Review of International Studies (2000), 26, 509–531 Copyright © British International Studies Association Contemporary capitalism, , regionalization and the persistence of national variation

COLIN HAY*

Abstract. The literatures on globalization and regionalization on the one hand, and on the institutional distinctiveness of national capitalisms on the other, seem to pull in very different directions. Nonetheless, an increasing number of international and comparative political economists sensitive to the institutional and cultural variability of contemporary capitalism identify tendencies towards convergence—often towards an Anglo-US model of deregulated neoliberal capitalism. In this article I critically review the literature on convergence, difference and divergence in the global , differentiating between neoclassical and institutionalist perspectives. Resisting arguments which posit a natural selection process initiated by untrammelled competition and free mobility, I identify the contingent, political and frequently coercive nature of the convergence process. This is illustrated through a discussion of regional selection mechanisms in the context of European Monetary Union and the East Asian financial crisis. In so far as evolutionary selection mechanisms can be identified in the European context, selecting for a more residual social model, these are more a product of the contingent process of European than they are a necessary consequence of globalization. Moreover, in so far as similarly con- vergent processes can be identified in contemporary East Asia, they are less a product of globalization than of the ‘predatory ’ of a beleagured .

Introduction

Much of the literature on globalization is essentially engaged in an exercise in the periodization of capitalist development—whether into phases of pre-globalization and globalization respectively, or into successive stages or modes of globalization originating in some accounts as early as the fourteenth century.1 In this article my aim is to shift the focus of attention from the temporal to the spatial domain, which arguably gets overlooked in much of this discussion. In so doing I reinject national

* I am greatly indebted to David Coates, Michael Cox, Jonathan Hopkin, Matthew Watson, Daniel Wincott and two anonymous readers for the Review of International Studies for comments on an earlier version of this paper. The usual disclaimers apply. I would also like to acknowledge the support of the ESRC for research on ‘Globalization, and the European Social Model’ (L213252043). 1 Roland Robertson, Globalization: Social Theory and Global Culture (London: Sage, 1992); Immanuel Wallerstein, The Capitalist World Economy (Cambridge: Cambridge University Press, 1979). 509 510 Colin Hay variations into a discussion of the periodization of globalization.2 In particular, I examine and interrogate some of the largely unacknowledged assumptions and premises which make the type of dualistic and ‘global systemic’ blanket periodiz- ation, much beloved of globalists, possible. To engage in a periodization of the type pre-globalization–globalization is effectively to assume that phases in the ‘development’ of the system in question (in this case the ‘global system’) can be identified which transcend variations amongst its constituent units (in this case national variations). In periodizing the evolution or development of the ‘global system’, then, authors are assuming (whether explicitly or, more likely, implicitly) that the processes and mechanisms by which the system as a whole ‘moves’, are somehow similarly determinant of the movement or develop- ment of the individual units comprising the system.3 Accordingly, they are suggest- ing that the development of national societies, polities, economies and cultures can best be periodized with respect to that which they share—their capitalism, their industrialism, their liberal democracy, their modernity or, indeed, their post- modernity. Implicit here is the idea that variations between nations at the same point in time can be considered incidental when situated in terms of the similarities in patterns of development between national cases. This, then, is a largely synchronic analytical strategy—mapping the contours of a particular phase of capitalism temporarily abstracted, for the purpose of analysis, from the temporal domain. Variations between national capitalisms (though frequently acknowledged) blend into the background as the characteristics they share as constituent units of a more or less stable capitalist regime are brought into sharper focus. Despite its many strengths and intuitive appeal, what such a generic approach militates against is a clear or explicit recognition that, during certain periods of capitalist development, the institutional and cultural configurations of more or less distinct national capitalisms may tend to converge, whilst at others, they may tend to diverge. It thus renders fixed and immutable what must, at best, be an open empirical question. Moreover, it fails to allow for an adequate recognition of the way in which common pressures (those unleashed by financial liberalization and heightened capital mobility, say) are processed, mediated and hence responded to differently in different national contexts. If we allow for such institutional and cultural mediations, common challenges need not imply common solutions (nor even common perceived solutions) and hence common developmental trajectories (as many neoclassical-inspired models which

2 See also Suzanne Berger and Ronald Dore (eds.), National Diversity and Global Capitalism (Ithaca, NY: Cornell University Press, 1996); Colin Crouch and Wolfgang Streeck (eds.), Political Economy of Modern Capitalism: Mapping Convergence and Diversity (London: Sage, 1997); J. Rogers Hollingsworth, Philippe Schmitter and Wolfgang Streeck (eds.), Governing Capitalist Economies: Performance and Control of Economic Sectors (Oxford: Oxford University Press, 1994); J. Rogers Hollingsworth and Robert Boyer (eds.), Contemporary Capitalism: The Embeddedness of Institutions (Cambridge: Cambridge University Press, 1997); Martin Rhodes and Bastiaan van Apeldoorn, The Transformation of West European Capitalism? (Florence: EUI Working Papers, RSC no. 97/60, 1997). 3 They may also be suggesting that the system itself can be said to exhibit certain ‘organic’ qualities such that the whole may be greater than the sum of its component (or constituent) parts. Accordingly, the development of the system itself may be periodized without necessarily implying the utility of that periodization for the individual units (national capitalisms) which comprise it, nor that the development of the system itself is determinent of the development of such individual units. Yet, whilst many proponents of a ‘global system’ perspective would be keen to emphasize the organic nature of that system, they tend to resist this second move, preferring instead to imply determination in the last instance by the developmental trajectory of the global system itself. Globalization, regionalization and national variation 511 remain institutionally underspecified imply). Moreover, the challenges posed by, say, heightened capital mobility though in one sense general (in that capital’s global propensity for mobility might be said to have increased)4 are unlikely to impinge with equal intensity (or even, necessarily, in a qualitatively similar manner) upon national economies which may be more or less protectionist, more or less self- sufficient and more or less expansive in their social . This suggests the utility and the significance—especially if we are to understand the mechanisms and processes by which globalization and regionalization impinge on, say, domestic economies—of a more disaggregated (and institutionally sensitive) approach to capitalist development. This must prove itself capable of reflecting the specificity of distinct national or regional capitalisms and their attendant developmental trajectories. What this rather lengthy introduction hopefully serves to indicate is the need to consider a rather different range of issues than those that have troubled authors concerned simply to periodize the development of the ‘global system’ and to engage in an essentially static analysis of that system.5 As I aim to demonstrate, in certain key respects the literature highlighting the distinctiveness of national capitalisms (and their developmental trajectories), stands in marked contrast to those exercises in transnational periodization associated with most crude variants of the globaliz- ation thesis, regulation theory and the sociology of postmodernism.6

The institutional and cultural distinctiveness of national capitalisms

The literature (certainly the recent literature) on national capitalisms is animated by a thorough-going institutionalism at odds with the (qualified) behaviouralism and voluntarism of more mainstream neoclassical economics.7 It should not then come as any great surprise that the revival of interest in the distinctiveness of national develop-mental/evolutionary trajectories in the context of globalization (and debates about globalization) has been closely associated with the work of the so-called neoinstitutionalists.8 Highly sensitive to the institutional, cultural and ideational specificities sadly neglected in the neoclassical and rational choice models beloved of

4 Since 1985, for instance, there has been a near one hundred-fold increase in daily turnover on the foreign exchange markets. Moreover, as Wolfgang Reinecke’s figures suggest, between 1980 and 1995 there was an increase in portfolio flows of over 800 per cent and in foreign direct investment of over 600 per cent. Over the same period of time, has increased by a mere 200 per cent. Wolfgang H. Reinecke, Global Public Policy: Governing Without Government? (Washington, DC: Brookings Institution Press, 1994), pp. 19, 30. 5 Barrie Axford, The Global System: Economic, Politics and Culture (Cambridge: Polity, 1995); see also Martin Albrow, The Global Age; State and Society Beyond Modernity (Cambridge: Polity, 1996). 6 For a review of which see Colin Hay and David Marsh, ‘Demystifying Globalisation’, in Colin Hay and David Marsh (eds.), Demystifying Globalisation (London: Macmillan, forthcoming). 7 For earlier examples of this institutionalism see Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, MA: Harvard University Press, 1963); Andrew Shonfield, Modern Capitalism (Oxford: Oxford University Press, 1965). 8 See, for instance, Berger and Dore, National Diversity; Michael Best, The New Competition: Institutions of Industrial Restructuring (Cambridge, MA: Harvard University Press, 1990); Geoffrey Garrett, Partisan Politics in the Global Economy (Cambridge: Cambridge University Press, 1997); Hollingsworth, Schmitter and Streeck, Governing Capitalist Economies; Hollingsworth and Boyer, Contemporary Capitalism; see also Michel Albert, Capitalism Against Capitalism (London: Whurr, 1993). 512 Colin Hay prophets of a global age, institutionalists have consistently pointed to the distinctive institutional architecture and cultural configurations of the state (both locally and nationally). These, they suggest, serve to channel, filter and mediate common challenges in highly specific ways, often reinforcing the distinctiveness (both institutional and cultural) of distinct national (and, indeed, local and regional) capitalisms. The identification of common pressures (inputs), then, is insufficient to ensure convergent tendencies (as many of the globalists assume), since such pressures are likely: (1) to impinge upon domestic economies in rather different ways: (2) to challenge or reinforce distinctive national ‘models’ and practices to different degrees and in often divergent ways; (3) to be understood and interpreted differently in different national/regional contexts; and (4) to be responded to differently, even where common understandings are reached, since different states have rather different strategic capacities for implementing responses.9 Whilst common pressures produce common convergent tendencies for neoclassical economists and the business school globalizationists with whom they share so much,10 the question of convergence is, for institutionalists, at best a necessarily contingent and hence an empirical one.11 Neoclassical-inspired accounts, then, tend to offer what might be termed an ‘input’ model of convergence since the institu- tional and cultural factors which might translate common inputs into divergent outcomes generally remain underspecified or wholly unspecified.12 By contrast, comparative political economists of an institutionalist disposition present a more rounded input-output model of contingent convergence. Consequently, institutionalist analysis tends to be extremely cautious of heroic and over-generalized periodizations (of the type Fordism–post-Fordism, modernity– postmodernity, industrial–postindustrial, national capitalism–global capitalism). In emphasising the variation between national models of capitalism and in attributing these to the distinctiveness and specificity (even uniqueness) of institutional and cultural blends (which may become deeply embedded), institutionalists thus tend to

