Week 3 Seminar – Foreign States in Domestic Markets

Ladislav Charouz, St Antony's College -

On the 25^th of October 2022, the European Studies Centre’s very own Tim Vlandas and Mark Thatcher (LUISS, Rome) presented their new book Foreign States in Domestic Markets, published by Oxford University Press and available here. The event was chaired by ESC Director Othon Anastasakis, who welcomed two discussants: Pepper Culpepper (Blavatnik School of Government and Nuffield College) and Jane Gingrich (Department of Politics and International Relations and Magdalen College).

Vlandas and Thatcher’s book discusses the relatively recent phenomenon of foreign states entering domestic markets as financial investors. The main question this book addresses is how policy makers in recipient countries react to foreign state investments. Do they treat purchases as a threat and impose restrictions or see them as beneficial and welcome them? And what are the wider implications for debates about state capacities to govern domestic economies in the face of internationalisation of financial markets?

Vlandas and Thatcher argue that investments by foreign states, represented most prominently by Sovereign Wealth Funds, have led to the birth of “internationalised statism.” Governments welcome the use of foreign state investments to govern their domestic economies, providing policy makers in recipient states with new allies and resources. In their book, Vlandas and Thatcher examine policies towards non-Western Sovereign Wealth Funds buying company shares in the US, UK, France, and Germany, looking at variation across time and between these case studies. 

With regards to their findings, the authors contrasted dynamics in the USA and the UK. Contradicting the popular view that the US has a very open economy, they argued that Sovereign Wealth Funds are more circumscribed in the USA than in the other countries studied, and the level of internationalised statism is therefore very low. According to Vlandas and Thatcher, this is due to the dynamics of the relationship between the US executive and legislative branches. 

In the US, especially under the presidency of George Bush Jr., the executive has been keen to attract SWFs regardless of country of origin. Nevertheless, controversy arose in 2006 over Dubai Ports World’s planned purchase of several port management services. The move was criticised by Congress, with Charles Schumer and Hillary Clinton arguing that the purchase was a security threat, even linking Dubai to terrorism and nuclear threats. Not only did Congress pass a motion stopping the purchase; it also passed the Foreign Investments and National Security Act of 2007. According to this piece of legislation, the mere fact of foreign ownership raises the problem of national security. 

The UK, on the other hand, has actively sought out SWF investments from all over the world, regardless of their origins. The authors used the analogy of “Wimbledon” to describe this strategy: inviting the best around the world to the UK, with few homegrown talents ever winning the competition. Foreign SWFs are invited to invest in all sectors, including strategic ones such as water, electricity, and air travel. In the 2002 Enterprise Act, the government in fact made it more difficult to intervene in purchases, with the main barrier to takeover being competition rather than security. 

Vlandas and Thatcher show that the explanatory factors in these cases were not primarily economic. Germany, for example, seeks investment despite its substantial domestic trade surplus. Rather, what varies from country to country are executive-legislative relations. Legislatures tend to be suspicious of SWFs, and more-so in the US than in Europe. Executives, on the other hand, derive advantages from their relationships with SWFs, which bring investments and jobs, and in some cases even deals for politicians. Indeed, the Germans and the French are more concerned about hedge funds than SWFs, which provide patient investment. 

What is more, SWFs help states enact updated versions of their traditional industrial policies. For example, they enable France to practice its dirigisme, while in Britain, they support traditionally high-performing finance, legal, and accountancy services. In Germany, SWFs provide a new source of manufacturing capital, playing to one of Berlin’s traditional strengths.  

In his response to the talk, Pepper Culpepper asked the authors to think more about why states might refuse SWFs. It is important to investigate the relationships between SWFs and the states that own them, and what non-market motivations could lurk behind their strategies. He also argued that in pursuing investment, states do not act from a position of strength but a position of weakness. Setting the ground rules for investment is the bare minimum of what a state can do, rather than an indication of fully fledged statism. 

Jane Gingrich raised Farrell’s and Newman’s concept of “weaponised interdependence,” asking whether we can think of statism absent a theorisation of what threats SWFs pose. Another question she asked is what the authors mean by the very word statism. What does successful statism look like, and does answering this question require an articulation of deeper industrial policy aims? She pointed out that much of what SWFs do is buy up real estate, which can hardly be considered part of a coherent strategy to revitalise the state.  

