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What now for the nation state?

...or how the Masai provided a model of constitutional arrangements of planet earth for the 21st century.

[These are some notes on the talk - not a complete article]

The Thesis

Global capitalism encourages the growth of transnational organisations that are not rooted in culture, social norms or a value system but nevertheless depend upon the existence of these things in legal jurisdictions to further their interests and ends.

Whilst driven primarily by economic forces acting out in international markets globalisation has also had profound social and political consequences. It could be argued that the emergence of new social and political structures not rooted in the traditional nation state pose a profound threat to what we might think of as the classic liberal democracy. Does this matter? If it does, what can be done about it?

Examples

  • Global financial institutions including banks, hedge funds,
  • Social networking sites
  • Drug cartels
  • Global corporations
  • Media groups
  • Transnational quasi-governmental organisations IMF, World Bank ,FIFA
  • Criminal networks (Misha Glenny estimates 15% of world GDP is criminal)

Some definitions

The nation-state is a sovereign political entity within a defined geographical area that derives its legitimacy from the sense of belonging felt by citizens within that geographical area. Membership of the polity brings with it

  • Rights and responsibilities
  • Acceptance of legitimacy of state wide institutions
  • Cultural conformity
  • Recognition that boundaries generate loyalties
  • State has a monopoly on violence within its borders (Max Weber)

The existence of nation-state is a necessary but not sufficient condition for the existence of a liberal democracy. So, Franco's Spain was a nation-state but not a liberal democracy. In the same way a nation is not necessarily co-terminus with a state: the Kurds consider themselves members of a nation but are spread over several recognised nation-states.

A liberal democracy is a representative democracy within the boundaries of a nation state whose features include

  • Majority rule
  • Universal suffrage
  • Secret ballots
  • Political plurality
  • Free media
  • Separation of powers
  • Individual and economic freedoms
  • Middle class

Historically, this is a relatively new form of government and emerges from the The Enlightenment. It seeks to define the relationship between the citizen and the state in such a way as to put the citizen in control. However, it has proved to be a fragile flower that does to root easily in hostile environments. Robert A Dahl in his book How Democratic is the American Constitution? suggests that since 1950 there are only 22 countries including the US that have been 'steadily democratic'. New nation-states emerging from the imperial period (most of recorded world history) whilst modelling the aspirations in terms of the European model have found difficulty in achieving their democratic goals. Indeed, many have found difficulty in maintaining their integrity as nation states given that they were the creation of colonial administrators.

Many commentators foresee the end of the nation-state and with it the liberal democracy. Jean-Marie Guehenno in his book of that name suggests that the process of globalisation has completely changed the narrative:

This book proposes a quite different thesis: that 1989 marks the end of an era that began not in 1945 or 1917, but that was institutionalized thanks to the French Revolution in 1789. It brings an end to the age of the nation state.

The book suggests that the liberal democracy is not the necessary outcome of progressive thought, mass education and acceptance of the rights of the individual but a set of conditions that arose in a particular time and place that are not necessarily replicable. This may question the whole notion of progress in human affairs.

It has long been an assumption amongst many writers that free interplay of thoughts, ideas and competing explanations implicit in a liberal democracy would be a necessary condition to the economic development that all governments have seen as an objective. Indeed, for people like Hayek (The Road to Serfdom) and Popper (The Open Society and its Enemies) personal freedom and economic freedom is one and the same thing. However, the recent history of China does not fit with this model. But, it is possible that China is on the way to a liberal democracy although other outcomes are possible. The example of Russia is not a promising one. Wikileaks has shown us the US regards Russia as a 'gangster state' with the institutions of government taken over by ex-members of the KGB. The rule of law exists but not the sort of law that obtains in a liberal democracy.

Interestingly, the case made by most people for the desirability of the political liberalism is not an instrumental one but a moral one. It seems to be a happy coincidence that what's right leads to what is efficient. G. H. Sabine in his book The History of Political Theory describes this in the following way:

Analysis of these claims seems to show that liberal political philosophies have depended upon two postulates, assumptions, or axioms – whatever is the proper expression. One may be called 'individualism' in contrast with other forms of collectivism, though the word has been used in too many senses to be self-explanatory. The other – for which there is no obvious name – is that the relationships between individuals in a community are irreducibly moral relations.

The argument here is that for a liberal democracy to work, citizens of that polity must be self-aware moral agents. However, this assumes the pre-existence of a moral framework or tradition that has common, although not necessarily uncontested, acceptance. This is sometimes forgotten. Adam Smith, author of The Wealth of Nations and puppet maker of the 'invisible hand' so beloved of neoclassical economics saw himself as first and foremost a moral philosopher not a political economist. He believed that his Theory of Moral Sentiments was his most important book.

