From Feudal Society to Globalized Economic Power:

The Constitutional Underpinnings of the United States Economic Performance.
Presentation to a Fulbright New Zealand Meeting, August 3 2004.

Keywords: Globalisation & Trade;

I am not going to spend a lot of time thanking Fulbright New Zealand for its generous and visionary grant. The real value is demonstrated by its influence on my thinking. Today’s lecture and my subsequent work is the gratitude.

In 1767, shortly after she came to power following a coup, Catherine the Great wrote a manifesto in which she said Russia covered a wide area (albeit much less than today). She went on that the extent was such that it ‘requires absolute power vested in the ruler’. What Catherine did not know was that on the other side of the world, another country was solving the same problem of territorial extent by focusing on the decentralisation of power rather than its centralisation.

In the middle of the eighteenth century. United States per capita production was much the same as that of Russia, although it is very difficult to measure such things. Today US material output per person it is about six times as high, and even that magnitude may not capture the difference of the quality of life in the two nations. It is not my intention to argue that the difference is solely due to the different governance arrangements, but we know it matters. Ironically, we relearned the lesson just a decade ago, when Russia shed communism. The hope had been it would flourish: sadly it has not. The most important reason for the failure was it did not have the governance on which economic success depends.

That the United States discovered such a system over 200 years earlier is astonishing, all the more so if one recalls how primitive the United States pre-revolutionary economy was by the standards of today, as I learned visiting Mount Vernon, the home of George Washington. (One of the advantages of a Fulbright fellowship is that it allows one a bit of sightseeing.) Over the years I have visited many stately homes, the surrounding land of which is farmed by modern methods. What makes Mount Vernon unusual is that piety for Washington has meant the surrounding land has been restored to what it was like when he farmed there, a task greatly helped by the preservation of his detailed instructions on farm management.

Washington’s farm preceded the agricultural revolution, so my sightseeing turned into a lesson in economic history. It reminded me of a feudal estate not unlike those I read about in nineteenth century Russian literature: it depended on serfs – indentured servants and slaves – who with animals were the main sources of power; it used pre-industrial technologies – using rotational cropping and manure rather than fertilizer to replenish the soil exhausted from earlier tobacco plantings; the farm was largely self-sufficient, producing onsite things which today would be ‘outsourced’, in the modern jargon.

Later while walking over Monticello, Thomas Jefferson’s stately home, my companion, Herman Schwartz, a political economist from the nearby University of Virginia which Jefferson founded, remarked that ‘they were closer to the medieval economy than the modern one’. Neither he nor I were insulting the United States. We were trying to capture just how long ago these events occurred, to judge them in their ancient terms and not our modern ones.

Washington and Catherine the Great are contemporaries of Captain James Cook, born within a few years of 1730. Although we think of the United States as ‘the New World’, the American Revolution occurred 150 years after the Mayflower sailed in 1620. The European settlement of the US is a couple of hundred years older than New Zealand’s. By the time of Washington, Jefferson and the Revolution, it had a well established organic settlement – and certainly not a hollow society.

A thriving organic society influences the political process, as did pre-revolutionary America. But it will tend to be conservative. There was a strong movement for a totally decentralised agrarian based society, whose individual settlements would have considerable autonomy. The compromise immediately after the Revolution was a ‘Confederation’ of thirteen separate and sovereign states. From the vantage of today, such arrangements seems absurd, but two hundred years ago the European continent was a dominated by numerous principalities, and even large states such as Britain, France and Russia did not have the reach of government control they have today.

The factors which pushed towards a United States of America began, perhaps, with the Revolutionary War in which the Americans liberated themselves for the British Crown. It was a near thing that the locals – underfed, under-equipped, underpaid, sick, demoralised and deserting – won it. The commanders of the Continental Army were notable more for vanity than competence – with Washington the notable exception. Fortunately for the Americans the British commanders were worse. There was a plan to kidnap the British commander, General Clinton, by sneaking up on him as he dozed in his New York garden which backed on the Hudson River. Washington’s aid-de-camp, Alexander Hamilton, scotched the plan with ‘it would be to our unique misfortune since the British government could not find another commander so incompetent to send in his place.’

