There can hardly be an economic and political unit of analysis with more significance than the nation-state in modern times. The decline, persistence or morphosis in the power/capabilities that this generalized form of social organization possesses has a natural theoretical (and practical) attraction. Dependant on the currency of those capabilities rely the political and institutional possibilities to tackle serious problems of global dimension.
In the light of the transformations that the world economy (namely trade and productive and financial markets) has been undergoing for the past three and a half decades approximately (widely known as globalization), interpretations of a series of structural conditions stimulated the outburst of a significant body of theory claiming the expiration of the nation-state; or at least its retreat or decline. The argument that the role of the nation-state has decreased as the predominant player in world economy and global politics as a result of a believed global economic integration of the economy, has grown quite influential; the idea surrounds the key issue of the state’s autonomy and sovereign capacity to formulate economic policy in relation to global markets’ pressures.Recent massive political events have made this discussion more interesting than ever.
The question of neoliberal globalization-orthodoxy eroding the power of the nation state can be a loaded dice. And the dice can me loaded on more than one of its sides. The question implies two problematic assumptions that must be sorted before even assessing the main theoretical perspectives that inform this debate. First of all, the idea of a neoliberal economic globalization must be understood in a twofold way: as a real material process of markets and capitals emancipating from national borders and constraining the state’s capacity to autonomously determine its economic policy (and consequently regulating those very markets) and also, as an ideological doctrine defended by national and international bureaucrats with great influence to inform domestic policy-making processes of state retrenchment. The two things are intimately related and may mutually shape each other but they are not the same thing; this distinction can be very relevant to answer the question of the globalization-state debate and will be mentioned further on this text.
The second relates to the definition of the state. More precisely, to the impossibility of homogenising the state form when answering the question of the effects that globalization has on its ability to deploy its functions: Globalization affects different states differently, to put it simply. But more than that, the important thing here is to identify which facet of neoliberal economic globalization (material or ideational) affects which kind of state, how and to what extent.
Doing a thorough classification on the types of states far exceeds the nature of this essay, therefore what will be used here are two simple divisions, each to explain different features of state and its position with regards to globalization. The first category concerns the developed-developing, core-periphery, central-marginal dichotomic category; whichever of these terms can be used to frame it, any of them serves the same purpose here and is related to the hierarchical position occupied in the international system. The second category relates to states’ policies toward globalization, whether they are welfare states or liberal ones, their macro-economic policies, their industrial policies and finally their approach on financial markets (Capabilities, adaptability and varieties of productive models). This second category relates mostly to modern nation states and industrialized economies and is the most relevant of the two for the purpose of this essay.
Review of the main approaches of the globalization-state debate
The three main approaches (classification which shall by no means been regarded as exhaustive) that dominate the landscape of the globalization-state debate are widely known. The first one sustains the idea of a rising globalization of markets and an erosion of the state’s authority and importance: also known as hyperglobalist. It consists on the ‘view of globalization as an inexorable, encompassing and irreversible process of global integration which heralded the obsolescence of national entities, not only states but economies, societies, systems of regulation, modes of governance and son on’, in other words: decline of the state; and all that involves the collective and public functions that states have in their responsibility to deliver developmental economic policies under their jurisdiction. This approach is based in the capital mobility and the convergence theses; they will be examined more in detail further on this text.
In response to Hyperglobalism, whose most popular and influential strand is the neoliberal orthodoxy (although there are also some views coming from different background claiming the decrease of state power) the sceptical approach rose in the late 1990’s. This second body of literature put in question the very notion of globalization. For this authors, the notion that the levels of trade and openness in terms of investment that were been experienced by the end of the twentieth century represented truly a global integration of the world’s national economies was a belief without evidence to back it up. These globalization sceptics were very keen to demonstrate with rigorous quantitative data analysis how the so called globalization was not necessarily a novelty and did not even represented unprecedented levels of economic integration. This idea helped disowning hyperglobalism from its unchallenged position based mostly on anecdotal appeal or casual empiricism.
