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Losing Control?
Sovereignty in an Age of Globalization

Saskia Sassen

New York

Columbia University Press


2. On Economic Citizenship

In addressing the question of how economic globalization has affected the exclusive territoriality and sovereignty that have marked the modern state, I argued that economic globalization has contributed to a denationalizing of national territory, though in a highly specialized and functional manner that befits the tenor of our era. I also argued that sovereignty, until now largely concentrated in the national state, had become somewhat decentered; there are other locations for the particular form of power and legitimacy we call sovereignty: now it is also located in supranational organizations such as the European Economic Union, the new emergent transnational legal regime, and international covenants proclaiming the universality of human rights. All of these constrain the autonomy of any state operating under the rule of law, and they do so in many distinct and divergent ways. The processes of economic globalization have played a critical role in these developments.

Now I want to address the institution of citizenship and examine the impact of a global economy on the continuity and formation of rights associated with citizenship, particularly those that grant the power to extract accountability from governments. Together with sovereignty and exclusive territoriality, citizenship marks the specificity of the modern state.

There are different views and analyses of the history of citizenship. For some (by far the majority) the origins of the institution go back to an earlier period; there were forms of citizenship in early Greece and medieval Europe, for instance. But other historians and theorists posit--quite controversially--that it is an essentially modern concept: contemporary ideas of citizenship and democracy are products of the French Revolution and its aftermath. 1 They base their analysis on the assumption that the evolution of citizenship participation is founded on a number of structural and cultural preconditions: a city culture, secularization, the decline of particularistic values, the emergence of the idea of a public realm, the erosion of particularistic commitments, and the administrative framework of the nation-state. It can also be argued that the idea of citizenship is not only modern but Western. Max Weber pointed out that it is difficult to dissociate the evolution of citizenship from the development of urban civil society; citizens were privileged members of the city-states that sprang up with the growth of European trade. But whether the concept applies in Muslim or Southeast Asian societies, for example, is a complex question. 2 In other words, having developed out of a particular conjuncture of cultural and structural conditions that may be peculiar to the West, citizenship may not be a universal concept. The universalizing of the institution, then, presupposes the possibility of mandating it from above. 3 Many non-Western nations have adopted it in their constitutions, and citizenship and civil society have become widely used in the political cultures of Asia, Africa, and Latin America.

Two logics frame my discussion here. One is that as an institution crucial to governing and accountability in national states, citizenship may also play a role in governing the global economy. It does so not simply to create order at the top but also to ensure some sort of accountability through the electoral and judicial process, this being one of the functions of citizenship in the national state. What forms this accountability might take and to what constituencies it would respond are not clear at all.

The second logic framing the analysis in this chapter is that the history of modern citizenship shows the importance of underlying conditions in shaping it. 4 Insofar as the global economy has created new conditions, it may spur another phase in the evolution of the institution of citizenship. 5

The institution and construct of citizenship are being destabilized. First, a critical rereading of the generally accepted history of citizenship represents an alternative to the modernization assumptions underlying much analysis of citizenship, that is, the notion that as countries develop and the public sphere expands as a consequence of industrialization, modern Western-style citizenship is an inevitable outcome. Critics of this theory argue that industrialization and the rise of capitalism do not inevitably lead to the universalism and public orientation necessary for citizenship. There can be economic growth and increases in productivity, and there can be capitalism, without the particular form of modern citizenship evident especially in Europe and North America. For example, Japan and the newly industrialized countries of Asia--Singapore, Taiwan, South Korea--today still have strong family- and clan-based organizational forms in the economy. The nations of Islam had cities and a strong urban tradition, yet loyalties pushed in directions other than Western-style citizenship.

According to some, then, the constituent components of modern citizenship stand in no clear causal relation to the radically extended public sphere of industrial society. This public sphere may well be infused by such noncitizenship-like features as means-ends rational calculations of advantage, an exclusive dedication to economic activity, and the dominance of political elites. 6 (In such descriptions of the public, I recognize key aspects of the United States today.) They suggest that at least some of the scholarship on citizenship has in mind a highly specific construct that may no longer exist, given changes in contemporary conditions. The changes are such that it is questionable whether the institution, as conventionally defined, still corresponds to the earlier specification. This critique of modernization models also suggests that mandating Western-type citizenship from above will be difficult, because citizenship is at least partly culturally grounded.