Hamilton was an extraordinary person. By a stroke of luck Ron Chernow’s biography, a major contribution to American popular history, was published just as I arrived in America. Hamilton died at the age of 49, two hundred years ago last month, following a duel with Aaron Burr, then vice-president of the United States who was never prosecuted for the murder – once the Wild West was on America’s Atlantic seaboard. Hamilton’s early death meant he never wrote his memoirs, which disadvantaged him relative to other founding fathers such as Jefferson and James Madison, with whom he disputed the direction of US development. Chernow’s book is Hamilton’s defence.

Hamilton was born in the West Indies, twenty-five years younger than Washington. He was the illegitimate son of a Scottish merchant, his mother being unable to divorce an earlier partner. His precocity had a public subscription sending him to New York, where he took a law degree and married into high society. He read very widely, and wrote copiously – he could write a mind-boggling 5000 words in a night, presumably after a day’s work. Arguably Hamilton was the intellectual equal of – or superior to – Jefferson.

During the Revolutionary War, Hamilton, as aide-de-camp and confidential secretary to Washington, was in charge of the organisation of the Continental Army. Napoleon said an army marched on its stomach, and certainly the organisation of its supplies was a key element to its success. Washington and Hamilton were handicapped by the unwillingness of the States to provide the money for the purchase of supplies and payment of troops, in part because of the difficulties the States generally had of raising monies and the free rider effect of each State leaving the funding to the other twelve. So the Continental Army had to issue bonds and other financial instruments secured on the limited taxing power of the hardly existent United States of America. Inevitably the bonds were devalued, and there was inflation, a common accompaniment of war. Hamilton was at the time reading the works of philosopher David Hume who was also one of the earliest great economists (predating Adam Smith) especially on the theory of money. Hamilton must have been reading Hume’s theory at night, and watching its practice during the day.

After the Revolutionary War there was the possibility that the British would re-invade America. (They did so twice: in 1812 when the British Army committed the heinous crime of burning down the Library of Congress but was eventually defeated. In 1964 there was the successful invasion by the Fab Four.) It was obvious to Hamilton that to defeat a second prolonged British attack, the United States Army would need sound funding from a central government, so it was important to pay off old debts, and establish the foundations for fiscal and monetary stability.

A second military threat was that individual States in the Confederation might make war against each other, Such war might lead to Britain supporting one and France the other, but even if it did not, the costs would be high, as they were in the American Civil War over slavery, a hundred years later. Such disputes could be prevented by a strong central government, with weak States.

The possibility of inter-state feuds was not just theoretical. In 1784 there had been a commercial dispute between Maryland and Virginia over the taxing of shipping on the Potomac River between them. Madison had helped settle the matter, but the possibility of further disputes led to a convention in 1787 with the limited task of recommending revisions to the articles of confederation. Presided over by Washington with Madison attending every session and Hamilton many, including signing on behalf of New York, the convention instead submitted a constitution for a federal United States of America. It was adopted after public assemblies in most states agreed to it, although they wanted some extensions which focussed on indivdual liberty. The convention had set out a constitution which largely regulated relations between States and the federal authority. The popular assemblies proposed what eventuated as the first ten amendments (the Bill of Rights) which were adopted immediately.

The agreement to federate was a close run thing. A major contribution to the adoption of the Constitution was a set of closely argued essays explaining and defending it. The principal author of The Federalist Papers, as they are known, was Alexander Hamilton assisted by Madison and John Jay, who became the first Chief Justice of the United States. I had always promised myself I would read the essays if I ever had a long period in America. Now I know they rank among the great works of political theory – thankyou Fulbright New Zealand for the opportunity.

While I was reading about the origins of the American Constitution, on the other side of the Atlantic the Europeans were adopting their own constitution. There are interesting parallels in the contortions both sides got into in the weightings given to states. (The US solution of a House of Representatives based on population and a Senate in which each state has two votes is somewhat more elegant than the European Union resolution.) The size of the respective documents is instructive. My Penguin edition of the American Constitution comes to but 18 pages including the amendments. The propose European Constitution is 325 pages long.

Adopting the Constitution was followed by Washington becoming the first President in 1789. He appointed Hamilton as his, and the United States, first Secretary of the Treasury. Hamilton built his department into a power house. At one stage, including the Customs Service that it administered, it had more staff than the rest of the US government.