Other issue, consequently of the explained above, contended by the sceptics is the idea that open market pressures tend to generate a process of convergence in state mechanisms that consists in homogenizing regulations related to investments and financial markets, such as low corporate taxes, flexible labour regulations and interest rates; and by doing so, constraining the capabilities of states and relegating them to a secondary position. Sceptics affirm that there is no evidence that increasing economic interconnectedness has led to the eradication of the relevance of institutional frameworks in which markets are still rooted.
The third approach has been identified as transformationalist. Its arguments are somehow related to the ones of the sceptics of globalization in as much as they undertake the task of dismantling the Hyperglobalist worldview. While accepting that there are a relevant number of conditions fostering a true global process of transformation, it denies the convergence thesis held by neoliberal orthodoxy. The relevant feature of this approach is its ability to identify the variability and diversity of states; therefore it claims there is no single relationship of globalization with the state: no convergence on a simple level. It takes into account the issue of marginalization of some societies from globalization. In that sense, it raise an important awareness when engaging with the question of economic neoliberal globalisation eroding the power of the state, that of the variety of states, which can itself produce more than one single answer to the question.
This view also holds the notion that global markets are not only inserted but dependent upon states; many of the work of transformationalist authors shows hard evidence of the way so called globalization (foreign direct investment, for example) is actually produced directly and purposefully by state-led developmental industrial policies. Strongly rejecting the view that states capabilities and power are been constrained by globalization, au contraire, the latter is been triggered by the former.
This classification is useful for didactical purposes on the globalization-state debate. Of course not all authors fall precisely in to one or the other. Along this text, more than grouping authors in specific approaches on the view they hold about the hypothetical erosion of state’s capabilities related to globalization’s pressures, I will go through the main arguments of the debate alternatively to assess the ones that can still keep standing after closer examination.
Specific tools in which the state’s capacity may be constrained by globalization
When addressing the question of the constraints and power amputations that the state could be suffering due to the current transformations of the international economy, the most relevant thing is to get into the specifics of it: which particular state faculties are under threat?
The hyperglobalist assumption is that of a world with a globally intensified and absolutely unharnessed mobility of capital that is able to subordinate state’s mechanisms. This view understands states power in the light of a neoclassical approach on macro-economic tools: in a pictured environment where capitals can go in and out of borders at minimal costs in search of low taxation and flexible labour regulatory regimes, it seems obvious to jump into the conclusion that a consequential and unstoppable competition among states to attract and retain foreign direct investment will utterly render the state fundamentally unable to make real choices policy-wise, destroying its autonomy in relation to all-mighty markets. The conclusion for the state’s macro-economic policy is simple; welfare states tend to vanish in the quest for competitiveness. This contention is highly controversial, to some extent hardly sustainable. First of all, the assumption that there is no cost in exiting a national market is for the most part a fiction, especially when it comes to industrial/productive capital, both manufacturing and services.
While the footloose nature that corporations are believed to have in a relatively open market economy seems to be the major threat to ‘territorially constituted forms of governance’, the reality is that the ‘importance of a home base remains the rule, not the exception’. Investments on machinery, infrastructure or highly qualified personnel can hardly be seen as mobile at a low cost. National firms are deeply rooted and nourished in the soil of effective institutional frameworks fostered by autonomously embedded state bureaucracies capable of building developmental coalitions and innovation systems. The experience of East Asian NIC’s (newly industrialized countries) shows how the active hand of the state has generated regional economic integration through policies such as savings (sometimes forced savings; for example in 1992 the ratio of savings and investment to GDP were 20-25 per cent and 22-25 percent respectively in countries like Japan and Korea; Singapore and Taiwan are also examples), direct available resources towards strategic industries and of direct public (even international) investment in infrastructure and human capital formation. If the pressures of globalization are believed to reduce the power of the states in the search for competitiveness, we can surely affirm that that is not the case for the highly developed economies of East Asia, where not only neoclassical orthodox recipes have been challenged successfully, but where the material process of economic integration that some relate to globalization have been directly engineered by statist capabilities.
