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Library of Congress Cataloging-in-Publication Data
Names: Fairbrother, Malcolm, author.
Title: Free traders : elites, democracy, and the rise of globalization / Malcolm Fairbrother. Description: New York : Oxford University Press, [2019] | Includes bibliographical references and index.
Identifiers: LCCN 2019012351 | ISBN 9780190635459 (hardback) | ISBN 9780190635466 (pbk.) | ISBN 9780190635473 (updf) | ISBN 9780190635480 (epub) | ISBN 9780190635497 (online)
Hardback printed by Bridgeport National Bindery, Inc., United States of America
CONTENTS
List of Figures vii
Preface ix
Acknowledgments xi
Chronology xv
1. Explaining the Rise of Globalization 1
2. Why Globalization Didn’t Happen, 1948–1982 32
3. Canada: To Secure and Enhance 58
4. Mexico: Rise of the Technocrats 76
5. The United States: Divided Hegemon 94
6. Did Economists Cause Globalization? 113
7. Does Business Exist? 139
8. Conclusions 163
Afterword: The Legacies of North American Free Trade 182
Appendix A: List of Interviewees 205
Appendix B: Archives Consulted 211
References 213
Index 245
FIGURES
1.1 Trade Openness, 1950–2011 6
1.2 Trade and FDI as Shares of World GDP, 1951–2014 8
3.1 Canadian Foreign Direct Investment, 1950–2000 63
4.1 Mexico’s Trade Openness and Democracy over Time 86
5.1 Advertisement appearing in the Boca Raton News, November 8, 1993 104
8.1 Democracy and Trade Openness in Chile, 1950–2012 169
8.2 Democracy and Trade Openness in Thailand, 1950–2012 175
A.1 National Economic Output Per Capita, 1980–2015 186
A.2 Productivity, 1978–2016 187
A.3 Real Minimum Wages, 1960–2016 194
PREFACE
Politics is not just about interests; it’s also about ideas. This book is about the peculiar ideas that gave us the global economy we have today.
These ideas helped hold together coalitions of elites who pushed through the policies and international agreements that made globalization happen. Without these coalitions, free traders would have struggled to get their way, given the public’s doubts and the frequent civil society opposition to globalization. The ideas motivating free traders bear striking similarities to the mercantilist ideology that dominated economic thinking in early modern Europe. Surprisingly, then, ideas that economists rejected long ago remain central to international economic policymaking today. Maybe even more surprisingly, scholars have not noticed the contradiction; instead, many have exaggerated globalization’s legitimacy by saying its rise since the 1980s has been based on mainstream academic economics.
The book tells the story of globalization from the perspective of North America in the late twentieth century. It uses case studies of how Canada, Mexico, and the United States proposed, negotiated, and ratified two free trade agreements that substantially opened and integrated their economies. On the basis of more than a hundred interviews and analyses of materials from archives in all three countries, the book provides a new history of the political origins of the bilateral Canada-US and the trilateral North American Free Trade Agreements (CUFTA and NAFTA). Building on prior work in sociology, political science, economics, and history, this comparative-historical analysis examines the rise of globalization in the sense of growing international trade and investment, plus states’ adoption of new commitments in a range of other areas addressed by recent trade agreements. These include most notably, and controversially, investor and intellectual property rights.
The book shows that these agreements have had little to do with the preferences of the median voter, or the incentives of democracy. There have
been systematic differences in the politics of globalization in developed and developing countries, but in both contexts governments have had to buy off businesspeople who were skeptical of free trade, using favorable and often protectionist content in the agreements they negotiate. This domestic cooptation has pitted nations against nations, and helps explain the mercantilist character of international trade negotiations.
The prevalence of mercantilist ideas matters not just because of their consequences for free trade. Mercantilism also shapes domestic political conflicts. People who believe that nations compete are less likely to protect the environment, or to support ordinary workers and the poor. They also blame globalization for problems not of its making; the very ideas used to sell it have also sowed the seeds of the current backlash against it.