The authors responded to several of these points. Vlandas pointed out that the optimistic message of the book is not that the state is strong, but that it adapts. He argued that there is already extensive literature on the role of foreign states and that their initial motivations, investment strategies, and geopolitical context all vary. This variation, however, does not explain the way recipient states act. Thatcher added that the fundamental approach of the book would not be changed by looking at whether state actors are right or wrong in how they assess SWFs. 

The Questions and Answers session raised a number of interesting issues, such as how public narratives impact the way states make decisions, what the debates will look like after Russia’s invasion of Ukraine, and whether EU integration might lead to a change in the dynamics at play in the European case studies. More theoretical questions were asked about the divide between the executive and the legislative branches: given the frequent contradictions between, for example, finance and defence, can either of these branches truly be seen as a unitary actor? And are they responsive to voters or lobbyists? 

One audience member also raised the recent case of the Chinese company Cosco wanting to buy shares in the Hamburg port terminal. She pondered on why the decision was likely to go ahead despite public outcry and opposition from multiple ministries, positing that it may be due to the German business community, with its many investments in China. Thatcher agreed with the assessment that business and policymakers are exceptionally close in the country, but also highlighted that there is some tension between the manufacturing and financial sectors, with the latter somewhat more wary of foreign state investments.  

Foreign States in Domestic Markets: Sovereign Wealth Funds and the West. By Mark Thatcher and Tim Vlandas. Oxford and New York: Oxford University Press, 2022.

Week 2 Seminar – The Great Experiment - Why Diverse Democracies Fall Apart and How They Can Endure

Ladislav Charouz, St Antony's College -

On October 18^th, 2022, the European Studies Centre’s Visiting Fellow Professor Yascha Mounk delivered a presentation on his new book The Great Experiment - Why Diverse Democracies Fall Apart and How They Can Endure. The event was chaired by Dr. Hartmut Mayer of Saint Peter’s College and was very well attended. 

Mounk began the presentation with the origin story of his book. In an interview for a German newspaper, he gave three reasons why populism was on the rise: the stagnation of living standards, the growing influence of the internet and social media, and what he termed “the great experiment”: the way in which political decisions over the previous decades have diversified Western demographics. To Mounk’s great surprise, “the great experiment” was seized by far-right conspiracists. Of course, Mounk meant to use the term very differently and he felt called to reclaim the word in discourse. The question, more specifically, became how the “experiment” of managing the new trends of diversity in the West can succeed in a democracy. 

The first part of Mounk’s presentation examined why we should treat the difficulty of making this experiment succeed seriously. Firstly, human beings are capable of great altruism towards people they see as members of their own group, but they can also show great cruelty towards those outside it. Secondly, this “instinct for groupishness” is triggered by a relatively consistent set of factors, such as ethnicity, religion, language, and race, with increasing diversity exacerbating this human tendency. Finally, democratic institutions are not inherently well-equipped to deal with increasing diversity. Since democracies function on a majoritarian basis, the growth of a minority group can stoke fears in the majority population of a loss of power. Thus, democratic mechanisms can, in fact, exacerbate backlashes against diversity.    

Nevertheless, liberals can fell optimistic about their progress and their eventual success in making the “great experiment” work. In the second part of his presentation, Mounk claimed that societies have “overlearned the lesson” of democratic fragility and cultural backlash, becoming overly cynical after a period of unbounded optimism. Reading past the headlines, it is clear that society has made significant progress. The Western European conception of who is a “true” member of a society has changed dramatically. It is no longer common to think of belonging in terms of ethnicity and parentage, but rather in terms of acquired characteristics like language, values, and citizenship. In the USA, 95% of the population in 1960 believed that interracial marriage was immoral but, today, merely 5% believe it is immoral. The proportion of interracial babies has also increased dramatically.  

Furthermore, conventional statistics obscure how much progress has been made by immigrants in terms of socioeconomics. When adjusted for how long immigrants have lived in their host countries, the bleak picture of social progress becomes much brighter. Indeed, the children and grandchildren of immigrants are much likelier to climb the social ladder than the children and grandchildren of non-immigrants. Thus, both the right and the left are mistaken in their pessimism about the possibility of social progress for immigrant communities. While structural injustices and discrimination should not be ignored, immigrants are still destined to be an underclass in a prosperous Western society.   

