National economic model: an alternative to globalization?
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D. Sc. (Econ.), professor, Tbilisi State University
NATIONAL ECONOMIC MODEL: AN ALTERNATIVE TO GLOBALIZATION?
In order to assess the effectiveness of the development of small economies, the author introduces the concept of «structural effect. «
lov, who suggests the following structure: 1. Central Caucasus-Azerbaijan, Georgia and Armenia- 2. Northern Caucasus-autonomous border entities of the Russian Federation- 3. Southern Caucasus-regions bordering on Azerbaijan, Georgia, Armenia and Turkey (Southwestern Caucasus) and the northwestern parts of Iran (Southeastern Caucasus) (see: E. Ismailov, «New Regionalism in the Caucasus: A Conceptual Approach,» The Caucasus & amp- Globalization, Journal of Social, Political and Economic Studies, Vol. 1 (1), 2006, pp. 7−25.)
I n t r o d u c t i o n
The question formulated in the title of this article became a focus of social studies in the late 20th and early 21st centuries, 2 which was due, in the first place, to the disintegration of the bipolar world and the emergence of new sovereign states (CIS, Eastern Europe). Their natural response was a desire, on the one hand, to create new «independent» economic systems and, on the other, to enter the world economic sphere. Initially, this desire appeared to be contradictory, because integration into the world economy implied the need to «surrender» (in some measure) their economic sovereignty.3 But it should be noted that economic sovereignty is always relative («economic independence» in the strict sense of the term is utterly unrealistic), because otherwise it implies a closed (oriented toward maximum self-sufficiency) and, consequently, inefficient economic system. The degree of relativity of economic sovereignty is higher than that of political sovereignty, which fol-
2 See, for example: J. Stiglitz, Globalization and its Discontents, W.W. Norton, New York, 2002.
3 The problem of economic sovereignty was examined in: T.A. Beridze, Ekonomicheskie osnovy suvereniteta: novye aspekty vzaimodeistvia ekonomiki i politiki, Siakhle Publishers, Tbilisi, 1995. A fruitful analysis of this problem is given in: H. Hinsley, Sovereignty, 2nd ed., Cambridge University Press, Cambridge, 1986- J.H. Franklin, «Sovereignty and the Mixed Constitution,» in: The Cambridge History of Political Thought, 1450−1700, ed. by J.H. Burns, Cambridge University Press, Cambridge, 1991, pp. 309−328.
This article analyzes the content of the «national» in economic relations- questions of globalization and its influence on economic sovereignty- the benefits gained by the economy- the role of the solution of national economic problems and gradual integration into the world economic system. The author raises the question of the priority of regional economic integration required for effective entry into the world economy. His theoretical reasoning is supported by an analysis of examples of economic progress in countries of the Caucasian region. 1
1 An interesting and fruitful approach to an analysis of the Caucasian region is proposed by E. Ismai-
lows from the very phenomenon of economic relations (satisfaction of material needs based on a division of labor and an exchange of its results), and also from the specific nature of human economic activity implying a removal of national, state barriers and the creation of a nationwide and then a worldwide market. This suggests that unity (a contradictory unity) of the international and the national is something of a norm to which economic development «tends.» At the same time, the absence or weakness of one of these factors is a symptom of incomplete or uneven realization of the overall economic potential.
Regarding the Definition of «National Economic Model»
The concept of «national» is used here as an attribute feature of a state entity, in contrast to «national» as an inherent attribute of a certain ethnos. In the latter case, one can only speak of national sovereignty where the actor is a nation (ethnos). A confusion of the concepts of «state» and «national» or their identification can have negative consequences. The trends observed in the territory of the former Soviet Union (Azerbaijan, Georgia, Moldova) are a good example of such confusion.
As regards the concept of «model,» its most general definition is a simplified system used to simulate some aspects of the real economy.4 More specifically, one can say that an economic model (paradigm) is a certain mode of organization of socioeconomic life, a type of relationship between economic agents in the production, distribution, exchange and consumption of goods and services.
A general requirement here is that an economic model of society should ensure sustainable economic growth and, in consequence of this, reduce unemployment and inflation rates and ensure appropriate distribution of income.
The concept of «national» used in reference to «economic model» implies, in the first place, effective use of absolute (to a lesser extent) and relative (to a greater extent) advantages in the course of economic activity.
