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Globalization and the Political Economy of Risk
Author(s): Charlie Dannreuther and Rohit Lekhi
Source:
Review of International Political Economy,
Vol. 7, No. 4 (Winter, 2000), pp. 574-594
Published by: Taylor & Francis, Ltd.
Stable URL: https://www.jstor.org/stable/4177364
Accessed: 07-11-2018 19:31 UTC
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Review of International Political Economy 7:4 Winter 2000: 574-594
Globalization and the political
economy of risk
Charlie Dannreuther and Rohit Lekhi
University of Leeds
ABSTRACT
This article examines notions of globalization through the conceptual lens
of risk. Adapting the framework employed by Frank H. Knight, the article
identifies three variables that help to explain how the role of risk and risk
management is understood across a variety of (often antagonistic) litera-
tures on globalization - these variables are boundaries, knowledge and
organization. The article examines how three broadly distinct approaches
to globalization - hyperglobal, state focused and the so-called Third Way
- can be examined through competing conceptions of risk. In so doing,
the article seeks to understand how prevailing ideas about globalization
advance specific accounts of the risk-induced choices of actors - whether
states, firms or individuals - within the political economies of modem
societies.
KEYWORDS
Globalization; risk; IPE; uncertainty; boundaries; knowledge.
INTRODUCTION
Social science is shot through with disputes over the definition and
meaning of the concepts it employs. In recent years, few concepts have
been subjected to such extensive dispute within so many seemingly
distinct disciplinary arenas as has 'globalization'. The concept has become
the focus of innumerable quarrels within not only international political
economy and international relations, but also cultural studies, sociology,
social and political theory, geography and anthropology among others.
Moreover, within these literatures, 'globalization' appears to be used to
refer to quite distinct phenomena that, at first sight, seem to bear little
relation to one another. While this may be in part the consequence of
growing complexity and interconnectedness within and across contem-
porary economies and societies, it also attests to the imprecision and
Review of International Political Economy
ISSN 0969-2290 print/ISSN 1466-4526 online ? 2000 Taylor & Francis Ltd
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
conceptual confusion that surround the term 'globalization' itself
(Higgott and Reich, 1998; Strange, 1996).
Nevertheless, while the term may itself be imprecise and confused,
this does not mean it can simply be ignored. 'Globalization' has become
a central point of reference in the discursive practices and policy construc-
tions of almost all contemporary societies. To the extent that political
actors use these practices and constructions to formulate their ideas
about the external environments within which they act (Hay, 1999: 34),
it remains important to subject their ideas about globalization (and the
very real political effects that these ideas have) to critical scrutiny.
To that end, this article seeks to illuminate the ways in which different
views of globalization impact upon the approaches to risk that prevail
in contemporary political economies. It asks how different views of
globalization give rise to distinct conceptions of what risk is, how it
impacts on societies and economies, and perhaps most importantly, how
it is managed in the contemporary era and by whom.
Risk
Risk is, of course, not new. As Jane Franklin notes, '[t]here has always
been a contingent edge to life' and we use the term risk to talk about
this contingency (Franklin, 1998: 1). Risk offers us a conceptual mecha-
nism through which to determine the possible and/or likely outcomes
of our actions in the face of the structural uncertainties thrown up by
the social and natural world. In this way, risk helps to mediate between
the known and unknown by helping to construct a social context within
which our actions have a definite range of definable outcomes.
Because the study of risk thrives in these extremities of experience,
risk is inevitably seen as both a powerful and a contested concept. Yet
it is clear that risk, or at least the perception of risk, has become an
increasingly significant characteristic within the politics and economics
of contemporary societies. While considerations of risk have always been
intrinsic to the ways in which individuals and institutions have oriented
themselves to their environments, what is qualitatively different today
is how much more explicitly conscious those individuals and institutions
are about the risks they confront. Indeed, so intensive is this emerging
'risk consciousness' that the management of risk is sometimes seen to
be 'the most vital, and difficult, area in the politics of industrial nations'
(Woollacott, 1998: 121). Examples abound in a variety of arenas and
experiences - including the perceived difficulties of future nation-state-
level welfare provision; the recent near-collapse of commercial insurance
underwriting; the systemic instabilities of unfettered financial markets;
the failure of food safety regulation; and, perhaps most starkly, the
increasingly global concerns that emanate from risks associated with
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
environmental damage. Even in these generic examples, risk can be seen
to have a direct and tangible impact on the actions of individual actors;
on the calculations made by public and private institutions; on processes
of policy formulation; on conceptions of governance and regulation in
both the public and private spheres; and on the articulation of political
ideologies.
So, if risk is discussed as important in so many varied contexts, how
does it influence the actions of individual and institutional actors? How
do the prevailing approaches to risk interpret and translate the uncer-
tainties associated with the idea that the structural conditions of modern
political and economic life have radically changed, especially where, as
in the case of 'globalization', there is enormous uncertainty surrounding
the nature of this change?