This leads me to a second destabilizing force: Once we accept the cultural and historical specificity of concepts of civil society and citizenship in Western social and political theory, we need to reckon, at least theoretically, with the impact of global forces that challenge the authority of the nation-state. Thus immigrant mobility within the territory of the ec has once again brought to the fore the question of citizenship in Europe itself, the birthplace of the institution. 7 In other parts of the world, too, there are enormous problems of state membership for aboriginal communities, stateless people, and refugees. These changes have important implications for human rights in relation to citizenship. 8 As politics becomes more global, human rights will assume an expanded role in its normative regulation. What will change in that relationship? 9 Will citizenship rights be partly replaced by human rights? What institutions will enforce human rights?

The social changes in the role of the nation-state, the globalization of political issues, and the relationship between dominant and subordinate groups also have major implications for questions of membership and personal identity. 10 Is citizenship as conventionally instituted a useful concept for exploring the problems of belonging in the modern world? In a world where globalization may challenge the sovereignty of the nation-state and civil solidarity, what is the analytic terrain within which the social sciences need to examine the question of rights? Do we need to expand this terrain, to introduce new elements in the discourse?

To address these questions, I use the construct of economic citizenship to deconstruct the very notion of "citizenship," a contested construct today and, to some extent, a contested institution. 11 Economic citizenship is a strategic research site and nexus in my examination of the impact of economic globalization, a construct that destabilizes the cumulative linearity built into many histories of the institution of citizenship. Have the specific conditions brought on by economic globalization, especially in highly developed countries, contributed to yet another major transformation in the institution of citizenship? My answer is yes. But with a twist--and not a pretty one.

As mentioned, the history of citizenship shows the development of different types of citizenship rights over time. In T. H. Marshall's formulation, they are civil, political, and, most recently, social rights corresponding to the formation of the welfare state. 12 I do not want to focus on the details of this history but rather seize on its implications in order to address the question of economic globalization and its impact on the institution of citizenship today. Historicizing the institution means not stopping at the latest bundle of rights that came with the welfare state. It means recognizing the possible erosion of some of the preconditions of citizenship. Today's welfare state crises, growing unemployment, and growing earnings inequality in all the highly developed countries can certainly be read as signaling a change in the entitlements of citizens. To what extent the changes are connected to economic globalization varies from country to country and is difficult to establish with precision. But overall there is a growing consensus that the race to the bottom in the highly developed countries and the world at large is a function of global competition and that disinvestment or insufficient investment in industries that offer middle-income jobs is also partly a function of hypermobile capital in search of the most profitable short-term opportunities around the globe. Securitization and the ascendance of finance generally have further stimulated the global circulation of capital and the search for investment opportunities worldwide rather than long-term economic and social development. These investment decisions do not favor the growth of a large middle class. One of the most disturbing trends today is the vast expansion in the numbers of unemployed and never-employed people in all the highly developed countries. And masses of poor in the developing countries lack access to the means for survival. Thus, while no precise measure is available, a growing body of evidence signals that economic globalization has hit at some of the major conditions that have hitherto supported the evolution of citizenship and particularly the formation of social rights.

An emerging body of scholarship and political analysis posits that rights to economic well-being, to economic survival, should be added to the social rights that came with the welfare state. 13 Some of these studies place this claim at the heart of democratic theory, arguing that employment and economic well-being are essential conditions for democratic politics. I agree with this. But my question here does not concern the claim to economic citizenship and its legitimacy. Instead, I ask, is there currently an aggregation of economic rights that constitutes a form of economic citizenship, in that it empowers and can demand accountability from government?

My reading of the evidence is, yes, there is. But this economic citizenship does not belong to citizens. It belongs to firms and markets, particularly the global financial markets, and it is located not in individuals, not in citizens, but in global economic actors. The fact of being global gives these actors power over individual governments. This is all deeply bound up with fundamental changes brought about by economic globalization.

To examine this particular instantiation of the notion of economic citizenship, as I did in my examination of territoriality and sovereignty in the previous chapter, I begin by outlining a set of practices, specifically the practices that firms and markets can engage in that amount to a bundle of "rights," some of them formally specified rights and others de facto permissions that flow from them. Multinationals and the global financial markets are the most powerful actors here.

The global financial markets, in particular, represent one of the most astounding aggregations of new rights and legitimacy that we have seen over the last two decades. Like the new covenants on human rights, they have taken on more of the powers historically associated with the nation-state than any other institution over the last decades. These two new contestants in the redistribution of legitimacy are enormously different from each other and have utterly different constituencies. Here I confine myself to the global financial markets; the final chapter focuses in part on human rights and the challenges posed by immigration to states under the rule of law.

The Global Capital Market

The formation of a global capital market represents a concentration of power capable of influencing national government economic policy and, by extension, other policies as well. These markets now exercise the accountability functions associated with citizenship: they can vote governments' economic policies down or in; they can force governments to take certain measures and not others. Investors vote with their feet, moving quickly in and out of countries, often with massive amounts of money. While the power of these markets is quite different from that of the political electorate, they have emerged as a sort of global, cross-border economic electorate, where the right to vote is predicated on the possibility of registering capital. Here I want to examine how they fulfill these functions and what the implications are for national economies.

