Why Do Countries Choose to Globalize? Democracy- Versus Elite-Based Explanations Malcolm Fairbrother School of Geographical Sciences University of Bristol University Road Bristol BS8 1SS United Kingdom [email protected] Tel: +44 117 9288303 October 2012 2 Why Do Countries Choose to Globalize? Democracy- Versus Elite-Based Explanations Abstract What drives the policy changes fostering economic globalization, in the sense of increasing international trade and direct investment? A number of studies have found a statistical association between economic openness and political democracy, and present globalization as a consequence of states’ accountability to majority interests and preferences. Other research challenges this view, however, emphasizing instead the preferences and power of elites. This article evaluates these two perspectives by assessing evidence for the causal mechanisms presumed by each of them. The weight of the evidence, including that derived from brief case studies of Mexico and Canada, supports the elite-centered perspective more than the alternative, calling into question the theory that democracy fosters economic globalization. Keywords: globalization; democracy; elites; trade; NAFTA 3 Introduction Globalization is a policy choice. Statistical estimates find that policy changes have been the source of three-quarters of post-World War II growth in world trade as a share of GDP— much more than technological innovation and diffusion (Baier and Bergstrand 2001). States have often codified their decisions to pursue globalization in international agreements, which have had large impacts on cross-border flows of trade and direct investment (Baier and Bergstrand 2007; Büthe and Milner 2008; Goldstein, Rivers, and Tomz 2007; Neumayer and Spess 2005). What, then, drives states’ decisions to open and/or to integrate their economies via trade and/or direct investment?1 The literature on this question is sharply divided between arguments emphasizing political democracy and others stressing the influence of economic, political, and/or technical elites. Evidence for a democracy-centered explanation of globalization comes from statistical analyses finding cross-sectional and longitudinal associations between democracy and economic openness. This perspective’s key theoretical premises are that, under democracy, the interests and preferences of the majority rule, and globalization is in the interest of the majority. A recent review of this literature, however, notes that the mechanisms linking presumed cause and effect remain uncertain, and that there is a need for more work on precisely how democracy, arguably, fosters globalization (Milner and Mukherjee 2009: 178; also Guisinger 2009: 554). In a literature reliant on observational rather than experimental data, solid evidence for causal mechanisms would seem important if not essential for demonstrating a causal relationship. This article therefore assesses the plausibility of the mechanisms implied by a causal interpretation of the statistical association between democracy and globalization. 4 To do so, the article makes use of Lieberman’s (2005) mixed-method strategy for comparative research. For theory testing, he recommends “nested analyses” combining crossnational statistical modeling with studies of specific country cases conforming to fitted statistical models. Such case studies test whether the experiences of specific countries are consistent with the statistical associations uncovered by a large-N analysis. A valid theory should be capable of predictions consistent not only with regressions across countries, but also causal processes within them. This paper treats the cross-national regressions presented in other published studies as the first stage of a nested analysis, and presents original case-based evidence as the second. The alternative to the democracy-based approach is a set of arguments about the interests, preferences, and power of elites, defined as any category of people in possession of relatively large amounts of some valued resource, such as money, legal authority over public policy, or recognized technical/intellectual expertise. Studies emphasizing the roles of economic, political, and/or technical elites have suggested a more antithetical relationship between globalization and democracy, wherein majority interests and/or preferences are not overpowering, but irrelevant or even overridden. Studies comprising this second literature share a common emphasis on the preferences and behaviors of elites, but are nonetheless heterogeneous, in that they concentrate on different kinds of elites, with diverse relationships to the policymaking process, in countries following a variety of distinct political economic pathways to globalization.2 To assess the democracy- and elite-centered perspectives, I first present generic evidence about the causal mechanisms implied by each of them, and then evidence drawn from two specific country cases: those of Mexico and Canada. The generic evidence consists of public opinion data, insofar as democracy-based arguments rely heavily on models of individuals’ interest-based policy preferences. Mexico and Canada then serve as cases for brief qualitative 5 comparative-historical studies of why countries choose to globalize. These two countries followed independent but parallel tracks to economic opening from the early 1980s to the mid1990s, culminating in their common enactment of the North American Free Trade Agreement (NAFTA) in 1994. They both previously restrained their integration with the neighboring, much larger United States economy; they both passed nationalist and restrictive foreign investment laws in 1973; and in 1980 they jointly rejected U.S.-based proposals for continental economic integration (Senate Standing Committee on Foreign Affairs 1980). In 1988, both countries held elections that narrowly returned governments who subsequently dismantled their countries’ long traditions of restraining rather than embracing international economic integration—particularly on a regional basis. Considering their trajectories from the early 1980s to the mid-1990s thus makes each country both a negative and a positive case (Haydu 1998); that fact, and their spanning the developing and developed worlds, helps mitigate problems of selection bias. To preview the paper’s main conclusions, both the generic and case-specific causal process observations belie key implications of the theory that democracy fosters economic globalization. In light of the lack of support for the theory’s posited mechanisms, I conclude that the case for a causal relationship between democracy and globalization is not yet convincing, despite the statistical association between them; the relationship may be spurious. The alternative view that globalization is primarily a consequence of elite initiative is more consistent with the observable causal mechanisms. 