Global challenges to the future state
‘Managed wisely, the new wealth being created by globalization creates the opportunity to lift millions of the world’s poorest people out of poverty. Managed badly and it could lead to their further marginalisation and impoverishment. Neither outcome is predetermined; it depends on the policy choices adopted by governments, international institutions, the private sector and civil society’ (DfID 2000:15).
THE background to this paper is the inaugural meeting of the DfID Centre for the Study of the Future State, in which many participants emphasised both the importance and current neglect of international challenges to the future state in our existing research programme. The purpose of this paper is to provide a critical overview of some of the challenges to the future state posed by the process of globalization from the perspective of developing countries in particular. It seeks to situate contemporary globalization debates in a broader historical and critical perspective in order to focus our attention on those changes that appear most relevant to state based activities aimed at the alleviation of poverty. Towards this end the paper develops the following arguments:
1. Despite the prevalence of discourses around globalization, it is not assumed here that the most significant challenges to the future exercise of state authority derive from changes in the global economy. It is possible to argue that the importance of global processes for the lives of the poor is exaggerated, or at least pales into insignificance compared with other internal problems that many states face such as civil strife, corruption and poor infrastructure which, on the surface at least, do not appear to be affected by global processes. It is also possible to argue that the key trends associated with globalization are not shaped by the poor and in many cases do not affect them. However, these arguments can be squared with an analysis which posits that the dynamic whereby states both produce/reproduce and contest processes of globalization is central to determining the nature of future state action for development. The interactions between states and the global economy affect the provision of state services for the poor and help determine the contours of state action even if many poor people do not confront globalize forms of exchange in their everyday lives.
2. Globalization can best be thought of as a political project that has to be understood in the context of the historical setting in which it is evolving and at the same time helping to define. In this sense it has to be viewed as an ideological project as much as an objective description of global reality. Locating the process as the product of a particular historical and political moment helps us to understand for whom the discourse of globalization works and how. It also draws our attention to the social forces that promote and benefit from globalization and serves to delineate transformational possibilities.
3. Nowhere is the importance of ideology better revealed than in the construction of narratives around state power and incapacity. Globalization may have certain corrosive effects on the sovereignty of states, but this does not necessarily render them politically impotent in the way many accounts suggest. The economic changes associated with globalization, in many but not all cases, have been produced and continue to be produced by state actions and non-actions. Reaffirming state agency is important for understanding globalization historically and for engaging in debate about the future possibilities of state action for development. Challenging narratives that ‘There is no alternative’ (TINA) is important normatively and can be done with reference to ample empirical evidence which highlights the multiple forms that capitalism takes, depending on the social and political context in which they are embedded (Weiss 1998; Evans 1995).
4. The important point is that some parts of the state have internationalised more than others and are thereby relatively more subject to the discipline of global markets. While this has been the case for some time with regard to ministries of trade and commerce for example, new challenges are created where the traditional welfare functions of states are subject to global scrutiny and challenge. Structural adjustment programmes, debt relief initiatives and global accords such as the WTO-GATS agreement (General Agreement on Trade in Services) create the conditions for such surveillance.
5. There is both a North-South element and a clear class dimension to globalization. While the menu of policy choices available to governments is clearly more a la carte for some than others, and questions of capacity and malleability to global economic forces are suggestive of a North-South dynamic, it is important to transgress these dimensions when thinking about winners and losers. There are important gender, racial and class dimensions which need to be kept in mind in foreseeing the desirability and plausibility of future state interventions in markets on behalf of the poor.
State managers are often part of the international elites, which include representatives from international organisations and key industrialists and financiers, who set the political conditions for the advancement of globalization and benefit from the access to new goods and the technological time-space compressions that it delivers. Many of those who are vulnerable to the shocks and crises that globalization inevitably produces are, on the other hand, not politically powerful and may be further marginalised by processes of global integration (Mittelmann 2000).
There may, therefore, be a strong disjuncture between the views of policy elites on the merits of globalization and the people they act on behalf of who fear added insecurity. This is especially the case in developing countries that are still heavily dependent on agriculture and other sectors that have been consistently protected by the state but which, through global pressures, are being encouraged to expose all sectors to global market competition. While these challenges are clearly not unique to this period of capitalist economic development, they should at least temper our expectations about the likelihood of elites making interventions on behalf of the poor to reign in a process that they benefit from.
6. What seems to be emerging is a set of key dilemmas which all countries face, but which developing countries face more acutely. These centre on the reconcilability of simultaneous competing pressures upon state managers from nationally and internationally organised neoliberal elites to accelerate and consolidate processes of global market integration on the one hand, and on the other, dissident but divergent voices from farming communities, smaller firms and nationalist elements calling for protection and, in some cases, a reversal of the logic of global integration.
What is interesting is that key development ‘choices’ are framed in exactly these terms, such as decisions on the removal of subsidies and other trade barriers, privatisation programmes, whether to introduce GM crops, and a number of other issues of national importance which are increasingly being either settled in international fora in which many developing countries are poorly represented, or determined by global financial actors. The state remains, in many ways, the vehicle through which these pressures are mediated, but decision making autonomy is compromised through negotiation with a broader range of social and economic global actors than has traditionally been the case.
7. A broader political implication of the structure of these choices and non-choices is what has been referred to in other contexts as a ‘democratic deficit’ which has key implications for responsive government. As for the possibility of, and nature of, state interventions in the economy, increasingly shaped by and mediated through global actors whose approval is sought and required, we are forced to ask who will the future state be accountable to. Which political constituencies will states seek to serve and prioritise in their decision making when to go against the wishes of global market actors risks isolation and deters investment and to buck popular demands risks political suicide?
Given that, within the state, some political interests and classes are more embedded within transnational networks than others, these tensions should not be portrayed as international versus national, but as a contest between different constituencies within the state pushing for and against different degrees of global integration. With the emergence of diasporic communities with global political loyalties that extend beyond their ‘host’ government, the traditional political support base of the state appears to be shifting. Questions of democratisation and state responsiveness, therefore, run through our consideration of how the future state can operate under conditions of globalization.
