Relationship Between The Nation State And Global Market Economics Essay

This paper discusses the relationship between the nation state and the global market. Gidden’s Structuration theory is used to conceptualise nation states as ‘agents’ and the global market as the ‘structure’. It is argued that nation states may shape the global market according to their vested interests and needs and that power plays an important role in this process. A strong and effective state is therefore better able to use the opportunities offered by global market.

Globalisation and Developing CountriesThe term ‘Globalisation’ has been widely used in literature in a number of contexts. It has been seen as the “global integration of financial markets” (Walker and Fox, 1999:2), “interconnectedness of world economy” (Neuland and Hough, 1999:1), “trans-border movements of capital and goods” (Gill, 2000:4) and “breakdown of national borders” (Redding, 1999:19). Braibant (2002) further includes the development of advanced means of communication, growing importance of multinational corporations, population migrations and increased mobility of persons, goods, capital, data, ideas, and even that of infections, diseases and pollution in the process of globalisation. One aspect that is common among these perspectives is the breakdown of borders between countries, governments, economies and communities that has given rise to the global markets that are not controlled (but may be influenced) by a single country. The use of the term ‘globalisation’ for the purpose of this paper is limited to that of trade, finance and investment.

A variety of terms are used to differentiate between developed and developing countries (for example north/south and rich/poor etc.), however the literature has come a long way since the days of using the terms such as ‘first world’ and ‘third world’ countries. This paper will stick to the term ‘developing countries’, which is used to refer to a number of heterogeneous groups of countries. For example it may mean the rapidly growing economies in Asia, negative growth economies (in terms of GDP/capita) in Africa, middle income and very poor countries, small and large, landlocked and ocean access and heavily regulated and recently liberalised countries. This paper however, when referring to developing countries includes all low- and middle-income countries as defined by World Bank (2000). There is a growing body of literature on the affects of globalisation and the opportunities and problems it may cause to the developing countries.

The developing countries are characterised by weak economic, legal and political institutions that lead to corruption, insecurity, conflict and lack of competitiveness in labour, technology and skills. The introduction of trade liberalisation and increased international competition in such conditions can have serious consequences for the infant industries in the developing countries (Stiglitz, 2000). However it is generally claimed that opening to the global markets increases the flow of foreign direct investment into the developing countries, allows them to catch up with the latest technology without need for considerable investment or research, bring capital into the country, build expertise, induce innovation, and thus contribute to the general economic growth. Francois and Schuknecht (2000) provide some empirical evidence that openness to global markets leads to GDP growth. These findings are of course challenged by others.

The Hegemony of Global Market StructureIn the sizable amount of literature, a form of structuralism can be observed that views the relation between the global market and the nation state as a zero-sum game where the growth of globalisation is seen as increased shrinking of sovereign state. Last two decades of 20th century saw proliferation of the literature that predicted the ‘eclipse’, ‘retreat’, ‘crisis’ and even the ‘end’ of the nation states as a result of growing forces of globalisation. The main premise of these viewpoints is that the nation states have lost control over their territorial boundaries, national economies, currencies and even their cultures and languages as well and thus the “macroscopic form of power” has shifted from the nation-states to the global market represented by global institutions and multinational corporations (Barrow, 2005). For example Castells (1997:243) in his chapter named “A powerless state?” argues that “State control over space and time is increasingly bypassed by global flows of capital, goods, services, technology, communication, and information.” Similarly Hardt and Negri (2000:xi) in their book “Empire” claim that “along with the global market and global circuits of production has emerged a global order, a new logic and structure of rule-in short, a new form of sovereignty. Empire is the political subject that effectively regulates these global exchanges, the sovereign power that governs the world.” Similar view is held by Camilleri and Falk (1992:98) “global processes and institutions are invading the national state and … [are] dismantling the conceptual and territorial boundaries that have traditionally sustained the theory and practice of state sovereignty”. The authors concluded that the nation state little choice other than delegating their authority to international and “supranational” organisations. Hence, it may be a bit exaggerating that the globalisation is the only reason that has resulted into the degradation of state authority but it appears from the literature that it is seen by many as the central one (Evans, 1997).