9 See also J. Rogers Hollingsworth and Wolfgang Streeck, ‘Countries and Sectors: Performance, Convergence and Competitiveness’, in Hollingsworth, Schmitter and Streek, Governing Capitalist Economies, pp. 283–8; Linda Weiss, The Myth of the Powerless State (Cambridge: Polity, 1998). 10 This is the case whether one assumes perfect information or, indeed, a process of ‘best-practice’ convergence through transfer (whether of technology or information), trial-and-error or learning. 11 That having been said, however, many insitutionalists choose to prejudge the empirical evidence by claiming to derive theoretically tendencies towards divergence from their heightened sensitivity to institutional factors. Whilst this may well represent a useful corrective to the vast majority of the existing literature (characterized as it is by a casual neoclassicism and a seeming reluctance to operationalize institutional variables), it tends to be driven more by the appeal of heterodoxy than by measured reflection. 12 Such ‘input-weighted’ convergence models may take a variety of forms in addition to the business school orthodoxy—from human capital theory to endogenous growth theory (as reflected in the ‘conditional convergence’ thesis of both the original Solow model and the augmented Solow model of Mankiw, Romer and Weil), to open economy models of harmonization. What they share are a conception of a common input or pressure (such as heightened factor mobility) and an evolutionary selection mechanism (such as the competitive returns accruing to ‘best practice’ solutions) producing converergence on a common outcome (whether welfare retrenchment, investment in human capital formation, technology transfer or reduction in corporate taxation). For the business school and popular orthodoxy see, for instance, John Gray, False Dawn: The Delusions of Global Capitalism (London; Granta, 1998); Charles Leadbeater, Living on Thin Air: The New Economy (London: Viking, 1999); Barbara Parker, Globalization and Business Practice: Managing Across Boundaries (London: Sage, 1998); Lester Thurow, Head to Head (New York: Nicholas Brealey, 1994). For human capital theory see, for instance, Gary S. Becker, Human Capital (New York: Columbia University Press, 1962); Robert E. Lucas, ‘On the Mechanics of Economic Development’, Journal of Monetary Globalization, regionalization and national variation 513 split up the world spatially rather than temporally.13 Those periodizations which they are inclined to identify tend, accordingly, to be internal (and specific to) distinct national, local or regional cases (or, indeed, to empirically identifiable ‘types’ or ‘models’). Accordingly, whilst institutionalists are certainly interested in issues of historical process and temporality, their concern is to emphasize the reproduction of difference over time, highlighting the extent to which particular institutional configurations and cultural practices distinctive of a particular polity, state or economy become entrenched (or institutionally embedded) and are, accordingly, difficult to overturn. Evolution, within such a schema, tends to be of a path dependent (and hence both institutionally- and ‘model-specific’) manner.14 In this sense, their concerns tend to exhibit a heightened sensitivity to the process of change over time—to the diachronic. This stands in marked contrast to the synchronic counterposing of ideal-types more characteristic, say, of regulation theory (as reflected in its methodological proclivity for comparative statics).15 The periodizations constructed by institutionalists tend, accordingly, to be cast in terms specific to a particular institutional architecture. Perhaps unremarkably, institutionalists tend also to resist arguments about con-

Economics, 22:1, pp. 3–42; and for reviews David Ashton and Francis Green, Education, Training and the Global Economy (London: Edward Elgar, 1996); Derek Bosworth, Peter Dawkins and Thorsten Stromback, The Economics of the Labour Market (Harlow: Longman, 1996). For endogenous growth theory see Robert J. Barro, Economic Growth (New York: McGraw-Hill, 1995); ‘Economic Growth’, in Getting it Right: Markets and Choice in a Free Society (Cambridge, MA: MIT Press, 1996); Robert J. Barro and Xavier Sala-i-Martin, ‘Convergence Across States and Regions’, Brookings Papers on Economic Activity, 1 (1991), pp. 107–82; ‘Convergence’, Journal of Political Economy, 100 (1992), pp. 223–52; N. G. Makiw, D. Romer and D. N. Weil, ‘A Contribution to the Empirics of Economic Growth’, Quarterly Journal of Economics, 107:2 (1992), pp. 407–37; R. M. Solow, ‘A Contribution to the Theory of Economic Growth’, Quarterly Journal of Economics, 70:1 (1957), pp. 65–97; and, for a systematic review, Philippe Aghion and Peter Howitt, Endogenous Growth Theory (Cambridge, MA: MIT Press, 1998). For neoclassical models of taxation within open economies given perfect mobility of capital see, for instance, A. Razin and E. Sadka, ‘International Tax Competition and Gains from Tax Harmonization’, Economic Letters, 37:1 (1991), pp. 69–76; ‘Efficient Investment Incentives in the Presence of Capital Flight’, Journal of , 31:1–2 (1991), pp. 171–81; V. Tanzi and L. Schuknecht, ‘Reconsidering the Fiscal Role of Government: The International Perspective’, American Economic Review, 87:2 (1997), pp. 164–8; V. Tanzi and H. H. Zee, ‘ and Long-Run Growth’, International Monetary Fund Staff Papers, 44:2 (1997), pp. 179–209; for a sceptical review of this influential literature see Duane Swank, ‘Funding the Welfare State: Globalization and the Taxation of Business in Advanced Market Economies’, Political Studies, 46:4 (1998), pp. 671–92. 13 In the present context, the distinction is one which must be deployed carefully. What I am suggesting here is that authors concentrating on a diversity of national capitalisms tend to display a greater sensitivity to spatial specificities (whether local, national or, indeed, regional). Such a sensitivity need not imply the identification of patterns of similarity between geographically proximate capitalisms (though it clearly does not proscribe such an identification), nor indeed does it preclude the identification of similarities (or functional equivalences) between geographically distant capitalisms (the British and the American, the German and the Japanese, for instance). By contrast, authors concentrating their analytical efforts on the periodization of capitalism as a global system tend to display a greater sensitivity to variation over time (if, not necessarily to the process of change itself) than to variation between cases. I am particularly indebted to Daniel Wincott for this suggested clarification. 14 See, for instance, Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994); ‘The Path to European Integration: A Historical Institutionalist Analysis’, Comparative Political Studies, 29:2 (1996), pp. 123–63; ‘Irresistible Forces, Immovable Objects: Post-Industrial Welfare States Confront Permanent Austerity’, Journal of European Public Policy, 5:4 (1998), pp. 5390. 15 For a further elaboration of this argument see Colin Hay, ‘Re-Stating the Problem of Regulation and Re-Regulating the Local State’, Economy and Society, 24: 3 (1995), pp. 387–407. 514 Colin Hay vergence (or, at least, arguments suggesting a simple blanket convergence on ‘best practice’ capitalism) in the contemporary global (political) economy, emphasizing the institutional and cultural factors which militate against common outcomes arising from common pressures.16 It is important at this point that we interrogate the concept of convergence itself a little more closely. For if we are to acknowledge fully the theoretical insights and further potential of institutionalist analysis, we must differentiate between four rather different senses of convergence, frequently conflated. They are: (1) con- vergence in the pressures and constraints placed upon a particular political economy (input convergence); (2) convergence in the policies pursued by (or the paradigms informing) particular states (policy convergence); (3) convergence in the con- sequences, effects and outcomes of particular policies (output convergence); and (4) convergence in the processes sustaining the developmental trajectories of particular states (process convergence). What is perhaps most significant about such a series of distinctions is that input convergence need not imply policy convergence, policy convergence need not imply output convergence, and output convergence need not imply process convergence (as, for instance, in most neoclassical-inspired accounts). A couple of examples may serve to illustrate the importance of each distinction. The distinction between input convergence and output convergence is perhaps the most conventional and, accordingly, the most widely accepted. Thus Grahl and Teague, in their recent analysis of the disruption of the European social model in the context of the economic crisis of the 1970s, point out that this ‘general crisis … [was] not expressed in uniform patterns of change but in widening disparities … the same disruptive forces have been in force throughout the countries of the but they have been slowed down or accelerated according to the relative strengths of the economies concerned and the differing degrees of stability of their inherited institutions’.17 Common pressures produce, in this account, divergent tendencies by virtue of their institutional mediation. Less widely acknowledged is the distinction between policy convergence and out- come convergence. The point, nonetheless, is a simple one: if we assume the path dependence of institutional and cultural dynamics, then the same policy is likely to have different institutional and cultural consequences (over whatever time-horizon) in different institutional and cultural environments. The decision to confer independ- ence upon (or to cede operational responsibility for the setting of interest rates to) a will have different effects in different political-economic systems. In the British case, for instance, characterized as it is by low levels of productive invest- ment and associated capacity constraints, underlying inflationary tendencies are perhaps rather greater than they are in Continental Europe. For even modest growth rates are likely to see the productive economy operating at full capacity, injecting inflationary pressures (and expectations) into the economy. Consequently, an interest rate premium will be paid (over and above that in Continental Europe) if the quasi- independent Central Bank (the Bank of England) is to act in a manner consistent

