Transnational Economic Processes STOR Edward L.Morse International Organization,Vol.25,No.3,Transnational Relations and World Politics (Summer,.1971),373-397. Stable URL: htp:/links.jstor..0rg/sici2sici=0020-8183%28197122%2925%3A3%3C373%3ATEP%3E2.0.C0%3B2-I International Organization is currently published by The MIT Press. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use,available at http://www.jstor.org/about/terms.html.JSTOR's Terms and Conditions of Use provides,in part,that unless you have obtained prior permission,you may not download an entire issue of a journal or multiple copies of articles,and you may use content in the JSTOR archive only for your personal,non-commercial use. Please contact the publisher regarding any further use of this work.Publisher contact information may be obtained at http://www.jstor.org/journals/mitpress.html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is an independent not-for-profit organization dedicated to creating and preserving a digital archive of scholarly journals.For more information regarding JSTOR,please contact support@jstor.org. http://www.jstor.org/ Fri Jul2223:27:242005
Transnational Economic Processes EDWARD L.MORSE CHANGEs in the structure of the global economy have resulted in a withering of governmental control of certain activities presumed to be de jure within the domain of governments.The international monetary crises of the Igoos have demonstrated the emergence of financial markets that seem to operate beyond the jurisdiction of even the most advanced industrial- ized states of the West and outside their individual or collective control.The flourishing of multinational corporations has affected the national science and economic growth policies of highly developed and less developed states alike by restricting the freedom of those governments to establish social priorities. Tariff reductions carefully and arduously negotiated on a multilateral basis through the General Agreement on Tariffs and Trade (GATT),through bilateral arrangements,or through emergent regional economic organizations have similarly increased the number of relatively nonmanipulable and un- known factors which must be accounted for in planning a wide spectrum of domestic and foreign economic policies-from regional development policy or anti-inflationary efforts on the domestic side to the international exchange rate of a state's currency. Whether these factors have become so significant as to render obsolete the state-centric view of international political and economic relations is a ques- tion which can be answered only when the limits upon restrictions on govern- mental operations become more clearly defined.It is,however,now obvious that the state-centric view must at least be modified and supplemented by additional frames of reference so that the factors which have impaired the effi- cacy of state-level decisionmaking processes can be more coherently analyzed. This essay is concerned with one set of factors salient in twentieth-century international relations which cannot satisfactorily be dealt with through tradi- tional references to autonomous national states.These factors are predomi- EpwARD L.MoRsE is assistant professor of politics and international affairs at the Woodrow Wilson School of Public and International Affairs and a faculty associate of the Center of International Studies,Prince- ton University,Princeton,New Jersey. 373
374 INTERNATIONAL ORGANIZATION nantly economic and are associated with changes in the global economy over the course of the past 1oo years.In particular,this essay is concerned with de- scribing those economic trends which have served to undermine the tradi- tional state-centric view.In addition to this descriptive task,this essay is also concerned with explanations of the growth of transnational economic activi- ties.In both instances the present endeavor inevitably covers issues of great controversy.On the one hand,proponents of the state-centric view have of- fered cogent reasons for maintaining,if modifying,the traditional perspective by treating phenomena such as multinational corporations,international eco- nomic organizations,and multinational economic treaty commitments as"en- vironing conditions"which have restricted but not invalidated the state-centric view.On the other hand,even among those who accept the evidence that these external factors ought to be isolated and analyzed apart from national govern- ments,there is no consensus on a theory which would explain the develop- ment of these factors or indicate their relevance. I have chosen to focus my attention on an empirical rather than a theoretical issue-namely,whether there exists in contemporary international economic relations an isolable set of factors which can be fruitfully thought of as trans- national and,if so,what the significance of those factors is for the foreign and domestic policies of various states.In so doing I have evaded the task of formulating a theoretical explanation of the growth of transnational economic activities.Neither I nor others have yet been able to develop or test a theory