These priorities are conditioned by a number of factors, such as the availability of natural and human resources, convenient geo-economic position (Azerbaijan and Georgia are good examples), etc. 5
«National economic model» is a reflection of the natural form of the state’s economic existence since it underlies «relative» economic independence (absolute economic independence does not exist), given that economic sovereignty is always relative and implies, first and foremost, independence in making and implementing decisions.
When speaking of a «national economic model,» we do not mean a «model» reflecting the content, the very type of organization of the «producer-consumer» relationship (market or non-market), but the peculiarities (a number of distinctive features) of a given country’s development. No «model» can be conceived or, most importantly, implemented in practice unless these peculiarities are taken into account.
What kind of economic development «model» can be chosen by the states of the Central Caucasus? Clearly, this question is not a simple one. The answer to it, in our opinion, could be as follows: first, organization of the economy on market principles- second, reorientation of its structure in accordance with the existing realities (world market conditions, technical and technological ties) — and third, due regard for traditions and other noneconomic circumstances.
As regards the first factor, everything appears to be quite clear, just as the basic principles of organizing a market-based society, although the experience of the Central Caucasian countries gained
4 See: J. Black, A Dictionary of Economics, Second Edition, Oxford University Press, Oxford, New York, 2002.
5 See: T.A. Beridze, op. cit., pp. 24−25.
in the course of market reforms shows that a number of mistakes have been committed in the process of this transition. 6
The second factor-reorientation of the economic structure-is, on the one hand, a result of the operation of the first factor and, on the other, a part of current practical politics with all its pluses and minuses.
What is the structural composition of the Central Caucasus economies? Despite the region’s small area, one cannot say that the structures of these economies are of the same type. In the case of Azerbaijan, it is an orientation toward energy resources and industry- in the case of Georgia, it is agriculture, small-scale industry, transport, communications and tourism- and in the case of Armenia, it is agriculture and small-scale industry. One can say that all of this is the structural effect of these countries, which should be both the cause and the consequence of the operation of their economies- it should underlie the construction and implementation of a «national economic model. «
Strictly speaking, the «structural effect» concept needs to be further specified by economists. Its content could be spelled out as an optimal combination of economic sectors and subsectors ensuring maximum economic efficiency.
That is why the definition of «structural effect» is closely connected with the concept of a given state’s comparative advantage. 7
How can the «structural effect» be measured? There is no simple answer to this question. Evidently, it is a matter of definiteness, the share of key (core) sectors in the total effect, with possible changes in the content of the «structural effect» in view of progress.
One-off injections into a country’s economy (say, in the form of foreign investment) cannot reflect the «structural effect,» although they can produce changes over the long term.
Globalization: A Challenge to National Economic Models
Globalization8 in the broad sense of the word implies the interdependence of states and nations in the performance of the socioeconomic function. A distinction should be drawn between the political, economic, technological and cultural components of globalization. Although there are no clear dividing lines between them (for example, economic decisions taken at the supranational level often have a negative political effect and vice versa), let us take a brief look at their content.
The second problem arising in this context is how to measure globalization, especially its economic component. In our opinion, there should be different approaches to various aspects of globalization depending on the content of the phenomenon, i.e., qualitative definiteness is the key to quantitative definiteness.
The political component of globalization implies the interdependence of states based on common political interests (for example, the creation of the European Union) — establishment of regional associations as a means of resolving political problems, etc.
6 See, for example: V. Papava, Mezhdunarodny valiutny fond v Gruzii: dostizhenia i oshibki, Imperial, Tbilisi,
7 A sufficiently complete analysis of the comparative advantages of the countries of the Central Caucasus is given in the following articles: V. Papava, «Comparative Advantages of the Central Caucasian Countries: Potential, Realized, and Missed Opportunities,» The Caucasus & amp- Globalization, Vol. 1 (1), 2006, pp. 87−96- S. Zhukov, O. Reznikova, «Economic Interaction in the Post-Soviet Space,» The Caucasus & amp- Globalization, Vol. 1 (1), 2006, pp. 96−109.
8 The globalization problem is investigated in many books and articles (see, for example: The Globalization of World Politics. An Introduction to International Relations, Second Edition, ed. by John Baylis and Steve Smith, Oxford University Press, Oxford, 2001- «Tired of Globalization,» The Economist, November 2005- D. Held, «Democracy, the Nation-State and the Global System,» Economy and Society, Vol. 20 (2), 1991, pp. 138−172- P. Krugman, «Growing World Trade: Causes and Consequences,» Brookings Papers on Economic Activity, No. 1, 1995, pp. 327−377.