This is very important to reject the suggestion that welfare states are antagonistic with foreign direct investment and competitiveness (and nevertheless the suggestion remains ideationally influential). First of all, the idea that low tax and low wage regulatory regimes would be directly proportional to foreign direct investment has long been discredited. Major multinational corporations are attracted to regimes that are able to provide highly qualified and innovative labour force and are willing to face some tax burdens and high wages ‘provided this costs are matched by higher skills and productivity’. In Hay’s words ‘far from been associated with welfare retrenchment, the period of (supposedly) most intensive globalization has been associated with the consolidation ̶ not the retrenchment ̶ of the most generous welfare states the world has ever known’.
Yet, while it is pretty much clear that modern nation states with developed economies have not necessarily been amputated in their ability to formulate welfare economic policies by the material process of economic integration we know as globalization, that is not the case for weaker states in developing economies. Here we must come back to the twofold interpretation of the question set in the introduction of this text. In this case the neoliberal economic process of globalization, and with that I mean its material facet, has been able to limit effectively the state’s ability for macro-economic manoeuvre. First because these countries are the ones that have to compete forcefully in terms of labour costs and secondly because been dependant of foreign capital compels them to follow strictly the instructions of International Financial Institutions such as the World Bank and the International Monetary Fund in order to be able to apply for cooperation. These requirements to attract foreign direct investment, which are harshly enforced in developing economies, limits the state capacity for public spending and with it the construction of human capital, infrastructure, capacity for innovation; to some extent it maintains these states in an anaemic regulatory role. In this case both sides of globalization (material and ideational) play their role in helping maintaining the status quo of these states that in the other hand (at least many of them; not to neglect diversity) never really had real capability of social regulation and developmental policies, so it is problematic to speak of an ‘erosion’ of state power.
So far I have mostly discussed foreign direct investment, which is related preponderantly to the mobility of industrial capital and services. Financial markets are other story and this has certainly been the hyperglobalist’s stronghold. Yet despite the undoubted freedom of financial capital to move from place to place and the limits it may pose to the states flexibility, there has been hard theoretical evidence that this is only partially so. Further on this text this will be discussed.
Convergence, forced homogenisation and more state retrenchment
The central pillar that sustains the hyperglobalist approach (it has been implied along this text and here it is further discussed) and that supports the idea of an eroded state in the light of a global process of economic integration is the idea of convergence.
This term is the one defining all the claims of the neoclassical orthodoxy to solve the globalization-state debate discussed here. It consists in the notion that the structural power of markets and the force of unconstrained globalized capitals will inexorably push every developed industrialized economy in the same pattern of macroeconomic management. Therefore deploying the type of statist abstentions discussed before. Phillips explain the logic of this hypothesis of managerial standardization by stating that ‘in this sense, the policy strategies prized within a global political economy are those of maintaining stable and flexible exchange rates, determined not by political actors but by markets, and adhering to fiscal discipline in order to effect the kind of macroeconomic convergence deemed necessary in conditions of capital mobility’. The response for this believed endogenous pressure is the supposedly imperative need for fiscal discipline, trade liberalization and financial deregulation.
According to this view, the process of globalization is the underlying material reason behind the adoption of such policies in industrialised economies. This is certainly a problematic contention. As mentioned before, there is evidence that the most integrated economies and the most able ones to attract high-value foreign direct investment have been the ones with strong public spending; yet, the 1990’s and the years preceding the global financial crisis saw many of those recipes having strong influence across the globe and certain degree of agreement on its implementation, even in historical welfare states. Weiss gives an alternative explanation to this: Internal fiscal difficulties, common responses to the perceived policy errors of the 1970’s and the power of political discourse to impose policies of retrenchment ‘excused’ by ‘global economic trends’ have had more influence in the behaviour of states than the power of money markets themselves: the ideational facet of globalization has had more effect than the material in building the notion of state caducity.