The deregulation of domestic financial markets, the liberalization of international capital flows, computer networks and telecommunications have all contributed to an explosive growth in financial markets. Since 1980 the total value of financial assets has increased two and a half times faster than the aggregate gdp of all the rich industrial economies. And the volume of trading in currencies, bonds, and equities has increased about five times faster. The global capital market makes it possible for money to flow anywhere regardless of national origin and boundaries, although some countries (such as Iraq) are not integrated.

The foreign exchange market was the first to globalize, in the mid-1970s. Today it is the biggest and in many ways the only truly global market. It has gone from a daily turnover rate of about 15 billion U.S. dollars in the 1970s, to 60 billion in the early 1980s, and an estimated 1.3 trillion in 1995. In contrast, the total foreign currency reserves of the rich industrial countries amounted to only 640 billion in the early 1990s. Foreign exchange transactions were ten times larger than world trade in 1983; only ten years later, in 1992, they were sixty times larger. And world trade was no slouch.

When the bond market became integrated in the 1980s, there was an explosion in cross-border bond trading. For example, total international purchases and sales of U.S. Treasury bonds--U.S. government debt--rose from 30 billion dollars in the early 1980s to 500 billion in the early 1990s. Equity markets have been much slower to go global, a fact partly explained by international differences in accounting practices and restrictions on foreign holdings of equities by pension funds.

Though there is no comprehensive measure of cross-border capital flows (including cross-border currency flows), the total of various separate markets approximates 75 trillion dollars. Can it grow bigger? Yes, it can. According to some estimates, this is only the midpoint of a fifty-year process that will culminate in the full integration of these markets. Financial markets are expected to expand even further in relation to the size of the real economy. It is estimated that the total stock of financial assets traded in the global capital markets increased from 5 trillion dollars in 1980 to 35 trillion in 1992--twice the gdp of oecd countries, at the time the twenty-three richest industrial countries in the world. The forecast is that by the year 2000 this value will rise to 83 trillion dollars, three times the aggregate oecd's gdp. 14 Much more integration and power may lie ahead for capital markets, 15 though even now an immense amount of capital can be moved across borders at short notice.

Yet a global capital market could conceivably be nothing more than a vast pool of money for investors to play with; the power to discipline governments' economic policy making is not inherent to it. How does the massive growth of financial flows and assets and the emergence of an integrated global capital market affect states in their economic policy making? To address this question, it helps to examine how this current phase of the global capital market compares with an earlier phase, when international financial markets operated under the gold standard from the late 1800s to World War I. 16

In many ways the international financial market from the late 1800s to World War I was as massive as today's. This is certainly the case in terms of both its volume as a share of national economies at the time and the relative size of international flows. Capital flows dominated national economies. Monetary growth was tied to international flows of gold, leaving governments with little room for autonomy. And Keynes was railing against speculators in the financial markets just the way many of us do today. He pointed to the same type of inversion that many see happening now: that financial markets, rather than investments in production, drive economies. For Keynes, when finance dominates, "the development of the country becomes a by-product of the activities of a casino." 17

The international capital market in that earlier period was large and dynamic, highly internationalized, and backed by a healthy dose of Pax Britannica to keep order--of a certain kind. The extent of the internationalization can be seen in the fact that in 1920, for example, Moody's rated bonds issued by about fifty governments to raise money in the U.S. capital markets. The Depression brought on a radical decline in this internationalization, and it was only very recently that Moody's once again rated the bonds of as many governments. Indeed, not until the 1980s did the international financial markets reemerge as a major factor, and as late as 1985 only fifteen foreign governments were borrowing in the U.S. capital markets. 18

There are important differences between today's global capital market and the period of the gold standard before the First World War. The new information technologies have brought instantaneous transmission, interconnectivity, and speed to the financial markets. Gross volumes have increased enormously even when relative flows between countries are not relatively higher. The speed of transactions has brought its own consequences: trading in currencies and securities is instant, thanks to vast computer networks. And the high degree of interconnectivity in combination with instantaneous transmission signals the potential for exponential growth.

In addition, market power is now increasingly concentrated in institutions such as pension funds and insurance companies. Institutional investors now manage almost two-fifths of U.S. households' financial assets, up from one-fifth in 1980. U.S. institutional investors' assets rose from 59 percent of gdp in 1980 to 126 percent in 1993.