ACKNOWLEDGMENTS
My work on this book began an embarrassingly long time ago, in a grad school far, far away. The project took me to Mexico City, Ottawa, and Washington, DC, and to archives across North America. It followed me, on and off, as I moved to England and then on to Sweden. During many years of work, I accumulated many debts.
First, I have above all been the beneficiary of lots of love and support from my family—my parents, siblings, their partners, and many nieces and nephews. I feel fortunate to have them all in my life. I was also lucky to get as much time as I did with my English grandparents, and my uncle.
Next, I would like to thank my advisers at the University of California, Berkeley: Peter Evans, Michael Burawoy, Marion Fourcade, and Richard Walker. I thank them all for their input and patience. I should also mention that Fred Block generously served as a kind of bonus committee member, from his vantage point at UC Davis.
Also in my years at Berkeley, and during fieldwork back and forth across North America, I was supported by a great many friends—too many for me to name them all. Among those to whom I am particularly grateful, I should mention Ofer Sharone, Ana Villalobos, Manuel Vallee, Simone Pulver, Basak Kus, Isaac Martin, Keyvan Kashkooli, and Eréndira Rueda. Away from the university, the friendship of Eric Greene and Vanessa Ramirez, and the support and inspiration of the BZC and CZM communities made a big difference. Tom Medvetz stands apart, not only as a good friend (and flatmate on two separate occasions), but also someone who shaped my thinking a great deal over the years.
My fieldwork would not have been possible without the warm welcome I received at a number of academic institutions: the Centro de Investigaciones sobre América del Norte at the Universidad Nacional Autónoma de México; the Centre on North American Politics and Society at Carleton University in Ottawa;, and the Center for Latin American Studies at Georgetown University in Washington,
DC. The libraries of the Colegio de México, Centro de Investigación y Docencia Económicas, George Washington University, and Concordia University also gave me access to their collections.
As I developed the ideas and arguments that appear here, I received thoughtful feedback from many individuals and audiences. Nitsan Chorev’s input stands out: at a crucial moment, she gave me detailed comments on a long paper, and let me know that I needed to up my game; in hindsight, it was just what I needed to hear at that time. I also benefited from feedback and conversations about my study at the Institute for Qualitative and Multi-Method Research at Arizona State University. More recently, this book’s main arguments have benefited from the comments of anonymous Oxford University Press reviewers who read both the book proposal and the full manuscript. American University’s North American Research Initiative has been a congenial community within which to discuss issues of regional cooperation and integration.
In 2007 I moved to England, and thus began ten years in the School of Geographical Sciences at Bristol University, with many wonderful colleagues. Four in particular stand out: Kelvyn Jones, Jeff Henderson, Adam Dixon, and Sean Fox. Every young academic should be so lucky as to have smart and caring mentors like Kelvyn and Jeff, and blindly loyal cheerleaders like Adam and Sean. Near the end of my time at Bristol, I benefited from a year’s sabbatical funded by the university’s Institute for Advanced Studies. That year not only gave me much-needed time to work on this and several other projects, but I got to know two academic hosts at institutions abroad—Diana Zavala-Rojas and Cristiano Vezzoni—who became excellent friends, and supported me through some challenging times.
A postdoctoral fellowship at UC San Diego’s Center for U.S.-Mexican Studies helped get me through the awkward period between finishing my PhD and landing a permanent academic post. A small grant from the British Academy enabled additional archival research that made the case studies here far more robust.
I am indebted to my interviewees, for giving me their time and considered answers to my questions. Many of these people would surely disagree with large parts of this book, but they still influenced my thinking a great deal. I am also very grateful for the work and assistance of the many archivists who helped me locate relevant materials.
I gratefully acknowledge permission to reuse some material previously published in three articles (in the American Journal of Sociology, Review of International Political Economy, and Politics & Society) plus a book chapter in Hegemonic Transitions, the State and Crisis in Neoliberal Capitalism (published by Routledge).
