Thursday, March 16, 2006

Globalization:Downsides of Waning Gov't Power

Globalization (often discussed, rarely defined) typically involves the phenomenon of diminishing significance for territorial boundaries and the influence of governments within them. With increasing mobility of capital, globalization means factories and jobs move from high-cost to lower-cost jurisdictions. Though economically this translates into long-run benefits, both for the lower-cost jurisdiction (in the form of new jobs and investment) and for the consumers of these goods (which are now less expensive), there is the pain of loss in the high-cost jurisdiction.

As much as the high-cost residents might want to have their governments do something about the change, they are hard pressed to figure out what can be done. That is globalization at work. Local governments are, as a practical matter, powerless to stop it. National governments can apply pressure around the margins, but given the network of free trade agreements, it is getting harder for them to prevent these flows.

One downside of waning government power is that criminals can benefit from diffused operations and power structures. Law enforcement efforts may also prove less effective, at least without international cooperation. The recent news stories announcing the capture of dozens involved in a world-wide child porn network give us some indication of the depths that can be reached by these organizations (If evil is a term that offends you, you might consider what some of these folks were doing to amuse themselves.)

Gambling is another activity (or vice, depending on your view of the postmodern revolution) that has benefited from globalization. The Internet gives you access to servers with gambling services that can be located anywhere. But you have to transfer money, and therein lies a potential problem. Of course, intermediaries arise to thwart restrictions on fund transfers. I recently completed a paper on this topic, which is available at (Search for my name and you’ll find this paper. I’m not very faithful about posting my work there, but I’m trying to do better.)

Keep in mind the power of intermediaries, such as e-cash services, in creating a moving target for government. You might especially note this when you hear the congress announcing proposed legislation that will “outlaw” internet gambling. See the Reuters news story on 3/15/06 entitled "US House panel clears anti-Internet gambling bill"
Remember that it is easy to outlaw something, but enforcing laws effectively is another matter.

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