Thursday, 3 April 2014

ECONOMIC NATIONALISM IN THE AGE OF GLOBALIZATION

Economic nationalism - protection of the national economic interests against foreign ones - manifested itself more clearly after the crisis between Russia and Ukraine over the annexation of Crimea in the aftermath of a pro-West Ukrainian group seizing power in a provisional government hostile to Moscow. However, Russia's is only the latest example of nationalist expression in what has been a long-term effort to assert greater national control over the economy rather than permit greater integration with the West under the guise of the free enterprise system. We also see evidence of economic nationalism in other parts of the world, including Europe among the so-called Euro-skeptics who come from both the right wing and left wing political camps and decry integration as a tool of multinational corporations and finance capital to erase national identity and social justice.

Similar expressions of economic nationalism intertwined with politics is found in several Latin American countries, most notably Venezuela struggling against pro-business and pro-US elements trying to change regime and reintroduce close integration with the US. China is probably the most famous cases of economic nationalism, a case where the Communist regime has been managing the economy to permit state-directed integration with the purpose of maximizing the national economy by taking advantage of foreign markets under its own rules of integration, whether in Latin America or Africa.
  
In contrast to Adam Smith's economic ideology based on individual initiative, Friedrich List (1789-1846) argued that the state has a responsibility to promote the interests of the entire society. Moreover, List understood that the system of free trade that Smith promoted favored England as the most industrialized nation that would easily out compete all others that were only starting to industrialize and needed government protection. Hence, economic nationalism was a method of promoting national economic development, otherwise accepting the fate of an externally dependent economy.

Is economic nationalism a reaction to global integration, which in essence means cooptation and domination of national markets by the strongest multinational corporations of the richest nations? Neoliberal insist on the forces of the free market operating without government interference to protect the national capitalist class and workers. Naturally, neoliberals advocating global integration have come out against the tide of economic nationalism in any form. However, the same advocates of neoliberalism have no problem supporting corporate welfare in their own countries, a system that is a form of economic nationalism. When governments use taxpayer money to bail banks and subsidize corporations that is a form of economic nationalism, just as when they lobby to have products and services of their industries marketed in countries competing with similar products and services.

Because nationalism is generally identified with the individual's identification with the nation-state, economic nationalism is generally viewed as a political economy aimed to promote the national economy by excluding foreign competitors that can undermine the domestic producers and national interest as the government defines it. Throughout history nationalism has undergone many phases from that defined by Absolutism where the Monarch was the nation-state (15th to 18th centuries), the entire population identified with the nation-state (French Revolution), a certain class–workers or peasants–are identified with the nation-state (Communist Revolutions in Russia and China), a certain ethnicity or race identified with the nation-state (Nazi Germany, Imperial Japan and Fascist Italy). Therefore, nationalism is an umbrella under which variety of ideologies have found shelter, from extreme right wing to left wing.

Arising from the ashes of the feudal/manorial structure, nationalism as a societal and political structure–a form of political, economic and social life–arose concurrently with capitalism and became identified with the emerging commercial/banking class that looked to the state (invariably absolutism until the Glorious Revolution) for support. Nationalism spread globally with the spread of capitalism during the nascent stage of the Commercial Revolution (1450-1650) when Portugal, Spain, Holland, England, France pursued overseas markets and began the race for colonies that culminated with the wars of imperialism in the late 19th-early 20th century.
 
 Awakened by the deep recession of 2008-2013, combined with the race for geopolitical influence by the major powers amid intense competition for global markets, the lingering specter haunting the world economy is nationalism that may manifest itself in various phases and stages and in countries as different as Russia and Venezuela, as Argentina and China. Russia under Putin representing oligarchic capitalism is pursuing a form of economic nationalism but so is Cuba that has had a long-standing commitment to social justice and opposed accumulation of capital in the hands of a few individuals at home or operating from abroad and exploiting the national economy. For the Kremlin, energy and the primary sector of production in general is the tool of statecraft in both domestic policy as well as foreign affairs. Government uses natural gas and oil not just to pursue a degree of social engineering, but as foreign policy tools in Europe and Eurasia.

China too is pursuing a road of quasi-statism where the state retains a dominant role to manage and direct the course of the economy, thus of society, but also permits a level of private domestic and foreign enterprise to accumulate and concentrate massive wealth. The US opposes all countries pursuing any form of economic nationalism because it wants its products and services to penetrate all markets around the world and to enjoy the protection of the host government. For a long time, the US has repeatedly threatened to punish China’s export trade because Beijing has been pursuing and undervalued currency during the recent crisis, a ploy the Chinese have been using to secure greater world market share as they expect to face mounting social pressures to raise domestic consumer demand in the future. But how much leverage does the US have with China, given that Beijing owns and continues to purchase America’s foreign public debt (US bonds)? And do such threats drive China and other countries ever so closer toward economic nationalism largely because everyone knows US interest rate policy impacts the rest of the world currencies?