6 Globalization and its Drivers A convincing explanation of globalization should be able to account for differences both among countries with respect to their levels of integration, and among their trajectories over time. According to one influential dataset, which codes the trade regimes of independent nations as either “open” or “closed” for each year since 1950, only 37 out of 140 countries were open in 1980, and of these only 15 were developing countries.3 Ten years later, 61 countries were open, and then 103 by 2000.4 With respect to direct investment and the multinationalization of production, the stock of worldwide FDI as a share of GDP increased from 6.51 per cent in 1980 to 8.77 per cent in 1990, and then to 24.38 per cent by 2008.5 Most of the world was therefore globalizing only very slowly before the 1990s. Until then, the United States and the Western European nations were generally consistent globalizers, and small European nations were especially open (Katzenstein 1985). The smaller “western offshoot” nations of Australia, Canada, and New Zealand were less enthusiastic, but still generally open to the world economy. For the rest of the world, however, bracketing a few outliers like the East Asian Tigers, only starting in the 1990s did trade and direct investment begin to grow steadily, and rise above historical levels. While globalization’s prevalence in recent times is widely known, the prevalence of its earlier absence, and the suddenness of the “rush to free trade” in the late twentieth century (Rodrik 1994), are underappreciated. Many developing countries, including large ones like Argentina or Brazil, were actually de-globalizing for substantial periods of time. To illustrate how much globalization reversed previous trends, as late as 1985 one influential scholar, in a book subtitled The Third World Against Global Liberalism, named India and China as “developing countries that are substantially disengaged 7 from the world economy, and are likely to remain so” (Krasner 1985: 296). Until the 1980s, there were international conflicts about international economic integration, and debates about whether poorer countries stood to gain much from it (Frieden 2006). From World War II to the 1990s, globalization was, in short, limited to only a minority of (mostly wealthy) countries. Since the 1990s, however, many have changed course dramatically. Explanation I: Globalization and Democracy6 Coincident with the rise of economic liberalism in the late twentieth century, many countries also transitioned to more politically liberal regimes in the 1980s and 1990s (see e.g., Schwartzman 1998; Wejnert 2005). And statistical analyses have found strong evidence that democracy is positively associated with international economic liberalism.7 Democratization tends to be followed by increases in trade flows, tariff reductions, and the liberalization of nontariff barriers to trade (Dutt and Mitra 2002; Eichengreen and Leblang 2008; Mansfield, Milner, and Rosendorff 2002; see Milner and Mukherjee 2009 for a review). Pairs of democracies tend to trade more than do other dyads (Mansfield, Milner and Rosendorff 2000). If democracy is taken somewhat more abstractly to be relative equality of political power in society, there is other evidence for the proposition that democracy and economic openness are associated. For example, post-Communist countries with more fragmented state power have tended to liberalize trade more than similar states where power has been more centralized—and this holds even for nondemocratic countries (Frye and Mansfield 2003). In short, the statistical evidence for an association appears strong, though questions do remain about its robustness to alternative 8 measures of openness (Kono 2006) and the possibility that democracy is partly a consequence, not just a cause, of globalization (Rudra 2005b). Why should economic globalization be not just associated with, but caused by, political democracy? Advocates of interpreting the statistical association as causal argue both that democratization grants political power to a wider share of the population—making their policy preferences more influential—and that most people will have favorable views of freer trade and other kinds of economic liberalism because liberalism produces economic benefits for the majority (Milner and Kubota 2005). This benign view of free trade rests on neoclassical economic theory, which holds that trade allows countries to reap the gains of specialization and comparative advantage, irrespective of the types of goods and services they produce (e.g., Krugman 1993). The end result is greater efficiency and the ability to consume more and/or higher quality goods and services. The theoretical rationale for linking globalization to democracy derives largely from the expected distribution of globalization’s benefits among different constituencies in a country. The neoclassical Heckscher-Ohlin-Samuelson model of trade (referred to hereafter as “HOS”) predicts that a country’s relatively abundant factors of production stand to gain from international economic integration, and scarce factors do not. A scarce factor, by virtue of its being scarce, commands a high price in the status quo situation of economic closure, whereas international integration makes it less scarce and thus undermines its power in the marketplace. In developing countries contemplating integration with wealthier ones, low-skilled labor is the relatively abundant factor, whereas in wealthier nations capital and highly skilled labor are the abundant factors. Given this view of different people’s interests, and the rational choice assumption that interests drive preferences, HOS predicts that capital owners and high-skill 9 workers in poorer countries will prefer economic closure, while lower-skilled workers will support it. There is therefore theoretical reason to expect more liberalism in developing countries where public policies are more accountable to majority opinion; autarky is likelier under conditions of non-democracy, where political rulers cater to the domestic elite of capital owners and highly skilled professionals (Milner and Mukherjee 2009). Governments’ responsiveness to the will of the median voter, and the threat of electoral punishment, therefore drive decisions to globalize; democracy fosters globalization by allowing the preferences of the majority to rule (Busch and Mansfield 2010; Milner and Kubota 2005). The democracy-centered literature tends to focus on developing countries, because of the opportunities to exploit change over time in the level of a given country’s democracy; few wealthy countries have recently transitioned to democracy. But the argument does have implications for wealthier (and thus more capital-abundant and labor-scarce) nations. In such contexts, HOS predicts the benefits of opening to flow more to capital owners than to workers (Watson 1993). Yet because the median voter remains a worker, public opinion on globalization should be mixed, at best (a prediction validated by the available survey data, as discussed below). If democracy makes policymakers accountable to the preferences of the majority, and the majority of voters in richer countries have ambiguous interests with respect to globalization, then there is little reason to expect pro-globalization policies in such nations to derive from the democratic accountability of politicians to the electorate. Consistent with this implication, one recent study finds that while democracies and wealthier countries tend to be more open than nondemocracies and poorer countries, the interaction between these conditions is associated with greater trade barriers (Tavares 2008). 