IU Research and Creative Activity Magazine
Indiana University Research & Creative Activity


Volume XXVIII Number 1
Fall 2005

<< Table of Contents

Michele Fratianni
Michele Fratianni
Photo © Tyagan Miller

The Democracy Deficit book cover

Bordering Globalization

by Elizabeth Rosdeitcher

Globalization. The word conjures up a seamless world in which people, goods, services, money, knowledge, and information flow freely across and within national boundaries. A world in which communication to and from all places happens in a flash, making possible new modes of collaboration. Off-shoring, out-sourcing, in-sourcing, open-sourcing, home-sourcing, supply-chaining—a growing vocabulary signals the way we now do business by doing it somewhere else. Efficiency and competition are the global economy’s not-so-secret idols, and they aren’t exclusively American. As one of the more breathless accounts of the phenomenon has it, the world is flat and getting flatter by the minute.

Or is it?

Michele Fratianni, chair and W. George Pinnell Professor of Business Economics and Public Policy at Indiana University’s Kelley School of Business in Bloomington, says yes. And no.

“Yes, we’re global,” he contends. “But we’re not as global as we think.” The reason can be summed up in a single word—borders—about which Fratianni speaks eloquently and in great depth.

Borders, in fact, are at the heart of one of the most vexing questions for theorists of globalization, particularly since 9/11: What role do political bodies play within a global economic system?

Among other IU faculty who confront this question along with Fratianni are Alfred Aman and Jeffrey Hart. Aman is former dean of the IUB School of Law, director of IU’s Institute for Advanced Study, and Roscoe C. O’Byrne Professor of Law. Hart is a professor of political science at IUB.

These scholars agree that terrorism both thrives on and undermines globalization. As flat-world theorist and New York Times columnist Thomas Friedman has put it, “The flat world is a friend of Sam Walton and Osama bin Laden.” Each exploits the same infrastructures and global networks of transportation and communication.

But terrorism has led to severe border controls too, intensifying barriers to the movement of people and goods.

The Limits of Globalization

“Globalization is a mythology that catches people’s imagination. It is an abused term,” says Fratianni.

For one thing, historically, economic integration has not steadily progressed. “What we call the open system has had its ups and downs,” Fratianni points out. “While it is more global than it was in 1960, it may not be more global than in 1910.”

He offers explanations of two major limits on globalization. First, distance is a greater obstacle to trade than we imagine. “The closer groups are, the closer they trade. Alaska and Tierra del Fuego trade less than the U.S. and Canada. Proximity counts a lot.”

But politics counts more. According to Fratianni, political interests interfere with international trade on a daily basis and work against the free market. In short, “borders are discriminatory,” he says. “Whenever you have a government, you have a polity. Whenever you have a polity, you have someone deciding in favor of those within its borders. When you’re dealing with trade, there’s always a group that’s been affected badly and wants to be protected.” Borders also translate into trading costs, and they affect different countries unevenly, with small countries experiencing far more adverse effects than large ones.

Like Fratianni, Jeffrey Hart emphasizes that the hardening of our borders leads to subtle forms of discrimination, particularly against developing countries. But as he sees it, the principle of “trade without discrimination,” which guides the proceedings of the World Trade Organization (WTO), can also lead to some undesirable ends. In theory it creates a level economic playing field between trading partners, taking away unfair or artificially imposed advantages in the marketplace. “If you generalize nondiscrimination, you get some weird results. But occasionally,” suggests Hart, who is co-editor of a three-volume series on globalization and its effects, “you want to discriminate.”

In other words, we want restrictions such as those on goods produced by children or prisoners. We want to see sweat shops eliminated as well products or production methods that are harmful to people, wildlife, or the environment.

Should labor and environmental laws be written into trade agreements and treaties? So far, the WTO, which declares itself a “nondiscrimination of trade regime,” says no. It argues that to allow discrimination on the basis of how goods are produced opens up opportunities for countries to discriminate against others. One form of discrimination, it claims, becomes a smokescreen for others. If you can discriminate based on how something is made, you can discriminate against those who made it.

In Fratianni’s view, free trade has more pros than cons. “Free trade opens up opportunities,” he says. “It allows us to specialize. And if we each specialize, we do things better.” He admits, though, that not everyone benefits. “It is the job of an enlightened government to compensate people for their losses,” he says. “Otherwise 50,000 people can hold a whole nation hostage.”

The Costs of Security

Discrimination and protectionism. These, Fratianni says, have always been characteristic of the border, which tilts trade in our favor and distinguishes “us” from “them.” But now more than ever, the “them” are seen as terrorists. “And that,” says Fratianni, “is a big assumption,” which costs more than it benefits.