It is with a view to understanding how these interpretations and trans-
lations of social change impact upon the conduct of actors that this article
seeks to investigate the relationship between prevailing views of glob-
alization and the approaches to risk they employ. The article is divided
into three sections. Part I seeks to clarify how risk has been conceptu-
alized and employed in a variety of different literatures. This will help
us to derive a common framework within which distinct approaches
to risk can be subjected to comparison. Part II seeks to identify three
broadly contested approaches to globalization, drawing on literatures in
international political economy, comparative government and European
sociology. Part III brings these discussions of risk and globalization
together to formulate a provisional typology of the relationship between
them. From this we suggest a way of comparing contemporary narra-
tives of economic and political governance through socially constructed
'risk frames'.
I CONSTRUCTIONS OF RISK
Historical origins
While the proliferation of literatures on risk is testimony to the increas-
ingly important role that it is perceived to play in contemporary societies,
it is important to recognize how recent this development has been. We
now briefly trace the historical development of risk in the modern period
and especially its transformation into a social scientific concept.
Dominant conceptions of risk employed today have their origins in
the probability theorems of seventeenth-century mathematicians of the
likes of Pascal and de Fermet. These enabled forecasting of future
events on the basis of past observations. Probability theory, the devel-
opment of which coincided with the emergence and subsequent growth
of the international trading system, soon came to be used as a powerful
instrument for organizing, interpreting and applying information to
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
commercial decision-making processes. Thus, it is during the seventeenth
and eighteenth centuries that a recognizably modem insurance system
came into being and quickly developed beyond its initial specialization
in marine and fire hazards. When we talk about the techniques of risk
analysis employed today by commercial insurers, actuaries and market
analysts, it is this form of statistical calculation that we are referring
to. Indeed, in purely technical terms, modem versions of 'scientific' risk
analysis have hardly moved on from these early modern origins and
continue to be based on methods derived from the fundamental princi-
ples located therein (Bernstein, 1996).
This highly naturalistic view of risk as a purely technical concern,
based on the statistical calculation of regularity and predictability,
prevails from the early modern period through to the first quarter of
the twentieth century. It is only in the early 1920s that discussion of risk
turns specifically to its social qualities. To this end, our point of refer-
ence - and indeed the point of reference for almost all subsequent
discussions of the role of risk in political economy - is the 'Chicago
School' economist, Frank H. Knight, who explored the role of risk in the
modern entrepreneurial organization.
Frank H. Knight: the core elements of risk management
Knight's main concern was to introduce a concept of dynamism into
neo-classical theory. He saw the concept of equilibrium as essentially
static as 'it inquires into the conditions that exist and studies the results
which recognizable forces at work tend to produce under those condi-
tions' (Knight, 1921: 16). But if the economy were static, a condition that
would theoretically exist at the point of perfect market equilibrium, there
would be no way of making a profit. Once the owner manager had
recouped the cost of her labour and the interest on her money, there
would, in a purely competitive market, be no room for additional profit.
This is why Knight thought that a notion of dynamism was essential,
not only to accommodate increases and decreases in the population or
changes in production methods and technology, but also to identify the
mechanism through which the entrepreneur/manager generated profit.
Indeed rather than just introducing dynamism to market equilibrium,
Knight made it fundamental to profit. For him it was the very unpre-
dictability that resulted from this dynamism that enabled entrepreneurs
to derive their profit (Knight, 1921: 37). Knight argued that it was the
entrepreneur's skill in managing this unpredictability, through activities
such as accurate costing and pricing, that was rewarded by profit.
In order to account for the entrepreneur's ability to deal with the
unpredictability of change, Knight focused on risk, which he defined in
his famous distinction between risk and uncertainty:
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
The practical difference between the two categories, risk and uncer-
tainty, is that in the former the distribution of the outcome in a
group of instances is known ... while in the case of uncertainty
this is not true, the reason being in general that it is impossible to
form a group of instances, because the situation dealt with is in a
high degree unique.
(Knight, 1921: 233)
For Knight, the distinction between risk and uncertainty is dependent
on two conditions: the identification of a homogenous group, and the
ability to calculate distributions (Runde, 1998). The identification of
homogenous populations, or groupings, ensures that predictions based
on previous observations will remain loyal to their pasts. If the popu-
lation sample were not homogenous then the accuracy of the calculated
probabilities would be vulnerable to variation or confined to only a part
of the population. In both cases the output would be unsatisfactory, as
it would undermine the assumptions upon which any statistical calcu-
lations were made. Knight chose probability theory to translate the trends
observable in market behaviour into the forecasts that enabled the entre-
preneur to plan (through purchase and pricing strategies, for example).
This required access to knowledge and skills for both accurate infor-
mation collation (the identification of homogenous groupings) and
computation of statistical probability (calculating distributions). Through
this distinction between risk and uncertainty Knight sought to explain
how individual entrepreneurs or owner managers were able to weave
a profit from the fickle and resilient elements of their markets and
competitors.