10 In principle, democracy could lead to globalization not (or not just) because the public supports it, but also for another reason. Democracy could foster globalization if it were to increase the extent to which politicians are rewarded politically for the median voter’s prosperity, even if public opinion or preferences were hostile or unresponsive. Voters might reward decisions to increase international integration, even without being aware of it. This is not a mechanism the democracy-based literature has addressed, however; instead, the emphasis has been on the incentives confronting politicians in democratic versus authoritarian contexts, assuming that there is majority support for globalization in each. This second, alternative formulation of the democracy-centered theory makes strong assumptions about politicians’ foresight, understandings of economic policy, time horizons, and about the objective benefits of globalization to the median voter on timescales relevant to the electoral cycle. And the available evidence is not supportive of such a view, insofar as Kono (2008) finds that democracy is associated with freer trade—but only in interaction with public support; where public support is absent, democracy by itself is not associated with systematically more liberal trade policies. Finally, the relationship between democracy and globalization could be spurious, rather than causal, such as if both democratization and globalization were more likely to occur in countries with greater exposure to a world culture sympathetic to political and economic liberalism (Finnemore 1996). One key means by which world culture is transmitted is epistemic communities, or groups of recognized experts (Simmons, Dobbin, and Garrett 2006). The relative population of such experts varies from country to country, as does experts’ freedom to travel or study abroad, and thereby to absorb norms and ideas which they may import back home. It would not be surprising if the same non-democracies that came to be governed by technocrats—highly educated individuals exposed to foreign expertise and ideas—were also 11 more likely to transition to democracy. The highly educated tend to be strong supporters of both state accountability and free trade (Hainmueller and Hiscox 2006), such that while technocracy only emerges in non-democratic contexts, many technocrats may nonetheless believe in the value of democracy, and be more likely to introduce it.8 Once they gain power, and perhaps implement some of their highest-priority economic policy changes, they may take steps to transition to democracy. Or they may at least be less likely to use violence in repressing popular demands for democracy, setting technocratic non-democracies apart from other, more intellectually and economically autarkic nations. It is because of this possibility, at least, that the statistical association between democracy and globalization is by itself not conclusive evidence of a causal relationship. Explanation II: Globalization and the Power of Elites In contrast to studies focused on democracy and the preferences of the majority, other research emphasizes the agendas and actions of elites. Few studies argue explicitly that free market policies have been implemented through undemocratic means, or that political democracy is antithetical to free trade—though some do so (Harvey 2005). But the emphasis on the behaviors and/or interests of the few, rather than the preferences and interests of the many, sets this second literature at odds with the first. Elite-centered arguments are heterogeneous, and emphasize at least four distinct categories of actors who they claim perform key roles in fostering globalization. Each set of elites possesses a distinct relationship to the policymaking process, given its unique source of power. This section discusses each category in turn. 12 First, one major strand of the political economy literature stresses the power of wellresourced international financial institutions and private creditors, and emphasizes their preference for market-conforming policies (McMichael 2005; Park, Jang, and Lee 2007; Woods 2006). When a state becomes dependent on the IFIs (the World Bank and International Monetary Fund), this dependence allows the latter to dictate policies to the former—such policies typically being liberal and conducive to economic opening and integration. Dependence arises from debt or balance of payments crises, where a developing state cannot repay its foreign creditors, and so desperately requires short-term financial assistance. In another, somewhat softer variant of this argument, dependence on the IFIs shifts the balance of power in domestic politics, and gives an advantage to actors sympathetic to the same policies as the staff of the IFIs (e.g., Schneider 1998; Teichman 2004). Political actors with the training and connections that allow them to negotiate with a state’s foreign creditors gain an advantage in competing for policymaking control, and are thus eventually empowered to implement market-oriented policy revolutions as an “inside job” (Babb 2001). A final variant suggests that the influence of the IFIs can be intellectual: financial dependence makes it harder for states to ignore the abundance of IFIgenerated reports and studies advocating economic liberalism (Broad 2006; Edwards 1997). A second category of explanations looks not to external constituencies, but to a key domestic one: the private sector. Many studies present pro-globalization policy changes as the product of proactive lobbying and campaigning by business, especially big business and/or multinational firms specifically (Carroll 2004; Robinson 2004; Rupert 2000; Sklair 2002; Van Apeldoorn 2002). This perspective holds that business wins from globalization, often at the expense of other interest groups, and presumes that business unity in support of pro-globalization policy changes is high (Harvey 2005).9 Work in this vein often adopts a very class-oriented view 13 of market-oriented policy changes generally, contrary to work rejecting that business is a unified collective actor (e.g., Hart 2004). Pro-globalization agreements and policies benefit business by helping to suppress wage and benefit demands by labor, and/or by entrenching pro-business governance measures in areas like investor and/or intellectual property rights (Drahos and Braithwaite 2002). Some statistical research has also emphasized business collective action, showing for instance that in the U.S. congressional votes on NAFTA (in 1993) and the GATT (1994) capital and labor groups were bitterly opposed, with business in favor (Beaulieu and Magee 2004). The third approach shifts to another domestic but extra-state constituency: economists. Some literature suggests that recognized technical