16 See, for instance, Berger and Dore, National Diversity; John Zysman, ‘Dynamic Diversity: Institutions and Economic Development in Advanced Countries’, in Robert Delorme and Kurt Dopfer (eds.), The Political Economy of Diversity: Evolutionary Perspectives on Economic Order and Disorder (Aldershot: Edward Elgar, 1994); ‘The Myths of a “Global Economy”: Enduring National Foundations and Emerging Regional Realities’, New Political Economy, 1:2 (1996), pp. 157–84. 17 John Grahl and Paul Teague, ‘Is the European Social Model Fragmenting?’, New Political Economy, 2:3 (1997), pp. 405–26, pp. 405–6, emphasis added. Globalization, regionalization and national variation 515 with its mandate (and the reasons for its operational independence). This may, in the long term, have perverse consequences (again, specific to the British economy). For, increased interest rates are likely to depress levels of investment resulting in further capital depletion, escalating underlying (structural) inflationary pressures.18 Whatever the details, the point is a simple one: institutional specificities (the distinctiveness of national capitalisms) dictate that policy convergence (such as that witnessed across much of Western Europe, North America and the Antipodes) need not dictate a con- vergence in outcomes. In the general context of financial deregulation, the elimina- tion of capital controls, the granting of independence to Central Banks and the general ascendancy of a market-conforming (as opposed to a market-reforming) economic paradigm, this is a not inconsequential point. Finally, the logic of institutionalist analysis (if, not always, its practice), would tend to caution against the conflation of aggregate output convergence with con- vergence in the process(es) precipitating such a tendency. A case in point is the widely-observed and much-discussed convergence in industrial levels between capitalist economies (advanced industrial and developing alike).19 Recent work by David Dollar and Edward N. Wolff suggests that the aggregate statistics— demonstrating a clear convergence in outcomes—may be misleading.20 For, as their more detailed, industry-level comparative analysis makes clear, aggregate level convergence masks industry-level divergence as different economies have tended to specialize in industries in which they are, or might legitimately expect to become, the productivity leader.21 The message is, again, a simple one: different and, indeed, divergent processes may sustain convergent outcomes.

Convergence, difference or diversity?

Having interrogated and unpacked the concept of convergence, we are now in a position to review the debate on convergence, difference and diversity in the context of the contemporary global political economy. As I have been at pains to suggest, it is (like many debates) one in which the protagonists’ theoretical stance influences significantly their interpretation of whether globalization implies convergence, selective (often regional) convergence, continued difference or even divergence (in input, policy, outcome or process). By and large those with a more institutionalist frame of reference are most likely to emphasize continued national diversity, even

18 For a more detailed elaboration, see Colin Hay, The Political Economy of New Labour: Labouring Under False Pretences? (Manchester: Manchester University Press, 1999); Colin Hay and Matthew Watson, Rendering the Contingent Necessary: New Labour’s Neo-Liberal Conversion and the Discourse of Globalization (Cambridge, MA: Harvard University, Center for European Studies Program for the Study of Germany and Europe, Working Paper #8.4, 1998). 19 See, for instance, William J. Baumol, ‘Productivity Growth, Convergence and Welfare: What the Long Run Data Show’, American Economic Review, 76: 5 (1986), pp. 1072–85; William J. Baumol, Sue Ann Batey Blackman and Edward N. Wolff, Productivity and American Leadership: The Long View (Cambridge, MA: MIT Press, 1991); William J. Baumol, Richard R. Nelson and Edward N. Wolff (eds.), Convergence of Productivity: Cross-National Studies and Historical Evidence (Oxford: Oxford University Press, 1994). 20 David Dollar and Edward N. Wolff, Competitiveness, Convergence and International Specialization (Cambridge, MA: MIT Press, 1993). 21 Dollar and Wolff, Competitiveness, Convergence and International Specialization, pp. 177–8. 516 Colin Hay divergence—certainly in outcomes22—whilst those closer to neoclassical assumptions and, accordingly, less sensitive to institutional factors are more likely to identify convergent tendencies (often by assuming that convergent inputs imply convergent outputs). As is often the case in such debates, however, the number of identifiable and distinctive positions has proliferated as the discussion has grown in intensity and significance and as more protagonists have entered the fray. As is also often the case, the most interesting positions tend to be those which lie between a rigid institutionalism at one end of the spectrum which denies or simply eliminates almost all possibilities of convergence (however contingent) and a rigid (if often casual) neoclassicism at the other end of the spectrum for which globalization produces convergence and for which, quite simply, that is all that needs to be said.

The positions in the debate

Perhaps the most distinctive of positions on this question is that adopted by authors like Badie and Birnbaum, Dyson, Zysman and, more classically, Shonfield.23 This institutionalist or (in the work of Badie and Birnbaum in particular) culturalist perspective, is keen to identify enduring transhistorical difference between different state and economic traditions. Though such authors rarely address the question of globalization,24 it is clear that such a traditional institutionalism would be likely to emphasize the manner in which national specificities (the British or French ‘state tradition’) for instance are reproduced in the face of globalizing tendencies.25 The antithesis of this view is that shared, perhaps ironically, by both a number of Marxist authors (most recently and influentially, the regulation theorists) and (if far more implicitly) by those inclined to adopt neoclassical assumptions.26 This view

22 Weiss, The Myth of the Powerless State; Grahl and Teague, ‘Is the European Social Model Fragmenting?’, p. 405; Zysman, ‘Dynamic Diversity’. 23 Bertrand Badie and Pierre Birnbaum, The Sociology of the State (Chicago, IL: University of Chicago Press, 1983); Kenneth F. H. Dyson, The State Tradition in Western Europe: a Study of an Idea and an Institution (Oxford: Martin Robertson, 1982); John Zysman, Governments, Markets and Growth (Ithaca, NY: Cornell University Press); ‘Dynamic Diversity’; Shonfield, Modern Capitalism. 24 Though see Zysman, ‘The Myths of a “Global Economy”’. 25 Whilst this is the brand of institutionalism which has most tended to characterize the comparative political economy of contemporary capitalism, it is by no means the only variety of institutionalism on offer. Moreover, not all institutionalisms posit the preservation of difference in the face of common challenges and environmental pressures. It is here important to note the work of the Stanford School of sociological institutionalists (associated, in particular, with John W. Meyer and W. Richard Scott), which has pointed to the significance of institutional templates in informing organizational design, to the diffusion of such institutional models and hence to processes of convergence rather than difference and divergence. For reviews of this literature see, for instance, Mary C. Brinton and Victor Nee (eds.), The New Institutionalism in Sociology (New York: Russell Sage Foundation, 1998); B. Guy Peters, Institutional Theory in Political Science (London: Pinter, 1998); Walter W. Powell and Paul J. DiMaggio (eds.), The New Institutionalism in Organizational Analysis (Chicago, IL: University of Chicago Press, 1991); Peter A. Hall and Rosemary C. R. Taylor, ‘Political Science and the Three New Institutionalisms’, Political Studies, 44:4 (1996), pp. 936–57; Colin Hay and Daniel Wincott, ‘Structure, Agency and Historical Institutionalism’, Political Studies, 46:5 (1998), pp. 951–7. 26 In particular those relating to the ability of markets to clear perfectly, to complete and instantaneous information and, additionally, to the perfect mobility of the factors of production (particularly capital). Two important qualifications need to be introduced at this point. First, whilst the first two assumptions are entirely characteristic of neoclassical economics, that of perfect factor mobility, Globalization, regionalization and national variation 517 identifies considerable similarities between capitalist economies (at least advanced capitalist economies) at the same stage in their historical development. For casual neoclassicists, capitalism can be periodized (if that is considered necessary) simply in terms of its stage of development. For regulation theorists, capitalism evolves through a succession of stable (and stabilizing) regimes, punctuated periodically by crisis.27 In both variants the differences between national capitalisms are naturally downplayed. By such a view, if globalization is seen to herald capitalist convergence, this is by no means an unusual condition. For capitalism, by its very nature, is characterized by convergence arising out of evolutionary selection mechanisms. These serve to sustain either an inexorable trajectory of ‘catch-up’ development (for neoclassicists) or the consolidation out of crisis of a new mode of growth (for regulationists). If such views suggest an innate propensity to convergence (in policy, process and outcome), then a rather more complex and widely-held set of views periodizes convergence itself.28 Thus perhaps the conventional view of globalization conceives of it as unleashing a series of strong (indeed over-powering) homogenizing or con- vergent tendencies (in some accounts homogenizing processes to which there are no mediating counter-tendencies). This view is perhaps most clearly expressed in Fukuyama’s notion of the ‘end of history’ and in the triumphalism of Zuckerman’s confident assertion of the dawning of ‘a second American century’, inviting obvious comparisons with Bell’s earlier ‘end of ideology’ thesis.29 It is, nonetheless, consider- ably more sidespread than this, taking a variety of more or less nuanced and subtle variations. Here, conventionally, heightened mobility allows capital to ‘exit’ from punitive taxation regimes and overregulated labour markets to seek out cost-competitive labour (at a given level of skill) and low taxation environments (in a process of ‘regime shopping’). This, it is suggested, initiates a quasi-Darwinian selection process in which only the fittest (and leanest) survive. Convergence is, invariably,

