ in general reflect a consensus for recommendedpolicies as reached among the currently 15 Member States upon a proposal by theEuropean Commission, the executive branch of the Union.

For instance in the main EU Communication on Japan of March 1995 the word "Co-operation" comes up almost 30 times, and in the Communication on China even morethan 30 times! In the case of Japan, you could easily say that it was a fast road ‘fromconfrontation to co-operation’. Some people even feel the change was too fast, morelike speeding in a Porsche on the ‘Autobahn.’ That is: beyond the recommendedspeed of 130 km/h, but still in a rather safe vehicle....

However, for the first Asia-Europe summit, 1996 in Bangkok, both sides clearlyconsidered co-operation necessary from the outset, because through complementary"strategic alliances" closer ties could better be established between the two regions.

For that purpose, ASEAN had invited China, Japan and South Korea to participate inthe first ASEM, thus forming an Asian side of “ASEAN plus 3", that means 10 Asiancountries.

It is interesting to note that the self-chosen format of the participating countries“ASEAN plus 3" coincides with the membership of the East Asian Economic Caucus 69 Such mediation by Europe is also of importance for instance in Japan’s dealing with Africa where EU countriesare more experienced, or even in South East Asia where the Japanese are burdened with history and appreciate athird party to come along.


(EAEC, or “Caucus without Caucasians”) proposed by Malaysia’s Prime Minister Dr.Mahathir.

In spite of pre-summit uncertainties and earlier scepticism about ASEM, the Bangkokmeeting of leaders at highest level in March last year was regarded as a ‘successbeyond expectation.’ It has marked a historical turning point in the relations betweenthe two regions, as a new dialogue among equals between Europe and Asia has begunto replace the notion of the ‘missing link’ in the Triad.

This first ASEM confirmed the clear will on both sides to develop further a genuinepartnership among equals. It has laid the basis for a strengthened political andeconomic dialogue. It opened new avenues for co-operation, in a wide range of areasincluding global issues such as environment and crime, and in particular instrengthening mutual awareness and cultural links between Asia and Europe. Itconfirmed the interest of expanding our dialogue on human values, in a constructiveclimate and respecting our cultural diversity.

Just to list a few concrete examples of the follow-up actions:

There are Business Fora, Meetings of Ministers of Finance and the Economy, anEnvironmental Technology Centre, an Asia-Europe Foundation, Youth and UniversityExchange Programmes, but also co-operation in the multilateral framework likedialogues on the reform of the UN and meetings on Trade and Investment which hascontributed to the consensus-building in the WTO last autumn in Singapore.

A surprising reaction after the Meeting came from Malaysia’s Prime Minister, as hewas one of the most sceptical at the outset: ”Dr Mahathir prefers ASEM to APEC”70

read the headline in Kuala Lumpur of an article including the following sound-bites:

“...(ASEM) has been more successful than (APEC)” “European leaders acknowledged that Asia should not be expected to followEuropean standards immediately as Europe had taken a long time to be where theyare.”“.... Europe had avoided thorny issues that would have caused confrontations andhad instead stressed on development.”

Most unexpected was not so much the partly condescending criticism from majorthird countries, but the surprising reaction from some countries to discuss as aquasi-counterbalance the grouping of a so-called “JUSCANZ.” This initiative to bringtogether Japan, the USA, Canada, Australia and New Zealand in response to ASEM isvery flattering. It shows that ASEM, already at its early stages, is taking much moreserious also by outsiders than originally thought. In particular the reported endeavours

70 cf. Sunday Star, Malaysia, 3.II.96; Apec’s difficulties in relying merely on peer pressure for liberalisationbecause of the misunderstandings between the Americans and the Asians are exemplified most recently by the callof Mexico to clarify the forum’s basic plans for free trade: “Free trade for lots of countries has a very differentmeaning”, the country’s trade minister said recently, pointing out that any question “What do you mean by freetrade?” in Apec “is seen as a spoiler” (FT, 12.2.97). More optimistic was still Y.Funabashi, Asia Pacific Fusion,IIE, Wash. DC 1995


of “JUSCANZ” to also include Norway and Switzerland as EU outsiders might giverise to new theories of anchoring or even containment....

Such moves - sometimes perhaps smiled upon as desperate in fear of being left out(cases of "geo-psychology"?) - only underline the necessity for the overarchinginternational system to comprise all members as pro-active stakeholders. Thus alsotheir institutions are further legitimised in a more participatory form of governancetowards true omnilateralism.

Not the private71 car, but the "omnibus," for and by all, might be the right vehicle for abetter "geo-future."

71 cf. privare (Lat.) =to rob (from public)


DISCUSSION PAPERSThe Future of Labor Relations –

Options and Strategies


Statement by Oliver Wieck,

Federation of German Industries, Cologne

Industrial globalization is a fact not a goal

Examples are the recent merger between Daimler and Chrysler, the activities ofpublishing companies such as Bertelsmann and Holtzbrinck in the Americanmarket and only some days ago the merger between Deutsche Bank andBankersTrust in the U.S.

The main reason for these activities is the approach to new markets and thepossibility to benefit from an already existing and operating partner.

But there is also another side of the coin. Besides cooperating with new partners,particularly in recent times some companies have had to streamline and adjust theirbusiness to their core activities. Examples are Siemens AG, Metro AG (retailer)and VIAG AG (energy), who spun off up to one-fifth of their activities. And evenDaimler had to spin off activities before its merger with Chrysler, particularly inthe aircraft and insurance businesses before becoming as successful as today.

Other areas for industrial globalization are the Information Society, which includestelecommunications, Internet, etc.

But not only the big companies globalize their activities around the world. SeveralSME’s already started to internationalize their activities years ago either to followthe big companies as a supplier or to cover market niches around the world.

Industrial globalization is an old approach under a new name

Successful companies have been engaged in foreign markets for many years. Thebest examples are the automotive industry and the chemical/pharmaceuticalindustry.

What is new is that more and more countries liberalize their markets and want toparticipate in worldwide growth. Particularly after the end of the Cold War, newbusiness opportunities arise in increasingly market driven societies. This alsomeans increasing competition between the companies which want to benefit fromthe huge potentials in the new markets.

And there is a new approach: while in the 1970s and 1980s companies only had tosupply goods and services to the respective partners, since the beginning of the1990s participation in investment and privatization projects has changed. Anengagement is only possible if a company takes more risks and responsibilities andoperates and runs the project (BOO, BOT). In this area, those companies whichhave operating experience in their home market are particularly successfulExamples include the construction sector or the energy sector.


Different effects of globalization in a changing world

- on industry:

In the political process economic issues have a new priority: conflictingeconomic interests between countries or regions are discussed more openly andwith greater stridency between the governments. Recent examples in relationsbetween the US and the EU include the banana conflict , the US steelantidumping measures and US sanctions with extraterritorial reach.

Companies are increasingly invited by politicians to take a more active part inthe political dialogue. Examples include the Transatlantic Business Dialogue(TABD) and other business dialogues with Asia, Latin America (MEBF) or ona national level the BDI US-Committee. These dialogues are established tointensify the communication between the business community andgovernments. The ultimate aim is to reduce barriers to trade and investment andby that to contribute to a further liberalization of world trade. At the same time,these dialogues work as an ”early warning system” to prevent the deepening ofeconomic conflicts. It is also evident that not all conflicts can be solved withthe help of the business community. But the dialogue is an importantmechanism and a good basis for continuous exchange of views whichsometimes can help to reduce tensions between the parties.

- on labor relations:

The effects can be illustrated with two examples:

13 out of 15 EU Members now have social democratic governments. That doesnot necessarily mean the same approach towards labor issues but rather astronger focus on these issues.

France requested an EU unemployment summit to tackle one of the most urgentproblems of the EU: the reduction of the high unemployment throughoutEurope. The question is as follows: what can be done on an European levelwhich cannot be provided on a national level?

With the new government in Germany there are actually two issues to bediscussed. Should the Bundesbank be pressed to a more growth orientedpolicy? Should there be a shift from a presumed supplier oriented policy of theold conservative government to a more demand oriented policy?

The first approaches of the new tax reform head into this direction and it has tobe seen if it will have a positive effect on private consumption. At the sametime the Round Table between employer organizations, Unions andgovernment will be reinstalled. But concrete results can only be expected ifboth the employers and employees organizations agree to give in some of theirsovereignty.

Even in the UK there is growing pressure within Labor party and Unions toimplement more labor oriented regulations.

Thus, the question remains: what can be effectively done bearing in mind theincreasing budget and fiscal restraints within the EU and the Member States?Which is the effective tool to fight unemployment?


In the transatlantic relations the Daimler Chrysler Merger could become afuture example on how to organize the relation between the employer and theworkforce: the concrete effects of the merger cannot be identified yet but as afirst reaction the U.S. unions claimed their rights at the Mercedes Benz factoryin Alabama.

The central question will be as follows: is the free market system andderegulated labor market in the U.S. the right approach to react to increasingeffects of globalization on labor relations?

Increasing job rates and stimulating job flexibility stand against a weak socialsecurity system, low average education and increasing income gaps.

Conclusion

The increasing effects of globalization on industry and labor relations will lead to abetter comparability of the different systems. Both sides should learn from oneanother. Europe could bring in the good education of the workforce and reasonableincome relations. Europe could learn from the U.S. how to organize a flexible jobmarket with increasing job rates, particularly in the service sector.


What is the Impact of Globalisation onEuropean Industrial Relations?

Statement by Bernadette Tesch-SégolEuro-Fiet (Union), Brussels

Where does globalisation come from?

• Growth of the global financial markets,• Development and diffusion of technology,• Crisis of Taylorist systems of mass production,• Increase in foreign direct investment and deregulation.• Creation of a single European market. A remark on the last point: In Europe the impact of globalisation at world level is more limited. Within Europeancountries, most of the trade is contained within the EU. The scale of extra-EU trade ismuch smaller than we tend to think. 90% of the demand is met by production within Europe and only 10% are met byimports from outside the EU. External trade is important for companies, but, in the end, most of the changes whichare labelled as globalisation in Europe, are the effects of the Single European marketand therefore of decisions made in Europe.

What is the impact of globalisation on social relations?

The growth of the global financial markets has meant a shift of power fromgovernments to financial markets. If financial forces are free to move and operatewithout constraints, they will go where it is the most profitable for them to go,independently of the political colour of governments. Financial forces do not considerthat people come first. Capital moves and social partners, employers and unions whowould like to strike deals are left powerless. So globalisation of financial marketsweakens social relations and, at the same time, the fabric of democracy. The free movement of capital also has a severe impact on taxation and social security.The level of taxation on capital has decreased because capital is more mobile andmore difficult to tax than labour. The weight of taxes on workers has increased. Thisis unfair and has led to higher unemployment. More unemployment has in turn led to a greater burden on social security and hasincreased the cost of labour. Social expenditure is regarded as a burden to enterprisesand employment.


Globalisation therefore increases the tensions in industrial relations because it addsto the tax and social security problem. The development and diffusion of technology is another element of globalisation. Ofcourse, the ”global information society” has a radical effect on the organisation of theproduction of goods and services. Companies have to adapt their organisation, theskill of their staff, their products to the information technology. Social relations havebeen affected by this evolution, because it brought about pressures on employment. Itbrought to the table of negotiation other topics, training for instance, but above allwork organisation; Globalisation means changes in the negotiating agenda. Information technology has changed the system of mass production and theappearance of flexible forms of organisation. The implications of this on socialrelations are clear: Trade unions have to negotiate the change of work organisation.Trade unions are ready to do it, but the needed flexibility, linked to globalisation, ispresented to them as a need for complete deregulation. What trade unions want togain is a fair deal for workers and for employment in the implementation offlexibility. The European trade union movement refuses to equate flexibility withtotal deregulation. Globalisation puts pressure towards deregulation and brings unfairsocial evolution. The social partners resist unfair social evolution. Social partnerswant to negotiate security and flexibility. Globalisation also means an increased possibility to move production and investment.In the past social relations were based on two balanced, or more or less balanced pre-requisite: the employer depended on his workforce for the production and profit of hiscompany, and the worker depended on the profits made by employer to have a stablejob. The elements of this balanced relationship are disappearing because ofglobalisation. The attitude of employers towards trade unions, labour costs, workorganisation is more influenced by competitive pressures, and the pressure of capital.Capital is mobile. Labour is not. This is contributing to a change in social relations.Globalisation increases the imbalance between the social interlocutors. All these elements have weakened the value of social relations. Balanced society,where wealth is fairly attributed, where people come first, could become a thing of thepast. In other words, trade unions are finding that international factors arise as ahindrance in their relations with governments and in their relations with employers.Globalisation then means less social progress.

What trade unions say and do in the context of globalisation?

A remark: What trade union say does matter. Ideas in themselves are of coursepowerless. But in a society were communication is essential, were catchwords, arecarried without any critical distance, where the ”politically correct” or what we call inFrench ”la pensée unique” are the key to career and consideration, it is important tokeep other points of view alive and vivid. First point of view: people should come first. Capital is there to serve social justiceand social progress. Globalisation should be at the service of people and not the otherway round.


The recent financial crises in Asia, Russia, Brazil, and sometime ago in Mexico havebrought home in many minds that there can be no economic miracle if is not based onsocial justice, democracy, and real economic progress. European and internationaltrade unions have claimed for years that financial markets had to be regulated andcontrolled, including within the EU to avoid clashes and tremendous social damages.Now, some economic and political leaders recognise, belatedly, that this opinionshould have been heeded. Second idea: change has to be negotiated, not imposed. Trade unions are not populistor nationalist organisations defending fiercely a national identity or so calledindependence. This position is too well occupied by right wing parties in France andelsewhere. It is possible to ”manage change in firms, industries regions and labourmarkets in a socially equitable way”. Negotiation, using trade unions asintermediaries for the change is a positive way forward. Globalisation, to bringpositive results, has to be organised and accepted. Otherwise it brings chaos. Third idea: A model of industrial organisation has to be developed in a way which isboth competitive and socially acceptable. European society -and why not othersocieties- has to restructure on the basis of a high set of labour standards, not on thebasis of low wage model of development. Low paid jobs are not the solution to theproblem. Replacing the unemployed poor by the working poor is not contributing toprogress. It is possible to prove that the model of low wage and deregulation, is notthe recipe for success. Countries like the Netherlands, Ireland and Denmark have allsucceeded in combining strong economic performance and equity by not followingthe Anglo-Saxon model. Fourth idea: in a globalised IT society, knowledge comes first. And knowledge is inpeople. The job of unions is to act to put people first in the new society. This doesnot come in contradiction to globalisation. Fifth idea: globalisation has to be managed. There should be rules for the globalmanagement and fair competition. This means that:• financial markets have to be regulated and not allowed to destroy million of

people,• Core labour standards, and human right has to be internationally recognised as part

of the democratic societies. In this context trade union rights and contribution tothe social fabric of societies should be applied;

• In Europe there is a need for the gradual harmonisation of the taxation system toavoid social dumping between countries.

Conclusion:

Globalisation has affected the strength and contents of European industrial relations.It would be a mistake for politicians or employers to ignore that trade unions can playan important role in the global acceptance of this phenomenon.


Statement by Marino Marcich

National Association of Manufacturers, Washington, D.C.

As a result of the Asian crisis, we have renewed calls for social justice from virtuallyevery quarter, and even dire predictions in the U.S. of the demise of global capitalism.The International Labor Organization (ILO) is vigorously promoting core laborstandards around the world. The World Trade Organization (WTO) will no doubt faceincreasing pressure to permit the use of trade restrictions to promote labor,environment, health and safety and human rights objectives. The InternationalMonetary Fund (IMF) and World Bank are encouraged by both the left and right inthe U.S. to condition their lending on the promotion of these same objectives.

Most recently, a working group chaired by Pehr Gyllenhammar, former chairman ofVolvo, advocated the creation of a league table for large companies based on bestemployment practices. "Bad" employers that refuse to comply could face financialpenalties, including the denial of grants, public procurement and aid for research anddevelopment. The Clinton Administration has incorporated the concept of "civilsociety" in every regional trade initiative, including the Asia Pacific EconomicCooperation (APEC) forum, the Free Trade Area of the Americas (FTAA) and theTransatlantic Economic Partnership. The Clinton/Blair theme of a "third way" wasechoed by German Prime Minister Gerhard Schroeder, who said, "We do not want todo everything differently, but many things better."

While we await more precise details, let me offer a vision of what we can dodifferently and better to improve the living standards of working men and women inAmerica and Europe. Implicit in this new way of doing things is the recognition andencouragement of the development of two forces at work - "worker capitalism" andthe "democratization of capital" - that are already shaping the future of labor relations,particularly in the U.S. and to a more limited extent in Europe, though the pressurebrought about by the Euro should accelerate this process in Europe as well.

