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Losing Control? Sovereignty in an Age of Globalization

Author(s):Sassen, Saskia
Reviewer(s):Aaronson, Susan Ariel

EH-NET BOOK REVIEW

Published for H-Business@eh.net (April 1998)

Saskia Sassen. Losing Control? Sovereignty in an Age of Globalization. University Seminars/Leonard Hastings Schoff Memorial Lectures. New York: Columbia University Press, 1996. xvi + 148 pp. Bibliographic references and index. $24.95 (cloth), ISBN 0-231-10608-4.

Reviewed by for H-Business by Susan Ariel Aaronson , George Mason University

Reordering the World?

The spoken word is often easier to understand than the written word. That’s why I was eager to tackle a series of lectures on globalization by Columbia University Professor Sasskia Sassen. This collection however, is a tough hike. The language is like a jungle that the reader must cut through.

Although Sassen’s words are a thicket, it is a hike worth taking. Sassen’s turf has been well traveled by economists, business leaders, policy analysts, and historians, but Sassen brings a different perspective as a professor of Urban Planning who teaches at Columbia’s Graduate School of International and Public Affairs. She is interested in how a new economic system centered on cross border flows and global communication has affected “two distinct features of the modern state: sovereignty and exclusive territoriality”(p. xii). She wants the reader and listener to see how it will affect the institution of economic citizenship as a “strategic research site and nexus” (pp. xiii) (this is what I mean by a jungle of unnecessary words). Sassen alleges that “we must consider the possibility that there exists a form of economic citizenship that empowers and can demand accountability from governments.” But these economic citizens are not people; they are “firms and markets”: “The fact of being global gives these actions power over individual governments…I use the concept as a kind of theoretical provocation, outside the accepted lineage of the concept of citizenship” (p. xiv). Finally, Dr. Sassen is concerned about immigration and worries that we need to “deconstruct the state” in its role in the migration process. “It is in this sense,” she says, “that immigration is a strategic site to inquire about the limits of the new order…it is embedded in a larger dynamic of trasnationalization (sic) of economic spaces and human rights regimes” (p. xvi)

Sassen begins by tracing the evolution of the term sovereignty. Here her path is easy to follow. She describes how sovereignty has been affected by globalization and how globalization has been accompanied by the creation of new legal regimes and practices. To many observers that process has been U.S. driven. In many countries, international or transnational has become “a form of Americanization” (p. 18). Who can disagree as we listen to Madonna and type on our IBM computers while wearing our Levi’s jeans. Finally she notes that the “virtualization” (a new word?) “of economic activities is a challenge both to regulation and to business. “This,” she concludes, “may signal a control crisis in the making” (p. 21).

Sassen argues that this crisis is occurring at the same time that “global capital has made claims on national states, which have responded through the production of new forms of legality” (p. 25). These new legal regimes “negotiate between national sovereignty and the transnational practices of corporate economic actors” (p. 26). Thus, sovereignty is being transformed by economic globalization. The next two chapters compare how economics is undermining the role of states, while immigration in contrast is “renationalizing politics.” Chapter Two tries to relate these developments to the notion of citizenship and the rights associated with citizenship. Here Sassen has forged something new. She argues that our notions of citizenship will change as the global economy changes. Global forces challenge the authority of the nation states. “There are enormous problems,” she notes “of state membership for aboriginal communities, stateless people, and refugees” (p. 34). She believes the challenges of globalization and “virtualization” will have important implications for human rights, and who or what will enforce these rights: “Today’s welfare state crises, growing unemployment and growing earnings inequality…can certainly be read as signaling a change in all the highly developed countries in the entitlements of citizens.” Other analysts of globalization such as Dani Rodrik have taught us that globalization has undercut the social bargain that many democratic capitalist nations have adopted since the Great Depression (a welfare state, regulation, and capitalism). However, Sassen adds that international investments searching for global opportunities “do not favor the growth of a large middle class.” Thus, “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” (pp. 37-38). All of us should worry if globalization undermines democracy. At the same time, however, Sassen notes that the powerful in the global economy, (global corporations, international financiers) have acquired new rights and that there is “a consensus among states to further the interests of economic globalization.” But Sassen shows no primary sources or evidence of government action over time to illustrate this allegation. She cites two articles in one book and her own forthcoming work to prove this point [1]. She then notes that fifteen agencies around the world (including the Justice Department) reviewed the merger of Gillette and Wilkenson in 1989 and acceded to it. But does this prove the consensus she alleges? I doubt it. The evidence she cites might also be used to make the opposite point. The fact that so many agencies reviewed this merger illuminates, I believe, elite and public concerns about the consequences of globalization and a desire to hamper and halt it. (We certainly hear this in the ongoing debates over refunding the IMF and in fast-track authority, how Congress grants authority to the President to negotiate trade agreements.) Moreover, globalization often pits one national champion against another. (We see this in the 1980 market competition between Japan’s Komatsu and America’s Caterpillar Corporations and even more recently the European Community’s response to the Boeing/McDonnell Douglas merger.) Governments weigh such mergers to ensure that some of their taxpayers, citizens, consumers, and shareholders benefit. Government actions can tilt the balance.