though now conventional in international financial economics, is by no means assumed in all neoclassical models. Consequently, whilst many neoclassical economists do indeed predict convergence under open economy conditions, such predictions (and the open economy assumptions on which they are premised) are by no means unquestioned in mainstream economic circles. Second, such predictions (and indeed, the assumptions from which they are derived) are perhaps rather more prevalent beyond mainstream economics, most notably in the ‘casual neoclassicism’ so characteristic of business school economics and so influential amongst public policymakers. For evidence of the near universality of the assumption of perfect factor mobility in international macroeconomics, see and , Foundations of International Macroeconomics (Cambridge, MA: MIT Press, 1998). 27 See, inter alia, Michel Aglietta, A Theory of Capitalist Regulation (London: New Left Books, 1979); Robert Boyer, The Regulation School: An Introduction (Chicago, IL: University of Chicago Press, 1990); Alain Lipietz, The Enchanted World (London: Verso, 1985); Mirages and Miracles (London: Verso, 1987); for a similar analysis, derivative of regulation theory, see also Stuart Hall and Martin Jacques (eds.), New Times (London: Lawrence and Wishart, 1989). 28 This is not to imply that regulation theory is an uncomplicated or unsophisticated position—merely that it is one which does not place much emphasis on variation between national regimes (though see, for instance, Robert Boyer, ‘The Variety and Unequal Performance of Really Existing Markets: Farewell to Doctor Pangloss?’, in Hollingsworth and Boyer, Contemporary Capitalism; Bob Jessop, ‘Neo-Conservative Regimes and the Transition to Post-Fordism’, in Mark Gottdeiner and Nikos Komninos (eds.), Capitalist Development and Crisis Theory: Accumulation, Regulation and Spatial Restructuring (London: Macmillan, 1989). 29 Francis Fukuyama, The End of History and the Last Man (London: Hamish Hamilton, 1992); Mortimer Zuckerman, ‘A Second American Century’, Foreign Affairs, 77:3 (1998), pp. 18–31; Daniel Bell, The End of Ideology (Glencoe, IL: The Free Press, 1960). 518 Colin Hay rapid on an Anglo-American model of labour-market flexibility and low taxation, a process lubricated by escalating financial flows. Such a view is common amongst the highly influental business school gurus of ‘the ‘global age’ as well as those neoliberal economists confident in assumptions of perfect capital mobility.30 For the latter, it should be noted, the optimal rate of taxation on income from capital in open economies tends to zero.31 The invocation of such harsh evolutionary selection mechanisms, however, is, by no means confined to such authors, being equally prominent amongst the ever growing ranks of despondent former social democrats. Philip G. Cerny expresses the almost palpable pessimism of such a view more clearly than most: national varieties of capitalism will be tolerated only so long as they do not undermine profits in international financial markets. If genuinely new forms of transnational regulation are not forthcoming from states acting in concert, then the transnational financial structure is increas- ingly likely to be run by a de facto private regime centred in the financial markets themselves, further eroding state authority. Polanyi’s ‘Great Transformation’ is over, and a new Great Transformation will be required at a global, supranational level if values other than the estab- lishment of a self-regulating market are to be realized.32 A related, but in one sense starkly antithetical position is adopted by Linda Weiss who argues that globalization may throw up common processes and challenges to distinct models of capitalism, but that these challenges are refracted differently by existing institutions and practices to produce a further divergence.33 Extant differ- ences between existing models of capitalism are thus amplified by globalization. As she notes, ‘contrary to globalist predictions, I propose that national differences are likely to become more rather than less pronounced in a highly internationalized environment, thus exacerbating rather than diminishing current differences between strong and weak states’.34 True to its pervasive institutionalism, what such a perspective suggests is that globalization may indeed heighten competition between national capitalisms (as in more conventional accounts), but that the consequence of so doing is not to establish tendencies for rapid convergence on best practice (for which read minimal) regulation. Comparative institutional advantage is the key to

30 Theodore Levitt, ‘The Globalization of Markets’, Harvard Business Review, May–June (1983), pp. 92–102; Kenichi Ohmae, The Borderless World: Power and Strategy in the Interlinked Economy (London: Collins, 1990); The End of the Nation State: The Rise of Regional Economies (New York: Free Press, 1996); see also Gray, False Dawn. 31 See, for instance, Razin and Sadka, ‘International Tax Competition and Gains from Tax Harmonization’; ‘Efficient Investment Incentives in the Presence of Capital Flight’; Tanzi and Schuknecht, ‘Reconsidering the Fiscal Role of Government: The International Perspective’; Tanzi and Zee, ‘Fiscal Policy and Long-Run Growth’. 32 Philip G. Cerny, ‘International Finance and the Erosion of Capitalist Diversity’, in Crouch and Streeck, Political Economy of Modern Capitalism, p. 181; see also Crouch and Streeck, ‘Introduction’; Jonathan W. Moses, ‘Abdication from National Policy Autonomy: What’s Left to Leave?’, Politics and Society, 22:2 (1994), pp. 125–38; ‘The Fiscal Constraints on Social Democracy’, Nordic Journal of Political Economy, 22:1 (1995), pp. 49–68; ‘The Social Democratic Predicament and Global Economic Integration: A Capital Dilemma’, in William D. Coleman and Geoffrey R. D. Underhill (eds.), Regionalism and Global Economic Integration: Europe, Asia and the Americas (London: Routledge, 1998); Susan Strange, ‘The Future of Global Capitalism: Or Will Divergence Persist Forever?’, in Crouch and Streeck, Political Economy of Modern Capitalism; Wolfgang Streeck, ‘German Capitalism: Does it Exist? Can it Survive?’, New Political Economy, 2:2 (1997), pp. 237–56. 33 Weiss, The Myth of the Powerless State; compare Grahl and Teague, ‘Is the European Social Model Fragmenting?’; Zysman ‘The Myths of a “Global Economy”’. 34 Weiss, The Myth of the Powerless State, p. 188. Globalization, regionalization and national variation 519

Weiss’s alternative (and distinctly post-Ricardian) rendition of the evolutionary process unleashed by heightened competition. Consequently, it is not so much the quantity of state intervention (and the burden of taxation this imposes) that is at issue, as the quality of such intervention and, crucially, the affinities between such a regulatory regime and a strategy of national competitiveness. In the world of heightened competition between nations which she depicts, rewards accrue not to those most successful in sacrificing distinctive national traits on the altar of the ‘competitive imperative’, but those capable of adapting existing institutions and patterns of state intervention to ensure the greatest positive externalities of state intervention. Once we acknowledge the institutional distinctiveness, embeddedness and path-dependent developmental properties of national capitalisms, it becomes clear that is not to be secured through a cathartic institu- tional cleansing (as in neoliberal accounts), but through the development through adaptation of competitiveness-enhancing modes of intervention sensitive to institu- tional and cultural specificities. Some models of capitalism will clearly benefit more than others from the changed conditions of competition, but few if any are likely to benefit by seeking institutional tranplants or policy transfusions from those which prove most successful. The conditions of competitivness, in this most institutionally- sensitive of models, remain principally national or sub-national. Such a view clearly stands in marked contrast to much of the prevailing ortho- doxy.35 Weiss is quick to offer an explanation. The tendency to expect institutional convergence and the failure to recognise state variety are two sides of the same coin. Both are based on a ‘policy instrument’ theory of state capacity in which the relevant instruments are somehow predetermined and fixed in character. Any diminution is the importance of a particular policy tool is taken as evidence of a loss of state power.36 This important passage contains two key observations. First, Weiss differentiates clearly between policy convergence and outcome convergence (in a manner con- sistent with the earlier analysis), emphasizing the contingency of the relationship between the two. More significantly, however, she suggests that to catalogue policy instruments rendered anachronistic (and seen to be rendered anachronistic) by globalization need not imply a diminution of state capacity, since novel policy instruments may become available (at least hypotethically) under such qualitatively novel conditions. This is an important and perceptive point. Keynesian demand management may be more difficult (some would argue impossible) in an environ- ment characterized by more open economies and heightened capital mobility, but this does not necessarily imply convergence by default, for there may well be a range of alternative policy instruments which only have efficacy under such conditions. As she notes, ‘economic integration does not so much enfeeble the state as weaken the efficacy of specific policy instruments’.37 Sophisticated though this clearly is, however, it may nonetheless miss the point. Hypothetical policy instruments may indeed exist, but if they are not perceived to exist or have yet to be discovered the outcome may nonetheless be a ‘default (policy)

