Neo-Liberal Capitalism

September 1st 2020

 Richard Larmour at UCT’s Department of Electrical Engineering  has asked me to answer the following question put by a student to a course for 4th year engineering students called New Venture Planning.  The course, I understand, is being taught by Leen Remmelzwaal, who read for my graduate IPE course at UCT some years back. 

 “Do you believe that we are in the late stages of neo-liberal capitalism? If so, what does that mean for contemporary entrepreneurship?”

 In order to address this question, we first have to define what is meant by ‘neo-liberal capitalism’, or if we follow the precepts laid down by Giovanni Sartori, we should venture to define what ‘neo-liberal capitalism’ is not.  Is the concept, in fact a non-falsifiable proposition? I think the term today can mean most things to most people, and thus it is difficult to define. Let’s start by unpacking some of the core ideas that have underpinned liberalism or neo-liberalism over the years.

 When we think of neo-liberalism today, we might equate the term with ‘economic conservatism’, identified by free-market capitalism, deregulation, austerity or globalization. Politically we may argue that neo-liberalism has taken on aspects of Karl Popper’s ‘Open Society’  equated today with the essential conditions of human dignity, freedom, justice or education. The above, perhaps, may be  a snapshot of the definition of the term today, but how did we get there?

 I have purposely posted this reply on my blog, which I have not visited for four years.  I have done so as below there is an outline of an undergraduate course on IPE. I wrote up a treatment there on Liberalism, which you may find useful,  and also posted some material on the intellectual arguments between Friedrich Hayek and John Milton Keynes for my graduate students, arguments that I feel defined the post WWII Bretton Woods system that still holds a modicum of sway over our intellectual environment today.  

 What is the historical course that has led us to this concept of ‘neo-liberalism’? If we think of ‘Liberalism’ today, we think of active state intervention, which is completely at odds with the original Liberal ideas espoused by Adam Smith and David Ricardo.  Smith argued explicitly against the mercantilist impulse that state power, or state intervention,  is used to create wealth. For Smith, the individual freedom of the marketplace represented the best alternative to abusive state power, or state intervention. His thinking was epitomised in the phrase laissez faire or let it be.

 In contrast, John Maynard Keynes envisioned a liberal international system of open markets and free trade, but within that system he opined that individual nations would be able to undertake the sorts of domestic policies that Keynes advocated for moderating inflation, controlling unemployment, and encouraging economic growth.  In other words, the state had a fairly important macro-economic role within each nation, but free markets were intended to dominate relations between nations.  In a nutshell, the state had a fairly important macro-economic role within each nation, while free markets were intended to dominate relations between nations.   The key to Bretton Woods was the notion of ‘embedded liberalism’, coined by John Ruggie, where nation states operated under a modicum of free trade, but with fixed exchange rates and capital controls.  As a result, states could control their domestic markets through fiscal and monetary policy, but still manage to push the Ricardian ideal of free trade.

 Friedrich Hayek vehemently opposed Keynes, arguing that state interventionist policies in any form distorted the market, ultimately leading to inflation and ruin. In his book, The Road to Serfdom, written in 1944,  Hayek opined that state control undermined individual liberty, a concept that resonated with Popper.  Hayek’s principles were later taken up by Milton Friedman, who had an enormous influence on Margret Thatcher and her avid disciple, Ronald Reagan. Thus we must understand that neo-liberalism today is not remotely connected to the ideas of Keynes, and this causes all kinds of confusion. Neo-liberalism is certainly not modern-day Liberalism.

 If we fast forward to today, we see a world that has fundamentally changed over the past few months as a result of the Covid 19 pandemic.  As a result, we have to ask ourselves if the old economic and political arguments still apply, or whether the world will return to a pre-Covid existence once the pandemic is shooed away by a successful vaccine.  Even if we agree for the purpose of argument that the world will return to a pre-Covid existence, what form will that world take both economically and politically?

 There are a number of impulses that I wish to address that inform the economic scholarship in general today.  We could argue that these impulses have resulted in a fundamental change away from the ‘conservative’ laissez fare economic policies that formally underpinned the European Union’s approach to economic regionalism, or the Conservative Party’s austerity programme in the United Kingdom that held sway until Boris Johnson ascended to its leadership.  What we now see are examples of a populist Trumpian economics that have put America first in the United States, the spectacular rise of nationalism under Matteo Salvini, in Italy, Radical Economic Transformation being mooted by a faction of the ANC, and many others.  What informs these new impulses?  What is leading to the change other than the obvious argument that it is the impact Covid 19?

 First and foremost, we have to understand the implications that have devolved, particularly in the West, or the developed world, from globalization.  We find ourselves in a world that Thomas Piketty has defined as ‘economically unequal’.  In effect globalization has sucked manufacturing jobs from western economies, creating a new economic underclass that feels ‘left behind’.   Added to the problem of inequality, we must also understand that neo-liberalism, since the crash of 2008, has advocated policies of austerity, which have profoundly impacted on the social fabric of society around the world.  Mark Blyth, an eminent economist from the United States, addressed this issue in his book Austerity: The History of a Dangerous Idea, head on, and more recently, we should take note of Mariana Mazzucato, who in the Entrepreneurial State: Debunking Public vs. Private Sector Myths, challenged the entire neo-liberal concept by arguing that large IT corporations in fact owed their very existence to state entrepreneurial activity. When reading these three authors, the arguments espoused by economists who support neo-liberalism are left in tatters. Thus the very notion that neo-liberalism is still an ideology in play is now contested.

Economic policy that advocates change away from inequality, austerity, and non-intervention by the state can be seen as changing the political landscape in many countries.  We must understand furthermore that politics will ultimately trump economics.  I argue this point explicitly as the example of the ‘left-behind’ economic underclass plays directly into what we refer politically to as ‘identity’. Another minefield, but let me just point out  that identity has been encapsulated by  Benedict Anderson as an ‘imagined community’, a concept that has resulted in the rise of nationalism once again. 