Sassen’s last chapter addresses how in the face of globalization, nations have retained sovereignty to control immigration. In fact, this week NPR noted that the largest police force in America was that of the Immigration and Naturalization Service. Sassen notes “a fundamental framework roots all the immigration policies of the developed countries in a common set of conceptions” (p. 64). She sees globalization behind many changes in immigration (“the international activities of the governments or firms of countries receiving immigrants may have contributed to the formation of economic links…that may invite the movement of people” [p. 84]). However, Sassen notes that human rights challenge immigration policies because “human rights are not dependent on nationality, unlike political, social, and civil rights” (p. 89). In recent years, court cases have shown that individuals and non-state actors brought claims based on the notion of international human rights codes as expanding international law. This lets the judiciary mediate “between these agents and the international legal order.” The result, she claims has been a shift to the rights of individuals “from an exclusive emphasis on the sovereignty of the people and right to self-determination” (p. 95). This has devalued the institution of citizenship, affecting “the configuration of the international order” (pp. 96-97). But perhaps the international defense of human rights may also make us better citizens because of our willingness to defend and attribute rights to individuals in states that do not honor or enforce human rights. I don’t see this phenomenon as a big negative but something positive.

This chapter ends with a summation of globalization’s impact upon sovereignty but no answers as to what to do about it. Moreover, the author has no suggestions for the public who surely should be worried about the effect on them as citizens in democratic regimes challenged by globalization. I will look forward to reading Sassen’s upcoming work on these issues. However, I wish she had not left us hanging.

Notes:

[1]. James H. Mittelman, ed., Globalization: Critical Reflections International Political Economy Yearbook vol. 9 (Boulder, Co: Lynne Riener, 1996).

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Industrial Constructions: The Sources of German Industrial Power

Author(s):Herrigel, Gary
Reviewer(s):Shearer, Ronald A.

EH-NET BOOK REVIEW

Published by H-Business@eh.net (January, 1998)

Gary Herrigel. Industrial Constructions: The Sources of German Industrial Power. Structural Analysis in the Social Sciences Series, 9. Cambridge: Cambridge University Press, 1996. x + 480 pp. Tables, notes, bibliography, maps, and index. $54.95 (cloth), ISBN 0-521-46273-8.

Reviewed for H-Business by Ronald A. Shearer , University of British Columbia

The question, addressed in this book is: does the literature on German industrialization accurately describe the process that occurred? Alternatively, considering the long sweep of history, how did one of the most successful examples of industrialization in modern times come to pass? Readers may want to extrapolate the analysis to address a broader question: how does any economy industrialize? While Herrigel does not explicitly answer this broader question, his analysis may nonetheless be very relevant in various other contexts.