The economic component is based on a community of economic interests (trade and provision of services) aimed at maximizing the economic effect.
The technological component implies technical progress (primarily in transport and communications) and contributes to the interdependence of countries. Moreover, the very process of globalization initiates an active search in the field of information and communication technologies.
The cultural component is based on the multivariant development of cultures, religions and traditions.
The political component of globalization in the Central Caucasus varies from country to country. On the one hand, Azerbaijan and Georgia are oriented toward Western values, and on the other, Armenia takes a pro-Russian stand. Such a choice makes some concrete alterations to the political actions of the region’s countries- it is also bound to have an effect on their economic decisions. Another important aspect of this problem is the question of the territorial integrity of Azerbaijan and Georgia. 9
A natural question arising in this context is whether globalization (its political aspect) helps to resolve the problems of territorial integrity. The answer lies in the effectiveness of the activity of international institutions and organizations, and also in the appropriateness of actions taken by the parties concerned.
The basis for the solution of this problem is as follows: the concept of «national,» as pointed out above, should be inherent to state entities, in contrast to «national» as an inherent attribute of a certain ethnos. In the latter case, one can only speak of national sovereignty where the actor is a nation (ethnos). A confusion of the concepts of state and national sovereignties or their identification is unwarranted. This is evident, for example, from the fact that some national-state and territorial entities proclaim their sovereignty, confusing national sovereignty and state sovereignty, which can and must be inherent only to the state. Another concept used in this context is «popular sovereignty» (sovereignty of the people), where the people are the key actor. The legal nature of the sovereign rights of the above-listed actors differs. In civil society, it is the population-as the citizens of a given state-that constitutes a nation. That is why the concept of «national statehood,» in contrast to social, has a general civil meaning in international practice, i.e., the concepts of «nation» and «state» appear in this context as synonyms.
It should also be noted that in cases where the emergence of nations on the whole happened at the same time as the formation of centralized states, nations naturally took a state form and developed into independent nation-states (England, France, Italy). In the east of Europe, on the contrary, the formation of centralized states, accelerated by the need for self-defense (against invasions by the Turks, Mongols, etc.), preceded the emergence of nations. That is why in such cases the latter did not and could not develop into nation-states, but formed several multinational states (Austria, Hungary, Russia).
The economic component of globalization should be analyzed with due regard for global contradictions:
-Western integration contrasts with Eastern disintegration (to a certain extent). Suprastate (supranational) political integration in the West is accompanied by disintegration of states in the East-
-economics and politics are increasingly internationalized in the sense of a common understanding of problems and decision making. At the same time, the importance of regional associations tends to increase-
-European integration, nation-states and regional associations-all these realities will continue to influence the political orientation of Europeans.
9 According to experts, Georgia annually loses 20−30% of GDP in view of its territorial integrity problem (to some extent this also applies to Azerbaijan).
Above we mentioned the indicators of globalization. On the economic side, one can speak about trade and its influence on the dynamics of the gross domestic product- about the dynamics of foreign investment (including direct investment) — about the creation of multinational companies, etc.
If we look at GDP, for example, we will find that in Azerbaijan it increased in 2005 compared to the previous year by 26. 4%, in Georgia, by 9. 3%, and in Armenia, by 14% (in the past ten years, overall GDP growth in the countries of the Central Caucasus averaged about 5%). It should also be mentioned that whereas due to the 1998 global financial crisis Georgia’s GDP increased by 3. 1% in 1998 and 2. 9% in 1999, the respective figures for Azerbaijan were 10. 0% and 7. 4%, and for Armenia, 7. 3% and 3. 3%.
As regards commerce, we are naturally dealing here, in the first place, with foreign trade (exports and imports). According to WTO data, a higher level of foreign trade operations means more effective economic development, faster GDP growth and lower transaction costs.
It is also difficult to overestimate the role of foreign investment, such as investment in the construction of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which accounts in large part for GDP growth in Georgia and Azerbaijan.
Plans of a global nature can be implemented only through the establishment of companies: multinational (MNCs) and transnational (BTC and TRACECA projects).