The problem with the hyperglobalist approach is that it views international economic integration as a global current naturally driven by the forces of the market, and as such, forcing the states to modify their structure and surrender an organic part of their sovereignty such as their managerial macroeconomic faculty. This allegedly puts states in a position of subordination in relation to international capitals. In accordance to that, industrialised economies will converge in the same set of policies to maintain competitiveness in terms of foreign direct investment. This approach fails to observe that the current of economic integration (to follow the same metaphor) that in some aspects remain more regional and interregional rather than global, is in many ways been directly produced by state-led developmental policies, such as the case of Japan and newly industrialized countries in East Asia (Singapore, South Korea, Taiwan etc.), by doing so, these states (along with other highly coordinated industrialised economies such as Germany, Sweden and the Netherlands) enter a process of adaptation by which they reduce their flexibility and reach in some of their faculties (some macroeconomic policy tools) and increase their reach in others (industrial policy, autonomous systems of innovation) to navigate the currents that they themselves are producing. The variability in responses to globalization has shown that convergence is not happening according to the neoclassical prediction.
Also, as mentioned before, the policy tool of macroeconomic management does not represent the totality of state power to determine economic outcomes. First of all adjustment strategies related to fiscal and monetary policies never really had much space for a variety of options, so the partial limiting of that capacity can hardly be considered an erosion of state capabilities. I would certainly agree with the notion that state capabilities ‘rests, more than ever, on industrial strategy, the ability of policy-making authorities to mobilize savings and investment and to promote their deployment for the generation of higher value-added activities’.
This leads me to be more inclined to the idea that instead of witnessing an erosion of the role and the power of the state form, we are seeing a transformation and sophistication of its capabilities to achieve developmental goals through less rigid tools (without letting them go either) and through more incursion into hybrid grounds of public/private innovation.
Nevertheless, the issue of financial markets remain there. Certainly financial capitals operate with much higher level of freedom to enter and exit national markets than the kind of foreign direct investment mentioned before. This has remained, as I said before, as one of the most important reservoir of legitimacy of the hyperglobalist approach of the globalization-state debate. Assessing this issue, the work of Layna Mosley has demonstrated, through a very rigorous statistical study of financial capital investor’s behaviour, the implication that this has for economic policy-making and for the autonomy of state bureaucracies. The conclusion she reaches is that ‘domestic distributional considerations are as important as external financial market pressures in determining governments’ policy choices’; in her own words ‘Governments are pressured strongly to satisfy financial market preferences in terms of overall inflation and government deficit levels but retain policymaking latitudes in other areas. The means by which governments achieve macropolicy outcomes, and the nature of government policies in other areas, do not concern financial market participants…Governments retain a significant amount of policy autonomy and political accountability. If for domestic reasons, they prefer to retain traditional social democratic policies for instance, they are quite able to do so’. This is linked to what is expressed above related to industrial capital and services as well; it seems that the behaviour of financial markets is not as constraining to the statist capabilities as hyperglobalism would picture it. The stronghold, even though real, does not seem to hold so strongly after all.
Has neoliberal economic globalization eroded the power of the state? The account of arguments analysed in this text radically imply a negative answer to the question. The process of economic integration that has been happening in the past three decades does not seem to be, on the first place, a complete globalization of the world economy through a simple process of capitalist convergence. As suggested by hyperglobalism’s neoclassical orthodoxy. Au contraire, different processes of internationalization of national markets have been undergoing through processes of regionalization designed and engineered by state/private cooperation by enhancing public bureaucracies’ capabilities, not amputating them.
Yet, the question been (as mentioned at the beginning) a loaded dice, it requires a cautious comment. Having signalised the two facets of neoliberal economic globalization, material and ideational, is necessary to say that while the first has been demonstrated not to pose the level of challenge to the power of the state that hyperglobalist authors proposed in the 1990’s, the second remains influential at the highest levels of decision making in state bureaucracies throughout the world. If the power of the state, and that relates mostly to the modern nation states, relies to great extent on the solidity of its political system and on its ability to sustain processes of innovation while maintaining autonomy from clientelistic interests: the true meaning of a Weberian meritocratic bureaucracy which by been able to maintain high levels of independence from the markets and from society becomes able to sustain the centrality of the state. Then, would the permeability of the state bureaucracy by capital elites (especially financial capital elites) mean the erosion of the power of the state through the obsolescence of its political system? Perhaps not structurally, but certainly to some extent; and while this could not be called an decline of state itself as predominant form of social organization, since there is no single relationship of globalization with a single type of state, it certainly could (and does) reinforce the notion of the powerlessness of the state in relation to markets.
