Public Policy in a Globalized World

One of the most exciting parts of my new job at the Batten School is to learn about the public policy issues facing the United States. In my inaugural lecture as dean, I spoke about one particularly important aspect of the American public policy agenda: the fact that public policy is being made in an increasingly globalized world, in ways that affect both the substance of policy and the process by which it is formulated.

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One of the most exciting challenges in building a new school of public policy at the University of Virginia is to design a curriculum that is suitable to the dramatic changes that are occurring in the twenty-first century. A school of public policy freshly designed today will look quite different, I think, from a school of public policy that was organized forty years ago, let alone eighty years ago.

One of the most important of these contextual changes – although not, as we will see, the only one – is globalization. Both the practice and the teaching of public policy must take into increasing account the fact that public policy is being formulated in a globalized world.

I want to address this topic under three headings:

1. What do we mean by globalization, and why is the process of globalization occurring?
2. How is globalization affecting the public policy agenda in countries like the United States?
3. Equally important, how is globalization affecting the process by which public policy is made?
   

Globalization: what and why?

By globalization I mean the increasing level of interaction across national borders. This involves not just the flow of goods – the increasing volume of trade with which we are so familiar – but also the increasing flow of capital, people, technology, ideas, and viruses – both biological and electronic.

As my reference to viruses suggests, these flows can be either negative or positive in their impacts. Trade can involve trade of consumer goods and advanced technology, or trade in illicit drugs or the precursors for weapons of mass destruction. The flow of capital can finance productive investment, or create unhealthy asset bubbles. People crossing national borders can include tourists, businesspeople, and migrant workers; but also criminals, terrorists, or illegal immigrants. Ideas that cross borders can spark further innovation, or be regarded as alien and subversive. And alongside computer viruses and biological viruses can flow polluted water, smog, and greenhouse gases.

Why is this increased interaction occurring? Thomas Friedman has famously argued that globalization is a “fact, not a choice.” In reality, it is a bit of both.

The basic fact is that there have been several revolutions in technology that are facilitating globalization, by increasing the speed and reducing the cost of international transactions.

Many of the revolutions in speed actually occurred sometime ago. We do not communicate that much faster today than we did in the age of the telegraph and the telephone. E-mails and text messages travel at the same speed as telegrams and telephone calls – they are virtually instantaneous, although e-mails, text messages, and now phone calls no longer need the intermediacy of an operator to send them or place them. Similarly, we do not travel by sea that much faster than in the steamships of 100 years ago, or by road that much faster than the cars of 50 years ago. (In fact, because of congestion, road travel may be slower in some places.) Nor are simple calculations of today’s computers that much quicker than those of the first electronic calculators.

But other recent technological revolutions have involved speed – especially when we add to our assessment the volume of transactions that can occur at a given speed. Not only are jet aircraft faster than propeller planes, but the most modern generation of passenger jets can fly longer ranges without refueling and can carry far more people. Even more impressive is the volume of transactions that computers can handle, such that the centralized institutional computer center – exemplified by the annex next to Garrett Hall here on Grounds – is largely obsolete, replaced by much smaller although equally powerful desktops.

Perhaps most important, the cost of these transactions has collapsed. What was once prohibitively expensive (an international telegram or a transoceanic phone call) is now virtually cost-free – at least in terms of its marginal cost (an international e-mail or a phone call through Skype). And what was already affordable is now vastly more capable (today’s notebook computer compared with a laptop even ten years ago). According to data that I once learned from Joseph Nye, if the cost of automobiles had fallen at the same rate as the cost of computers, the most recent model of the Fiat convertible that I bought as a graduate student in the early 1970s would cost only $5 today.

Friedman is correct when he says that these technological facts are a major driver facilitating globalization, because they make the international transactions so much faster and cheaper. But that is not to say that globalization has not also involved choices. The present era of globalization is the result of societal decisions to reduce the barriers that once restricted the flows of goods, capital, people and ideas. China’s decision to move from autarky under Mao Zedong to integration with the global economy under Deng Xiaoping and his successors is perhaps the most dramatic example. The creation of economic unions (like the EU) and free trade agreements (like NAFTA) are somewhat less dramatic but equally important examples of choices to reduce the barriers to international economic, commercial, and societal interaction.

But just as some societies have chosen to eliminate barriers, others have chosen to retain them, all or in part. North Korea remains highly autarkic. India retains high barriers to incoming investment. Countries like India, although gradually liberalizing, remain highly protective. Even China, despite its overall embrace of globalization, retains various restrictions on imports, incoming foreign direct investment, and internet communication.

Nor are the decisions to liberalize necessarily permanent. Even in normal times, some aspects of globalization – the lower barriers to trade, investment, and migration – are highly controversial and contested, as the major demonstrations against the WTO and the G-8 in major cities have demonstrated. In the current global financial crisis we have seen an upsurge of trade and investment protectionism, as well as calls for tougher restrictions on illegal immigrants. And were there a major terrorist attack that targeted international aircraft, or that utilized international shipping to carry WMD, we would see – at least temporarily – the imposition of quite draconian restrictions.