Globalisation is the process by which national economies, societies and cultures have become integrated through a network of communications, transportation and trade. Economic developments have included

  • Removal of trade barriers
  • Foreign and direct investment
  • Unhindered capital flows
  • Spread of enabling technology eg global currency markets
  • Military power (hard power v soft power)
  • Mobility of labour

There is evidence that the process of globalisation has significantly increased world trade and the incomes of many countries including some very poor ones. However, alongside this growth in world trade has been a concomitant growth in transnational organisations that enhance, facilitate and promote the process. At one level the activity of these organisations can be seen as benign whilst at another they raise concerns about their ultimate aims and objectives. Indeed, the question that may need to be asked is the extent to which institutions instrumental and subordinate to the aspirations of nation-states have managed to reverse and subordinate their original role to the extent that nation-states have lost control over public policy making within their borders. At this point, some would see an answer in the existence of the EU. It is true that this collection of nation-states meets a lot of the criteria to allow it to be described as a transnational organisation. And it certainly intervenes in public policy issues within member states. Interestingly, a condition of membership of the EU is a commitment to all of the values that may be said to underpin the liberal democracy. With others, this is not the case.

Some case studies

FIFA is the world body of football. Its executive is made up of representatives of national associations. It operates from a $200 million headquarters in Zurich and is unaccountable to anyone outside the industry. Nations applying to hold the World Cup have to agree to change their tax laws to allow FIFA and its sponsoring companies to enjoy privileged tax status for the duration of the competition in that country. The costs of the infrastructure are underwritten by the host nation.

News International owns a world wide media empire and is controlled by Rupert Murdoch. Lance Price, Alastair Campbell's deputy in Tony Blair's first term relates in his book Where Power Lies the motivation behind Gordon Brown's decision to abolish the 10p income tax rate. It says Mr Brown's disastrous decision to abolish the 10p starting rate of tax, which alienated many working-class Labour supporters, stemmed from his desire to pander to Mr Murdoch (The Independent 30/11/2011).
Jeremy Hunt, the Culture Secretary, has just given permission for News International to buy the shares in BSkyB overruling any public interest argument about the concentration of media power.

The growth, distribution and sale of illicit drugs is one of the world's largest and most profitable industries. Where nation states resist the penetration of civil society and the institutions of the state they are met with extreme violence. In Mexico, drug cartels murder anyone who apparently stands in the way of control over the lucrative US market including judges and police officers. As well as subverting the Mexican state, the huge amounts of money involved have subverted the international banking system, a key part of globalisation. In an article in The Observer, 03/04/2011, entitled The Dirty Billions, the US Bank, and a Bloody Drugs War, Ed Vulliamy describes how the Wachovia Bank of US knowingly laundered $378 billion from the Mexican drug cartels. After doing a deal with the US authorities the bank was fined $50 million and paid $110 million in forfeiture. It gets worse. Vulliamy also reports;

At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds of drugs and crime were 'the only liquid investment capital' available to banks on the brink of collapse. 'Inter bank loans were funded by money that originated from the drugs trade', he said. 'There were signs that some banks were rescued that way.'

Large global organisations seek to influence tax regimes by relocating their headquarters in more welcoming jurisdictions. The advertising company WPP relocated its headquarters in Dublin to avoid UK company tax until The Chancellor George Osborne declared Britain 'open for business' in his recent Budget. Sir Martin Sorrell, chairman of WPP, said he was prepared to return to Britain even though his core business activities had never left. Increasingly nation states are involved in a race to the bottom of the tax table so as to able to convince global corporations to invest or remain within their jurisdiction. Thus, competition takes place between nation-states rather than corporations.

A Treasury spokesman said 'The Government's long-term aim is to create the most competitive corporate tax system in G20 and in the Budget announced a 4 per cent reduction in the main rate of corporation tax' (The Independent 28/09/2010).

In Supercapitalism by Robert Reich (President Clinton's Labour Secretary now an academic) he describes how democracy has been overwhelmed in the US by the large corporations and how citizens believe that the political system has been corrupted by money leading to a loss in belief in democracy.

A more likely cause, in America and to a lesser but increasing extent elsewhere, is the expanding role of money in politics – especially money coming from large corporations. As I shall argue, that money is a by-product of the very feature of capitalism that has led to its economic triumph – intensifying competition among firms for consumers and investors. That competition has spilled over into politics,
as corporations have sought to gain a competitive advantage through public policy.

In a now famous on-line video chat between David Cameron and Mark Zuckerberg (see YouTube), David Cameron asked the founder of Facebook for help in communicating with and responding to millions of people who wanted things from him. At one level, this could be seen as a politician wanting to be seen with a 'cool' celebrity. At another Facebook can be seen as having some of the attributes of the nation state whilst transcending its parochial limitations. For example, it wants applications running on its platform to accept its virtual currency known as Facebook Credits (Facebook takes a 30% cut) This has already led to the Chinese government taking action to defend its currency.

The Chinese government has repeatedly curbed virtual currencies. Last year it banned their use to buy real-world goods and services, in part because of concerns of impact on the yuan (The Economist 24/10/2010: The future is another country).

Whilst in many ways the impact of Facebook is seen as benign or at worst neutral, it does create a citizenry with an alternative allegiance. And who elected Mark Zuckerberg to a position where he felt able to advise the British Prime Minister?