For economists, Herrigel’s analysis is at once informative and frustrating. Two aspects of this book are important for economists interested in the process of industrialization and economic development. First is the forceful demonstration of the interaction between the social environment, governmental structures, and politics on the one hand and profit seeking decisions of business firms and the supporting activities of business associations on the other. In the German case, the interaction partially shaped the course of industrialization and was partially shaped by it. Second, but equally important, is Herrigel’s careful exploration of the nature and role of regional diversity in German industrial development, an aspect of economic development that has important echoes in many countries. What economists will find frustrating is what is missing in the analysis and the exaggerated assertions made or implied regarding the relevance of “traditional” social and economic analysis. Both are reflected in the virtual neglect (perhaps better, the rejection) of very basic economics in the exploration of the behaviour of firms and industries in the various episodes considered in the book. The problem is most acute in the sections dealing with long run industrialization up to 1945 but is not absent in the post World War II material. Economists will also be concerned about the lack of verifiable quantitative evidence on the importance of the regional industrialization process so clearly described in the book for the long run growth of the German economy. If we grant the story of the development of a “decentralized industrial order,” what difference did it make, not only for the growth of regional economies but also for the growth of the national economy?

The book is well researched and carefully documented. The author’s research included an impressive number of interviews with significant people in industrial firms and associations, universities and governments, and the analysis and conclusions are carefully related to the existing literature. Indeed, some 40 percent of the pages are devoted to notes and bibliography, a rich treasure for students and researchers. The index is short but adequate. Several maps help elucidate the geographical dimensions of the analysis. Many readers will find the writing style of the opening, quasi theoretical chapter overly laden with dense, unrelenting, unfamiliar jargon and may be annoyed by the excessive repetition of some theoretical propositions. By contrast, the historical material and illustrative case studies are presented clearly and effectively. The book has the added merit of being as up-to-date as can be expected. Herrigel pursues his analysis of German industrialization into the 1990s with interesting interpretations of the problems that began to haunt German industry at the beginning of this decade.

While I find aspects of the book less than satisfactory in terms both of content and presentation, on balance, the strengths of the book vastly outweigh its defects. It is a rewarding work for anyone interested in German industrialization and the development of the German state and for anyone interested in the process of industrialization in general. It is a book that merits careful study.

The theoretical approach is presented in an Introduction (Chapter One), and the main theoretical propositions are restated at various places in other chapters. Herrigel’s bete noire is an explanation of German industrialization that focuses almost single mindedly on large, complex, largely self contained conglomerate firms (with strong links to associated banks) what he calls “autarkic firms.” He argues that an interpretation of German industrialization of which the primacy of such firms was the fundamental pillar dominated the “post World War II research agenda” on German industrial development, to the detriment of a deeper understanding of German industrialization. He attributes this agenda to Gershenkron and his disciples, building on the shoulders of Schumpeter and augmented by various later analysts of business management, industrial organization and technological invention, innovation and diffusion in capitalist economies. In this agenda, the smaller industrial enterprises, if considered at all, were seen as an appendage of the central autarkic firm sector or a minor enclave in the aggregate economy. The autarkic sector was the driver; the small business sector a passenger. To the contrary, Herrigel argues, what he calls the “decentralized industrial order” had a vibrant, independent development based in the states of western and southwestern Germany. It played an important role in German industrialization, although Herrigel is deficient in not presenting convincing quantitative indices of how important.

As befits a political scientist, Herrigel’s focus is on governance, namely on what he calls “industrial governance.” While the precise meaning of governance in this context is a bit vague, it is the emphasis on more or less independent regional industrial networks that leads to his depiction of this sector of the economy as an “industrial order.” The decentralized industrial sector is not seen as a part of a larger “industrial structure,” but as something separate in organization, ethos and production characteristics, with its own historical roots, social coherence and governance institutions. Herrigel’s analysis of the development of this sector is evolutionary, reflecting his rejection not only of the language (“which I dislike”, p. 23) but also the substance of neo classical economics. As a result, we have a picture of the development of an industrial sector without reference to underlying production economics.