Hamilton used his position together with his interpretation of the constitution to strengthen the Federation. He consolidated fiscal revenue, having already ensure the constitution gave customs duties only to the Federal Government, thus weakening the States. He consolidated government debt and paid it off at nominal value – which did not make him popular among those who had sold their debt issued during the war for as little as 15 cents in the dollar, in the belief the bonds would never be redeemed. He arranged the assumption of the States’ debts by the central government, so that States would not have to raise revenue to redeem it. (The deal involved him agreeing to the Federal capital being located on the Potomac, rather than New York.) He used his customs position – the main source of revenue – to strengthen naval fortifications. He set up the Bank of America. He promoted manufacturing, not only by the high customs tariff, but encouraged investment in business.

Sadly, Hamilton fell out with Madison and Jefferson who thought he was too centralist. Washington tended to back his Treasury Secretary – perhaps his war experience also persuaded him of the importance of central fiscal management too. (Neither Madison and Jefferson fought in the Revolutionary War.) The fallout is a complex one with many dimensions. New York city based Hamilton saw the need for a sound monetary system whereas his indebted opponents from rural Virginia, were far more sceptical of money lenders. Moreover Hamilton was an Anglophile whereas they were Francophiles. I am shortening the story, but Hamilton’s admiration of late eighteenth century Britain, which he never visited, reminds us that one can think of a country’s political system as corrupt, but still admire the vigour of its industry, the vitality of its society and the achievements of its intellectual life.

I am going to stop the Hamilton story here, except to mention some of the tributes. Article II of the Constitution states that no one shall be eligible to the Office of President ‘except a natural born Citizen or a Citizen of the United State at the time of the Adoption of this Constitution’. The now obsolete second provision was surely a recognition of the talented thirty-two year old. A second tribute is Hamilton’s portrait on the ten dollar note – a nice recognition of the man who did so much to give the US a sound currency. The third is that in the entrance hall of Monticello, Jefferson’s home there are busts of Voltaire, the French economist Turgot, and of Hamilton. In death his old enemy recognised the man’s greatness. The fourth tribute is Chernow’s biography, a solid read of 700 pages, which I recommended to anyone who enjoys good political biography – and, if you like a little spice with the salt of politics, there is at least one sex scandal.

The resulting governance of the United States is a complex mix of centralisation and decentralisation. The ‘Commerce Clause’ of the Constitution authorises Congress to remove barriers to trade, and prevents states from impairing the enforcement of contracts; the ‘Takings Clause’ forbids the expropriation of private property without compensation. Thus economic relations are largely left to reciprocal exchange based on market transactions, without restrictions of flows across state boundaries, while ensuring there is a rigorous rule of law and a sound fiscal and monetary system. This laid the platform for American capitalism and economic growth.

Economists Alberto Alesina and Enrico Spoloare, whom I hope to meet in Boston during the second leg of my Fulbright visitorship later in the year, argue in their The Size of Nations that middle size nations open to international commerce (that includes New Zealand) perform economically more effectively that larger ones. While there may be economies of size in some economic production processes which are reaped by large nations they are offset by diseconomies of governance. Large nations have difficulty managing the diversities in their population, while smaller economies offset their economic size disadvantage through international trade.

The counter-example is the US, which is both large and economically successful. Alesina and Spoloare argue that this exception arises because the US is organised in an economically decentralised way, a possibility which Catherine the Great overlooked. But, as I shall explain shortly, there may be disadvantages of governance if states have no significant taxing power.

This analysis sheds light on globalisation, which I am studying with Marsden Research Funding. While the topic is of popular contemporary interest, scholars see significant globalisation beginning in the nineteenth century, not long after the events I have just related. It began as a process of regional economies unifying into national economies. US regionalisation is a particularly interesting not only because of its scope, but because of the vast quantities of scholarship on it. Fulbright New Zealand gave me the opportunity to examine the regionalisation process on the spot, as it were.

The advantage of such visits is that it changes one’s perceptions. During the first leg I realised that as well as thinking about this regionalisation as step on the way to globalisation, one could see the US as a sort of mini-globalisation in its own right (if one is allowed to think of anything about the US as ‘mini’).

Consider a world of only America – more like it was in its nineteenth century isolationist phase. The globalised world that it encapsulates is one in which there is a central authority equivalent to the Federal Government, and relatively weak states. They would have no military power, little taxing power, and little control over commerce across their borders. Yet the central government would not have unlimited power, being restrained both by the courts and by an elected congress, while economic transactions would be regulated by the market. There are some useful lessons from such an idealisation, even if the world will not turn out like it.

