Friday, December 11, 2015

The Myth Of National Sovereignity And The Rise Of Nationalism

Large multinational corporations are able to able to use resources across the globe and sell their products and services across national boundaries.  Many of the large US MNC's sell more products overseas than they do at home.  They also have more freedom than governments to pursue their own needs. They are not bound to a geography or to a national government. They have been able to manage their accounting strategies to locate their profits in tax havens. Globalization has been a double edged sword.  It provides desirable benefits to many of us, but it also has its discontents.  This is apparent in the EU where there has been a strong nationalistic backlash to a struggling effort to integrate the European economy without the support of effective international institutions.   Nationalism has also been on the rise in the US.  There has been a backlash to immigration and rising inequality which many attribute to the ability of MNC's to source their labor in low wage nations.  Recent terrorist attacks in Paris and in the US have made citizens more concerned about national security in a world without secure boundaries.

Thomas Piketty was interviewed about the rise of nationalism in a globalized economy.  He understands many of the concerns that have led to a rise in nationalism but he does not want to give up the benefits from globalization.  In order to make globalization work we must give up the idea of national sovereignty.  For example, nation states have little control over tax policy in a global economy.  The recent inversion by Pfizer which has merged with an Irish drug company in order to establish its corporate headquarters in the Irish tax haven is a case in point. Nation states must establish cooperative institutions on tax policy in order to prevent a race to the bottom as MNC's exploit the advantages provided by nations that use tax policies as a competitive advantage.  The social welfare programs provided by many nation states are also at risk from globalization.  They make a nation less price competitive in a global economy, and public support may erode as some of the benefits are shared with immigrants.

The message to take away from Piketty's interview is that nation states do not control their own destinies in a global economy.  The rise in nationalism is the wrong response to globalization.  If we want to maintain the benefits from globalization, we need to create more effective cross national institutions.  They have not kept up with the rapid pace of globalization.

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