A small world after all? The reach and grasp of the globalization debate

TitleA small world after all? The reach and grasp of the globalization debate
Publication TypeJournal Article
AuthorsDaves, BR


Is there room for national diversity in a more integrated world market?

Two related but distinct interpretations of how the international economy has changed.

Internationalization: The first relates to increased international exchange of goods, services, and capital.

Globalization: The second refers to a change in the division of labor that erases distinctions between national economies. Economic specialization is no longer based on the production of goods within a single territory and their exchange between sovereign states; instead, production is more diffuse. It has changed from a primarily national phenomenon to an international one. (This distinction is more fully elaborated by Hirstand Thompson 1996).

These two different conceptualizations have profound implications. An international political economy that is internationalized still emphasizes trade between nation-states. National governments are the sources of economic policy, albeit possibly in response to international changes. National sovereignty still exists, and there still is room for policy innovation by individual states. In other words, domestic politics still matter. Robert Keohane and Helen Milnertake this view:

In contrast, for those who see the international economy as globalized, national sovereignty and national politics have given way to the international market as the chief allocator of resources and costs (see, in addition to these books, Strange 1996; Ohmae 1990; Greider 1997).

How Changed Is it?

Keohane and Milner: observe the transformation in the international economy in the increased openness of national governments to the international flow of goods and capital. statistics make a strong case for an international economy fundamentally changed.

Wade: More skeptical. Observes that:

  1. trade as a percentage of GDP is small for most countries.
  2. world trade is highly concentrated in the industrialized North, and this concentration is increasing
  3. As with trade, FDIflows are highly concentrated among the industrialized powers, with the United States and the European Union representing two-thirds of the global inflows of FDI during the 1980s
  4. International finance is also highly concentrated in the more advanced North. What liberalization to the flow of capital has taken place is found mostly among OECD countries.

Sources of Change

Although most of the books under review are far more concerned with the effects of international economic change than with its causes, they offer three categories for the latter:

  1. Technology: Shift to MNCs
  2. Politics: HST (Gilpin); he form and pace of liberalization differed from country to country according to the extant domestic institutions and a country's position in the international economy (Loriauxet al., 220-28); end of Cold War (Stallings)
  3. Economics:  the advent of international regimes governing international transactions profoundly influenced the flow of goods and capital.

All of these factors have, in the view of Jeffry Frieden and Ronald Rogowski, led to "an exogenous decrease in the costs, or an increase in the rewards, of international economic transactions" Wade's evidence suggests, and Keohane and Milner concur, that of all the sources of change, the growing

mobility of capital is probably the most significant, and then largely for economies already integrated into international financial markets. However, technological and economic changes only raise the possibility of greater integration; power and politics determine how it proceeds.

The Fate of National Differences

The most hotly debated questions raised by these books concern what happens to national differences amid increasing economic integration. Has the reduction in barriers to international economic exchange caused economic logic to replace political logic in determining policy choice?

Loriaux and the Stallings: view policy change as a process of sovereign states reacting to changes in the international political economy. States respond to changes in the international distribution of wealth, the international division of labor, and political pressures. The possibilities and limitations are determined mostly by position in the international economy.

Jeffry Frieden and Ronald Rogowski: analyzing the origins of domestic actors' policy preferences. Their work and the other contributions to the Keohane and Milner volume are firmly rooted in the "second-image reversed" approach, which focuses on how changes in the international economy affect such preferences. In a schema reminiscent of their earlier work, they present three different approaches to predicting which economic actors would be harmed by internationalization: a factor endowment approach, an asset specificity approach, and a third approach that stresses economies of scale. The three perspectives do provide quite different empirical predictions. The factor model would predict labor-capital strife; the asset specificity model would predict sectoral rather than factoral conflict. Although it might be true that changes in the international political economy put pressure on domestic political economies, not all states respond similarly.

National Responses to International Changes

To varying degrees, all the books under review reject the most economistic arguments about greater international integration leading to economic convergence.

The convergence argument: States face potentially strong economic pressures. If capital is more mobile than before and if the nature of production has changed, as Gereffi points out, then states' room to maneuver is quite limited. If states do not maintain policies to ensure macroeconomic stability, investors will move their capital to more receptive countries. If governments continue to protect local markets from foreign competition, domestic costs will rise and international competitiveness will decline. For advanced industrialized states, a liberalized international economy means that the price for Keynesianism has reached untenable levels; and for developing countries, it means that import substitution industrialization strategies must be abandoned.

Evidence against:

Institutional forms: Boyer points out, however, that the empirical evidence does not support the claims of economic convergence, either in terms of economic performance or in productivity, especially when developing countries are included (pp. 34- 41). His most important contribution, however, is the third category of convergence, that of institutional forms. If economic pressure worked the way convergence advocates suggest, then states would adopt policies that would make them most competitive. But Boyer finds far more divergence in institutional forms than convergence.

Firms: While Doremus et al. agree that the international economy has become more integrated, they reject the argument that economic logic has produced a single form of corporate organization and policies. Indeed, they point out that MNCs still reflect the national character of their country of origin. This occurs because the home government plays a role in regulating investment, employment, research and development, and antitrustover- sight.

Although all the authors agree that national diversity exists, they disagree over what explains the different national reactions to liberalizing trends in the international economy. :

1. Geographic location geographic location and the impact of powerful actors on the international system (Stallings)

2.  Structural changes in the international economy: HST, US decline (Loriaux); a country’s position in the world economy; that is, the degree to which a country itself benefited or suffered from uneven growth

3. Domestic Politics:

a.     A pluralist view of politics would examine how a change in relative prices affects the interests of powerful economic actors, and how they might change political coalitions. Two fundamental assumptions in pluralism are that all actors are of equal importance within a polity, and that coalitions can easily change.

b.     Institutional: the way people are organized can influence their importance to policymakers, the types of demands they make, and their reactions to economic changes; regime type; ‘national ideology’ (Katzenstein);


For all these reasons, politics is central to understanding increasing international economic integration. At both the domestic and international levels, politics is crucial in explaining how states and economic actors react to economic change. States want to craft new institutions that give them distributional favor, while domestic economic actors and politicians want to ensure their continued survival.

To understand the dynamics of change, we have to answer questions of power, influence, and information-the realm of politics. It is clear from these five books that despite the trend toward greater international exchange, much diversity remains in how economies organize themselves and function. Changes in relative prices do not simply translate into the adoption of more responsive institutional forms; instead, those changes are mediated or refracted through different institutional and coalitional arrangements. The next step for scholars is to continue and deepen the investigation of links between the international economy and domestic politics.