 If I may digress, if we analyse the Euro for one minute, we can argue that it is deflationary.  If we compare the deflation occurring in the EU to the problems that occurred in the world economic system under the Gold Standard, we can understand immediately why the European Union is experiencing a world of no growth. Gustav Cassel explained as early as 1920 how a nation may get into a depression as a result of deflation due to tight monetary policy, but his ideas simply have not found traction within the EU, which is experiencing the same economic problems due to its programme of austerity together with the deflationary impulse of the Euro. As a result, we have seen a push back, first from Great Britain in the form of Brexit, but now with increasing momentum from the European states of Italy, France Greece, and Spain.  Identity politics, leading to a new nationalism, based on the hollowing out of the manufacturing middle classes is fuelling political movements that back the far right.  The governing elites simply cannot continue as they are.  State intervention and Keynesian economics or some form of the two are back, and the world is now beyond any perceived late stages of a neo-liberal capitalism.  

 What does this mean for contemporary entrepreneurship?  The answer: that depends.  An analysis of contemporary entrepreneurship will turn on a  belief on how the market is evolving.  Is the world following the ideas of Hayek or Keynes?  Is the state now poised to intervene once again or will the policies of non-intervention, austerity and globalization continue without change?  One thing is certain, capital will migrate to the richest pastures, following Schumpeter’s notion of ‘creative destruction’. Given that there is ultimately a limit to the amount of capital available worldwide, investors possessing the freedom of capital mobility will, in their normal course of their capital allocation activities, generally prefer the attractions of the new and the still-to-be-known over the complications of the old and the already well-known.  If the allocation of knowledge is also assumed to be part of contemporary entrepreneurship, then investment in knowledge and growth will determine through competition where entrepreneurial capital will graze in the future. 

 Where change may be fundamentally different, however, lies in the argument that Smith’s ‘invisible hand’ may no longer simply be the hand  of the rugged individual promoting his own commercial gain, but a state endeavour that  ultimately promotes the entire nation through its entrepreneurial intervention, whether through innovation from its universities, or the commercial acumen of its companies, where if prevailing thought takes hold, it will invest.

POL 2039 REVISION

A). Grotian Tradition.

Based on natural law.  Hugo Grotius (1583 - 1645) The Rights of War and Peace (1625) Introduced the idea of a community of nations based on sovereignty. 

Vattel  The Law of Nations  (1758)

Idea that justice is the basis of all society.  Works for nations as well as individuals in society. 

Key to understanding IR discipline is Levels of Analysis.

These levels are:  Man    State    System

Derived from Kenneth Waltz’s work on Man, the State and War (1959)

MAN:  Spinoza explains violence by referring to human imperfections when passion displaces reason.

THE STATE:  War depends on the type of national government or the character of society.

SYSTEM:  Notion of International Anarchy

Anarchy v Hierarchy

In international system there is no authority.  Leads to the quest for power and the security dilemma.

We can summarize that the permissive causes of war is the condition of anarchy in the international political system of states, whereas the efficient causes of any given war can be found as well in other levels of analysis.

ANTECEDENTS of REALISM

Antecedents are very old.  We start with Thucydides (431 BC) History of the Peloponnesian War.

Machiavelli The Prince. (manuscript first appeared in 1513) Made a strong case for a powerful ruler who relied on military force to gain legitimacy.

Thomas Hobbes(1681) Leviathan.  Made a case for a powerful centralized authority to mitigate against the anarchy of the state of nature..

Modern proponent is E.H. Carr.  Wrote The Twenty Tears Crisis in 1939.  Attacked the notions of the idealists during the interwar years.

Realism is taken further by Hans Morgenthau after WWII.  Politics Among Nations defined states interests in terms of power and argued that these interests could be reduced to a single idea of security

Kenneth Waltz, differed from Morgenthau as he saw states as searching for security.

The major problem with Realism concerns the balance of power and the distribution of capabilities among states within the international system.

Henry Kissinger argues for more voluntarism and the requirement of diplomatic skill to maintain the balance.

Kenneth Waltz focuses more on the structure of the international system.  (“the freedom of choice of any one state is limited by the actions of all the others.”)

Waltz argues in Theory of International Politics (1979) that:

1). States are the key actors within the state system

2). That they are functionally equivalent

3). That they are differentiated only through their differing capabilities.

Opponents argue that differing domestic policies of states will lead to fundamentally differing foreign policies.  Before pursuing this argument, look at specific critique of structural realism.

Problem with Structural realism is that it does not account for change in the international system.

Robert Gilpin’sWar and Change in World Politics comes to Kenneth’s rescue.

We have a theory that deals with the structure of the international system.  States are our units of analysis and power is the independent variable.  So pretty static and too deterministic.  Theory says that conflict occurs because of the system and the inherent problems of the security dilemma.

So how does change come about?

Gilpin offers the “Law of Uneven Growth”

            1). Costs of sustaining control will outweigh benefits

            2). Dominant power will consume more than it invests

            3). Dominant power will create rivals through the diffusion of technology

WHAT OF THE ALTERNATIVES TO REALISM?

Pluralism

Opponents argue that differing domestic policies of states will lead to fundamentally differing foreign policies. Ties in with theories we term Pluralism. Where power is the key variable for Realism, interdependence is the key variable for Pluralism.

Core Antecedents:

A).  Liberals:  Locke; Second treatise on Government  (1689) who argued forcefully that the individual is the most important unit of analysis and the claimant of rights.

I want to emphasize that in the main, liberals acknowledge that the system of international states is governed by anarchy, but rather than emphasizing power and war as inevitable results, they believe that there will be a harmony of states.

B).  Interest Group Liberals:  Harold Lasswell and Robert Dahl are the main exponents. Reject the difference between domestic and international politics.

C). Decision-making within the nation state: Richard Snyder and Robert Jervis.  Role of perception and misperception in politics.

D). Organizational and bureaucratic politics: Graham Allison wrote Essence of Decision on the Cuban Missile Crisis.  Key is the notion of relaxing the core Realist points of rationality.

E). Transnational Actors:  Robert Keohane and Joseph Nye wrote Power and Interdependence. Key is interdependence between states.

We marry the IPE theories to the IR theories:

Sovereignty at Bay and Liberalism

Key idea is: increasing economic interdependence and technological advances in communication and transportation are making the state an anachronism.

Argument: The efforts of nation states to enhance their security and power relative to others are held to be incompatible with an interdependent world economy that generates absolute gains for every-one.

Liberalism

Def:  Liberalism today is thought to be active state intervention.  In fact def is almost exactly the opposite and more synonymous with Thatcher and Reagan.

Roots in Adam Smith and David Ricardo: 

Smith argued against the mercantilist impulse that state power is used to create wealth, which produces even more power.  For Adam Smith, the individual freedom of the marketplace represented the best alternative to abusive state power.

