NIC Europe Group Driver Paper

Budapest, April 28 - 30. 2004.

Globalisation or Regionalisation?

**The views expressed in this and other papers associated with the NIC
2020 project**

**are those of individual participants. They are posted for discussion
purposes**

**only and do not represent the views of the US Government.**

NIC Europe Group Driver Paper

Budapest, April 28 - 30. 2004.

Globalisation or Regionalisation?

Globalization---Which forces will predominate in 2020---regionalization
or globalization and will focusing on one lead to neglect of the other?
What will be Europe's position in the world in 2020 and how will areas
of the world look from a distinctly European perspective?

# 

# Introduction

The debate about globalisation versus regionalisation is misleading: it
is an obvious statement that the world is more complex than that. When
we make simplifications like this, we assume that the loss of
understanding is minimal: the world is more complex, but the
simplification is such that the essence of the processes are still
captured by our model. I will argue here that assumptions about today's
world having two levels of organisation leaves out a very important
factor; this in turn results in a misunderstanding.

I will argue that there are so many levels between national and global
\-- defined by socio-economic systems and subsystems \-- that the best
approximation is not to assume the existence of two levels, but rather a
continuum of levels. This makes it theoretically rather difficult to
capture the emergence of the global level. Nevertheless, I will also
argue that we can expect to see the break-up of such a continuum either
due to an internal systemic shock, the most likely being global
socio-cultural instability, or an external one, the best candidate being
a global environmental catastrophe. Such a shock will push some
subsystems to a higher level and others to a lower level, and hence will
result in a compartmentalisation of organisational levels, making it
appear as if there were a higher, global, level and a lower, regional or
sub-regional, one. Our currently malfunctioning two-level models will
then make sense.

I will also argue that Europe has a chance of being a key actor in the
emergence of the global socio-economic system. Europe has this ability
thanks to its high human capital stock, its history of overcoming
intercultural tensions, and its environment-friendly attitude. Whether,
however, Europe will be able to live up to this opportunity depends on
its ability to solve its current structural problems, to create a truly
European identity, and to build efficient supra-national, European-level
policy-making institutions. Europe's failure or success in achieving its
global potential will determine how Europeans view the globalisation
process.

# 1. Regionalisation or Globalisation? The question is wrong, at least for now

Statement 1.1. There is a continuity of hierarchical levels in the
socio-economic systems in which we live.

The beginning of the 21^st^ century is marked by several parallel
integration processes among the socio-economic systems of the world. The
internet is becoming a geographically global system, despite being out
of reach for the majority of the world's population. The international
trade system reaches almost everybody, although the average length of
each link in this case is much shorter than that of the internet. The
activities of national economies in some parts of the world have become
increasingly regional, such as in the case of Europe, East Asia, or
North America, while the Third World countries in Africa and South
America are increasingly dependent on other regions without much success
of intra-regional integration, despite occasional efforts. This economic
regionalisation is accompanied by social and cultural ones: migration
patterns in the Big Regions serve as ready evidence for that. In short,
geographically there are many levels of organisation present.

Similarly, we find many different organisational levels when we look at
the different sectors of the economy. Financial markets are arguably
global, providing that we do not count those parts of the world where
they do not exist. Capital flows are also global; the decline of the
home-bias phenomenon (whereby people are more likely to invest in their
home countries, despite there being superior investment opportunities in
other parts of the world) is the best example. Energy flows and energy
resources are also on a global level. Yet some other sectors of the
economy operate on a lower level of organisation. With the exception of
indulgences in exotic fruits and vegetables from the other end of the
world, agricultural products are still on a local level, owing to the
nature of the sector's technology as well as the continuing
protectionist stance of the developed world. Manufacturing in its turn
shows more a pattern matching the Big Regions than a truly global
system.

Correspondingly, state-like functions -- manifested either in explicit
institutions or only implicitly -- also appear on many levels. They
range from national governments, through supra-national sub-regional
organizations, such as flood monitoring agencies or commercial retail
distributing networks, through regional organisations such as the EU,
ASEAN, or NAFTA, through supra-regional sub-global groups such as the
cooperation of leading central banks harmonising their monetary policy
or the logistic systems of large multi-national companies, to the truly
global ones such as those explicit state functions inherent in the UN
family and implicit ones such as global technology standards.

