Ashby Monk
The fall of communism illustrated the futility of command economies. Indeed, most of the world has come to recognize The Market as the most efficient and effective tool for economic coordination. However, in accepting the importance of The Market, governments have been forced to cede some of their autonomy to the marketplace in order to facilitate economic efficiency.
I think this is the point that Dani Rodrik is getting at when he talks about the “Political Trilemma”. In short, he thinks that the Greek crisis illustrates the irreconcilable forces and institutions at work in the world economy:
“Deep down, the crisis is yet another manifestation of what I call “the political trilemma of the world economy”: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalization. If we push for globalization while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalization, we must shove the nation-state aside and strive for greater international governance.”
Dani Rodrik is around three or four times smarter than I am, so I’m compelled to accept the above as true.
Still, while many states have given up some autonomy as part of their embrace of The Market, others have been unwilling to turn themselves entirely over to the liberal project. Indeed, some states have turned to hybrid systems of economic coordination that try to combine principles of the old command economy with those of free markets. This has been called “State Capitalism”, and Eurasia’s Ian Bremmer has a nice description of how it shapes up:
“Within these countries, political elites use state-owned and politically loyal, privately owned companies to dominate entire economic sectors — like oil, natural gas, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochemicals, and other industries. They finance all these institutions with the help of increasingly large pools of surplus foreign cash known as sovereign wealth funds…In the process, the state uses markets to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).”
That doesn’t sound very appealing, does it. Moreover, State Capitalism doesn’t seem to be a policy espoused by democracies. So, in that sense, Rodrik’s “Trilemma” seems to be intact.
But this got me thinking. Could democracies use some of the tools of State Capitalism to avoid Rodrik’s Political Trilemma? After all, every country today faces domestic challenges associated with the creeping forces of global capitalism (e.g. environmental concerns, tax competition, immigration, social welfare erosion, etc.). And every country would like to have a bit more autonomy in the increasingly globalized world; if just to minimize their vulnerability to crises. We can all agree that economic globalization puts inexorable stress on domestic political and social institutions. Indeed, as economic integration has accelerated, nation-states have lost much of their self determination. (Angela Merkel and Nicolas Sarkozy surely understand this today if they didn’t a couple of months ago.)
However, in the face of these outside forces, (Linda Weiss teaches us that) bureaucrats and policymakers have found coping solutions to help manage the depredations of globalization. And, in my view, this is where some of the tools of State Capitalism could be useful. For example, through a SWF, states have the ability to mute some of the nefarious domestic impacts stemming from globalization, through stabilization or insurance, all the while reaping some of its rewards. (This, by the way, is one of the points I made in a recent academic paper.)
I guess what I’m saying is that SWFs, which are a part of the State Capitalism toolkit, could be situated at the intersection between political democracy, economic globalization and nation state sovereignty so as to avoid the Political Trilemma. In fact, looking around the world, I can already see democracies taking up SWFs for just this purpose. Take Norway as an example. The GPF-G helped to mute the effects of the financial crisis. Ireland’s NPRF was also used in this manner. Look at Chile. Look at France. It seems to me that democracies around the world are starting to use SWFs to help overcome the Political Trilemma.
Do SWFs offer a permanent solution to the Trilemma? Probably not. But that’s for another post…