8. If nothing else, looking at globalization and state authority helps to reveal the importance of the relationship between state and capital in shaping development possibilities and in so doing exposes questions of elite bias and the embeddedness of state managers in global policy networks. As a result we are better able to comprehend the mechanisms by which international pressures are mediated by and through domestic actors and structures in ways that determine impacts upon the poor. This is important for generating realistic programmes of reform and determining opportunities for change.
Definitions of Globalization: The numerous definitions that have been created to capture the complex and dense interdependencies that increasingly exist across all levels of social interaction and between economic, political and cultural spheres, do not add a great deal of clarity to our investigation. Mittelmann, citing Berresford (2000:5) notes, ‘The term globalization reflects a more comprehensive level of interaction than has occurred in the past, suggesting something different from the word "international". It implies a diminishing importance of national borders and the strengthening of identities that stretch beyond those rooted in a particular country or region.’ Often emphasis is placed on the increasing speed and intensity of exchanges (by implication in finance and communications etc). Giddens, for example, argues: ‘Globalization can thus be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa’ (1990:64).
It is this construction of time-space compression that has given rise to popular notions of ‘one-worldism’ and has in the economic sphere nurtured fears about the potential of globalization to homogenise economic and cultural life, as also captured references to the ‘McDonaldisation of society’ (Ritzer 1993). Equally this notion of intricate patterns of interdependency is said to connect the fate of nations in unprecedented ways. Hence, while we have had debates about the organisation of world systems and the existence of dependency between North and South or core and periphery, what is notable about this latest stage in global capitalism is the potential for ‘boomerang effects’ where actions and decisions taken in one part of the world can have rapid, if not immediate, impacts elsewhere. The East Asian financial crisis underscored this new reality in alarming terms.
This then provides the entry point for a critical assessment of how the trends we often describe in more macro terms shape the contours of state action in developing countries – how has globalization impacted the state and what constraints and opportunities does it create for future action for development?
Globalization and the State – The state of the art: There is now a large and growing literature on globalization replete with claims about what globalization might mean for the future nation state in particular. Before going into different aspects of those debates in order to filter out what may be relevant, it is worth making several general observations about the literature on the subject.1
Triad centred in terms of geo political focus: This partly reflects the realpolitik of where decisions about trade, finance and production get made and the arenas in which most of these exchanges occur. Hirst and Thompson (1996) argue, for example, that the world economy is not truly global at all, but centred in the triad of North America, Europe and Japan. They sustain the claim that activities are concentrated in the developed world by reference to data on trade, FDI and financial flows. Mittelmann suggests a more complicated picture of global relations in which ‘the mosaic of globalization reflects a shift in the incidence of poverty from when three continents were most adversely affected by globalization, to the marginalisation primarily of a single region – Africa and of enclaves in other regions’ (2000:241).
The triad centred approach to the study of globalization partly also reflects a traditional bias within much literature from international relations towards issues, actors and processes that impact directly upon the national interests of the U.S. The history of the discipline suggests that until very recently it has been driven by the desire to explain (and to some extent justify) U.S. foreign policy decisions. To some extent, this neglect of non-OECD countries may be justified by the fact that many of the vaunted trends that litter popular discourse on globalization are not much in evidence in many parts of the developing world, even if the impacts of such processes do affect the poor. DfID’s White Paper on globalization notes, ‘We must not forget that many of the world’s poor people, living in remote or inaccessible rural areas of Africa and South Asia, have so far not been much affected by globalization one way or another’ (2000:18).
While it is important to recall that many rural livelihoods in more remote areas of the world are not obviously and directly touched by changes within the global political economy, we should note the new forms of vulnerability that affect the rural poor as markets open up and the shocks that reach distant suppliers when markets crash and financial crises unfold. Dauvergne’s (1999) work on the impact of the financial crisis in South-East Asia upon livelihood choices of the rural poor is revealing in this regard. The work of Hoogvelt (1999) and Mittelmann (2000) also shows that the changes in trade, production and finance that have taken place in the global economy, over the last 20 years in particular, have changed the social and economic landscape of many developing countries in profound ways.
Critics allege that such changes have exacerbated existing inequalities and introduced new insecurities into the lives of the poor (Madeley 1999, Mittelmann 2000). Setting aside the polemical claims and the methodological difficulties of identifying the causal connections between macro economic change and micro development impacts (Bird 1996), the neglect of the relationship between globalization and development that characterises conventional research is without justification.
The Asian financial crisis and other ‘events’ that visibly connect first world decision making with third world livelihoods may serve to highlight the untenability of this neglect. The rise of debates about labour and environmental standards, the appropriateness of capital controls, the growth of ethical trade and continued calls for a WTO Development Round suggest that development issues may earn a more central place in future policy debates about globalization, even if a neglect by academics endures.
The removal of agency: Much of the literature seeks to present globalization as apolitical, natural and inevitable. Natural in that it is just a continuation of earlier periods of expansionist capitalism that have shown a trend towards internationalisation over the last century. Marxist political economists in particular propose that globalization is just the latest chapter in the evolving history of capitalism and does not, as such, constitute a break with previous eras (Lewis 1996). Indeed, there is evidence in the Communist Manifesto that Marx foresaw the coming of globalization as an inevitable byproduct of capital’s hunger to conquer new markets and territories and to find new consumers for its products.
There is also a tendency in some strands of the literature to argue that since globalization is inevitable, states have no choice but to adapt to the new reality. Globalization is represented as a driverless machine that no actor can control, ‘a brakeless train wreaking havoc.’ The question then becomes one of accommodation and adaptation to that which cannot be controlled (Ohame 1999). At a popular level, and in policy discourse, terms such as TINA bear testimony to this ideology of helplessness. Similarly, economists often frame the question in terms of how and not whether to engage, as if there is no choice, no agency (Kaplinsky 2001).
Other writers have challenged this view and have invoked Polanyi’s ideas about the double-movement and attempts to re-embed market activities that followed 19th century experiments with laissezfaire economic programmes to understand the contemporary global political economy (Glover 1999, Newell 1999, 2000, Mittelmann 2000). Polanyi helped to explode the myth of the self-regulating market by showing how state actions are crucial to the creation and maintenance of market activities. In The Great Transformation (1957), with a clear resonance with contemporary trends in globalization, he showed how unprecedented market expansion and social dislocation was followed by demands on the state to counteract ‘the deleterious effects of the market’ (Mittelmann 2000:8).