which would be adequate to that task.When such a theory is developed,how- ever,it will clarify what are currently the most arguable questions concerning international economic relations.Among these are the following questions:Is the level of international economic interdependence increasing or decreasing? Is such a change in economic interdependence universal or regional?Is the growth in transnational activities the consequence of permanent changes in international affairs in general or of the particular and transitory political con- figuration of forces which developed after World War II?Do transnational economic activities raise fundamental political questions about the ability of the modern nation-state to control them?Do the dynamics of transnational processes suggest a prognosis of stability or of instability in international af- fairs?Finally,what are the consequences of this prognosis for international peace? I.ECONOMIC ACTIVITIES AS TRANSNATIONAL PROCESSES If transnational interactions are understood as "the movement of tangible or intangible items across state boundaries when at least one actor is not an agent of a government or an intergovernmental organization,it immediately be- comes obvious why a transnational perspective on international affairs should 1 Joseph S.Nyc,Jr,and Robert O.Keohane,introductory essay to this volume,p.332
TRANSNATIONAL ECONOMIC PROCESSES 375 focus on economic activities.Virtually any "tangible"item involved in such processes is likely to have a significant economic dimension in that it can be treated as a commodity or service to which monetary value can be attached. Whether it is a question of goods,information,or money itself,its presence is likely also to entail certain costs for the governments or societies involved. This economic aspect of transnational activities is central for several addi- tional reasons. First,transnational processes seem to have arisen in the contemporary inter- national system after the technological revolution induced persistent economic growth in the highly developed or modernized societies of Western Europe. The remarkable development of first the British and later other Western economies in the nineteenth century through the "extended application of science to problems of economic production"enabled these societies to mo- bilize resources on an unprecedented scale.?This mobilization of economic resources coupled with revolutionary innovations in the fields of transporta- tion and communication enabled Western states to expand their power and influence,if not their rule,over the rest of the planet.The linking up of the various states of the world through this process of growth in transnational economic phenomena was accompanied by an unprecedented mobility of certain factors of production (population,capital)as well as of output. Second,these economic activities were transnational,as defined above,as a result of the kind of political regimes in which the industrialization process first occurred.These states were,by and large,liberal democracies.Very little of the initial growth in trade was a result of planned governmental activities Rather,the responsibility for taking advantage of the economic potential of new technological innovations was usually in the hands of private industrial- ists and bankers whose main incentive was the profit motive.Given the nature of the regimes involved international economic activities were bound to have some transnational element,and these were generally private business enter- prises. Third,with the onset of sustained economic growth in what are now the most highly modernized societies economic values became a central substan- tive focus of political and other social activities.This was the case for several 2 Simon Kuznets,Modern Economic Growth:Rate,Structure,and Spread (Studies in Comparative Economics,No.7)(New Haven,Conn:Yale University Press,1966),p.9.A similar definition has been used to describe the revolution of modernization in human affairs;see C.E.Black,The Dynamics of Modernization:A Study in Comparative History (New York:Harper Row,1966),pp.1-9. 3 For example,overseas emigration from Europe was at a level of some 257,000 per year in 1846 and increased to a rate of 1.4 million per year at the outbreak of World War I.Thereafter the rate pre- cipitously declined.Similarly,world trade increased at an accelerating rate through the first half of the nineteenth century,reaching a per decade rate of growth of 61.5 percent in the 1840s and declining to about 47 percent at the outbreak of the First World War.It,too,later declined drastically.With the rapid growth of world trade in the century before World War I the share of the foreign trade sector in the national product also generally increased in the industrializing societies.More complete data on the period between the 183os and 196o can be found in Kuznets,pp.285-358
