3.5 Globalisation and democracy

Globalisation creates a further conflict because markets and ownership extend across national borders, while democratic authority remains primarily national. Citizens may vote to nationalise foreign-owned resources, redistribute land, increase taxes or royalties, regulate working conditions, or restrict the removal of profits and capital. Such measures may express the will of the domestic majority while reducing the value of property owned by people who have no vote in that democracy.

Internationally mobile capital can constrain these choices even without a formal legal prohibition. Investors can move capital elsewhere, and governments anticipating lost investment, employment, tax revenue, or access to credit may avoid policies that voters would otherwise support. International investment agreements add a legal constraint. They protect foreign investors against actions such as uncompensated expropriation and may allow them to seek compensation from states through investor-state dispute settlement. These protections can defend property against arbitrary seizure, but they can also make democratic regulation or nationalisation costly.

Historian Quinn Slobodian uses the term encasement for this use of international economic law. Describing the legal order created by the 1990s, he said its effect was to:

... encase the market rather than liberate or unfetter the market.

Quinn Slobodian, "Capitalism, Democracy, and the Politics of Zones".

One important strand of neoliberal thought sought to place these protections beyond changing national majorities. Rather than eliminating the State, it favoured international rules and institutions that protected private property, contracts, trade, and capital movements from domestic political change. The dispute is therefore not whether democracy is constrained, but whether the constraint is a legitimate protection of property rights or an illegitimate restriction on democratic self-government.