This frame of analysis provides us with the tools to historicize globalization, to get beyond the temptation to the view the contemporary as the inevitable model of the future and to expect moves and counter-moves in battle to define the direction of the global economy as ideologies of economic governance evolve and thinking about the appropriate role of the state in economic management is constantly reappraised. The shifting attempts to manufacture a consensus around the state’s role in development demonstrates this process at work. The evolution of thinking can be discerned from a reading of the World Development Reports of the World Bank over the course of the late 1980s and into the 1990s, where by 1997 the report ‘The State in a Changing World’ reaffirms the centrality of the state for development progress, a notable departure from the anti-state neo-liberal rhetoric that preceded it.
The effect of removing questions of power and agency from the study of globalization is to present the phenomena as apolitical and benign. This makes it difficult to determine the causes of change and the appropriate sites for pro-poor reform. Encouraging this ‘adapt or perish’ view of the changes taking place in the global economy serves important ideological functions. The delegitimisation of some policy options on grounds that they are no longer tenable, and the promotion of others pushes the policy debate in a certain direction. The discourse of TINA, for example, absolves governments of blame for the consequences of reckless investment and irresponsible speculation; they can deflect the responsibility onto unaccountable market actors over whom, they allege, they have no control.
President Cardoso claimed that he did not rule Brazil, because globalization was swallowing up less powerful states. He claimed both that the ‘increase in inequality and exclusion that globalization fuels is intricate and difficult to counter’ and that ‘globalization is inevitable, as are its consequences, its disasters, exclusion and social regression’ (quoted in Mittelmann 2000: 240). For Mittelmann, his comments reveal ‘that globalization can be appropriated by political actors and used as an excuse for the lack of a project for political reform, a mark of the failure of the holders of state power to contest evolving global structures and to craft a political solution’ (ibid).
Such claims of impotence also provide governments with a convenient alibi to make changes and impose social costs on society that would be difficult to justify by other means. In this way political leaders can attempt to deflect blame for politically unpopular restructuring measures on to regional and international bodies or anonymous market forces. Similarly, preventing wage increases, curtailing the powers of unions, restricting public expenditure and resisting calls for higher social and environmental standards can be justified on the grounds that responding to these demands will lead to capital flight and loss of investment.
Governments and other actors, therefore, benefit from constructing globalization in a particular way. Differentiating between the constraints that globalization actually imposes upon governments as opposed to those they choose to emphasise for strategic reasons is, of course, a difficult task, but as Mittlemann (2000:224) argues, ‘It is important to de-reify the market and reveal the power relations behind this abstraction. For market forces to be an integral component of a modern economy, there must be a modern society which entails modern politics.’
Rather than presenting globalization as an endpoint in the economic evolution of man, as discourses around the end of history tend to (Fukuyama 1993), it is important to understand how the alleged consensus on the desirability of market led development has been achieved. It is important to recall, for example, the way in which many states have ‘been adjusted’ to the realities of the global market. Structural Adjustment Policies (SAPs), conditionalities, tied aid and the threat of retaliatory actions through organisations like the WTO, have been some of the mechanisms by which the North has been able to use its leverage to promote globalization in the developing world. This underscores, once again, the importance of state strength in determining whether globalization is a menu of policy choices or a medicine that has to be swallowed in order to be accepted and survive in the contemporary global economy. Where changes are, to some extent, imposed from above, it becomes difficult to view the state as a buffer for its people against the unsettling aspects of global change.
Three dimensions of globalization: Below I describe three interrelated aspects of globalization, separated for analytical inconvenience, covering economic, political and socio-cultural dimensions.
Economic: The following are the most salient trends we associate with the economic dimensions of globalization. In each case, the implications for the developmental activities of the state are discussed.
Trade: During the second half of the 20th century the volume of world exports increased sixty-fold2 – a single, dramatic statistic that clearly illustrates the pace and scale of economic globalization. During the same period world output increased six-fold (Carr forthcoming). The share of trade in world GDP rose from about 6% in 1950 to almost one-fifth in the late 1990s (Nayyar, 2000). In other words, the increase in the volume of international trade cannot be wholly attributed to increases in output. Per unit of output there is a higher volume of international trade associated with the increased movement of goods across the world and changing patterns of production in the global economy. For this reason Picciotto has argued that the core of globalization is ‘the market, or at least ideologies of free trade and open markets...What seems to be more important is the increased potential for such flows [of international market transactions], resulting from the reduction of elimination of national and local barriers to all kinds of trade and investment’ (Picciotto and Mayne, 1999:3).
While trade has clearly bought both new opportunities and new challenges for different developing countries what is often less discussed is the implications for state authority. One reading is that with the demise of mercantilist trade and the growth of inter and intra-firm trade over which states have no control, states are no longer key players in trade. The counter view is that trade is only possible within certain rules and regulations aimed at reducing transaction costs, for example, removing barriers to trade, enforcing the exemptions and special pro visions that litter trade agreements, all of which imply a role for the state. Even in the World Bank view, states are regarded as facilitators of market choices and the appropriate bodies to allocate property rights.
It is also worth noting that the degree of liberalisation, the choice of sectors for liberalisation, and the sequencing of liberalisation remain the prerogative of states as the formal signatories to and implementers of trade agreements.
This is not to suggest that states are not also subject to political pressure from export lobbies and protectionist interests with significant political clout, but the authority and responsibility for rounds of trade liberalisation rests with states, even if the volumes and speed of transactions are often, in reality, governed by inter and intra-firm relations. What often develops is what Strange refers to as ‘triangular diplomacy’ whereby states increasingly have to negotiate with firms, which in turn negotiate with other firms before an agreement is possible (Strange 1996).
It is possible to see this process of triangulation at work, not just during trade negotiations but also during negotiations on a range of social and development issues. Business representatives often secure access to state delegations given their expertise on the issues being discussed and provide governments with advice on costs, time frames and technological choices (Newell 2000). What is problematic from the point of view of many developing countries is that not only are they often poorly represented at trade negotiations and lack the legal expertise to shape the agenda to their liking, but lack equally the support and involvement of firms in garnering acceptance of their negotiating positions. Often the very way in which international trade negotiations are organised, with green room discussions in which the key, mainly Northern, players are brought together to sketch the outline of an agreement which developing countries are then requested to sign up, is disempowering.