authorities in globalization-relevant policy areas can use the force of their expertise to convince political elites and/or the general public to become favorable to pro-globalization policies (Rupert 2000; Sheppard 2005). Economists in universities and think tanks may have no formal policymaking authority, nor exceptional financial resources at their disposal, but they have intellectual authority with respect to economic policymaking, and thus arguably substantial influence over it (Bockman and Eyal 2002; Montecinos and Markoff 2001). This authority increases the impact of their written reports, oral testimony, and statements in the media, and gives them some influence over the views of noneconomists in policy-relevant roles—business, law, public administration, and the like. Surveybased research into economists’ policy preferences confirms that they are strongly unified in support of liberal trade policies (Blendon et al. 1997; Frey et al. 1984). The neoclassical framework has long subscribed to the idea of comparative advantage, and rejected mercantilism as internally contradictory (Krugman 1993). Among industrial democracies since the Great Depression, the strength of economists’ support for free trade has been consistently strong, 14 though support for globalization among developing country economists has been much more variable, as the discipline of economics has changed substantially over the course of several decades in many developing countries (Coats 1997; Babb 2001; Montecinos and Markoff 2001). As developing country economists have become more similar to their developed country counterparts (i.e., more neoclassical), their policy preferences have converged. One recent study, albeit of another policy domain, therefore finds that the higher the number of American-trained economists in a country, the higher the likelihood of privatization, consistent with the thesis that the preferences of economists carry substantial weight (Kogut and Macpherson 2008). In short, the number and policy preferences of the economists in a country can be important. The fourth and final body of literature looks again at economists, but this time within rather than outside the state. “Technocrats” are the final group of actors sometimes said to be key agents of globalization (for discussions see Centeno 1993; Domínguez 1997; Markoff and Montecinos 1993). Technocrats are state actors with formal authority over policymaking, which allows their preferences to exercise significant direct influence over key outcomes. What distinguishes technocrats from other politicians is their prior academic training and possession of recognized credentials in economics. Such training makes them intellectually committed to proglobalization policies, to a much greater degree than other politicians would be, given specified levels of support versus opposition by the general public and relevant interest groups. Nontechnocratic politicians may therefore bend with the political winds on trade—their policy priorities are exogenously determined by interest group pressures. In contrast, technocrats, like economists outside the state, have endogenous policy agendas conditioned by their own biographies and training. Unlike economists in universities and think tanks, however, technocrats have direct, formal authority over policy. As evidence for the influence of technocrats, 15 Chwieroth (2007) finds that having economists in top government posts increases the probability of a country liberalizing its capital account. In sum, these arguments all suggest that globalization follows from some category of elites favoring international economic opening, acting in pursuit of that policy goal, and possessing sufficient power such that they can indeed prompt a significant shift in public policy, perhaps even in the face of significant opposition. Despite this commonality, the elite-centered literature is heterogeneous; the arguments do vary somewhat. This is partly a consequence of the fact that they address the circumstances of a diversity of countries. Arguments about the power of the international financial institutions and about technocracy are more relevant for developing countries, for example, whereas arguments about the influence of the domestic private sector are more common among studies of wealthy industrialized nations.10 On the other hand, the various studies making up this literature are sometimes contradictory. Some suggest for example that domestic technocrats are effectively the causal mechanism by which the IFIs have their effects (e.g., Babb 2001), while others argue that IFI engagement does not increase the probability of having technocratic leaders (Chwieroth 2007). And few of these studies have seriously confronted the thesis that globalization has arisen largely with democratization; nor have they confronted the international trade literature from which arguments about democracy have been derived theoretically. This paper is the first to use case studies of specific countries to assess both sets of arguments simultaneously. 16 Causal Processes Evidence This section tests the democracy- and elite-centered theories against each other, by examining the evidence for the observable implications of the causal mechanisms presumed by each of them. Process-tracing can contribute to theory testing by checking for a previously unspecified chain of events and/or conditions plausibly linking an independent variable or antecedent condition to a dependent variable or outcome of interest (George and Bennett 2005; Bennett and Elman 2007). The absence of such a chain suggests that a statistical association between two variables may well be spurious. The section begins by presenting broad-based evidence about causal processes in many countries, and then proceeds to discuss the details of causal processes of specific cases. First, the democracy-based explanation of globalization posits that public opinion supports free trade in most countries. Is this view justified? The third wave of the World Values Survey (conducted in the mid-1990s) asked nationally representative samples of respondents in a diverse cross-section of 52 countries: “Do you think it is better if: (A) goods made in other countries can be imported and sold here if people want to buy them, or (B) there should be stricter limits on selling foreign goods here, to protect the jobs of people in this country?” In only eight countries did more respondents answer A than B. Economists might point out that this is a misleading question to ask people, insofar as trade actually has little impact on overall employment in most countries (Krugman 1993). That, however, is beside the point under consideration here: if people believe that trade depresses employment, and they support trade restrictions more than trade opening as a consequence, the fact remains that economic globalization is not a policy rooted in the preferences of the majority. 