A third major difference is the explosion in financial innovations that increase the supply of financial instruments tradable on the open market. Though it is just beginning in most of Europe, securitization is well advanced in the United States. For instance, by 1994 the total value of derivatives--one type of innovation--sold over the counter or traded in exchanges had risen to more than 30 trillion dollars worldwide. This proliferation has furthered the linking of national markets by making it easier to exploit price differences between different financial instruments. (I should note that while currency and interest-rates derivatives did not exist until the early 1980s, derivatives on commodities--so-called futures--have been around in some version for much longer. Amsterdam's stock exchange in the seventeenth century--when it was the financial capital of the world--was based almost entirely on trading in commodity futures.)

The Global Capital Market and the State

Does the concentration of capital in unregulated markets affect national economies and government policies? Does it alter the functioning of democratic governments? Does it reshape the accountability relation between governments and their people that operates through electoral politics? Yes, it does. What are the mechanisms through which the global capital market actually exercises its disciplining function on national governments and pressures them to become accountable to the logic of these markets?

Governments used to have a whole array of policies to govern their national economies: policies on taxes, public spending, interest rates, credit controls, exchange rates, capital controls, and income. 19 The global financial markets have affected all of these, some of them sharply. Before deregulation, governments could (to some extent) directly control the amount of bank lending through credit controls and impose ceilings on interest rates, which made monetary policy more effective than it is today. For instance, to cite a well-known case in the United States, Regulation Q imposed interest-rate ceilings and thereby protected the holdings of savings-and-loan associations by preventing their flight to higher-interest-bearing alternatives. In 1985 Regulation Q was lifted. The absence of interest-rate ceilings meant that money left the savings-and-loan associations in hordes, creating a massive slump in mortgages and housing construction. 20

With deregulation of interest rates in more and more highly developed countries, central banks can now only rely on changes in interest rate levels to influence the level of demand in the economy. They can no longer use interest rate ceilings. But the impact of interest rates on the economy has, in turn, been blunted by the invention and widespread use of derivatives.

Derivatives (futures, swaps, options) were invented precisely to diminish the impact of interest rate changes; they thereby reduce governments' abilities to use interest rate policy to influence the economy. Indeed, an estimated 85 percent of U.S. Fortune 500 firms make some use of derivatives to insulate themselves from swings in interest rates and currency values, as do public-sector entities; the notorious case of Orange County in California is a prime example. Most of these derivatives are actually on interest rates, which means that as their use expands, the power of central banks to influence the economy through interest rates will decline further. 21

The reduced sensitivity in the economy to changes in interest rates affects the impact of government borrowing on the economy. That is, before the 1980s a very high level of borrowing by the government, like that under Reagan in the 1980s, would have sent interest rates skyrocketing, making the cost of capital unbearably high and hence the level of government borrowing unacceptable to the national economy. Now this impact is diluted or much postponed. But there is no free lunch--and we are paying for it now through the reduction in the social fund.

From 1945 to 1974 total net public-sector debt as a share of gdp in the oecd economies fell steadily, down to 15 percent by 1973. Since 1974 it has risen to reach 40 percent of gdp today. Under the Bretton Woods system, fixed exchange rates and restricted capital flows meant that national debt had to be financed out of official reserves. That made it impossible for governments to run big deficits (just as we couldn't before credit cards--although even with them, our free ride is shorter, and the unpleasant consequences more direct than anything the government faces). The global capital market has made it possible for governments to carry bigger debt and for some governments to do so for longer terms. This is thanks to massive innovations that transformed debt into various forms of tradable (i.e., profit-making) instruments. Any concentrated pile of money has become attractive to traders; whether it is negative (debt) or positive is now somewhat secondary. This is one of the major accomplishments of the innovations of the 1980s.

Because the financial markets have invented ways of profiting from irresponsible borrowing, they are not disciplining governments where and when it might count. But eventually, and often suddenly, markets do punish governments for excessive borrowing, forcing them to make cuts. In the meantime, they will stretch the profit-making opportunities for as long as possible, no matter what the underlying damage to the national economy might be. Investors threw money into Mexico even though its current account deficit was growing fast, reaching an enormous 8 percent of gdp in 1994. Notwithstanding recognition by critical sectors in both the United States and Mexico that the peso needed a gradual devaluation, nothing was done. But then a sudden sharp devaluation with the subsequent panicked departure of investors threw the economy into disarray. (The nationality of the investors is quite secondary, though an imf report says that Mexicans were the first to dump the peso.) Gradual action could probably have avoided some of the costs and reversals. Even in late 1994 many Wall Street analysts and traders were still urging investment in Mexico, and it was not till February 1995 that foreign investors began getting out in hordes. It all started with an excessive inflow and concluded with an excessive outflow.