Let us be clear at the outset, however, that there will be no improvement in the livesof working men and women without economic growth. No matter the country, or themix of policy choices, long-term economic growth is a prerequisite to improved livingstandards for workers. No country has improved living standards without growth.Lower interest rates, lower taxes on employees and the companies for which theywork and an aggressive trade policy that opens markets to competition are all centralto the growth agenda.

First, some background on the state of the economy and the American workforce.According to a recent poll, 84 percent of Americans rate the state of the Americaneconomy as "excellent or good," compared with 19 percent in 1982. Unemploymentis currently 4.5 percent overall. The unemployment rate among those with a highschool diploma is 4 percent. Among those with a college degree, it is an astonishing1.7 percent. Since 1991, the American economy has created 13.5 million jobs. Ofthese, 10 million have been in high-skilled, higher knowledge occupations such asdatabase administrators, systems analysts, accountants and computer engineers. After


seven consecutive years of economic growth of 3-4 percent, it is no wonder that 98percent of House members and 90 percent of senators seeking reelection earlier thismonth were returned to office.

For American workers, income is also going up. From 1976 to 1996, real wages wentup by almost 12 percent; total compensation (wages, salaries, bonuses, benefits andthe employer share of the FICA tax) has risen by over 15 percent.

Employee compensation is rising due to high worker productivity (over 2 percentincrease in each of the past three years), which is based, in part, on employees whohave incentives to work harder. These incentives involve innovative forms ofcompensation, ranging from performance bonuses to stock ownership plans, thatenable workers to earn more and enjoy a higher standard of living. Consider: in 1996,the average income from all forms of compensation was $38,000; in manufacturingjobs, it was $46,000. And the number of Americans who own stock - roughly 43percent of all American adults - has doubled since 1990 due to 401(k) plans, mutualfund investments, etc.

As amazing as the performance of the American economy is, there are signs of troublethat, if left unattended, threaten future prosperity. Much more can be done to enableordinary working people to enjoy the fruits of their labors. The American businesscommunity, in tandem with policies enacted at both the state and federal levels,should encourage a greater spirit of entrepreneurship that turns workers intoshareholders and more active participants in their companies' decision-makingprocesses. The NAM places all these ideas under the heading "worker capitalism."Business needs to provide employees with greater opportunities to benefit from thecapitalist system. Doing so should be one of the central economic goals of our time.

There are many ways of providing people of ordinary means with the opportunity ofreaping the fruits of their own labor and initiative. Worker capitalism means givingworkers greater control of the way they do their jobs and higher compensation forexcellent performance. It means providing adequate training, on an ongoing basis, toworkers to enable them to compete effectively in the global marketplace. And itmeans the continuing transformation of the workplace, enabling employees toincrease earnings and profit more fully.

People work harder and smarter if they know their labors will benefit them and thosethey care most deeply about. And the higher the compensation, the greater theincentive for productivity. If we sense we are stuck in a given position withoutopportunity of advancement, particularly in lower-paying jobs, creativity wanes,interest lessens and effectiveness diminishes.

That is why trust, teamwork and communication between workers and managers arevital components of the modern workplace. The vast improvements in Americanmanufacturing over the past two decades have come about, in significant degree, dueto the implementation of these principles on the factory floor.

This commitment to quality is linked closely to a renewed emphasis on the value ofemployees. As every successful company knows, people work more productively


when they are treated in a respectful manner. Employers, in turn, benefit fromsoliciting and applying their employees' wisdom.

All of these things boil down to letting employees have greater control over theirwork environments. This could be called "employee entrepreneurship," allowingworkers to have more authority to set their own schedules, make on-the-spot decisionsabout the quality of their workmanship and join with management in the actualrunning of their plants.

Fully a third of NAM members offer flexible work schedules to their employees, atrend that is steadily increasing. Almost three-quarters (73 percent) are teaching andencouraging decision-making by production workers on the line. Over 80 percent ofall part-time workers do not want full-time work, a clear indicator that workers aregravitating toward more flexible work arrangements. 53 percent of employeesreported working in workplaces that used teams, committees and quality circles toimprove productivity, quality and safety, according to a worker survey by Penn,Schoen & Berland Associates in January 1998.

There is trouble ahead, however. A recent survey of 4,500 manufacturers conductedfor the NAM by the Grant Thornton consulting firm indicated that 60 percent of thoseresponding say that at least some of their current workers lack basic math skills.More than half (55 percent) find serious deficiencies in workers' basic writing andcomprehension skills and almost half (48 percent) believe too many of their workerslack the ability to read and translate drawings, diagrams and flow charts.

The portrait painted in the Grant Thornton survey could become more vivid unlesspreventative action is taken. As legendary management consultant Peter Druckernotes in the October/November 1997 edition of The Harvard Business Review,America's sole advantage in the global economy is the supply of what Drucker calls"knowledge workers" - men and women capable of performing increasinglysophisticated tasks in a changing work environment. If the U.S. loses this advantage,the U.S. economic future will be at risk.

Some immediate measures, such as increasing the number of highly skilledimmigrants who can enter the U.S. each year, may help for a relatively brief period.But longer-term, we have to evaluate how best to improve the quality of the U.S.workforce.

Education tax credits, vouchers, charter schools and appropriate national testingstandards are all options which, in some combination, will introduce higher levels ofcompetition and choice in the public school system. And the patchwork quilt of 788federal education and vocational training programs also need to be streamlined andconsolidated into a few accessible programs that work.

Workers, too, must commit to training. They need to be willing to learn on anongoing basis. But experience has shown, when employees understand the benefits oftraining, it is not hard to convince them of its necessity.

Industry is helping by investing more funds in employee training and programs of"lifelong learning." But more can be done. The NAM's Board of Directors has called


on all of the NAM's 14,000 member companies to devote three percent of payroll totraining. In tandem with such innovations as curriculum coordination between localcompanies and their regional high schools and community colleges, current and futureworkforces need better preparation for the challenges of the high-tech era.

As employees are being brought more fully into the mainstream of corporate life,many companies are moving away from the old model of hourly wage compensation.In our day, worker pay is increasingly tied to performance, to the actual productivityand innovation of employees and their factory floor teams.

In September 1994, Hewitt Associates published a survey of almost 2,000 companiesnationwide in which nearly 70 percent of those responding said that their "results-sharing" programs "helped achieve business results not otherwise attainable."Incentive compensation works, and companies enjoy higher productivity as a result.It also works for employees as an effective means of saving for their futures.

A 1997 survey conducted by the William Miller consulting company found that 30percent of America's largest companies have stock ownership programs. Ownershipgives workers a stake in the performance of their companies. Obviously, if that stakeis minuscule, it will fail as an incentive. But if it is substantial, or holds the promiseof growing larger, workers will be motivated to work more productively.

Today, according to a survey conducted by ShareData, almost half (45 percent) offirms with 5,000 or more workers and that offer stock options also make these optionsavailable to all their employees. Smaller companies have joined the stock optionmovement as well. Of companies with less than $50 million in sales, three-quartersoffer 100 percent of their workers stock options.

Some are skeptical of the efficacy of stock options, asserting that they inflate thevalue of company stock. Yet, stock ownership brings significant results. Accordingto the National Center for Employee Ownership (NCEO), "An index of publiclytraded companies with more than 10 percent broad employee ownership outperformedall other market indexes for 1997, gaining 32.5 percent for the year compared to 31percent for the S&P 500."

In total, the NCEO estimates that there are about 15,000 firms in the United Statesthat "share ownership broadly with employees." These companies are creatingemployee wealth and are doing so by creating employee ownership.

It should be noted that Social Security reform is a central part of the employeeownership agenda. Allowing ordinary Americans to put some of their Social Securitymoney into personal savings accounts will help tens of millions of working peoplebuild substantial savings for their retirements and will also rescue the Social Securitysystem from near-collapse. These accounts would work like 401(K) programs andwould give men and women of average means the chance to share more fully in agrowing economy. Along with retention of basic Social Security benefits no one canever lose, personal savings accounts will help workers become investors in andbeneficiaries of ongoing economic expansion.


Besides "worker capitalism," the other factor shaping the workforce of tomorrow isthe "democratization of capital." Directors of companies are increasingly answerableto 35 year-old asset managers who control the huge pension funds of states andlocalities, teachers unions, individual mutual funds, etc. Powerful institutionalinvestors - pension funds from the U.S. and UK and increasingly from Europe as thecontinent moves to an equity culture - will do much to shape the future of labor.International investors do not micromanage, dictating the terms of collectivebargaining agreements for the heavily unionized workforces of Germany and France.But the pressure will lead to market-oriented reforms and a more Anglo-Americanway of doing things at all levels of the corporation. Like it or not, the new equityculture will require a change of old habits, which die-hard. Enormous politicalpressure will be brought to bear to slow these developments. In the longer term,however, Europe will benefit from these developments, just as the U.S. economy has.

The statistics cited in this paper are based largely on two recently-publishedreports:1) The NAM Annual Labor Day Report, The State of the American Workforce,September 1998.2) A Survey of American Manufacturers, The Skills Gap: The Shortage of QualifiedWorkers. A Growing Challenge to the American Economy, National Association ofManufacturers Center For Workers Success & Grant Thornton, LLP, 1998.


U.S. Workers in a Global Economy: A TradeUnion Perspective

Statement by Linda EwingInternational Union, UAW

UAW members are experiencing the phenomenon that has come to be called”globalization” in a variety of different ways. Here are a few quick snapshots:

• Snapshot #1 - A shuttered factory. In the 1970s, the Big Three domesticautomakers held what amounted to a three-way monopoly of the U.S. motorvehicle market. Imports and a wave of foreign direct investment have changedthat. As the Big Three’s share of the U.S. market shrinks (in 1997, their combinedmarket share was just over 50 percent), assembly and parts plants have beenshuttered, their capacity no longer needed. The UAW members who once workedin those plants have lost their jobs or found themselves uprooted from theircommunities.

• Snapshot #2 - A gleaming new factory, with a Japanese name above the gate. Agrowing number of UAW members are employed by foreign-owned companies,or by joint ventures involving a foreign partner. That includes the UAW membersin California who assemble Toyota Corollas; takes in the workers at new,Japanese-owned parts suppliers, who overcame sometimes-vicious managementopposition to win UAW representation; and extends to our members at longtimeUAW-employers like Budd and Kelsey-Hayes, who are now owned by foreignparents.

• Snapshot #3 - A grim-faced manager addressing a group of workers. At one timeor another, almost all UAW members have been told that their continuedemployment hinges on becoming ”globally competitive.” In the current climate,with ”privatization” of public services in vogue, the mantra of ”globalcompetition” is nearly as familiar to our members in the public sector as it is tothose employed in private industry. What that familiarity has taught them is this:when employers begin to talk about ”global competitiveness,” it means that yourwages, benefits, and working conditions are under attack.

These snapshots are intended to illustrate a point: that globalization’s impact on U.S.workers and their unions is complicated. The developments that have come to begrouped together and labeled ”globalization” - the increasing prominence ofinternational trade in the national income accounts, increasing levels of foreign directinvestment, the computer-aided ease with which capital crosses borders - are notoccurring in a vacuum. Rather, they are playing out in a particular domestic politicaland institutional context. That domestic context shapes their impact - even as they, inturn, shape the prospects for future political and institutional change.

As an example, consider the foreign-owned automakers that have established U.S.assembly operations. These ”transplants” now hold approximately 25 percent of theU.S. motor vehicle market. They are also overwhelmingly nonunion. So isdeunionization an inevitable result of globalization? There is no inherent reason why


an inflow of foreign investment should lead to a fall in the UAW’s coverage withinthe auto industry; after all, the Japanese and German automakers that have set up shopin the U.S. are unionized in their home countries. The fact that the transplants haveremained nonunion is due to the longstanding weakness of U.S. labor law, whichmakes organizing new plants such a formidable undertaking. In that domesticcontext, the impact of foreign direct investment has been to create a parallel, nonunionauto industry alongside the UAW’s historical base in Ford, General Motors, andChrysler. If the U.S. labor movement had succeeded in winning labor law reformback in 1979, who knows - perhaps the domestic institutional context would havebeen different when Japanese automakers broke ground on their U.S. plants, and theface of the U.S. auto industry might be different today as a result. Instead, the growthof a second, nonunion auto industry has erected new political and economicroadblocks to future labor law reform. Less union coverage within industries likeauto translates into a weaker labor movement, which translates into dimmer prospectsfor change.

There is a political purpose behind my emphasis on how domestic institutions shapethe impact of globalization, and not just on how globalization is reshaping domesticinstitutions. When all of the emphasis is on the latter - on the pressures andconstraints that globalization imposes on domestic policy - it is hard to escape afeeling of political helplessness. If lost jobs, weaker unions, falling wages, andskimpier social services are simply the result of something called ”the globaleconomy,” then what can be done? In the prevailing political discourse in the U.S.,the answers range from ”nothing - let market forces prevail,” to calls for policies toease the transition and better arm U.S. workers to compete in the new globaleconomy.

In that context, I would offer the auto parts industry as a second example of whatglobalization does and does not mean for U.S. workers -- and of how misdiagnosedproblems can lead to misplaced solutions. This is an industry that, twenty years ago,paid high wages and was (in the U.S. context) highly unionized. Then somethinghappened. Over the last twenty years, the number of UAW members in independentparts firms (that is, excluding parts employment within the automakers themselves)has fallen by 40 percent, and average hourly wages in the industry have fallen by 20percent, after adjusting for inflation. Ask most Americans to explain thesedevelopments, and they would probably cite ”globalization” in one or more of itsguises -- import competition, perhaps, or the flight of capital and jobs to low-wagecountries like Mexico.

So is the auto parts industry one more example of a mature industry buffeted byglobal competition? Is the humane solution retraining programs to help redundantparts workers pursue new jobs in high tech and services? That’s the conventionalwisdom - and yet, a quick look at recent employment figures reveals that far frombeing in decline, the U.S. parts industry is booming. More Americans are employedin the manufacture of auto parts today than in the late 1970s, when the domestic autoindustry was riding high and the term ”globalization” had yet to enter widespreadusage. The falling living standards experienced by parts workers are not theunfortunate - but unavoidable - consequence of a globally-driven loss ofmanufacturing jobs. In the main, they are the entirely avoidable result of domesticinstitutions, policies, and decisions: the legal loopholes that allow employers to pursue


”union avoidance” strategies with impunity; political inaction that allowed the valueof the minimum wage to erode; a weak and eroding ”social wage” of statutorybenefits; the supplier strategies of the Big Three; and so on.

I am not arguing that globalization doesn’t matter. The UAW’s long fight atCaterpillar showed all too starkly how global corporations can use theirtranscontinental reach to continue turning out products -- and making profits -- at theexpense of their domestic workforce, and in the face of a campaign by a nationally-based union. Even in the parts industry, where I have argued that the pressure onworkers’ living standards is of domestic origin, the fact that U.S. parts employment issurging in the aggregate means little to workers whose own plant manager isthreatening to close up shop and move to Mexico if they do not accede to lower wagesand benefits.

I am arguing that ”globalization” is a new hook for a much older ideological disputeover the appropriate role of markets in society. Do we believe that ”the market” - beit global, regional, or local - should reign supreme? Are there areas where we believemarkets simply do not - or should not - work? In the end, it’s our answers to thosequestions that really matter. Globalization is an important reality that needs to beconsidered in the debate, but it should not be allowed to obscure or avoid it.


Discussion Paper:Welfare and Education- The

Momentum for Reform


GLOBALIZATION, THE WELFARE STATE, ANDRECOMMODIFICATION∗

Giuliano Bonoli

The last decade has witnessed an increased salience of social policy as a politicalissue in virtually all European countries. As a result of socio-economic developments,most notably population ageing and economic globalization, welfare states findthemselves under pressure. In this context, governments have engaged in a process ofwelfare state adaptation. Unlike in previous decades, however, since the early 1980sin the UK, and the early 1990s in the rest of Europe, the direction of social policychange has been towards cost containment and even retrenchment. What is thesignificance of this shift? Is there some consistent pattern behind it? Are we headingtowards a new model of welfare state?

This paper tries to explore these questions, by looking at recent social policydevelopments in a number of countries, which represent the various models of socialprotection found in Europe (mainly France, Germany, Italy, Sweden and the UK). It isbased on information collected by the OECD1 as well as on conference papers, whichprovide the most up to date information on a rapidly changing subject matter. Thesectors of the welfare state covered are unemployment compensation and pensions,because they are the most directly affected by the key pressures of globalization andageing.