The first is that whatever the drivers of the US economic performance – governance arrangements were only one of them – there is far less economic inequality between the states of America, than the states of the world. While there is considerable inequality within America as a whole, the differences between State are remarkably small, even by comparison with the states of Europe. It rises not only because there is more freedom of trade between the American States than generally, and the freedom of capital flows. There is also freedom of population movement. It may never have occurred to America’s founding fathers that they could have restricted internal migration but, that in any case they did not has meant that American labour could shift to where wages were higher, reducing the inequality between states.

This conclusion has a profound implication for a globalised world, if as seems likely in the foreseeable future, there are continued restrictions on migration. The degree to which international trade and capital flows can moderate inequality may be a matter of dispute among economists, but without a high degree of labour mobility there will be a higher inequality between nations, although not necessarily within each nation. This issue is now high on my ‘for further investigation’ research list. Fortunately, one of the people I shall be working with in Boston on the second leg is economist Jeffrey Williamson, a major contributor to research on globalisation, who has recently focussed on international migration.

This idealised characterisation of a globalised America also helps us to understand better the ‘convergence’ thesis. It has two elements. One is that globalisation will force policy convergence on nation-states so that many policies will become increasingly similar. I shant follow this issue here, because the American experience does not shed much light upon it, as their States do not have a lot of policy freedom because of their limited powers of taxation.

More pertinent is the issue of cultural convergence, the possibility that globalisation will result in the cultures of the world converging to a single global culture. The short answer that it has not happened in America, where there remains cultural differences by region, despite 200 hundred years of internal globalisation, and over 80 years of restrictions on external migration. The differences cannot be explained simply by the geography and history of the region, but require the addition of the culture of the people who came there. So America suggests the most extreme version of the cultural convergence thesis – that we shall all end up the same – does not hold.

I have compared the experience of American with that of Europe. Such comparisons are extremely useful for a social scientist, and indeed the European Union – which might be thought of as the United States of Europe delayed 150 years by the inertia of history – offers an alternative model of the globalised world with a weaker central government and more power held by nation-states, albeit it again with no restrictions on cross-border transfers of goods, capital and labour. I intend to sharpen this comparison as my Marsden research progresses.

An important difference between the two governance arrangements is that the American constitution, as a result of its British heritage, has a strong common law element, while the European one is more code base as befits a the European Continent’s heritage. That partly explains the difference in the size of the two constitutions, and how Maddison, Hamilton and all could write a 400 page treatise to expound the principles of a – at that time – 10 page document.

The merit of common law – that is disciplined judge-made law – is that it enables adaption to new circumstances. There has been some 17 further amendments to the constitution since the first 10 of the Bill of Rights, but they have been mainly procedural. I doubt they would have disturbed Hamilton – excepting the eighteenth which proscribed alcohol, it being the only constitutional amendment to restrict freedom, and was repealed by the twenty-first. (Hamilton got into a bit of a tangle by imposing excise duties on whiskey). Perhaps Hamilton of would have mused over the sixteenth amendment which allowed income taxation, although Hamilton, Secretary of the Treasury, would have been much relieved.

That there have been so few non-procedural amendments is both a tribute to the Founders and to the ability of the American courts to interpret the Constitution for current conditions. (Even Hamilton did this, extending the scope of government business by the phrase that Congress had power to ‘provide for the … general welfare of the United States’.) Even so, two hundred years later we may ask whether the Constitution and subsequent arrangements are handicapping the United States to some extent.

I will not pursue, being outside my expertise, whether a constitution founded on the premise of defending the United States from invasion has the right checks and balances now the country has a global military reach. An alternative approach is implicit in the handling of the international economy, where the Constitution provides that it is Congress which has the power ‘to regulate Commerce with foreign Nations’.

In practice Congress would find it exceedingly difficult to exercise that power directly, so it delegates it to the President, binding itself that it will only accept or reject what the Executive negotiates, and not amend it. The result is the Executive has to negotiate any commercial treaty – say a free trade agreement – with members of Congress as well as with the potential trading partner. I was fortunate while in Washington to observe Robert Zoellick, the President’s Ambassador for Trade Negotiations (parallel to our Minister for Overseas Trade) interacting with members of the House of Representatives Agricultural Committee. He seemed to know each and their congressional district intimately, and his responses to their questions was almost a public negotiation.