17 More recently, a Eurobarometer survey asked nationally representative samples of Europeans whether they see themselves as “currently benefiting from international trade or not,” with trade framed as imports/exports of goods and services into or out of the EU as a whole (European Commission 2010). Including those who responded “Don’t Know,” 44 per cent of all respondents said that they are benefiting from international trade, whereas 39 per cent said they are not; only in six countries out of 28 did a majority or plurality say they were not benefiting. This result could be taken as evidence of majority support for freer trade. However, the question is ambiguous: is it about any benefits at all, or benefits net of any costs? A respondent could take it as the former, and respond affirmatively to the question asked, even while viewing trade negatively overall. Viewed in this way, the result is not evidence of great public enthusiasm. Second, arguments about the consequences of political democracy for policy outcomes rest heavily on the HOS trade model, described above. The theory predicts that elites in poorer countries will favor autarky, while the majority will be more pro-trade, while this cleavage should be reversed in richer countries. But are these predicted preferences actually supported by the available survey data? In the case of the capital-abundant United States, there is indeed a strong positive correlation between various measures of skill (or capital) and support for free trade, as HOS would predict (Hainmueller and Hiscox 2006; Scheve and Slaughter 2001). And cross-nationally, the more capital-abundant the country, the greater the impact of a worker’s level of (human) capital on his/her support for free trade, another finding consistent with HOS (Mayda and Rodrik 2005). There is not, however, the expected negative correlation between skill and pro-trade sentiment in poorer countries: skilled workers favor freer trade in many countries where HOS predicts they should not (Baker 2003). And analyses of individual-level survey data belie a Heckscher-Ohlin-Samuelson-based model of people’s policy preferences fails in other 18 ways too. Some studies find that, contrary to HOS, policy preferences and political cleavages follow the logic of a sectoral model known as Ricardo-Viner, wherein capital and labor are allied within industries and divided across them (Hiscox 2001). Cross-sectionally, individuals’ trade policy preferences appear related to their consumption, not just their positions in the labor market (Baker 2005). And recent work based on U.S. data shows that trade as an issue has very low salience for the mass public, such that voters do not use the ballot box to hold legislators accountable to what trade policy preferences they do possess (Guisinger 2009). There is therefore only partial support at most for predictions of people’s trade policy preferences based on the trade model underlying the arguments about the influence on democracy. Case-Specific Evidence about Causal Processes I now turn to causal process observations specific to particular cases of economic closure and opening. In order to select appropriate cases, I follow the recommendations of Lieberman’s (2005) nested analysis approach. According to that approach, in instances where the results of an initial large-N analysis appear broadly satisfactory, cases selected for subsequent qualitative investigation should fall “on the [regression] line.” The rationale is that cases on the line should possess causal processes that are more representative than exceptional. The case studies that follow have thus been chosen because they fit the pattern identified in the large-N democracycentered literature: nations pursuing globalization in a context of political democracy. I discuss two country cases—Mexico and Canada, a developing country that transitioned to democracy at the end of the twentieth century, and a stably wealthy democracy. Each country can be treated as at least two cases—one before and one after a significant episode of economic 19 opening—allowing for contrasts between positive and negative cases of globalization, and avoiding problems of selection bias.11 Developing country cases that fall “on the line” for the democracy-based literature are those where democratization preceded the enactment of proglobalization policies. The experiences of wealthier, more developed countries such as Canada are not typically the focus of the democracy-based literature, much of which considers only developing countries. But the theory that democracy fosters economic openness has implications for wealthy democracies: their openness should be due, in substantial part, to their politicians’ accountability to publics that support free trade. In contrast, the elite-centered view charges that the durability, if not expansion, of economic openness in any country is due to advocacy or pressure from the powerful few, not the majority. The accounts that follow are based on a broader comparative project about the political economy of North American free trade generally, based on 114 interviews conducted by the author with informants in Mexico, Canada, and the U.S. (mostly negotiators, other public officials, politicians, political staff, and private sector representatives); analyses of a wide range of archival evidence (governmental and private sector publications, transcripts of legislative debates, news coverage, and public opinion polls); and previous academic studies and journalistic accounts of North American free trade. Because interviewees agreed to speak on condition that they not be quoted by name, and in the interest of saving space, the following accounts do not include direct quotes; but claims based specifically on original interview data are identified where appropriate. 20 Mexico Prior to the 1980s, Mexico employed a strongly nationalist-statist, though still broadly market-based, development model. From the mid-twentieth century through the early 1980s, Mexico’s economic openness did not increase. Mexico declined to join the multilateral trading system (the GATT), and relied on a complex system of tariffs, quotas, regulations, and import licenses, to restrain its international economic integration via trade and investment (Lustig 1998). In contrast, starting in the later 1980s and through the 1990s and 2000s, Mexico firmly embraced international trade and investment, and saw dramatic increases in its international economic integration. In 1986 it joined the GATT and in 1987 the state unilaterally accelerated its international economic policy liberalization program, in an effort to deal with a surge of inflation. According to the Wacziarg and Welch dataset, Mexico was open starting in 1987. But Mexico’s most important international economic policy shift of the late twentieth century was yet to come: the initiation of talks with the U.S. in 1990 about a free trade agreement (FTA). On January 1st, 1994, as the culmination of trilateral negotiations among Mexico, the U.S., and Canada, the North American Free Trade Agreement (NAFTA) entered into force. Over the course of the 1990s, Mexico built on NAFTA in negotiating a series of bilateral and regional trade agreements with other countries in both the developing and developed worlds. Mexico’s economic opening followed its partial political