On the basis of the empirical evidence assembled, the paper tries to identify commonpatterns of change across areas and countries. The main argument put forward, is thatthe post-war process of decommodification, defined as the ‘degree to whichindividuals, or families, can uphold a socially acceptable standard of livingindependently of market participation’2, has been reverted, and we are now seeing theopposite process taking place: recommodification. This process, however, isaccompanied by measures that are intended to improve the situation of commodifiedworkers, such as tax credits, free child care, parental leave, etc. The dominant themeof social policy in the late 1990s, is not to decommodify wage earners, but to improvetheir situation as commodified workers.

This trend has to do with economic globalization. In general, social programmes

∗ This paper originates from a joint research project conducted with Vic George and Peter Taylor-Gooby (University of Kent), on the current transformation of European welfare states. Project findingsand conclusions are to be published in: G.Bonoli, V. George and P. Taylor-Gooby, European WelfareFutures, Cambridge (UK), Polity Press, 1999. An earlier version of the paper was presented at theRound Table ‘Globalization and Social Governance in Europe and the US’, Brussels, 19-20 November1998, and benefitted from comments made by participants.1 Kalfisch, D., Tetsuya, A. and Buchele, L., Social and Health Policies in OECD countries: a Survey ofCurrent Programmes and Recent Developments, Paris, OECD, Labour Market and Social Policy,Occasional Paper No. 33, 1998.2 Esping-Andersen, G., The Three Worlds of Welfare Capitalism, Cambridge, Polity, 1990, p.37.


which reduce work incentives are likely to be incompatible with economiccompetitiveness. For example, generous unemployment benefits with few conditionsattached can increase the reservation wage and result in high cost of labour or lack oflabour supply for some low-wage activities, which as a result could be transferred toother countries or performed by the informal economy. Generous and unconditionalunemployment compensation, thus, seems an unavailable option in a globalizedeconomy. What can be done, however, is to combine the necessary cuts in the benefitlevels with measures that facilitate life in the low-wage jobs that could thus becreated. Examples are free child care, family benefits, parental leave, tax credits forlow income families (such as the American EITC). These policies can significantlyimprove the living conditions of those who might be forced into low-wage jobs as aresult of cuts in unemployment benefits, but have no detrimental impact on workincentives and competitiveness. They are compatible with economicinternationalization.

A similar development can be observed also in the area of pensions. In the past,pension schemes were designed to guarantee an adequate income in retirement, thusprotecting workers from the risks associated with inflation, market performance,dependency ratios, etc.. What we are seeing in a number of countries in the 1990s, is atransfer of the burden of risk from the state to the individual. This can take differentforms: an increase in the role of the private sector in providing pensions (UnitedKingdom); or a change in the pension formula, which removes the obligation for thestate to guarantee a certain level of pension. The level of future pensions will dependon what happens to the economy and to demographic structures (Sweden, Italy).

These trends - recommodification and risk transfer to the individual - can be observedin a series of policy changes adopted in various countries, in the areas ofunemployment compensation and pension policy. What is interesting, is that eventhough these processes take different forms in different national context, they seem tobe occurring in all the countries surveyed.

Unemployment Compensation

Unemployment compensation is central to the interface between social and economicpolicy. It can have an impact on the supply and on the cost of labour, parameters whichare highly relevant to a country’s performance in a globalized economy. In general,policy in this area has been characterised by an attempt to strengthen work incentives,pursued by cutting benefits, by tightening eligibility criteria and by co-ordinatingunemployment compensation with in-work benefits, so as to make sure that ‘work pays’.In addition, we are seeing a generalised shift from passive compensation towards activelabour market policies. These are no longer a specificity of the Nordic countries but havebeen developed in various welfare states. Among others, Britain and Switzerland haveintroduced large scale active programmes in the late 1990s.3

One overall theme in the reform of unemployment compensation systems has been thereduction in the level, and sometimes the duration of benefits, which can be seen as a 3 Kalfisch, D., Tetsuya, A. and Buchele, L., Social and Health Policies in OECD countries: a Survey ofCurrent Programmes and Recent Developments, Paris, OECD, Labour Market and Social Policy,Occasional Paper No. 33, 1998.


response to incentive problems, but also simply to financial concerns. For instance, in1993 Germany reduced unemployment benefits by 1 per cent and 3 per cent forclaimants with and without dependent children respectively. The duration ofunemployment assistance benefits for those who had not previously been on thecontributory scheme, was also reduced to 1 year.4

A more substantial cut was adopted in Sweden, where in 1995 benefits were cut from agenerous 90 per cent of earnings to 75 per cent (the cut affected also other earnings-related benefits, like sickness and disability). In 1997, however, the cut in thereplacement rate was reversed to 80 per cent. Sweden has also introduced a 6-daywaiting period before a benefit can be drawn and a time limit of three years on insurancebenefits (which can be extended to four years for those with a long contribution record).Eligibility has been tightened by excluding participation in ‘recruitment support’programmes (an active labour market programme for new entrants to the labour market)from the range of activities which are counted as work for the purpose qualifying forinsurance benefits.5

In Britain, unemployment compensation policy has been characterised by three trends:downward pressure on the level of benefits, increased targeting and a fairly explicitattempt to re-commodify recipients. Levels of benefits have been modified onnumerous occasions. Atkinson and Micklewright (1989) provide a list of the mainchanges adopted in benefits for the unemployed between 1979 and 1988.6 Measuresadopted included the removal of the earnings-related supplement on theunemployment benefit (insurance) in 1980; the removal of statutory indexation ofbenefits (in 1986); and the taxation of unemployment benefits, which has beenremoved by the Major government in 1992.7 Altogether, Atkinson and Micklewrightidentify some 32 individual measures adopted in the ten-year period they cover, ofwhich 23 they see as disadvantageous to the unemployed, 7 as having undeterminedeffects and 4 as favourable.8

In relative terms, cuts in the insurance unemployment benefit were more substantialthan those affecting the assistance benefit, income support.9 The two benefits havebeen subjected to the same erosion process, but the insurance benefit has also been

4 Clasen, J., ‘Social insurance in Germany: Dismantling or Reconstruction?’ in J. Clasen (ed.) SocialInsurance in Europe, Bristol, Policy Press, 1997, pp. 60-83.5 Palme, J. and Wennemo I., Swedish Social Security in the 1990s: Reform and Retrenchment,Stockholm, Swedish Institute for Social Research, 1997, mimeo. Kalfisch, D., Tetsuya, A. and Buchele, L., Social and Health Policies in OECD countries: a Survey ofCurrent Programmes and Recent Developments, Paris, OECD, Labour Market and Social Policy,Occasional Paper No. 33, 1998. Stahlberg, A.-C., ‘Sweden: on the way from standard to basic security?’, in J. Clasen (ed.) SocialInsurance in Europe, Bristol, Policy Press, 1997, pp.40-59.6 Atkinson, T. and Micklewright, J., 'Turning the screw: Benefits for the unemployed 1979-1988, in A.Dilnot and I. Walker (eds.) The Economics of Social Security, Oxford, OUP, 1989, pp. 17-51.7 Glennerster, H., British Social Policy since 1945, Oxford, Blackwell, 1995, p. 185.

8 Atkinson, T. and Micklewright, J., 'Turning the screw: Benefits for the unemployed 1979-1988, in A.Dilnot and I. Walker (eds.) The Economics of Social Security, Oxford, OUP, 1989, p. 21.9 Pierson, P., Dismantling the Welfare State? Reagan, Thatcher and The Politics of Retrenchment,Cambridge, Cambridge University Press, 1994, p.102.


subjected to more radical cuts. First, as seen above, the earnings-related supplementwas abolished in 1980. Second, in 1996 the maximal duration of the insurance benefitwas reduced from 1 year to six months.10 The result of the differential treatment ofinsurance and assistance benefits, has been a dramatic increase in the role of means-tested provision in supporting the unemployed. In 1997/1998 only 5 per cent ofbenefit expenditure for the unemployed is expected to come from insurance benefits.11

Finally, British policy towards the unemployed has been directed at therecommodification of recipients. This has been achieved in two ways: first by 'makingwork pay', i.e. by removing marginal rates of taxation of 100% or higher forunemployed people who enter employment on low incomes.12 This was one of the keyobjectives in the 1986 social security act, when some adjustments were made throughthe introduction of in-work benefits (family credits). This was an attempt to reconciletwo key objectives of Conservative income support policy: increase targeting andstrengthen work incentives. More recently, the Labour government has been going inthe same direction by planning the introduction of a Working Family Tax Credit(similar to the American EITC), and various other means-tested benefits available tothose who are in work, such as child care vouchers.13 The goal of recommodificationhas been pursued also by strengthening the 'availability for work ' requirement as acondition for the receipt of benefits. This was done in 1996 through thetransformation of the unemployment benefit in a Job Seekers Allowance, and morerecently, through the introduction of a welfare to work scheme by the Labourgovernment for youth and long term unemployed.14

France has a complex system of unemployment compensation, with insurance benefitsset at different replacement rates according to age, length of contribution record, andduration of unemployment. The system provides also various kinds of means-testedbenefits for the long term unemployed and those with no contribution record. Themain reform of the unemployment insurance system was adopted in 1992 through anagreement between some social partners. With the reform, the differentunemployment insurance benefits were replaced by only one 'digressive' benefit(which decreases with time) known as the Allocation Unique Dégressive (AUD).

The new unemployment insurance benefit is payable only for a limited period of time,which depends on the contribution record. The amount of the benefit decreases withtime. For instance, a person who had worked at least 14 months of the last 24 receivesa full benefit for 9 months, then loses 17 per cent of the benefit at 6-monthly intervals(the intervals were 4 months between 1992 and 1996). Claimants with a shortercontribution record may be awarded benefits for a shorter period. While entitlement tothe main unemployment insurance benefits runs out after 30 months, a variety ofmeasures exist to extend the cover provided by the unemployment insurance fund.

10 Erskine, A., 'The withering of social insurance in Britain', in J. Clasen (ed.) Social Insurance inEurope, Bristol, Policy Press, 1997, p. 138.11 Ibid.12 Hills, J., The Future of Welfare. A Guide to the Debate, York, Rowntree Fundation, 1993.13 DSS, A New Contract for Welfare. Green Paper, London, HMSO, cm 3805, 1998, pp.57-62.14 Convery, P., 'The New Deal gets real', Working Brief, No. 88, 1997, pp.7-14


Most important of these is the Allocation de Solidarité Spécifique, which is subject toa means test, but is still contributory.15

Besides these reforms, France has also developed various forms of active labourmarket policies, which generally aim at favouring re-insertion into work of the longterm and young unemployed. The cornerstone of this effort was the introduction in1988 of a new non-contributory scheme: the Revenu Minimum d’Insertion (RMI). Itsmain features are the guarantee of a minimum level of resources to anyone aged 25 orover, which takes the form of a means-tested differential benefit. The rates, whichvary according to family size, are rather low, generally set below the level of theminimum wage. The RMI has also a re-insertion dimension, in the form of a contractbetween the recipient and ‘society’. Recipients must commit themselves to take partin re-insertion programmes, as stated in a contract, signed by the recipient and a socialworker. Such programmes can be either job-seeking, vocational training or activitiesdesigned to enhance the recipient’s social autonomy.

Retrenchment has certainly figured prominently in the reforms of unemploymentbenefits adopted in most European countries. Cuts in benefits (levels, duration,eligibility) have been adopted virtually in all countries, with the exception of southernEuropean countries, where unemployment compensation was an underdeveloped areaof the welfare state at the beginning of the 1990s16 and which as a result have seensome expansion as part of a catching up process with their Northern Europeancounterparts.17 Cuts in benefits, however, have not been the only themes inunemployment insurance reforms. Concern with the optimisation of labour supplyhave resulted in the expansion of active labour market policies in a large number ofcountries.

Old Age Pensions

By the late 1990s, a majority of European countries have adopted reforms designed toreduce or contain future levels of pension expenditure.18 In general, the institutionalconfiguration determines the way in which cuts are performed: Bismarckian(contributory) schemes tend to move from defined-benefit to defined-contributionpension formulas (Italy, Swedish earnings-related pensions), while the Beveridgean(universal) ones tend to revert to some form of income testing.19 The outcome of these

15 Join-Lambert, M.-T., Politiques Sociales, Paris, Dalloz, 1997.16 Ferrera, M., ‘The uncertain future of the Italian welfare state’, in M. Bull and M. Rhodes (eds.)Crisis and Transition in Italian Politics, London, Frank Cass, 1996.17 Kalfisch, D., Tetsuya, A. and Buchele, L., Social and Health Policies in OECD countries: a Surveyof Current Programmes and Recent Developments, Paris, OECD, Labour Market and Social Policy,Occasional Paper No. 33, 1998.18 Myles, J. and Quadagno, J., Recent Trends in Public Pension Reform: A Comparative View, in K.Banting and R. Boadway (eds.) Reform of Retirement Income Policy. International and CanadianPerspectives, Kingston (Ontario) Queen's University, School of Policy Studies, 1997, pp. 247-272.Taylor-Gooby, P. (forthcoming) ‘When is an Innovation? Recent pension reform in France, Germany,Italy and the UK’, Social Policy and Administration.19 Myles, J. and Quadagno, J., Recent Trends in Public Pension Reform: A Comparative View, in K.Banting and R. Boadway (eds.) Reform of Retirement Income Policy. International and CanadianPerspectives, Kingston (Ontario) Queen's University, School of Policy Studies, 1997, pp. 247-272.


to different exercises is however fairly similar: the burden of risk associated withpension provision is increasingly transferred to the individual.

Britain was the first major European country to adopt new pension legislation with aview to reducing the level of state intervention in provision for retirement. The Britishpension system was transformed as a result of two important policy decisions, whichaffected the basic pension and the second tier of provision respectively. In the early1980s the Thatcher government decided to shift the indexation of pensions fromearnings or inflation (whichever was higher) to inflation only. The impact of thismeasure was limited in the short run, but in the long term it constitutes a seriousreduction in the significance of the scheme. According to Atkinson, the value of thebasic pension, expressed as a per cent of average income, has declined from 32 percent in 1983, to 22 per cent in 1993.20

The second important change was adopted in 1986, as part of the ‘Fowler Reviews’ ofthe UK’s social security system. Then the value of the State Earnings Related PensionScheme (known as SERPS) was cut by a change in the formula. The benefit, insteadof being calculated as the 25 per cent of the best 20 years of earnings, was to be scaleddown to 20 per cent of lifetime earnings. At the same time, employees where giventhe opportunity to opt out from SERPS (and from occupational pensions, for thosewho had one) and buy an individual personal pension. The key result of these changeshas been an overall reduction in the level of state provision for retirement, and animportant expansion in the role of the private sector. By 1993, some 5 millionemployees had left SERPS and moved into private pensions.

For much of the postwar period, Italy has had one of the most generous pensionsystems in Europe. Before the 1990s, the statutory age of retirement was among thelowest in the continent, at 55 for women and 60 for men. In addition, Italians wereable to retire at any age if they had paid contributions for 35 years, with a pensionequal to 70 per cent of the last 5-years average salary. For civil servants, only 20contribution-years were enough for a full pension. Obviously, such a generous systemproved extremely costly for the public purse, and as the government budget deficitreached worrying proportions in the early 1990s, it became clear that cuts in the areaof pensions were needed.

The system was reformed in two stages. First, in 1992, the statutory age of retirementwas increased to 60 for women and 65 for men; the reference period was to beextended from the last 5 years to the last 10 years (and to lifetime earnings for thosewho started working after the adoption of the reform). Finally, early retirement basedon 20 contribution years for civil servants was abolished (the period was extended to35 years, as for private sector employees). All these measures were not enforcedimmediately, but were meant to be phased in over a fairly long period of time, withsome of the measures becoming fully effective only in 2002.21 The 1992 reformintroduced some measures of cost containment, which because of the long phasing inperiod, did not impact on public spending in the following years. Besides, even with 20 Atkinson, T., State Pensions for Today and Tomorrow, London, Welfare State ProgrammeDiscussion Paper No. 104, 1994.21 Ferrera, M., ‘The Southern Model of Welfare in Social Europe’, Journal of European Social Policy,6, 1, 1996, pp. 17-37.


all the measures in place, the Italian pensions remained of exceptional generosity inEurope.

That is why towards the mid-1990s pension reform came back on the political agenda.In 1995, a politically difficult reform was adopted with the support of the tradeunions. On this occasion, change was more radical. The key modification was a shiftfrom a defined-benefit system, where benefits are expressed as a proportion ofearnings over a given number of years, to a defined-contribution system. Benefits nowdepend on the total amount of contributions paid by workers, which upon retirementis converted into an annuity whose value depends on the age of the person, on how thecountry’s economy is performing and on the number of pensioners. The last twoadjustment are meant to allow the government to keep pension expenditure undercontrol. The system remains financed on a pay-as-you-go basis, which means that theshift to defined contributions is de facto fictitious.