376 INTERNATIONAL ORGANIZATION reasons.First,economic values were central to the new secularism which ac- companied the breakdown of the feudal system and which is one of the dis- tinguishing characteristics of modern life.Second,with the growth of their domestic economies expectations of affluence became generalized in all socie- ties.Through this "revolution of rising expectations"political goods grew to assume more and more the substantive characteristic of economic goods.Thus, the growth of the"welfare state"and of governmental policies for health care, minimum wages,and the like reinforced the secular evaluation of public policy.*Third,those transnational ideologies which developed as explanations of a world characterized by sustained economic growth focused on economic activities.For liberalism this focus appeared in a dichotomy of economic and political activities.The modern state was thought to be the upshot of a his- torical development which permitted economic activities to flourish inter- nationally as political controls over the activities of individual citizens were dismantled.For Marxism-Leninism the withering of the state would result from economically determined processes which would enable "man"to over- come his alienation so as to develop freely his own individual capacities.In both cases the ideal was a transnational and universal humanitarianism based on the transcendence of the nation-state and the development of the potential of high levels of industrialization. The central position of economic activities in transnational processes has been reinforced by the more recent revolution in nuclear technology and its impact on international affairs.As a result of the development of nuclear tech- nology traditional foreign policy goals involving territorial accretion have be- come so politically and economically costly as to be virtually prohibitive.The well-known paradox of the inutility of force in the relations of those states which have been stalemated by the "balance of terror"has made it possible for international economic activities to increase tremendously in political sig- nificance.As the use of traditional instruments of force has receded in im- portance,plays for power and position subsequently have appeared in the international monetary and commercial systems. 4 For an important and stimulating discussion of the relationship between political and economic aspects of modernization in terms of the growth of public as opposed to private goods see Karl de Schweinitz,Jr,"Growth,Development,and Political Modernization,"World Politics,July 1970 (Vol.22, No.4),pp.518-540.De Schweinitz views political growth as the process by which the output of public goods is increased.This political output is jointly consumed by all members of the polity-whether or not they wish to consume them:"Everyone must consume political goods.Although I can choose to consume cigarettes,automobiles,or transistor radios,I have no choice but to consume the armed forces of the United States,the space program of NASA,the judicial system,the FBI,the Federal Reserve Authority,or the National Labor Relations Board."(P.525.) 5 For an elaboration of this paradox see Pierre Hassner,"The Nation-State in the Nuclear Age,"Sur- vey,April 1968 (No.67),pp.3-27;and Hans J.Morgenthau,"The Four Paradoxes of Nuclear Strat- egy,"American Political Science Review,March 1964 (Vol.58,No.1),pp.23-35. 6 For an elaboration of this argument see my article,"The Transformation of Foreign Policies:Mod- ernization,Interdependencc,and Externalization,"World Politics,April 197o (Vol.22,No.3),pp.379- 383;and Klaus Knorr,On the Uses of Military Power in the Nuclear Age (Princeton,N.]:Princeton University Press,1966),pp.21-34
TRANSNATIONAL ECONOMIC PROCESSES 377 International economic policies have increased in political importance for three different kinds of states for three different sets of reasons.First,in the case of the industrialized societies of the West the post-World War II attempt to create an "Atlantic Community,"first through the Marshall Plan and later through the negotiation of tariff dismantling through GaTT,involved an amalgamation of security and welfare objectives.On the one hand,the com- munity was seen as an attempt to foster higher levels of interdependence among Western industrialized states so as to reinforce,through economic re- covery and economic growth,their collective defense against Communist expansion.On the other hand,the accrual of the welfare benefits of higher levels of trade was also viewed as an end in itself.'Second,in East-West rela- tions trade policies formulated in virtually all Western states during the Igoos were based on the notion that foreign economic policy could foster political liberalization in Eastern Europe.Third,in the case of relatively nonmodern- ized societies economic policies have grown in importance as a result of the relative impotence of these societies when compared to relatively industrial- ized states.Without the capacity to sustain traditional foreign policies based on the use of force the leaders of these states have collectivized their demands for a greater share of the world's wealth by supporting efforts to redistribute that wealth through trade and aid agreements with the wealthier societies of both East and West. As a result of these three