Liberals think that society is a positive sum game, everyone can potentially get more out of a bargain than they put in.

The liberal perspective on political economy is summarised by the phrase laissez faire or let it be.   Liberalism is very conservative as we understand liberal and conservative politics today.

Liberals believe that with power diffused in both state and market with rights and freedoms guaranteed, conflicts can be resolved through peaceful civil means.

David Ricardo (1772-1823) followed Smith .  He was a true political economist. Ricardo opposed the Corn Laws.  For Ricardo, free commerce makes nations efficient, and efficiency is a quality that liberals value almost as highly as freedom.

CORN LAWS

Britain’sparliament enacted the Corn laws in 1815, soon after the defeat of Napoleon.  The Corn Laws were a system of tariffs and regulations that restricted food imports into Great Britain. 

Essentially the Corn Laws represented the legacy of the Agricultural barons over the emerging industrial interests.  Change came through the Parliamentary Reform Act of 1832, which revised the system of parliamentary representation in Britain.  This reduced the power of the landed elites who had previously dominated the government. 

The Corn Laws were repealed in 1846.  The repeal of the Corn Laws was accompanied by a boom in the Victorian economy. Cheaper food and bigger export markets fuelled a rapid short-term expansion of the British economy.  Britain embraced a liberal view of trade for the rest of the century

JOHN MAYNARD KEYNES

envisioned a liberal international system with open markets and free trade.  Within this system however, individual nations would be able to undertake the sorts of domestic policies that Keynes advocated for moderating inflation, controlling unemployment, and encouraging economic growth.  In other words, the state had a fairly important macro-economic role within each nation, but free markets were intended to dominate relations between nations.  Bretton Woods can thus be thought of a something of a compromise.

BRETTON WOODS

It is important to note that Bretton Woods represented a fundamental change in liberalism.  After Keynes and Bretton Woods, liberals no longer viewed IPE as state versus market.  Rather, liberals sought the right degree and nature of state intervention within an overall system of open markets.

Keynesian flavour of liberalism became the mainstream IPE view in the industrial world from the 1930s to the 1970s. In general, a balance between state and market along the lines of the Keynesian compromise using state power to supplement strengthen and stabilise the market economy became the norm within the Bretton Woods system of international institutions.

The key to Bretton Woods was the notion of embedded liberalism where nation states operated under a modicum of free market trade, but with fixed exchange rates and capital controls.  As a result, states controlled the domestic market through fiscal and monetary policy, but still managed to push the Riccardian ideal of free trade.

Liberalism became associated with state intervention. Liberalism became synonymous of a strong state.

CONSERVATISM

Old liberalism became known as conservatism.

Led to a resurgence of ‘conservative classical liberal ideas.

Two big players: Friedrich von Hayek from Austria and Milton Friedman from USA

Called for laissez-faire

Hayek’s big bookThe Road to Serfdom written in 1944 argued that   growing state control undermined individual liberty.

Friedman wrote Capitalism and Freedom in 1962 in reaction to JFK’s inaugural address.

Ask not what your country can do for you - ask what you can do for your country. 

Rather Freeman said that man should see what he could do to protect his individual freedoms..  See power concentrating in the state.  This is a threat to the individual and this can only be maintained by the market, which diffuses power.

Following Friedman, Reagan and Thatcher designed policies to reduce state control and privatise state enterprises.  Success has led to a dramatic drop in state control around the world.

World today is a mix of classical liberalism and Keynesian economics.

Floating exchange rates leads to unholy trinity.

Actors desire following:

1). The ability to respond to domestic political forces (this is called monetary autonomy)

2). International capital mobility (necessary for efficient international finance) and

3). Stable exchange rates (desirable for smooth international trade and investment).

Goals are mutually inconsistent. Must give up one of them

Bretton Woods eliminated capital mobility.

Floating exchange rates now meant that capital controls have proved impossible to enforce.

So states had to choose between stable exchange rates or the ability to enforce their own agenda.   Most states try for middle ground of policy co-ordination through central banks.

Dependencia Model

Argues against the liberal conception of the world.  The idea is that the developed world is exploiting the periphery through the use of multinationals.  Unequal exchange leads to poverty and wealth and thus continuing inequality.

Argues that the structure of the global political economy essentially enslaves the less developed countries of the ‘South’ by making them dependent on the nations of the capitalist core of the ’North’.

Mercantilism

Key variable is the nation state: Views the nation state and the interplay of national interests (as distinct from corporate interests) as the primary determinants of the future role of the world economy.

Mercantilism is a theoretical perspective that accounts for one of the basic compulsions of all nation states to create wealth and power in order to preserve and protect their national security and independence.

Typically mercantilism is defined somewhat narrowly in terms of state efforts to promote exports and limit imports thereby generating trade surpluses to create wealth and power.  It puts security at the centre of national concerns.

Economic Nationalism

Economic nationalism is a form of mercantilism that developed during the 18th and 19th centuries

Whereas classical mercantilism focused on gaining wealth and power through unequal foreign trade, economic nationalism focused on the internal development of the national economy.  Reaction to economic liberalism practised by the UK.

Most famous proponents were Alexander Hamilton in the United States and Friedrich List in Germany.  Hamilton argued for strong manufacturing restrictions to protect infant industries.

Hegemonic Stability Theory

Political economists generally recognise three instances of hegemonic stability in modern history:

1). The United Provinces (Holland) in the 18th century

2). Great Britain in the 19th century

3). The United States in the post was era.

And generally analysts believe that Great Britain and the United States created and enforced the rules of a liberal international economic order.

The two central propositions that underpin HST are:

1). That order in world politics is typically created by a single dominant power. Since regimes constitute elements of an international order, this implies that the formation of international regimes normally depends on hegemony.

And

2). The maintenance of order requires continued hegemony.  This implies that cooperation within the international system of states also depends on the perpetuation of hegemony.

Regime Theory: 

Regimes have Norms, Principles, Rules and decision Making Procedures

Bretton Woods System

1). Norm of Free Trade

2). Principle of reciprocity, liberalisation and non discrimination

3). Rules of GATT and WTO

4). Decision making: Legislation e.g. tax law

Question:  Can hegemonic stability theory account for changes in economic regimes?

Yes. The theory surrounding HST would predict that as the hegemon goes, so goes the regime.

