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Global Public Policy

Governing without Government? By Wolfgang Reinicke.

Wolfgang Reinicke: Global Public Policy. Governing without Government? Brookings Institution Press, Washington, D.C.: 1998.

12.10.1998 · Reviewed by Josef Janning

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The process of globalization, which was already recognizable during the Cold War, remains widely misunderstood. The newest book by Wolfgang Reinicke, currently at the World Bank and previously a long-time analyst of international economic relations at the Brookings Institution, aims to correct this misunderstanding.

Reinicke's observations on the prevailing reaction in politics and the public can be found throughout the public debate: from the standing discussion on the competitiveness of different countries, through the complaints about neo-liberal attacks on the welfare state and social market economics as a consequence of globalization, to the political mobilization of fears of globalization by regional or national parties.

Reinicke's study clearly works out which political strategies follow from those perceptions of globalization. They fall into two groups - on one side, the attempt to bring the dynamics of business and trade back inside of national or regional boundaries (defensive intervention), and on the other the perception of states as actors in an internaitonal competition to offer the most attractive investment conditions for globally active companies (offensive intervention). Both reactions fall short in Reinicke's view because they are focused backward and lead to suboptimal outcomes. Defensive intervention, as described in the book, stems from a conflict between states' traditional views of sovereignty and the market-oriented rationality of transnational business actors. The more than 45,000 of these transnational firms, with their 280,000 foreign subsidiaries, currently account for a third of the world's economic production. Trade between different branches of multinational companies fits very poorly into traditional categories of states' foreign trade. Protectionist reactions, which Reinicke sees in both Europe and America, cannot turn back the tide of globalization. Transnational corporations possess more means to overflow the dikes of protection than the states do to build them. Moreover, companies can also turn barriers to their advantage in competition with less internationalized firms.

Offensive intervention, although apparently attractive and profitable for economically and politically strong countries, leads eventually to frustration and conflict. The improvement of a particular location's competitiveness through deregulation, 'tax-dumping,' or subsidies has often drawn increased investment, but at the cost of weakening a state's internal sovereignty. Reinicke points out the OECD's efforts to reduce the distortions caused by states' competition in tex policy. He also counts popular export-support programs, particularly the use of political power and influence to aid national firms, among the strategies of offensive intervention. The book relates examples of the success and failures of American export policy - Saudi Arabia's decisions to choose Boeing and McDonnell Douglas for equipping its national airline and AT&T to modernize its telephone network. On the other hand, according to an estimate from the US Department of Commerce, between 1995 and 2005 American firms will lose a trillion dollars' worth of business to interventions made by European and Asian governments. A logical consequence of the zero-sum game in export support is the growing instrumentalization of intelligence agencies in the business arena. A further consequence of this trend is the increase of extraterritorial application of national law, such as the US Helms-Burton Act or Iran-Libya Sanctions Act.

According to Reinicke, the fixation on relative competitiveness tends to lead to a misallocation of resources and results in frustration because under the sign of open markets and orderly politics emerging markets are showing higher growth rates than the OECD countries. These less advanced economies do not have the resources for offensive intervention and have to make do with the defensive variant of protectionism.

The book takes off from this deficit of possible reactions. Reinicke reaches back to the fundamental questions of sovereignty raised by globalization. Globalization puts state structures under pressure, because its dynamic is stronger than the adjustment mechanisms of the public sector, which is simultaneously under pressure from the public to steer globalization so that societal preferences remain undisturbed. Globalization limits not only the external sovereignty of a state, which Reinicke views as a sign of the phase of interdependence, but also the de facto internal sovereignty, the monopoly of legitimate rulership over a particular territory. This loss of actual authority, rather than formal responsibility, could provoke a crisis of democracy: "Citizens may continue to exercise their legal right to vote, but the power of that vote to shape public policy outcomes decreases the decline in operational internal sovereignty. Ultimately, a persistent weakness and failure of internal operational sovereignty could lead to a questioning of the institutions and processes of democracy itself" (p. 7, ff). Intervention strategies react to this diagnosis, but their weakness means that the destabilizing risk cannot be convincingly controlled. Instead of bringing business back within the borders of the state, Reinicke suggests that politics should reach out globally in certain sectory to regain the complementarity of political and economic relations. But because a world government is and will remain utopian, the task is to find new forms of "global governance," to rule without creating the classical attributes of the state.

The book takes three case studies to consider the need for regulation and the current experience with regulation in fields of global public policy: the development of global financial markets and the Basel Agreement, money laundering as a part of international organized crime and the American initiative for a global "Anti-Money Laundering Regime," and the dual-use problem in the field of high-technology export. All of these areas show the limits of states' regulating ability, with problems that are not solvable by the intstruments of internal sovereignty and that also disturb external sovereignty. In all three areas, Reinicke sees an efficient solution in sectoral solutions which also involve non-state actors and international organizations, according to the requirements of the problem.

The study does not recognize that such solutions may also damage the political legitimization of their outputs if the levels of legitimacy per se are not protected. The problems of transparency and predictability of decisions and responsibility are particularly difficult to resolve. To limit these consequences, Reinicke argues for subsidiary structures: vertical between various levels of governments and horizontal between state and non-state actors. In the horizontal subsidiarity of "public-private partnerships" Reinicke sees the innovative aspect of his "global public policy." Creating acceptance for such mixed forms should lie as much in the interest of states as the duty of international organizations to cooperate instead of competing. While the world economy is increasingly influenced by "global corporate networks," the current network of "global governance" shows itself as a riddled patchwork with missing links and much unnecessary duplication. Effective global governance requires a goal-oriented ordering of this natural growth into a system. Reinicke suggests starting with three steps: the development of a "global governance audit" to build oversight, the creation of standing channels of communication for national administrations to exchange information and coordinate policies, and the formation of "cross-national structures of interest formation, aggregation, and representation" (229).

This last point marks the line limiting the wider application of the concept of "global public policy": the world remains a long way from a global civil society. The prerequisites for politically legitimizing such public policy are still lacking, because even in the most advanced societies only small functional elites are creating and overseeing the process of globalization. The challenge of transnational politics that Karl Kaiser sketched in the early seventies has become a test, and perhaps a survival test, of democratic order. Wolfgang Reinickes study shows a demanding form of political formation whose ability to resolve problems also places very high demands on citizens' understanding. A "global public policy" will probably receive its instructions on vertical and horizontal subsidiarity from a hidden legitimacy, such as is presently visible in the process of European integration: policies in the areas where the traditional methods of democratically legitimated states are still effective must become noticeably closer to the citizens so that they will trust the new structures of "global governance."
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