35 Though cf. Hollingsworth and Streeck, ‘Countries and Sectors’, pp. 284–5. 36 Weiss, The Myth of the Powerless State, p. 197. 37 Ibid., p. 195. 520 Colin Hay convergence’.38 Arguably, this is precisely what we witness, at least within Western Europe, the Antipodes and North America. Nonetheless, even if this is so, the consequences of a default liberalism may be very different in different settings and this should lead us to caution against overblown accounts of full convergence (convergence of outcome or of process), far less the ‘end of history’. Clearly the extent to which market liberalism is perceived to be the only game in town varies significantly from region to region, national context to national context, political party to political party.39 Given the (growing) significance of policy transfers and institutional transplants between nations, of transnational institution building more generally, and of the widely-identified affinities between more or less distinctive regional capitalisms, there is one substantial omission in Weiss’s account. That is the process of regionalization and of deepening regional economic integration in particular. Given Weiss’s undoubted sensitivity to institutional factors, it is perhaps surprising that regionalization—and the role it might play in reflecting, refracting or mediating globalising tendencies—receives such a cursory treatment in a brief conclusion.40 For, insofar as states now come to derive aspects of their institutional capacity from regional institutions (as Weiss in fact notes) and insofar as such regional institutions come to acquire for themselves an indigenous institutional capacity, we might expect regionalization to play a crucial role in mediating and refracting tendencies towards convergence or divergence.41 It may, for instance, be that with deepening , national institutional distinctiveness notwithstanding, we should expect to see evidence of intra-regional convergence even in a context of inter-regional divergence. This alternative formulation, which shifts the discussion from the aggregate and the global to more specific processes of institution building at a regional level, is elaborated in more detail in the next section. Where regional economic integration is well advanced (as, for instance, in the European Union) we might realistically speak of certain convergent tendencies (the Maastricht ‘convergence’ criteria, the move- ment towards a Single European and an independent , together with proposals for tax harmonization, to name only the more

38 By ‘default convergence’ I refer to convergence on the policy model which closest approximates that which is left when Keynesianism and a range of obsolescent policy techniques are given up—namely a deregulatory liberalism (for a similar argument applied to the British case see Hay and Watson, Rendering the Contingent Necessary). 39 For evidence of mounting political resistance to the neoliberal interventions of the IMF in East Asia see, for instance, Richard Higgott, ‘The Asian Economic Crisis: A Study in the Politics of Resentment’, New Political Economy, 3:3 (1998), pp. 333–56; Robert Wade and Frank Veneroso, ‘The Gathering World Slump and the Battle Over Capital Controls’, New Left Review, 231 (1998), pp. 13–42. 40 Weiss, The Myth of the Powerless State, pp. 209–12. 41 I do not want to be seen to reify or essentialize the ‘regional’ here. Regional identities, cultures and institutions are constructed and do not come to exist merely through geographical proximity. As such, whether regional selection processes come to exercise convergent pressures on national political economies is entirely contingent upon the depth of regional integration (if any) and the nature (institutional and cultural) of such an integration process. Nonetheless, at least as far as the European Union, East Asia and North America are concerned, there is now a considerable body of literature pointing (if not necessarily in such terms) to regional selection processes and, if less frequently, to ‘regional models’ of capitalism. See Richard Stubbs, ‘Asia-Pacific Regionalism Versus Globalisation: Competing Forms of Capitalism’, in Coleman and Underhill, Regionalism and Global Economic Integration. Globalization, regionalization and national variation 521 obvious).42 These may narrow the room for manoeuvre domestically by eliminating, for instance, the capacity of member states: (1) to forge an independent ; (2) to engage in competitive [or other modifications in their ] and, (3) in time, to implement a fully independent fiscal policy (if tax harmonization proceeds). In so doing, they impose their own selection mechanisms. Moreover, as an ever growing number of former duties and responsibilities of the state are projected onto a higher political stage (and attendant spatial scale), we might expect the distinct national capitalisms out of which such regional institutions have been forged to more closely resemble one another. The result is a process of regional, though not necessarily, global convergence.43 Similar processes of con- vergence might be identified in a variety of regional contexts.44 The irony of the process of regional economic integration in Europe is that although initially conceived as an attempt to ensure the continued viability of a distinctly European ‘social model’,45 the nature of the ensuing process of economic and monetary integration may well serve to establish and institutionalize a distinctly ‘subversive liberalism’ 46 or even a ‘disciplinary neoliberalism’.47 A project which was, from its inception, inherently social and political in nature has tended, through a slow process of attrition, to mutate into little more than a charter of economic liberalization and marketization.48 As such, it threatens to become the altar upon which the European social model is ultimately sacrificed (a model rendered dis- tinctive in comparative terms by its characteristic emphasis upon social inclusion and its attempt to reconcile the interests of both finance and industrial capital and labour alike). For just as the Maastricht Criteria injected a deflationary bias into the European economy for those seeking entry in the first wave, so the hawkish anti- inflationary preferences of the European Central Bank (in seeking to establish for

42 On the selection processes these might be seen to imply see, for instance, Mark Baimbridge, Brian Burkitt and Philip Whyman, ‘Economic and Monetary Union in Europe: A Critical British Perspective’, New Political Economy, 2:3 (1997), pp. 491–5; Stuart Holland, ‘Squaring the Circle: The Maastricht Convergence Criteria, Cohesion and Employment’, in Ken Coates and Stuart Holland (eds.), Full Employment for Europe (London: Spokesman, 1995); Dani Rodrik, Has Globalization Gone too Far? (Washington, DC: Institute for International Economics, 1997), pp. 41–4. 43 Grahl and Teague, ‘Is the European Social Model Fragmenting?’; Paul Pierson and Stephan Leibfried, ‘The Dynamics of Social Policy Integration’, in Stephan Leibfried and Paul Pierson (eds.), European Social Policy: Between Fragmentation and Integration (Washington, DC: Brookings Institute, 1995). 44 Richard Higgott, ‘The International Political Economy of Regionalism: The Asia-Pacific and Europe Compared’, in Coleman and Underhill, Regionalism and Global Economic Integration; Stubbs, ‘Asia- Pacific Regionalism Versus Globalisation’; see also Mitchell Bernard, ‘Regions in the Global Political Economy: Beyond the Local-Global Divide in the Formation of the Eastern Asian Region’, New Political Economy, 1:3 (1996), pp. 335–54; Paul Hirst and Grahame Thompson, Globalisation in Question (Cambridge: Polity, 1996); Andrew Hurrell, ‘Explaining the Resurgence of Regionalism in World Politics’, Review of International Studies, 21:4 (1995), pp. 331–58; William Wallace (ed.), The Dynamics of European Integration (London: Pinter/RIIA, 1990). 45 George Ross, Jacques Delors and European Integration (Cambridge: Polity, 1994). 46 Martin Rhodes, ‘“Subversive Liberalism”: Market Integration, Globalisation and West European Welfare States’, in Coleman and Underhill, Regionalism and Global Economic Integration. 47 The latter term is, of course, Stephen Gill’s. See his ‘Finance, Production and Panopticism: Inequality, Risk and Resistance in an Era of Disciplinary Neo-Liberalism’, in Stephen Gill (ed.), Globalisation, Democratisation and Multilateralism (London: Macmillan, 1997). 48 Rhodes and van Apeldoorn, The Transformation of West European Capitalism?; Rhodes, ‘Subversive Liberalism’. 522 Colin Hay itself a reputation for competence on the foreign-exchange markets) threaten to further institutionalize a pan-European neoliberal monetary policy.49