Gold Standard

The gold standard has no precise date of origin.  It gradually emerged between 1870-1880. The gold standard lasted until the outbreak of WW I in August 1914.

 During the gold standard period, prices were relatively stable.

 Problems with the Gold Standard and the Interwar Years

The key point I wish to make on the gold standard is that ‘The gold standard is deflationary’.

 For example, Great Britain went back on the gold standard in 1925 at its pre-war parity, which was totally over-valued, and the attempt to reduce prices and wages to support the overvalued Pound provoked a general strike.

Let me remind you that under the gold standard, a country has to resort to the classical medicine of deflating the domestic economy when faced with chronic Balance of Payment deficits.

By 1931, Gustav Cassel could argue with conviction that the fall in world prices was due to increasing demand by central banks for gold cover. His conviction that countries would eventually leave the gold standard rather than endure the economic distress caused by deflation came true in September 1931, when Britain led more than a dozen countries (including Sweden) off the gold standard.

Now please remember this point.  It’s important.  Not a single country left the gold standard ‘voluntarily’; only adverse circumstances forced them to do so.

Gold Standard Lessons for the Eurozone

Certain politicians still believe strongly in reviving the gold standard to mitigate against liberal tendencies. This same impulse is driving certain conservative Republican Party candidates today.

By the same token, Germany, which is now by far the largest economy in Europe, still has a huge fear of inflation due to its experience with hyper-inflation during the interwar period.

Lessons for the Eurozone

The abandonment of the gold standard in the 1930s exhibits at least three similarities with the Euro crisis. 

1). In both cases, a major global recession coupled with financial turmoil brings a system of fixed exchange rates under severe pressure.

2). Both episodes also share the reasons behind policy-makers’ determination to maintain fixed exchange rates.  In the 1930s, hostility to devaluation was driven by fears of inflation. While little systematic research has been done on why countries on the European periphery cling to the Euro, anecdotal evidence suggests the same: a return to the Drachma, for instance, is portrayed as ‘chaotic’ and likely to result in considerable inflation.

3). There is always an alternative policy of reflation, based on a Keynesian-style view of economics.

INTERNATIONAL TRADE

GATT and the liberal post war trade structure really begins with the establishment of the world’s political economy in 1944 at the Bretton Woods Conference. US tried to promote an International Trade Organisation (ITO) that would serve as an international counterbalance to domestic tendencies toward protectionism. ITO killed by protectionist interests in Congress. 

Harry Truman advanced the idea of GATT as a temporary alternative.  In 1948 GATT became the primary organisation responsible for the liberalisation of international trade.

GATT was based on the principles of reciprocity and non-discrimination.

Trade concessions were reciprocal as all states agreed to lower barriers together. 

Non discrimination meant that imports from all countries would be treated the same way.  So imports from one nation cannot be given preference over another. Called MFN Most favoured nation-trading status. Idea to stop bilateral trade wars.

URAGUAY ROUND and WTO

Eighth GATT round got underway in Punta del Este, Uruguay in 1986.  Finally completed on December 15, 1993.

Uruguay established new rules on trade items including agriculture and textiles.  Also reviewed dumping, state subsidies and in particular services like insurance and Trade-Related Intellectual Property Rights(TRIPs) Key was the deal to try and phase out agricultural subsidies.

Uruguay also launched the World Trade Organisation (WTO) comprised of 135 members with 30 countries seeking membership. WTO accounts for 90 per cent of world trade and is headquartered in Geneva.

Nevertheless, the wheels have come off the WTO.  The key problem is the notion of multi-lateral trading regimes.

So where are we going on this?  Trade is under pressure today as China, and the BRICS, which have been the engines of growth in world trade, are slowing down.  Brazil is a basket case.  South Africa does not bear commenting on. Russia is a pariah nation, so this leaves India as the only growth point. 

On the bright side, however, I feel that new countries are pushing up green shoots and will challenge for a place in the global sun in the future. And don’t count out the United States, which has a habit of resurgence and renewing itself.

The Second Coming

My thanks to Ryan Rutherford who reminded me of William Butler Yeats and his The Second Coming.  

Has the election of Sadiq Khan bucked a trend that has permeated politics of late in the United States, Europe and the Middle East? Bravo London for giving us hope that the centre may still hold.

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: a waste of desert sand;
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Wind shadows of the indignant desert birds.

The darkness drops again but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

BRICS: WILL THE TAIL WAG THE DOG

On March 31st 2016, Chief Justice Mogoeng Mogoeng, conveying the unanimous and scathing decision of the full bench of the South African Constitutional Court, ruled that President Jacob Zuma and the National Assembly had violated the constitution in challenging and ignoring the binding remedial action of the Public Protector, Thuli Madonsela, in relation to Nkandla.  In effect President Jacob Zuma had breached the Constitution.

Speaking publicly for the first time after the ConCourt’s decision, at the Serious Social Investing Conference in Johannesburg, Chief Justice Mogoeng Mogoeng argued that if there was ever a time to embrace ethical leadership, that time is now. 

Not to be outdone, former President Thabo Mbeki argued that the Constitutional Court made a critical contribution in terms of the evolution of South Africa’s democracy by clarifying the meaning of a ‘Constitutional Democracy’ in South Africa. Mbeki quotes the ConCourt directly:

 Certain values in the Constitution have been designated as foundational to our democracy. This in turn means that as pillar-stones of this democracy, they must be observed scrupulously. If these values are not observed and their precepts not carried out conscientiously, we have a recipe for a constitutional crisis of great magnitude. In a State predicated on a desire to maintain the rule of law, it is imperative that one and all should be driven by a moral obligation to ensure the continued survival of our democracy.

 President Zuma has survived a motion to impeach in Parliament for flouting the Constitution, but the groundswell calling for his resignation is rising inexorably as individuals and groups both public and private have weighed in.  Crucially, on 11th April, the ANC Gauteng Provincial Executive Committee (PEC) held a special meeting to receive a detailed report on the ConCourt’s judgement, and in an official statement declared that ‘our President comrade Jacob Zuma should reflect deeply and do the right thing to resolve the unprecedented crisis that the ANC currently faces’.  

Whether Zuma takes the hint or not, has South Africa not once again led from the front through the ConCourt decision?