Together with this measure, a number of other features of the old system werechanged. First the notion of a statutory age of retirement has been abandoned, withemployees now able to retire between 57 and 65 years of age, with more or lessgenerous benefits according to age. The option of retiring after 35 contribution-yearshas been maintained until 2008, but with the additional requirement that the claimantmust be at least 57 years old.22

The 1995 reform has introduced an element of uncertainty in pension policy, due tothe fact that benefits can now, in theory at least, fall to very low levels. Italy has oneof the lowest birth rate in Western Europe, and since the value of the pension willdepend on demographic developments, the result may well be a significant reductionin the level of state pensions.

A reform based on a fictitious defined-contribution system was adopted also inSweden. The earnings-related component of the Swedish pension system, known asATP, was modified in 1994. Under the new legislation, the pension is to be based onlifetime contributions re-valued according to changes in real wages, and calculated onthe basis of the life expectancy of the relevant cohort. These measures are supposed tomitigate the impact of ageing on pension expenditure. As a result of the change, theamount of the standard pension is expected to decline from 65 per cent to 60 per centof gross earnings. The reform has also introduced a funded element in the system.Contributions, which amount to 18.5 per cent of gross earnings, are split between apay-as-you-go scheme (16.5 per cent) and a new funded scheme (2 per cent), which,according to current projection, should compensate employees for the reduction of thestandard benefit.23

22 Ferrera, M., ‘The Southern Model of Welfare in Social Europe’, Journal of European Social Policy,6, 1, 1996, pp. 17-37.Artoni, R. and Zanardi, A., The Evolution of the Italian Pension System, paper presented at theConference: ‘Comparing Welfare States in Southern Europe’, Florence, European University Institute,22-24 February, 1996.23 Stahlberg, A.-C., ‘Sweden: on the way from standard to basic security?’, in J. Clasen (ed.) SocialInsurance in Europe, Bristol, Policy Press, 1997, pp.40-59.Palme, J. and Wennemo I (1997) Swedish Social Security in the 1990s: Reform and Retrenchment,Stockholm, Swedish Institute for Social Research, mimeo.


Many of the parameters that will determine the value of pension benefits in the future,like life expectancy, wage growth and returns on capital for the 2 per cent contributionto a funded scheme are not known at present. As a result it is not possible to ascertainwhether the Swedish reform constitutes an instance of retrenchment expansion, orsimply continuity. The new scheme was designed so as to deliver the same benefitsthat are paid today, if demographic and economic developments follow the centralgovernment projection. In case of departures from it, future benefits could be lower aswell as higher then present ones. However, the significant changed implied by theSwedish reform (and the Italian) is that employees have lost some of the security intheir pension entitlements that was guaranteed under the previous system.

In France, the 1980s have seen a growing concern over the issue of financingpensions. Between 1985 and 1993 a series of government mandated reports werepublished. All of them took a rather pessimistic view of the future of pension policy inFrance, and called for saving measures to be adopted. The reform of pension, though,was widely perceived as a politically sensitive issue, so that throughout the 1980sgovernments of the left and of the right tended to procrastinate. It was only in 1993that the newly elected right-wing government managed to adopt a reform of the mainbasic pension scheme, covering private sector employees. This was made possible bya carefully designed reform package, which included both cuts and concessions to thetrade unions with regard to their role in the management and control over pensions.24

The changes adopted in 1993 fall under three categories. First a ‘Fonds de solidaritévieillesse’ has been created, which has the task of funding non-contributory benefits.Second, the qualifying period for a full pension is extended from 37.5 to 40 years; theperiod over which the reference salary is calculated, is extended from the best 10years to the best 25. These are being introduced gradually over a ten-year transitionperiod. Finally the indexation of benefits is based on prices (as opposed to earnings)for a five-year period.25

In the long term, the impact of the reform on pension expenditure could be quitesubstantial. According to projections by the administration of the old age insurancescheme (CNAV), without the 1993 reform contribution rates in 2010 would have hadto be increased by around 10 percentage points. With the reform, if indexationaccording to prices is maintained, this figure could be between 2.73 and 7.26percentage points. The 1993 reform will have an impact on the amount of pensions aswell and on actual age of retirement. Because of the extension to 40 years of thequalifying period, it is expected that some employees will delay their retirement inorder to receive a full pensions despite the reform. The extension of the period overwhich the reference salary is calculated will have an impact on the level of pensions.The impact of this measure is a reduction in benefits by 7-8% for high salaries, butdoes not affect those on the minimum wage, as they receive the minimum pension(minimum vieillesse), which has not been modified by the reform.26

24 Bonoli, G., 'Pension politics in France: Patterns of co-operation and conflict in two recent reforms,West European Politics, 20, 4, 1997, pp.160-181.25 Ruellan, R., ‘Retraites: l’impossible réforme est-elle achevée?’, Droit social, 12, 1993, p. 919.26 Ruellan, R., ‘Retraites: l’impossible réforme est-elle achevée?’, Droit social, 12, 1993, p.922.


Finally Germany has also reformed its pension system twice in the 1990s. First, theRentenreform 1992 (designated by the year it came into force) was explicitly designedto respond to the expected increase in pension expenditure due to population ageing.The main changes were a shift in the indexation of pensions from gross earnings tonet earnings and an increase in the cost of early retirement for the worker. The changein indexation was seen as introducing an element of self-regulation in pensionexpenditure: under the post-1992 system, if contributions are increased to financeincreased pension expenditure, this will reduce net earnings and as a result pensionpayments. The goal is to achieve an equitable share between workers and retirees inbearing the cost of population ageing.

Early retirement had become a common practice in Germany. Only a minority ofworkers waited until the statutory retirement age, which in the pre-1992 system wasset at 65 and 60 for men and women respectively, to quit the labour market. The rulesconcerning early retirement were particularly generous, as they only took into accountthe missing contribution years, and not the longer period for which a pension needs tobe paid. As a result of the 1992 reform, the cost of early retirement has beenincreased, though still lower than if actuarially determined. The benefit is reduced by0.3 per cent per month of anticipation. The statutory age of retirement of men andwomen have been equalised at 65, though this will occur over a fairly long transitionperiod, to be completed in 2012.27

The 1992 reform was adopted by the Christian-Democrat government with thesupport of the Social-democrats and of the trade unions. At that time it was felt thatthe pension problem had been dealt with, for a few years at least. However, towardsthe mid-1990s, amidst concern for rising rates of unemployment, an ambitious reformprogramme was launched, with the intention of creating a more favourableenvironment for job creation, particularly by reducing social insurance contributions.Initially, this programme was to be carried out in a characteristically Germanconsensual manner: negotiating change with the Social-Democrats and the tradeunions and employers. However, after the left worried by the overall direction ofreform, abandoned the negotiations, the government decided to go ahead on its own.As part of the first set of measures, adopted in 1996, the phasing in of theretrenchment measures agreed in the 1992 pension reform was accelerated: instead of2012, the transition will be completed by 2004.

The most significant changes, however, were passed in 1997, as part of theRentenreform 1999. Among these the most important, and controversial, was certainlythe introduction of a ‘demographic weighting’ of pension benefits. Basically, if lifeexpectancy increases, benefits are reduced so as to counter the effect of demographicpressures. This will affect both new benefits, via changes in the formula, and benefitsalready in payment, via indexation. On the basis of current demographic projections,it is expected that the standard replacement rate will be gradually lowered from 70 ofto 64 per cent of average earnings. This measure was adopted against the Social-Democrats, then in opposition. At the time, their policy was to reverse this part of thereform.

27 Schmähl, W., 'The 1992 reform of public pensions in Germany: main elements and some effects',Journal of European Social Policy, 3,1, 1993, pp. 39-52.


Other measures introduced in the Rentenreform 1999 were less controversial, andincluded an increase of the federal subsidy to the pension scheme (paid for by a 1percentage point increase in VAT), and the improvement of contribution credits paidto those with caring responsibilities. The earnings basis of the credit was increasedfrom 75 to 100 percent of the average salary, and the credit will not be reduced if thecarer is involved in paid work.28

Pension system are being retouched virtually everywhere. Change is seldom path-breaking, but consists mainly of adjustments in the various parameters that define thelevel of benefits. In most cases, the measures adopted have a fairly long phasing inperiod, sometimes up to 20 years, which means that the full effects of reform will notbe felt until well into the next century. For some countries, where the pension formulahas been adapted so as to reflect economic and demographic developments, the effectsof policy change will not be known until the reform will be fully implemented. Thesignificance of these changes, however, is the partial abandonment of the role ofguarantor that the government used to play in pension policy. The burden of risk inpension policy is increasingly being shifted onto the individual.

Trends in welfare retrenchment and reform

This brief review of social policy change in Europe over the last ten years or so,shows the dominance of retrenchment as the main theme of reform. In some cases,reductions affect the very level of benefits (unemployment compensation), in someothers, it is the security associated with state provision which is being undermined(pensions). Both of these development constitute a reduction in the extent to whichthe state protects citizens from market forces. In this respect, both can be qualified asretrenchment.

Together with the retrenchment measures discussed in the paper, European welfarestates have also adopted some measures of expansion over the last few years. Theseconcern mainly policy areas which respond to emerging new needs and aspirations ofthe public. Two examples are particularly relevant: social care for elderly people andpolicies to reconcile work and family life. Germany, for instance, introduced a brandnew social insurance scheme to pay for long term care in the early 1990s.29 Othercountries, mainly in Northern Europe but not only, have adopted and reinforced aseries of measures aiming to make it easier, mainly for women, to reconcile work andfamily life. The measures adopted range from child care provision, to parental leaveschemes.30

28 Hinrichs, K., Reforming the Public Pension Scheme in Germany: The End of the TraditionalConsensus?, paper presented at the 14th World Congress of Sociology, Montréal, 26 July-1 August,1993.29 Ruppel, F. and King, A., 'The German Care Insurance and the British Community Care:comparative perspectives', Social Work in Europe, 2,1, 1995, pp.12-16.30 Kalfisch, D., Tetsuya, A. and Buchele, L., Social and Health Policies in OECD countries: a Surveyof Current Programmes and Recent Developments, Paris, OECD, Labour Market and Social Policy,Occasional Paper No. 33, 1998.


These elements of expansion, however, remain limited, and concern new objectives ofwelfare states rather than its classical functions of protection from market-baseduncertainty and labour-market dependency. Instead, the state’s withdrawal from thesefunctions seems to be the dominant theme in social policy-making in the late 1990s.As Esping-Andersen has persuasively shown, during their expansion phase manywelfare states were successful in reducing people’s dependence on labour marketparticipation in order to afford a decent living.31 Recent changes, such as thosereviewed above, seem to engage in the opposite process, recommodification, byincreasing people’s dependence on the market.

Recommodification seems to be the intentional outcome of the reforms ofunemployment benefits. In this area, cuts in benefits have often been justified by theneed to restore work incentives, and increasingly, cash is handed out only to thosewho are willing to reciprocate, by taking part to welfare-to-work programmes,training, and so forth. Recommodification is not incompatible with the expansion ofprovision in some areas, such as family policy. The measures adopted here, in fact,are generally designed to facilitate entry into the labour market particularly forwomen and single parents (child care, parental leave). These policies can be seen asimproving the living conditions of the ‘(re-) commodified workers, rather thanelements of decommodification.

31 Esping-Andersen, G., The Three Worlds of Welfare Capitalism, Cambridge, Polity, 1990.


‘Education is More’: The Momentum for Reform

Statement by Lynne Chisholm72European Commission, DGXXII (Education, Training, Youth)

As a multidimensional phenomenon, globalisation can be analysed from a variety ofperspectives: an educationalist’s approach is inevitably differently accented from thatof an economist. In illustration: at a recent Commission education committeemeeting, discussion of next year’s work programme, which refers to the importance ofcontribution of education to promoting employability in a knowledge society, drewthe immediate comment “yes, of course we do not disagree - but let us not forget thateducation is more than this”. What might be that ‘more’ in the context ofglobalisation and the knowledge society?

Contemporary change and the social role of education

Processes of economic globalisation have been the main focus of the contributions tothis seminar. Few have made direct reference to the role of education in relation tothose processes. Those that do (Mariangels Fortuny, Reiner Hoffman) regardeducation and training solely in the instrumental terms of promoting competitivenessand employability in globalised knowledge economies, albeit that this classic kind ofeducation-economy relation is seen to serve the broader aim of social justice andcohesion both within our own societies and, more ambiguously perhaps, in the globalcontext. Three further contributions (from Kenan Jarboe, Brain Murphy andWolfgang Reinicke) make more indirect references to the role of education andtraining, in that they offer analyses of qualitative changes - largely yet to come - in thecultures and practices of working and governing environments. These analyses makeextensive reference to the rising importance of teamwork and networking in andbetween learning organisations with flatter and more fluid, transitory structuring.73

If indeed such changes are beginning to take hold, at least in some economic sectorsand occupational levels, then the challenges they pose to education and trainingsystems and practices are considerable. We could argue that the broader socialsignificance of these challenges as regards fundamental reformulations of teachingand learning relations and contents has yet to be seriously addressed on both sides ofthe Atlantic. The effective operation of discretionary and fluid working culturesdemands shifts in the profiles of competencies and the normative forms of individualsubjectivities. This is more educationally and socially significant than the much morestraightforward pressure to raise qualification and skill levels across the board. The

72This paper expresses the personal professional views of the author. It does not necessarily reflectEuropean Commission policy positions, nor does it implicate the European Commission in any sphereof its activities.73 For a lucid account of these changes, see David Guile and Michael Young, Knowledge and learningin specialist and non-specialist learning organisations, paper presented at the European Conference ofLearning Organisations, Copenhagen, May 1996 (copies available via Michael Young at the Universityof London, Institute of Education, England).


effects of the latter are by no means unimportant in social terms. The generation ofhigh vulnerability to trajectories of marginalisation and exclusion through educationfailure is already manifestly evident in western societies. Developing andimplementing counter-strategies thus constitute a priority strand of European-levelaction in the fields of social affairs and education, training and youth.74 Nevertheless,the pressure to raise qualification and skill levels is essentially nothing more than acontinuation of existing trends as these have emerged in the modern industrial era andits accompanying introduction of mass education. In contrast, reformingsubjectivities and competency profiles heralds a qualitative change in the social roleof education − and one projected for the vast majority of the population, not simplyfor elite groups (although it is, as ever, likely that such groups will be in the avantgarde of those involved).

Direct and indirect impacts of globalisation on education andtraining

We can identify direct impacts in fairly straightforward economic terms as attempts toimprove cost-benefit ratios in the public sector. From the 1980s, Member States haveincreasingly moved towards measures designed to raise the efficiency andeffectiveness of their education and training systems. These measures have focusedon improving outcomes (raising the average level of formal qualification in initialgeneral and vocational education systems), monitoring processes (improving qualityassurance mechanisms and regulation of standards) and reviewing contents(particularly in response to scientific and technological progress). They have alsobeen accompanied by largely stagnating public expenditure on education and trainingin the majority of European countries.75

On the whole, the pressure to raise cost-effectiveness has unquestioningly been themain factor in the drive to decentralise decisionmaking and budget management toregional and local levels, including the level of the institutions themselves in somecases. The fact that decentralisation may be desirable for other reasons altogether,that is bringing the governance and management of educational provision closer tothose directly involved, has only recently gained greater relative prominence inlegitimating these kinds of policies.

The simultaneous quest to drive down public expenditure and to raise education andtraining participation and performance has spawned a series of innovative proposals(voucher schemes, individualised lifetime education and training accounts, makingindividual expenditure on continuing training tax-deductible, changing the system ofhow human resources investments appear in company accounts). Some proposalshave prompted political and public controversy (as in the case of proposals tointroduce higher education tuition fees, change student grants to loans, etc.).Furthermore, the salary levels and working conditions of teaching professionals havedeteriorated in recent decades. This has been accompanied by significant swings in

74European Commission White Paper Teaching and Learning: towards the learning society,DGXXII/DGV, Brussels, 1995.75Study Group on Education and Training, Accomplishing Europe through Education and Training,Report to the European Commission, DGXXII, Brussels/Luxembourg, 1996.


recruitment patterns, so that the teaching workforce is top-heavy with internallyimbalanced age cohorts. At the same time, the need both to upgrade the materialinfrastructure (buildings and equipment) and to enrich human resources (inserviceeducation and training and professional development) has become increasinglyurgent.

Globalisation also has more indirect, socio-political impact on education and training.Here, economic and cultural globalisations go hand in hand: the European Union is aclear example of growth in cross-border co-operation and exchange in social andcultural affairs alongside the emergence of the free movement of capital and goods inthe Single Market. The Community education and training action programmes arefounded in the promotion of transnational communication and pilot projects. Theyhave undeniably made a significant contribution to generating good practice andinnovation.76 Learning about other systems and practices encourages positive criticalreflection on the taken-for-granted of one’s own environment. Establishing dialoguewith colleagues elsewhere encourages the kind of ongoing networking that canspontaneously produce greater mixing and hybridity of policies and practices.

