16 Feb The relation between globalization and the state, as any other phenomenon, may be seen and analyzed from di? erent viewpoints and that each viewpoint exposes a certain aspect of the p
Globalization and the State: Four Perspectives 633 Every age has its own deﬁ ning terms. In this age, one of those terms is globalization,?? which conveys the widely held view that people are living in a borderless world. Consequently, states are incapable of controlling transnational ﬂ ows of goods and services, and in many parts of the world, states are collapsing. Furthermore, on a daily basis, people experience globalization as news media broadcast reports from Australia to Zimbabwe. Th e idea of globalization challenges state oﬃ cials, who are respon-sible to their citizens for ensuring economic welfare and national security. Th is reﬂ ects the current international system in which there is no higher authority above the state, and as a result, citizens only look to the state for the provision and protection of their well-being. Similarly, globalization challenges scholars of international relations?? who mostly continue to view the states as the most important actors in the international system. If the widely held view of globalization is indeed the case, then international relations scholars must develop new theories of world politics. People commonly speak of the globalization of the world econo-my. Th ey say industries of all kinds are losing their national identity as they move around the planet for capital, markets, labor, and tech-nology. With such international expansion, the ability of the states to control domestic activities has been deteriorated and the state sovereignty undermined. Th e states management of economic policy has become more complicated with the rise of multinational corpo-rations, the organizational form of which currently dominates world trade. Th ese corporations are involved in the cutting edge product development for both goods and services, and have created business structures that seem to have put them beyond the reach of any state authority. Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization64 Th e relation between globalization and the state, as any other phenomenon, may be seen and analyzed from diﬀ erent viewpoints and that each viewpoint exposes a certain aspect of the phenomenon under consideration. Th is chapter discusses four views with respect to the nature and role of globalization and state. Th e four diﬀ erent views should be regarded as polar ideal types. Th e work of certain authors helps to deﬁ ne the logically coherent form of a certain polar ideal type. But, the work of many authors, who share more than one perspective, is located between the poles of the spectrum deﬁ ned by the polar ideal types. In this chapter, Sections I through IV present the four perspec-tives, and Section V is the conclusion. I. Perspective One or Functionalist View Advances in computer technology and communication systems are the primary forces in the creation of a single global market. Political globalization is a process which is intrinsically connected to the ex-pansion of markets. Economics possesses an inner logic apart from and superior to politics. Politics is rendered almost powerless in the face of an unstoppable and irreversible techno-economic process that destroys all governmental attempts to introduce or reintroduce restrictive policies and regulations. Th e combination of technological advancements and economic self-interest is the driving force behind the new phase in world history in which the government is reduced to the epiphenomenon of the free-market. 1 In the rise of the borderless world, brought on by the irresistible forces of free-market, the nation-state is becoming irrelevant in the global economy. Nation-states have already lost their role as meaningful units of participation in the global economy. Territorial divisions are becoming increasingly less important to human societies and states have less and less control over the process of social life within their borders. Global capital markets drastically reduce nation-states ability to control exchange rates and nation-states are vulnerable to the disci-pline imposed by economic choices made elsewhere. In the long run, the process of political globalization will lead to the decline of territory as a meaningful framework for understanding political and social change. No longer functioning along the lines of discrete territorial units, the political order of the future will be determined by economies linked together in an almost seamless global web that operates according to free-market principles. Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Globalization and the State65 Computers and telecommunications have brought the information revolution which has changed the economy. Th ese technologies have become powerful economic forces that have done far more than speed up the industrial economy or enrich it with new conveniences. Th e dif-ference between the old industrial economy and the new information economy is both quantitative and qualitative. Th e world is changing not because with the advancement of technology more work can be produced in less time but because the economy now depends on an entirely new source of wealth; it is the application of information and knowledge to create value. Information technologies have created the new economy or the information economy. Th e information econo-my is diﬀ erent from the industrial economy in the same way that the industrial economy was diﬀ erent from the agricultural economy. It is notable that the change in the source of the wealth of nations leads to the change in the politics of nations. Th