liberalization in the 1980s and early 1990s. In the minds of most casual observers, and according to the binary definition of Przeworski et al. (2000), Mexico became a democracy in 2000. In that year, the ruling Partido Revolucionario Institucional (Institutional Revolutionary Party, or PRI) lost the presidency for 21 the first time in decades. But, according to Marshall, Jaggers, and Gurr’s (2010) Polity IV dataset, which treats democracy as gradational, there was a gradual increase in the country’s level of democracy starting in the 1970s (see Figure 1). Mexican authoritarianism took the form of a dominant party system, where elections were held and opposition parties were allowed to campaign, but the PRI used state funds to finance patronage and disproportionate campaign spending that consistently ensured its electoral success (Dresser 1991). The system gradually broke down, as opposition parties became increasingly popular and influential, evidenced by a steady decline in the PRI’s seat share in the lower house of the congress from 1961 to 2000 (Greene 2007), and the growing share of sub-national elections won by opposition parties. After 1982, conditions of economic crisis and scarcity further undermined the PRI’s financial privilege. At the same time, secular socio-demographic and economic changes in Mexico fostered the emergence of an increasingly autonomous and assertive mass media, important elements of which were strong critics of the ruling regime (Lawson 2002). In 1988, the threat of losing the presidential election for the first time in decades forced the PRI to resort to widely decried fraud; whether the PRI candidate, Carlos Salinas de Gortari, really won a majority of the votes cast in that election will never be known. [Fig. 1 about here] In short, the Mexican state’s democratic accountability was growing just at the time that it deepened Mexico’s economic opening and integration into international markets, meaning Mexico fits the pattern found in the democracy-centered literature. Were these two changes over time causally related, however? Was economic opening due to the state’s growing accountability 22 to a mass public actively desirous of economic opening? Did democratization erode the policy influence of privileged minorities who benefitted from closure? A number of studies have shown that while large nationalized industries and many small manufacturers were hostile to economic opening in the 1980s and 1990s, large private firms— whose weight was growing in Mexico’s economy as a whole—were enthusiastic (Flores Quiroga 1998; Shadlen 2000; Thacker 2000). It is not the case, then, that democratization undermined the power of a domestic economic elite that supported autarky: Mexico’s top businesspeople were advocates of opening. Elements of the old (and import-competing) manufacturing sector fought the opening, but they were not able to prevent all of the major national business associations, such as the national manufacturers’ association Concamin, from eventually endorsing NAFTA (interviews). Conversely, there is little evidence of active pressure from the Mexican public for economic opening in the 1980s or 1990s.12 That is not to say that most Mexicans were strongly opposed. Some public opinion data—from 1990 onwards, regarding NAFTA specifically— suggest that the majority of Mexicans generally accepted the idea of free trade with the U.S.13 On the other hand, far more Mexican respondents to the 1996 World Values Survey favored “stricter limits on selling foreign goods here, to protect the jobs of people in this country” than allowing “goods made in other countries [to] be imported and sold here if people want to buy them” (76 to 16 per cent). Either way, the general public was little involved, and not much exercised about the issue of freer trade. Democratic debate was constrained, and most Mexicans remained only aware of but not actively engaged in that debate. Public opinion therefore was not a major consideration for the officials deciding on Mexico’s international trade and investment policies. With respect to the decisions to accede to 23 GATT and to pursue NAFTA, American officials had long made clear that the U.S. would welcome a closer economic relationship with Mexico, including in the form of a free trade zone. When President Salinas instructed his staff to broach the subject of an FTA with their American counterparts in early 1990, they feared a public backlash far more than they expected public enthusiasm, and they made no announcement about the talks until a journalist uncovered the story. The decision to seek an agreement was aimed at attracting more foreign investment to Mexico, and facilitating market-oriented policy changes that many Mexican officials would have been willing to make even unilaterally. The decisions to propose a free trade agreement with the U.S., to negotiate it, and to ratify it were all largely orthogonal to public opinion.14 Instead of being the result of the state’s increasing democratic accountability to a clearly trade-supportive public, case-based accounts of Mexico’s opening are more consistent with some of the elite-based arguments outlined earlier. Starting in the early 1980s, economic hard times made Mexico dependent on the World Bank, IMF, and private external creditors. Over the course of the decade, the upper echelons of the Mexican state became populated by U.S.-trained economists with distinctly market-oriented economic ideas. This new generation of policymakers gradually displaced their older, more statist-nationalist competitors, to the point where much of the federal cabinet consistent of economists with PhDs from Chicago, Yale, MIT, and the like (see Babb 2001; Centeno 1997; Thacker 2000). This combination of external financial constraints and internal activism by true-believing technocrats led to a series of pro-globalization policy changes that undid Mexico’s inward-oriented industrialization model (interviews). The policy preferences of the new national political elite reflected the biographies of key office holders. 24 Canada For Canada, even more than for Mexico, the late-twentieth century embrace of globalization was centered on the negotiation of a free trade agreement with the United States. Like Mexico, Canada had historically sought to restrain, rather than deepen, its relationship with its much larger neighbor. But once it stopped rejecting the idea of bilateral free trade, foreign trade and investment expanded rapidly relative to GDP. The Canada-U.S. bilateral free trade agreement (CUFTA) went into effect at the start of 1989, five years before the trilateral NAFTA. From a Canadian perspective, NAFTA was largely an extension and expansion of the earlier bilateral agreement, and it was CUFTA that embodied an enormously controversial policy change in Canada. The public debate about it in the late 1980s was intense, and arguably more so than for any other international economic policy decision in Canada’s history. Was Canadian public opinion, and the state’s accountability to it, a key driver of the Canadian government’s decision to seek free trade with the U.S. (and later with Mexico)? In the short term, CUFTA’s passage came to depend on the re-election of the incumbent Progressive Conservative (“Tory”) government that negotiated the agreement between 1985 and 1987. In the federal parliamentary election of 1988, only the Tories promised to enact the agreement if elected; the other two major parties (the Liberals and New Democrats) made their opposition central to their platforms. As the campaign unfolded, the free trade agreement became the main debate and issue—a rare instance where trade became a salient public concern. In the end, the Tories were successfully re-elected, with more than half the seats in the parliament—but only a plurality (43 per cent) of the popular vote. The centrist Liberals and labor-allied New Democrats received 32 and 20 per cent of the popular vote respectively: a majority, if combined. 