Fratianni offers a stark characterization of the price we pay for our security by describing the difference between economic and political approaches to terrorism. As an economist, he explains, you would first determine the “optimal” amount of terrorism. “You would ask, ‘Do we want to have zero terrorism?’ and would realize that this would take a sacrifice of our freedoms so great it would not be worth the cost. So you balance out the costs and benefits. You agree to live with a certain degree of risk.”

If you are a politician, on the other hand, you are not going to tell the people that they have to accept a certain amount of terrorism, Fratianni continues. “You would never say, ‘My fellow citizens, we cannot eliminate terrorism without jeopardizing our freedom, so we have to accept a certain amount of it,’“ Fratianni continues. “So though you could not admit the cost, you have to promise to end it. And once you make that promise, you have to come up with the machinery to follow through.”

This, he suggests, is the current American dilemma. We have paid too high a price in the name of security, and citizens are paying most of it with the loss of freedom and civil liberties, with policies that allow the government to invade our privacy or to hold anyone as a detainee in the war on terror without charges or trials. “The U.S. government has become more of a fortress. Maybe it was inevitable, but the erosion of rights is not something that U.S. history looks at benevolently.”

Fratianni predicts that the hardening of our borders, which diminishes international trade, will initially increase intra-national trade between cities and states within the U.S. In an effort to make up for this bias, we will then create more regional trade agreements that will, in turn, accentuate trade regionalization at the expense of a multilateral trade system. This process will affect developing countries most unfavorably, among them “those societies that already have animosity and resentment against the West.”

But the hardening of our borders will also affect us unfavorably. More restrictive and expensive visas now make it very difficult to organize international conferences and scientific exchanges within the United States. They deter foreign students from attending American universities and make it hard for American universities to compete internationally for the best students. Asian students are most severely affected. Chinese applications to graduate schools in the United States, for example, have dropped 75 percent since the 9/11 attacks.

“We think we are preventing terrorism,” Fratianni says. “We’re actually pushing smart people to do business in other countries.”

“And that,” notes Jeffrey Hart, “is the problem of globalization in a nutshell. To be competitive in a period of increased globalization, you must have access to increasingly distributed resources, particularly resources of brainpower and knowledge, but also money, goods, and services.” But because globalization and terrorism advance along the same tracks, you can not limit one without curtailing the other.

Globalization and Democracy

In Alfred Aman’s view, globalization changes the way states do business and in doing so, “complicates democracy both in theory and practice.”

In his book The Democracy Deficit (New York University Press, 2004), Aman looks at the way global economic forces have transformed the business practices of the state and government. States, for example, now seek market approaches to public business by engaging private firms to perform traditionally public roles such as privatizing the management of prisons, health services, and/or welfare programs. Driven by the goal of efficiency and by competition for industry and investment, states turn to market actors, whose operations often exceed the boundaries of any one nation or state.

The shifting relationships between public and private, national and international, give way to the democracy deficit. “As work moves into a private and global realm,” Aman explains, “what gets left out are all the public controls—accountability, transparency, citizen involvement, politics. When the only question asked of them is whether or not to renew a contract, citizens are reduced to consumers. How does privatization work? Is it cheaper? The answer is not always clear.”

“Once you mix a market mentality with the public interest, there’s a strong inclination to make decisions for financial reasons alone,” Aman continues. “I’m not against that in practice. But we need to figure out how much efficiency we can afford. For example, a company that pushes people off welfare rolls because they have a financial incentive to show how few people are on the rolls may not be in the public interest.”

Aman considers the way globalization limits the scope of democracy and leads to “a narrowing of political discourse.” He points to several political trends that have occurred in the wake of globalization, one of which is the increasing power of the executive branch of government. As issues once seen as domestic have come to be seen as global, power has become concentrated in the executive branch.

Likewise with terrorism. As the scope of national security broadens, other branches of government defer to the executive. The rationale is that the president is on the frontlines and needs to act quickly without tipping off terrorists.

So, observes Aman, we now have the federal Foreign Intelligence Surveillance Court deciding in secrecy whether to permit surveillance against terrorist suspects. And in the Guantanamo cases, the government argued for complete power over detainees. Although the court denied the government a blank check, it significantly expanded its power.

To compensate for this and other democracy deficits, Aman proposes that we reform the law to create structures and opportunities for citizens to engage in meaningful political discussion about the local and international impacts of globalization.

Hart points to a trend in this direction on the international front. Recently, international organizations like the Group of Eight, WTO, World Bank, and International Monetary Fund have sought to answer critics by inviting businesses and nongovernmental organizations to forums in which they have direct participation. Jeffrey Hart commends this.

“The way we got democracy at the national level,” he says, “was by creating channels for representing different interests. The hope is that we can reform existing institutions to make them more transparent and answerable to certain concerns.”

Elizabeth Rosdeitcher, formerly an editor and writer at the IU Foundation, is a freelance writer in Bloomington.