In recent years, political landscape has been changing drastically in many countries. In the US, Donald Trump’s administration has pushed the ‘America-first’ agenda and prioritised the nation’s interest above all else since coming to power in 2017. Regardless of existing trade or other agreements, the administration has threatened to increase tariffs for trading partners or walk away from negotiations in case the conclusions are not favorable to the country. The administration’s anti-globalisation or isolationist stance has been observed in the ongoing COVID-19 pandemic as is evident from the country’s departure from the World’s Health Organization (WHO).
The UK has also prioritised its national interest and sovereignty by withdrawing from the EU. In many other countries, populist governments have arisen, both on the left and the right, touting similar slogans and advocating for de-globalisation to recover the economic and social benefits which they claim foreigners and immigrants have free ridden so far.
These new political forces are different from those of the recent past.
For example, after WWII, Europe pursued regional political and economic integration through democratic process, although it required each country to sacrifice its own national interest. Given this history, the rise of countries prioritising self-interest and advocating anti-globalisation means a paradigm shift in the postwar order and a challenge against long-lived European unification efforts.
Even in originally rather democratic countries, such rifts between political authorities and the people have led the former to suppress the latter through undemocratic or authoritarian measures. The example includes Hong Kong, Venezuela, and Turkey.
Rodrik’s political-economy trilemma
The current changes in political order can be comprehensively viewed through the lens of Dani Rodrik (2000)’s political-economy trilemma.
The word ‘trilemma’ may remind international economists of the open economy trilemma.
The open economy trilemma, which has become a central theorem in international finance ever since its introduction by Mundell (1960) and Fleming (1961), states that a country may simultaneously choose any two, but not all, of the three goals of monetary policy independence, exchange rate stability, and financial market openness to the full extent (Fig 1–a).1
Figure 1 Open economy trilemma and the political-economy trilemma
a) Open economy trilemma
b) Political-economy trilemma
Dani Rodrik applied this theory to political economy, asserting that among national sovereignty, democracy, and globalisation, only two of these policy goals or forms of governance can be simultaneously achieved to the full extent, but not all three.
For example, the member states of the EU each have democratic institutions of governance and are open to the globalised markets. However, each state cannot pursue its own national interest or assert its sovereignty (more fully than other member states do). In other words, the EU is a good example of a region marching toward global federalism (Fig. 1–b, bottom right corner of triangle).
Reclaiming its sovereignty in order to pursue its own national interest is exactly what the UK has been trying to accomplish by withdrawing from the EU. According to Rodrik’s political-economy trilemma, the UK could have gone further toward fuller sovereignty either by restricting democratic policymaking or by limiting openness to the global economy (i.e. going from the bottom right corner of the triangle in Fig. 1–b toward the side of ‘national sovereignty’). Considering that Boris Johnson’s administration is acting in strict accord with democratic process, sacrificing globalisation would be the only way the UK could withdraw from the EU. Greater pursuit of a nation’s national interest requires curtailing its access to international markets.
Other countries try to reap the benefit of globalisation while still fully embracing their own sovereign statehood. These countries align themselves with international rules and standards when making their own, but they do not necessarily follow a fully democratic process for policymaking. Their domestic standards and rules are not based on democratically determined policies, but rather on those of multinational corporations and international organisations, or on treaties and agreements concluded by administrative bodies (i.e. bureaucrats who were not necessarily democratically elected). Thomas Friedman (1999) calls this “the Golden Straitjacket” (Fig. 1–b; top of the triangle), which he describes as a state of affairs where “[a country’s] economy grows and its [democratic] politics shrinks.”
A country wearing the Golden Straitjacket can free itself by either pursuing a higher level of democracy or becoming less globalised.
It is also possible for a fully democratic nation to strengthen its national statehood and prioritise its national interest. However, such a country cannot reap the benefits of globalisation (Fig. 1–b; bottom left corner of the triangle). The Bretton Woods system, which existed from 1944 to 1971, allowed its member states to impose capital controls and barriers to international trade. From the perspective of the political-economy trilemma, this is a policy mix of full democracy and national sovereignty.