25 There is good reason to think that these vote shares derived in substantial part from people’s opinions of free trade: a poll taken in the same month as the election found 39 per cent support and 51 per cent opposition to the FTA (LeDuc 1989). The evidence about public opinion does not therefore suggest that the Canadian electorate supported the principle policy change by which Canada’s economy was globalized in the late twentieth century. CUFTA would not have passed had public opinion alone determined its fate. During the negotiation and ratification of NAFTA in the early 1990s, public opinion in Canada turned even more negative about free trade. The Canadian economy went into recession just as it was beginning to adjust to new market conditions under CUFTA. In 1993, 33 per cent of respondents to one survey reported supporting free trade, while 60 per cent were opposed; regarding the then still-to-be-enacted NAFTA, 23 per cent were in favor and 69 per cent were opposed.15 Despite the popular hostility to free trade, however, a new Liberal government elected in the fall of 1993 enacted NAFTA on schedule. By that time, the Liberals had quietly dropped their opposition to free trade, the new party leader having in 1991 called protectionism “passé” and globalization “a fact of life” (Chrétien 1991, quoted in Windsor 1991). During the 1993 campaign, recognizing the public’s hostility to NAFTA, the Liberals promised to renegotiate the agreement if they were elected, and add provisions regarding subsidies, dumping, dispute settlement, and energy (Alexandroff 1993: 57). Once elected, however, the changes they made were cosmetic, at most; the international negotiations lasted all of two days, and resulted only in unilateral statements by the Canadian government and agreement in principle to continue discussions on some topics by the U.S. Much more than in Mexico, then, there is reason to think that even had the opposition won in Canada’s 1988 election, the federal government would soon 26 have ended up enacting international economic policies much like those of the incumbent governing party. If the Canadian state’s democratic accountability cannot explain its support for increasing international economic openness in the late twentieth century, what can? Like for Mexico, causal process observations from the Canadian case are consistent with one of the elite-centered arguments discussed above—though in the Canadian case, the originating advocates of a major pro-globalization policy shift were based in the private rather than public sector. Canada’s post-World War II international economic policies were broadly liberal, but less so than the median developed country.16 While many Canadian bureaucrats and politicians were sympathetic to economists’ arguments for free trade—and leading academic economists in Canada were strongly supportive of free trade both generally and with the U.S. specifically (Economic Council of Canada 1975; Johnson 1968)—Canadian business was not. The result was a sometimes hostile standoff between the private and public sectors over the issue of Canada’s economic openness, with opposition to freer trade being particularly rooted in the manufacturing sector. Only in the early 1980s did Canadian manufacturers became much more sanguine about their ability to thrive in international markets, and with their reversal of views, the Canadian private sector as a whole became very motivated to pursue a bilateral Canada-U.S. free trade agreement (Langille 1987; interviews). Between the late 1970s and the mid-1980s, the preferences of Canadian business changed substantially. In 1977, the Canadian Manufacturers’ Association (CMA) stated that “at this stage in Canada’s development as an industrial nation, our industry is in general not as capable of benefiting from trade concessions gained as it is vulnerable to trade concessions granted.” By 1984, the CMA had substantially changed its tune, saying “Canadian industry needs further multilateral trade liberalization… Moreover, it needs to 27 [give] consideration to entering into a trade agreement with the U.S.” Although some previous studies have found sectoral divides with respect to trade and globalization, starting in the mid1980s the business community in Canada became strongly united in favor of greater opening, with the few dissenters being relatively small industries (e.g., furniture, wine). The Tory government’s mid-1985 decision to pursue free trade with the U.S. followed very soon after these key changes in the trade policy preferences of the Canadian business community. In 1985, the government accepted a long-standing tacit invitation from the U.S. to negotiate. The decision was taken after extensive consultations with horizontal and industryspecific business associations (Simeon 1987), and the government’s priorities in the subsequent negotiations—above all secure export access to the U.S. market—were heavily driven by private sector priorities. Business campaigning for free trade was extensive before, during, and after the negotiations, and dovetailed with a long-standing enthusiasm for the idea on the part of liberalminded bureaucrats in Ottawa, as well as outside economic policy experts in Canadian universities and think tanks (Golob 2003). The Tory government had numerous ties to the private sector, shared many of its views, and generally sought to pursue business priorities as a matter of course (Watson 1987). In sum, economists’ views about the desirability of free trade did not change over time, bureaucrats’ views changed little, the views of business changed a great deal, and the priorities of politicians followed those of Canadian business. The pattern of changes over time differed substantially from the pattern in Mexico, where business views evolved little, and the priorities of politicians and top bureaucrats evolved a lot, as previous generations of political elites were replaced by technocrats. The influence and policy preferences of the Canadian private sector are further demonstrated by the intensity and sectoral breadth of the business campaigning for free trade 28 between 1986 and the 1988, and during the 1988 election campaign for the pro-free trade Tories. The country’s three major business associations—the