Knight's distinction sought to account for the importance of organi-
zation in economic activity (Runde, 1998). It showed how the
specialization and then coordination of risk management in a firm led
to the development of 'free enterprise' as opposed to handicraft orga-
nization - in other words, the birth of the modem corporation. As firms
grew, the breadth of market uncertainty that they encountered required
more than the simple conversion of uncertainty into risk. With new forms
of uncertainty, new centres of expertise were needed to convert this
uncertainty into manageable risk. In a well-organized modern corpora-
tion, uncertainty would be channelled and allocated to the group of
experts specializing in identifying patterns (or homogenous groupings)
that could be translated into risk. Organization therefore became central
to the management of information as well as to the development of
expertise. Once the corporation could manage this uncertainty, modern
strategic planning would enable the coordination of the calculations
made by the expert risk analysts.
In the substance of Knight's argument, and befitting the approach of
a founder member of the 'Chicago School', risk is held to be objectively
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
and rationally calculable, a servant to the laws of probability. Moreover,
he constructs a world in which decisions are made rationally in the
pursuit of profit. Decision makers (or 'risk takers') operate effectively in
the pursuit of managed risks that are related to functionally determined
objectives in modern organizations. However, what is important for the
purposes of this article is not the specific character that Knight ascribes
to outcomes of risk management in the modern organization. It is his
identification of the different conceptual elements necessary to the task of
risk management that are of greatest use to us. These elements are: clas-
sificatory boundaries that enable sampling; knowledge that allows for the
organization of information and data; and the organizational configura-
tion of those assigned the functions of risk analysis (Runde, 1998). It is
this identification of the three core elements - boundaries, knowledge
and organization - that make possible the management of risk in modern
institutions and that we believe to be the particularly valuable insight
in Knight's approach.
The delineation of boundaries, knowledge and organization is valuable
because it retains a wider applicability beyond the specific understanding
that Knight derives from it. Knight's rationalist approach supposes the
modern, specifically commercial, organization to delineate its boundaries
with exclusive reference to the market; the knowledge it applies is statis-
tical calculation; and the organizational form it assumes is that of the
rational actor or institution. But this is not the only way in which the
relations between boundaries, knowledge and organization can be under-
stood. There are other ways of conceiving of these relations and therefore
of risk and risk management that do not assume risk to be a purely
technical or rationalist matter in the way that Knight does. To show this,
we use Knight's distinction between boundaries, knowledge and orga-
nization to compare and contrast two alternative views of risk that
originate in very different disciplinary contexts: the first, from cultural
anthropology and the literature on embedded institutions, the second
from the sociological literature on the 'risk society'.
Risk as cultural construction
From a cultural perspective, risk is not only understood or experienced
in the confines of the modern organization. It is socially constructed and
relates to culturally informed perceptions (Douglas and Wildavsky, 1981;
Royal Society Study Group, 1992). Furthermore, individuals working in
institutions rarely make decisions on the basis of the functional require-
ments of their position, in the light of full information or by purely
rational choices, but rather in response to the rules and norms that delimit
appropriate action (Meyer and Ronan, 1991; Granovetter, 1985; March
and Olsen, 1984). They are also likely to copy or mimic the activities of
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
others in their surrounding environment (Meyer and Ronan, 1991), in
practices that are conducted along and maintained through strong and
weak social ties. In Risk and Culture Douglas and Wildavsky take an
institutionalist approach to explain the social selection of environmental
dangers (Douglas and Wildavsky, 1981). They focus on how institutions
influence responses to dangers, revealing differences in views of risk as
well as the social context in which perceptions of risk are maintained.
They illustrate the culturally different ways of understanding risk in
their discussion of 'grid' and 'group'. Here 'group' refers to the boundary
individuals erect between themselves and the rest of the world and 'grid'
describes the social distinctions, such as delegation of authority, that
order life within the group (Douglas and Wildavsky, 1983: 138-9).
In this view, risk is embedded in the same cultural values and norms
that tell us what is right and wrong, what constitutes a democracy, what
informs our political identity. These cultural characteristics develop over
time in rules, norms and values, delineating how cultural groups decide
which issues are relevant to them and which are not. Contrary to Knight's
substantive claims, but in keeping with the framework he employs, it is
clear that central to this understanding of risk is not the owner managers'
desire to make profit out of uncertainty, rather it is the importance of
the culturally embedded beliefs of that society. The boundary established
around the group does not correspond to the limits of statistical homo-
geneity, nor is it defined solely in the pursuit of accurate risk calculations.
Rather it forms the basis for the values - such as ethnic or religious
identity - that are shared by the members of the group. Likewise, the
rules that organize life within the group (the 'grid') are not designed
according to rational assumptions about functionality and efficiency.
Rather, they relate to shared understandings, habits and traditions of
authority based on previous decisions made within the constraints
of history. Finally, the knowledge that binds the group is one that makes
sense to the values of that group rather than the other way round. So
rationality only exists in the way that the group understands it to, rather
than through the formal rules of statistical science or cost benefit analysis.
Accordingly, tradition may prevail over rationality and mythical repre-
sentations may replace positivism.
Risk society
A thoroughly different view of risk can be found in the European soci-
ological tradition (Beck, 1992). This rejects the view that risk involves
the study of the interaction of calculable rationality with the uncertain
and irrational (Knight's conclusion). However, it also rejects the view
that risk is related to the cultural values and traditions that abound
in social institutions, represented in institutional rules and norms (the
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
'cultural' view above). Increasingly, contemporary studies of risk in this
sociological tradition expose the inability of both of these approaches to
risk to deal with uncertainty.