Aspects of the liberal democratic state have been appropriated by transnational organisations in order to defeat the policies of democratically elected governments. A trust is a legal creation that allowed medieval knights to go off to the crusades secure in the knowledge that their property was held securely for the benefit of named persons normally their immediate family members. Trusts are now an integral part of the offshore financial system that allows systematic and widespread tax avoidance by very rich people. Similarly, the limited liability system – the creation of legal persons that have special of rights and privileges – is a relationship between civil society and its commercial members not a way of avoiding accountability and responsibility.

So this means the end of the nation state?

Well no. The nation state is very useful to transnational organisations for many reasons.

It provides a socialised, compliant, consuming law-abiding population that reduces the risk to owners of capital.

Differentials in rule-bound behaviour are ruthlessly exploited by transnational organisations. At one level, a drug dealer will deal with a problem by using lethal violence whilst citizens are expected to abide by higher norms, eg, fair trials. At another level, labour laws in one jurisdiction will be ignored in another.

Domestic taxpayers provide free insurance against failure particularly for financial institutions who then lobby ruthlessly against any forms of control.

The nation-state is expected to provide a workforce that is educated, kept fit and well, transported to work and back and looked after in times of trouble with minimal funding from the large corporation.
One nation-state can be played off against another; in this situation the role of government is to act as an agent in a reverse auction offering tax incentives, cheap compliant labour, modern infrastructure and a risk-free environment.

Electorates in liberal democracies are in a particularly difficult position as the political narrative (or myth?) suggests that governments respond to their wishes by dealing with political problems (choices with a moral dimension) within the framework of national institutions. The reality may be that modern governments are managerial in nature and seek to reconcile the internal with the external.
The nation state is a repository of assets that can be cherry picked by transnational organisations for use within the global financial system. Thus, Kraft of America can buy Cadbury's of the UK purely for its uses as a brand name. When asked to account for this by a committee of the British Parliament, the CEO of Kraft refuses to attend. Similarly, the Glazer family of the US buys Manchester United to exploit its global significance.

So what does the political landscape look like?

Nicholas Shaxson, in his 2011 book Treasure Islands describes the situation in the following way:

Right-wing ideologies that for years have been beyond the pale in the larger democracies have been allowed to grow without restraint offshore. As offshore finance has become increasingly influential in the global economy, re-engineering onshore economies in ever more significant ways, so such attitudes have flourished gaining strength and confidence within the larger economies. This is evident in the intransigent arrogance of bankers, who, having nearly brought the world economy to its knees, still ask for more and threaten to relocate elsewhere if they are regulated or taxed too much. It is visible in the demands of the super-rich, who have come to expect and demand tax rates below those of their office cleaners.

America, the great democracy, is now in thrall to the world views of the unaccountable, abusive and often criminalised elites, in large part thanks to offshore finance.

Having colonised the economies and political systems of the large nation states where most of us live, offshore finance has gone a very long way towards capturing out attitudes too.

George Monbiot (The Guardian 8/02/2011) describes our political system in the following way:

Our political system protects and enriches a fantastically wealthy elite, much of whose money is, as a result of their interesting tax and transfer arrangements, in effect stolen from poorer countries, and poorer citizens in their own countries. Ours is a semi-criminalised money-laundering economy, legitimised by the pomp of the lord mayor's show and multiple layers of defence in government. Politically irrelevant, economically invisible, the rest of us inhabit the margins of the system. Governments ensure that we are thrown enough scraps to keep us quiet, while the ultra-rich get on with the serious business of looting the global economy and crushing attempts to hold them too account.

Jon Cruddas MP for Dagenham and Rainham, and Jonathan Rutherford, Professor of Cultural Studies at Middlesex University writing in Progress magazine (February 2011) say:

[T]he economy has become an engine of inequality, division and dispossession. A financialised model of capitalism has redistributed wealth on a massive scale from the country to the City, from the people to the financial elite, and from the common ownership of the public sector to private business. We do not own our utilities nor do we have control of our vital energy market. The overseas supply chains of business located here are the chief beneficiaries of our economic upswings. A flexile employment market has stripped workers of rights and security. Our soft-touch approach on corporate tax has encouraged tax evasion and transfer pricing as business relocates its profits to tax havens. It is if we do live in a country so much as an economic system that is owned elsewhere and over which we have no control.

Final thoughts

I wished I had written this quote below but Matt Taibbi got there first in describing the behaviour of the world's premier investment bank. But I can do blood and the following image suggest the bovine, domesticated and fatalistic position of the modern nation state including the liberal democracies. It is particularly sad in the case of the liberal democracies because they thought that what picked them out from the herd were their values and their position at the forefront of social, political and economic progress.

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

(journalist Matt Taibbi, profiling the bank for Rolling Stone magazine in 200)

What have the Masai got to do with it? The Masai keep cattle for food. This means bleeding them at times to provide blood to drink. This image illustrates very well the relationship between the transnational organisation and the nation-state (including the liberal democracies). Guess which one is which? Moo.

Notes

The most important book to read is Nicholas Shaxson's Treasure Island.

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