reasons the same general conclusions can be reached:Economic change and economic policy have become central foci of international politics in the twentieth century.Any general theory which is to succeed in explaining the reasons why this focus has grown in importance must take into account the shift in the substance of international politics from a concentration on instruments of force to an emphasis on economic state- craft. II.THE "MYTH OF NATIONAL INTERDEPENDENCE"REEXAMINED If the politicization of economic activities accounts for their place in a dis- cussion of transnationalism,it does not provide an explanation of the emer- 7The same combination of "security"and "welfare"goals could be found among the various incen- tives for European integration.On the one hand,European unification was viewed as a means of putting an end to the divisive nationalisms which had been secn as a root of warfare and upheaval in Europe in the century preceding World War II.On the other hand,it was seen as the means of creating a market sufficiently large to support modern industrial growth.For a discussion of these motives in terms of functional,federal,and confederal approaches to European unity see Altiero Spinelli,The Eurocrats: Conflict and Crisis in the European Community,trans.C.Grove Haines (Baltimore,Md:Johns Hopkins Press,.1966),Pp.325. s For the most comprehensive review of political aspects of East-West trade see Samuel Pisar,Co- existence and Commerce:Guidelines for Transactions between East and West (New York:McGraw-Hill Book Co.,1970). The increased importance of economic relationships as a major concern of international politics is further explained by Susan Strange in "International Economics and International Relations:A Case of
378 INTERNATIONAL ORGANIZATION gence and growth of what may be called transnational economic activities. As I suggested above,a discussion of transnational economic activities ought to be concerned with two issues:I)the empirical question of whether trans- national activities exist and 2)the theoretical question of what sort of theory is necessary to explain the emergence of transnational activities and the dy- namics of their growth.It is the former issue to which the following discus- sion is largely directed.Problems arising from the theoretical issue are dis- cussed in section IV. Any discussion of the nature of transnational economic processes must re- late the emergence of transnational economic relations to relatively recent changes in international relations and include the magnitude of the growth of international economic activities.Because a theory to explain this growth is lacking,even the empirical concern of describing trends is confronted with frequently contradictory evidence.Some writers see these trends as support- ive of the thesis that transnational economic activities have grown in volume as well as significance during the past century.Others see the trends as re- flective of a substantially decreased significance in the external sector for vir- tually all societies which followed the growth in this sector before World War I These contradictions apparently reflect our inability to perceive clear- ly the dynamics of change since we are in the midst of a process which is as yet incomplete.As a result trends have become clearly discernible,but,as one student of modern economic growth has argued,"the final shapes of these characteristics are presently hidden from us.This limitation,however,should affect primarily questions of degree rather than kind,of intensity rather than being.It will be most important to bear this limitation in mind in evaluating the specific empirical coefficients-their stability and variability over time and space." There are several possible ways to organize a discussion of transnational economic trends.One would involve the specification of the nongovernmental participants including corporations,financial organizations,and other group- Mutual Neglect,"International Afjairs (London),April 1970 (Vol.46,No.2),pp.304-315;and my article,"The Politics of Interdependence,"International Organisation,Spring 1969 (Vol.23,No.2), pp,3I1-326. 10 Several of these contradictory interpretations are reviewed in my article in International Organiza- tion,Vol.23,No.2;and in Oran R.Young,"Interdependencies in World Politics,"International Journal, Autumn 1969 (Vol.24,No.4),pp.726-750. 11 Sce Kuznets;and Richard N.Cooper,The Economics of Interdependence:Economic Policy in the Atlantic Community (Atlantic Policy Series)(New York:McGraw-Hill Book Co.[for the Council on Foreign Relations],1968). 12 The most extreme statement of this viewpoint is found in Kenneth N.Waltz,"The Myth of Na- tional Interdependence,"in The International Corporation:A Symposium,ed.Charles P.Kindleberger (Cambridge,Mass:M.I.T.Press,1970),pp.205-223.See also Karl W.Deutsch and Alexander Eckstein, "National Industrialization and the Declining Share of the International Economic Scctor,1890-1959," World Politics,January 1961 (Vol.13,No.2),pp.267-299;and Karl W.Deutsch,Chester I.Bliss,and Alexander Eckstein,"Population,Sovereignty,and the Share of Foreign Trade,"Economic Development and Cultural Change,July 1962 (Vol.1o,No.4),pp.353-366. 13 Kuznets,pp.15-16