As these examples show, policy makers can simultaneously choose any two of the three policy goals of national sovereignty, democracy, and globalisation, but cannot achieve all three to the full extent.
Empirical validity of the political-economy trilemma
Now, a natural question arises: Can the theorem of the political-economy trilemma be empirically proven with actual data?
In our recent work (Aizenman and Ito 2020), we construct a set of the indexes, each of which measures the extent of attainment of the three political-economic factors: globalisation, national sovereignty, and democracy. The indexes are available for 139 countries between 1975 and 2016. Using these indexes, we test whether the weighted average of the three indexes is constant. If the indexes are to be found linearly correlated, it would mean that the three variables operate within a trilemma relationship, i.e. the trilemma is empirically valid.
The regression analysis shows that for industrialised countries, there is a linear negative association between globalisation and national sovereignty, while the democratisation index is statistically constant during the sample period. That means, for the industrial countries during 1975-2016, the political economy trilemma was mostly a dilemma between globalisation and national sovereignty. For developing countries, a weighted average of the three indexes adds up statistically to a constant with positive and significant weights, indicating they are in a trilemma relationship, as Rodrik claims.
Closely examining the development of the three indexes over the sample period reveals that for industrialised countries, while the level of democracy is stable and high, there is a combination of rising levels of globalisation and declining extent of national sovereignty from the 1980s through the 2000s, mainly reflecting the experience of European industrialised countries. Developing countries, in contrast, experienced convergence of declining sovereignty and rising globalisation and democratisation around the same period. Emerging market economies experienced rising globalisation and democratisation earlier than non-emerging market economies with all the three variables converging around the middle.
Figure 2 Development of political economy trilemma indexes – income groups
The possible impacts of the three policy goals on political and economic stability
Lastly, what kinds of impact could these three policy goals (national sovereignty, democracy, and globalisation) have on actual politics and economics? We perform regression analysis to examine how the three trilemma variables can affect political stability and economic stability.
Our results indicate that (a) more democratic industrialised countries tend to experience more political instability; and (b) developing countries tend to be able to stabilise their politics if they are more democratic. The lower the level of national sovereignty an industrialised country embraces, the more stable its political situation tends to be. Globalisation brings about both political and economic stability for both groups of countries.
Developed countries, particularly the US and the UK, are now asserting their national sovereignty, touting policies that prioritise their national interests and an anti-globalisation stance. If the regression analysis is correct, such policies could increase political instability and the probability of financial crisis. Furthermore, if a developing country takes an anti-democratic or an anti-globalisation stance, it could face more political or economic instability.
Let us see what will happen.
Editor’s note: The main research on which this column is based (Aizenman and Ito 2020) first appeared as a Discussion Paper of the Research Institute of Economy, Trade and Industry (RIETI) of Japan
Aizenman, J, M D Chinn and H Ito (2013), “The ‘Impossible Trinity’ Hypothesis in an Era of Global Imbalances: Measurement and Testing”, Review of International Economics 21(3): 447–458.
Aizenman, J, M D Chinn and H Ito (2010), “The Emerging Global Financial Architecture: Tracing and Evaluating New Patterns of the Trilemma Configuration”, Journal of International Money and Finance 29 (2010): 615–641.
Mundell, R A (1963), “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates”, Canadian Journal of Economic and Political Science 29 (4): 475–85.
Fleming, J M (1962), “Domestic financial policies under fixed and floating exchange rates.” IMF Staff Papers 9(3):369–379.
Friedman TL (1999), The Lexus and the olive tree: understanding globalization, Farrar, Straus and Giroux, New York
Obstfeld, M (2015), “Trilemmas and Tradeoffs: Living with Financial Globalization”, Central Banking, Analysis, and Economic Policies Book Series. In: Claudio Raddatz & Diego Saravia & Jaume Ventura (ed.), Global Liquidity, Spillovers to Emerging Markets and Policy Responses, edition 1, volume 20, chapter 2, pages 013-078 Central Bank of Chile.
