George C. Bitros · Nicholas C. Kyriazis Editors Democracy and an Open-Economy World Order Democracy and an Open-Economy World Order George C. Bitros (cid:129) Nicholas C. Kyriazis Editors Democracy and an Open-Economy World Order Editors GeorgeC.Bitros NicholasC.Kyriazis DepartmentofEconomics DepartmentofEconomics AthensUniversityofEconomics UniversityofThessaly andBusiness Volos,Greece Athens,Greece ISBN978-3-319-52167-1 ISBN978-3-319-52168-8 (eBook) DOI10.1007/978-3-319-52168-8 LibraryofCongressControlNumber:2017935468 #SpringerInternationalPublishingAG2017 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. 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Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Preface DemocracyisawayofgovernancethatwasinventedbyancientAtheniansforthe citizens to self-govern in freedom in their city-state, reaching its apex in the fifth century BC in Athens and many other city-states of the Greek world. Collective decisionstooktheformoflawsthatcitizenswereboundtorespectanddefend;the laws were enforced by recallable officials who were elected by lot and served for strictlylimitedterms;andthosecitizenswholostthetrustoftheirfellowcitizensor brokethelawsweregivenstiffpenaltiesrangingfromsocialexclusiontoostracism anddeath. Self-governmentinfreedommeantthatcitizensretainedrightsthattookpriority over those they relinquished to their city-state for the sake of defending against external threats and preserving social peace. Fundamental among them were the rights(a)toownproperty,(b)toexchangefreelyoneformofpropertyforanother forwhateverreason,and(c)tosecuretheenforcementofprivatecontractsthrough duejudicialprocess.Asaresult,togetherwithdemocracyorperhapsbecauseofit, there emerged in ancient Athens the nucleus of a proto-capitalist money-based marketeconomythatfunctionedmuchliketheadvancedeconomiesoftoday. For many centuries since then, all interest in democracy and free market economyvanished.Itresurfacedagainstronglyinthesecondhalfoftheeighteenth centurywhen,duetothesocialupheavalsthattookplaceduringthatperiod,certain countriesintheWestadoptedvariationsofsuchregimes.Ingeneral,thesecountries based democracy on the principle of representation; at least formally, they separated state powers by splitting the authorities into legislative, executive, and judicial; and as for the intervention of the state in the economy, they took path- dependent directions. For example, while the founding fathers of the American democracy gave precedence in the Declaration of Independence in 1776 to the non-alienatednaturalrightsofcitizensoverthoseofthestateandlefttheeconomy tooperatethroughthelawsthatfreemarketsgenerateendogenously,inEnglandthe system of guilds that dominated for centuries called for different approaches to individualrightsandhencetothemarketeconomy.Thus,giventhatthecountriesin questionwerestructurallydifferentandhadarrivedatthatstage throughdifferent historicalpaths,manyofthedifferencesinthedemocraticregimestheyestablished may be explained by reference to the differences in their initial conditions. This volumeofessaysdoesnotbelonginthisgenreofresearch. v vi Preface Instead, the objective herein is to focus on another issue of higher importance and urgency. Irrespective of the differences and the similarities associated with their initial conditions, in every country where regimes of democracy and free market economy were established, the predominant evidence is that they have shownremarkablerobustnessandresiliencetochange.Arethesepropertiesinher- enttodemocraticregimesoraretheytransientandtheseregimesmayrevertbackto some sort of medieval oligarchies with command or even free market economies closed to international competition? The essays in this volume bring encouraging insightstobearonthisquestionbyidentifyingthenewthreatsfacingdemocracies andfreemarketeconomiesandbyofferingoutlinesofpossiblepoliciestocontrol undesirabledevelopments. Clearly,ifnotforanythingelse,duetoincreasingglobalization,countryborders crumble, national identities erode, and democratic governments face threats of unparalleled severity. Moreover, the same applies to their economies. As rapid technological