Globalization and regionalization

What this would seem to suggest is that, in so far as convergent tendencies can be identified within contemporary Europe, these owe rather more to processes of regional integration than they do to globalization per se. This is perhaps the central argument of the present article and is pursued at greater length in the final section. Before doing so, however, it is first important to clarify what is understood by globalization and regionalization in order that we might specify precisely the nature of the relationship between the two. Much has been written on the relationship between globalization and regionaliz- ation, yet there is precious little agreement amongst those who have put pen to paper on the subject. Some argue that globalization serves to dissolve regional, national and local differences driving a de-territorialized and despatialized process of conver- gence;50 others, however, argue that globalization proceeds by way of a dissolution or ‘hollowing-out’ of the national, serving to reinforce or amplify the significance of regional and local dynamics and interventions;51 still others suggest that regionaliz- ation is a defensive response (and hence counter-tendency) to the perceived threats posed by globalization;52 whilst there are others still who insist that globalization is in fact largely mythical and that the phenomena attributed to it are rather better accounted for in terms of ‘triadization’ or regionalization.53 Clearly there is much at stake in such debates. Much hangs, as ever, on what terms like regionalization and globalization are understood to imply. If, for instance, globalization is merely taken to connote the emergence, development and deepening of processes which transcend the national (processes which are transnational rather than international and which need not necessarily be global in scope), then globalization and regionalization might be seen as synonymous or at least as mutually reinforcing.54 If, on the other hand, as in this 49 Michael J. Artis, ‘The Unempoyment Problem’, Oxford Review of Economic Policy, 14:3 (1998), pp. 98–109; Baimbridge, Burkitt and Whyman, ‘Economic and Monetary Union in Europe’; Stephen Gill, ‘European Governance and New Constitutionalism: Economic and Monetary Union and Alternatives to Disciplinary Neoliberalism in Europe’, New Political Economy, 3:1 (1998), pp. 5–26; 1998; cf. Marco Buti, Daniele Franco and Hedwig Ongena, ‘Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact’, Oxford Review of Economic Policy, 14:3 (1998), pp. 81–97; M. Hodges and Stephen Woolcock, ‘Atlantic Capitalism versus Rhine Capitalism in the European Community’, West European Politics, 16:3 (1993), pp. 329–44. 50 See, for instance, Richard O’Brien, Global Financial Integration: The End of Geography (London: Royal Institute of International Affairs, 1992). 51 Bob Jessop, ‘Changing Forms and Functions of the State in an Era of Globalisation and Regionalisation’, in Robert Delorme and Kurt Dopfer (eds.), The Political Economy of Diversity: Evolutionary Perspectives on Economic Order and Disorder (London: Edward Elgar, 1994). 52 See, for instance, Jagdish Bhagwati, ‘Regionalisation and Multilateralism: An Overview’, in Jaime de Melo and Arvind Panagariya (eds.), New Dimensions in Regional Integration (Cambridge: Cambridge University Press, 1993). 53 Hirst and Thompson, Globalisation in Question. 54 See, for instance, Richard Higgott, ‘Ideas and Identity in the International Political Economy of Regionalization: Asia and Europe Compared’, Kokusai Seiji: Journal of the Japanese International Studies Association, 117 (1997), pp. 14–48; ‘The International Political Economy of Regionalism: The Asia-Pacific and Europe Compared’, in Coleman and Underhill, Regionalism and Global Economic Integration. Globalization, regionalization and national variation 523 article, is taken to refer to a genuinely global (and not merely selectively transnational) condition of (economic) integration between formerly national economies, then regionalization and globalization are likely to be seen as opposed and sharply antithetical.55 Additionally, there are those who see globaliz- ation less as a condition of global economic integration, so much as the process by which such a condition might arise. Amongst those who take such a view, interpret- ations of tendencies towards regionalization (such as the emergence of regional trading blocs) take two forms. Some, like Richard Higgott and Jonathan Perraton et al., see regionalization as a step towards globalization, making the emergence of a genuinely global free market more rather than less likely.56 On the other hand, however, a number of neoclassical economists advocating global , such as Jagdish Bhagwati, see regional trading blocs (such as the EU) as a subversion of the free trade principle established by the General Agreement of Trade and Tarriff (GATT) and hence as a hindrance to the free trade and global economic integration from which (they suggest) we might all benefit.57 Such conceptual diversity has, perhaps understandably, given rise to much contro- versy. This is well illustrated by the analytical disputes which engulf the international political economy of trade. The issues dividing the principal protagonists are well captured by in the following terms: Should the rise of regional trading arrangements be welcomed as a step on the road that will ultimately reinforce global free trade? Or should regional trading blocs be condemned as insti- tutions that undermine the multilateral system? Or, yet again, should they perhaps be accepted more or less grudgingly as the best option we are likely to get in an age of diminished expect- ations? 58 As this passage would suggest, the issue invariably centres on the question of the trade creative or trade diverting consequences of regional trading blocs. Those who see globalization and regionalization as mutually reinforcing tendencies (or even as part of the same tendency) invariably emphasize the trade creating consequences of regional trading blocs, free-trade agreements, customs unions and so forth. Those who see regionalization and globalization as opposed (seeing regionalization, for instance, as a response and hence counter-tendency to globalization) emphasize what they see as the trade diverting properties of regional integration. The argument is perhaps worth pursuing in just a little more detail. Regional trading blocs, fairly obviously, have effects on patterns of global trade. By reducing (and, in most cases eliminating) tariffs (and in some cases non- barriers) between trading nations within the region, free trade agreements and customs unions generate a certain amount of new intra-regional trade. This, it is argued, contributes towards the emergence of a global free market allowing economies (at

55 John Allen and Grahame Thompson, ‘Think Globally, Then Think Again—Economic Globalization in Context’, Area, 29:3 (1997), pp. 213–27; Bhagwati, ‘Regionalization and Multilateralism: An Overview’; Jeffrey A. Frankel, Regional Trading Blocs in the World Economic System (Washington, DC: Institute for International Economics, 1997); Hirst and Thompson, Globalisation in Question. 56 Higgott, ‘The International Political Economy of Regionalism: The Asia-Pacific and Europe Compared’; Jonathan Perraton, David Goldblatt, David Held and Anthony McGrew, ‘The Globalisation of Economic Activity’, New Political Economy, 2:2 (1997), pp. 257–78. 57 Bhagwati, ‘Regionalisation and Multilateralism’. 58 Paul Krugman, ‘Regionalism versus Multilateralism: Analytical Notes’, in de Melo and Panagariya (eds.), New Dimensions in Regional Integration, p. 58. 524 Colin Hay least within the region) to specialize in areas in which they have a comparative advantage without having to worry about the protectionist strategies of other member nations. As such, regional trading blocs are likely to prove trade creating. Yet this is to present only half of the picture. For the elimination of tariffs within a free-trade area and certainly within a is likely to involve the erection of (frequently punitive) regional tariff barriers (militating against external penetration). Such tariff barriers invariably prove trade diverting, in as much as nations previously trading with those outside of the regional trading bloc will now find it rational instead to import from within the regional bloc (or even to resuscitate domestic production in areas in which they do not enjoy a comparative, as distinct from competitive, advantage). This, it is also argued (by liberal inter- national political economists like Bhagwati), is inefficient and can only serve to militate against the development of a global free market. In the end, then, it is a complex and contingent balance between the trade creating and the trade-diverting consequences of regionalization that will determine whether or not globalization and regionalization are reinforcing or mutually exclusive processes. It may well be, then, that certain free-trade agreements may be more globalizing than others. This argument can usefully be generalized from the question of trade. For what the above discussion suggests is that the relationship between globalization and regionalization is a contingent rather than a necessary one. In other words, whether specific processes of regional integration represent globalizing or counter-globalizing tendencies is an open empirical, as distinct from purely analytical, question. Interestingly, this view is severely at odds with much of the literature in this area which tends to be polarized into two camps—that which sees regionalization as a counter-tendency to globalization and that which sees regionalization as a means to globalization. It is precisely such a contingent relationship between globalization and regionaliz- ation which I seek to capture in the final section of this article. In most existing accounts (as in the international political economy of trade), globalization and regionalization tend either to be simply conflated or seen as sharply antagonistic. Yet, as the above discussion serves to suggest, they might more fruitfully be defined in such a way that they remain analytically distinct—such that the invocation of regionalization need not imply globalization and the invocation of globalization need not imply regionalization. Understood in this way, the substantive relationship between regionalization and globalization within the contemporary global political economy is a contingent and, above all, empirical one. Whether deepening regional (economic) integration advances a process of global (economic) integration or not cannot be answered theoretically, dependent as it is on the specific character of the regionalization process being considered. This alternative conceptual framework provides the analytical basis for the final stage of the argument. In the following section I argue that whilst there is consider- able evidence of deepening regional economic integration, there is in fact little evidence of globalizing tendencies driving a process of regional convergence. Such convergent tendencies as we witness seem, by contrast, to be the product either of regional institutional creation (as in contemporary Europe) or of the coercive and regionally-specific interventions of international institutions such as the IMF (as in South East Asia). Whether consensual or coercive, however, such tendencies are Globalization, regionalization and national variation 525 contingent, contested and, above all, authored politically. Such a view contrasts markedly with the economistic depiction of evolutionary selection mechanisms so frequently appealed to in both popular and neoclassically-informed accounts of contemporary convergence.

