Democracy and Globalization edit

Sept. 15, 2006

Democratization and globalization are the two most profoundly important developments of our age. Since 1975 there has a quadrupling in the number of democratic countries worldwide. Meanwhile, global trade as a share of global GDP has more than doubled from 8 to 20 per cent, while the share of countries fully open to international capital flows, as measured by the International Monetary Fund, has risen by half, from 25 to 38 per cent. There are exceptions; North Korea remains a hermit kingdom, resisting both democracy and globalization. But such exceptions are increasing few. It is hard to think of a part of the globe that is untouched by these powerful trends. And it is hard to think of an aspect of our lives that is unaffected.

-->It would be nice to believe that these two trends are symbiotic - that democracy and globalization support and reinforce one another. So say those impressed by the opening to the world economy of the countries of Central and Eastern Europe following the demise of Soviet-led authoritarianism. And so say those impressed by the outward orientation of Latin America since the wave of democratization that began in 1978. Since international transactions benefit society as a whole, democracy that renders leaders more accountable to the citizenry should be conducive to the removal of restrictions on such transactions.

Then there is positive feedback from economic and financial globalization to political democratization. The exchange of goods and services is a conduit for the exchange of ideas, and a more diverse stock of ideas encourages political competition. In financially open economies, moreover, the government must be transparent in order to gain the confidence of the markets, and transparency spells doom for autocratic regimes. So say those impressed by how the difficulties of managing financial globalization spurred the transition to a more open and competitive democratic system in South Korea and Indonesia.

But there are also signs that democracy and globalization are not always so compatible. In the United States, protectionist pressures are increasingly evident, reflecting fears that the country is being flooded with cheap foreign goods. In Europe, politicians complain that the continent is being flooded with cheap foreign labor. In Latin America there are complaints that the benefits of globalization are not being equitably shared between foreign energy companies and the host countries, leading Bolivia and Peru to declare their contracts with those companies null and void. Only China, where democracy has made no headway and the government still feels only mild popular pressure, is able to smoothly push ahead with economic opening. But elsewhere, in democratic countries, there are disquieting signs of a globalization backlash.

All this must come as a surprise to Bill Clinton and George Bush, who have repeatedly averred that democracy and economic opening go hand in hand and designed American foreign policy on this premise. In adopting this view, they are following in the footsteps of eminent philosophers like Immanuel Kant, who suggested that economic opening promotes the diffusion of democratic ideas, and influential thinkers like the Nobel Laureate Friedrich Hayek, who argued free trade and capital flows, by raising incomes and fostering economic development, create a demand for democracy. Are these great minds simply wrong?

They are not wrong, but they overlook that globalization and democracy are mutually supportive only when the fruits of globalization are widely shared and the political system is designed to make this happen. In Bolivia and Peru, globalization has disproportionately benefited the educated urban population that is well placed to take advantage of the resulting opportunities. The indigenous peoples living in the highlands have not been provided with the education and training needed to move into new sectors and activities and understandably feel left behind. They see foreign energy companies as reaping enormous profits and stripping their country of its national patrimony. They therefore elect leftist leaders like Evo Morales and Alan Garcia to deliver a more equitable division of the spoils.

The question is how these men will now use their leadership. If they simply revoke contracts with foreign companies and succumb to old populist ways, the globalization backlash will gather steam. The idea that globalization and democracy are mutually supportive will have proved to be a mirage. But if they invest in education, training and rural infrastructure so that the benefits of economic opening are more widely shared, then globalization and democracy will turn out to be mutually reinforcing after all.

Which will it be? Peru has considerably reformed and strengthened its political system since the last time Garcia was president, some 20 years ago. So far, Garcia seems to be shunning his old populist ways. He is responding to well-defined political demands to direct more public spending toward education, training and other programs to enable more citizens to capitalize on the opportunities afforded by globalization.

Morales is also committed to spending more on education, training and health care for the poor and to rewriting Bolivia's constitution to give more power to the indigenous peoples, offering hope that more citizens will acquire the wherewithal to capitalize on globalization. To be sure, Morales' own commitment to economic opening and liberalization remains uncertain. But he is under intense pressure from Bolivia's political system to make them work, and to make them work for the country has a whole.

These countries will only remain open, then, if the benefits of doing so are widely shared. And the benefits will be widely shared only if their political systems give the least fortunate enough power to make this happen.

What of China? Can it continue to reconcile political authoritarianism with economic opening and liberalization? The government in Beijing is aware that economic opening is introducing foreign ideas of democracy. It is attempting to contain these by restricting the circulation of foreign newspapers and access to «subversive» Internet sites. But the more globalized China becomes, the more disruptive these restrictions will be to efforts to raise productivity, and the more difficult they will be to enforce.

The Chinese authorities are also worried that globalization is aggravating inequalities within the country. It is seeking to address these, much as a democratic political system would, in order to subdue spontaneous protests and other challenges to the political status quo. But whether it will succeed indefinitely in suppressing the demand for political liberalization is doubtful. Ultimately, China will be the most important test of Hayek's thesis that economic opening, by raising incomes and fostering development, creates an irresistible demand for political freedom.