Therefore we can conclude that the geographical or institutional
delineations are not on either regional or global. Instead we find
subsystems on almost every possible level. Hence, the theoretical
framework that we assume in our questions about regionalisation and
globalisation, although appealing in its simplicity, misses out on a
possibly crucial factor. It seems to be a better approximation to assume
that there exists a continuum of organisational levels between the
national and global levels. However, this leaves us without an easily
manageable framework.

Statement 1.2. If shocks hit the global socio-economic system, they may
push some levels of organisation upwards, and some others downwards,
resulting in clearer delineations.

Although today there is little knowledge in social sciences that could
guide us in predicting how the quasi-continuum of organisational levels
will change; we observe that there are looming shocks to the system,
which can be expected to compartmentalise the organisational levels.
This should be the reaction of any system to a significant enough shock:
the systemic response forces the organisational levels with functions
affected to the level of the shock. If the shocks arriving are global,
then the compartmentalisation of the organisational levels will be
towards a global one, and at least one that can be clearly distinguished
on a lower level, whether that may be a regional or -- more likely -- a
sub-regional level.

Statement 1.3. The most likely challenges are socio-cultural instability
and environmental catastrophes.

From the current perspective, there appear to be two possible sources of
these globally formative shocks.

First, the internal stability of the emerging global socio-economic
system is in jeopardy due to the fact that some societies have been
unevenly integrated into the global system: the economy being far ahead
of culture in terms of integration. This results in a local
socio-cultural instability, where a perceived or real danger of weakened
identities prompts local cultures to 'defend' themselves from the
emerging global culture. The widespread anti-globalisation movements,
often veiled in anti-American or anti-Semitic new or renewed ideologies,
the revival of religious fanaticism are all signs of this problem.
Islamic fundamentalist terrorism is only one of the many symptoms,
though an imminently dangerous one.

Second, it is clear that finding a sustainable way to co-exist with our
biological environment will be a key challenge, and that this could be
perceived as an external shock. A super-global system will emerge: one
that incorporates the global society and the global ecosystem: the
Biosphere. This global bio-social system will consist of a large set of
feedback mechanisms, most of which are far from being in place. The
learning process will take place both on the side of the Biosphere and
the global society through either a series of small shocks or a number
of catastrophes \-- it is impossible to predict which. The general
failure of the socio-economic responses to environmental problems to
date would point to the catastrophe scenario, though the green political
movement that has been growing since the late sixties launching of the
first environment-focused global models offer some hope.

Statement 1.4. A new theory will rise able to explain the emergence of
socio-economic organisational levels and to incorporate the increased
global societal variation as well as the new quality of relations
between the global socio-economic system and the Biosphere.

Our theoretical tool-box for approaching the emergence of the global
organisational level is rather limited. Although national-level models
of financial markets do not seem to be grossly inadequate for analysing
global financial markets, other theories, such as macroeconomics,
originally designed to explain the national level economic processes,
can be expected to face serious challenges. Just as there are phenomena
that cannot be understood on a microeconomic level, e.g., inflation or
monetary policy, there are also phenomena that can only be tackled on a
global level. The type of shocks discussed above are two examples of
global processes that are sufficiently important for us to expect a
global economic theory to be able to tackle them. However,
macroeconomics on a national level assumes a stable enough
socio-cultural system, based on a fundamental cultural homogeneity, that
can be left out of any economic argument. Macroeconomics -- as we know
it -- is unable even to conceive the kind of socio-cultural instability
that is present in today's global world.

Similarly, the relationship between the national level socio-economic
system and the corresponding eco-system is of a different quality to the
global one: local eco-systems can rely on the global buffers or shock
absorbers that emerged during the globalisation of the ecosystems (the
appearance of the Biosphere) that took place billions of years ago. Such
buffers are luxuries that the global society, ipso facto, cannot count
on. Until a couple of decades ago, there was no need to build the
ecological link into our theories about the human society. Hence now,
when faced with the global threat of environment catastrophes, our
models leave us without much of a firepower.

In short, no global answers will be coming from our national level
social sciences. We will have to have new theories: in economics, for
instance, a kind of global macroeconomics, but a very different one: one
that is capable of incorporating global issues such as social stability
and the global environment. Both being fundamentally different problems
from the national economy cases.

# 2. The choice for Europe: flourish and lead or limp and sink

Statement 2.1. Europe is at a crossroads: it could be a region of
lingering structural problems or the booming leader of the
globalisation.

