Loss of Sovereignty
By Richard Lowright
Governments themselves are joining regional trade groupings to give themselves more size and power in a globalizing world. Fifteen European nations have submerged much of their national sovereignty in the European Union (EU), by far the most evolved of these groupings. Eleven EU nations adopted a common currency, the euro, in January 1999, and several others are expected to join. Over time, many analysts believe the common currency will force EU nations to coordinate many other policies, such as budgeting and taxation. These issues are at the heart of a nation's political life, and the adoption of the euro is widely viewed as a decisive step toward a single European government.
The United States has also become involved in regional trade groupings. The North American Free Trade Agreement (NAFTA) is a much looser bloc connecting the United States, Canada, and Mexico, but with little of the economic coordination of the EU process. Talks are currently underway to expand NAFTA, which aims to eliminate tariffs and other barriers to trade, to most Latin American nations. The Asia-Pacific Economic Cooperation (APEC) agreement is more a dream of cohesion than a reality. Its leaders meet annually, but the Asian and North American economies are so different and the impact of the Asian crisis so severe that real coordination, even on the NAFTA level, is likely to be years away at best.
Despite growing regional cooperation, national governments have seen globalization erode much of their ability to control their own economies as traders and corporations move beyond the reach of national law. For the world's market-oriented democracies, erosion of national sovereignty means a reduction in the power of the ordinary citizen's ability to influence events through the vote; hence, it has the potential to erode democracy.
In this partial vacuum, international organizations, new and old, have assumed some functions that national governments once controlled. For example, the International Monetary Fund (IMF), an independent agency of the United Nations (UN), has become both a safety net for nations in economic crisis and a global enforcer of economic behavior. Both roles, however, have become controversial, and there have been proposals for a new global economic authority. The World Trade Organization (WTO) has succeeded the old General Agreement on Tariffs and Trade (GATT) and has become not only a forum to settle international trade disputes but a court with power to enforce its decisions.
An alphabet soup of other international bodies, such as the Bank for International Settlements (BIS) in Switzerland and the International Organization of Securities Commissions (IOSCO), are setting up new codes and regulations. These organizations are, in effect, now writing the global economic rulebook for the 21st century.
The global economy, then, is still evolving. No one can say yet what long-term effect it will have on the economies and societies it touches, nor whether regional and international organizations will succeed or fail to tame its power. To its boosters, the global economy offers the promise of immense global markets working with maximum efficiency to speed money, goods, and services to the places where they will do the most good and produce the highest return. Such boosters include free-market economist Milton Friedman, a Nobel Prize laureate, and United States treasury secretary Robert Rubin. To many in the developing world, globalization promises to bring the prosperity so far enjoyed only by wealthy industrialized nations. For analysts such as Drucker, as well as billionaire trader George Soros, the global economy already has succeeded the Industrial Revolution and, like that epochal economic event, eventually will change the world.
To its detractors, including organized labor and such critics as conservative U.S. presidential hopeful Pat Buchanan, the global economy is an untamed force that will undermine wages and living standards in the industrialized world while bringing little but chaos and exploitation to the developing world, impoverishing the many as it rewards the few. For proponents and critics alike, the events surrounding Asia's spectacular economic boom and dramatic bust offer revealing lessons about the great promise, and peril, of the new global economy.
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