The most famous proponent of this view is Ulrich Beck. For Beck, risk
is identified as the determinant factor in late modernity, and the study
of risk assumes that society is not organized, safe and controllable but
that it must manage its extremities with care. For example, central to
Beck's identification of the risk society is the occurrence of unforeseen
consequences. These are the invisible and usually detrimental side-effects
of modernity, such as environmental degradation, that herald a different
stage in its development and so a different understanding of risk. The
cultural values that guided society so well for so long are forced to
change. Central to Beck's thesis is that while the development of risk
was central to the project of modernity, so too were its side-effects. These
side-effects, what modern conceptions of risk ignored, are both essen-
tial to the project of modernity yet also contribute to its crisis (Beck,
1992: 21-4). The limits of the known and the values that exclude others
not only enable us to translate uncertainty into risk, they also delineate
the boundaries around which we have drawn our social consciousness.
Today, however, rather than providing the basis for profit, these exclu-
sions increasingly contribute to catastrophic levels of cost.
Again, with Knight's framework, it is clear that a very different concep-
tion of the component elements of risk emerges from this view. The
boundaries of the group upon which risk is referenced are no longer
obvious but are rather (and in the face of radical uncertainty) in need
of careful delineation both within and across those boundaries once
thought secure. The knowledge that previously secured the group can
no longer be relied upon as definitive but is rather provisional and subject
to the demands of greater transparency and consensus. And finally, the
differentiation of roles within institutions cannot be seen to accord with
the model of the rational actor or with embedded cultural values (both
of which are destabilized by increasing uncertainty). Rather, they suggest
the need to modernize the institutional frameworks within which risk
analyses are enacted in a way that can ensure dialogue and ultimately
consensus.
In this part of the article we have sought to develop a framework
within which distinct approaches to risk from different disciplinary
perspectives can be delineated according to a number of common
elements. Using Knight's original identification of the component
elements that enable the institutional identification of risk and the mech-
anisms of its management, we hope to have shown how the boundaries,
knowledge and organization can be usefully employed to this end. In
the final section, we seek to employ these conceptual markers in an
analysis of how risk and the management of risk are understood in the
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
different narratives of globalization. We attempt to show how, in the
course of understanding how risk is implicitly and explicitly employed
in these narratives on globalization, particular views of risk frame the
political choices on offer to actors, be they states, firms or individuals.
In order to do this, however, we need some way to differentiate between
the different positions assumed in the burgeoning debates about glob-
alization and what precisely it is and what its effects are or are likely
to be.
II DISTINGUISHING BETWEEN APPROACHES TO
GLOBALIZATION
As noted earlier, globalization continues to be conceived of in any
number of very different and often highly contradictory ways. As Clark
has recently pointed out, '[t]he literature on globalization is riven along
a number of differing axes: ideological, sectoral, definitional and histor-
ical' (Clark, 1998: 483). This is hardly surprising, given the embryonic
and contested nature of the concept and the reality it purports to describe
(Clark, 1998: 498). In view of the still contested fact of globalization, in
the following section we do not attempt to measure the veracity of
competing claims about the nature and scale of globalization or provide
a comprehensive review. Rather, we follow up on Watson's proposal
that 'to get to the heart of understanding the globalization phenomenon
revolves not so much around asking questions about what globalization
is, but about what it is perceived to be'. And here, Watson argues, 'it
perhaps matters most that globalizing tendencies are thought to limit
contemporary state actions' (Watson, 1999: 126). To that end, we first
identify three broad approaches in debates about globalization that relate
to its political-strategic impact on contemporary forms of governance:
hyperglobalist, state focused and reflexive modern. The first two are
derived from a distinction advanced by Held et al. (1999), and relate to
established literatures in international relations and international political
economy. The reflexive modern view relates to the increasingly popu-
larized view of globalization associated with the Third Way political
projects of, among others, Tony Blair's New Labour. This approach itself
provides a counterpoint to the two-dimensional debate of the others and
provides a focus that is empirically significant for future research.
Hyperglobalist
While the hyperglobalists did not originate the term, they have clearly
captured the public imagination and the discursive terrain upon which
globalization is popularly discussed. Central to the arguments of those
who advance the benefits of globalization is a triumphal view of markets
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
and western liberalism in the post-Cold War era. Here, the world is seen
to be converging towards a single system of capitalist economic gover-
nance, and globalization is seen to be an inevitable and thoroughly
positive part of that process, helping to create new forms of order
(markets) and governance (corporate) that increasingly serve to displace
old, out-dated forms (nation-states). Now that 'non-state actors' prevail
across the intemational arena, foreign direct investment can assist
global development by pulling up living standards in the less developed
world, transferring technology and generating wealth on an unprece-
dented scale.
Central to this view of globalization is the emergence of a new set of
(non-state) actors, a new dynamic of (market) organization and an alto-
gether new reality confronting decision makers. It is a reality born of
neoliberal economic orthodoxy: on the one hand, deregulation of
economic activity through privatization and the removal of controls on
capital mobility; and on the other, encouragement of labour market
mobility through workfare and the weakened power of organized labour
Jessop, 1991).
