Analysis Of

"Ð'...sovereignty is like virginity: once you engage in intercourse with the outside world you have lost it." - Jagdish Bhagwati

Our global society presents great opportunities, but also many obstacles, to the improvement of the human condition. International interdependence, about which so much is written and talked these days, can amount to the opening up of new worlds, but it can also mean the infliction of suffering by one nation on others. The state has become too big for the small things, and too small for the big things.

Under the present system there are gains to uncoordinated action. It pays any one country to put up protectionist barriers, whether others do so or not; to build up its arms promises security to any one country, whether others do so or not; any one country can to its advantage pollute the common air and the oceans, whether others do so or not. It pays any one country to attract capital from abroad by tax incentives, whether others do so or not, thereby eroding the tax basis. These ultimately self-damaging and possibly self-destructive actions can be avoided, in the absence of self-restraint, only by either a dominant world power imposing the restraints, or by co-operation, or by delegation of some powers to a transnational authority, with the power to enforce restraint.

Some Examples with Global Interdependence are:

1. My country does not contribute while others do. (Free rider, defection.)

2. My country contributes together with others. (Co-operation or enforcement.)

3. No country contributes. (Prisoners' Dilemma outcome.)

4. My country contributes while no other country does.

Behavior by each according to 1, or the fear of 4, leads to outcome 3. Although 2 is preferred to 3, we end up with 3, unless either rewards and penalties, or autonomous co-operative motivations induce or force countries to 2. Incentives and expectations must be such as to rule out outcomes 4 and 1, so that if I (or you) contribute, I (or you) will not end up a sucker. In the absence of such motivations, the result is that peace, monetary stability, absence of inflation, expansion of output and