One of the hard lessons from the Great Depression era was that economic nationalism exacerbated the crisis for all countries, although economic nationalism seemed the only logical and practical course of action for governments that look at the immediate economic, social, and political consequences instead of calculating the long-term impact. The other factor that prolonged and deepened the Great Depression was the absence of global leadership at a time it was needed the most amid Sterling bloc, dollar bloc, and German bloc (Schacht’s Clearing System) trading zones and individual countries scrambling for solutions at the national level to stimulate production and export trade. There will be great grass roots pressure from manufacturing workers, farmers, and other groups on governments to take care of the ‘folk at home first’, the kind of pressure that could have a xenophobic backlash and lead toward aspects of economic nationalism with reverberations across social and class lines.

If an American auto worker is unemployed, why permit more illegal aliens to cross the border or buy foreign-made products that cost jobs in Cleveland? The same holds true for an unemployed British, German, or French worker, despite the reality that the world economy is so intertwined. The issue of jobs protection, behind which governments hide a form of economic nationalism through subsidies to companies to "keep the jobs at home" is actually stronger in the advanced countries than it is in the weaker ones. When the US or Germany argues in favor of keeping jobs at home by having lower taxes for the companies involved and workers accepting cuts in wages and benefits to remain competitive with low-paid Third World workers that is a hypocritical position because the same government expects other countries to remain open to foreign products and services without their governments providing subsidies.

At the same time we will see inter-sector competition intensifying. As prices of the primary sector of production, especially agriculture but also mining, decline rapidly and as manufacturing led by auto industry slows even more substantially given the large inventories for the current depressed market, there will be social pressures on the state for subsidies and/or more equitable income distribution by sector, fiscal tinkering to benefit one group over the other, etc.

Inter-sector, intra-national and international competition has intensified owing to massive wealth concentration and increasingly fewer opportunities. This means that social and political instability will continue, depending how governments handle such vital issues as strengthening the middle class and protecting labor rights that neoliberals want weakened if not totally eliminated. Economic nationalism is the greatest threat to globalization and neoliberal policies intended to concentrate capital both geographically and socioeconomically within the borders of each nation. One reason that Putin’s Russia remains a potential threat to the West is not its military role in the world and resolve to use it regionally to preserve its spheres of influence, but the road toward economic nationalism. Interestingly enough, many anti-EU political groups from the right and the left are on the same path of Putin regarding the rejection of the globalization model of integration, favoring instead economic nationalism.

As I have commented in the past, much depends on how Keynesian, how quasi-statist, the US program will be and to what degree there will be economic multilateralism and nationalism against the pressures from the strongest countries with the most powerful multinational corporations. As global financial retrenchment took place during the recent global recession and capital was drained from the underdeveloped and semi-developed countries at the same time that terms of trade are becoming increasingly unfavorable for them and in favor of advanced capitalist nations, the prospect of economic nationalism is even greater in the absence of international trade agreements through the World Trade Organization and capital injections from the G-20 into the Third World. Declining export revenue, declining wages, declining investment, declining domestic and foreign credit, combined with mounting private and foreign public debt could very well lead to social and political instability, if not uprisings sporadic or sustained and therein rests the specter of economic nationalism.

Because economic nationalism cannot be separated so cleanly from politics, there are the advocates of xenophobia and racism behind some policies of nationalism whether in Russia or France. Conservative regimes that otherwise support globalization and neoliberalism, just as centrist and center-leftist regime do, invariably try to placate economic nationalist elements so they would not drift toward the leftist or right-wing political parties. Because economic nationalism is a mean to exercise national and international influence, regimes find it appealing, assuming they are able to pursue it if their countries are sufficiently strong to withstand pressures from core countries demanding global integration.

While the strongest and wealthiest nations have the luxury to pursue global integration because it suits their national interest, weaker and poorer nations have an interest to protect their domestic markets from foreign predatory economic giants that would further weaken if not eliminate smaller competitors. How can a small grocery store possibly compete with a multinational grocery chain, for example? While France wants its home-based multinational grocery chain to penetrate world markets, is that in the interest in smaller countries trying to protect the shopkeepers who benefit from economic nationalism and view globalization as the end of their way of life?

Economic nationalism goes to the heart of some very serious problems that globalization has created. Those include the dilution of indigenous culture owing to commercial influences from the core countries. Preservation of cultural heritage under globalization can only be done at the superficial level because the essence of the dominant culture will be the imported commercial-materialistic Western one that replaces the native.

As a theory to counteract the perceived injustices and insecurities caused by globalization, economic nationalism has emerged as a popular and powerful theory that is supported by wide and diverse constituencies looking to preserve their cultural heritage and expand their state’s international power. Nation-states must concentrate on building economic prowess in order to maintain or strengthen their international influence. However, the consequences of encouraging economic nationalism can involve the radicalization of politics and the persecution of segments of the national population, which can lead to fragmentation and eventual political and, hence, economic instability within a state. How this will play out in Russia and other countries where economic nationalist policies are being implemented is yet to be seen.

Global integration for the poorer countries entails a weak state and public sector that cannot possibly provide domestic growth stimulus and use it to improve social and economic conditions, as it relies heavily on powerful foreign enterprises enjoying the backing of their strong government. The result of not having the ability to pursue economic nationalism for poor countries means that its living standards will remain very low under extreme socioeconomic polarization, while the natural resources and markets would be exploited by large multinationals. 

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