Convergence and divergence trends in European educationand training

Are Member States’ education and training systems converging in key respects, and ifso, to what extent can any such convergences be attributed to policies and action atEuropean level?

In the first instance, the description and interpretation of empirical trends for complexsocial systems are almost always a methodologically hazardous endeavour. Thecomparative analysis of education and training systems is a classic example. Inaddition, the empirical descriptors carry considerable historically and culturallyspecific contextual meaning. We can speak at best of clusters of traditions andassociated trends, and then only at a rather high level of generality. Contemporaryanalyses do identify a certain overarching convergence of broad policy aims andstructural features (for example, patterns of school governance; trends towardsdecentralisation; the broadening of curricula together with trends towards laterspecialisation of tracks and disciplines). These broadly converging features are moreevident for compulsory general education than for post-compulsory and vocationaleducation and training. Post-compulsory provisions are more closely linked to labourmarkets, which continue to operate quite differently across the Member States.77

The relative scarcity of genuinely comparative data together with the inherentcomplexity of the analyses involved means that ultimately, conclusions are inclinedtowards the qualitative and interpretative rather than the strictly empiricallydemonstrable. It remains the case that there are significant divergences in thestructural logics of the systems concerned; in the ways certification and progressionoperate and are linked with labour market and occupational access; in the 76European Commission Communication, Towards a Europe of Knowledge, DGXXII,Brussels/Luxembourg, 1997.77University of London Institute of Education, A. Green, T. Leney, A. Wolff, Convergences andDivergences in European Education and Training System,. Report to DGXXII, Brussels, July 1997.


classification and framing of knowledge and pedagogies; and in the status and pay ofteachers and trainers.78

Given the macro-level similarities of economic and social change in western societies,it would be odd not to find convergences of this kind. European integration processesmay, in an embedded manner, complement changes already en route. But there is noavailable evidence to suggest that they account independently for convergence trends.On the contrary, it is Member States that continue to formulate and implementeducation and training policies as they see fit in the light of national and regionalinterests, traditions and divisions of responsibility. Articles 126 and 127 of theMaastricht Treaty unambiguously regulate the relation between European andMember State responsibilities in this respect. The Member States retain full controlof policy, provision and practice in this field; European-level action supports andcomplements that of the Member States.

In effect, education and training constitute the prime counter-example for those whoargue that the European Union is becoming a supranational government or is engagedin a process of state building in the generally understood sense of the term. The fieldof education and training is an object lesson for studying the process of balancingdifferent conceptions of legitimacy (as described by Doug Merrill in his contributionto the round table debate). The reality is that promoting change and innovation ineducation and training through the kind of co-operative and negotiated process thathas developed in the European Union is a gradualist endeavour that depends on slowaccretion based on consensus (this is the underlying notion of the acquiscommunautaire).

It is, of course, possible to generate more radical modernisation of education andtraining much more quickly. Sudden and fundamental political and economic changeis always a major source of reform and innovation. Post-1989 transformation incentral and eastern Europe is no exception. That sea change is certainly regarded byall as in the best interests of the countries and the citizens concerned. It remains thecase that the social impact in the short-to-medium term implies, amongst other things,significant dislocations in education and training systems. Qualification trajectories,occupational plans and labour market prospects can be crucially affected, and notnecessarily in positive ways. At the same time, central and eastern Europe today isseeing an upsurge of alternative styles of education and training provision andpractice. These impulses are supported through a range of mediating structures rootedin grassroots associations and groups, that is, in the organisations of civil society.This produces diversity rather than homogeneity. It remains to be seen whether suchlocalised diversity emerges as a longer-term feature of European societies as a whole.If so, it would act as a counterpoint to the pressures towards cultural homogeneity thatcan accompany economic globalisation.

78Lynne Chisholm, ‘A crazy quilt: education, training and social change in Europe’, Ch. 6 in JoeBailey (ed.) Social Europe, Longman, London, 1998.


Deconstruction and reconstruction of the social role ofeducation in the Second Modern Era

The current proliferation of ‘then and now’ or ‘now and tomorrow’ dichotomies isanalogous to the classic Tönnies’ Gemeinschaft : Gesellschaft model and might wellbe taken as a millenium-style preoccupation with the benchmarking of social change.As long as we do not forget that these binary constructs are conceptual tools that canhelp to analyse social reality but which do not directly describe it, they are extremelyuseful. Commentators everywhere are certainly converging towards the view that oursocieties are standing on the brink of a qualitative change into the Second Modern Era(Ulrich Beck’s zweite Moderne), a process of macro-social change as significant asthat of industrialisation. To pick up Kenan Jarboe’s metaphor, what could it mean insocial terms for education to move from a football modality to a basketball modality,that is from Fordist to post-Fordist divisions of labour and from collectivised toindividualised subjectivities?

In short, it would imply an across the board and a root and branch reformulation of thestructures, contents and processes of teaching and learning as we have come to knowthem.79 In terms of structures, it would mean moving from walled-in systems to no-walls open access networks of provision and progression; the dissolution of age-graded and prior status-dependent participation patterns; and the relinquishing ofunlinear, sequentially constructed educational trajectories.80 In terms of contents, itwould mean basing curricula on interdisciplinary perspectives; constructing courses asprojects around thematically contextualised problem solving; and emphasising theskills of sharing, using and creating knowledge as a dynamic and collective resource.In terms of processes, it would mean reformulating the teaching/learning relation asactively negotiated teamwork, complementary reciprocity and mutual responsibility.

If changes of this scale prove slow in coming, it would hardly be surprising. Theychallenge the established and institutionalised categories and boundaries of the socialconstruction of knowledge and its relation to social power and authority structures.They call for a restructuring of the social governance of education and trainingaltogether into a much more diversified and contingent − but equally much morecomprehensive and coherent − set of arrangements and partnerships in which allcitizens can have a meaningful and self-directed stake. It is in this sense that somecontemporary writers regard the knowledge society as a potentially empoweringprospect for individuals and a socially powerful tool for renewing democracy. Othersare more pessimistic, arguing that the potential for positive change has already beenincorporated into the high-tech rationality of what has been called the ‘Toyota-School’ (analogous to what Linda Ewing has described at this seminar as thedeceptively new workplace).81

79Lynne Chisholm, ‘Från individual kinskap till lärande samhälle’, Pedagogiska Magasinet 1/96, 1996,pp. 36− 41 (‘From the knowledgeable individual to the learning society’; English text available from theauthor).80Lynne Chisholm, ‘From systems to networks: the reconstruction of youth transitions in Europe’, inWalter Heinz (ed.), From Education to Work: Cross National Perspectives, Cambridge UniversityPress, Cambridge/New York, 1998.81For example: Philip Wexler Holy Sparks. Social Theory, Education and Religion St. Martin’s Press:New York: 1996; the term Toyota-School was inspired by Mike Schmoker (1992) ‘What schools canlearn from Toyota America’ Education Week XI, May 13, p. 23.


Critical analysis is the life-blood of intellectual and social progress, but pessimismshould not clot its arteries.82 Deconstruction needs reconstruction if it is to be sociallyproductive. That means winkling out the chances from amongst the risks, then usingall the means at our command in the polity to maximise the growth space for theformer whilst acting decisively to minimise the latter - especially when the impact onpeople’s lives and well-being is unjust and harmful. In the meantime, there is littledoubt that the momentum for wider-ranging reform in education and training isgathering pace in all quarters. Perhaps the most encouraging sign comes from citizensthemselves, who, whether by choice or force of circumstance, are indeed beginning tovote with their feet. They are beginning to construct, and to want to construct, theirlives in different kinds of ways. In particular, this means finding new balancesbetween paid work, family life, personal development, community involvement andlearning within a lifelong framework. This equally reflects a perceptible shift towardspost-material values, in which the quest for self-direction and self-actualisation iscoupled with a commitment to social engagement and ethical meaning.

None of this is especially novel in itself. But what could be historically decisive isthat once more, economic and social imperatives are converging. The kinds ofknowledge, skills and capacities that the knowledge economy appears increasingly torequire are also those we need to foster to renew democracy and active citizenship in aglobalised information age. We should reach out through that window of opportunitybefore it closes up again.

82Interested readers will judge for themselves whether I got the balance right myself in: LynneChisholm (1997) ‘From unequal opportunities to equal lack of opportunities? Gendered dimensions ofsocial change and youth in Europe’ YOUNG: Nordic Journal of Youth Research 5, 3, pp. 30− 43.


Further statements/Comments


Responsive Governance in a Globalizing World

Wolfgang Bücherl

Globalization is often perceived as a comprehensive and global process that inevitablytransfers power and decision-making competence away from the democratic nation-state and its citizens to merely a few obscure institutions in transnational business andpolitics.

Globalization does indeed promise to tremendously alter the perspective and scope ofpolitical and economic action. Despite this recognition there remains room fordiffering interpretations:

1. Globalization is not global, it is regional

Globalization basically affects only three regions of the world: North America,Western Europe and East Asia. It is in the economies of these regions where exchangein trade and most particularly in investments grows disproportionately. Moreover, theincreasing economic and financial cross-border activities take place mainly withinregional associations, such as the European Union, the North American Free TradeAgreement area or the Association of East Asian States. It can be shown that in thecase of the EU, the most progressed regional association, the export of goods betweenmembers states has almost doubled since the early 1960s from 13% to 24% of GDP(in 1995) while exports outside the Union have only grown from 6% to 8%.

Given the assumption that since the 1980s globalization has been due to rising foreigninvestment rather than to increasing trade, the picture remains similar. The rise inforeign investment from outside the EU from 6 bn ECU to 26 bn ECU is considerable,but still greatly outnumbered by the figures for investment from other EU MemberStates: foreign investment originating from other EU Member States multipliedsixfold from approximately 12 bn ECU in 1985 to approximately 72 bn ECU in1996.83

2. Globalization is not comprehensive it is sectoral

Looking at globalization from the micro-level of economics reveals that globalizationis a phenomenon which takes place predominantly inside firms. An increasingproportion of trade and investments are concluded inside multinational firms. Recentmergers in the automobile and telecommunications industries are apparent indicatorsof this trend. Still, other private sectors and firms remain unaffected by thesedevelopments. Hence, one may conclude that globalization still does not affect alleconomic and industrial actors.

83 Figures taken from graphs and tables presented by John Morley, European Commission, at theConference "Globalization and Social Governance in Europe and the US" on 19 November 1998,Brussels.


3. Globalization is not global, it is local

The growth in transnational economic and political activity leads one to discover thesignificance of local actors. When it comes to selling products and services acrossnational boundaries, enterprises must take into account local tastes and traditions. Inthe political sphere the case is often similar, because local actors themselves discoverthe opportunity to confer with their counterparts from other countries and attempt toinfluence decision-making on transnational levels of government. Inside the EU theinstallation of a committee of the regions reflects this development. Representativesfrom local communities and districts can use this body to coordinate their localpolicies and make policy recommendations to the European Union Institutions.

What all three above mentioned characteristics of globalization have in common isthat the democratic national state has to a considerable extent lost its determining rolein the decision-making process.

The prevailing actors are transnational firms, international or supranationalorganizations and local actors. Europe is a striking example for the transfer of internalsovereignty and decision-making power from national to supranational bodies. Thusglobalization challenges the traditional domain of the democratic nation state, theexclusive ability to exert sovereignty internally. To offset this loss and to secure aneffective form of government, we would have to develop new forms of governancewhich involve the new actors and at the same time grant the democratic legitimacyderived from democratic nation states.

4. Strengthen regional integration

The EU is an example that states can choose some form of cooperation to make up forthe losses in internal sovereignty. Given the fact that thusfar economic globalizationhas mostly taken part inside regional frameworks, states can internalize theseactivities by establishing a larger umbrella, i.e. a regional regime. By this means theycan partially compensate for the loss in internal sovereignty.

5. Cooperation between states and private sector actors

The loss of internal sovereignty is most apparent in those sectors where globalizationactually takes place. An established form of cooperation among states and the actorsfrom these private sectors combined with a concept of a global public policy can offernew insights. Although the state may not actually regain internal sovereignty bycooperating with the respective private sectoral actors it could at least act as aninterlocutor and counterbalance private sector influence in society. Above all, throughsuch established forms of cooperation private sector expertise would becomeaccessible to the solution of problems in state and society.


6. Empowerment of local communities

Through an empowerment of local communities alongside the principle ofsubsidiarity the effects of globalization could be used to the benefit of improvedcitizens' participation. The (nation) state will not regain sovereignty by empoweringlocal communities, but it could bring sovereignty back to the basic levels of societyand to the citizens. In order to do so effectively, communities and local actors shouldnot only be consulted, but they should also have a certain degree of decision-makingpower on national and supranational levels in fields of their direct competence.

Through the initiatives outlined above the nation state will be able to pool internalsovereignty with other actors. The involvement of the relevant actors holding a stakein the outcome of a political problem (be it nation states, enterprises, inter- orsupranational institutions, communities or citizens) ensures that all actors cancontribute their respective share of influence and responsibility to the policy makingprocess.Such an exchange along trans-national, functional, trans-regional and "trans-locallines" could prove more efficient than state monopolies in policy-making. Such anexchange is, however, not intended to dismantle the democratic state. In fact,democratic nation states seem to be the apt institutions to coordinate such aninvolvement of "stakeholders" because they have the overall competence, experienceand the democratic legitimacy to coordinate politics for the common good. Hence,new forms of governance will have to be developed which will allow new decision-making procedures to borrow legitimacy as well as coordinative competence from thedemocratic nation state.



Gary Geipel

Two propositions flow from the title of the conference. The first proposition is thatinternational economic developments today have a greater effect on nationaleconomic and social well-being than in earlier periods. The second proposition isthat the phenomenon of ”globalization” leads to a noticeable change in the nature andcontent of social policymaking in advanced societies such as Europe and the US. It isimportant that we subject both propositions to critical scrutiny. There is someevidence to support the first proposition. I believe that there is little or no evidence tosupport the second proposition, however.

Throughout history, major national economies rarely have existed in isolation fromdevelopments in other nations. The great empires of the world and the nations thatachieved dramatic improvements in their wealth and stature almost always dependedon international trade and investment to fuel their rise. We ignore history if weconvince ourselves that ours is the first generation of businesspeople andpolicymakers to adopt a global perspective. Nevertheless, three trends in recent years– all three of them having to do with mobility – do set the current internationaleconomy apart from earlier times. Today, there is unprecedented global mobility ofcapital, goods (especially information), and labor.

Individuals and companies today can take advantage of the most open, transparent,and diversified international investment climate that ever existed. Money crossesborders today with ease and frequency. Similarly, the rise of new communicationstechnologies and dramatic declines in the cost of traditional transportation andshipping services in the second half of this century have brought about what somecall ”the death of distance.” Computer code, software, biological formulas, and manyservices – the products of our most dynamic sectors – can be shipped across the globealmost without cost on the Internet. Meanwhile, the costs of shipping manytraditional goods are at all-time lows relative to their prices and costs of production.The easy flow of capital, goods, and services across borders in today’s world leads toa final aspect of globalization. ”Job migration” may be a better term for this thirdphenomenon than ”labor mobility.” Individual workers do not appear to be movingin greater numbers. Instead, in today’s world, jobs are more likely than in the past tomigrate in the direction of workers who offer an attractive combination of skill leveland price relative to workers elsewhere. There remain powerful limits to this jobmigration, however. Aesthetic factors, the quality of surrounding infrastructure, andthe nature of local laws and institutions all play a major role in determining whetherjobs migrate to a new location.

Do the elements of globalization just outlined influence the conduct of socialpolicymaking in advanced nations? The statement prepared by the organizers inadvance of our roundtable suggests that globalization ”is starting to revolutionize thesocial fabric of societies.” Is this true?


If globalization were having a revolutionary impact on national approaches to socialgovernance, then I would expect to find some combination of the following evidence:

- Differences between nations in their philosophical and practical approaches tosocial governance would be disappearing.

- Interest groups that played a traditional role in shaping social governance would belosing power.

- Nations would be moving toward a ”lowest-common-denominator” form of socialgovernance, under which the most advanced nations would give up expensive socialprotections in order to remain ”competitive.”

- Supra-national forms of social governance would be gaining strength at the expenseof national policymaking.

I see little or no evidence that any of those developments are, in fact, occurring.There remain large and powerful differences in the philosophies that underpin socialpolicy in the transatlantic region. The claims that leaders such as Bill Clinton, TonyBlair, and Gerhard Schroeder reflect a common ”third way” are nothing more thanmedia inventions. Would Schroeder agree to legislation, as Clinton did, that has theeffect of ending cash welfare payments? Would Clinton try once again to impose asocialized health-care system on the US? Would Blair agree to a welfare system, asClinton did, that requires the lone parents of small children to work in exchange fortheir benefits? Would Blair pursue a labor-relations system, such as the oneSchroeder supports, in which union leaders are required to have seats on corporateboards? The answer to all of those questions is, ”No.” This demonstrates theremarkable endurance of uniquely national philosophies and preferences in the areasof social welfare.