In 2017 I moved to Sweden, and since then I have benefited from the support of many new colleagues. Stefan Svallfors, Gustaf Arrhenius, and Sverker Jagers are all exemplary scholars who have given me valuable advice and new opportunities. Jan Mewes and Mo and Erin Eger were big reasons I moved to Umeå in the first place. Maureen also provided helpful feedback on some chapters at a late stage, as did Per Wisselgren and Anna Baranowska-Rataj on Chapter 1 long before. Umeå University and the Institute for Futures Studies have given me time to think and write; I do not take that for granted.
Finally, thanks above all to my wife Ava for coming into my life at just the right time (bringing the rest of the remarkable Hassens, plus a small dog, along for the ride). Since then she has not let me take myself too seriously, and without her good-humored support I doubt I would have been able to finish this book. One day in 2018 when I was moaning about how the “new NAFTA” keeps changing and so how can I stop writing about the old, she started singing the chorus of the music to “The NeverEnding Story.” That’s the kind of thing she does to keep me going.
CHRONOLOGY
1973 Canada and Mexico both introduce restrictive foreign investment laws.
1980 Canada and Mexico reject the idea of North American integration. Mexico decides not to join GATT, after negotiating an accession protocol.
1982 Severe international recession.
Mexico briefly defaults on its foreign debt.
1984 Progressive Conservative government of Brian Mulroney elected in Canada.
1985 Canada formally requests to negotiate free trade with the United States.
1986 CUFTA negotiations begin.
Mexico joins GATT.
1987 CUFTA negotiations end.
1988 Mulroney Tories re-elected in Canada, on a platform to enact CUFTA. Carlos Salinas de Gortari becomes president of Mexico.
George H. W. Bush elected US president.
1989 CUFTA goes into effect.
1990 Mexico approaches the United States about negotiating a free trade agreement.
Canada requests to participate, and the United States and Mexico agree.
1991 Start of NAFTA negotiations.
1992 End of NAFTA negotiations.
Bill Clinton elected US president.
1993 Negotiations on labor and environmental side-agreements. Each country ratifies NAFTA.
Liberal government of Jean Chrétien elected in Canada.
1994 NAFTA goes into effect.
Explaining the Rise of Globalization
Democracy legitimates.
Everything else being equal, in today’s world it is harder to criticize or to question something that is democratic. In almost all the world’s nations, democracy is now such a powerful ideal commanding such widespread loyalty that even most dictators say their countries are democracies; it would be awkward to admit otherwise, if not self-destructive. It matters whether or not a government and its actions are perceived as democratic. And that is true even though the meaning of democracy is highly malleable. If asked to define it, many people would say something about abstract principles like freedom, accountability, inclusion, rule by the people, the popular will. A lot of social science takes a narrower, more practical view and defines countries as democracies as long as they hold free and fair elections on a regular basis. Other scholars say the only real proof of democracy is when competitive elections actually change the government.
Whatever the definition, there are certainly a lot of social scientists working to identify democracy’s causes and consequences. And given the legitimacy attached to democracy, anything they identify as a cause or a consequence immediately itself becomes more legitimate. This book is about one of the most significant global trends of the last thirty years, and something whose relationship with democracy—and therefore whose legitimacy—has been debated during all of that time: globalization, in the sense of expanding international trade and foreign direct investment.
Globalization, in this sense, may feel a little abstract; but some comparisons with the past can make it more concrete. It used to be that consumers who wanted to buy something made in another country had to pay a hefty premium to do so—when they could get goods and services from abroad at all. Firms that wanted to invest in a foreign country and establish some kind of operation there were often turned away, or allowed access only to specific economic sectors. In the late 1980s, though, this sort of national segmentation in economic life started to fall away. And governments chose to make it happen. Before that, they had been skeptical about the merits of allowing most cross-border flows of goods,
services, and capital; suddenly they changed their minds and decided that these were actually good things. In some cases, they even decided to negotiate international agreements limiting their own freedom to restrict international trade and investment. This book asks why the priorities of so many policymakers around the world changed so much compared to before—and what, if anything, that change of priorities had to do with democracy.
