Analysis Of

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Analysis Of

sovereignty is like virginity: once you engage in intercourse with the outside world you have lost it. – Jagdish Bhagwati
Our global society presents great opportunities, but also many obstacles, to the improvement of the human condition. International interdependence, about which so much is written and talked these days, can amount to the opening up of new worlds, but it can also mean the infliction of suffering by one nation on others. The state has become too big for the small things, and too small for the big things.

Under the present system there are gains to uncoordinated action. It pays any one country to put up protectionist barriers, whether others do so or not; to build up its arms promises security to any one country, whether others do so or not; any one country can to its advantage pollute the common air and the oceans, whether others do so or not. It pays any one country to attract capital from abroad by tax incentives, whether others do so or not, thereby eroding the tax basis. These ultimately self-damaging and possibly self-destructive actions can be avoided, in the absence of self-restraint, only by either a dominant world power imposing the restraints, or by co-operation, or by delegation of some powers to a transnational authority, with the power to enforce restraint.


Some Examples with Global Interdependence are:
1. My country does not contribute while others do. (Free rider, defection.)
2. My country contributes together with others. (Co-operation or enforcement.)
3. No country contributes. (Prisoners’ Dilemma outcome.)
4. My country contributes while no other country does.


Behavior by each according to 1, or the fear of 4, leads to outcome 3. Although 2 is preferred to 3, we end up with 3, unless either rewards and penalties, or autonomous co-operative motivations induce or force countries to 2. Incentives and expectations must be such as to rule out outcomes 4 and 1, so that if I (or you) contribute, I (or you) will not end up a sucker. In the absence of such motivations, the result is that peace, monetary stability, absence of inflation, expansion of output and employment, an open world economy, environmental protection, debt relief, raw material conservation, poverty reduction and world development will be undersupplied.

Examples of such dilemmas on the global scale are everywhere. Above all there is the arms race, which, though we have so far avoided a major nuclear war, has contributed to hundreds of minor wars, mostly in the Third World; then there is competitive protectionism, through which each country casts its employment problem onto others; competitive exchange rates movements, by which unemployment or inflation are exported; research and development wars; investment wars; competitive tax concessions; environmental pollution; the killing of whales, the depletion of ocean reserves, and the debt crisis. These are only some of the areas in which these battles are now being fought.
To avoid these traps, co-ordination, delegation and enforcement of policies are needed. They are needed not in order to impose an external will on unwilling subjects, but in order to realize the objectives of the states themselves, not pursued by counter-productive actions. But co-ordination means that each country has to do things it does not want to do. The U.S. has to balance its budget in order to lower world interest rates but does not wish to raise taxes; Germany has to grow faster, but she does not want to attract guest workers from Turkey and Yugoslavia; Japan should import more, but she does not want to hurt her domestic industries. And so on.