When reviewing the BRICS model, we can argue that it has evolved from an analyst’s acronym to a formalized network with complementarity in terms of trade and manufacturing to a geopolitical role with the aim of shifting the global locus of power through international institutional reform.  The BRICS most notable development to date has been the establishment of the New Development Bank with an initial share capital of $100-billion. 

When analysing the BRICS, however, one must also compare the state development model that largely underpins BRICS to the neo-liberal model that largely informs the developed world.

During the ‘Great Recession’ as the developed world not only succumbed to the burden of institutional and sovereign debt, but also to low growth and the pains of austerity, the BRICS nations revelled in the heady air of high growth and rampant development.  But of late the milk has soured somewhat as growth is stalling. 

In China, the 13th Five-Year Plan, unveiled on March 5th 2016, is designed to avoid the dreaded ‘middle-income trap’ by making a successful transition to a new growth model as GDP slows. In the remaining BRICS nations, concern surrounds anaemic growth, and in the case of Brazil, the worst recession in more than three decades.

But what of ethics? 

Documents leaked from Panama name family members of the Chinese President, Xi Jinping, and two other members of China’s elite Standing Committee, Zang Gaoli and Yunshan as part of an elite profiting from offshore accounts.  India, regardless of the efforts of Prime Minister Narenda Modi, is mired in corruption, and the Panama Papers appear to confirm President Vladimir Putin’s corruption on a huge scale.  And today, April 12th, a 65-member congressional committee voted 38 to 27 to recommend impeachment of Brazil’s President Dilma Rousseff over claims that she manipulated government accounts ahead of her 2014 re-election.

I shall therefore end with a set of questions.  Can states, which function institutionally through a developmental state model, avoid corruption?  Has Chief Justice Mogoeng Mogoeng proved the rule, or has the decision of the ConCourt, regardless of Zuma’s reaction, not heralded a new era that can be the mortar and foundation of a new BRICS movement? 

Which Way Europe? Interpreting the Principle of Subsidiarity.

The United Kingdom goes to the Polls on June 23rd 2016, more divided than ever over its roll within the European Union.  David Cameron has argued for Great Britain to remain within the EU after gaining ‘special status’ within the 28-nation bloc.  With great fanfare, Cameron has argued that Great Britain should be able to opt out of the EU’s founding ambition to forge an ‘ever closer union’ of the peoples of Europe. It will not be drawn into further political integration in a ‘formal, legally binding and irreversible way.’ Essentially Cameron is arguing for greater powers for national parliaments to block EU legislation.

Specifically the wording of the draft states: ‘It is recognised that the United Kingdom… is not committed to further political integration into the European Union.’

 As evidenced by the preambles to the Maastricht and Lisbon Treaties, Europe seeks to ‘create’ and to ‘continue the process of creating an ever closer union among the peoples of Europe.’  In effect, these preambles seek to form a federation similar to that of the United States, by attempting to further consolidate and centralize power.

Cameron’s arguments, now demonstrate a resistance to this ‘ever closer union’ as he wishes to place Great Britain within a looser system of allied nation states, by invoking the principle of subsidiarity to formulate his arguments against ‘ever-closer union’.

The principle of subsidiarity is enshrined in Article 5 of the Lisbon Treaty on European Union and aims at determining the level of intervention that is most relevant in the areas of competences shared between the EU and EU countries.  This may concern action at European, national or local levels.  In all cases, the EU may only intervene if it is able to act more effectively than EU countries at their respective national or local levels.

Subsidiarity and proportionality are corollary principles by virtue of conferral.  They determine to what extent the EU can exercise the competences conferred upon it by the Treaties.  By virtue of the principle of proportionality, the means implemented by the EU in order to meet the objectives set by the Treaties cannot go beyond what is necessary. 

 Under these circumstances, why is there such a fuss for Brexit?

 I have turned to the United States and especially to the Virginia and Kentucky Resolutions, authored by Thomas Jefferson and James Madison, and passed in response to the Alien and Sedition Acts of 1798, for enlightenment.  The Kentucky Resolution argued that each individual state has the power to declare federal laws of the United States unconstitutional and void.  The Kentucky Resolution added that when states determine that a law is unconstitutional, nullification by the states is the proper remedy.  The Virginia Resolution argued further for ‘interposition’, to express the idea that states have a right to interpose to prevent harm caused by unconstitutional laws.

In essence, the resolutions authored by Jefferson and Madison are now being played out in Europe, in support of arguments later expressed by John C. Calhoun.  Thus, can we not argue that Brexit is just a referendum to repeal the 1972 European Communities Act of Parliament?  The nullification, if you will, of the Lisbon Treaty preamble?

In Europe, we have the European Court of Justice (ECJ), which has transformed itself from a weak institution with little enforcement capabilities, into one of the strongest political actors in Europe and the leading proponent of European integration today. The ECJ has decided on a series of cases that have closely followed the foundational cases decided by Justice Marshall and the US Supreme Court.  Like the US Supreme Court, the ECJ has attempted to federalize the European Union by not only asserting the supremacy of community law, but also by granting individual citizens and lower courts the right to bypass their respective higher national and constitutional courts.

In fact the ECJ’s history can be categorized into three periods.  The first encompassed its formation through the landmark cases of the 1960s, including the Van Gend en Loos and Costa cases and lasted until the early 1970s.  Although many foundational cases were decided in this period, the ECJ remained a weak institution as few took notice of the potential ramifications of these decisions.

The second period continued until the 1980s.  During this period, the ECJ continued to expand on its foundational cases, and we can recognize that together the first and second periods represented the ECJ’s transformation into a political actor. To do so, the ECJ used a well-known judicial practice of expanding its jurisdictional authority by establishing legal principles to cases under its consideration. 

The third and final period started in the 1980s and continues to the present day.  During this period, the ECJ’s area of control gradually expanded through treaty amendments including the Single European Act of 1986, the 1992 Maastricht Treaty, the 1997 Amsterdam Treaty, the 2001 Treaty of Nice, and the 2007 Treaty of Lisbon.

National courts throughout the member States have had varied responses to the ECJ’s efforts.  But most notable are Germany and Italy, which have consistently questioned the democratic legitimacy of the Union, making the issue both legal and political.  As the ECJ has been the most powerful force for integration, the courts in the member States have evidenced the most opposition. Some of the national court responses have mirrored the same arguments made by John C. Calhoun on nullification; in a word, the EU remains a group of aligned, but ultimately sovereign member States, and a State can nullify an act of the general government if deemed unconstitutional.