Obstfeld, M, J C Shambaugh and A M Taylor (2005), “The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility”, Review of Economics and Statistics 87 (August): 423–438.
Rodrik, D (2000), “How Far Will International Economic Integration Go?”, Journal of Economic Perspective 14(1 (Winter 2000)):177–186.
Shambaugh, J C (2004), “The Effects of Fixed Exchange Rates on Monetary Policy”, Quarterly Journal of Economics 119 (1): 301-52.
Endnotes
1 See more on the open economy trilemma in Aizenman et al. (2010, 2013), Obstfeld (2015), Obstfeld et al. (2005), and Shambaugh (2004).
HALIFAX – Nova Scotia Premier Tim Houston says it’s “disgraceful and demeaning” that a Halifax-area school would request that service members not wear military uniforms to its Remembrance Day ceremony.
Houston’s comments were part of a chorus of criticism levelled at the school — Sackville Heights Elementary — whose administration decided to back away from the plan after the outcry.
A November newsletter from the school in Middle Sackville, N.S., invited Armed Forces members to attend its ceremony but asked that all attendees arrive in civilian attire to “maintain a welcoming environment for all.”
Houston, who is currently running for re-election, accused the school’s leaders of “disgracing themselves while demeaning the people who protect our country” in a post on the social media platform X Thursday night.
“If the people behind this decision had a shred of the courage that our veterans have, this cowardly and insulting idea would have been rejected immediately,” Houston’s post read. There were also several calls for resignations within the school’s administration attached to Houston’s post.
In an email to families Thursday night, the school’s principal, Rachael Webster, apologized and welcomed military family members to attend “in the attire that makes them most comfortable.”
“I recognize this request has caused harm and I am deeply sorry,” Webster’s email read, adding later that the school has the “utmost respect for what the uniform represents.”
Webster said the initial request was out of concern for some students who come from countries experiencing conflict and who she said expressed discomfort with images of war, including military uniforms.
Her email said any students who have concerns about seeing Armed Forces members in uniform can be accommodated in a way that makes them feel safe, but she provided no further details in the message.
Webster did not immediately respond to a request for comment.
At a news conference Friday, Houston said he’s glad the initial request was reversed but said he is still concerned.
“I can’t actually fathom how a decision like that was made,” Houston told reporters Friday, adding that he grew up moving between military bases around the country while his father was in the Armed Forces.
“My story of growing up in a military family is not unique in our province. The tradition of service is something so many of us share,” he said.
“Saying ‘lest we forget’ is a solemn promise to the fallen. It’s our commitment to those that continue to serve and our commitment that we will pass on our respects to the next generation.”
Liberal Leader Zach Churchill also said he’s happy with the school’s decision to allow uniformed Armed Forces members to attend the ceremony, but he said he didn’t think it was fair to question the intentions of those behind the original decision.
“We need to have them (uniforms) on display at Remembrance Day,” he said. “Not only are we celebrating (veterans) … we’re also commemorating our dead who gave the greatest sacrifice for our country and for the freedoms we have.”
NDP Leader Claudia Chender said that while Remembrance Day is an important occasion to honour veterans and current service members’ sacrifices, she said she hopes Houston wasn’t taking advantage of the decision to “play politics with this solemn occasion for his own political gain.”
“I hope Tim Houston reached out to the principal of the school before making a public statement,” she said in a statement.
This report by The Canadian Press was first published Nov. 8, 2024.
REGINA – Saskatchewan Opposition NDP Leader Carla Beck says she wants to prove to residents her party is the government in waiting as she heads into the incoming legislative session.
Beck held her first caucus meeting with 27 members, nearly double than what she had before the Oct. 28 election but short of the 31 required to form a majority in the 61-seat legislature.
She says her priorities will be health care and cost-of-living issues.
Beck says people need affordability help right now and will press Premier Scott Moe’s Saskatchewan Party government to cut the gas tax and the provincial sales tax on children’s clothing and some grocery items.
Beck’s NDP is Saskatchewan’s largest Opposition in nearly two decades after sweeping Regina and winning all but one seat in Saskatoon.