The fundamental obstacle facing social reformers in any advanced nation is the powerof entrenched interest groups that guard their benefits under the current systemjealously. The relative power of such groups – labor unions, employers, civilservants, farmers, bankers, and churches in some cases – fluctuates over time but hastended to remain within narrow bounds in recent years. To cite the most obviousexample, globalization has not dealt a devastating blow to labor unions, as somepredicted. In the US, in fact, there are signs of a renaissance of union power. Inpractice, there has been nothing approaching a wholesale revision of socialgovernance in any advanced trading nation during this era of supposed globalization.Far from moving to a ”lowest-common denominator” in which the advanced nationsgive up their social and environmental protections in order to compete withdeveloping nations, it has been the developing nations that have moved quickly toupgrade their own protections. The North American Free Trade Area (NAFTA), forexample, has served much more to modernize Mexico than to erode social andenvironmental protection in the US. Rather than ”racing for the bottom,” the nationsof the world have been racing for the top or, at worst, staying where they are.

Finally, I see very little evidence that globalization has brought about a newtransnational consciousness or a willingness to surrender national policy decision-


making to supra-national bodies. In Europe, if all goes well, the common currencywill be the final phase in the development of an economic union. It is far less likelythat the common currency will be the first phase in the development of a politicalunion. I remain very skeptical that the 15 – and soon to be 20 or more – members ofthe European Union will be willing to harmonize their social, educational, andcultural policies under the pressures of monetary discipline. My hypothesis is thatEMU will crack before national control of social governance cracks. For their part,some American interest groups fear the rise of the World Trade Organization andother components of the global trade and financial regime as powers that might”dictate” an end to their benefits. So long as their influence over the Americanpolitical process remains intact, however – and the most recent federal budget dealshows that interest-group politics are as potent as ever in Washington – domesticinterests in the US also have little to fear from globalization.


Globalisation and Social Governance in Europeand the US

Kristen E. Sukalac

National governments and globalisation

Government roles have evolved over time, springing from the basic human need forprotection and shelter. Over time, governments have taken on a series of tasks: theorganisation of commerce, education and social protection among them. Politics inturn developed as a way to control governments.

The nation-state and modern democracy took root at about the same time, bothaspects of a basic government model that is well-adapted to co-exist alongside anewly industrialised capitalist economic system.

Today the economic system is becoming increasingly a-national. Whereas the basicunits of the international system used to be sovereign nations, economic actors areincreasingly divorced from national political systems. This development began withthe rise of the multinational corporation – their world-wide interests reducing theirloyalty to any country’s values or rules.84 The rise of electronic commerce hascontinued to erode national control over the economy.

The European cradle-to-grave model of social protection relies heavily on the nation-state’s ability to control the national economy, both through regulation and taxation.As governments are losing control of national economic matters, so too is the socialsafety net becoming ever more fragile. Instead, a heavy social tax-burden continuesto weigh down economic growth, but welfare systems are nonetheless strained by thedemands placed upon them.

The role of civil society and the American model

Accustomed to their government-based system of welfare, Europeans often view theUnited States as a social wasteland. In my view, this is an ethnocentric vision thatfails to take into account a well-developed voluntary social network that exists in theUnited States.

This model probably stems from the ”pioneer history” of the United States. Assettlers moved from the original colonies to the western territories, they grouped

84 One anecdote refers to the World War II invasion of Paris. Employees of National Cash Registerhad closed the shades and were waiting for the Germans to finish marching down the street. Panicstruck when a German tank rolled up on the sidewalk in front of the building and a German officerrapped insistently on the door. The door was cautiously opened. The officer extended his hand, with abusiness card. He informed the NCR employees that he was from the Berlin office, and should theyever be in town, they should drop in to see him.


themselves together in forts and settlements that later developed into towns. Helpingone another in times of trouble was necessary to ensure survival. No formal structureexisted to play the welfare role that the Church often filled in Europe.

While the American model cannot and should not be transplanted to Europe, there areelements of the American system that could prove instructive as Europe searches fora way to provide adequate social care without endangering European jobs throughexcessive taxation and labour inflexibility.

The global challenge

It is, however, increasingly difficult for any national social model to weather therigors of globalisation. Globalisation means that governments do not profit from thefruits of economic growth to the same extent they previously did, yet they areexpected to provide a growing basket of goods. The consumer culture has pervadedeven government, and citizens are beginning to act like demanding clients whoexpect a money-back guarantee on services offered by governments.

Greater involvement on the part of civil society is the most likely direction for socialwelfare in Europe. While governments will continue to play an instrumental role inorganising basic welfare services, Europe will have to develop a more activevoluntary sector to provide welfare services because states are no longer able to doso.

The irony of globalisation is that while economic forces are increasingly organised ona larger level, responses are increasingly formed at lower levels: regional and localgovernments and nongovernmental organisations. Governments now have the task toprovide the framework that best allows these ”micro-responses” to be effective.Enabling these other actors is the best way national governments can influenceglobalisation and attempt to control the economic forces which have taken ongigantic proportions.

In some cases the infrastructure governments put in place will be within the nationalsphere, but there is also a need for international rules which help the small playerstake on the behemoths. Trade rules within the WTO are a good example of this. Asthe economy becomes global, so too is there a need for a global social element. Thisdoes not mean a global social welfare scheme, but local and regional players willneed recourse to international rules when defending their interests.

The US and the EU are well-placed to lead the way in this matter, but must be carefulto include developing countries. Any global social structure that excludes thesesmaller economies will be doomed to failure, and the developing countries are sure toresist any models that smack of neo-colonialism. The best solution is, again, to setbasic rules but mostly to facilitate the development of civil society actors who can actindependently of governments to ensure the general welfare.


Globalization and Social GovernanceThe Employment Challenge

Mariàngels Fortuny

Globalization is a term to describe the increased liberalisation and rapid expansion of worldtrade, foreign direct investment and cross border financial flows. Over the past two decadesgrowing cross-border linkages have strongly influenced the shape of the world economy.From 1973 to 1994, the volume of world exports grew at an annual average rate of around4.5 per cent. During this period, there has also been qualitative changes in the pattern oftrade which have strengthened global economic integration. These include the increasingflow of manufactured exports from low wage to high wage economies and the growth of intra-firm trade accompanying a finer geographical separation of production activities. However,international trade has not been the main catalyst for accelerating global economicintegration. Cross-border financial flows have risen spectacularly over the last two decadesand the scope and depth of financial integration has far surpassed that in goods markets.Average daily trade in the global foreign exchange market has risen from $15 billion in 1973to $880 billion in 1992 and over $1,300 billion in 1995. Foreign direct investment (FDI) flowshave also made an important contribution to global economic integration and haveconsiderably outpaced the growth of international trade. During the 1970s, annual flows ofFDI averaged $27.5 billion, rising to $166 billion in the second half of the 80s and reaching$318 billion in 1995.1

There are increasing anxieties about the effects of globalization on the current worldemployment situation. In both the more and the less industrialized countries, the process ofeconomic liberalization has a direct impact on labour markets. The immediate consequencesfor an economy of opening up to increased imports is usually the disappearance of jobs inthe less competitive sectors. Jobs are also lost due to the relocation or decline of industrialsubsectors and to technological developments. While liberalisation offers enterprises manybenefits such as easier access to new markets which increases the demand for labour, it alsoresults in increased competition at home from imports and foreign investors. There isapprehension among the industrialized countries that increasing imports from low-wagecountries have been destroying manufacturing jobs, especially in labour-intensive sectors.The same process is also seen as being responsible for the observed rise in wage inequalityin some industrialized countries. The erosion of labour-intensive jobs is seen to have causeda fall in the demand for unskilled labour which in turn has caused a fall in their earningsrelative to the more skilled. These are understandable anxieties, given the almost worldwidedeterioration of employment conditions and some dramatic episodes of corporate downsizingand job loss. The consequences of opening up to financial flows can also be extremelynegative if appropriate conditions are not in place. The unexpected and massive Asianfinancial crisis has, by now, been translated into a high level of job losses and consequentsocial distress. A sound and resilient financial system is an essential buffer against thecontinuing danger of economic crisis in a world of increasingly integrated financial markets.

The growing globalization of the world economy poses new challenges for both internationaland national policy. While the growing integration of the world economy offers mutualbenefits and increasing opportunities for economic expansion to all participating countries, italso generates social dislocation and demands policy adjustments. However, there isconcern that the effectiveness of some national policies is limited in some important ways.Fiscal and monetary policies are increasingly affected by the globalized financial markets.Greater openness also implies greater vulnerability to shocks in the international economicsystem, while heightened international economic competition and capital mobility weaken thebargaining position of labour, exert downward pressure on labour standards and compromisethe capacity of governments to implement countervailing social policies.

1 Trade and Development Report, UNCTAD, 1997.


While there is some basis for these concerns, globalization should not be seen as a supra-national paradigm that has largely usurped national policy autonomy. It is undeniable thatcross border linkages between markets and among productive and financial activities arevery strong and that economic developments in one country are influenced to a certaindegree by policies and developments outside its boundaries. However, countries still haveconsiderable policy autonomy and institutional arrangements and policy choices influenceeconomic and labour market outcomes in any country.

Sound macroeconomic policies are necessary to avoid market distortions and to improveefficiency. In many cases, this implies economic reforms such as trade and financialliberalization, the removal of price controls and other forms of deregulation that may posesome difficulties in the short and medium run. However, in the longer run, these reforms willbe beneficial for economic growth since they create an incentive to allocate resources toactivities that offer higher productivity and are in line with a country's comparative advantage.This higher growth, together with the removal of distortions such as the underpricing ofcapital and overvalued exchange rates, favours employment creation.

However, the current phase of globalization is being accompanied by a trend towardssmaller government, manifested in reductions in public expenditure, lower taxes, reducedpolitical support for redistributive measures and widespread deregulation of markets,including the labour market. In the context of growing inequalities and the increasing need tocompensate losers in the process of globalization it is important to find alternatives ofresolving this paradox.

Considerations of international competitiveness also influence the formulation of nationalemployment and labour policies to a larger extent than before. Enhancing labour productivityis key for meeting these competitive pressures. This can be achieved through investment inskill development, infrastructure, research and development and also by using the potentialof labour standards and cooperative forms of work organization to raise productivity. TheILO’s 1998-99 World Employment Report points to increasing evidence that education andskill levels of the workforce are significant determinants of success and failure of productivitygains and thus urges an active human- resource led strategy to meet the challenges of globalcompetition.

The social dimensions of globalization need to be given greater weight by the national andinternational community. It is imperative to reduce poverty and to enforce specific labourregulations to protect vulnerable groups in the labour market. Specific policies targeted towomen should be developed such as better child care services and anti-discrimination laws.Displaced workers need to be retrained and reintegrated into the labour market. Youthunemployment and long term unemployment are also major social problems that should beaddressed by developing special training and education policies. All this is important formaintaining social cohesion and mitigating the political discontent that could thwart theprocess of globalization.

One possibility would be to search for more cost-effective means for achieving socialobjectives. Solutions to the social security problems posed by rising program costs and bythe incompatibilities of program incentives should be found. For example, unemploymentbenefit schemes should minimize disincentives for workers to find new jobs and foremployers to create jobs. Active labour market programmes should be made more cost-effective. For instance, the importance of training as a solution to unemployment and socialexclusion should stimulate a search for new, cost-effective and equitable approaches.Concerning industrial relations, changes in labour market institutions as well as the emergingcross border dimensions of collective bargaining systems have to be taken into accountthrough dialogue and interaction between governments, employers, and workers. Socialdialogue, collective bargaining and compromise all must be encouraged, because they arethe keys to economic and social stability.

Globalization should be accompanied by a certain number of social ground rules founded oncommon values. In June 1998 the International Labour Organization adopted the ILO


Declaration on Fundamental Principles and Rights at Work in Geneva, thereby taking up thechallenges of globalization. The aim of the Declaration is to reconcile the desire to stimulatenational efforts to ensure that social progress goes hand in hand with economic progress andthe need to respect the diversity of circumstances, possibilities and preferences of individualcountries. It declares that all Members have an obligation to respect, promote and realize theprinciples concerning the fundamental rights at work, namely: (a) freedom of association andthe effective recognition of the right to collective bargaining; (b) the elimination of all forms offorced or compulsory labour; (c) the effective abolition of child labour; and (d) the eliminationof discrimination in respect of employment and occupation. This Declaration is a great stepforward in defining the social ground rules that must be an integral component of a globalizingeconomy. It has established a social minimum to respond to the challenges of globalization.



Agnieszka Pawlowska

Economic globalization results from expansion of industrial corporations looking fornew cheap labor and new commercial markets. In the beginning, this wave had apositive impact both for investors and those invested - native people and lands.Corporations gave labor and infrastructure, in return they got better conditions forbuilding their business. International corporations wove a web of mutual dependencewith native economies. As long as situation on international markets is stable,dependence works for both sides; in the situation of economic crisis, also both sides -although in different extent - are affected. The recent financial breakdown in Russiaand outflow of Western investment from this country is a good example ofinterdependence between different economies. I do not know the precise outcomes ofthis financial crisis, but I expect they are painful for both sides.

My personal experience does not allow me to give generalizations concerning socialimpacts of the trend called economic globalization. In this respect I would rather talkabout universalization, i.e. adopting by all societies affected by economictransnational relations, the common principles of conducting business, deliveringservices, selling goods, etc. I see a larger influence of cultural ”globalization” onsocial relations than the economic one. The problem concerns the very idea ofcontemporary market - the idea of liberal economy and democratic politics. Trueeconomic globalization is not possible unless this very idea has been accepted - atleast in its very basic principles - by all nations of the world. Transnational economicrelations would have never been possible in Central-Eastern Europe if its nations hadnot accepted the ideas of the market economy and democracy. In this respect,economic globalization affected Eastern European societies to a great extent. Thewhole post-Marxist social structure collapsed under the pressure of new economy. Itis difficult to recognize any coherent social class. Social structure should rather bedefined in terms of Bourdieu theory of social space in which people with theirdifferent capitals displace.

Economic pressure from ”outside” is very acute for any society. Such pressureexerted by ”others” makes us aware of our limited sovereignty. Sovereigntytraditionally understood is obviously threatened by economic globalization becausethe latter makes us dependent on those we cannot control. Still we are dependent onothers not only in the respect of economy but also in the respect of naturalenvironment, cultural influence, military relations. For some forms of dependency weagree, for some we do not, we have to accept them. What is actually “limitedsovereignty”? It is less power for the state to exercise control over an issue. The caseof contemporary social movements (environmental protection, peace movements)shows that ”powerless” government ”inspires” people to take control.

Generally, people want to control their surrounding, especially what is going on withthemselves. This is the very idea of local democracy, which I would rather call local


management. It is interesting how differently locality is understood in US andEurope. In the United States, locally-oriented, bottom-up ideas are prevalent incontrast to the more top-down, hierarchical development of democratic states inEurope. Still some ideas and ways of doing things are common. Roosevelt’s idea ofWelfare State went through its best years in Europe and this very idea made localgovernment on the Old Continent flourish. Basically speaking, idea was based on thestate acting as provider of goods and services to the people, who did not have to lookfor them on a free market. Local governments were the crucial instruments ofproviding services like education, transport, medical assistance, social services, etc.The idea and its accomplishment were vivid until the times of ”New Right” in Britainand ”New Fiscal Federalism” in the US. Both policies had the same aim - to makeproviders of social services (local governments) more competitive and by this waymore efficient. However, the strategies were different - Margaret Thatcher decided toengage central government in local issues, while Ronald Reagan decided to keepfederal government far from it. The result of both strategies was still the same - lesspowerful local government, but not necessarily less influential people. IntroducingCompetitive Compulsory Tendering, M. Thatcher opened an era of enabling localgovernment, i.e. government which takes care of user-friendly surrounding, whichmakes its best to enable providing public goods and services, not necessarilyproviding them by itself.

Conditions created by enabling government are advantageous for globalizedenvironment as they let foreign companies compete on the local market. As far as thissituation gives people opportunity to choose between providers of public goods andservices - it seems fair as it follows the principle of public choice theory. But whatmakes us concern about the ”free market for public services” is that it is notcontrollable. Furthermore, even if services are delivered by public institutions, theyare also less and less controllable. A great number of services were allocated toNGO’s and quangos which are not controlled by the public because their authoritiesare not elected but nominated. Do we - consumers - feel comfortable with it?Probably we feel more comfortable. with private enterprises, which we can at leastchoose - we neither choose nor control NGO’s and quangos.

