Supra-National Elites
Threaten Sovereignty
By Paul Kendall

¨As a global citizen, to whom do I pledge allegiance?" reads the headline of a recent graduate school advertisement. It suggests that for a growing number of our brightest young professionals self-interest is contrary to national loyalty. If true, this conflict will occur first among international business and investment elites and will challenge an international structure built upon national sovereignty.

Ever since the Treaty of Westphalia in 1648 established the nation-state as the essential building block of modern international relationships, sovereignty has been the source of a nation’s authority over the conduct of economic enterprise within its borders. Under the umbrella of national sovereignty there has been a direct, vital, and enduring bond between American power and American business. Entrepreneurs have sought liability protection, innovations in finance, support in international trade, and other competitive advantages from their government. In return, they have accepted regulatory oversight, employee benefit and safety standards, and the obligation to pay taxes. As a result of this symbiosis, the U.S. economy for two hundred years has produced unprecedented levels of wealth, and our nation´s global influence has grown to superpower status.

Now, however, conditions are changing. The almost universal adoption of liberal economics in trade relationships; the impact of computer and Internet technologies; the rising importance of Asian economies; and the hemorrhaging of America’s wealth to energy-exporting nations—all these factors are reshuffling the deck in favor of supra-national investors and business elites who owe less allegiance to America. Look at recent events.

• Major stakes in national and international corporations are being taken by the world’s new billionaires from the Middle East, India, Mexico, China, Russia, and even Turkey. Corporate boards of directors are increasingly being drawn from that same pool of non-U.S. international investors. And some of America´s largest companies, such as the Altria Group, American International Group, Chevron, Citigroup, and PepsiCo, are now being managed by foreign nationals rather than by U.S. citizens.

• Supra-nationalism is also being reflected in business locations. Today there are fewer advantages to being incorporated in the U.S. or to having stock listed exclusively on the NY Stock Exchange. With most of the business world now operating under a fairly uniform set of rules and trade practices, ¨flags of convenience¨—nations with more flexible legal and regulatory environments or with lower tax rates—have today become as attractive to corporations as they have historically been to shipping companies. Vice President Cheney´s former employer Halliburton, for example, has recently decided to move its headquarters from Houston to Dubai.

This gradual and persistent shift in business focus, location, ownership, and senior management signals that the mutually beneficial bond between America and its business community is beginning to crumble.

John D. Rockefeller, Andrew Carnegie, and J.P. Morgan used their control of U.S. industry to shape our nation´s laws and trade policies to meet their interests a century ago. In this century the world´s new international titans and expanding cadre of international investors will use their wealth and influence to pursue a different set of interests. Currently their interests only affect our trade and monetary policies. But in the future they could affect our ability to collect business-related taxes, regulate business activity, manage the economy, stimulate job growth, and fulfill expectations of a better future for ourselves and for our children.

These observations are not intended to be alarmist. The world is not yet ready to embrace any form of global citizenship; Halliburton has not yet changed its incorporation from the U.S. to Dubai; and there is no evidence of an international elitist cabal seeking to undermine America’s sovereignty. What these observations do intend to convey, however, is that an evolution is taking place, one that requires a re-examination of the traditional assumptions about an investor’s self-interest and any government’s ability to manage the economy and the affairs of business within its borders.

While the exact nature, outcomes, and timetable of the evolution of supra-national elites cannot be predicted, a few things are clear. The evolution will continue to happen; outdated notions of American power and global influence offer no safeguards against it; and no nation can solve its challenges alone.

As it becomes increasingly obvious that neither the President, the Congress, nor the Federal Reserve can reverse this evolution, a new form of realism may arise. Hopefully, it will be a form of international realism that will bring with it a renewed willingness to engage with, support, and modify the post-World War II institutions that now regulate international relations, trade, and finance. It would be better for America to anticipate and lead this world-changing event than to try to ignore or to defy it. We have had the vision and the courage to do so before, and we can do it again.