The proliferation of private standard setting bodies for making rules that affect trade is a further source of concern for many developing countries. Organisations like the International Organisation for Standardisation (ISO) set social, environmental and workplace standards that are increasingly accepted as benchmark standards and a requirement for market access. Those involved in setting the standards tend to be larger firms and private accrediting agencies, whereas smaller and developing country firms are poorly represented (Finger and Tamiotti 1999).
Many firms are struggling to adapt to these new requirements with state support, especially those firms that are geared towards exports for European and North American market. Even within public international organisations that set food and safety standards, such as the WHO/FAO Codex Commission, there is a concern that non-tariff barriers may be erected without the consent and involvement of many developing countries. Here again industries affected by the regulations are heavily involved in setting those rules (Humphreys, Pugh and Lee 1998). The shift towards such private standard setting arrangements, or privatised forms of public decision making further erodes the little power developing countries have, to shape the trade rules, which govern their role in the global economy.
In addition while multilateral fora provide important venues for developing countries to articulate and defend their interests, the political economy of international trade means that multilateral fora are often not used in enforcing trade measures. The U.S.’s unpredictable and unilateral use of its Super 301 provision to discipline states it believes are discriminating against it is a case in point. Bilateral pressures are often used alongside multilateral bargaining to enforce outcomes beneficial to powerful states, as pressure on Thailand and India to bring their patent laws in line with the WTO-TRIPS agreement makes clear.
Hence while Hirst and Thompson (1996) claim that the term internationalisation, rather than globalization, more aptly recognises the ongoing primacy of states in organising modes of economic governance through coordination and harmonisation of their activities, it is possible to argue that the organisation of global economic activity through multilateral rule making bodies may also imply a loss of autonomy for states in areas of economic decision making. WTO accords and attempts to negotiate a Multilateral Agreement on Investment, for example, restrict autonomy by determining what is legitimate action and what is not. Their aim is to minimise the possibility of state interference in private investments and guard against a return to third world assertiveness against multinationals.
We have come beyond the compromise of ‘embedded liberalism’ used to describe the post-war settlement in which autonomy for domestic reconstruction is permitted as long as states are mindful of the consequences of their decisions for others. It was hoped this would guard against a retreat into the tit-for-tat nature of economic relations that characterised the period in the run up to the second world war. The degree of autonomy that existed in the late 1940s has not been maintained by many states and instead of international economic obligations being of a tacit nature, they are increasingly contractualised in global accords.
Investment and production: Changing production patterns are reflected in the organisation of production. Production systems have become more international in their nature, with a growing proportion of raw materials, intermediate products and parts crossing national boundaries during the production process. Increasingly international trade takes place during the production process rather than at the stage of end products. The share of intra-firm trading in world trade increased from one-fifth in the early 1970s to one-third in the early 1990s (Nayyar 2000). At the same time, there is increasing vertical integration in the production system and concentration of production in fewer and larger companies.
While the content of a product might be drawn from a greater number of countries, it is likely to have passed through fewer companies. In some cases the production process is entirely under the control of one corporation (e.g. petroleum products). In many cases production takes place within a number of contractually linked companies, but with the final buyer dictating quality and product specifications, and thus the technology used in production.
For example, the detailed contracts set by northern supermarket chains for goods supplied to them by southern producers (Barrientos et al. forthcoming). This control can extend the opposite way too, with northern manufacturing companies determining the southern marketing and distribution channels for consumer products. The influence of Coca-Cola, and others, upon the sale of their products extends to the smallest of vendors (Carr forthcoming).
These changing patterns of production have important implications for employment and labour markets. With the decline of Fordist patterns of production and dispersal of the labour force there is also a decrease in the unionisation of labour. The increased vulnerability of competitive states to the threat by multinational corporations of capital flight has resulted in attacks upon the unionisation of workers. Greater flexibility in the labour market within developing countries, and industrialised countries, has been brought about by deregulation in line with principles of economic liberalisation. Dauvergne (1999) describes the impact of short term financial capital movements upon employment in Asia – agricultural employment in Indonesia increased by 5.6 million following the Asian crisis – while Barrientos and Carr (both forthcoming) show that the mobility of fixed capital affects socio-economic groups differently.
The impacts of these shifts in the organisation of production and employment create new political formations. What is problematic is that the flexibilisation of employment conditions has undermined the ability of the poor to organise to protect their interests. For example in horticultural markets for export, the poorest workers are often temporary, seasonal and women workers, who are neglected by unions and rarely covered in the codes of conduct which firms are increasingly negotiating (Barrientos, Bee, Mattear and Vogel 1999; Barrientos, McClenaghan and Orton 1999).
Likewise concerns over child labour have come to the fore with the internationalisation of the garment and textile industry. Consumer pressures can be passed down to local southern suppliers with disruptive and damaging consequences for the welfare of the children they were meant to benefit (Nadvi 2000). In this sense, the construction and operation of labour markets in many sectors results not from the conscious interventions of government but from the whims of global market actors and consumers of products. Globally integrated supply chains allow for the standards of social welfare and employment conditions to be set by foreign consumers rather than national governments.
Often, however, states deliberately create regulation free zones to attract capital. Export processing zones are an example where poor standards of social protection and environmental regulation are used to lure investors (Madeley 1999). This issue here is the way in which governments position themselves strategically to appeal to the needs of different sectors. Hence, ‘a blanket race to the bottom’ narratives are not helpful as governments which have export processing zones such as India are also promoting information and biotechnology parks, with infrastructure and facilities specifically designed to meet the needs of those industries.
States, therefore, continue to play a prominent role in defining their role within the global economy. The extent to which they create financial inducements or lower regulatory requirements to attract capital or accept (tacitly or explicitly) their function in the emerging global division of labour reflects active policy choices. It would be naive to think, however, that the mobility of capital and the pressure on countries from the World Bank and other development actors to take a positive view of such investment did not shape the matrix of choices within which decisions are made.
