Claims that the current stage of capitalism fundamentally undermines the viability of the nation-state often refer to Harvard economist Dani Rodrik’s famous trilemma. Some years ago, Rodrik outlined what he called his “impossibility theorem,” which says that “democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.”35 Rodrik qualified this argument by claiming that true international economic integration requires that we eliminate all transaction costs in cross-border dealings. Since nation-states are a fundamental source of such transaction costs, it follows that if you want true international economic integration you must be ready to give up democracy (by making the nation-state responsive only to the needs of the international economy) or national sovereignty (by creating a system of regional/global federalism, to align the scope of democratic politics with the scope of global markets).
Over the years, political forces spanning the entire electoral spectrum have skillfully used Rodrik’s trilemma to present neoliberal policies—entailing both a curtailing of participatory democracy and of national sovereignty—as “the inevitable price we pay for globalization.” Even those on the left that claim to oppose neoliberalism, such as Piketty, often invoke the impossibility theorem to justify the contention that the nation-state is “finished” and that financial markets will punish governments that pursue policies not in accord with the profit ambitions of global capital. But this is not what Rodrik meant.
Contrary to conventional wisdom, Rodrik acknowledges that international economic integration is far from “true”; in fact, it remains “remarkably limited.”36 He notes that even in our supposedly globalized world, despite the flowering of global firms and supply chains, there is still significant exchange rate uncertainty; there are still major cultural and linguistic differences that preclude the full mobilization of resources across national borders (advanced industrial countries still exhibit large amounts of “home bias”); there is still a high correlation between national investment rates and national saving rates; there are still severe restrictions to the international mobility of labor; and capital flows between rich and poor nations fall considerably short of what theoretical models predict.
The same points can be made today, almost twenty years after Rodrik’s article was published: national borders remain cogent because they “demarcate political and legal jurisdictions” that impose transaction costs and hinder “contract enforcement” rules.37 In other words, Rodrik’s trilemma is a tautology: of course, it is a definitional truth that if we want global capital to have no limits whatsoever, then nation-states have to disappear as legislative vehicles with enforceable jurisdictions (and confine themselves to being servants of global profit-making), or citizens must lose their democratic political rights. But, as noted above, that is not the current state of global capitalism (yet), nor is it one that we should aspire to. Therefore, the trilemma has little bearing on reality, except as a political tool or self-fulfilling prophecy.
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