Various examples are given to support this point of view. The powers of World Trade Organisation (WTO) to enforce sanctions and punish individual countries are cited as one of the ways in which the global capitalist system coercively seeks conformity. It is argued that individual countries have little influence on the creation and enforcement of rules in the system and even on the level of their own integration into the world economy. A well cited example of this is the attempt of Indonesian government to protect its domestic automobile industry by providing facilities such as tax holidays, lower import duties for spare parts and very low interest loans. These actions and their positive effect on Indonesian automobile industry did not go well with the global automobile exporters who saw their market share potentially in danger. A case was therefore raised against the Indonesian government at the WTO where it was defeated and thus forced to either roll back the measures it had taken to protect and promote one of its nascent industries or risk severe sanctions (Hartungi, 2006). Another adverse effect of growing power of global capitalist system is that the developing countries have to increasingly compete within each other to attract the FDI which is termed by some as a “race to bottom” (Chau and Kanbur, 2006). In order to prove them more attractive to the MNC’s, developing countries are forced to deregulate hastily and keep the wages and taxes low. Any attempt by these countries to increase the minimum basic wage, labour safety standards or restrictions on capital may result in relocation of MNC’s from the country. This exposes the work force to further exploitation in countries where union representation, legal protections and access to basic facilities such as health and education and any kind of social safety net is already limited. Labour exploitations therefore have been reported in Bangladesh, Indonesia, Sri Lanka, Kenya and the Dominican Republic where government is forced to keep the wages low due to for example competition from countries like India and China where the garment giants Levi-Strauss and Gap have been considering to relocate due to availability of raw materials as well as packaged services such as cutting, sewing and packaging etc (Hartungi, 2006).

Similarly developing countries are coerced into various agreements (such as Trade Related Agreements on Intellectual Property Rights, TRIPS) under the auspices of WTO that are unreasonably costly for these countries to implement. It cost Mexico for example US$30 million to upgrade and enforce intellectual property laws (Finger and Schuler, 1999). Some developing countries such as Nigeria, Uganda, Morocco and Cambodia are forced by the US government to enforce patent protection mechanisms for pharmaceuticals that go way beyond the standard TRIPS agreement and are known as TRIPS Plus. One of the many additional obligations forced on developing countries under TRIPS Plus is the extension of patent terms beyond the 20 years required by standard TRIPS agreement and used commonly by most countries in the world.

The Almighty StateThis strand of literature focuses on the role of individual nation-states in enacting and reifying the global market structure. It views these as the principal agents of globalisation and the patrons of the political and material conditions required for its sustainability and influence. Its main premise is that the nation states are going through a transition in order to adjust to the new global political economy and balance the contradictory pressures of global requirements and national interests, hence there is considerable realignment taking place within the state apparatuses which many scholars incorrectly interpret as a decline of nation state. It is argued that without the intervention of the state, the existence and the reproduction of global capitalist market is not possible. The process of creation and strengthening of this system therefore requires active role of the nation states (Aglietta, 2000). However, the policies, attitude and institutions that are required to shape the capitalist structure of global scale take time to develop and thus the developing countries must manage the conflict between domestic and global interests until such institutions take root in the society (ibid.). This point of view is partly based on the work by Robert Cox (1987) published as a book titled ‘Production, Power and World Order’ in which he challenged the notion that state is in decline and instead proposed the concept of ‘internationalisation’ of the state. He argues that internationalisation of state is the conversion of “state into an agency for adjusting national economic practices and policies to the perceived exigencies of the global economy. The state becomes a transmission belt from the global to the national economy, where heretofore it had acted as the bulwark defending domestic welfare from external disturbances.” (Cox, 1987:254) Similar views have been expressed by Panitch (1993) who believes that “far from witnessing a by-passing of the state by a global capitalism, what we see are very active states and highly politicised sets of capitalist classes” (p63). He adds that the global capitalist structure as it stands today has been “authored” by the states and it has primarily “rearranged” rather than by passed states. The level of influence that individual states have on global markets may be different but ultimately the imperial economic and political relationships are not organised by the multinational and transnational firms, but by a system of states that have unequal influence across the globe. Aglietta (2000) therefore defines ‘imperialism’ as a system of hegemony through which states are coerced by other state/s to adopt a set of rules that favour the stability of global system that may be inclined heavily towards promoting the benefits of stronger states. Thus the current form of globalisation has been constituted by a number of states with uneven inter-state relations and strengths.

The role of state’s strength/power in benefiting from the global capitalist system is substantiated empirically by the work of Weiss (2005) by examining the evidence from Japan and East Asian NICs (Newly Industrialised Countries). The author concluded that the states with strong hold over the socio-economic goal setting and strong relationship with domestic audience were better able to adapt to the process of globalisation and crucially, were also better able to promote the internationalisation strategies of their corporations. Thus the differences between the state’s capacity (strength) directly affect its ability to exploit the opportunities of international economic change.