In three chapters (Chapters Two through Four), Herrigel explores the history of the decentralized and autarkic sectors up to World War II, including an important chapter on the interaction between the firms and business organizations in these sectors and the political system. He finds the roots of the divergent development of the two sectors in the systems of land inheritance in different sections of Germany. Where impartible land inheritance was the rule, a landless proletariat was created, providing the necessary labor force for large scale enterprises. Where partible land inheritance was the rule, the division of the land into smaller and smaller units resulted in a population of land owners for whom cultivation of the land could not be a full time occupation. They engaged in “rural industry” while retaining their land, developing specialized skills and social traditions. The result, the substance of Chapter Two, was the development of regional concentrations of specialized, small scale, mutually supporting factories producing for domestic and eventually world markets. They cooperated in various ways, including farming out production to each other and to home producers and in the development of common services. In the process they developed a distinctive social ethos and an appropriate set of industrial institutions that became the basis for subsequent evolution of the sector.

The emphasis on the long run consequences of impartible land inheritance is interesting. It is surprising, however, that in this context Herrigel does not devote attention to the possibilities for market transactions in land which could have led to consolidation of holdings and the creation of the landless labor force that he sees as so important in the other regions. Similarly, it is surprising that he does not devote considerable space to the analysis of patterns of interregional migration (or limitations thereon) which would seem to be an important adjunct to his analysis.

Underlying it all, no attention is devoted to the economics of production of the products in question. Economic considerations intrude only so far as market conditions affected the performance of the firms and led to adjustments in products and institutions. However, there must have been more than just the ethos of the industries that made industrial production viable in these regions. I looked in vain for some consideration of traditional (“neoclassical”) location of industry considerations, including careful consideration of the nature of the products and available production techniques, including questions of potential scale economies and the optimal scale of production. Nor is there any consideration of relative factor prices in the different regions. Herrigel’s use of the concept of governance in this context is also puzzling. It is clear from his discussion that the firms were autonomous units; they made the production and investment decisions in their own self interest. The role of regional associations in facilitating production as described by Herrigel seems far from the rule making and enforcement that I associate with governance. In part, these associations provided various kinds of support for the firms (in the jargon of neoclassical economics, their activities created “external economies,” services whose benefits could not be fully captured by any individual firm but which lowered the costs or improved the competitive position of the industry as a whole). In part they were cartels, attempting to protect the firms from adverse developments in the market or to take advantage of a strong collective position in the market. As with any cartel of independent firms, when the individual firms saw a strategic advantage in diverging from cartel policy, the cartel became unstable and tended to break down. That is all familiar to economists who study industrial organization. From Herrigel’s discussion, I think the governance concept is stretched very thin in this context. The analysis would be helped immensely by incorporating relevant economics. The analysis of the autarkic sector (Chapter Three) is built around a case study of the Ruhr iron and steel industry with a shorter but still important study of the machinery industry. The analysis has the same character as the analysis of the decentralized sector; the same strength and what I see as the same weaknesses. Heavy emphasis is placed on the evolution of the institutions of the sector and the interaction among firms within the institutions and between the institutions and government, with minimum consideration for locational and production economics. About the only non institutional locational factor noted is passing mention of the availability of abundant iron and steel in the Ruhr Valley. Careful attention is given to the interaction between industry and banks, and the impulse to cartelization is carefully documented. As in the case of the decentralized sector, the analysis of the instability of the cartels could benefit from incorporation of relevant economics, but the analysis on the social and political levels is well developed and persuasive.

The third chapter in this group (Chapter Four) is a stimulating analysis of the interaction between the industrial structure and the political system. Careful attention is given to the role of industries in affecting public policies and the effects of the structure of government on industrial development in Imperial Germany, the Weimar Republic and the Nazi era. The strong message emerging from the analysis is the importance of a federal system of government in promoting the development of the decentralized industrial order and the prevention of its domination by the autarkic industrial order. There are also interesting conclusions about the inconsistency of the centralized Weimar Republic with the established pattern of decentralized industrialization and the roots of the attraction of members of the decentralized sector to the Nazi movement. The period since World War II is the substance for the third part of the book (Chapters Five through Seven). The organization is the same as in the second part: a chapter on the decentralized sector (Chapter Five), one on the autarkic sector (Chapter Six), and one on the interrelations between business and government in the process of industrialization (Chapter Seven). The latter includes the unduly brief conclusion to the book. The analysis of the decentralized and autarkic sectors is in three phases, the period of the economic miracle from 1945 to the mid 1970s, the struggle for restructuring through the 1980s, and finally some relatively brief but nonetheless insightful observations on the pressures that appear to be emerging in the 1990s.