The moral of this story is that sooner or later the price always has to be paid. In this country, many long years after the borrowing frenzy began with Reagan, the government is scrambling to find ways to pay. And Congress, following the pattern set by many other countries, has opted for disproportionate cuts in the social fund. The United States went from being the biggest creditor country in the world to being the biggest debtor. That is the long-term inheritance of the freedom to borrow in global capital markets.

The power of governments to influence interest and foreign exchange rates and fiscal policy can also be severely reduced, if not neutralized, by the foreign exchange and bond markets. For example, these markets can respond to a cut in interest rates by the U.S. government by raising the cost of loans to the government through an increased yield in long-term bonds. This has emerged as standard procedure. Then there is the famous case of George Soros and his Quantum fund, which made one billion dollars in profits on Black Wednesday in 1992 by helping to push the British pound out of the European Exchange Rate Mechanism.

There is more. Central banks have traditionally carried out their monetary policies through the banking sector. But in the United States, for instance, the weight of this sector in the economy is shrinking because of the new financial institutions and instruments developed over the last decade through deregulation. Thirty years ago banks provided three-quarters of all short- and medium-term business credit; today that proportion is down to under 50 percent. The share of commercial banks

in total financial assets has dropped from more than half to just a quarter over the past seventy years. The rise of electronic cash further reduces the central bankers' control over the money supply, because electronic money moves through computer networks, bypassing the information-gathering systems of central banks. Another issue is the currency markets. Governments with large debts are in fact partly in the hands of investors--whether foreign or national--who can switch their investments to other currencies. Governments and their central banks have thus been losing control over long-term interest rates, no minor matter if you consider that 60 percent or more of private-sector debt in the United States, Japan, Germany, and France is linked to them.

All of these conditions have reduced the control that central banks have over the money supply. Clearly the consequences vary in severity depending on a country's banking structure, but overall the impact of financial deregulation and innovation has been to make the effect of a change in interest rates on a national economy more uncertain and to increase the opportunities for mistakes.

There is a whole separate discussion to be had about who benefited during the period when the central banks--for example, the Federal Reserve in the United States--had greater control. But one thing is certain: even though many were excluded, the beneficiaries were from a far wider spectrum of workers, communities, and firms than they are today. Central banks and governments appear now to be increasingly concerned about pleasing the financial markets rather than setting goals for social and economic well-being; to cite just one example, after the Mexican crisis, the Argentinean and Brazilian governments promised not to devalue their currencies, no matter what the cost. In the past, inflation was a way of coping with growing debt. But today the bond markets will raise yields--and hence the cost of loans to governments--thereby sometimes terrorizing governments into keeping inflation under control. Trying to accommodate inflation-obsessed bondholders, governments impose excessive deflation on economies, at the expense of job growth.

It could be argued that there may be some positive effects as well: if a national debt becomes too large, bondholders will demand higher yields (i.e., raise the cost of loans to governments) and lower the value of the national currency, as is clearly the case with the dollar in the United States. But this only happened after more than a decade of Reagan-Bush excessive spending on defense, and payment for the added debt has been extracted from the social fund, infrastructure, public housing construction, school buildings, parks, and so on. The dollar has plunged by 60 percent against the yen and German mark since the mid-1980s; this can be seen as a judgment on U.S. economic policies on borrowing.

Do we want the global capital market to exercise this discipline over our governments? And to do so at all costs--jobs, wages, safety, health--and without a public debate? While it is true that these markets are the result of multiple decisions by multiple investors and thus have a certain democratic aura, all the "voters" have to own capital, and small investors typically operate through institutional investors, such as pension funds, banks, and hedge funds. This leaves the vast majority of a country's citizens without any say.

The global capital market is a mechanism for pricing capital and allocating it to the most profitable opportunity. The search for the most profitable opportunities and the speedup in all transactions, including profit taking, potentially contribute to massive distortions in the flow of capital. Yes, there is a logic of sorts to the operation of markets, but it will not inevitably lead to the desirable larger social and economic investments. The issue here is not so much that global markets have emerged as a powerful mechanism through which those with capital can influence government policy; in many ways, that is an old story. 22 It is rather that the operation of these markets calls for certain types of economic policy objectives. Given the properties of the systems through which they operate--speed, simultaneity, and interconnectivity--they can produce outcomes much greater than the sum of the parts. And this weight can be brought to bear on any country integrated into the financial markets--and there are more and more of them.

A New Zone of Legitimacy?

Is the power of the global capital market a threat to democracy and to the notion that the electoral system is a way for citizens to extract accountability and ensure some control over their governments? As noted, some argue that financial markets are democratic because they reflect the opinions and decisions of millions of investors, thereby functioning as a sort of around-the-clock global opinion poll. One also hears that financial markets have sharper eyes than do voters, or citizens.