changes shift production structures in favor of intangible capital, economicactivitiesrelocatefromdevelopedtoemergingcountries,rapidstructural changesstretchtothelimittheadaptabilityofinstitutions,etc.,thechallengetoday ofpreservinginternationalcompetitivenessandworkerwelfaregoesfarbeyondthe traditional economic policies of currency devaluations and other responses of the past. The message of the essays in this volume is loud and clear. The risks of neo-populism and cultural chauvinism in stifling democracy across the globe and closingnationalborderstofreeinternationaltradeandotherexchangesarerealand demandconstantvigilance,painstakinganalysisandpreparedness,andunwavering determinationtodefendtheachievementsofWesterncivilization. This explains why, aside from serving as a means of early warnings about the risks that lie ahead, this volume is not one too many for still another reason. In particular,theessaysincludedherederivefromaconferenceheldattheDepartment of Economics in the Volos campus of the University of Thessaly in November 2015, which pursued an interdisciplinary approach to the problems that beset democracies and free market economies. Considering the nature of the issues involved, the benefits from looking at them from this perspective should be obvious.For,while,say,economistsareequipped toarriveattherootcauses ofa giveneconomicproblem,theirfindingsandrecommendationscannotbefoolproof in the absence of an applicability roadmap worked out by economic historians, political scientists, ethicists, jurists, and other experts. While selecting the essays forthisvolumewestrivedformaximumversatilityamongtheviewspresentedona givenissueandwhetherwesucceededornotisleftforthereaderstojudge. Lastly,ourdecisiontogoaheadwiththereleaseofthisvolumewasmotivated strongly by the quality of the papers in our selection set and the world-renowned professionalstatusofsomeoftheauthors.Justforoneexample,itsufficestonote that to be able to include in this volume three papers on the German model of socialmarketeconomy,writtenbymosteminentprofessorsinthisareainGerman universities,isarealprivilegeforusaseditorsandasuperbsourceofinformation for interested international readers. All in all then, we are very pleased with the Preface vii chance to have acted as coordinators of that conference and thankful to the localorganizingcommitteeforentrustinguswiththetasktoserveaseditors. Content-wise the papers are arranged in six parts. In Part 1, we have included three papers under the heading “Ethics and liberty in the new world order.” The issuesraisedanddiscussedinthefirsttwopapersareofoutmostimportanceforthe survivalofdemocracyinanyproximateformworththisname.However,protecting individual rights in the face of external threats and domestic abuses of political power by oversized concentrations of wealth on the part of multinational corporations and ludicrously rich owners of tangible and intangible capital won’t be easy. In some sense, it is a Gordian knot and how democracies cut it will determinethefutureoflivinginliberty.Forus,whateverviablesolutionisworked outmustbeconsistentwiththeprincipleslaidoutbyJ.SMillmanycenturiesago, andthisexplainsthepresenceofthethirdpaper.Weincludedittoremindusallof hissuggestions.Asfortherationaleforopeningthevolumewiththeseessays,this liesinourviewthattheincreasinginterconnectednessamongnationsandcultures in the coming decades will create new threats to individual freedoms, so that defendingthemthroughsecurityandintelligencewilltakeconsiderableprecedence overwelfareissues. Part2undertheheading“Democracyandfreemarketeconomy”isprobablythe epicenterofthisbook.Itsstructureshouldbeobvious.Itopenswithapaperwhich calls for moderation in the application of austerity policies in the quest of democracies to return to some longer run financial sustainability. As it is written bythewell-knownBritishMasterofInstitutionalEconomics,itisveryhardtotake issuewithhisarguments,evenifwecould.Tobalanceouthisviews,weincluded next three papers on the German model of the “Social Market Economy.” This model is little known outside Germanyandaseconomistswe feel that itdeserves more attention, particularly in the light of the