Thus in order to understand the judicial fight in the EU more fully, we must return to the arguments and debates that raged within the United States during the early part of the 19th Century, especially the lessons learned from the pre-Civil War state-rights advocates, and particularly those of John C. Calhoun.

Calhoun’s understanding of federalism provides an alternative vision to the possibilities of federal organizations for emerging supra-national unions.  His arguments, and indeed his entire intellectual attack still resonates against the formation of large pluralistic super-unions that are based on the federal ideal as evidenced by the Maastricht Treaty and Lisbon Treaty preambles.

Larry Backer’s excellent article titled “The extra-National State: American Confederation Federalism and the European Union,” Columbia Journal of European Law 7, (2001) provides the point of departure, but to understand where the European institutions are heading, we also need to understand how Chief Justice John Marshall revolutionized the relationship between Congress and the judiciary, first through his concept of judicial review, and second through his ruling on federal judicial power.  Indeed his actions irrevocably changed the nature of power between the American States and the federal authority. 

Can the ECJ follow Marshall?  If not then State sovereignty is the issue that prevents the European Union from becoming a ‘United states of Europe’.  Also as long as the national courts stick to Calhoun’s playbook, ultimate authority will remain with the member States.  The argument seems logical, so I shall repeat my question:  Under these circumstances, why is there such a fuss for Brexit?

Nationalism and Identity: Will Brexit best Brussels?

Previously I wrote on nationalism, introducing Aristotle’s arguments in the Nicomachean Ethics. I now want to unpack the argument of Boris Johnson, the Mayor of London, who spoke on March 6th 2016 at Dartford in the United Kingdom and then later on the BBC’s Andrew Marr Show.

Aristotle argued:

Things that are exchanged need to be somehow comparable.  This is why coins were invented.  All good[s], which are exchanged, should be measured by some sort of standard coin, which represents a measure of human needs.  [From] the name coin (nomisma) comes the word law, regulation or convention (“nomos”), since the value of a coin is by regulation.

 Boris Johnson now argues that Great Britain should leave the EU in order to: Take back control of British arrangements. To take back control of the nation’s money, borders and democracy. To reassert its right to make its own laws. To ensure that UK courts can overturn judgements of the ECJ.  To reassert the sovereignty of the British Parliament that has been usurped by the European Communities Act 1972.  To right the wrongs of democratic deficiency created through the European legislative burden.

Nigel Farage, who also supports a British Brexit, argues further that once Great Britain can take back control of its own exchange, the advantages of competitive trade will far outweigh the burdens of European oversight.

In essence, both Boris Johnson and Nigel Farage are trying to relocate the notion of exchange between citizens in an Aristotelian conception of the state.  For Aristotle, law holds the polis together in that it tends to preserve the community.

Last week, I wrote that the core problem underlying the single currency in the European Union is the lack of political embeddedness that should support Europe’s overall economic and political architecture.  As long as the European Union lacks the institutions to successfully manage and regulate trade, cross-border financial flows, and a single capital market, the concern for traditional sovereignty at the national level and the call for legitimate political support at the national level will continue to rise.  Without a new conception of supranational sovereignty at the European level that satisfies the call for democracy at the national level, the European Union, as a purely economic construction without the concomitant legal structure, can only lead to dissolution and failure. The number of regions seeking to go it alone is increasing. Both resurgence in nationalist pride and disappointment at Brussels’ centralized economic management have led to an increase in calls for national political autonomy and a reintroduction of the sovereignty of the state.

The European Union Today: The Logical Limits of Functionalism

Joseph Stiglitz, writing the foreword to Karl Polanyi’s classic book describing the great transformation of European civilization from the preindustrial world to the era of industrialization, argues forcefully that the issues and perspectives Polanyi raises have not lost their salience.  Among Polanyi’s central theses are the ideas that self-regulating markets never work; their deficiencies are so great that government intervention becomes absolutely necessary.

When we trace regional integration within Europe and the Origins of the European Union, we can argue that initially, integration was first proposed by French Foreign Minister, Robert Schuman as a way to prevent further war between France and Germany.  As a result the European Coal and Steel Community (ECSC), formally established in 1951 by the Treaty of Paris, created a common market for coal and steel to neutralise competition between European nations over natural resources: in essence a political solution.

By 1958, however, following his understanding of Mitrany’s work on functionalism, Ernst Haas, writing in International Organization, on the challenge of regionalism, could argue that economic integration would lead to political spillover.  Commenting on Haas, Antje Wiener and Thomas Diez, aver, “Haas believed that elites were valuable in that once they perceived that problems could not be solved locally due to widening spillover, they would turn their expectations, political actions and even possibly their loyalties to a new centre, thereby adding political stimulus to the process.” Thus we can argue that Haas’s neofunctionalism provided one of the key theoretical reasons why states moved towards a monetary union and ultimately political federation.  The theory remained influential, moreover, through support from Bela Balassa. Balassa, incorporating many of the understandings of neofunctionalism, pushed an ‘economics before politics’ approach, assuming that politics would follow economics.  Balassa, through his structural ‘five stages’ argument, in fact eventually arrived at a federal end-point as the final goal of the process of regionalism. Incredibly, the state was seen as a stumbling bloc to integration as both theories espoused the ideals of extending markets and developing methods of trade expansion.  

With the introduction of a single currency into the Eurozone, one can argue that the ‘European mandarins’ not only ignored fundamental economic considerations that govern an optimal currency area, but also did not understand Polanyi’s dictum that politics should trump economics when creating self-regulated markets.  And indeed in 2001, on the eve of Euro notes going into circulation, Romano Prodi, the then President of the European Commission, presciently predicted to the Financial Times, stating: “I am sure that the Euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now.  But some day there will be a crisis and new instruments will be created.”   These new economic policy instruments were created in order to pull Europe’s single currency from the brink of collapse in the summer of 2012, but there is no doubt in my mind that the Euro still remains on continuing life support.

The core problem underlying the single currency has to be highlighted as a lack of political embeddedness that supports the deep economic fragilities surrounding Europe’s overall economic and political architecture.  As Erik Jones argues, “Not only do we see a lack of institutions to successfully manage and regulate cross-border financial flows in a single capital market, which includes a central bank that can act as a true lender of last resort for Europe’s sovereigns and pan-European banks, as well as a common debt instrument or Eurobond,” but also as Nicolas Jabko argues more succinctly, “The largely unanticipated contradiction between the concern for traditional sovereignty at the national level and a new conception of supranational sovereignty at the European level is underscored as long as national elites remain reluctant to see their powers diminished.”