One scholar, Wilhelm Roepke, trying to understand the relation between international law and the international economy before World War I, under the Pax Britannica, refers to this international realm as a res publica non christiana, seeing in it a secular version of the res publica christiana of the Middle Ages. Is the transnational web of rights and protections that multinational firms and global markets enjoy today the next step in this evolution: the privatizing of an international zone that was once a res publica? Some legal scholars are positing that we are headed for a situation where international law will be predominantly international private law, that is, international economic law. 23 While in principle you and I are included under such law, in practice it largely addresses the needs and claims of firms and markets.

Although there is much to be said about this new zone of legitimacy, I want to confine myself to two observations. First, national states have participated in its formation and implementation, as I described briefly in the preceding chapter. There is a consensus among states to further the interests of economic globalization. 24 Second, the implicit ground rules of our legal system contain far more permissions than have been formalized in explicit rules of permission and prohibition. 25 This analytical elaboration can help us conceptualize the bundle of rights that has accrued to firms and markets over the last decade of economic globalization.

Do the energetic and inventive lawyers and executives who are the vanguard of this process face any hurdles in their race to economic globalization? Yes, they do.

Let me illustrate with the case of international mergers. These have been increasing rapidly over the last few years, yet the procedure remains cumbersome, a veritable obstacle course. Consider, for example, the international merger of Gillette and Wilkinson. The 1989 Gillette-Wilkinson acquisition was reviewed either formally or informally by the following agencies: the Australian Trade Practices Commission, the Brazilian Conselho Administrativo de Defesa Economica, the Canadian Bureau of Competition Policy, the European Commission, the French Conseil de la Concurrence, the German Federal Cartel Office, the Irish Fair Trade Commission, the U.S. Department of Justice, and seven other such agencies. But these obstacles are unlikely to stop the process; they are mere grist for the lawyers' mills and bills. Beyond them, however, are countervailing trends that can strengthen what is now being weakened, tools to create a different kind of governance of the global economy. They can be grouped in three broad categories.

The first category is what I think of as instruments lying on the shelf, waiting to be used. I have done research on a variety of them, even going back to some of the original formulations concerning various institutions that came out of the Bretton Woods agreements. I was after dormant potential, so to speak. The pickings were slim. But there were some.

For instance, certain features of the gatt's original document in the Bretton Woods agreement have not received sufficient, if any, attention and remain unused. 26 They happen to be about more universal issues, such as general well-being in the community of states.

There is a whole historiography to be produced here as to why certain features were left undeveloped and unactivated while others evolved into a position of ascendance. I can only focus on one particular form of this recovery here. Professor Kenneth Abbott, of Northwestern University Law School, has studied the gatt in great detail and found that most of the analyses and even debates between contrary positions have focused on what could be referred to as the "private" side of the GATT, neglecting the "public" side of the agreement.

Abbott notes that most discussions of the gatt as an institution--particularly those relating to rule making, dispute settlement, enforcement, and such--are organized around opposing conceptions. Two of these dichotomies dominate the literature, though there are variants. The most common is legalism versus pragmatism. The other dichotomy is represented by John Jackson's rule-oriented versus power-oriented procedures and diplomacy. Abbott proposes an additional dichotomy for thinking about gatt institutional issues: institutions and procedures designed to serve "private" interests and those designed to serve the "public" interest. Public refers here to the common interests of the nations forming the world trading community; private to the particular interests of the individual states, the contracting parties to the gatt. This distinction leads to intellectual connections that the gatt fraternity does not normally make; it provides perspectives on the nature of the gatt as an institution (under both its traditional arrangements and the reforms negotiated in the Uruguay Round) that differ from the traditional legalist and pragmatist positions (although they all overlap). Indeed, it reveals, according to Abbott, that both of these positions, perhaps surprisingly, operate largely on the "private" side of the dichotomy. 27

That an important instrument such as the gatt actually contains undeveloped potential for the development of arrangements aimed at the community of states rather than simply the positions of individual states vis-à-vis each other may become an important point in my larger research project about countervailing tendencies. Can the GATT and the WTO become more "public" institutions with greater "public" functions?

The second category of countervailing force is the agencies and interests within states that go against the ascendance of the global financial markets. Yes, the international role of the state in the global economic arena has to a large extent involved furthering deregulation, strengthening markets, and pushing for privatization. But does it have to be this way? Could national states instead pursue a broader international economic agenda, one that addresses questions of equity and mechanisms for accountability among the major global economic actors?