Agreements such as the TRIPs and the attempted MAI (Gill 1995) also provide evidence of a ‘new constitutionalism’ in which the rights of capital over states are enshrined in international accords. This has the effect of restraining the hand of governments vis-a-vis multinational corporations. This shift in power from state to market can also be witnessed in the trend towards regulation for business, of the sort described above, aimed at facilitating business transactions and allocating property rights, as opposed to regulation of business which has not progressed beyond declarations of intent and non-binding guidelines (Newell forthcoming).
Capital flows: Few aspects of economic globalization have generated as much concern as the volatility of capital flows. The East Asian financial crisis drew attention, in an unprecedented way, to the interdependency of markets, North and South. This was not just a case of the U.S. sneezing and the rest of the world catching a cold, as experienced following the Wall Street crash in 1929. Rather, it illustrated the potential for global boomerangs and the decimation of economies on the basis of the whims of financial speculators. Malaysia’s Mahatir decried the fact that in just a few weeks, ‘primarily as a result of the lack of regulation and the ways in which global capital has spun out of control, Malaysia lost the economic gains achieved during forty years of independence’ (Mittelmann 2000:235). The development implications of this were devastating and the crisis demonstrated the potential for macro changes to impact the poor in direct and damaging ways.
Dauvergne (1999) shows how the crises both destabilised social and environmental reform programmes across South-East Asia and forced rural communities to abandon traditional livelihoods such as fishing and agriculture in response to plunging market prices. The postmortem that followed has not surprisingly generated conflicting interpretations about the source of the problem. Rather than crisis and instability being viewed as an inevitable function of the operation of financial markets, attention focused on crony capitalism and the lack of transparency in family-run enterprises in South-East Asia.
The IMF claims much damage could have been averted had states and firms been more willing to call for help in alerting them to the looming crisis and been more transparent about the problems they were facing, as well as allowing greater surveillance of their accounts and transactions. While many governments in discussions about a new financial architecture have agreed to share information and promote transparency, there remains a lack of consensus over the appropriate course of state action.
The U.S. is keen to promote its guidelines on financial accountability and corporate governance as an international benchmark. Others have called for more radical measures such as the introduction of a Tobin tax aimed at taxing short term flows of capital to deter their destabilising consequences and to generate much needed revenue for the state. Opponents claim that the proposed tax would not be set high enough to deter short term investors and would, therefore, not have the desired consequence.
The utility and effectiveness of state intervention is clearly disputed. The experience of Malaysia and Chile of using capital controls has generated conflicting conclusions. For some, used as a temporary measure, they can offer a much needed reprieve from volatile flows at times of national instability. Others cite evidence of negative, long term impacts on FDI as investors tended to stay away in the wake of capital controls being imposed. It is also difficult to discern whether the changes achieved derived from the controls per se, or from other policies shaping the overall economic environment (Griffiths-Jones 1999, Coyle 1999).
Aside from short term impacts, in broader terms capital mobility is thought to constrain the menu of policy options open to states, validating some and undermining others. Mittlemann (2000:235) refers to ‘the ascendancy of the structural power of capital to discipline the state.’ He uses examples such as IMF conditionality to demonstrate that ascendancy. In a similar vein Stephen Gill (1995: 273) shows how this structural leverage is legitimised and sustained by the dominant ideology of the transnational elite, what he terms ‘disciplinary neoliberalism’, which incorporates a faith in market forces, privatization and a diminished role for public initiatives. Disciplinary power, drawing on Foucault, describes a mechanism of power by which legitimacy is created for some forms of social action and is used to invalidate others.
Global market actors such as credit rating agencies, bankers and international financial institutions such as the IMF are, because of their financial power, able to set the conditions in which states operate. The analogy Gill uses, of a global panopticon, is a useful vehicle for understanding the mechanisms of surveillance over the actions and decisions of governments that financial actors are able to construct. The verdicts they offer on the performance of economies can make or break the economic future of a country by strongly affecting investment flows and credibility in the market. The reporting and exposure of internal decision making processes which these institutions engage in, lays states bare to the whims of investors and makes them sensitive, if not, subservient to their political demands in seeking approval for and justifying their actions.
Iwould argue, however, that while international capital can exercise structural power over the state, increasingly it is more helpful to think of a state-capital nexus in which new alliances are being formed and new divisions of labour agreed for the delivery of common goals of growth, employment and competition. There are often tensions between the demands of national capitals competing to represent their interests as those of capital in general and therefore synonymous with the state interest and those of international capital. The dilemma for state managers is to determine whether their economic prosperity lies in gratifying the demands of international investors over domestic producers. In many sectors of course, the rise of mergers and acquisitions, strategic alliances and joint ventures serve to blur the lines between international investors and domestic firms.
There are important political and democratic implications of governments responding to the whims of global capital markets at the expense of meeting domestic priorities. These implications do not just apply to developing countries. The Mitterand government of 1984 in France was forced to dilute its ambitious reform programmes after the markets reacted negatively and threatened to withdraw capital from the country. Keynesian programmes of public spending are no longer acceptable to key market actors (Cox 1994).
The first thing UK Chancellor Gordon Brown did on coming to power was to reassure the markets about Labour’s intention to handle the economy in a responsible manner by handing control over interest rates to the Bank of England. We have already mentioned the way in which MNCs can use their mobility as a source of leverage to extract concessions from governments, as well as the use of political conditionalities on Bank and IMF programmes.
There is to date little evidence that governments are able to sustain opposition to these pressures on the grounds of what is best for the poor. Where there is public outcry over a reform perceived to have been imposed from outside, there is greater scope for manoeuvre. The recent example of the pharmaceutical companies dropping their case against the South African government’s decision to maintain access to AIDS drugs for the poor is a case in point.
IMF riots and protests again the speed of market reforms across the former Soviet Union, as well as issue specific conflicts over water privatisation in Bolivia, for example, suggest that where the state is seen to be acting as a transmission belt for the demands of international financiers, opposition may be forthcoming and political parties, North and South, are capitalising on popular discontent with policies and programmes thought to be a product of globalization.
This underlines, once again, the conflict within states between the drivers of globalization – affluent classes and business elites – and those who have no say in the process but are nevertheless affected by it. As Mittelmann notes, ‘The big losers in the economic downturn of the late 1990s are the vast majority of working class people and an underclass in the countries most directly affected, where the distributional impacts have been profound’ (2000:236). Nevertheless, despite these moments of opposition, which occasionally get internationalised and publicised through global social movements, on a routine basis the evidence points towards the fact that developing countries wanting access to international capital, aid and investment, seeking to export to western markets and play a role in the international bodies which ‘govern’ the global economy, have little option but to play by the rules. The incentives for doing so are increasingly high and the disincentives equally strong.
