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

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 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.

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