In the final analysis, Europe’s monetary union lacks legitimate political support.  Unless and until a fundamental change occurs, the European Union will continue to limp along, burdened by low economic growth and the possible scourge of long-term deflation.

Unequal Exchange on an Ebbing Tide

In 1963, to combat criticism against a dam project he was inaugurating, President John F. Kennedy argued that a ‘Rising Tide lifts all boats’.

More generally, the expression can be applied to David Ricardo’s promotion of comparative advantage, underpinned by his theory that free trade makes nations efficient.  We can attribute the success of free trade in Great Britain to the repeal of the Corn Laws in 1846 and the concomitant boom in the Victorian economy, which set the tone for Britain’s trade for the rest of the century.

Following WW II, Bretton Woods envisioned a liberal international system with open markets and free trade, but within this system, individual nations were able to undertake the sorts of domestic policies, advocated by John Maynard Keynes, that would moderate inflation, control unemployment, and encourage economic growth.  In a nutshell, the state had a fairly important macro-economic role within each nation, while free markets were intended to dominate relations between nations.   The key to Bretton Woods was the notion of ‘embedded liberalism’, coined by John Ruggie, where nation states operated under a modicum of free trade, but with fixed exchange rates and capital controls.  As a result, states could control their domestic markets through fiscal and monetary policy, but still manage to push the Ricardian ideal of free trade.

Once the key norms of the Bretton Woods regime changed under the Reagan and Thatcher administrations, state control over domestic monetary policy was sharply reduced, as capital controls fell away.

Has this change led to unequal trade or ‘unequal exchange’?  And if so, what are the consequences for world trade?  How will the international trading system cope with the general downturn in current commodity prices and trade in general?   This is the issue I wish to unpack as we discuss the future of the World Trade Organization, the predisposition for states to negotiate bi-lateral agreements instead of retaining the principle of non-discrimination, and of more importance, understanding the nature of trade within supra-national regions like the European Union.

I’d like to think that Rosa Luxemburg’s The Accumulation of Capital introduces the spatial conditions of integrating peripheral economies into the global expansion of capitalism to a wider understanding on unequal exchange developed by Andre Gunder Frank, Immanuel Wallerstein, Samuel Valenzuela and later Samir Amin.

From a different perspective, the debate on the Singer-Prebisch thesis also provides an explanation for falling terms of trade for underdeveloped nation states.  But by far the most interesting challenge to the idea of free trade stems from the arguments on the political economy of the nation state developed by Friedrich List. 

To my mind, List has been unfairly equated with German authoritarianism, and therefore largely dismissed in recent scholarship. Nevertheless, a thorough analysis on List opens the question as to whether his ideas on a German customs union, which led directly to the formation of the Zollverien, were indeed the forerunners of the European Union. List succinctly linked human capital to classical economics and its distinction between wealth and the causes of wealth.  By demonstrating that mental capital is a crucial addition to Smith’s understanding on the division of labour, List could argue the importance of human capital to economic development. List’s thinking, in fact paved the way for the state to build a mass system of education to educate and mobilise the masses to the desired outcome of national economic development.  In effect, the nation-state, far from withering away as the liberal economists would have us believe, plays a crucial role in promoting, guiding and regulating the process of nation building. 

Thus unequal exchange is not merely concerned with the export of manufactured goods from the core-industrialised states in exchange for primary products from peripheral states.  Unequal exchange goes to the heart of the matter of uplifting and training, the mental capital if you will, of the underdeveloped nations’ populations.  This ties in to the future economic and social progress of these underdeveloped states, which under free trade are largely kept away from social upliftment.  National political institutions thus play a crucial part in structuring the national economy to promote the national interest and to overcome obstacles and constraints that are most beneficial to the national interest.  The strength of any state lies in the accumulated human capital within these states and not just on the efficiency of the market and the division of labour. 

This scenario is currently playing out within the European Union where Germany, for example, is powering ahead while the semi-peripheral states in the south, like Greece, Italy, Spain and Portugal, find themselves not only being marginalized, but in fact being de-industrialized as they lose competitive ground to the manufacturing powerhouses in the north.  As wages stagnate and trade slows in these areas, will dissent in the peripheral states introduce a new virulent nationalism and a backlash based on protectionism?  Moreover, will we see once more a move towards radical party structures that occurred during the interwar period, epitomised particularly by those states that were marginalised by unequal exchange?

Will Today’s Insanity once again Trump the International Financial System?

With Europe officially entering a deflationary moment at the end of February, issues surrounding austerity and the nature of deflation on the international economic system are once more an interesting topic of discussion.  How, you may ask, are these issues related to the key paradigms that underpinned Bretton Woods?

Bretton Woods was a quintessential compromise created from the orthodox monetary views of Von Hayek’s classical liberalism and Keynesian notions of cyclical counter state intervention to support economic downturns in the economy.  All caught by John Ruggie’s catch phrase of ‘embedded liberalism’ to devise a form of multilateralism that is compatible with the requirements of domestic stability, or if you will, by Karl Polanyi’s understanding that the role of the state is to mediate between the market and society.

Eric Helleiner observes that the stability of the pre-1914 international monetary financial order was dependant on a very specific domestic political context: governments were strongly committed to the classical liberal idea that domestic monetary policy should be geared to the external goal of maintaining the convertibility of the national currency into gold at a fixed rate.  This commitment stemmed not just from liberal ideology, but also from the fact that governments before 1914 were less responsive to domestic popular pressures.  Deflationary policies required to maintain the fixed currency peg in the face of a trade deficit or capital outflows could be very painful for domestic groups, particularly the poor whose wages were forced downwards.After WW I, the wheels fell off as governments had to be far more responsive to domestic pressure.  But in spite of these domestic pressures, governments still insisted on clinging to a re-created gold standard, and indeed we can argue that not a single country left the gold standard voluntarily. Countries went off the gold standard when adverse circumstances forced them to do so.  For example, Great Britain went back on the gold standard in 1925 at its pre-war parity, which was totally overvalued, and the attempt to reduce prices and wages to support the overvalued Pound provoked a general strike.   In attempting to revert to the orthodox monetary views of classical liberalism, and ultimately failing, Great Britain confirmed Gustav Cassel’s view that countries would eventually leave the gold standard rather than endure the economic distress caused by deflation. 