TRANSNATIONAL ECONOMIC PROCESSES 379 ings which are highlighted in this volume.Alternatively,the pattern of inter- actions can be specified at a systemic level which would isolate a set of activi- ties analytically separable from the nation-state focus.Although an ideal long- run goal,this would require the definition of a theoretical framework which is beyond the scope of this essay,and it would carry the discussion far from its focus of transnational economic activities.Instead,I have chosen to treat both the general trends in economic activities and the controversial debate over them through a discussion of developments in international economic interdependence. Although it can lead such a discussion astray,a focus on international eco- nomic interdependence is central to a discussion of transnational economic processes.Transnational processes and international interdependence refer,in effect,to overlapping sets of phenomena.Interdependent behavior may be understood in terms of the outcome of specified actions of two or more parties (individuals,governments,corporations,etc.)when such actions are mutually contingent.These parties,then,are interdependent with respect to specific issue areas and not to the whole spectrum of their activities.None of the ac- tions involved is understood to be fixed.Nor need they be consciously per- ceived as mutually contingent or dependent,although such perception would be necessary if interdependence was to be manipulated by one or more of the parties involved.In this sense strategic interaction would be a subset of inter- dependence and would involve specified goal-oriented behavior on the part of at least two parties. Interdependence as defined above need not involve transnational processes. For example,the security of two states may involve a set of interdependent relationships but also involve no nongovernmental actors and therefore not necessarily be transnational.Similarly,transnational activities could exist with- out affecting the level of interdependence among certain groups.I presume this to be frequently the case with such less-tangible phenomena as ideolo- 14 There are other definitions which have been offered for "interdependence."Each has a different focus and therefore gives rise to different sets of questions.This one focuses on state actions and conse- quently lends itsclf to questions regarding the ability of a state's leadership to attain its objectives and its level of control over activities both within and beyond its borders.Interdependence has also been defined in systemic terms and in terms of the growth of political output or political goods. In systemic terms,for example,interdependence has been defined "in terms of the extent to which events occurring in any given part or within any given component unit of a world system affect (either physically or perceptually)events taking place in each of the other parts or component units of the system."Young,International Journal,Vol.24,No.4,p.726.This definition Iends itsclf to the formu- lation of hypotheses about the systemic effects of increases (or decreases)in the levels of interdependence: "The higher the ratio of interdependencics among the component units of a world system to inter- dependencies within the component units,the greater the proportion of any given unit's resources that will be devoted to external affairs."Ibid,p.741. In tcrms of political goods or "public goods"(those goods which,if consumed by any single member of a group,cannot feasibly be withheld from other members of the group)interdependence would be defined as a function of the scope and number of political goods produced in a group.See,for example, Norman Frohlich and Joe Oppenheimer,"Entrepreneurial Politics and Foreign Policy,"World Politics, forthcoming
380 INTERNATIONAL ORGANIZATION gies.By and large,however,I would hypothesize that as transnational pro- cesses increase in number and in scope for a specified set of states,the level of interdependence among them similarly increases.Although subject to empiri- cal verification this would seemingly be the case because state objectives would become increasingly a function of intersocietal interdependence. I treat this hypothesis as an assumption in the discussion below.Even though the focus on international economic interdependence raises operational difficulties which are as intractable as those of transnational economic rela- tions,the concept is useful for two reasons.First,much of the debate over changes in international economic relations has revolved around the question of whether there has been a secular increase in the level of international eco- nomic interdependence over the past century.Second,given the hypothesis stated above a number of questions about transnational economic processes are covered in a discussion of international interdependence. The discussion of international interdependence is controversial even before an attempt is made to measure the phenomenon or to trace