However, governments - local and central – do not drop behind. Trying to respond forpublic criticism of administrative performance, governments include in their activitiesstrategies rooted in management. This is why new public management emerged, aswell as other ideas as public choice or reinventing government. New publicmanagement is about more efficient mechanisms for delivering goods and servicesand for rising governmental performance levels. It is aimed at making governmentmore competitive on liberal market. However this idea can be easily questioned fromthe side of its legitimacy. Is it legitimate to make choice in public matters followingmarket rules? Is the result of this choice fair? Is it a good way of making political andpublic decisions?

I believe, that answers for above questions constitutes an idea of ”good” government.Still, I believe that this idea has not been changed even in the new conditions createdby economic globalization. I hope, I will not make an issue trivial if I say that ”good”government is the legitimate government, effective and efficient government, just andhonest government.



Brian M. Murphy

The end of the Cold War has not produced a clear globalization policy or strategy ineither Europe or the United States. Many traditional moorings have broken loose andthe flux has not resolved itself into a stable enough political environment to buildmuch guiding doctrine. The problem, of course, is that the governance process isbeing affected by a tentative approach to global developments.

Without a compass, responses to events, both domestic and international, are oftenlittle more than reflexive reactions. Yet it would be even more dangerous to revert toold assumptions. A fanatic, according to Winston Churchill, is one who cannotchange his mind and will nott change the subject. We need to change the subject. Toavoid the wrong response, we must reflect the shift in the global context by learninghow to deal with uncertainties. This principle applies with special relevance to therelationship between Europe and the United States because traditional patterns ofinteraction no longer make sense.

In 1997, Leon Brittain (Vice President of the European Commission) declared inWashington: the United States and the European Union are gradually redefining theirroles, priorities, and relationships. We are less obviously thrown together by externalcircumstances.

In other words, there is no Cold War to cement the cracks caused bymisunderstandings, trade friction, and clashes of interest at a time when the potentialsources of discord are proliferating, including the European Monetary Union anddeciding when to apply military force.

Since the governance process responds to social dynamics, globalization must betaken into account when assessing how each transatlantic partner will address thefuture. As might be expected, social governance is beginning to mirror the sameabsence of stability that is manifest at the global level. Certain developments havealready yielded dramatic alterations from the way governance has operated in thepast.

Until this decade, European integration has largely been the product of eliteleadership. The public was generally indifferent because little seemed to emanatefrom Brussels that impacted daily life in any meaningful way. The nation-stateremained the forum of important policy-making in the minds of most Europeans.After the Maastricht Treaty in 1992, the debate about European affairs has involvedgreater participation by citizens. The consequence is that public opinion has imposeditself as a much more active component of decision-making on a continental basisand is likely to contribute to a less predictable transatlantic alliance.


A similar situation exists in the organization of partisan politics. Party systems andparty identification are decaying in both Europe and the United States, making itmore difficult to achieve policy consistency. In Europe, coalition governments arebeing compelled to incorporate smaller, more ideological parties to enablegovernance to occur at all. Policy concessions, even policy reversals, are frequentlythe price of maintaining the coalition. Agenda priorities are being replaced in theprocess. In particular, conservative governments are being jettisoned in favor ofmoderate social-democratic parties, with 13 of 15 EU countries now of leftistorientation. An identical ideological transformation took place in the U.S. a few yearsearlier. Unlike the conservative revolution of the 1980s, the difference today is thatno blueprint is guiding the direction of decision-making. That means neithertransatlantic partner can be certain where the other is headed.

It is worth noting that the moderate-left surge may be producing a significant changein the leadership axis in European integration. The United Kingdom is suddenlyfinding involvement in Europe more appealing. In Shanghai last month, PrimeMinister Tony Blair stated that the UK is now an integral part of Europe and hecautioned against narrow nationalism because strength comes from nationscooperating together. The possibility is being discussed that a triumvirate composedof France, Germany, and the UK could replace the dualism of the French-Germanaxis that has led the EU since its inception. Dominique Moisi, deputy director of theFrench Institute of International Relations, applauds the new European regime,writing: the UK is about to redefine its identity in European terms. France andGermany can only welcome the long term impact of the UK deep democraticinstincts on their own historical burden.

Aside from partisan politics, fragmentation of national authority in Europe is alsooccurring along another, more fundamental, dimension that has profoundimplications for the transatlantic relationship and social governance. Increasinglystrident claims for autonomy are being pressed by ethnic and cultural minorities,notably in the major democracies like Spain (where regions have forced the ceding ofmore central power), Italy (where 100,000 marched in support of the NorthernLeague in Venice), and the UK (where devolution has yielded certain nationalprerogatives to Scotland). These groups see Brussels as the means of escapingnational control. The U.S. must remain neutral but, when taken in conjunction withthe flourishing sources of disruption at the nation-state level, the benefits of a viableEU must be viewed as having foreign policy merit in Washington. This preference isbeginning to take root even in Europe. Alain Lamasoure, former French FinanceMinister, recently noted that polls in France reveal that two-thirds want foreign policymade by the EU rather than by the French government acting alone.

Clearly, the EU-US relationship is more complex as a result of the end of the ColdWar. The factors inducing cooperation remain ascendant but there is less incentive torepair disagreements because clashes in the relationship no longer threaten toundermine Western security. In blunt terms, governance in the new world order hasfewer reliable bases to maintain social and international harmony.


Consequences of Globalization for SocialGovernance

Jonas Tallberg

The intention of this presentation is to stress two essential points about theconsequences of globalization for social governance in Europe and the U.S. First, thecapacity of countries and people to cope with and benefit from globalization variesdepending on domestic social and economic institutions and structures. Second,regional integration in Europe and North America both moderates and reinforces theadjustment pressure of globalization on social governance.

The variegated impact of globalization

Globalization does not affect everybody the same way and to speak of one set ofimplications would be misleading. Some countries are better situated to deal with andprofit from globalization than others. Similarly, certain groups of society are betterequipped to cope with the consequence of increasingly integrated markets thanothers.

Whereas European countries in some respects differ substantially in the organizationof economic and social affairs, the most pronounced division is undoubtedly thatbetween the U.S. and Europe. With growing globalization, these differences haveconcrete impact on the ability to sustain growth and welfare. At a general level, theKeynesian welfare state of most European countries is increasingly difficult to upholdin the face of globalized markets in finance, goods, and services. By contrast, the U.S.has been the driving force in the integration of these markets and the party mostclearly benefiting from the liberalization. The establishment of the European welfarestate in the 1950s and 1960s rested on a compromise inherent in the post-wareconomic order: on the one hand, gradual liberalization of the international tradingsystem and multilateral monetary cooperation; and on the other, sufficient autonomyto permit government involvement in the economy. Globalization and the integrationof markets has made this compromise more difficult to sustain. With integratedmarkets, the scope for independent macroeconomic policies has been substantiallyreduced, as the political autonomy of governments is compromised by the highdegree of capital mobility and the threat of capital flight. With integrated markets,governments fear the ”exit” of mobile firms to production locations which can offermore profitable conditions.

Deconstructing economic liberalism in the U.S. and the welfare state in Europe,industrial relations emerge as an area where economic and social organization hasclear implications for the relative capacity to live with globalization as a fact of life.Industrial relations in the U.S. are characterized by a rather weak organization oflabor, low levels of social regulation, and a very high degree of flexibility on thelabor market. European countries, by contrast, tend to have stronger and moreinfluential unions, more extensive regulations governing working conditions and


”hiring and firing,” and a less mobile labor force. By consequence, the U.S. economyis more flexible and capable of adapting to the pressure of transformation inherent incapitalism as a system - a transformation process which has been accelerated with theadvent of globalization. On the other hand, while costly as impediments to optimaleconomic transformation, European social security and regulations soften thepressure of adjustment and provide for those segments of the population that aredisadvantaged by the market forces.

Beyond a differentiated impact on states’ ability to generate growth and welfare,globalization also affects domestic groups differently. In both Europe and the U.S. -centers of knowledge-intensive production - well-educated and highly mobile groupsof the population are better equipped to cope with globalization than those segmentsthat do not have the requisite level of education, are less flexible, and less able toadapt to new conditions and required competences.

Globalization, regional integration, and social governance

Regional integration through the European Union and NAFTA both moderates andreinforces the adjustment pressure flowing from globalized markets. Despite theirobvious differences, both the EU and NAFTA reduce the impact of globalization tothe extent that they do not reduce external barriers to the same extent as internal.While the fear of ”Fortress Europe” has proven to be unjustified, the EU stillmaintains preferential and protectionist arrangements (e.g. CAP) and does not shyaway from using anti-dumping as an instrument of protection. Perhaps moreimportant, however, as a deliberate means for moderating the effect of globalization,is the active promotion of the ”European model of society,” combining marketeconomy and international competition with social security and responsibility. EUpolicies developed for the purpose of strengthening the social branch of this ideal(e.g. regional policy, social policy, employment, education) contribute to a softeningof the adjustment pressure and to improving the adaptive capacity of Europeansocieties. Finally, the EMU, as another European-level initiative, moderates theeffects of globalized capital markets by, for instance, reducing the risk of targetedcurrency speculation.

Not to forget, however, a substantial part of globalization as a phenomenon is oftenactually regionalization or ”Europeanization.” Through the gradual dismantling offirst tariffs and other quantitative barriers, and then non-tariff and ”behind-the-border” barriers, regional integration contributes to the adjustment pressure onsocieties by opening up for greater trade and competition within. The elimination ofthe physical, technical, and fiscal barriers outlined in the Internal Market programentailed, in simple terms, that governments lost many of the traditional tools forgoverning the economy and influencing the allocation of resources within andbetween countries.

For the economy and society as a whole, such liberalization is likely to be beneficial,but for less competitive companies and regions the unleashed competition hurts. Andboth the European Internal Market and NAFTA have stimulated relocation ofproduction and the restructuring of sectors. Economic studies and business surveysconducted by the European Commission confirm that the market integration resulting


from the completion of the Internal Market has been to the advantage of some firmsand the dismay of others. Comparing the situation in 1997 with that in 1993, businessfinds competition to be greater in both national and European markets. But, whereassome 45 percent of companies reckon that competition has been positive or verypositive for their business, up to 25 percent of all firms perceive the enhancedcompetition as negative. While the basis for European prosperity at large, theintegrated European market is thus also a contributor to what we commonly refer toas globalization.


Sustainable globalization

Frédérique Sachwald

The process of globalization has been scrutinized for about fifteen years now and twoconclusions emerge quite strongly. The first one has been reached by the beginning ofthe 90s: globalization accelerates the rhythm of change which contemporaryeconomies have to sustain. It took longer to understand well the second conclusion:the full development of globalization and of its positive effects require the existenceof strong international and domestic institutions.

In this paper, I briefly come back on the characteristics of the globalization process inorder to emphasize the fact that these two conclusions are interdependent and tosuggest adequate adaptations of public policies.

The dynamics of globalization: what is new?

Very broadly defined, globalization means closer interdependence between countries,and more generally between economic zones. I want to argue that the process is notjust further internationalization through trade or foreign direct investment – even ifthe latter has grown particularly quickly since the mid-80s and implies closerintegration than trade.

Globalization is powered by the combination of three engines : deregulation,competition and innovation. These three sets of factors also fueled the late XIXthcentury internationalization wave. So what is new? Firstly, globalization built upon asubstantial degree of openness from the 80s on. Secondly, globalization involves alarger number of independent countries85 and a larger number of firms thaninternationalization in the XIXth century or during the 60s and 70s. This is importantbecause more numerous actors increase the degree of complexity and the degree ofuncertainty in the system. This bears both on the strength of global competition andon the adaptations of the institutional context. Thirdly, the engines of globalizationhave gathered much more power. This third point deserves a more detailedexamination.

Innovation tightly interacts with competition, which is increasingly international inscope. Nevertheless, innovation has its own dynamics. Various studies and numerousobservations suggest that since the 70s the rhythm of innovation has increased andthat the capacity to innovate consistently has become a major competitive asset for anever larger number of companies, from SMEs to multinationals. Export markets andforeign direct investment stimulate competition and technology transfers. Soinnovation and international competition feed on each other. These stronginteractions can be illustrated by one hotly debated issue: to what extent isglobalization responsible for unemployment in Europe and for growing wageinequalities in the United-States? A number of studies suggest that these evolutions

85 The so called emerging countries have widely benefited from the process of globalization, both tosell their products on international markets and to finance their growth process.


are mostly due to technological progress, rather than to trade with low wagecountries. Technological progress and automation however have been stronglystimulated by trade and international competition – including that between firms fromindustrial countries.86 It is important to identify globalization as a channel forinnovation and change, but from a policy point of view, the sensible attitude is toassess the need for change and the relevant policies.

Deregulation is the specific shape taken by liberalization during the globalizationphase. Tariff and non tariff liberalization have gone on, but a new impetus has comefrom domestic deregulation, which has widely expanded the scope of internationalintegration87. The latter has become much deeper since new sectors are now open tointernational competition (in services in particular). This deeper internationalintegration also means that national regulations and specific institutions are now moredirectly exposed to international pressure. This has been the case in particular forlabor and financial institutions.

Globalization takes place in a more regulated international context than the previouswaves of world integration. Indeed, one major difference between the end of theXIXth century and the end of the XXth century is the existence of respectedinternational institutions. The GATT, the IMF, the World Bank and even the UnitedNations have fostered internationalization trough both liberalization (tariffs, quotas,etc.) and the provision of a more predictable and secure environment (financial rulesand emergency credits, economic and political cooperation, etc.). These rules andinstitutions should be strengthened in order to avoid that periodic international crisisgive rise to backlashes against the process of globalization. A number of reactionsduring the recent Asian financial crisis illustrate this point.

During the negotiations of the Uruguay Round at the beginning of the 90s, fears wereexpressed that regional integration would endanger global trade liberalization. Europewas building the single market and regional schemes were being discussed in theAmericas and in Asia. Actually, the single market is definitely not a fortress. Thiswas predictable since the economic integration of Europe has largely been achievedthrough liberalization rather than protection88. The extent of regionalization in Asia isa matter of discussion. The financial and economic crisis which broke out in 1997tends to confirm that it is fragile at best. The European experience suggests thatregional integration, provided it builds strong specific institutions, can be a relevantgovernance mechanism in the context of globalization. It could complement nationalpolicies and institutions, to which I now turn.

Policies to foster and sustain change

Firms strive to become global competitors, fighting for market share on numerousnational markets and designing their activities on a worldwide scale. This evolution

86 In this debate, it is useful to emphasize that industrial countries mostly trade between themselves. Asa result global competition has become fiercer between firms from developed countries, which in anumber of cases involves developing countries as suppliers of global networks.87 Integration is used here with the same meaning as in regional integration. This notion is usedbecause international interdependence is now both extensive and voluntarily expanded (Europeanintegration remains much tighter than global integration).88 The main exception being agriculture with the common agricultural policy.


has meant that national productive systems have been more readily compared andassessed by firms. Benchmarking has become a usual business practice, but it hasalso been applied to nations. This has been one interpretation of the competitivenessissue – to compare countries on a number of indicators from the point of view offirms. Two related conclusions emerged from this perspective. Firstly, that nationaleconomic structures had to converge. Secondly, that convergence was to follow aliberal, exclusively market oriented blueprint - the underlying assumption being that amostly non regulated economy would be the best context for firms to thrive.

At the beginning of the 90s, on both sides of the Atlantic, economic policies werewidely suspected of being either ineffective or perverse. According to the emergingconsensus, governments mostly had to ensure that markets were not hindered bypublic policies and regulations. This conventional wisdom is now questioned througha reappraisal of the role of public policies. A number of European governmentsconsider that the United-States have conducted a cleverer policy mix during the 90s.The idea is to examine the possibility to target both inflation and growth, instead offocusing on one objective. Comparative studies between industrialized countries alsosuggest that public policies can be effective in checking the development of poverty.More generally, the debate on social policies suggests that the balance between socialprotection and incentives may be delicate to strike, but that public authorities shouldtry.

Globalization brings the benefits of specialization and scale, but imposes a higherrhythm of change on societies. History suggests that societies can sustain such adynamic trade-off provided they enjoy a reasonable degree of security89. After thesecond world war, governments in industrialized countries have provided the requiredsafety net. The corresponding laws and institutions now have to be renovated to takeinto account the contemporary constraints. The main issue is not so much aboutchecking increasing costs – which is indeed necessary - as to strike a balance betweenflexibility and security. In other words, economic and social policies have to bothfoster change and ensure security. These two objectives should be more tightlyintegrated than before in policy designs. One issue is to pay attention to incentives inpolicy designs.