The Saskatchewan Party won 34 seats, retaining its hold on all of the rural ridings and smaller cities.
This report by The Canadian Press was first published Nov. 8, 2024.
HALIFAX – Nova Scotia‘s growing population was the subject of debate on Day 12 of the provincial election campaign, with Liberal Leader Zach Churchill arguing immigration levels must be reduced until the province can provide enough housing and health-care services.
Churchill said Thursday a plan by the incumbent Progressive Conservatives to double the province’s population to two million people by the year 2060 is unrealistic and unsustainable.
“That’s a big leap and it’s making life harder for people who live here, (including ) young people looking for a place to live and seniors looking to downsize,” he told a news conference at his campaign headquarters in Halifax.
Anticipating that his call for less immigration might provoke protests from the immigrant community, Churchill was careful to note that he is among the third generation of a family that moved to Nova Scotia from Lebanon.
“I know the value of immigration, the importance of it to our province. We have been built on the backs of an immigrant population. But we just need to do it in a responsible way.”
The Liberal leader said Tim Houston’s Tories, who are seeking a second term in office, have made a mistake by exceeding immigration targets set by the province’s Department of Labour and Immigration. Churchill said a Liberal government would abide by the department’s targets.
In the most recent fiscal year, the government welcomed almost 12,000 immigrants through its nominee program, exceeding the department’s limit by more than 4,000, he said. The numbers aren’t huge, but the increase won’t help ease the province’s shortages in housing and doctors, and the increased strain on its infrastructure, including roads, schools and cellphone networks, Churchill said.
“(The Immigration Department) has done the hard work on this,” he said. “They know where the labour gaps are, and they know what growth is sustainable.”
In response, Houston said his commitment to double the population was a “stretch goal.” And he said the province had long struggled with a declining population before that trend was recently reversed.
“The only immigration that can come into this province at this time is if they are a skilled trade worker or a health-care worker,” Houston said. “The population has grown by two per cent a year, actually quite similar growth to what we experienced under the Liberal government before us.”
Still, Houston said he’s heard Nova Scotians’ concerns about population growth, and he then pivoted to criticize Prime Minister Justin Trudeau for trying to send 6,000 asylum seekers to Nova Scotia, an assertion the federal government has denied.
Churchill said Houston’s claim about asylum seekers was shameful.
“It’s smoke and mirrors,” the Liberal leader said. “He is overshooting his own department’s numbers for sustainable population growth and yet he is trying to blame this on asylum seekers … who aren’t even here.”
In September, federal Immigration Minister Marc Miller said there is no plan to send any asylum seekers to the province without compensation or the consent of the premier. He said the 6,000 number was an “aspirational” figure based on models that reflect each province’s population.
In Halifax, NDP Leader Claudia Chender said it’s clear Nova Scotia needs more doctors, nurses and skilled trades people.
“Immigration has been and always will be a part of the Nova Scotia story, but we need to build as we grow,” Chender said. “This is why we have been pushing the Houston government to build more affordable housing.”
Chender was in a Halifax cafe on Thursday when she promised her party would remove the province’s portion of the harmonized sales tax from all grocery, cellphone and internet bills if elected to govern on Nov. 26. The tax would also be removed from the sale and installation of heat pumps.
“Our focus is on helping people to afford their lives,” Chender told reporters. “We know there are certain things that you can’t live without: food, internet and a phone …. So we know this will have the single biggest impact.”
The party estimates the measure would save the average Nova Scotia family about $1,300 a year.
“That’s a lot more than a one or two per cent HST cut,” Chender said, referring to the Progressive Conservative pledge to reduce the tax by one percentage point and the Liberal promise to trim it by two percentage points.
Elsewhere on the campaign trail, Houston announced that a Progressive Conservative government would make parking free at all Nova Scotia hospitals and health-care centres. The promise was also made by the Liberals in their election platform released Monday.
“Free parking may not seem like a big deal to some, but … the parking, especially for people working at the facilities, can add up to hundreds of dollars,” the premier told a news conference at his campaign headquarters in Halifax.
This report by The Canadian Press was first published Nov. 7, 2024.