Regionalization and coercive convergence: a contemporary South-East Asian perspective

If we are to restore notions of political agency to a process of convergence frequently depicted as inevitable, inexorable and global, then it is first crucial that we suspend some of the (casual) neoclassical assumptions which make such an over- generalized and frequently distorted view possible. These assumptions—that markets clear efficiently and instantaneously, that market actors are rational and possess perfect information and that the factors of production are perfectly mobile— certainly become more plausible in the context of globalization, but arguably only to the extent that a neoliberal variant of globalization has itself become ascendant. Once removed, a rather different picture emerges of the politics of contestation and selection amongst competing models of contemporary capitalism. As a growing number of commentators have come to acknowledge, the global free market was not an inevitable and inexorable culmination of centuries of natural selection. As is now well documented, it is in fact the product of a quite explicit (and still relatively recent) political project, in which the US has been an exceedingly powerful actor. The selection mechanisms which neoliberal economics treat as entirely natural— such as free capital mobility (and hence financial globalization itself)—are the product of a wave of financial liberalizing and deregulating activity on the part of the governments of the advanced capitalist economies following the US’s withdrawal from the in 1971.59 It is not difficult to trace the vested interest of the US in preserving such a regime of free capital mobility. What is equally clear, however, is that it is likely to face mounting pressure from East Asia and, indeed, from some quarters in Europe60 for a return to a system of capital controls in the wake of the Asian financial crisis—what Richard Higgott terms the ‘first crisis of globalization’ and David Felix, the ‘crisis of financial globalization’.61

59 See, for instance, , Globalizing Capital (Princeton, NJ: Princeton University Press, 1996); Peter Evans, ‘The Eclipse of the State? Reflections on Stateness in an Era of Globalisation’, World Politics, 50:1 (1997), pp. 62–87; Eric Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca, NY: Cornell University Press, 1994); ‘Explaining the Globalisation of Financial Markets: Bringing the State Back In’, Review of International Political Economy, 2:2 (1995), pp. 315–41; ‘Post-Globalisation: Is the Financial Liberalisation Trend Likely to be Reversed?’, in Robert Boyer and Daniel Drache (eds.), States Against Markets: The Limits of Globalisation (London: Routledge, 1996); Susan Strange, Mad Money (Manchester: Manchester University Press, 1998); Weiss, The Myth of the Powerless State. 60 Lionel Jospin’s oft-cited remarks are here indicative. ‘Capitalism is its own worst enemy. The crisis we have witnessed teaches us three things: capitalism remains unstable, the economy is political, and the global economy calls for regulation’ (cited in Wade and Veneroso, ‘The Gathering World Slump and the Battle Over Capital Controls’, p. 29). 61 Higgott, ‘The Asian Economic Crisis’; David Felix, ‘Asia and the Crisis of Financial Globalisation’, in Baker et al., Globalisation and Progressive Economic Policy. 526 Colin Hay

As Robert Wade and Frank Veneroso point out, the US has (with the UK) the lowest aggregate savings rate amongst the OECD countries (some 15 per cent of GDP) and its household savings rate is the lowest of any major industrial economy in the post-war period (at a meagre one per cent of disposable income). Accordingly, above all else, the US relies on foreign savings to sustain both consumption and investment. This in turn rests on a dynamic and rising stock market. Yet herein lies the tension. For, as Wade and Veneroso note, ‘the interest rates needed to pull in … foreign savings may be too high to sustain the stock market. Eroded profit margins and a fallen stock market will cause multiplying falls in both consumption and investment’.62 The US is, then, rather more precariously positioned than standard models or triumphalist talk of a coming ‘second American century’ might suggest. Yet the crucial point here is that an Anglo-US model of capitalism is hardly naturally selected for in a pristine ‘state of nature’. The current ascendancy of this model rests on the continuing interventions of a range of international institutions in thrall to the US (the IMF, the World Bank, the BIS, the WTO/GATT and so forth)—in short, on what Higgott has aptly termed ‘predatory liberalism’.63 What we see, most clearly in the case of the Asian financial crisis, is the coercive imposition of an effectively neoliberal ‘solution’, now increasingly resisted.64 Once restated in such terms, the much-vaunted convergence of contemporary capitalism looks rather more contingent and, indeed, considerably more precarious than any simple Darwinian analogy would suggest. This is less a case of survival of the fittest than survival, for now, of that closest to the hegemon’s self-image. As Higgott notes, in a passage worth quoting at some length, If the USA and the IMF have their way, then a Western model of liberalization, replacing the Asian ‘high debt model’ may come into place over time. Alternatively, it could see a hardening nationalist [or regionalist?] resistance to neoliberalism … The situation should be seen not only as an economic crisis, but also as an ‘ideas battle’ … Having won the ‘Cold War’ against Soviet-style collectivism, no sooner is one bout of triumphalism over than liberalism is now gleefully protesting its superiority over the ‘developmental statist’ approach towards capitalist economic development.65 Note here the conditional tone of Higgott’s remarks; there is no inexorable logic of selection at work here. The alternative scenario to the rise to global ascendancy of the Anglo-US model is the drawing together of the East Asian region—a tendency evidenced as early as July 1997 in an ultimately abortive (but no less significant) attempt to forge an Asian Monetary Fund. Such proposals were temporarily resuscitated in April 1998. What they indicate is the possibility for the development out of the Asian crisis, and in response to IMF interventions, of a regional institu-

62 Wade and Veneroso, ‘The Gathering World Slump and the Battle Over Capital Controls’, p. 18; see also, Jagdish Bhagwati, ‘The Capital Myth: The Difference Between Trade in Widgets and Trade in Dollars’, Foreign Affairs, 77:3 (1998), p. 11. 63 Richard Higgott, ‘Beyond Embedded Liberalism: Governing the Regime in an Era of ’, in Philip Gummett (ed.), Nationalism and Internationalism in Public Policy (Aldershot: Edward Elgar, 1996). 64 Mark Beeson, ‘Indonesia, the East Asian Crisis and the Commodification of the Nation-State’, New Political Economy, 3:3 (1998), pp. 357–74; Felix, ‘Asia and the Crisis of Financial Globalisation’; Higgott, ‘The International Political Economy of Regionalism’; ‘The Asian Economic Crisis’; Wade and Veneroso, ‘The Gathering World Slump’. 65 Higgott, ‘The Asian Economic Crisis’, pp. 338–9. Globalization, regionalization and national variation 527 tional architecture designed to preserve the distinctiveness of an Asian develop- mental capitalism. In this context, discussion of a single currency area and the more general desire for an enhanced regional policymaking capacity which this reflects cannot be dismissed. As Higgott again reminds us, the crucial point of these avenues of exploration is not their immediate significance. Nor is the point to underestimate the difficulties of such policy coordination in the region. Rather, it is to suggest we would be naive not to think that at some stage Asians will not introduce greater regional institutional mechanisms for the common management of financial questions.66 Such a dialogue and the processes of further integration to which it may well lead has arisen out of crisis. It is, moreover, perhaps unthinkable without such crisis and without the subsequent interventions and exhortations of the IMF and US govern- ment. Whilst the Asian crisis, then, might be seen, in Greenspan’s terms, as a ‘weapon in … the normatively laudible process of convergence’ 67, there are clearly a range of potential scenarios not all of which are nearly so comforting to the agents of a predatory neoliberalism. Whatever the outcome of this trial of the Washington Consensus, it does suggest that an altogether different, and arguably rather more subtle, perspective on these issues can be introduced if, instead of positing global convergent tendencies, we disaggregate this selection process more regionally. Indeed, it is important to emphasize at this point that whilst the coercive convergence referred to above might apply to developments in contemporary Asia and Latin America (however resisted it may be in both cases), it is by no means similarly applicable to other regional contexts. Regional institutional building may also serve to establish selection mechanisms which may militate against certain models of capitalism in a rather more consensual manner. The European Union provides perhaps the best example, as the extent of economic integration is clearly the most advanced. What this merely serves to demonstrate, however, are the dangers of an overly generalized aggregate picture of globalization (as in the casual neoclassicism of the business school globophiles) as a selection process in its own right.68

Regional integration and consensual convergence: a contemporary European perspective

In so far as economic and political pressures, processes and mechanisms ‘select for’ certain social models over others in contemporary Europe, it is the processes of regional integration rather than global integration that have proved—and are likely to prove—most significant. Given the argument developed thus far this may seem somewhat paradoxical. For, if as I have argued, the institutional and cultural media- tion of common pressures occasioned by globalization (such as financial liberaliz-