I deliberately did not discuss technology in the globalisation chapter.
Although it is a crucial factor in the globalisation process, getting
into a debate as to whether the increased speed of technology
development was a cause, a consequence, or a side-effect of the
socio-economic globalisation would lead this paper to a diversion,
albeit a very interesting one. Nevertheless, I intend to use a feature
of technology-intensive economic globalisation: the reliance on human
capital stock of any particular economic subsystem of the global
economy. In fact Europe's strength lies in its potential to be the most
human capital-rich Big Region of the world.

Although the North American, East Asian, and European developed
economies have similar sizes of population, are characterized by quite
similar human capital indicators, and hence have a comparable overall
human capital stock, Europe stands out in its potential to integrate the
well-educated economies in its geographical neighbourhood. The human
capital characteristics of the EU's post-enlargement peripheries, for
example of Ukraine and Russia, and also -- although to a lesser extent
-- of Turkey, the Maghreb and some Middle Eastern countries, are up to
the levels of the Big Regions. It would be difficult to pinpoint a
comparable resource in the neighbourhoods of the other Big Regions --
either in Latin America or in South East Asia, despite the much larger
populations. Should Europe be able to access and absorb its neighbouring
human capital stocks, it could build the most technologically advanced
economy and become the economic leader of the global world.

However, several problems stand in the way of easy success. The EU
itself currently limits its access to these resources, either through
its trade policies (such as the current EU oil-focus towards Russia) or
owing to an unwillingness to deal with countries seen to have serious
democratic deficits -- although there is a tendency towards improvement
in both South East Europe and the Maghreb. The absorption of new
countries, however, assumes that the EU both overcomes its current
economic structural problems and transforms its lame institutions into
European level policy-making institutions that are capable of ensuring
harmonised economic activities and, in foreign relations, of effectively
representing a common European interest.

None of these problems will be easy to overcome. It would require a
substantially altered thinking of European policy makers to recognise
the opportunities at the European level and to assertively pursue their
realisation. A transformed neighbourhood policy would require the
recognition of a Big Region interest in incorporating the peripheral
countries. Democratisation in the southern and eastern periphery
requires an active policy from the EU that steps beyond the
traditionally recognised national interests of individual EU member
states. EU level institutional efficiency requires a loss of sovereignty
of nations with historical sensitivities. Nevertheless, if these efforts
fail, structural problems will prevail and Europe will miss its big
chance.

Statement 2.2. A strong Europe could play a crucial role in the global
society meeting the new challenges.

I argue that a strong Europe would be in the interest of a global
society. European history and values could provide answers adequate to
the emerging global challenges.

Whereas the North American melting pot is dominated by the Anglo-Saxon
culture, and East Asia has yet to embark on a regional level societal
integration, Europe is becoming a truly multicultural society. It has
learned to cope with cultural differences, overcome historical
cleavages, and knows how to use cooperation to smooth hostilities. If
socio-cultural instability is indeed a necessarily emerging problem that
accompanies the globalisation process, this set of skills could offer a
solution.

This is by no means to suggest that the European way is the only way to
meet the global challenges of weakening identities, and cultural
instabilities. But Europe can at least offer experience in these fields
and, should it also fulfil its economic potential, it may be able to
make an important contribution to the global society.

Similarly, Europe's predisposition is useful in the case of another
challenge, an environmental catastrophe. Europe's environment-friendly
values are arguably stronger than those of north America (probably
because Europe is a geographically tighter place), east Asia (since
Europe's growth boom is over), and the developing world (since Europe's
prosperity allows post-material values).

Hence, should a global environmental catastrophe occur, Europe would be
an ideal candidate to lead an effective global response, assuming the
capacity for European-level action and a legitimate global leadership
building up the necessary global institutional framework. Thus economic
success and common foreign policy could be prerequisites of a European
leading role in a global reaction to a global environmental challenge.

# Concluding remarks

Currently there are many levels of organisation of supra-national
socio-economic systems \-- a continuum rather than just global or
regional ones. However, looming challenges, such as global
socio-cultural instability and environmental catastrophes, could prompt
the delineation of a clearer two-level system, with a global level and
some lower organisational level. Alternatively, should there be a
different set of shocks, or should these shocks have a very uneven
geographical distribution, it is possible that the world would 'freeze
into' a structure in which the highest organisational level is a
regional one. Further, if no such shocks are manifested, the current
continuum may linger on.

How the globalisation process will be seen in European eyes, though,
will depend less on the globalisation process and more on Europe's role
in it. If Europe is successful in consolidating its own strengths, it
will regard the global world as -- at least partially -- its own
creation. Should it fail, and it feel that its newly emerged identity
will be threatened, it is more likely to see globalisation as a hostile
process.