Hyperglobalists see the nation-state as at least retreating and perhaps
even redundant. International organizations, such as the WTO and the
IMF, are seen as the only truly effective regulatory authorities at the
global level, while at the regional level such regulation is best ensured
through the likes of NAFTA, ASEAN and the EU. These new global
and regional levels of governance are driven by an economic logic that
conforms to but exceeds the liberalization of the post-war economic
order. The market is sovereign and the hyperglobalists recommend the
extension of deregulatory policies beyond the meagre tariff reductions
of the GATT period. They scrutinize the very social institutions of
national economies, demanding that variations between them be justified.
State focused
The 'demise of the nation-state' thesis - an ever-present theme in the
hyperglobalist literature - has been widely criticized by those we might
call state focused in their view of current developments in the global
political economy (Hirst and Thompson, 1996). The state-focused
approach suggests that the nation-state is not so much dead as hiber-
nating, and that the decline of its powers and potential is seriously
misrepresented by hyperglobalists. After all, it was the nation-state which
released the controls on capital that led to the growth of the world's
financial markets (Moran, 1991), and the huge global corporations do
not display the characteristics of the globe but of national economies
(Weiss, 1998). Although the hyperglobalists have focused our attention
on the convergence of economies and societies into deregulated free
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
markets, there is also ample evidence of divergence in national economies
(Berger, 1996). What is more, even the trade unions, demonized in neolib-
eral advocacy of hyperglobalism, are increasingly involved in economic
governance in ways not dissimilar to those of 1970s corporatism
(Rhodes, 1997).
This critique of globalization operates at a number of levels. It differs
from the hyperglobalist approach to the extent that its analytical focus
tends to look to the socially bounded rules and norms that support
economic activity. In this sense it reflects a broader analytical shift in
social sciences to meso-level analyses such as the new institutionalism
evident in organizational analysis in sociology, economics and political
science (Powell and DiMaggio, 1981; Hodgson, 1988; Goodin, 1996;
March and Olsen, 1984). All of these approaches tend to focus on the
relationship between society and economy and reflect a tradition in
twentieth-century political economy of looking at, for example, the
marketization of societies (Polanyi, 1957), the characteristics of modern
capitalism (Shonfield, 1965), the impact of financial markets on economic
governance (Zysman, 1983), the institutional governance of the economy
(Hall, 1986) and the embeddedness of economic action (Granovetter,
1985).
Politically therefore the literature does not fit into a coherent ideo-
logical programme in the way that the neoliberal position of the
hyperglobalists does. Rather, there is broad common ground between
these institutionalist approaches that is critical of both the methodol-
ogical and the ideological machinery of the hyperglobalization literature.
The state centrism shared by this sceptical view of globalization was in
part a rallying call to challenge the penetration of the hyperglobalist
view, and in part a reference to a long-standing realist tradition in poli-
tical economy that has focused on the nation-state's role in economic
development. In many cases there is a debt to Marx in this literature,
as globalization is seen as a developmental phase within capitalism,
replete with inevitable contradictions and crises. For this reason the state-
focused approach may see the state, most often conceived as a variant
of the Keynesian model of the social democratic state, as a relevant
strategic bulwark against the excesses of unfettered capitalist accumu-
lation and the 'myth' of globalization (e.g. Weiss, 1998; Drache and Boyer,
1995; Hirst and Thompson, 1996).
But for others the state-focused approach is more a way of closing
down the scope of institutional analysis into a more manageable project
(Berger and Dore, 1996). For these commentators, the most effective way
of undermining the rhetoric of globalization is by revealing its impact
(or lack of impact) in the day-to-day practices of the economy. While
remaining steadfastly positivist in its orientation, this sort of institutional
level analysis focuses on the meso level in a way that it is claimed can
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
avoid the reductionist excesses of rational choice and the abstractionism
of structural level explanations (March and Olsen, 1984). While this
approach is less prescriptive in its assertions, it plays an important role
in critically engaging with, and sometimes against, the hyperglobalist
project.
The Third Way
A similar scepticism about the novelty of globalization emerges from
the disciplinary perspective of the European sociological tradition. In the
work of Anthony Giddens and Ulrich Beck, for example, globalization
is at best seen to be a continuation, not of capitalism per se, but of moder-
nity more generally. While hyperglobalists insist that there is something
epoch-defining about the changes that are described in the shorthand of
'globalization', both Beck and Giddens reject such a view. Rather, they
suggest that what characterizes these societies is a radicalization of
already existing processes. The picture that emerges in this scenario is
of 'the intensification of worldwide social relations which link distant
localities . . . [where] local happenings are shaped by events occurring
many miles away and vice versa' (Giddens, 1990: 64). Accordingly, glob-
alization is a complex, uneven process that reveals once hidden costs
(such as environmental degradation) and challenges the assumptions
that support existing societal institutions. Globalization is therefore often
a debilitating process that suggests the need to rethink the institutional
arrangements prevailing in contemporary societies.