longitudinal trends in its growth.Arguments against the usefulness of conceptualizing interna- tional politics in terms of notions of interdependence have recently been brought together in an essay by Kenneth Waltz,"The Myth of National In- terdependence."An analysis of Waltz's argument,therefore,serves as a useful foil for the present discussion.Waltz argues that "a comparison of the con- ditions of internal and external interdependence will make it clear that in international relations interdependence is always a marginal affair."1 While Waltz's analogy may be an apt one,his conclusion does not follow from his assumption.This is apparently a result of Waltz's bias against"the mistaken conclusion...that a growing closeness of interdependence would improve the chances of peace."Waltz's view that an increase in international inter- dependence would be destabilizing for international society as a whole is probably correct.Yet,his bias against the concept results in a failure to define it explicitly and also in the complacent belief that international affairs are more "stable"than other views might imply. The concept of interdependence ought to be viewed in neutral terms with- out the value judgments of optimists who invoke a harmony of interest theory or of pessimistic prophets of doom.Even here the analogy between interna- tional and domestic society remains appropriate.This distinction,however, need not imply that in international society interdependence is always mar- ginal.What it does imply is that the level of political integration outside the state is,by definition,lower than that within it.Interdependence,as defined above,has to do with the ability of statesmen to achieve those goals which have been set for them when goal attainment is contingent upon activities 15 Waltz,in Kindleberger,p.206. 16Ibid,P.205
TRANSNATIONAL ECONOMIC PROCESSES 38r pursued elsewhere.For example,the margin within which any Western in- dustrialized state can establish the rate of exchange for its currency is a func- tion of market mechanisms in the international monetary system and the tolerance of other governments.If a government devalues its currency beyond this margin in order to enjoy the trade benefits which accrue to an under- valued currency,it can be certain that foreign governments will retaliate-for example,by devaluing their currencies proportionately or by refusing trade credits-in order to nullify unfair advantage.The margin of autonomy and the limitations put on it are indices of monetary interdependence.By postu- lating that interdependence is always a marginal affair internationally Waltz's analysis avoids the most interesting set of questions.This has to do with the political effects of interdependence on both patterns of international behavior (the functioning of the international monetary system in the example cited) and on domestic politics (the mix of anti-inflationary and growth policies implied by the example). Waltz continues his argument against the utility of the concept of inter- dependence through an elaboration of the classic dichotomy between the state and international society.His argument on interstate interdependence is based on the traditional dictum of statecraft which says that all states are alike in that their leaders must maximize state security.Within the domestic order, however,there is a functional division of labor:"The domestic order is com- posed of heterogeneous elements;the international order is composed of homogeneous units....The international order is characterized by the co- action of like units....Because the units that populate the international arena are the same in type,interdependence among them is low even if those units are of approximately equal size....This last point can be stated as an iron law;high inequality among like units is low interdependence." Classical trade theory would tell us that the logic of Waltz's argument is quite correct.Homogeneous units would find little need for trade-offs based on comparative advantage,and the level of interdependence among them would thus be low.His argument at this point therefore depends on the empirical generalization that international society is composed of like units. But is it?The Rankean assumption that states are alike in that their leaders maximize security seems terribly antiquated to a contemporary observer. Waltz's generalization may,in fact,have held for the powers of classic di- plomacy.These powers were all European,their leaders were educated in simi- lar types of schools,they spoke the same language of diplomacy and under- stood the same signals,and their expectations for change were relatively low. Today the number and type of international actors appear to be historically unparalleled.The international system is composed of some Izo states that 17Ibid,p.207: 1s For a stimulating discussion of changes in the types of international actors and their current diver. sity sce Oran R.Young,"The Actors in World Politics,"in The Analysis of International Politics,ed. James N.Rosenau,B.Vincent Davis,and Maurice A.East (Glencoc,Ill:Free Press,forthcoming)
