Europe at Fifty: Europe and the Management of Globalization
By Dr. Wade Jacoby

At first glance, the team drafting the EU's Berlin Declaration seems to have had in mind the old country and western hit by Keith Whitley, "You Say It Best When You Say Nothing At All." Determined to avoid verbosity and jargon, German Chancellor Angela Merkel's team put together brief, readable, if not exactly riveting prose. But when one looks closer, it's clear that they didn't actually say 'nothing at all.' In fact, an important theme emerges, and it's one that Americans should pay closer attention to. That theme is contemporary Europe's aspiration to "shape the increasing interdependence of the global economy...according to our values."

That key idea is the 'shaping' or (as in the words of WTO Director-General and former EU Trade Commissioner, Pascal Lamy) 'managing' of globalization. This may sound odd. For many Americans, globalization is primarily about removing regulatory constraints on the movement of trade and capital. Take away the shackles, many Americans assume, and our firms will win more than their share of markets. Pundits often encourage this line of thought with talk about 'electronic herds' of private investors that 'vote with their feet' and move to greener pastures when confronted with state regulation. In this view, if globalization has a 'shape,' that shape is the accumulated result of thousands of decentralized business decisions. By contrast, in much of the public debate in the U.S., 'Europe' is supposed to be fearful of this freeing up of market forces, much preferring to protect its markets and its workers with high barriers to and buffers against competition.

Yet it is not true that the only alternative to the ad hoc deregulation noted above is the building of protectionist walls. Granted, what European leaders mean by shaping or managing globalization is far from clear. Commission President José Manuel Barroso speaks of the "need to provide Europeans with the tools to flourish in a globalizing world," while Foreign Policy chief Javier Solana says the "EU should champion new forms of rule-based governance." What does this mean?

Implicitly, managed globalization seems to be the attempt by actors at various levels of governance - not just the EU - to ensure that the liberalization of rules about international flows of good and services and capital goes hand in hand with formal and informal practices to bind market players and their governments. The Euro, immigration, enlargement, the Neighborhood Policy, the Constitutional Treaty, energy security, and even the Lisbon Process have all been designed, at least in part, to restore order and control in the face of challenges posed by globalization. The common denominator in these efforts is an attempt to supplant ad hoc globalization based primarily on the removal of regulations with rule-based globalization that seeks to channel, regularize, and, yes, sometimes limit certain aspects of competition.

Looking deeper, there are two variants of European ambitions to manage globalization. To the extent they are pessimistic about globalization, European actors hope that the EU can serve as a buffer to mitigate and slow globalization's worst effects. One might call this 'defensive management.' To the extent European actors are optimists, they may conceive the EU as a platform for exploiting opportunities unavailable to individual member states or their firms. One could refer to this as 'offensive management.'  Put differently, defensive management means building channels for competition (rather than merely building higher walls), while offensive management entails efforts to shape and regularize the competitive order in ways European players can best exploit.

So what are these offensive and defensive strategies? A central offensive strategy is for the EU to develop its own regulatory power in a way that decisively shapes global governance. In many recently liberalized sectors, market competition is ensured by regulatory institutions like specialized courts or ombudsmen.  The EU has now become the world's largest regulatory power across a range of sectors, including financial services, food safety, industrial chemicals, electricity, and telecommunications.  This gives its regulatory views clout. Even in policy areas where regulatory innovation is initially launched in North America - e.g. telecommunications or air transport - European actors are often in a position to rapidly and effectively shape the debate over common rules.

A closely related instrument for offensive management is giving international institutions a central role. As globalization proceeds, the EU seeks to help write the rules of the game, develop the institutional architecture to monitor those rules, and build the capacity of international organizations to enforce them. But this is by no means an exclusive effort to place the EU itself at the center of such deliberations; in fact, the EU has often sought to strengthen organizations such as the OECD, IMF, and WTO and expand their membership, which has paradoxically contributed to diluting its own influence. Such offensive management has led to real liberalization. Rawi Abdelal of Harvard Business School and Sophie Meunier of Princeton University have shown, paradoxically, that European efforts to codify capital market liberalization - primarily through the OECD - actually accelerated liberalization beyond where it would otherwise have ended and, indeed, beyond where the U.S. Congress intended to go.

Defensive management strategies are also emerging more clearly. One is to redistribute the costs and benefits of globalization, an effort that can play a crucial role in sustaining public support for economic openness. Such redistribution can occur at the European level: the newly created European Globalization Adjustment Fund, launched in January, will help to train and relocate about 50,000 workers a year throughout Europe when their jobs are lost to the dynamics of trade. But much of it continues to occur at the national level, which is clearly the primary venue for generating compensation among winners and losers.

Finally, by expanding its territory through enlargement, the EU 'subtracts' neighboring countries from the unadulterated reach of globalization and therefore expands its control and influence. This is a particularly important flanking move for German and Austrian politicians, who see their firms making substantial investment in Central and Eastern Europe and must be concerned that some of this has come at the cost of investment in their countries. Germany and Austria also led the charge to ensure that citizens of the new EU member states from 2004 would not enjoy immediate access to their national labor markets. And in the negotiations for membership, the Central European states were often obliged to restrict or end many of their practices designed to attract Western capital investment.

What does all of this mean for the transatlantic relationship? Plenty. If the U.S. can expect the EU to try to make liberalization rule based, rather than ad hoc, it can also expect to see the EU become more active in securing bilateral trade and investment deals, following the lead of the United States in the NAFTA era and beyond. It can expect that EU efforts to assert its member states' views on economic standards are not ephemeral but are deeply embedded in EU policies. And in some cases, it should expect the results to outstrip limits with which the U.S. is comfortable. If one listens closely, then, the Europeans are saying something. And if the message is not entirely new, it is striking that it is accorded such prominence as the European institutions hit the half-century mark.

Dr. Wade Jacoby is currently Associate Professor of Political Science at Brigham Young University in Utah. In 2006 he was the recipient of the DAAD Prize for Distinguished Scholarship in German Studies, which recognizes recipients for outstanding academic work in their field.

This essay appeared in the March 30, 2007, AICGS Advisor.