One of the reasons for thinking there might be a relationship is that just when many countries were opening up their economies—in the late 1980s and through the 1990s—many were also transitioning to democracy. Statistical analyses, discussed further below, find the two variables are correlated: countries that transitioned to democracy have opened their economies more than countries that did not. There is little debate that the correlation is real, but what is more contentious is that those scholars who emphasize the correlation tend to go further and claim the statistical relationship is causal. Their argument is that democracy makes governments accountable to voters, and the majority of voters stand to benefit from freer trade and investment.1 Under authoritarian regimes, on the other hand, this school of thought holds that powerful social elites—business owners, executives, and professionals—stand to lose out from globalization, and so they use their privileged access to politicians to override the will and interests of the majority. If this theory, which I will call “liberal,” is correct, the rising democracy of many nations in recent decades may well have been the most important factor behind the ascent of globalization.
Does this theory matter? It is certainly an influential perspective in the literature on globalization. But outside of academia, it is also consistent with informal suggestions by many advocates and commentators that globalization possesses the legitimacy of democracy—maybe even that political and economic liberalization are mutually reinforcing freedoms.2 If in some sense globalization rests on democratic political foundations, and/or reflects the will of ordinary people rather than a narrow elite, then its legitimacy is harder to question.
And yet one of the striking qualities of the academic literature on globalization is its encompassing studies at complete variance with each other. While the liberal scholars take globalization’s benefits for the many as a given, others see them as a fiction. This second group of scholars—whom I call “critics”—argue that instead of encouraging the rise of globalization, democracy was if anything an impediment to it. In defending this view, critics argue that trade negotiators meet behind closed doors and only disclose the outcomes of their work when they present agreements for final ratification, by which time few opportunities
1 Eichengreen and Leblang 2008; Liu and Ornelas 2014; Mansfield and Milner 2012; Mukherjee 2016; Pandya 2014.
2 Friedman 1999; Micklethwait and Wooldridge 2000; Moore 1999.
for amendments remain. Only select parties, therefore, get their voices heard in such negotiations. Once international agreements are enacted, moreover, critics point out that they tie governments’ hands. For these reasons, the critics say that globalization rests on undemocratic foundations.3 They argue that the real force behind the rise of globalization in the last thirty years has been the rich and powerful: business executives, owners, and corporate professionals.4 Amazingly, these kinds of economic elites are just the people that the liberal perspective says were opposed to globalization.
In short, contradictory views of the relationship between democracy and globalization map onto similarly contradictory assumptions about globalization’s effects. Some scholars believe in its benevolence and attribute its political success to the will of the majority; others believe in its malignance and point to the preferences of a privileged minority. Some see the displacement of elites, others their dominance. Globalization’s foundations, then, are as contested as its consequences.
The stark divide between the liberal and critical literatures reflects that they barely talk to or even acknowledge each other, much less try to reconcile their differences. This mutual ignorance, if not disdain, is unfortunate. The proliferation of parallel research programs engaging separately with many of the same topics and problems is not efficient or intellectually productive. My objective in this book is to bring the diverse literatures on globalization together, especially since, I will argue, each community of scholars possesses insights the other needs to hear. Above all, the two literatures disagree about the role of business. From the democracy-based, liberal perspective, there is little chance of a nation’s businesspeople uniting in support of free trade. International integration inevitably represents more of a threat than an opportunity to many firms and industries, such that their owners and managers should not want it. If this is correct, economic elites cannot cohere enough to support globalization, as a group. Still, by the logic of the economic model underlying the democracy-based arguments, if the private sector were to lobby for globalization, it would be more likely to do so in developed rather than developing countries. And, for the most part, that is what this book shows to be the case. Economic elites have provided strong, often proactive support for globalization initiatives in richer countries; in poorer ones they have tended to be more lukewarm, passive, and divided. In these latter contexts, instead of private sector preferences, states’ decisions to pursue globalization have reflected the changing worldviews of political elites themselves. Since the 1980s, there has been a marked increase in the number
4 E.g., Duménil and Lévy 2004; Dreiling and Darves 2011, 2016; Harvey 2005; Kotz 2015; Panitch and Gindin 2012; Sklair 2002; Robinson 2014.
of politicians and senior bureaucrats in developing countries holding advanced degrees in neoclassical economics—training that makes them firm believers in liberal trade and investment policies. Supporting the thrust of the critical literature, then, this book shows that globalization has been a project of elites—but two different kinds in two different contexts.