However, and at the same time, the reflexive modernization thesis
remains wedded to the project of modernity, and in particular retains
faith in the ability to design social institutions in a rational way.
Accordingly, it does not follow that the nation-state is 'dead'. Rather,
there is a need to renegotiate the sovereign authority of the nation-state
in the face of the intensification of interdependencies of politics,
economics and social life - most obviously, within international alliances
and organizations. The directly political version of this project has been
much publicized in Giddens's recent work going under the title of the
'Third Way'. This suggests that we be required to accept globalization
in a more unquestioning fashion than that acceptable to the 'state-
focused' approaches above. But in contrast to the hyperglobalists, who
reject the validity of the national level, it maintains that the nation-state
still plays an important role - that of promoting 'modernization'. It also
differs from the state-focused approach, not only in its embrace of glob-
alization, but also in offering a political role for the state in realizing the
functional requirements of that process. So, while the Third Way project
shares concerns for meso level analysis and reform, notably in renewing
and redesigning social and political institutions, it differs from many of
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the sociological institutionalist approaches (Meyer and Ronan, 1991) that
have challenged the possibility of pure functionality in institutional
design and have emphasized the role of habit instead of rationality in
institutional action (Hodgson, 1997).
III READING NARRATIVES OF GLOBALIZATION
THROUGH RISK
From this brief delineation, it should be clear that competing views of
globalization assume very different political-strategic outcomes in terms
of the role of the state, the institutional forms that it should take and
the ways in which governance can be conducted. In the final section of
the article we try to account for these differences by describing how risk
and the management of risk are understood within each of the different
sets of ideas about globalization we have outlined. We will attempt to
show how, in the course of constructing political narratives about the
nature and effects of globalization, there emerges within each set of ideas
particular views of risk and the risk-induced choices on offer to actors
- whether states, firms or individuals - and how those choices are enacted
(or not) within the political economies of modern societies. What we are
particularly keen to show is how these political narratives of globaliza-
tion are premised on particular views about the nature of boundaries,
knowledge and organization (the core conceptual elements of risk and
risk management) that prevail in modem societies. The sum of these
relations between globalization and risk are represented typologically in
Figure 1.
Hyperglobalism
The hyperglobalists describe how the modem corporation has become
so adept at managing risk that it is now able to function and coordinate
its activities on a global scale (Ohmae, 1990). This applies to both manu-
facturing and finance. Global manufacturing corporations pinpoint
markets and sources of reliable cheap labour almost anywhere on the
planet. Indeed what makes global corporations different from multina-
tional corporations is their ability to pinpoint homogenous groupings
on a global scale rather than a national one. The manufacture of a product
can be part of a profit chain that snakes across the globe, benefiting from
productivity and cost advantages and unimpeded by the limitations of
national regulation. Marketing (especially association marketing) creates
vast new tribes of consumers who follow labels, like Gucci and Prada,
which represent the same images the world over. These groupings do
not relate to the social institutions of the nation, they are identified -
even created - by the modern corporate enterprise so that it can derive
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
Globalization and Risk: A Typology
Narratives of Boundaries Knowledge Organization
Globalization
1 2 3
Hyperglobalism Market Statistical, calculus Rational choice
institutionalism
4 5 6
State-focused Nation-state Cultural Embedded
institutionalism
7 8 9
Third Way Technical Rational consensus Reflexive
individualism
Figure 1 Globalization and risk: a typology
its profit from manageable risks. The global corporation is given the
largest conceivable 'group of instances' (e.g. consumers) to identify a
known distribution of outcomes, and so has the greatest available flex-
ibility to weave its own profits.
This act of creation is perhaps strongest in the financial corporations,
where the enormous growth of the emerging markets sector has been
based upon the translation of what was uncertainty (in the distant tiger
economies of the Far East, and Central and Eastern Europe) into managed
risk investment portfolios that could be sold to investors and pension
funds. These societies used not to be understood as, essentially, no 'distri-
bution of outcome' could be ascertained - all situations looked 'unique'.
Yet with the translation of these economies into known distributions of
outcomes by private sector experts - such as market researchers, and
most importantly risk rating agencies, like Standard & Poors and Moodys
- unmanageable uncertainty becomes manageable risk (Box 2). The crisis
in financial markets in Japan at the end of the last century clearly revealed
how significant irregularities can destabilize and so undermine the
assumptions of uniformity in an economy and undermine its risk rating.
The main forms of order that dominate these societies are not those
of the state or tradition, but those of the market and the private sector.
The private sector risk profiling corporations establish what is a good
risk and what is not, surpassing the importance of the nation-state in
economic governance. The state is not responsible for allocating value
in a global society, the private sector is (Box 1). While the post-war
Bretton Woods era led to greater freedom for business to operate, the
legitimacy of the state to impose the basic regulatory requirements for
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY
a product was not disputed. But now these regulatory requirements are
called 'non-tariff barriers' and a series of regulatory reforms (the EU's
Single Market Programme, NAFTA, etc.) culminating in the establish-
ment of the World Trade Organization have established a machinery
that allows these values to be challenged.