Bretton Woods, as an adaption of the gold standard, therefore allowed liberal orthodoxy to prevail internationally while attending to the pressures of domestic stability.  Only later, after Reagan and Thatcher did away with capital controls, do we once again see that growth becomes problematic, and the world has been challenged by policies of austerity and a possible new financial death spiral.

Which leads me to a second theme: Mark Blyth, asserts that:

Austerity as economic policy simply doesn’t work. In the cases where it looked like it worked, something else was really doing the work.  

 What we have done over the past thirty years is to build a creditor’s paradise of positive real interest rates, low inflation, open markets, beaten-down unions, and a retreating state — all policed by unelected economic officials in central banks and other unelected institutions that have only one target: to keep such a creditor’s paradise going.

 In such a world, why would you, the average worker, ever get a pay rise? Indeed, is it any wonder that inequality is everywhere an issue? 

 Austerity is strongly linked, to Von Hayek, possibly erroneously, as Von Hayek was not that far removed from Keynes.  Nonetheless, classical monetary policy, as espoused by conservative factions in the world body politic, reveres Von Hayek, deploring statist intervention and any hints of reflation. 

As a result, the world economy is currently heading back to the future, as it begins to resemble the shambles of the interwar gold standard more and more.  Policies that would benefit society are now ignored, sacrificed on the alter of conservative monetary policy.  And by turning to Europe, which should be a leading driver of growth in the world economy, Matthias Morys has found some startling similarities to the financial system between the wars, and the very issues that Bretton Woods attempted to deal with.

In both cases, a major global recession coupled with financial turmoil brings a system of fixed exchange rates under severe pressure.  Countries follow austerity policies to make the existing monetary system work:  they cut spending in the face of declining tax revenues even further.  New austerity policies are the answer, but they only result in a self-defeating circle of ever dwindling output.  This description not only matches the experience of France in the 1930s, but also the experience of Greece since 2010.  Gold bloc countries eventually abandoned gold; will countries on the European periphery leave the Euro at the same point?

Both episodes also share the reasons behind policy-makers’ determination to maintain fixed exchange rates.  In the 1930s, hostility to devaluation was driven by fears of inflation.  While little systematic research has been done on why countries on the European periphery cling to the Euro, anecdotal evidence suggests the same: a return to the Drachma, for instance, is portrayed as ‘chaotic’ and likely to result in considerable inflation, a view not very different form the gold bloc countries.

There is always an alternative policy of reflation, based on a Keynesian-style view of economics.  Unless and until Europe begins to move away from its policies of austerity, Greece, as an example, will simply languish in a deflationary spiral until the workers rebel. 

Paradoxically, I now believe that the Euro will remain for some time despite the pain, as events in the 1920s and 1930s prove that states will only defect if forced to, and I believe that the ECB (European Central Bank) will do just enough to keep the boiling oil at a tolerable level in the southern European states.  In the meantime, change may arise due to political fallout and the rise of radical parties on both the right and left.  And that is a debate that I shall leave for a later date. 

Backstabbing Boris, Brexit, and the implications for HST

Since I decided on a curriculum for this class, Boris Johnson has decided to support Brexit.  His decision will make a huge impact on this course, as we shall have to argue over the implications of the decision on whether Great Britain stays or leaves through our theoretical lenses on the international political system, or if you will, the international political economy. Currently the polls are showing that the ‘in’ and ‘out’ campaigns are neck and neck and this has already impacted the Pound Sterling, which is losing ground against the Dollar, the Euro and the Swiss Franc rather smartly.  

Boris Johnson avers that the UK should vote to stay out because there is a ‘better deal’ on the table if this occurs.  Martin Schulz, the President of the European Parliament has dismissed this idea as farcical, stating that Boris Johnson should read the EU treaties. What is also significant is the fact that Schulz has argued that he would never have imagined in his political career that he would see a Tory Prime Minister leading a campaign in Great Britain to stay in the European Union.  He also maintained that should the UK leave the EU, it would find itself in an economic limbo without any bi-lateral trading treaties for years.

Now 70 years after Bretton Woods, where is the United States in this entire hubbub?  Is the United States still able to influence a political or an economic event that will rock the world and materially change the trading and financing regime that it has established following WW II? What do we mean when we aver that the US is the hegemon in the current international system? 

For the record, although the polls are showing a ‘neck and neck’ race in the UK, I am of the opinion that the ‘stay in’ campaign, led by David Cameron, will win with a comfortable margin.    Boris will then disappear on his bicycle.

I have argued that much has been written about Hegemonic Stability Theory (HST). One point I wish to point out again is that HST avers that the international system is more likely to remain stable when a single nation, or hegemon dominates the rules and arrangements of the international system.  If we return to Charles KIndleberger, who argued that a lack of world leadership led to the Great Depression between the wars, then we can assume that the rise of the United States after WW II and its control of the Bretton Woods system created the environment for the enormous strides in growth and prosperity after the war. 

Moreover, while the classical liberal interpretation of HST argues that the hegemon, using institutions, will cover the commons through ‘enlightened self-interest’, Stephen Krasner has made it quite clear that this self-interest will take the form of an international regime, ‘defined as sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area of international relations’.  Changes in principles and norms result in changes to the regime itself.  For example, John Ruggie contends that ‘the distinction between orthodox and embedded liberalism involves differences over norms and principles.  Orthodox liberalism endorses increasing the scope of the market.  Embedded liberalism prescribes state action to contain domestic social and economic dislocations generated by markets’.  Thus orthodox and embedded liberalism define different regimes.

So how can we reconcile our ideas on the above?  Brexit, distilled to its essence, is an argument over orthodox liberals and embedded liberals.  The conservative Tories especially want a more limited government, less oversight from Brussels, and the development of the free market.  Europe on the other hand is moving more in a direction of embedded liberalism and ‘regional’ oversight of the economy.  Well where is the US in this argument?  President Obama has hinted at a US predilection for a ‘stay in’ vote, as this should promote a US/EU free trade deal, but he is concerned that any interference may backfire.  

If we were to follow HST, we would argue that the US would control the outcome through the regime that it has created by offering side payments that would be critical to the outcome. and US self interest.  Has the world now gone beyond the idea that the US is dominating the rules and arrangements of the international system?