superb performance of the German economyandtheirwelfarestate.Weareawareoftheissuesonemayraiseaboutthe differences of fact and interpretation regarding the ultimate objectives of its founders,aswellastheexperiencesandknowledgethathasaccumulatedthrough itsapplicationinGermanyoverthepostwarperiod.Someofthesedifferencesare reflected in the way the authors of native German origin look at the model in comparisontotheviewsexpressedinthepaperbytheauthorofGreekbackground and descent. Our preference for versatility explains why we decided to include it. This part closes with a very insightful paper regarding the determinants of democracy and free market economy in countries with political institutions bent onsomeclientelisticstructureofstatepowers.WithoutexcludingItaly,Spain,and France,thebesttestcaseforitsimplicationswouldbeGreeceandwecanvouchfor itwithoutreservations. The three papers included in Part 3 under the heading “Political economy of institutions”areallofhistoricalvaluebutveryinformativeaboutthemechanisms bywhichdemocraciesinoldertimestackledthornysocialandeconomicproblems. The first paper needs hardly any emphasis. It addresses the issue of inequality in ancient Athens in the late classical period, and, by testing a variety of models against data most of which constitute educated guesses, it explains why the viii Preface Atheniansocietywassostableatthetime.Progressivetaxationwashighenoughto controlexcessiveinequalitybutalsolowenoughtoavert“elite-levelrevolutionary cooperationagainstthedemocraticregime.”Onethenwonderswhygovernmentsin thepostwarperiodhaveleddemocraciestoperpetualdeficitsandoverblownpublic debts,whileatthesametimeinequalityhasskyrocketedeverywhere. Ofparticularsignificancearealsotheresultsreportedinthesecondpaperofthis part. By focusing on the emergence of joint stock companies in the sixteenth and seventeenth centuries, its authors find evidence showing that, when the central authorities of the state are relatively weak, as in England and the Dutch Republic at the time, the markets fill the vacuum appropriately. Namely, they give rise to institutionsthatsolveefficientlytheproblemsthatariseineconomiclifeandindeed in ways that are most consistent with democracy. If this finding is reminiscent of ourremarkearlieraboutthechoicesinthedomainoftheeconomybythefounding fathersoftheAmericandemocracy,thisfindingisremarkablyreassuring.Finally, Part 3 closes with an essay investigating the forces that generate cycles of accep- tance and rejection between the regimes of monarchy and republic. The testing ground is Greece over the period from 1832 to 1974, and the findings from our standpointareinterestingnotsomuchbecauseoftheacceptanceofmonarchybut because of the rejection of republic. For, given the heightened conditions of instability that may engulf representative democracies around the world, we are atalosstoseewhattypesofregimesmayemergegoingforward. Parts 4 and 5 are laid out respectively under the headings “On the roots of economic crisis in the European periphery” and “Democracy in the European Union.” The three papers included in these parts deal with two issues that will influencedecisivelythedevelopmentsintheEuropeanUnioninthecomingyears. The first of these issues has to do with the economic crisis since 2008 in the countries of the Southern European periphery and Ireland. To this is devoted the paper in Part 4. Its authors adapt a general equilibrium model to the specific circumstances that led Greece to bankruptcy and find that, whereas the country’s accessiontotheEuropeanMonetaryUnion(EMU)didcontributetothisdevelop- ment, the main culprit was none other than the populist economic policies that clientelistbutdemocraticallyelectedgovernmentsappliedinthelastfourdecades. Thesecondissueconcernstheproblemsandtheprospectsofdemocracyinthe European Union (EU). Seen through the critical eyes of a political scientist and a poet, the problems are mountain high and the prospects of further integration uncertain.WeguessthatifthetwoessaysinPart5hadbeenwrittenaftertherecent decision of Britain to exit from the European Union, most likely these authors wouldhavebeenmuchgloomier.Still,eventhoughthechipsaredownfortheEU