Finally, we can say with certainty that globalization has an institutional component as well. It is the functioning of international economic organizations and institutions (like the World Bank, International Monetary Fund or European Bank for Reconstruction and Development). They have made and continue to make a tangible contribution to the development of the Central Caucasian countries, especially at the early stages of the transition period.
The technological component10 of globalization is largely the result of scientific and technological progress, while technological determinism is the main driving force behind social development. New technologies are the key element in the globalization of culture, transport and communications- they reduce so-called transaction costs, so promoting the growth of the economy and enhancing its efficiency.
The cultural component is quite important today, because it implies the need to take into account the multivariant and multivector nature of the world community (otherwise it would be featureless and uninteresting). There are many examples in today’s world when cultural circumstances and the factor of tradition have a significant positive effect on economic progress. 11
States lacking self-sufficiency are more dependent on globalization and have more to gain from it.
Does globalization lead to general well-being or, on the contrary, intensifies the struggle for survival?
There appears to be no simple answer to this question, but it is a fact that the world has become «smaller» and that countries and organizations are more dependent on their «neighbors,» competitors and partners than before.
Regional Economic Integration as a Way to Join the World Economy
It is no accident that the problems of the regional economy and regional economic integration have come on the agenda. This is dictated by the inner logic of economic research: the region is a
10 See, for example: D. Archibugi, J. Michie, «The Globalization of Technology: A New Taxonomy,» in: Technology, Globalization and Economic Performance, ed. by D. Archibugi and J. Michie, Cambridge University Press, Cambridge, 1997.
11 See, for example: M. Porter, H. Takeuchi, M. Sakakibara, Can Japan Compete? Basic Books and Perseus Publishing, New York, 2000.
major element in the self-organization of economic life. Soviet regional studies developed as a science about the location of production and creation of territorial complexes. Later on, it began to study such areas of the regional economy as housing construction, urban development, communal property, real estate and land management. In Western economic literature, the region (in the economic sense of the word) is seen as a territorial unit that «resolves» certain socioeconomic problems.
Our analysis is concerned with regional economic integration of independent states as subjects of political power. In this case, the territory of the Central Caucasus is regarded as a single region. 12 Within the framework of a general methodological analysis of this question, we leave aside the region’s taxonomic rank, although it is obvious that each rank of this kind has its own specific features.
In our opinion, the effect of regional economic integration can be achieved in two ways: by integration within the region (Central Caucasus) and integration into the world community. This is the optimal alternative, primarily from an economic standpoint.
As regards the first way, let us emphasize that, in principle, economic cooperation between the countries of the Central Caucasus is possible and necessary. In fact, this is how things stand in practice, although for well-known noneconomic reasons the potential for such cooperation remains partly «untapped. «
The second way is clear enough: the three republics should take part in global economic relations, but the question here is whether this is more effectively achieved through regional integration or through multispeed and multivector steps. The answer here is obvious: the first option is more effective in view of economic factors.
Here we can refer to such concepts as «comparative advantage» and «structural effect.» Due to these circumstances, the involvement of the Central Caucasian countries in global economic ties though regional economic integration will be much more effective, because the realization of their economic potentials in this case will mean lower costs and, accordingly, will have a more significant effect.
C o n c l u s i o n
The question formulated in the title of this article (National Economic Model: An Alternative to Globalization?) is by no means a rhetorical one. The answer to it, in our opinion, is as follows: this model will be an alternative if national economic interests and the comparative advantages of states in the interdependent world are not taken into account. At the same time, it will not be an alternative if the globalization process equally ensures economic growth in our interrelated, globalized world. This means, as we see it, that economic globalization will help each country to realize its comparative advantages, while regional economic integration-as a factor of gradual entry into the global economy-will come into full play.
Globalization should provide opportunities for using the economic potentials (in other words, the comparative advantages) of the Central Caucasian states. The existence of certain noneconomic problems (political problems in the first place) is further evidence of the truth about the interconnection between economics and politics.
12 The basic methodological premises of this approach are given in E. Ismailov’s article, «New Regionalism in the Caucasus: A Conceptual Approach» (see: E. Ismailov, op. cit.). Based on historical analysis, the author rightly believes that the historical process «shows the … trends toward regional integration. In other words, the Caucasus is bound to form a single and integral entity of globalization» (ibid., p. 13).