The nation-state or national decision-making mechanism cannot go together with democracy and globalization.

Dani Rodrik is a Turkish economist and a professor at the Kennedy School of Government at Harvard University. He is a first-class researcher. He used to study industrial policies predominantly and he is the founding father of TEPAV’s work on industrial policy For a long time, he also he has been studying the dynamics of globalization. Looking at the unending economic crisis of Europe, I think Dani Rodrik is right once again. Let me tell you why.

Did you hear about Rodrik’s political trilemma of the world economy? Let me start with that. This framework was developed in the first decade of the 2000s. Rodrik’s latest book, The Globalization Paradox, addresses the political trilemma of the world economy. According to this, the nation-state or national decision-making mechanism cannot go together with democracy and globalization. If you say, “We want to make our own decisions, restructure the economy and separately handle the welfare of society,” you have to give up either democracy or the liberalization brought by globalization. If your priority is to ensure international economic integration and globalization, you have to let go of democracy or the national decision-making mechanism, that is, the nation-state. If democracy is an indispensible notion for you, you have to choose between globalization and the nation-state. This is the analysis framework the trilemma offers. Looking at the European crisis today, I have started to think this framework is valid.

The European Union (EU) is an economic integration project, a peace project launched after World War II. I think that the project was highly successful. The EU first transformed western Europe, which is inhabited by almost 100 million people. The economic integration worked effectively. Then, in the 1990s, the EU added eastern Europe and another 100 million people for transformation. This is how the EU works: it includes the excluded and assimilates it. With this perspective, the EU is the best artifactual transformation mechanism ever. Later, in the first decade of the 2000s, the EU attempted to add and transform another 100 million people, including Turkey. Croatia, which started membership negotiations at the same time as Turkey, recently became a member of the Union. We remain outside, however. Meanwhile, with the 2008 crisis, the transformation mechanism of the EU broke down.

So, what does the problem stem from at the current point? With the above framework, the problem is clear. The EU is an economic integration project. If you want to stick to the project, you have to choose between democracy or the nation-state and the national decision-making process. Member states have to decide on whether to terminate the nation-state and build transnational decision-making processes or to ignore election results. France in the election process accuses Sarkozy of kneeing before Merkel and selling out the country. The situation is no different in Greece and will be no different in Germany and other member states. No one calls themselves Europeans. They still are French or Austrian. When it comes to bailing out, they treat the Greeks as outsiders. What is the problem, then? It is not about tightening belts; the debt stock of Europe cannot be done away with austerity measures. The problem is about building a sustainable fiscal policy framework with a transnational mechanism across Europe. This will provide the credibility required to raise expenditures. Greece or Spain cannot individually provide the credibility of debt management. And without debt management credibility, short-term austerity measures affect negatively the debt stock/GDP ratio. Given that neither democracy nor integration can be foregone, the problem of Europe is to design an institutional framework for how to forego nation-states. Briefly stated, Dani Rodrik was right, once again.

This commentary was published in Radikal daily on 04.05.2012