Given these revolutions in both technological facts and policy choices, it is perfectly appropriate to ask whether the present levels of globalization are unprecedented. To some extent, the answer is “no,” in that societies have been interacting with one another, people have been on the move, and diseases have been migrating from one society to another throughout human history. Arguably, in fact, this is the third great wave of globalization that has risen over the last four centuries, during the era of the modern nation-state. Other waves of increased intersocietal interaction occurred far before that.

But other aspects of globalization are arguably unprecedented. With lower costs and greater volumes, the nature of interaction changes. Today we see not just interaction but interdependence where, for many economies, transborder interactions constitute a more and more important part of the national economy. We see not just trade between societies but transnational production processes, where capital, technology, and components flow across borders, as well as the final goods themselves. Similarly, in the cultural sphere, we see not simply the exchange between different artistic, philosophical, and religious schools - -as we have for centuries – but the emergence of transnational cultural communities, in which the national origin of artists and philosophers becomes far less relevant than their membership in the same cultural community. Increasingly, in fact, the country in which a particular product or service or cultural artifact originated is difficult to determine.

Moreover, it is correct to say that the choice to liberalize or restrict is far more bounded now than it was in previous decades. Some flows – particularly of airborne and waterborne pollutants – do not respect boundaries at all. And other flows – terrorists, viruses, and tainted products – are difficult to restrict. There is an increasingly obvious opportunity cost to countries that fail to open up or those that choose to tighten up. And once the process begins, there are vested interests in societies that want to keep borders open, just as there are those who want to tighten border controls.

Still, although the extent of globalization is unprecedented, and although the possibility of significant and lasting retrogression is low, the process of globalization is by no means complete. Just as it was premature to declare the “end of history” – the elimination of all alternatives to liberal democracy hypothesis was premature -- so may it be misleading to posit the “end of geography,” as those analysts who see the irreversibility and universality of globalization often imply. Not only have some countries chosen to opt out of globalization, or else to severely restrict the process, but more importantly some parts of some societies remain insulated from the rest of the international world economy, often by the lack of infrastructure to connect them to the globalized world, or else by the fact that the cost of connection is more than they can afford.

How does globalization affect public policy?

The process of globalization, produced by these facts and choices, affects public policy in several ways:

First, more and more public policy issues in the U.S. have become transnational in nature, blurring previous distinctions between domestic policy and foreign policy. Although these issues have a direct impact on U.S. society, their origins lie at least in part outside America’s borders. Let me cite a few examples:

• The availability of high quality, inexpensive imported goods has created a challenge --sometimes an insurmountable challenge – to American manufacturing. Although unemployment and job insecurity have many sources, one is clearly the rise of foreign firms that can compete more effectively for American markets now that the barriers to trade have been reduced. This pattern is complicated by the fact that many of these foreign factories are subsidiaries or branches of American firms, such that they have access to American technology, management, designs, brands, and marketing channels –as well as to the American market. Macroeconomic policy in globalized societies is now inherently transnational.
• The character of American financial markets is strongly influenced by the availability of capital from abroad. Foreign investors influence the prices of American real estate, the value of American equities, and American interest rates. The recent financial crisis was the result, in large part, of the availability of large volumes of liquidity from abroad. Here, too, financial policy must take international developments into full account.
• Immigration to the United States – both legal and illegal – is shaped by the political stability and economic vitality of the societies from which the migrants come. Although opportunities in the American economy produce an important “pull” for foreign immigrants, unsettled circumstances in their home countries still constitutes an important “push.”
• National security in the U.S. was once seen almost entirely as the deterrence of, or defense against, attacks by foreign armies, air forces, or missiles against America and its allies. Now, homeland security represents the defense of the U.S. and its interests against attacks that could well occur on American soil, but are often launched or coordinated from abroad by international terrorist organizations.
• Increasingly, threats to public health are posed by diseases that come to the U.S. from abroad, whether acute diseases like SARS, avian flu, swine flu, or (potentially) the Ebola virus, or chronic diseases like HIV-AIDS.
• The concern with energy security represents the acknowledgement that the price and availability of energy in the U.S. – especially oil – is increasingly affected by the decisions of foreign governments or the ability to foreign terrorist groups to disrupt the flow of crude oil by pipeline or tanker.

Most generally, we can say that globalization, because it still involves choice, is itself a transnational policy issue. Although Friedman is probably correct in saying that, in its most fundamental sense, globalization has become a fact for the United States and most other economies, the details of that choice are changeable and thus remain matters of debate. Trade policy, energy policy, investment policy, immigration policy, and energy policy are controversial in the U.S. precisely because globalization itself is controversial: the benefits are uneven, and there are costs in terms of the limitations on sovereignty and the correct sense of vulnerability to external forces beyond our control.