In the third part of his presentation, Mounk proposed the best norms, values, and ideals to enrich democracy in a diverse environment. Despite trends in scholarship suggesting otherwise, liberalism is inherently correct, and abandoning liberal values would have disastrous social consequences. Liberal society must, however, guarantee freedom from a double threat. The first threat is the state itself, which can become especially restrictive if a majority within a diverse society decides to exercise this power against a minority. The second threat is the enforcement of norms within communities; people within certain groups might face pressure to conform to codes of conduct against their will. Liberal societies should respect the importance of groups while also guaranteeing individual freedoms. 

Mounk also argued that we need clarity on the ultimate goal of integration. Rejecting the “melting pot” and “salad bowl” analogies as either too homogenising or too atomising, he introduced the idea of integration through the metaphor of a “public park.” People can visit the park in their own groups – i.e., stay within their own communities – or visit the park to meet new people. In an ideal liberal society, people should be free to choose either mode of cohabitation.    

Finally, in defense of inclusive patriotism, Mounk pointed to the example of Ukrainian resistance fighters as proof that nationalism can be a moral good under the right circumstances. Thus, liberals should not shy away from attempting to domesticate the concept. Of course, the question involves the type of patriotism liberalism should embrace. Ethnic nationalism is problematic for obvious reasons, but civic constitutional patriotism is also problematic because, philosophically, it would distinguish one country from itself as the other, which is incompatible with democratic constitutions. A promising avenue for patriotism, then, is culture. Liberalism must find a way to embrace a patriotic love of cities, landscapes, and cultural practices in a way that integrates their real-world diversity. 

In the Q&A session, Mayer pushed Mounk to elaborate on how to negotiate the limits of tolerance with democracy. Though Mounk voiced some scepticism, he stated that we should be inclusive as far as we possibly can without undermining the basis of our political system. Ultimately, an inclusive society cannot include people who use force to exclude others. 

Attendees also asked questions about the welfare state. Mounk accepted that the underlying logic of diversity undermines popular support for a welfare state, providing the example of American support for public goods that plummeted after de-segregation. However, he argued that the strength of this effect depends on the circumstances and suggested that the way to overcome this problem was to reconceptualise members that constitute the inclusive group.

With regard to the weaponisation of immigration in partisan media, Mounk argued that liberals must not change the subject to the economy. Rather, they must show people that they take their cultural concerns seriously. Similarly, they should not bluntly dismiss concerns about “free-riding” in the welfare state. The problem with British and American academia is that, due to the campus system, they have a culture of their own, which provides dangerous openings for criticisms from the right. If people begin to perceive universities as a dismissive space of conservative thought, the prospects for their continued existence and political relevance will shrink.

The next event at the European Studies Centre will be the launch of the new book Foreign States in Domestic Markets on 25th October 2022.

Week 1 Seminar - Understanding Right Wing Populism And What To Do About It

On the 11^th of October 2022, the European Studies Centre hosted a discussion on the report “Understanding Right-Wing Populism And What To Do About It” by FES Democracy of the Future. The report’s major findings were summarised by its authors Dr Tim Vlandas of St Antony’s College and Prof Daphne Halikiopoulou of the University of Reading, and comments were given by and Prof Lenka Buštíková (St Antony’s College) and Dr Anja Giudici (Newcastle University). This was the first talk Dr Othon Anastasakis has chaired in his new role as the Director of the European Studies Centre. 

Halikiopoulou began the presentation by noting that there are multiple indicators of the far-right’s success in Europe. Firstly, of course, there are election results, with the far-right performing better in recent years than it has historically. Secondly, other parties emulating far-right rhetoric and policies can also be counted as a far-right success. Thirdly, the far-right has in numerous countries lost its pariah status and has either provided support for or directly participated in government. Halikiopoulou noted an interesting difference between the majority of Europe, where far-right parties are a phenomenon that arose on the political fringes, while in Central and Eastern Europe, formerly mainstream parties have been subsumed by the far-right.  

The speakers’ main argument was that the supporters of far-right populist parties are very diverse and cannot simply be characterised as culturally xenophobic. People who oppose immigration on a cultural level do form the core of the far-right electorate, but a significant periphery of voters is attracted to far-right messaging on economics. Finally, one third of voters for far-right populist parties has no concerns about immigration at all, be they cultural or economic. Furthermore, the study contradicts the view that left-wing support is being eaten up by the anti-immigration platform, as people who self-identify as left-wing are still highly unlikely to vote for the far right.