66 Higgott, ‘The Asian Economic Crisis’, p. 343. 67 Ibid., p. 349; , speech to the Annual Convention of the Independent Bankers Association of America, 3 March 1998. 68 This, of course, is not to suggest that globalization and regionalization are not related, but merely that the specific nature of that relationship (as we shall see) is specific to the region being considered. 528 Colin Hay ation and consequent heightened capital mobility) ensures, at best, continued difference or diversity rather than a clear logic of convergence, how is is that regional tendencies to convergence are not similarly mediated and refracted? The argument is, in fact, simply stated. The institutional capacity of individual member states to respond to common pressures associated with globalization (such as heightened capital mobility) is significantly affected, indeed attenuated, by the existence of regional institutions. In this manner, although national differences will clearly remain (indeed, in many respects, are likely to become more significant), the institutional architecture of European integration is likely to prove selective of certain national competitive strategies (and modes of adaptation to international economic trends more generally) over others. Whilst, then, in the absence of regional institutions the mediation of globalising tendencies may result in the reproduction of national difference and diversity, in contexts in which there is a greater density of regional institutions, globalising tendencies may produce regional convergence. As argued above, the character of the integration process seems itself to have evolved since its rather high-minded inception as an essentially political project. Through a process of levelling downwards and residualization—of ‘negative integration’70—it is now little more than an institutionalised liberalization process.71 The institutional architecture of EMU may well serve to select for neoliberal policy regimes at the national level whilst militating severely against the persistence, resuscitation or extension of European social models. Of course, to point to the neoliberal selection mechanisms associated with the process of EMU does not necessarily discriminate well between arguments suggest- ing that globalization is the principal process operating here (and that EMU is merely epiphenomal of globalization) and those (such as that advanced here) that it is EMU rather than globalization which might best accounts for such a neo- liberalization.72 It is important, then, that we consider why the process of European integration should have acquired the characteristics of a default neoliberalism, despite the best intentions of its original authors. Two points might here be noted. First, given the effective veto powers of EU member states over policy details relating to the integration process (such as labour-market regulation, tax harmoniz- ation and social policy), the upward integration naively envisaged by the likes of Delors himself was always likely to yield to downward integration to a lowest- common-denominator level. That level, as we are in the process of discovering, is much closer to the British variant of Anglo-US neoliberalism than it is to the ‘European social model’ which animated the original vision of the integration process. Second, the projection of processes of economic management from the national level to the regional level through, for instance, the creation of an independent European Central Bank, may itself be corrosive of the often fine- grained institutional interactions at the national level which made possible more coordinated forms of capitalism (such as that of the German model).73 In this sense,

70 Rhodes, ‘Subversive Liberalism’. 71 Baimbridge, Burkitt and Whyman, ‘Economic and Monetary Union in Europe’; B. Connolly, The Rotton Heart of Europe: The Dirty War for Europe’s Money (London, 1995); Alan Milward, ‘Approaching Reality: Euro-Money and the Left’, New Left Review, 216 (1996), pp. 55–65. 72 I am indebted to David Coates for pointing this out to me. 73 Thus, as argued below, it may well be the very fact of a European monetary policy rather than the conduct of such a policy (when contrasted, say, to that of the Bundesbank) which compromises the national wage-bargaining regimes characteristic of the German model—and, with it, the model itself. Globalization, regionalization and national variation 529 economic integration (certainly in the absence of similarly advanced political and social integration) may itself imply a certain neoliberalization and a residualization of social models. Though by no means a categorical refutation of the globalization thesis, this does suggest that we might adequately account for the default neo- liberalism of the (rather more contingent) process of European integration without the need to refer to the more inevitable and inexorable selection mechanisms appealed to in the literature on globalization. It also suggests than, in the first instance at any rate, it is the character of European integration rather than the competitive imperatives of globalization per se which selects for a default neo- liberalism in contemporary Europe. Moreover, even were we to remain impressed by arguments positing such generic and global selection mechanisms, the above discussion serves to demonstrate the need to consider their regional (and, indeed, their national) mediation. Such a recognition can only serve to emphasize that any convergent tendencies that can be identified within the contemporary global political economy are rather more complex and contingent than the invocation of globalization would suggest. Consider wage-bargaining. As recently argued by Peter Hall and Robert Franzese, the interaction between the character of the central bank and the collective bargaining system at the national level is a strong factor determining the rate of unemployment.74 As David Soskice and Torben Iversen explain, ‘when [as, for instance, in the German model] wage setting is coordinated across the different sectors of the economy, wage-setters know that they will have an effect on economy- wide prices and therefore have an incentive to pay heed to threats from an independent bank that an inflationary bargain will not be tolerated’.75 Thus, as IG Metall effectively gets to set the wage level for an entire sector of the economy it is more likely to take account of the potentially inflationary pressures arising from its wage negotiations than is likely in a system of uncoordinated wage bargaining. All this changes, however, with monetary integration, raising the prospect of wage-push inflation once again if coordinated wage-bargaining is not to be projected onto a pan-European stage (itself highly unlikely). The conclusion reached by both Hall and Franzese and, more recently, Soskice and Iversen is simply stated: “when individual economies, each with relatively coordinated/centralised wage bargaining and independent central banks, are merged together into a single currency area with one central bank, overall wage coordination will decline”.76 Accordingly, if the European Central Bank behaves in as similarly a ‘non-accommodating’ manner as the Bundesbank (upon which it has been modelled) the result will be higher unemployment. Arguably the inauspicious combination of rising unemployment and an effective dismantling of coordinated wage-bargaining where it matters (as IG Metall, for instance, increasingly comes to flex its bargaining muscle in successive wage rounds)77 undermines significantly the German model, as indeed it may its Dutch and Scandinavian counterparts.

74 Peter A. Hall and Robert J. Franzese, ‘Mixes Signals: Central Banck Independence, Coordinated Wage Bargaining and European Monetary Union’, International Organisation, 52 (1998), pp. 502–35. 75 David Soskice and Torben Iversen, ‘Multiple Wage-bargaining Systems in the Single European Currency Area’, Oxford Review of Economic Policy, 14:3 (1998), pp. 110–24, p. 111. 76 Soskice and Iversen, ‘Multiple Wage-bargaining Systems’, p. 112. 77 As, indeed, in the current one. See Soskice and Iversen, ‘Multiple Wage-Bargaining Systems’, p. 112. 530 Colin Hay

The postwar success of the such European social and economic models was founded on the ability to integrate labour and to reconcile the often antagonistic interests of financial and industrial capital (ensuring the dedicated provision of investment capital to sustain -led industrial growth strategies). European monetary integration, at least in its current form, threatens to dissolve this happy convergence of interests. Moreover, it is not merely the renewed prospect of wage-push inflation which threaten to select for a more residual (neoliberal) economic and social model within Europe. As Martin Rhodes persuasively argues, the impossibility of competitive devaluations within the context of the Single European Currency is likely to (further) encourage the use of competitive deregulation and what he terms ‘social ’—“the reduction of wage costs by a reduction in the level of social charges and social cover for employees”.78 This can only serve to dilute existing social provisions, once again suggesting a residualizing (or neoliberalizing) evolu- tionary selection mechanism. More immediately still, harmonization of VAT is likely to place significant residualizing pressures on welfare regimes (such as the Danish) funded to a significant extent through indirect taxation.79 Though by no means a comprehensive analysis, this does serve to suggest the centrality of the process of deepening economic integration to default neoliberaliz- ation within contemporary Europe. It also suggests that the character of regionaliz- ation (certainly in contexts, like the European one, where it is most advanced) may be a rather more significant determinant of convergent or divergent tendencies than globalization per se.

Conclusion

The irony of the above analysis is, of course, that the dismantling (or, at least, the residualization) of the ‘European social model’ and the tendencies towards global convergence on an Anglo-US model that it would seem to confirm (Asian resistance to the neoliberal interventions of the IMF notwithstanding), are the product not of explicit ‘Americanization’ but of ‘Europeanization’—of deeper European integration. What this serves to highlight is the contingent nature of convergence within contemporary capitalism. History may indeed be made by actors, but, to paraphrase Marx, it is not made in circumstances of their own choosing. European and Asian history are currently being refashioned. Yet what is perhaps most significant and disturbing about both processes is the image in which that reconstruction is cast—an Anglo-US image. Nonetheless, whilst in the European case, that process is, as yet, consensual and self-imposed, in Asia the contingent process of convergence has been externally imposed and is increasingly resisted. Whilst that resistance persists and intensifies, the global ascendancy of an Anglo-US neoliberal capitalism is by no

78 Rhodes, ‘Subversive Liberalism’, p. 106; see also Yves Chassard and Odile Quentin, ‘Social Protection in the European Community: Towards a Convergence of Policies’, International Social Security Review, 45:1–2 (1992), pp. 91–108. 79 Pekka Kosonen, ‘National Welfare States and Economic Integration in Europe’, paper presented at the COST A7 Workshop, Convergence or Divergence? Welfare States in the Face of European Integration, 9–11 June, Sorø, Denmark, 1994; Rhodes, ‘Subversive Liberalism’, p. 106. Globalization, regionalization and national variation 531 means guaranteed. As Richard Higgott concludes his own commentary on the Asian crisis, ‘events in Asia represent less the final ideological triumph of liberalism in a post-Cold-War era than a context for rethinking significant aspects—especially continued capital deregulation—of the neoliberal project’.80 Contemporary develop- ments, both within and beyond the European Single Currency Area, can only lend further urgency to such calls to think again. With every day that passes, the (still) contingent convergence of contemporary capitalism becomes ever more institu- tionally embedded.

80 Higgott, ‘The Asian Economic Crisis’, p. 334.