Globalism, exit, and free social riders: A dysfunctional integration theory

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Abstract

This paper examines the role of capital disinvestment in the development of common EU policies, and suggests that mobile capital in low-tech sectors (where technology gains do not support high unit labour costs) is susceptible to high social costs, and will avoid them through exit. Integration theories have failed to assimilate the implications of this. While theorists have been busy making the case for either states or institutions as the key actors upon whom integrative outcomes in Europe depend, not enough attention has been paid to the influence of organized interests, and particularly whether they derive systemic power from the structure of the international economic system. Three points may be made. First, the relative power of interests changes with the internationalization of the economy. Second, the power of capital relative to labour is likely to vary along several axes: the degree of mobility, the level of international competition faced by the sector or firm, and the sensitivity to policy costs. Third, the dilemma posed by capital mobility to political bargains among socio-economic actors may help us get to the bottom of the long-standing debate among integration theorists regarding both the likely outcome of integrative efforts and the identity of the most relevant actors.

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