Given the longer run argument developed earlier in the book, the central issue in the analysis of the early part of the post war period is the apostasy of a number of firms in the decentralized sector. Penetration of the autarkic form of organization into the regional domain of the decentralized industrial order occurred as some producers “adopted mass production strategies … by breaking out of the institutional and practical framework that governed production and administration” in the decentralized industries (p. 148). The informative case study is of the Daimler Benz AG automobile manufacturing firm, but it is said to be representative of a number of firms in the decentralized regions. The Daimler Benz process of conversion from specialized production of luxury vehicles to mass production of standardized vehicles is carefully documented. A strong measure of vertical integration of production relationship replaced what Helliger refers to as the horizontal relationships among firms in the decentralized order. The lesson is clear: technology and markets changed and the reality of the production economics of the modern automobile industry intruded. Once again, a healthy dose of economic analysis is called for. While hinted at, it is never adequately developed.

The 1980s brought another major shift in German industrial behaviour. Through cases studies of steel, machinery and automobile manufacturing, Herrigel traces the renewed development of the large scale industrial conglomerates in the postwar period and their amazing production performance during the economic miracle. Intensified international competition in the 1980s induced a reconsideration of the merits of centralization. A search for flexibility and reduced costs led to some decentralization with positive effects on the decentralized industrial sector. However, in this instance, decentralization created dependency in the sense that it involved the use of decentralized firms as sources of supply. As Herrigel argues, the organizational problems of large scale industry seemed to intensify in the early 1990s.

The final chapter (Seven) returns to the themes of Chapter Four, the interaction between industry and government in the postwar period. Not surprisingly, the influences flow both ways as pragmatic adjustments in government fostered and accommodated necessary adjustments in the industrial structure. In the early postwar period, the federal structure of government imposed by the allies provided support for both the decentralized industrial system and autarkic firms. Both sectors flourished. As centralization of industry spread through the economy, greater centralization of economic policy also occurred, particularly in labor relations and in the management of aggregate demand. The reversal of the centralization movement in the 1980s also saw some relaxation in the centralizing governmental arrangements. The mutual adjustment and adaptation of government and industry was not always smooth and trouble free, but it occurred and is an essential element in the Herrigel story. What are the broader lessons that can be abstracted from this analysis? It would be interesting to have an extended discussion of this question by Herrigel, but I carry away three points from his work. First is the proposition that regional diversity is likely to be a basic element in any industrialization process and that radically different forms and scales of industrialization are likely to be appropriate in different regions. It follows that industrialization policies should not pursue as a single-minded objective the creation of large scale, vertically integrated manufacturing firms. A mixture of types of firms and industries is more likely to be appropriate. Second, over time, the relative balance among types of industries is likely to change as technology, external competition and market conditions change. Flexibility and the capacity to adapt to fundamental changes are vitally important if crises are to be avoided. But perhaps the most basic lesson of all is the third one. To be successful, industries have to be compatible with the social and economic characteristics of the regions in which they are located. They are best cultivated by a governmental structure that is sensitive to regional aspirations, possibilities and concerns. I read Herrigel’s work as an argument for a decentralized federal structure of government that adapts pragmatically to changes in fundamental economic conditions. I have criticized Herrigel for the lack of economics in his analysis of German industrialization. Perhaps I am unfair. Within its own terms of reference, Herrigel has written a remarkably good book. He explicitly disavows any intention of presenting a general theory of German industrialization, and he does not present himself as an economist. Indeed, he abruptly rejects the approach of the economist. However, in an age that values interdisciplinary studies, there has to be a happy medium somewhere. What I would like see as the ideal is a Herrigel paired up with an equally well prepared and research-minded economist to produce a definitive work on German industrialization which carefully integrates the political and social institutional analysis with appropriate production, locational and organizational economics (probably in a game theoretic context).

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Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):General or Comparative