Socio-cultural – McDonalization and Cyber-politics: While this aspect of globalization is neglected in the literature on the subject, it remains important for our enquiry here, particularly the political consequences of changes in media and communications. It is almost a truism that global telecommunications have also served to forge new connections between political actors. News of political crisis or economic disruption can spread rapidly across international media bringing international attention and potential involvement to specific locales.
While, this is generally embraced as a new method of creating global accountability, such that the actions of tyrant leaders are subject to global exposure, and the complicity of multinational corporations in acts of social and environmental degradation are made known to consumers of their products (with damaging brand implications), surveillance does have a negative effect. An example of this would be where financial speculators make decisions on the basis of perceptions of economic wellbeing and follow a herd mentality such that if a country is experiencing economic turmoil, capital takes flight with alarming pace and with destabilising consequences.
Global media and telecommunications are perceived by less democratic regimes as a threat to their authority. Attempts to regulate internet access in Singapore, China and parts of the Middle East indicate the extent to which global information flows and exposure to global news coverage are regarded as destabilizing. Where states have attempted to retain a monopoly over the types of information their citizens have access to, the growth of satellite has presented a serious challenge as orthodoxies are subject to challenge and portrayals of life outside a regime can be rapidly undermined by the insights gained from global media.
In this sense access to and use of the media has become a site for the contestation of democracy. Attempting to control state organs of communication has of course featured in many 20th century struggles, but access to global media to gain support for political protest, and as a means by which people are able to perceive the global effects of decisions taken locally and nationally, carries significant contemporary political implications. Opponents of the Taliban regime in Afghanistan continue to risk their lives by operating a pirate TV station to provide an alternative source of news and to share with their viewers video tapes of foreign news coverage.
NGOs and social activists have been able to use global media networks to expose human rights abuses, environmental pollution and other crimes committed by states and corporations. The way in which the struggle of the Ogoni people in the Niger Delta, Nigeria with Shell Oil company, over land entitlements and the impacts of oil drilling on their lands, caught the global imagination and ignited protests across the world, demonstrates this potential (Newell 2000). The internet has also become a tool for activists to communicate with one another, as well as disseminate news of political events and campaigns and coordinate their activities. This has changed the nature of political protest for many groups and has made it more difficult for states to track and anticipate the organisation of protests against them, or contain news of them within national borders.
Nevertheless, we should be clear that the hype about the ‘information highway’ is of course just that, when the majority of the world’s people do not yet have access to a telephone, let alone a TV or computer. It has changed the nature of political interactions for some while bypassing others altogether. Coming back to the discussion of capital markets and investment, information technologies are crucial in facilitating trade and the rapid transfer of money around the world. The growth of trade on the internet is also increasingly significant, where buyers and sellers communicate and trade in virtual marketplaces.
We should also not ignore the role of media in the manufacture of consumer demands. It is often said that it was McDonalds, not the U.S., that ultimately broke the Communist bloc. Exposure, through television, to the lives of the rich can breed resentment and jealousy. It can also of course serve to reinforce nationalist sentiments and caricatures of other worlds, but the ability to see the world outside, to have a window into other peoples’ lives and to be exposed to the impacts that our political and economic choices have on others, can be politically significant. It subverts the traditional role of the state as society’s gatekeeper of what we need to know.
Political – Retreat or Reconfiguration? Much of the work on globalization and the traditional structures of political authority has not surprisingly focused on the nation state. I have already referred to many of the camps within the debate around the relationship between globalization and the state from those arguing that the state is in retreat (Strange 1996) to those arguing that the notion of an increasingly powerless state is a ‘myth’ (Weiss 1998). This focus on elimination of state boundaries has been constructed in different ways. For Strange, the breaking down of boundaries has been seen in terms of the role of states and markets, in particular, of the erosion of state power in the face of globalization of markets (Strange 1998).
From another perspective, Robert Cox argues that from being bulwarks against the global intrusions into national economies, today’s states are becoming mediators, negotiators that adapt to change within the global political economy. To perform this changed role, state managers have to reconfigure the power structures of government, giving far more emphasis to ministries responsible for finance and trade rather than industry and labour, for example. The state’s role, therefore, becomes one of helping to adjust the domestic economy to the requirements of the world economy (1996). Mittelmann also argues that neoliberalism ‘is being advanced by both states and international agencies in economic reform packages that take neoliberalism down to penetrate the grassroots level’ (Mittelmann 2000:229).
Cerny (1990) develops the notion of a ‘competition state’ whose chief functions are to facilitate market transactions and prevent market failure. For Mittelmann the consequences of this are that ‘the autonomy of the state is reduced, constrained and disciplined by capital. The capacity to provide social protection against market shocks is also lessened, evidenced by the diminution in of the welfare state in diverse contexts. In fact, the state itself adopts a corporate logic, embracing variants of neoliberal ideology to justify the socially disruptive and polarizing consequences of its policies and subjecting its own agencies to cost cutting measures’ (2000:17).
Many of these claims have been discussed above, but it is worth noting that some of the evidence invoked to support them has been contested. The work of Rhodes, for example, on globalization and welfare states suggest a greater resilience and in many cases an expansion of welfare provision in states which are also key globalizers. Interestingly his analysis is heavily focused on Europe and not the developing world where many of these concerns are more pronounced.
Clearly claims about the end of the state are exaggerated and many of the challenges faced by states have either been faced before or have been faced for some time. There remains a tendency in the globalization literature to exaggerate the novelty of such challenges, even in accounts that take a generally sophisticated view of the changes taking place. Mittelmann, for example, in an otherwise sober assessment of processes of transformation and resistance, claims ‘Contesting the interstate system are the properties of new technologies, interconnectivity and lightening speed, as well as massive concentrations of power, particularly in the global capital market, dwarfing the resources of many national units as well as challenging the principles of sovereignty and territorial jurisdiction’ (2000:232).