Both the liberal and the critical perspectives, then, get it partly right and partly wrong. The former is correct in expecting that the private sector will be riven by conflicts of interest with respect to freer trade and investment. It is clear that many industries are skeptical, because governments routinely have to buy off their opposition, by providing concessions like long transition periods and antiliberal protections against imports from third countries. The critical literature rightly emphasizes the near-unanimous support for globalization that these concessions generate, but it fails to acknowledge that unanimity is the result of a process. The liberal literature, in contrast, recognizes these concessions, but expects them not to work nearly as well as they do. According to the trade models the liberal perspective adopts, protection for one industry imposes offsetting costs on others and so should generate no net additional support. But it does.
If most people derive few (or negative) benefits, to what do critics say globalization owes its seeming popularity? Much of the literature suggests that politicians and the public have welcomed liberal trade and investment policies because they have come to believe economists’ ideas. The liberal literature also suggests, albeit more implicitly, that policymakers think like economists. On this point, oddly, the liberal and critical literatures therefore actually agree. But here both perspectives are incorrect. Unless they are themselves trained in economics, politicians subscribe much more to a kind of folk economics, far removed from the trade theory of economists, based on the lived experience of businesspeople. In other words, the private sector is so powerful that its worldview dominates the public and political spheres. It is not the technical ideas of economists that influence policy, as many economists themselves remark (and bemoan). Ironically, then, in this sense the critical literature underestimates the power of business and exaggerates the legitimacy of globalization’s intellectual foundations. The substance of the public advocacy for globalization, the character of international trade negotiations, and many of the contents of the resulting agreements do not derive much from economic science. One telling feature of globalization (and one that economists find especially perplexing) is its pervasive “mercantilism.”
That is, not unlike European powers in the sixteenth to eighteenth centuries, nations seek access to foreign export markets and only grudgingly concede import access to their own. Many people find nothing surprising about this. But, from economists’ point of view, it is actually perverse: they say instead that countries stand to gain from opening up their own markets no matter whether any other
country does. So while the mercantilist ideas of early modern Europe have long since been discredited in mainstream economics, that is not true elsewhere. To most people, the mercantilist worldview makes much more sense. And that is particularly so for businesspeople, as mercantilism extrapolates the situations of individual firms to those of whole countries.5
Overall then, this book sides with the core of the critical perspective, though it also shows that elite-based explanations of globalization have come to the right general answer for the wrong specific reasons. Critical accounts provide misleading or at least partial explanations of why elites support globalization, and the liberal literature helps resolve these problems—even if it substantially underestimates the power and influence of elites.
In examining globalization in the forms of trade and direct investment, this book focuses on the kinds of international agreements that states have used to liberalize these two things. Such agreements have often incorporated commitments in other areas—notably investor and intellectual property rights, which I will describe in future chapters. The arguments I elaborate apply specifically to these forms of globalization, and not to many others—such as international financial integration, increasing migration, and expanding flows of information across borders. These forms of globalization differ in being less driven by changes in public policy.6 Policy changes have not been the only reason why trade and investment have grown so much, but the evidence suggests they have made more of a difference than anything else.7
I test arguments about the rise of globalization by assessing their consistency with the experiences of three specific country cases: Canada, Mexico, and the United States. The book considers how these countries proposed, negotiated, and ratified two agreements that substantially opened and integrated their economies after being enacted in 1989 and 1994—see Figure 1.1. These were historically important agreements: the bilateral Canada-US and trilateral North
5 These folk mercantilist ideas are little related to the structuralist or developmentalist ideas of serious economists who believe in the merits of industrial policies or the protection of infant industries. For these purposes, some economists think some restrictions on trade and investment can be beneficial (particularly for developing countries); but that is not the same as rejecting the very idea of comparative advantage. Ha-Joon Chang is one well-known development economist, for example, who argues for the merits of selective liberalization at most; but he acknowledges the concept and analytical usefulness of comparative advantage (see Chang 2013). Mercantilism, as I use the term here, means a crude set of ideas that few if any serious economists embrace today.