Leaving aside cautionary views on the possible trickiness of the question, I must conclude that the state’s end, as a modern Hobbesian Leviathan, has not yet arrived. The events of the global financial crisis have shown (although the literature about is subject is expectedly divided) that the state form continues to be the source of safety, security and confidence in which the whole ‘globalized’ economic system is embedded on.
(This essay has been adapted from an earlier version written for academic degree course at Newcastle University)
- Busch, Andrea, ‘Unpacking the Globalization Debate: Approaches, Evidence and Data’, in C. Hay and D. Marsh (eds.), Demystifying Globalization, (Basingstoke: Palgrave, 2000)
- Cooke, W. N. and Noble, D. S., ‘Industrial relations system and US foreign direct investment abroad’, British Journal of Industrial Relations 36(4) (1998)
- Evans, Peter, ‘The eclipse of the state? Reflections on stateness in an era of globalization’, World Politics 50(1) (October 1997)
- Hay, Colin, ‘Globalization’s impact on states’, in Ravenhill, John (ed.), Global political economy
- Mkadawire, Thandika, ‘From Maladjusted States to Democratic Developmental States in Africa’, in O. Edigheji (ed.), Constructing a Democratic Developmental State in South Africa: Potentials and Challenges, (HSRC, 2010)
- Ohmae, Kenichi, The end of the nation state: the rise of regional economies, (London: HarperCollins, 1995)
- Phillips, Nicola, Globalizing international political economy, (New York: Palgrave Macmillan)
- Weiss, Linda, ‘Globalization and the Myth of the Powerless State’, New Left Review 225 (1997)
 Evans, Peter, ‘The eclipse of the state? Reflections on stateness in an era of globalization’, World Politics 50(1) (October 1997):71
 See Ohmae, Kenichi, The end of the nation state: the rise of regional economies, (London: HarperCollins, 1995)
 Phillips, Nicola, Globalizing international political economy, (New York: Palgrave Macmillan): 91
 Busch, Andrea, ‘Unpacking the Globalization Debate: Approaches, Evidence and Data’, in C. Hay and D. Marsh (eds.), Demystifying Globalization, (Basingstoke: Palgrave, 2000): 34
 Phillips, Nicola, Globalizing international political economy, 95
 Hay, Colin, ‘Globalization’s impact on states’, in Ravenhill, John (ed.), Global political economy, 258
 Weiss, Linda, ‘Globalization and the Myth of the Powerless State’, New Left Review 225 (1997): 9
 Ibid. 10
 Hay, Colin, ‘Globalization’s impact on states’, 260
 See Evans, Peter, Embedded Autonomy, 227
 Mkadawire, Thandika, ‘From Maladjusted States to Democratic Developmental States in Africa’, in O. Edigheji (ed.), Constructing a Democratic Developmental State in South Africa: Potentials and Challenges, (HSRC, 2010): 71-72
 Weiss, Linda, ‘Globalization and the Myth of the Powerless State’, 12
 Ibid. 66
 Hay, Colin, ‘Globalization’s impact on states’, 261
 Cooke, W. N. and Noble, D. S., ‘Industrial relations system and US foreign direct investment abroad’, British Journal of Industrial Relations 36(4) (1998): 602
 Hay, Colin, ‘Globalization’s impact on states’, 269
 Mkadawire, Thandika, ‘From Maladjusted States to Democratic Developmental States in Africa’, 65
 Phillips, Nicola, Globalizing international political economy, 93
 Weiss, Linda, ‘Globalization and the Myth of the Powerless State’, 16
 Hay, Colin, ‘Globalization’s impact on states’, 263
 Weiss, Linda, ‘Globalization and the Myth of the Powerless State’, 19
 Phillips, Nicola, Globalizing international political economy, 97
 Hay, Colin, ‘Globalization’s impact on states’, 279
 (Words are less subtracting bibliography and references but still within the 10% +/- required)