When an American action under the international trading rules they helped create is challenged, they vigorously pursue their position up to the highest tribunal. For the record up to May 2004 they had won 24 and lost 24 such cases, although it looks as though they are about to lose the Brazilian case that their international dumping of cotton has broken international trading agreements to the detriment of other producers. Zoellick robustly rejects the Brazilian case, but if, as seems likely, the final tribunal rules against the US, the government will immediately cave in, telling the cotton farmers and their congressional representatives that America must obey international commercial law.

There are two lessons from this. The US is scrupulous about conforming to international commercial law, once it is determined. That is both the heritage from their Constitution, and the practical insight that even when business laws are not perfect it is wise to conform at least to the letter of them, for otherwise there is only the law of the jungle which – as we have seen in Russia – does not work well for business.

The second lesson is that Zoellick was relating to the congressmen individually, not to parties or their party leaders. Indeed it was hard to tell who belonged to which party in the select committee (other than by the seating arrangements). Unlike the New Zealand prime minister who commands Parliament, the American president may have a majority of his party in both the House and the Senate (as occurs with George Bush), but he does not have a governing majority. There is no certainty that representatives from the President’s party will vote for the his legislation. Instead for each bill, he must construct a majority from the individual representatives.

The consequences are evident in the two countries’ tax legislation. In New Zealand, the Minister of Finance backed by the Prime Minister, submits legislation to the parliament and relies on the governing majority in the House to pass the bill. The proposals may be scrutinised, and submissions may lead to changes in the legislation, but the changes only occur with the approval of the Prime Minister and relevant Minister.

In the US with the Founding Father’s separation of the executive from the legislature, and their belief that the legislators would be independent souls who, in the words of Edmund Burke, only owe their constituents their industry and judgement, there is no concept of party in legislative deliberations as New Zealanders know it. Any legislation requires the building up of a coalition of individual representatives, many of who will demand concessions for their vote.

Such concessions may make excellent political sense but they usually make little sense fiscal or economic sense, and the resulting American taxation regimen is a chaotic tangle of exemptions and concessions. When American economists complain about the inefficiency of their tax system, they are referring to a far less satisfactory one than that we have in New Zealand today, or even the one before the reforms under Muldoon.

Not only is the American tax system inefficient, but without party government it is harder to maintain fiscal discipline. The New Zealand fiscal system operates on the basis of a Minister of Finance who is a fiscal conservative, backed (hopefully) by an as committed Prime Minister. But just about everyone else is a fiscal liberal demanding increased spending and tax cuts. Its government (internal) deficit is always under pressure. Washington and Hamilton knew the problem, but it is compounded in the US by the executive not commanding parliament.

The recent willingness of the US Congress to abandon fiscal discipline is discomforting. Because the US issues the currency of international choice, the US dollar, the American deficit is easier to finance in the short and medium run. However in the long run a large American deficit pouring its dollars into the word economy will boost interest rates and inflation, and undermine confidence in the greenback.

I am astonished that American conservatives seem to have abandoned fiscal discipline as a prudent government goal. The policy stances along the US political spectrum seem to have flipped over, since it is the liberals who seem more concerned about the deficit. It was Bill Clinton who reined in the US internal deficit which Ronald Reagan’s administration triggered (although George Bush senior did make some headway). One of the conservative proposals – I do not know how serious it is – is to replace Hamilton on the ten dollar bill with Reagan. That would be to replace America’s first fiscal conservative with America’s most profligate fiscal liberal (the current administration possibly excluded).

The different constitutional arrangements among European countries results in their having more efficient tax gathering systems. In his book Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, the American economic historian Peter Lindert points out that Europeans are able to raise higher taxes to fund a more comprehensive welfare state than the US. He concludes that their ‘net social costs of transfers, and the taxes that finance them, are essentially zero. They do not bring the GDP costs that much of the Anglo-American literature has imagined. … high budget democracies show more care in choosing the design of taxes and transfers so as to avoid compromising growth. … Broad universalism in taxes and entitlements fosters growth better than the low-budget countries’ preferences for strict means testing and complicated tax compromises.’

America’s constitutional arrangements inhibit the development of the welfare state which other rich countries think normal. This is evident in the different arrangements over the funding and supply of health care. The American 45 percent share of public funding of total health spending (including aspirins and alternative medicines) is uniquely low among the rich countries, where typically the public share is in excess of 75 percent. Public health spending is so far off the American radar screen that Lindert does not analyse it, despite elsewhere the public health system being at the core of the welfare state: a kind of ‘Warehouse’, where everyone gets a bargain.