6 Garrett 2000.
7 Baier and Bergstrand 2001, 2007; Büthe and Milner 2008; Goldstein, Rivers, and Tomz 2007; Neumayer and Spess 2005. The decline of war among nations in recent decades has also been a contributing factor, as well as the development of new communication and transportation technologies (e.g., Findlay and O’Rourke 2009).
Figure 1.1 Trade Openness, 1950–2011. Source: Penn World Table 8.0.
American Free Trade Agreements (CUFTA and NAFTA) set precedents that changed the world of international economic relations. At the time of NAFTA’s creation, no other agreement had established such deep ties among countries at such different levels of development as the United States and Canada, on the one hand, and Mexico on the other. For these reasons alone, the origins of North American free trade—these two agreements taken together—are worth understanding. But for the purposes of this book, these three countries are especially valuable as cases given the diversity of their circumstances and experiences. They arrived at North American free trade in distinct ways, though those ways were typical given the types of countries they are.
The US government was enthusiastic about free trade throughout the post–World War II period, including on a regional basis in North America. That CUFTA and NAFTA were only negotiated near the end of the twentieth century was not due to a lack of earlier interest on the part of the United States, but of Canada and Mexico, who rejected proposals for broad-based regional integration. Their economies have always been dwarfed by that of their much larger neighbor, and for a long time their governments sought to keep their distance in order to manage the risk—as they saw it—of American domination. There were striking parallels in their experiences. In 1973 both Canada and Mexico passed nationalist, restrictive foreign investment laws. In 1980 they issued a joint statement rejecting many American politicians’ proposals for continental economic integration. And yet within ten years the governments of both countries would recant. Canada agreed to negotiate free trade with the United States
in 1985, Mexico in 1990. Consistent with the experiences of most developed and developing countries elsewhere, Canada’s decision followed a change of priorities on the part of business, and Mexico’s the ascendance of neoclassical economists inside the state. When opponents threatened to derail free trade, the national business communities in Canada and the United States campaigned aggressively in favor. Parts of Mexican business did too, but in that country the state had to work harder to cultivate support from others. In all three countries, economists endorsed the goal of regional free trade, lending it intellectual legitimacy, though the ideas motivating their endorsements resonated little outside their own circles.
This book describes these decisions, and tells the stories of the people who made them, identifying the barriers they had to overcome in order for free trade to become a reality in North America. It uses this material to assess existing theories of the ascendency of globalization, and to correct and complement them with new insights about that ascendancy. The next section of this chapter elaborates these arguments, explaining how existing theories of globalization are useful in some ways but inadequate in others.
Democracy, Elites, and Globalization
It’s easy to forget what the world was like before globalization. It was in the early 1990s that observers began remarking on a “rush to free trade,” as Dani Rodrik put it in 1994. The changes are especially stark in the developing world. By one measure, only 37 out of 140 countries were open to international markets in 1980, and of those 37 only 15 were developing countries.8 By 2000, the world had changed dramatically; 103 countries were open. Meanwhile, trade expanded further in the already “open” developed world, such as through European integration, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the relaxation of barriers to imports in Australia and Japan, and the negotiation of free trade in North America. Foreign direct investment (FDI) and the multinationalization of production also expanded dramatically, from less than 5 percent of gross domestic product (GDP) globally in 1980 to more than 30 percent by the end of the 2000s—see Figure 1.2.