This undermining of the nation-state represents the reorganization
of who defines the basics of the market and of who referees the level
playing field upon which enterprises compete. Central to this move is
a belief in the efficiency and morality of the free market. Global
corporations may be leaner and appear flatter, but their organizational
reforms are explicable because modem communications and informa-
tion technology make huge swathes of corporate bureaucracy
unnecessary. Converting uncertainty into risk is easier with computers
which can run vast and sophisticated calculations of probabilities.
Information technology allows unique information to be channelled more
effectively to the relevant experts to convert into manageable risk, and
modern communications (such as video conferencing) facilitate the coor-
dination of activities all over the world. Actors and institutions are
expected to make rational calculations in relation to clearly defined func-
tions against which they are judged (Box 3). So all-embracing is the belief
in the efficacy of this form of knowledge that when it is exploited or
becomes destabilized, the effects can be catastrophic (e.g. the recent
collapse of Barings Bank and and the huge losses incurred by the LTCM
hedge fund).
But it is the morality argument that carries the day for the hyper-
globalists and that provides the greatest punch. Economic institutions
link the local to the global by translating uncertainty into manageable
risk. A new world order is created through the common language of
quantifiable risk, that allows us all finally to embrace the dream of the
free market. Even in sectors as crucial as banking, entrepreneurial risk
should prevail over that of the regulator. Alan Greenspan, Chairman of
the Federal Reserve Board, articulates this hyperglobalist view of risk as
a central dynamic in market economies:
There are some who would argue that the role of the bank super-
visor is to minimise or even eliminate bank failure; but this view
is mistaken, in my judgement. The willingness to take risk is essen-
tial to the growth of the free market economy . . . [I]f all savers
and their financial intermediaries invested only in risk-free assets,
the potential for business growth would never be realized.
(Greenspan, 1994, quoted in Bernstein, 1996: 328)
For the hyperglobalists, globalization engenders an extension of a liberal
market upon the world. But this is only possible through the universal
language of risk, where uncertainty can be tamed and turned into
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
profit. Their belief in their ability to identify and make new markets, to
translate irregularities into manageable risks and to organize profit across
the world, shows that risk makes globalization possible. When risk is
understood in this way, the uncertainties of globalization are conquerable
through calculation, and transformed from threats into opportunities.
State focused
But for the state-focused view of globalization and the socially
constructed view of risk, the world does not simply forget its past when
presented with structural change, like globalization. Here, risk is not a
tool for engendering profit, or an exercise in the application of modern
rationality, it is a social construction, embedded in societal values, and
so relates to the contingencies of the local. This is reflected in the belief
that society is of greater importance than the individual firms, non-state
actors or private interests that drive the process of globalization. Indeed
these firms and private interests have only a bounded rationality that is
informed by socially supported values and traditions. The institutional
focus shared by these approaches to globalization and risk challenge the
asocial notions of functional rationality and efficiency of Knight's orig-
inal view, in favour of rule- and norm-driven behaviour, as seen in the
institutions of the nation-state.
This institutional, meso level view of the world is different from
that of the hyperglobalists. National systems of economic governance
retain their significance, and political battles reassert the authority
of political institutions in the face of external pressures (Berger, 1996).
Central to this political position is the shoring up of institutions,
which were perceived to have previously suffered under the ravages of
globalization. State-focused approaches argue for a greater acknowl-
edgement of the role of the institutions of the state and economy,
such as the welfare state, and demand that we recognize their continued
pertinence today (Box 6). The rules and norms that influence social action
(Douglas and Wildavsky's 'grid') are seen as central to the success
of any political project in the contemporary era. They are seen as
fitting new political demands with important roles in today's society,
while attacks on them are received negatively. Thus corporatism is
seen to be alive and well (Rhodes, 1997), while the loss of control over
corporate governance is mourned as a loss (e.g. the reaction of the
German federal state to the recent takeover of Mannesmann by
Vodaphone).
Such obstreperous behaviour in the face of the perceived fact of
globalization is justified by the wealth of knowledge that contradicts the
hypothesis of convergence described by Ohmae (Ohmae, 1990). National
economies clearly differ and this cannot be explained in the terms of
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the free market, which dismisses such things as market imperfections.
Focusing on these differences provides a source of empirical strength
for those opposing the forces of globalization. But in addition to the
empirical realities that challenge the thesis on globalization, there are
also strong normative and ideological arguments that provide not just
critiques of, but also alternatives to, globalization (Box 5). Social and
Christian democrats, for example, have maintained the level of the nation
state as the key site of political conflict and action. These views chal-
lenge the hyperglobalist in terms of the level of analysis, challenge the
legitimacy of neo-classical economic explanations and even challenge the
hyperglobalist in terms of how economies compete, emphasizing price
over quality (Porter, 1990). In effect the state-focused approach rests on
a very different understanding of how capitalism operates (e.g. Albert,
1991; Hart, 1992).