International cooperation and multinational agreements are on the rise. The participation of national states in the global environmental arena has frequently led to the signing of multilateral agreements supporting measures to protect the environment; about a hundred major treaties and agreements have gone into effect since 1972, though not all remain in force. They may not be effective, but they do create a framework that legitimates both the international pursuit of a common good and the role of national states in that pursuit. 28 Alfred Aman notes that it is in the interest of the state to play an increasingly active role at the global level. 29 In the longer term, it is more likely that stronger legal regimes will develop globally if the global issues involved have a national regulatory counterpart. Even when such regulatory approaches use the market as a tool for compliance, they can strengthen both the rule of law (nationally and globally) and accountability. The participation of national states in new international legal regimes of this sort may contribute to the development of transnational frameworks aimed at promoting greater equity.

The third category of forces that represent countervailing power is composed of the active movements and ideologies that resist the erosion of citizenship. Most important is the universalizing of the institution. A new trend in international legal discourse conditions the international status of the state on the particular political rights central to classical liberal democracy; democratic government becomes a criterion for recognition of the state, for protection of its territorial integrity, or for its full participation in the relations among states. This is reflected in the recent U.S. and ec guidelines on the recognition of new states in Eastern Europe and the territory of the former Soviet Union. There is also a recent international legal literature that seeks to establish a basis in international law for a right to democratic governance and conditions statehood on this right.

There are two related schools of thought. One, part of an older literature that emerged with postcolonial government formation, especially in Africa, relates to a larger debate on the meaning of self-determination in postcolonial international law. It associates a state's right to self-determination with the right to representative democracy for its people. A second, newer school of thought, perhaps most prominently represented by Thomas Franck, seeks to craft a right to democratic governance from existing rights of different lineages. 30 Franck anticipates that the legitimacy of each government someday will be measured definitively by international rules and processes.

The major implications for those who are in a disadvantaged position in the current system--whether women, unemployed workers, the poor, discriminated minorities, or some other group--is that these schools of thought reject the statist model in the international system that is still prevalent today, a model that is indifferent to domestic regimes and the relationship between state and society. They reevaluate the notion that the sovereign state is the exclusive representative of its population in the international sphere and reject the notion that the state is the only actor in international law that really matters. These developments raise a question about the condition of international public law. Do the new private systems for governance and accountability and the restricted role of national states in the global economy indicate a decline of international public law? What actors gain the legitimacy for governance of the global economy and emerge as legitimate claimants to take over rules and authorities hitherto encased in the national state? As I have discussed here and in the first chapter, there is a growing role for nonstate actors, but it is going disproportionately to individuals and entities with power, whether arbitrators or global markets in finance. We need to redress that balance.


Note 1: See, e.g., Kalberg 1993; Seligman 1993; Turner 1990; Giddens 1985. Back.

Note 2: Otto Hintze further developed these ideas in his study of the origins of citizenship in feudalism, particularly the notions of immunity emerging in that period. See Gilbert 1975. Back.

Note 3: Franck 1992 examines how representative democracy has become a condition for legitimating governments. Back.

Note 4: See, for instance, the analysis in Kalberg 1993 showing the extent to which a certain combination of conditions had to be secured for the institution of modern citizenship to emerge. Using a rather confined definition, the author succeeds brilliantly in demonstrating the rarity of this combination of conditions. Back.

Note 5: See, for example, the new scholarship on the possibility of the erosion of citizenship as an institution embedded in nation-states, notably the work by Baubock 1994 and Soysal 1994. Back.

Note 6: See, for example, Kalberg 1993; Hindess 1993. Back.

Note 7: See Soysal 1994 for an analysis of the limits of citizenship in Europe today. Back.

Note 8: See, for example, Baubock 1994, which asks whether human rights can be "usefully understood as universalized rights of citizenship that are extended to a transnational level" (239). See also Roche 1992; Smith 1990. Back.

Note 9: See, for instance, the well-known argument that "freedom, wherever it existed as a tangible reality, has always been spatially limited" (see Arendt 1963, 279). See Walzer 1983 on the relation between closed states and substantive freedom and justice. See Holston 1996 on cities and citizenship today. Back.

Note 10: See, for instance, Holston 1996; Basch, Schiller, and Szanton-Blanc 1994. Back.

Note 11: Economic citizenship is not part of the conventionally understood history and theory of citizenship, but it can be said that there is no theory as such of citizenship, only typologies and histories of the institution. Back.

Note 12: See Marshall 1977, 1981. Marshall's work on citizenship addresses the tension between political democracy and the condition of class inequality; he sees the welfare state as contributing to reduce the tension. This work has generated a large literature; it is impossible to do justice to it here. Back.