But these trends don’t represent all of globalization. Trade and investment have been liberalized largely through the negotiation of international agreements whose contents also address other matters—most notably,
8 The data set, described and made available in Wacziarg and Welch (2008), is an updated and refined version of one generated originally by Sachs and Warner (1995).
(Stock)
Figure 1.2 Trade and FDI as Shares of World GDP, 1951–2014. Sources: Penn World Table 9.0; UNCTAD.
intellectual property rights and investor rights, including quasi-judicial systems for resolving conflicts with host country governments.9 This book shows that this content— governance provisions favorable to investors— has been central to the rise of globalization. In this sense, to examine only quantifiable rises in trade and investment as shares of GDP would miss one of globalization’s crucial features. Similarly, some might object that initiatives like CUFTA and NAFTA are not “real globalization,” since they are regional and preferential rather than global and nondiscriminatory. From economists’ point of view, regional and preferential agreements distort trade flows, inefficiently diverting countries’ economic relationships toward parties to such agreements at the expense of nonparties.10 In this strict sense, it is true that regional agreements are not a pure form of globalization. Dismissing them, though, would require obtusely overlooking how much of all international economic integration has been organized on a bilateral or regional basis.11 This book treats the regional, partial character of globalization (plus the governance content of globalizing agreements) as a feature to explain, not a deviation from some idealized form of integration that is in reality the exception and not the rule.
Having defined globalization for the purposes of this book, I will now summarize the main approaches previously used to explain it. I begin with the liberal literature.
9 McBride 2006; Shadlen 2005.
10 Baldwin 1997; Bhagwati 2008.
11 Duina 2006; Fligstein and Merand 2002.
Democracy and the Power of Public Opinion
The common thread running through the liberal literature is its adoption of economists’ view that restrictions on trade and investment are generally costly and undesirable. Statistical research in this literature finds that democracy has been associated with international economic liberalism in recent decades,12 a period when many countries have transitioned to more politically liberal regimes.13 Compared to countries with authoritarian governments that have survived, those that have turned democratic have experienced larger increases in trade flows, tariff reductions, and more liberalization of nontariff barriers to trade.14 Similar results hold for direct investment.15 If democracy is taken somewhat more abstractly to be relative equality of power in society, there is other evidence for the proposition that democracy and economic openness are associated. For example, postcommunist countries with more fragmented state power have tended to liberalize trade more than similar states where power has been more centralized—and this holds even for nondemocratic countries.16 In short, there appears to be strong statistical evidence for the theory, though some questions remain about the relationship’s robustness, and the possibility that democracy is partly a consequence, not just a cause, of globalization.17
Theoretically, the liberal view is that political democracy discourages restrictions on trade and investment because democracy grants political power to a wider share of the population, making the policy preferences of the majority more influential. Most people should have favorable views of freer trade and investment, because they stand to gain from them.18 That is, governments pursue globalization because it is popular, and justifiably so. Under authoritarianism, in contrast, the generalized interest of the many is pushed aside by the special interests of the privileged few, who stand to lose out from openness. This expectation derives from the Heckscher-Ohlin- Samuelson model of trade (“HOS”), according to which a country’s relatively abundant factors of production stand
12 Studies do not generally specify exactly what they mean by democracy. Instead, they just work empirically with measures of it from large data sets like Polity IV or Freedom House, which concentrate on procedural and institutional criteria like the holding of elections, constraints on the executive, or the protection of political rights. The assumption is that these things ensure that policy reflects the preferences of the median voter, at least to some significant degree.
13 See, e.g., Lindberg et al. 2014; Wejnert 2005.
14 Henisz and Mansfield 2006; Dutt and Mitra 2002; Eichengreen and Leblang 2008; Mansfield, Milner, and Rosendorff 2002; Milner and Mukherjee 2009.
15 Pandya 2014.
16 Frye and Mansfield 2003.
17 Bell and Jones 2014; Kono 2006; Bak and Moon 2016; Eichengreen and Leblang 2008; Li and Reuveny 2003; Rudra 2005.
18 Milner and Kubota 2005; Mansfield and Milner 2012.
