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As Nations Splinter, Global Markets Are Merging


Economic Viewpoint

AS NATIONS SPLINTER, GLOBAL MARKETS ARE MERGING

Antagonistic nationalities pitted against each other in the Soviet Union, Yugoslavia, Iraq, and elsewhere are creating an uproar. Soon, the turmoil may force some of these nations to split into separate states or to form confederations of quasi-independent republics. Yet next year, the economies of 12 Western European states with a long history of political conflict will be merged into a large free-trade area. These divergent movements--toward political fission and toward economic integration--reflect two trends: declining advantages of the large nation-state and increasing gains from access to bigger markets.

Large, centrally run countries have traditionally been better able to deal with foreign aggression, to raise taxes to pay for government services, and to provide open internal markets for trade in goods and movements of people. In The Federalist Papers, those were the main reasons cited by Alexander Hamilton in support of replacing the Articles of Confederation, then guiding the newly created United States, with a constitution giving greater authority to the federal government.

But all of Hamilton's considerations have weakened with the passage of time. The military advantages of nations with big populations have been eroded during the past half-century by advances in weapons and the policing powers exercised by the U. S. and the U. N. Economies of scale of larger countries in raising taxes and dispensing subsidies are sometimes used to exploit weaker ethnic and national groups.

ONE WORLD. The advantages of large internal markets have been offset by trade pacts among independent states and growing trade among all states. International trade has boomed since 1960 as a response, in part, to much lower costs of transporting goods and people, cheap and fast methods of communication, and the multilateral reductions in tariffs that have been negotiated since 1977 through the General Agreement on Tariffs & Trade. These developments have encouraged companies to look for markets and supplies beyond the borders of any single country. Even the huge U. S. market is no longer sufficient to sustain economic growth, which explains why the ratio of U. S. exports to gross national product has tripled since the 1950s.

More than 70 new nations, most of them quite small, have been created since the end of World War II. Despite their size and limited natural resources, growing opportunities to trade with other countries have brought prosperity to some that have promoted exports and imports rather than relying on limited domestic markets.

Singapore's population is less than 3 million, yet its real per capita income has grown by more than 7% annually since the early 1960s--surely some sort of record. Exports of textiles, electronics, financial services, and other goods and services exceed, in value, 150% mf the nation's GNP. Taiwan has also achieved extraordinary economic success by exporting more than half its output.

Still, international trade is not a perfect substitute for a free-trade area, since exports must surmount sizable quotas and other obstacles in gaining access to world markets. Free-trade agreements among independent states that are only loosely confederated can overcome these obstacles and give sovereign nations access to much wider markets. Such agreements are easier to reach than political integration: They don't arouse such strong fears of exploitation by powerful nationalities and other interests.

OLD TENSIONS. By the end of 1994, Argentina, Brazil, Paraguay, and Uruguay are to form a common market that will contain 190 million people and account for more than half the output of Latin America and the Caribbean. The U. S. has concluded a free-trade agreement with Canada and wants to negotiate similar arrangements with Mexico and Chile, although those proposals have encountered strong opposition. Agreements such as these eliminate barriers to trade in almost all goods and services, but they do not address other policies of the countries involved. U. S. negotiations with Mexico won't--and politically couldn't--discuss the clamps by the U. S. on immigration from Mexico.

The European Community will soon have free trade in nearly all nonagricultural goods, unrestricted movement of labor within the 12 participating countries, and limited harmonization of taxes and subsidies. But it is unlikely anytime soon that the EC will achieve a single currency, a single central bank, or common defense and foreign policies, which are the aims of many proponents. The gulf crisis exposed serious differences among members, with Britain and France sending troops while Germany and others stayed on the sidelines. Age-old national tensions between the French and British or between the Germans and their neighbors are too ingrained to be ended by a few decades of good will.

I can't see the pressure for autonomy by ethnic groups in Yugoslavia, Czechoslovakia, the Soviet Union, Canada, Ethiopia, Iraq, or elsewhere slackening. On the contrary, the divergent trends toward greater political autonomy and wider economic alignments seem sure to continue into the next century.Gary S. Becker


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