When in spring 2002 thousands of Argentineans protested against their government’s economic policy, their anger was directed against, amongst other issues, the economic liberalization of the 1990s. After decades of protectionism, the Latin-American state had followed the recommendation of the IMF, as its neighbors had done, and systematically opened its markets of goods and capital. Critics of globalization saw the Argentinean crisis as an conformation that their skepticism towards the “Washington consensus” and namely its emphasis on openness and deregulation was justified. According to their interpretation, economic integration intensifies socio-political conflicts because it is mainly the owners of capital and export industries that benefit from the renunciation of import substitution and other protectionist measures, whereas the working population and the import-competing sector are the losers of the new policy.
In this sense it could be expected that the “Rush to Free Trade” (Rodrik 1994), experienced by many developing countries within the last two decades, will be accompanied by an increasing social and political instability. Although this thesis plays a central role in the debate on globalization, it was not systematically tested until now. The majority of the economic literature deals with causes but not with the consequences of economic interdependence. The increasingly professional research on the causes of civil war refers only partially to economic conditions as being conducive to intrastate conflicts. Here the availability of natural resources deserves special mention (Collier 2001, de Soysa 2002); however, a state’s interlacing with the world economy is attributed with the exception of Gissinger et al. (2003) at the most the role of a control variable. This is in sharp contrast to the prominent role that the destabilization thesis played in the dependency school of thought (for a summary and discussion see Weede 1990).
While empirical social sciences has dealt with the economic causes of protests for a long time (e.g., Jagodzinski 1983), it has ignored the relationship between economic openness and political instability. This is surprising, given the theoretical groundwork laid by Rogowski (1989). He attempted to show with an extension of the Stolper-Samuelson model how free trade or protectionism affect cleavages between factors. Other authors have also found a connection between trade liberalization and regime change or economic crises (Fernandez/ Rodrik 1991: 1147), whereas Alesina and Drazen (1991) and Hsieh (2000) have shown how political conflict over the distribution of the reform costs delays reforms.
Although their arguments are not grounded in these qualifications, opponents of globalization repeatedly emphasize the destabilizing effects of economic integration. According to their point of view, a state involved in a reform process runs the risk that trade liberalization significantly increases political instability. In principle, economic openness can influence the unity of a society in the long and in the short run. In this study, we distinguish between the two effects and examine them separately. A society possibly experiences social and political unrest shortly before and after measures of economic liberalization are implemented. The reason for this is that the loosing side will try to prevent the enactment of the reforms through the usage of political unrest as an outside option.
The winners of foreign economic liberalization, in turn, can realize the reforms without a sufficient compensation for the losers. Although the growth effect of open market will possibly appease the protectionists in the long run, we might thus see some violence as a consequence of foreign economic liberalization. We sketch a bargain model that will account for the divergence between short-run and long-term effects that global integration has on the stability of the fragile societies in the developing world.
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