Second, in a globalized world, Americans are becoming increasingly concerned about the ability of their economy to remain competitive – in other words, to sustain the kind of economic activity that can provide higher standards of living for American workers and their families. The need to maintain and increase American competitiveness raises yet another set of policy concerns:

• The effectiveness of the American educational system to produce skilled workers who can command high wages because they provide high-value-added goods and services
• Whether the U.S. healthcare system can maintain public health at reasonable cost to employers and workers
• The adequacy of American infrastructure – both traditional physical infrastructure such as roads, railroads, airports, and seaports, but also newer forms of infrastructure such as telephonic and high-speed data networks.
• Whether American tax policy – and don’t forget this involves state as well as federal taxes -- places an excessive burden on the American economy relative to societies with lower individual and corporate tax rates
• Whether American policy in such areas as intellectual property protection and funding for research and development adequately encourages scientific and technological innovation.
  

Finally, globalization is producing what some analysts have described as the “rise of the rest” – in other words the emergence of a dynamic set of emerging market economies, including most notably the BRICS (Brazil, Russia, India, China, and South Africa). Along with the industrial and post-industrial economies that emerged earlier in Europe and East Asia, these economic and political success stories make it less likely that the United States has a monopoly on “best practice” in economic and social policy. Increasingly, the U.S. will not only be sharing its positive experiences with others, but will be studying the experiences of others in an attempt to provide better solutions to its domestic social and economic problems.

How does globalization affect the U.S. policy making process?

Globalization also affects the policy making process in the U.S. in several ways.

First, transnational problems require transnational solutions. America cannot solve problems of macroeconomic management, malfunctioning capital markets, energy security, climate change, terrorism, and communicable disease by itself. The solutions involve not simply cooperation with other governments, but the creation of international regimes and organizations that can coordinate the efforts of many governments. The need to cooperate with other countries, and the development of international regimes, will limit American autonomy and will require restrictions on American sovereignty. For the United States, no less than for other countries, these restrictions will often be controversial and occasionally be painful.

Second, globalization will encourage foreign entities – foreign governments, MNCs, and NGOs – to try to penetrate the American political process to articulate their interests. The same technologies that facilitate globalization – particularly inexpensive transportation and communication, and information – will make it easier and less expensive for them to do so. Unofficial actors will have ready access to information once available only to the most advanced governments, and will have the resources to press their demands forcefully and articulately. Not only will the American political agenda be increasingly made up of transnational issues, but the American political process will increasingly feature transnational actors articulating transnational interests.

And third, the ways in which transnational issues impinge on the American agenda, foreign interests penetrate the American political system, and Americans increasingly worry about their ability to compete effectively abroad, will challenge America’s sense of identity. Significant numbers of Americans may lose the sense of confidence and optimism about the future that has previously characterized our country’s political culture.

The changing nature of politics – from interest-based to identity-based – may have several consequences. Those whose sense of identity is threatened may search for those responsible, demonizing their opponents both at home and abroad. They may seek simpler, more ideologically based solutions to their declining economic fortunes and self-esteem. And they may even begin to challenge the empirical bases of the policies that threaten their interests and identity. These are the consequences of what David Apter, in his Politics of Modernization, described as the shift from “instrumental” politics to “consummatory” politics. I would posit that some of these trends are already evident in American politics today.


Conclusion

In short, globalization is having significant effects on both the content of public policy issues in the U.S. and on the process by which public policy is made. Of course, globalization is not the only mega-trend that is having such an impact, and we therefore should not exaggerate its importance. Other key trends include:

• Demographic trends, particularly the changing age and ethnic composition of the population, as well as the different attitude and values across generations, pose both challenges and opportunities for health policy, labor policy, migration policy, social security, and many other issues.
• Climate change will require changes in the composition of our energy mix, the development of new technologies that can provide cleaner energy and greater energy efficiency. It will also most likely lead to change in policies on housing, transportation, and other sectors of the economy that consume large amounts of energy. It will also, as we have already seen, require complex international negotiations to assign the responsibility and allocate the cost of reducing carbon emissions, and then equally complex domestic negotiations on how to implement the commitments to reduce those emissions.
• Information and communications technology is already transforming the policymaking process, perhaps most importantly by reducing the role of political middlemen, and thus reducing our ability to aggregate political interests.
• Other new technologies, particularly biotechnology and nanotechnology, will produce great opportunities for health, agriculture, and other areas of public policy, while also posing significant questions about the ethical choices that these technologies will pose and the social and environmental risks that they may engender.
• The “rise of the rest” is already producing major changes in the international balance of power – traditionally a major cause of instability in international politics.

Some of these trends – particularly the emergence of new information and communication technologies – constitute some of the “facts” that, as Thomas Friedman has argued, make globalization possible, if not necessary inevitable. But they also act on their own, forming additional independent variables that, along with globalization, are affecting the content of public policy and the contours of the public policy process in today’s world. These, too, will be issues with which the Batten School will be deeply concerned.