The economics of innovation provides an illustration of the above general argument.Innovation depends not only on appropriate public funding for research, but also on awhole set of institutions, ranging from the financial market to the labor market, whereincentives play a crucial role. Innovative performance as well as the type ofinnovation which is achieved by a given country also depend on other diverse factors,such as the status of researchers, the weight of military R&D in total R&D or the waypublic funding is channeled to private companies. Comparative studies show thatthese different elements constitute national systems of innovation, which are quitedifficult to alter piecemeal, while they may become less adapted to the evolution ofscientific and economic challenges. Since the 1980s, it is the case both in France andin Japan, the innovation systems of which have opposite characteristics. Frenchauthorities try to promote innovation from the relatively rich pool of scientific resultswhich is achieved by the research system, while Japan considers stronger support tobasic research. In both cases the national system yields a reasonable degree of

89 The latter has to be debated and defined.


achievement, which is to be preserved. At the same time, some of the features of thesystem have to be modified.

The examination of internationalization since the XIXth century suggests thatglobalization will be sustainable if its benefits are both well understood and not toocostly. National public policies can lower the costs of globalization, both by fosteringchange and by shielding individuals from some of its harsher requirements.International institutions should contribute by providing a more secure andpredictable environment. This means in particular that they should take more fullyinto account the extent of interdependence in the global system.


Concluding Papers


Concluding Thoughts

Howard Rosen

The following comments are based on the various presentations and discussionsthroughout the conference, as well as some of my own thoughts.

1. What is “globalization?”Although this was one of the themes of the conference, the term was neverclearly defined. In contrast to several years ago, people tend to viewglobalization as more than just international trade. Instead, during thediscussion, participants seemed to use the term “globalization” to reflectchanges in capital markets, deregulation, technology and investment.There is a risk that globalization can become a catch word for all economicchange. The term could also follow the fate of a similar term,“competitiveness.” This term became obsolete before it was defined. For thepurposes of this summary, globalization is considered to reflect increased andintensified competition.

2. Economics transcends political borders.In other words, political borders do not reflect economic realities. (They veryrarely do, which helps explain political tensions between countries.) There is agrowing tension between politics and economics. In the end, globalizationmay be more of a political issue than an economic one.

3. Do politicians have less influence today than in the past?Politicians may in fact have less influence today on improving situations, butthey maintain a lot of influence over making situations worse.

4. Borders still matter!As long as citizens vote nationally, national borders will matter.

5. All economics is local.This is borrowed from House Speaker Tip O’Neill’s famous quote that, “allpolitics is local.” Increased competition has distributional impacts — there arewinners and losers. Politics is all about distribution.National averages hide the real stories. For example, the United States iscurrently enjoying the lowest unemployment rate in more than 30 years. Onthe other hand, 20 percent of countries throughout the United Statesexperienced unemployment rates above 8 percent during the first quarter ofthis year. Politicians, in general, respond to the distributions around nationalmeans.

6. Economic efficiency is important and necessary, but not sufficient in improvingequity.

This should be one of the lessons of the last 50 years of economic history.Following World War II, the United States and other nations established manyinstitutions - including the GATT, UN, IMF, and World Bank — whose aim


was to promote economic efficiency and growth. The last 50 years have beenquite prosperous, yet the distribution of income in most countries is not muchbetter than it was 50 years ago.

7. If we are doing so well, why are we so anxious?Put another way, “if we are doing so well, why are we here discussingglobalization?”In the United States, the economy is currently doing quite well, yet tradepolicy is at a stalemate, and the international economy is viewed as a threat topeople’s living standards, not an opportunity.The discussion should not focus on whether globalization, but rather how torespond to globalization. The issues is not if, but how.One important element missing from the discussions during this conferencewas how to respond to recent changes in the international economy. Are thereways by which society can assist those people who are incurring a heavy pricedue to increased competition?It would be interesting to convene a group of US and European experts todiscuss adjustment policies and programs which have been tried and exchangelessons.The United States is currently experiencing very favorable economicconditions. Despite this fact, ½ million American workers were laid off thisyear alone, due to plant closings. Over the last few years, more workers havelost their jobs due to plant closing than the number of new jobs created inEurope.Our ability to preserve the benefits of globalizations depends on ourwillingness to offset its costs.

8. Increased competition exposes weaknesses in our economic systems.Differences between our systems are more pronounced.Deficits are more important — such as education and skill levels.Countries are punished for bad policy decisions.The linkages in the international economy are so strong that no one can avoidfeeling the effects of economic developments. In the end, the “winners” (i.e.,the United States and Europe) pay for the “losers” (i.e., East Asia).

9. Markets are not perfect.We continue to acknowledge this lesson ex post, but refuse to make policydecisions on this realization ex ante.If our policymakers were willing to acknowledge this fact, we might be able todevelop better and more equitable policies.

10. The real issue isn’t globalization, it is growth.Globalization may not always lead to higher growth. Growth continues to bethe responsibility of individual countries and their policy mixes.In the end, the goal of economic policies should be to raise living standardsaround the world. Economic growth is an important and necessary ingredient,but it not sufficient in achieving this goal.Countries conveniently hide behind the rhetoric of economic trends, like“globalization,” but in the end they cannot avoid their own responsibility of


raising economic growth and improving long-term, sustainable livingstandards.


Summary of the Discussion

Stephan Bierling

Since all papers given at the conference are available on the CAP homepage, I wouldlike to offer a very personal summary of the discussions and let you know what I havetaken home from the two days in Brussels.

1. I do not think that we could establish a common definition of globalization thatwould have allowed us to come up with clear answers on how to react to it.Globalization seemed to be everything to everybody. The economists amongst usdefined it as increased competition, global division of labor or new dimension ofglobal capital flows. Others saw it as unlimited and instant information or globalenvironmental and health problems. This fogginess of the term explains to mewhy politicians use it so much: they are able to further their own political agendaby using globalization as either a bogeyman or a scapegoat. Although we couldnot come up with a definitive explanation of the term, we appeared to agree thatwe have entered a new stage of national and international policy relations that ischaracterized by unprecedented structural change not only in the economic, butalso in the technological and social spheres. This understanding proved sufficientfor interesting discussions and heated debates. For an academic analysis, however,one may try to define the concept of globalization more precisely.

2. We could not find conclusive evidence to describe globalization as either a goodor a bad thing. Whereas speakers from the trade union and the charitableorganization side tended to view globalization as a menace, because it supposedlyincreases inequality and hits the regular folk hardest, speakers from the employerand corporation side had in general a favorable view of globalization, because itopens new markets abroad and disciplines workers at home. (The academics, asusual, were agnostics). As long as the verdict is out whether globalization meansthe end or the beginning of general prosperity, we should not act like the mousestaring at the snake. Improving education is a value in itself - if it helps to betterprepare children for the demands of the new globalized world, the better.Balancing the budget and getting one´s financial house in order is something weowe the next generation - if it makes a country less vulnerable to external shocks -the better. (Personal note: I do not share the view that the South-East Asian crisisdemonstrates that there is a new global contagion effect and no country can escapeit. On the contrary, I would argue - from hindsight, I admit, otherwise I would nothave bought stocks in the region two years ago - that this crisis teaches us that it iseven more important in this new era to keep your financial house in order becauseotherwise the punishment can come swiftly and harshly. Only developingcountries that pursued a policy of financial stability, low exposure to short-termdebts and a sound and competitive banking system (such as Taiwan, Argentina,Chile and Mexico) survived the global meltdown of 1997/8 with minor scars).

3. By bringing a group of Europeans and Americans together for this conference, theorganizers forced us to look implicitly at how people, politicians and institutions


of the other side of the Atlantic cope with the fallout of globalization. I think wedid this on two levels:v On level one, we asked how America and Europe responded to the de-

legitimatizing of the nation state. Most of us agreed that national policy isincreasingly losing its clout over the setting of standards in many spheres oflife. Politicians, entrepreneurs and workers seem to more and more losetheir freedom of action because the demands of globalization tie their handsbehind their backs. Americans and Europeans try to overcome thesechallenges by employing two totally different strategies based more onhope than on conclusive evidence. The Americans hope that by bowing tothe pressures of globalization and adjusting their economic and socialsystem accordingly, they will be able to reap the benefits of increasedcompetition and of an ever-increasing division of labor. This ”grow out ofyour problems” strategy of course means in the short term higher inequalityand stagnation of wages which plays in the hands of populists,protectionists and the anti-foreigner-brand of politicians (Perot, Buchanan,Gephardt). The Europeans, on the other hand, hope that by resisting thepressures of globalization and by only mildly adjusting their economic andsocial systems they can wait out the entire process. The cost of massunemployment is in their view easier to bear than rising inequality. This”ostrich/head in the sand” strategy hopes that somehow globalization willgo away and Europeans can go back to the golden times when you couldprevent hard choices by throwing money at problems. The problem is thatthis strategy also plays in the hands of politicians with simplistic solutionsfor complex problem (LePen, Haider, Frei). Some indicators, I wouldargue, show that the American way is the only way to cope with theconsequences of globalization because it deals with the problemsoffensively and provides the state in the long run with the necessaryrevenues to remedy the worst consequences of rising inequality.

v On level two, we discussed whether we need new forms of ”global”institutions that can deal with the increasingly transnational problems ofglobalization such as pollution, overfishing or AIDS. We all agreed thatthis approach will probably not have the same degree of democraticlegitimacy as the old nation state-world had. One participant proposedcreating a new basis for legitimacy through pluralistic participation.However, this would fly in the face of the traditional way of doing things inthe international arena. Furthermore, there is the unresolvable problem onwho should participate in what problem area.

I think nobody left the conference with concrete answers on how to deal withglobalization and even on whether social governance is a practical concept or only anice verbal wrapping for academic discussions. However, very often it is moreimportant to get closer to asking the right questions than to have all the right answers.In this respect, I think we can claim full success.


Conference Summary

Wolfgang Bücherl

In the industrialized countries there is a common notion that societies arewitnessing a profound change in domestic economic and social relations. The USand the EU as the two major economic players in the world lie at the heart of thisprocess. On November 19-20, 1998 the Forward Studies Unit of the EuropeanCommission and the Center for Applied Policy Research at Munich University, incooperation with the German Marshall Fund of the United States, organized atransatlantic round table on "Globalization and Social Governance in Europe andthe US". Through stimulating discussion and transatlantic exchange of ideas, theevent was designed to contribute to improved responsiveness of younger US andEuropean policy makers to the changes in international economies and their socialand political implications on Europe and the United States.

Globalization - a matter of definition?

Although the term Globalization has been used intensively over the last years,policy-makers do not seem to have a common clear-cut idea of it. In fact, the termis employed to describe almost any development in economy and politics whichcan be related to cross-border activities. Therefore, in order to give structure to theround table discussion, it appeared useful to define particular tendencies of the"globalization" phenomenon which could be explained with more familiarapproaches, like the following:

- Changes in production patterns from mass production to flexibleproduction;

- the use of information as the commodity of the information age;- the growing importance of regional associations and schemes of regional

integration;- the growing interdependence of states, societies, markets and industries.

With all this in mind, participants of the round table tended to identifytechnological progress and liberalization of cross-border capital flows as thedriving forces of globalization. But during the discussion it turned out to beimpossible to clearly identify the origins of the above mentioned tendencies: wasindustrialization in the 19th century already a part of what we today callglobalization, should globalization be regarded as a phenomenon of this century, oris it just a child of the 1990s?

On the one hand, as trade figures show, the world is just about to return to the early20th century realities: cross-border trade in the 1990s is actually catching up withthe pre-World War I levels. On the other hand, the figures in capital movementsand particularly in foreign direct investment indicate an enormous upswing onlywithin the last two decades. Thus, the identification of the starting point ofglobalization is essentially a matter of the definition of the term. After all,globalization does not seem to be as global as we expected. It predominantly takes


places in the developed regions of the world, particularly in North America,Europe and East Asia. And even there it is sectoral, affecting merely those parts ofservices and industries which depend on the free flow of information and capital.

After a committed discussion, participants found it difficult to agree on theconcluding definition of the "globalization phenomenon," mainly because the wayglobalization is perceived by the individual depends heavily on his/her professionaland national background. However, as most of the Americans suggested, weshould not argue so much about definitions, but more about managing the effectsand consequences of globalization.

Globalization and the Social Fabric

All western societies are facing challenges to their traditional social fabric, but to avery different extent. American society with its emphasis on self-responsibility andsocial flexibility appears to be better prepared to adjust itself to world-widecompetition and the unlimited flow of capital than most European societies withtheir more elaborate sense of social consensus.

However, discussion showed that on both continents traditional arrangements inlabor relations are in decline: in the wake of companies streamlining their businessto core activities or the new industries being unreceptive to "unionization", US andEuropean labor unions alike are facing a decline in their bargaining power. Tocounterbalance such tendencies, unions on both sides of the Atlantic demandnational and international regulations for the management of capital flows. Theyalso argue in favor of the inclusion of labor and environmental standards intointernational agreements in order to offset the immobility of labor against themobility of capital.

Another approach which was mainly discussed by the economists at the roundtable is to encourage companies to share their rewards with their workers.Alongside this argument unions should adopt themselves to ‘information age’structures in order to empower workers to become self-confident customers andshareholders. This comes close to the ideas of "worker capitalism" and"democratization of capital" which were brought forward from the side ofemployers´ organizations.

In general, the round table agreed that improved information and training appearedto be the most important factors which would help to strengthen workersemployability and improve social mobility.

This discussion also shed light on the question of how to assure that people canlead a decent life. Some Americans reported that in the United States there was acertain disenchantment with the formula "work is better than welfare." Welfareexperts at the round table made clear that this formula, which is just about to enterthe discussion in Continental Europe, can reduce unemployment, but notnecessarily poverty in society. After all, the question remains if the formula wouldalso work in times of economic downswing.


But first of all, the European discussion is more about reducing or at leastredressing the often costly institutional framework of welfare system. In the viewof most Europeans, the American practice can only serve to a limited extent as amodel for Europe, because of different societal approaches to social care on thetwo continents. In general, the European and the American discussion about therole of low-paid jobs in reducing unemployment will have to take into account thefact that work incentives are more effective if - through working in entry level jobs- people gain chances to improve their living standards.

Finally, with reference to the first part of the round table discussion, thecontroversy remained unsolved about whether the overall changes in socialrelations, be it in labor relations or in welfare provisions, could be directly relatedto globalization, or whether these tendencies are just a part of necessary adjustmentprocesses, for instance, an adjustment to technological change in certain sectors ofindustry.

Governance and the Provision of Public Goods

The principle of territorial sovereignty has become blurred in a world of increasingactivity of transnational enterprises. So the round table discussed whether the"erosion of sovereignty" affects internal state sovereignty more than the externalsovereignty of states.

With regards to internal sovereignty there arise new questions about the legitimacyof political systems if we take into consideration that state performance is oftenseen as interlinked with state ability to provide public goods. During the discussionproposals were put forward to include corporations, labor organizations,communities and NGOs - together with state actors - into a public policy networkgoverned by the principle of horizontal subsidiarity. As a consequence of thisconcept of "global public policy," governance (as a functional concept) would bedelinked from government (as a territorial concept).

Among the participants these proposals raised questions regarding democraticaccountability or the emergence of a new kind of corporatism. The identification ofthe suitable actors to be included into such global public policy network as well asthe position of the state (weak or strong) were also a matter of controversy. It wasfinally concluded, that today's model of western democracy was not the end ofpolitical thinking. Democracy will have to adjust to globalization. The creation ofpolicy networks, which comes close to models of governance in non-western or inEuropean pre-industrial societies, is only one option to shape future governance.

The EU as a model?

With regards to European integration, the question arose whether in Europeglobalization is not actually "europeanization." Figures presented at the conferenceshow that the increase in flows of goods and capital for European countries areoverwhelmingly related to intra EU-trade. So can the EU serve as model ofglobalization? Regional integration moderates the effects of globalization (see the


structural policies of the EU). At the same time the EU integration process forcescountries and business to adjust to increased intra-EU competition. So the EUcould indeed serve as one, but not necessarily as the only model for organizing aglobal environment.

Conclusions

The round table demonstrated that discussion about improving responsiveness tothe issue of "Globalization and Social Governance" has to take into account thefollowing points:v Despite tendencies toward globalization, borders matter. Responsiveness to

national philosophies which determine perceptions and policies will be crucialin order to identify best practices on both sides of the Atlantic.

v For a sustainable development of society, policy makers will have to findsolutions to combine economic growth with equity. Ways of empoweringpeople to gain their share in the economic performance of their countries willhave to be considered in order to raise public consent.

v Finally, the development of strategies to include non-state actors into publicpolicy decision-making and implementation is a topic which will require futureattention and responsiveness.

Globalisation and social governance in Europe and...

Documents

Transcript of Globalisation and social governance in Europe and...