The boundaries highlighted by the state focused are, of course, those
of the nation-state. But this is more than a tautology. The state-focused
approach attaches different significance to these boundaries in terms of
their building of shared values, identities and competitiveness. Values
associated with nationhood are frequently those built upon conceptions
of historically bounded experience. Whatever the claims to the contrary,
these values remain inculcated in different forms of taxation, corporate
governance and employment rights that remain nationally bounded
(Box 4). And these clearly remain significant: defining the companies'
operations in the international economy, providing the basis for inno-
vative economies (Freeman, 1990) and promoting egalitarian welfare
distribution.
These views are countered by the hyperglobalists with reference to
historical lessons of protectionism, the potentially extremist messages
projected by nationalist economic measures, and the losses for all of an
end to a Ricardian trade system based on absolute, rather than relative,
gains. But this is to miss the point of the state-focused approach. Very
few of the state-focused approaches seek to replace the liberal world
order with one based on individual nation-states. Rather, their project
is to redress the imbalance that portrays the state as a shadow beneath
the blinding light of global economic and political forces.
The Third Way
For those who advance the Third Way, to rely on pre-existing relations
between states and markets, whichever are prioritized, is to miss the
most important consequences of globalization. New links are established
within and across polities and economies that do not correspond to the
old hierarchies of either the neo-liberal market or already existing
embedded institutions. From the perspective of the Third Way, the
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DANNREUTHER AND LEKHI: GLOBALIZATION AND RISK
boundaries used to define risk in previous historical moments are
open to all manner of debate. It is not enough to assume that the
forms of stability we observed before will persist. It is unclear whether
the distinctions of outside and inside are even relevant, in terms of
markets, states, firms or individuals. Rather, globalization needs to be
understood in 'relational terms as the interdependence and intermingling
of global, distant and local logics, resulting in greater hybridisation
and perforation of social, economic and political life' (Amin, 1997: 133).
Consequently, what is required as part of a decisive process of reform
is rational consensus about how risks can be managed collectively (Box
8). The vital prerequisite of this process of reflexive modernization (in
pursuit of the fully conscious, rational society) must be the guarantee of
fair means of democratic deliberation throughout civil society.
The 'Third Way' is based on the perceived need to modernize national,
regional and international institutions and to renegotiate the relation-
ships between them, with a view to making them more relevant in
an era of globalization. This project argues for the explicit need to
recognize that industrial societies (rooted in the nineteenth century and
culminating in the logic of the Keynesian ideal-type) have come up
against their own limitations which now feed back on these societies in
the form of increased risk. In this situation the state can no longer serve
as the sole insurer - or even in some instances, as the insurer of last
resort - against the increased risks and uncertainties that are now perva-
sive for citizens within these societies. Rather, the management of risk
(including social insurance) also needs to be redistributed among indi-
vidual actors - whether they be public or private, citizens or institutions.
Here, the role of the state increasingly shifts from directive strategies of
risk management to facilitating 'the capability [of individual actors] to
confront risk in a productive fashion' (Giddens, 1998: 64). This shift is
the direct result of an expansion of social reflexivity in contemporary
societies that has led to a situation in which 'information produced by
specialists (including scientific knowledge) can no longer be wholly
confined to specific groups, but becomes routinely interpreted and acted
upon by lay individuals in the course of their everyday actions' (Giddens,
1994: 24) (Box 9).
Inevitably, this situation demands that, in the face of globalization,
existing institutions and strategies of political and economic governance
are subjected to wide-ranging reform. The sheer complexity of the
political economy of late modernity means that any strategy employed
by the state to facilitate the effective management of risk requires 'a large
amount of low-level input for their coherence provided by a multiplicity
of local pricing, production and consumption decisions in market situ-
ations' (Giddens, 1994: 25). However, given the potentially catastrophic
costs that untrammelled (global) market activities can and do give rise
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to, the Third Way approach also advances a model of active market
regulation where this might facilitate the productive confrontation of
risk. This sort of approach has given rise to a number of policy responses
- including the Tobin tax on intemational financial speculation and
Giddens's own suggestion of 'an Economic Security Council of the United
Nations' (1998: 150-1) - that are directed towards solving, as a technical
rather than a political issue, the uncertainties generated by structural
change at the global level (Giddens, 1998: 68).
CONCLUSION
In the foregoing we have tried to offer some tentative suggestions as to
how different views of risk underlie various narratives on globalization.
We have also attempted to give some political and economic credence
to these relationships. We have sought to identify, in a very general
sense, how different political-economic actors have, through (disparate)
constructions of risk, sought to articulate the political-strategic conse-
quences of globalization.
Studying risk in these terms enables us to begin to understand how
decision makers make sense of the uncertainty of the world outside. In
the context of globalization, this enables us to understand how actors
themselves understand the issues with which they are confronted and
the choices they perceive themselves able to make in the face of those
confrontations. The advantage of this approach is that it enables us to
understand more precisely how globalization, or at least the ideas and
narratives about it, is experienced in diverse ways through different
notions of risk. We believe the exercise we have undertaken here offers
a useful starting point in our attempt to delimit the effects of global-
ization - whether as an empowering or disciplinary mechanism - on the
policy approaches, political struggles and economic and political reforms
of a variety of actors engaged in social, political and economic change
in the often confusing period in which we now live.
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