forthemoment,pastexperiencehasshownthatthroughnegotiationtheEuropean peopleseventuallyfindwaystodefeatalloddsandcontinuethegrandexperiment of European unification. If all social experiments need some luck to succeed, this one has had plenty of it thus far, so there is no reason for despair with the presentdifficulties. ThefirstpaperinPart6,undertheheading“Otheraspectsofdemocracy,peace andconflict,”providessomeencouragementinthisrespect.For,ifthetrendtoward Preface ix altruism and participation that it documents among Greek university students generalizes to the younger generations in Greece and Europe, then there is hope for democracy in our continent, since enhancing such behaviors is a necessary conditiontocounterbalancethesharpindividualisticinstinctsthatprevailcurrently everywhere.Asforthecontributionofthesecondpaperinthispart,thisamountsto themessagethatthestabilityindemocraciesanddemocraticalliancesshouldnotbe soughtontheambivalentinfluencesofsomeextraneousfactorslikethediscovery ofenergywealthbutonpolitical,social,andsecurity-relatedarrangements. Toconclude,theessaysinthisvolume coverawiderangeofissuesrelatingto variousaspectsofdemocracyandfreemarketeconomyinthenewworldorder,and someofthemdosofromquitedifferentperspectives.Also,sincetheyarewritten byauthorsofdifferentscientificbackgroundsandmethodologicalinclinations,the essaysarequitedisparateintermsoftheanalyticalapproachestheyadoptandthe tools they use. For an extreme example in this regard, one does not have to look furtherthantheessays12and14.Bothfocusondifferentaspectsofthecrisisthat hasafflictedtheEuropeanUnioninrecentyears.Buttheformeriswrittenbythree academic economists well versed in the methodology and the tools of modern economic theory, whereas the latter is contributed by a poet. Perhaps those who willbeattractedtoreadthelatteressaywillfindituninterestingorevendifficultto gothroughtheformer.Yet,thepointwetrytomakebyincludingthembothisthat even hardcore mathematical economists may find it enjoyable and refreshing to readwhatapoet hastosay aboutthecoursethattheEuropeanunification experi- menthasbeenfollowing. Neithertheconferenceitselfnortheeditingandpublicationofthisbookwould havebeenpossiblewithoutthemoral,financial,andeditorialsupportoffriendsand associates beyond those in the local organizing committee and the Master’s pro- gram of the Economics Faculty in the University of Thessaly. Kostas Kyriazis Foundation,theAthensOfficeoftheKonradAdenauerStiftunginGreece(KAS), andtheSocietyforEconomicResearchhavebeengenerousbenefactorsatallstages of this project. So, the least we can do is to take this opportunity to thank Ms. Artemis Kyriazis, President of the Kostas Kyriazis Foundation, and Ms. Susanna Vogt, director of the Athens office of KAS. Moreover, we should like to single out for particular thanks our associate Dr. Emmanouil-Marios Economou who provided us with superb coordinative and editorial services. Finally, as to the rest who would be too many to mention by name, we express oursincereappreciation. November25,2016 GeorgeC.Bitros Athens,Greece NicholasC.Kyriazis Volos,Greece Contents PartI EthicsandLibertyintheNewWorldEconomicOrder 1 DemocracyandEthicsvs.IntelligenceandSecurity: FromWikiLeakstoSnowden. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 IoannisL.Konstantopoulos 2 CyberspaceGovernanceandStateSovereignty. . . . . . . . . . . . . . . 25 AndrewN.Liaropoulos 3 DemocracyandEconomicProgressintheworkofJ.S.Mill. . . . . 37 MichelS.Zouboulakis PartII DemocracyandFreeMarketEconomy 4 Institutions,DemocracyandEconomicDevelopment:OnNot ThrowingouttheLiberalBabywiththeNeoliberalBathwater. . . 51 GeoffreyM.Hodgson 5 TheRoleofDemocracyinaSocialMarketEconomy. . . . . . . . . . . 65 ThomasApolteandHelenaHelfer 6 TheGermanModelof“SocialMarketEconomy”. . . . . . . . . . . . . 83 SpyridonParaskewopoulos 7 TheGermanConceptofMarketEconomy:SocialMarketEconomy. ItsRootsandItsContributiontoLiberalEconomicOrdersin Germany,EuropeandBeyond. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 RolfHasse 8 FacingCrises:Economy,Democracy,andPoliticalTransaction Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 ClaudeMe´nard xi