As discussed above, new technologies have created new political opportunities for dissident movements, they have undermined state authority in some cases and have undoubtedly facilitated global exchange, but do they contest the inter-state system in any substantive sense of the word? I do not see much evidence of this.
Similarly with the capital, I have attempted to show that the state capital nexus has to be at the heart of any enquiry into the origins and contemporary manifestations of globalization, but capital relies on the division of states into discrete sovereign units. This, indeed, is the source of capital’s power to play states off against one another in order to secure the best deal. Moreover, states have assets that capital requires – the ability to enforce property rights, create the infrastructure necessary for investment and the legal systems supportive of their rights.
Hence a reconfiguration of power provides a better description of the contemporary nature of state power than ‘retreat’ or ‘decline’, power sharing rather than power loss, depending on the part of the state in question. As Mittelmann argues, ‘Not all states suffer from power deflation... it would be a mistake to portray global processes and the state as locked into a zero-sum relationship, for with globalization, some elements within the state gain power, while others lose.’ The winners are said to include government departments dealing with economic issues and administrative agencies dealing with external affairs, while ‘offices charged with responsibility for social policy are reduced in scope.’ Nevertheless, he notes, ‘to varying degrees, all states are losing autonomy in a multilevel system’ (2000:232). While aspects of the state system endure, therefore, ‘Increasingly market power disciplines the state, as with IMF conditionalities and currency speculation’ (Mittelmann 2000:232).
In addition, we have already noted the importance of private standard setting agencies and actors such as credit rating agencies that can strongly affect a country’s ability to attract capital. Credit rating agencies such as Moodys and Standard and Poor make evaluations that enable borrowers to raise money or prevent them from doing so and influence the terms of loans. As Mittelmann notes (2000: 234), ‘This power can make or break some developing countries.’
We need to be careful with this notion of loss of autonomy, however, when it is recalled that states themselves relinquished the capital controls that created capital mobility, established off shore banking and continue, in most cases, to oppose capital controls. It is states that are anxious to attract FDI and foreign capital (Helleiner 1994). We return once again to the state-capital nexus, where capital is afforded certain privileges and freedoms in terms of access and protection and states enjoy the benefits of investment including tax and employment.
Viewing the state and capital in opposition to one another is inadequate. We need to view shifts in state power as part of an emerging set of deals with the private sector and civil society, in which active state choices are exercised about which governance functions should be performed by other actors and which remain the core responsibility of the state.
This is not to suggest that these choices are made in isolation from global pressures and the structural realities of the global economy. I have shown above that these things heavily influence them. Merely, that once we locate the process of state transformation within a global context we are better able to understand why some parts of the state appear to be losing power, while others gain. This is a function of the purpose served by a state agency (whether it is commerce or welfare for example) and the extent to which pursuing that goal requires cooperation and alliance building with global players.
Once we view the state, not as a unified actor, but as a set of competing bureaucratic jurisdictions, we are able to see the links with ministries, businesses and civil society actors elsewhere, which extend state power in new directions through the consolidation of transnational managerial classes (Cox 1987).
De-regulation or Re-regulation? These formations help to explain the pattern towards regulation for business rather than regulation of business, with trade and commerce ministries everywhere seeking to set rules for enhanced market access while agriculture and environment ministries seek to promote regulation of worst effects of liberalisation. Hence, despite concerns about deregulation and a race to the bottom, what is emerging is rather a dense set of public and private rules and regulations some of which promote deregulation but many others which advance re-regulation.
While some view the relationship between deregulation and re-regulation as cyclical, whereby periods of deregulation (such as in the 1980s) are inevitably followed by periods of re-regulation, often in new forms, such as the recent growth in forms of private and civil regulation (Newell 2000), it is perhaps more likely that deregulation and re-regulation coexist simultaneously. For example in relation to business regulation, while there has been a failure to advance the regulation of multinational companies at the international level, there has been a growth in industry codes of conduct and other voluntary agreements (Picciotto and Mayne 1999, Drahos and Braithwaite 2000).
Similarly, while at the international level, legal regulation of global business actors is underdeveloped, regulation for business in terms of regulatory arrangements that facilitate transactions and exchange, and those that affirm the entry and exit options of businesses, has increased. This indeed is the basis of concerns that there is a mismatch between the rights that business actors have acquired through regional and global trade arrangements and the lack of corresponding responsibilities that they are expected to exercise (Newell 2000).
Where states sign up to international agreements, their regulatory capacity is also enhanced. The Bio-safety Protocol on the regulation of the trade in GM crops explicitly contains provisions aimed at enhancing the capacity of governments to implement and enforce its rules (Newell and MacKenzie 2000). Environmental agreements also demand greater monitoring and state level regulation. In other words, they demand an expansion, not a retraction of state power. Whether there is an incongruence between the expectations we have of state capacity, and the reality of ground level implementation is another question, but the point is that supranationalism, rather that being a threat of the power of states, may actually strengthen their capacity and add to their legitimacy on the world stage.
Conflicts over sovereignty are in many cases played out in these multilateral institutions. Rule formation at the international level, just as at the national level has to accommodate competing pressures. Such rules are likely to be product of tensions between the desire of some to see common rules, harmonised procedures and centralised procedures for rule-making and the concern of others to preserve autonomy, diversity and difference in national economic and social strategies.
These tensions are, in part, configured along North-South lines and are manifested, for example, in the Biosafety Protocol to regulate the trade in GMOs, which seeks to reconcile the interests of GMO exporters with the demands of many African nations, in particular, for the right to exclude imports on the basis of detrimental socio-economic impacts they may have. At stake is the central concern of this section of the paper – the tension between pressures to create common rules for global integration and the desire of many countries to protect their autonomy for decision-making in areas of key social and economic importance.
The source of this concern is that, increasingly, key decisions concerning global economic processes are being made at regional and international levels, generating worries about representation and the emergence of democratic deficits when the demands of domestic electorates are subservient to decisions reached between unaccountable decision makers. This resonates with fears, discussed above, about the democratic (and developmental) implications of governments being as responsive (if not more so) to the demands of international capital as to the needs of domestic constituents whom they represent.
The growth of regionalisation has meant that an increasing number of areas of social and political life with important development implications, (especially in regions where this process is most advanced such as Europe), are governed by what is best for the achievement of full market integration. The imperatives of market access and creating ‘level playing fields’ have been the guiding principles for areas of policy that have nothing to do with trade, such as the environment (Grant, Matthews and Newell 2000).
