According to Rodrik, why is national democracy incompatible with deep globalization?

Length: 773 words

There are several contradictions between the concepts of democracy and unfettered globalization. Professor Dani Rodrik’s work on the subject is about elucidating these contradictions which is at the centre of many political debates today. One of main reasons why deep globalization is antagonistic to national democracy is the undue power wielded by international capital. For most part what appear to be foreign investments into a local economy is actually fluid speculative capital. If the investment firm perceives the return on their investment to be unimpressive then it would not hesitate to pull out capital from the financial markets. This would lead to a fall in share prices and huge nominal losses to the other stakeholders – local partners, local firms and the national government. So the power of international capital gives its wielders the power to dictate terms to local governments, which in turn undermines democracy and nation-oriented policy making. There are numerous instances of this kind of veiled coercion in the era of globalization and it does not augur well for the future of civil society.

Professor Dani Rodrik cites numerous case studies which support the fact that integrating deeply to the global economy can cause instability to national governments. For

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example, countries that rely on international finance fare poorly over a period of time. The great collapse of the Argentinean economy is a classic illustration. Argentina’s Convertibility Law tied the national currency of Peso to the American dollar, pushing the economy into a destructive spiral. More recent, the same pattern of strangulation of national economies is witnessed in the cases of Greece, Cyprus, Italy, Portugal and Spain. Apart from causing instability to the national economy, it creates an array of related issues. These include high disparity between the super-rich and the abject poor, social and communal tensions, fissures in social harmony and the prospect of civil war, etc.

By allowing international firms a free reign in the economy, most of the local industries are put under pressure. As free trade agreements prevent subsidies for local industries, local firms with limited resources find themselves unable to compete with huge multi-national corporations. What unregulated free trade does is it makes the competition unfair and uneven. To the extent that stakeholders in local firms are citizens of a country, it is a blow to democracy and nationhood. In a sharp indictment of the lopsided rules promoted by the WTO, World Bank and the IMF, Rodrik states that fixed exchange rates and free capital mobility enslave smaller nations to other nations’ monetary policies. It entails the proposition of taking great risk for modest average growth. Rodrik calls this practice ‘trade fundamentalism’ and dispels the myth that greater capital inflow does not translate to greater economic growth.

Critics of protectionism might argue that despite its flaws globalization is the only option available. The argument if fallacious for in Argentina, which was devastated toward the late 1990s, regrouped its economy through prudent controls over foreign capital. By the turn of the millennia, the government changed its policy direction. It increased social spending, focused on improved tax collection and encouraged import substitution industries. Within a matter of years, the economy rebounded impressively. Moreover Argentinean society also witnessed less strife and tension. So deeply integrating a nation’s economy with the global economy is a matter of choice and not compulsion. History shows that those countries that have heeded to the will of their own people and resisted control by foreign capital have actually proven to be the most stable and sustainable of models.

Hence, it is fairly clear that one cannot pursue democracy and national determination while also being deeply integrated to the global economy. Rodrik’s thesis of the fundamental incompatibility between globalization and nationalism stands fortified after reading his scholarship on the subject. To Rodrik’s question of whether I would like to be rich in a poor country or poor in a rich country, neither scenarios appeal to me. I do not like huge disparities in wealth – such conditions are not only inhumane but also undemocratic. I would like to live in a society where there is more equity and representation. The Scandinavian counties like Sweden, Denmark are good examples in this regard. Some countries in Western Europe can also claim to be better in terms of social welfare programs, nationalized healthcare system, unemployment insurance, impressive public transport infrastructure, etc. So, in this regard, I would want to live in a country where basic rights of citizens, including their right to dignity of life, are respected. With respect to globalization, it is fairly clear that such reasonable aspirations of citizens will be deeply harmed.

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