Note 13: See, for instance, Collins et al. 1993. See Newman 1988 on inequality. Back.

Note 14: The potential for further growth is illustrated, for example, by the case of the Russian stock market. Both India and Russia have recently opened their markets to foreign investors. Many Russian firms, however, are very reluctant to list their stock publicly, so turnover in the Russian stock market is dominated by over-the-counter trading in about a hundred stocks, with a turnover of at most 50 million dollars a week. In Bombay, by contrast, the average weekly turnover is 290 million dollars. Clearly, Russia represents an enormous potential for growth in terms of equity trading. Back.

Note 15: For instance, figures show that countries with high savings have high domestic investment. In other words, most savings are still invested in the domestic economy. Only 10 percent of the assets of the world's five hundred largest institutional portfolios are invested in foreign assets. Some argue that a more integrated capital market would raise this level significantly and hence increase individual nations' vulnerability to and dependence on the capital markets. It should be noted that extrapolating the potential for growth from the current level of 10 percent may be somewhat dubious, in that such projections may not reflect the full range of factors that keep managers from using the option of cross-border investments. Cross-border investment may well remain underused regardless of the actual potentials of the system. Back.

Note 16: There was an international financial market in late medieval Europe, of course. For some scholars, these are just two phases in a long history. See, for example, Braudel's (1982) notion of financial expansions as closing phases of major capitalist developments, and Arrighi's (1994) examination of the Genoese and Dutch periods of international financial domination as part of his explanation of the global capital market today. These scholars reject the notion that there was a new stage of capitalism in the form of finance capital at the end of the nineteenth century (see Hilferding 1981). Nor do they believe that there was a "cosmopolitan network of high finance . . . as peculiar to the last third of the nineteenth century and the first third of the twentieth century as Polanyi thought. Its similarities with the cosmopolitan network that had regulated the European monetary system three centuries earlier during the Age of the Genoese are quite striking" (Arrighi 1994, 167). Back.

Note 17: On this point, see Susan Strange's account of the current situation in Casino Capitalism (1986); see also Sassen 1991, part 1. Back.

Note 18: For many analysts, the anomaly is the period from 1930 to 1970, a period when tight capital controls and regulations protected domestic financial markets and gave governments more control over their economies. There were always leaks, and they grew sharply in the 1960s. One response to tight controls at home was the implementation of the market in Eurodollars, which was developed by U.S. banks to escape banking regulations at home. Then the collapse of key elements of the Bretton Woods system in the early 1970s marked a new emergence of the global capital market. Back.

Note 19: There is an enormous literature, much of it country specific, on these developments; it is impossible to do justice to it here. Much of the evidence and literature on which this and the next section are based can be found in Sassen 1991 and forthcoming. Back.

Note 20: We now also know that the particular organizational structure of savings-and-loans associations made possible unusually high levels of fraud and that this was a major factor contributing to their financial crisis. We also know from historians on the subject that the possibilities for fraud have long been high in these types of organizations. Back.

Note 21: Since these derivatives entail a redistribution of interest sensitivities from one firm or sector to another, one could argue that the overall sensitivity to interest rates in the economy remains constant. But the fact is that different firms may have different sensitivities to changes in interest rates; apparently, highly sensitive firms are shifting their risk to less sensitive firms, which reduces the overall impact of interest rates on the economy. Back.

Note 22: See, for instance, Arrighi 1994. Back.

Note 23: See some of the work by David Kennedy, e.g., Kennedy 1988; 1995. Back.

Note 24: See Panitch 1996; Mittelman 1996; Sassen forthcoming. Back.

Note 25: See Duncan Kennedy 1993, especially the argument that in the case of the United States these ground rules contain rules of permission that strengthen the power of employers over workers or allow an unnecessary concentration of wealth in the name of the protection of property rights. Back.

Note 26: The term gatt-mtn (Multilateral Trade Negotiations) refers to the increasingly complex body of agreements, institutions, and procedures created and administered under the general aegis of the gatt. The primary elements of the system are the gatt itself and the agreements on nontariff measures produced by the Tokyo Round of multilateral trade negotiations and the Uruguay Round. As the system develops, its central institutions become increasingly complex. Implementing the Uruguay Round, the largest and most complex in the history of the gatt, will require greater institutional development. The wto is one such development; many others will arise as the system evolves and is implemented. See Jackson 1989; Bhagwati 1991. Back.

Note 27: For instance, the private interests argument provides a strong and consistent rationale for many of the dispute settlement reforms developed during the Uruguay Round. See Abbott 1992. Back.

Note 28: See Ruggie's work (1996) on multilateral agreements. Back.

Note 29: See Aman 1995. Back.

Note 30: See Franck 1992. Back.