Canadian Manufacturers’ Association, Canadian Chamber of Commerce, and the Business Council on National Issues—joined together to campaign strongly in support of free trade, through an alliance they called CATJO (“Canadian Alliance for Trade and Job Opportunities”—see Ayres 1998; Doern and Tomlin 1991). Without CATJO’s support, CUFTA might well have failed, because the Tories would have received fewer votes, making collective action by business a critical foundation for Canada’s globalization. As the Prime Minister’s then-Chief of Staff writes in his memoirs, in 1988 “the business community rallied in unprecedented fashion to demonstrate support for the agreement” (Burney 2005). Conclusions Both the generic and the case-specific causal process observations presented in this paper belie the proposition that mass public opinion and/or voters’ demands drive the policy changes that open national economies to international markets. Public opinion surveys find no more than mixed evidence about people’s support for free trade; the highly educated are consistently supportive but other people are not, and people’s international economic policy preferences do not appear to make much difference when they decide who to vote for. In the specific cases of Mexico and Canada, political elites pursued pro-globalization policies for reasons that had little to do with public opinion or their democratic accountability to it, and in some respects public opinion weighed against North American free trade. 29 The evidence for a causal relationship between democracy and globalization is therefore questionable, despite the statistical association between them. The association could be due to the presence of some common driver of both democratization and globalization; as discussed earlier, one possibility is that the rise of certain kinds of political elites in authoritarian states, such as technocrats with substantial previous exposure to world culture, may create the conditions for both pro-globalization policy changes and subsequent transitions to democracy. Researchers who find statistical associations between democracy and globalization may not intend to make completely causal arguments, but the ways in which this association is presented tend to lead to a causal interpretation. This paper has shown that such an interpretation is not warranted. Instead, arguments about the power of elites are more convincing—though the relevant elites vary across national contexts, given the important political economic differences between developing and developed countries in particular. 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Ithaca: Cornell University Press. 40 10 8 6 4 2 0 -2 -4 -6 -8 Democracy 80 70 60 50 40 30 20 10 0 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Trade/GDP (%) Figure 1: Mexican Democracy and Trade, 1950-2007 (Sources: Penn World Table 6.3; Polity IV) Trade/GDP (%) Democracy 1 This article does not address the globalization of finance, which raises different issues and deserves separate treatment; trade and direct investment are more closely related (see Garrett 2000). 2 Some arguments presented here will also be relevant for the rise of other kinds of market-oriented or neoliberal economic policies in the late 20th century (see e.g., Fourcade-Gourinchas and Babb 2002; Kus 2006). But the political origins of domestic and international neoliberalism are to some extent distinct, and not all explanations provided of neoliberal policies like tax cuts, welfare state retrenchment, and/or privatization (for example) are covered. 3 The dataset, described and made available in Wacziarg and Welch (2008), is an updated and refined version of one constructed by Sachs and Warner (1995). 4 The binary measurement of economic opening reflects that countries have tended to make transitions to globalization at distinct and identifiable moments in their histories, such as through decisive actions like acceding to GATT or negotiating and ratifying an agreement with one or more sizeable neighbors. Binary classifications are not perfect, but neither are other possible indices (Milner and Kubota 2005: 122-3). 41 Tariff rates alone do not reflect important non-tariff barriers (Drope 2006; Kono 2006), and it is not clear how one could combine tariffs and non-tariff barriers into a single summative index. 5 These figures come from UNCTAD’s Foreign Direct Investment on-line database. 6 Studies of trade and globalization have also pointed to a variety of influences not otherwise addressed here, including domestic electoral institutions, party cleavages, and economic geography (see for example Busch and Reinhardt 2005; Drope 2006; Ehrlich 2007; McGillivray 2004; for a review see Busch and Mansfield 2010). These other factors have however been used much more to explain differences across the treatment of industries within a given country, or differences across countries, at a given point in time. As explanations of change over time within countries, existing literature has placed primary emphasis on the influence of political democratization, or of elite action. 7 Many studies do not define provide formal definitions of democracy, but simply work with measures from large datasets like Polity IV and Freedom House, which concentrate on procedural and institutional criteria like the existence of elections and constraints on the executive, or on the protection in practice of political rights. I adopt this approach here as well. 8 Bernhard and Karakoç (2007) find that education is positively associated with participation in both organizational life and political protests. 9 Consistent with this view, for example, Rudra (2005a) finds that the bargaining power of labor has declined with globalization across most of the developing world. 10 The latter difference is consistent with expectations derived from the Heckscher-Ohlin-Samuelson model of trade, discussed earlier, which implies that developing country capitalists will be less enthusiastic about globalization, because it will expose them to fierce international competition and drive down their profits. 11 Canada was a broadly open economy even before the 1980s. But the stark differences between its policies before and after the 1980s make for a useful comparison with cases of transition in developing countries. 12 An important exception in this regard may be for labor mobility. 42 13 As a sign of the state’s growing sense of democratic accountability, the executive branch grew more concerned about public opinion, and in the early 1990s the Salinas administration became the first in Mexico to hire an in-house pollster (interviews). Some of the resulting datasets are now available from the Centro de Investigación y Docencia Económicas in Mexico City. 14 This paragraph is based on interviews with Mexican officials, as well as Salinas de Gortari (2000). 15 POLLARA: Canada Perspectives, Quarter 3, 1993. N=1100. 16 Hart (2002: 75) notes that until the Canada-U.S. free trade agreement of the 1980s, the “basic orientation” of Canadian trade policy included a heavy dose of protection.
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