Regionalisation can act as both a buffer and a transmission belt for further processes of integration depending on your view of the relationship between globalization and regionalisation. Regional blocs can be important both for articulating and amplifying national and regional needs in global fora and for protecting and defending interests. If the European model is the path to be followed, then we might expect that advanced forms of economic and particularly trade interaction, such as we are witnessing in ASEAN, may lead to the development of programmes of social welfare.
Functionalist arguments support this assumption, that cooperation in areas of technical agreement and economic interaction aimed at reducing transaction costs, where there is both a zone of political consensus and corresponding lack of political conflict, fuller forms of political cooperation tend to evolve. In the European context, creating a single market has required infrastructural development such as roads, better communications and the creation of a cohesion fund following the Maastricht Treaty in which funds are provided to improve the infrastructure of poorer European states.
Clearly, however, regionalism will be harder to evolve in some parts of the developing world, especially where conflict reigns, such that this aspect of globalization may not touch many of the very poorest. Underpinning the possibility of European, North American and South-East Asian regional cooperation is an absence of conflict between key powers. This would be much harder to achieve in parts of central and southern Africa.
At the same time, it should be noted that addressing security issues is often the catalyst for other forms of cooperation. The desire to banish conflict from the European theatre was the key impetus for early forms of cooperation in Europe. The creation of the European Coal and Steel Community, for example, was a venture designed to encourage cooperation between previously warring parties, in this case France and Germany, by getting them to share coal and steel production, a resource both countries were heavily dependent on at the time.
The impetus for intra-regional trade within South-East Asia was also investment from the U.S. aimed at preserving regional unity and prosperity as a guard against Communist influence. That conflict and levels of economic interdependence are so closely intertwined will not come as a surprise to those familiar with the liberal peace doctrine of Michael Doyle (Doyle 1997), which suggests that wars do not occur between liberal states in which trade is a crucial vehicle for cementing cooperation.
Implications for good governance and development: The DfID White Paper on Globalization and Development raises a number of interesting issues around the relationship between governance and globalization. Rather than looking at how globalization changes the state, much of the focus of DfID’s attention centres on what governments can and should be doing to capitalise on the opportunities that globalization presents. The familiar tenets of the good governance agenda are wheeled out towards this end. The paper notes, ‘Effective governments and efficient markets are both essential if developing countries are to reap the benefits of globalization and to make the process work for poor people.’ To cope with the challenge, governments are expected to be `both competent in carrying out their basic functions and more accountable, responsive and democratic, with a bigger voice for poor people in the determination of government policy’ (2000:23).
It is expected that market actors will drive many of these changes in governance. Friedman (1997) argues ‘Global markets today are demanding, in return for their investments, the rule of law, transparency, predictability, cooperation and pluralism in financial affairs’ (cited in Mittelmann 2000:247). While aid clearly helps to structure governments priorities, FDI now far outstrips flows of official aid such that the states relations with foreign capital increasingly form the context in which economic decision making takes place.
Again there is a need to be clear about which parts of the developing world we are discussing – many parts of sub-Saharan Africa are still heavily dependent on aid flows rather than FDI. There is good reason to believe, nevertheless, that the scope of social regulation and the degree of protection afforded to the poor can be shaped by investment patterns. I discussed above in the section on investment and production debates about upgrading standards of social and environmental protection and how these are often exported along supply chains in developing countries.
What is interesting in both the DfID White Paper and the tenor of many other agenda setting reports in development, such as the WDR, is the renewed emphasis on the importance of the state. This is perhaps a reflection of the fact that neoliberals have struggled to explain the economic success achieved by East Asian countries that adopted strong state based models of development which squarely contradict the anti-state prescriptions of neoliberalism.
This step back from the assault on the state associated with the height of neoliberal Reagonomics helps us to understand the renewed interest in the importance of [good] governance. This interest is driven not only by a belated recognition that activist states are important for creating and sustaining market activity, but that good governance is important both for creating an attractive investment climate and for targeting poverty (WDR 1997).
To the extent that good governance is associated with democracy, it is worth noting that the relationship between globalization and democracy is not always clearcut. The examples of Bolivia returning, in 1997, a former dictator to power amid turbulent economic circumstances, or the rise of the far right in Germany in response to global patterns of migration and the re-emergence of support for Communism in Russia, suggest the potential for an antagonistic relationship between globalization and democratisation.
There have been reactions to perceived homogenisation and the threat to traditional ways that globalization represents. Farmers’ movements such as the KRRS in Karnataka, India play on such threats in their demands for Gandhian self-sufficiency. Unions across the world are protesting the ability of capital to uproot and relocate to more areas where labour is cheaper. Community self-help schemes and local forms of exchange and transaction have proliferated as a self-defense mechanism against economic dislocation (Glover 1999). All such ‘moves’ in a Polanyian sense, react to global economic securities and call for political interventions to re-bed market activities within a framework of state control (Mittelmann 2000).
Institutions clearly both react to and drive the process of globalization. We know from Polanyi that market activities are always socially embedded and inevitably shaped by the social and political pressures that create and maintain them. The World Bank and IMF, for example, have clearly played a significant part in creating the conditions for market expansion and globalized transactions by moulding the policies of states in their guise, promoting the idea that the principal role of governments is to guard against market failures. But we have seen how states too, play a crucial in creating and redefining processes of globalization.
The claim here then is that global processes continue to be mediated through national structures and vice versa (Risse-Kappen 1995). Increasingly one cannot be viewed in isolation from the other. Claiming that even the most autarkic regimes are not immune from global economic forces (Keohane and Milner 1997) is not inconsistent with an argument that holds that states exercise choices. The diversity of capitalisms and structures of state-market relations, despite governments facing similar global pressures and structured choices, testifies to both the enduring resilience of the state and a residual autonomy and capacity to determine the organisation of the economy.
Globalization is a contested process with outcomes that affect people well beyond the principal decision making centres of the global economy. This inevitably means that the issue of whether the gains from globalization can be spread, and the negative effects controlled, will be a question of political organisation and institutional design and the outcome of conflicts between competing social and economic forces over who sets the rules and for whom.
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