The US has been unable to persuade any other rich country to imitate its highly privatised health care system, in part because it is so inefficient. The US undoubtedly has some of the best medical treatment centres in the world and spends more per capita than any other country on health care. But the return on the spending is not great so that, for instance, Americans have average longevity among rich nations, despite all the additional expenditure. A privatised system has little incentive to push health promotion. Moreover, according to the law of diminishing returns, uneven coverage means that there is insufficient treatment of the poor where there are big gains, and relative over-expenditure on the rich, where health gains will be smaller.

The problems of the American health system are parallelled in its core education. Both are based on decentralised supply and finance, although the principle is applied in different ways. In the case of health care it is primarily a private insurance-based contributory system. Pre-tertiary education involves considerable local control, but that undermines any imposition of national standards, and the public funding – typically from county property taxes – tends to be inadequate. Americans grumbled to me about primary and secondary education – although so do New Zealanders: grumbling about education may be one of the marks of civilisation.

But Lindert’s book raises wider implications. He observes that while at the start of the twentieth century, the US was one of the world leaders in education, by the end of the twentieth century the international ranking of American students had fallen. In the latest Program for International Student Assessment (PISA) on 15 year olds, America was 14th out of 31 countries on reading scores, 18th on mathematics and 15th on science. (New Zealand was 3rd, 3rd, and 5th respectively.)

My tentative explanation – I hope to do more investigation during the second leg – is the deteriorating relative performance of the American education system parallels that of the health system. The US system is too decentralised. While parental involvement and a degree of local autonomy is important – New Zealand’s Tomorrow’s Schools was a step forward – centralised funding and national standards are needed. Because the Constitution in general, and Hamilton in particular, stripped the ability of States to raise significant revenue it has not been possible for them, largely dependent upon property and low sales taxes, to fund their schools adequately and equitably. While undergraduate programs in the tertiary sector often get bogged down making up for the failures of the secondary system, the US graduate programs are among the best in the world. That is because they are less dependent upon local finance and more responsive to international standards, at which point American-style supply and delivery come into their own.

While the inefficiency of the American health system is a burden on the economy which, arguably, may be offset by the vigour of American capitalism, the relatively weak performance of the US education system must be an even greater worry, insofar as it compromises the quality – and hence the productivity – of the workforce, and the ability of the economy to adopt the new technologies central to economic growth. Add the US government deficit undermining the integrity of the its dollar, and we may see a relatively diminished US economy in a globalising world.

The American constitution of 1787 is over 200 hundred years old. It was created in a pre-capitalist world, a world before Adam Smith’s Wealth of Nations was familiar, and a world without significant public social spending, for as Peter Lindert notes, there was little before the twentieth century. Its constitution has served America well in the past, it may serve it less well in the future.

On the other hand, we should never underestimate the ability of American capitalism to renew itself. That vigour and vitality came from that curious but admirable blend of Jeffersonian independence and Hamiltonian discipline. We can learn much from the combination. Only time will tell whether the synthesis will continue to be effective in a globalising world..

So what can we learn about future possible economic, political and social configurations of a globalised word? We can dismiss Catherine the Great’s vision of rule by a benevolent and enlightened autocrat. As she said herself, the problem is ‘delay occasioned by the great distances’, and effective distance has diminished greatly in the past two hundred years.

Hamilton’s vision may seem more possible: a world with a strong central executive checked by a robust democratic legislature and courts which enforce the constitution, a world in which economic transactions are largely regulated by the market. The difficulty with his vision is that it would be a world of weak nation-states.

As the experience of the European Union shows, it seems unlikely that nation-states will abandon their sovereignty to the degree that the states of the US did. There may be considerable policy convergence on matters of international (cross-border) commercial intercourse but more policy freedom within borders, especially given that nation-states are likely to maintain their powers to tax, not least because of the desire to promote social spending. However, taxation also funds military and other means of state repression and aggression.

Sovereignty and social spending probably also means that there will be restrictions on cross-border movements of people, even though national borders are porous to goods and services and capital. That will mean considerably more economic inequality between nation-states than is acceptable to idealists. (I am not sure yet what it means for inequality within nations.) Migration restrictions rule out the European Union model for a globalised world, in which nation-states maintain considerable powers, but allow people mobility.

At a later stage in the Marsden project I hope to look at the European arrangements as closely as Fulbright New Zealand has allowed me to look at the United States ones. I am most fortunate that they have enabled me to learn so much, and to be able to share what I learned with you.

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