e Industrial Revolution changed the source of wealth by trans-forming rock and ore to steel and steam. At the same time, the Industrial Revolution dramatically increased the power of the nation-state not only by enhancing its income but also by expanding its regulatory power and the armaments needed to control the natural resources within its territory. In the last several decades, the information revolution has increasingly been changing the source of wealth. Th e new source of wealth is not material; it is the application of information and knowl-edge to work to create value. Wealth is now created largely through new information and the application of new intellectual capital to the means of production. Th is shift in the source of wealth poses unprecedented problems with respect to the power of governments. Th is is because information resources are not bound to a geographic area and, there-fore, cannot be controlled by governments. An individual embodying intellectual capital can walk through customs oﬃ ces anywhere in the world with nothing to declare. Th e information economy penalizes any control of the territory and diminishes the value of the resources located within the territory under such control. Information resources include streams of electronic data, years of accumulated research embedded in computer memories, operating systems in automated factories, and the intellectual capital carried in the brains of engineers, managers, or investment bankers. In the new economy where the most precious resource is immaterial, the economic doctrines, social structures, and political systems which evolved in an Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization66economy devoted to the matter become increasingly incompatible with the new situation. Now mankinds most important rules and customs, and skills and talents should be directed towards uncovering, capturing, producing, preserving, and exploiting information. Th e world needs to improve the existing models of economics of information that sche-matizes its forms and functions. In the information economy, the deﬁ nition of asset is changed, the nature of wealth is transformed, a new path to prosperity is formed, the way people make a living is changed, and who and how manages the world aﬀ airs is changed. Th e competition for the most up-to-date information is totally diﬀ erent from the competition for the best coal-ﬁ elds. Companies or nations who compete for the latest information are entirely diﬀ erent from those that once competed primarily for material resources. Th e information economy and its related institutions ?? how information is produced and traded, the scope, shape, and protocol of information markets ?? have impacted government policy, have set the limits of government power, and have redeﬁ ned sovereignty. In the information economy, competitive nations are those who allow information to ﬂ ow freely. Th e free ﬂ ow of information means the free ﬂ ow of data, people, money, books, newspapers, and electronic media. Free markets require free expression. Th e information revolution started shortly after the invention of the electronic computer in 1946, by the rapid progress of computing and communications technologies. Over the past several decades, com-puters and telecommunications have grown in eﬃ ciency more than a million-fold. Both technologies owe their rapid progress to microchip. At the same time that these developments dramatically increased the computers power to process and use information, they also radi-cally decentralized that power by liberating computer users from the centralized giant mainframe. Although these developments are crucial, they are not the same as the information economy. Th e information economy is not in new things that are made of microchips but it is in the use of microchips to make things out of the information resources. Computers change what people make, change how people make it, and change how people make the equipment to make it. Information technology and industrial technology are diﬀ erent in kind and not just in degree. Information technology can be pro-grammed to do the required task and can be continuously adjusted. In industrial technology the task is adapted to ﬁ t the technology. Industrial Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Globalization and the State67technology involves manufacturing systems which are based on high volume, long production runs, and standardized products. A change in production runs usually takes a long time and involves shutdown of production. Information technology, on the other hand, avoids shut-downs by allowing almost instant resetting of speciﬁ cations. Computers operate not only in the service sector but also the man-ufacturing sector. Manufacturing plants now use computer hardware and software that integrate vast amounts of information into diﬀ erent stages of manufacturing, process vast amounts information, and pro-vide feedback information in order to make the necessary adjustments in the manufacturing process with minimum human intervention. Th e entire production facility is now coordinated by computer software and communications systems which connect and control digitally controlled machine tools. In this way, now mankind applies his rapidly increasing knowledge to work in order to create value. Expert systems, artiﬁ cial intelligence programs, computer-aided design, and computer-aided manufacturing systems are all knowl-edge-based systems that create value. Th ey are now used in major companies to perform process planning at aircraft plants, reformat-ting international payments at major money center banks around the world, or designing and processing machine parts. Th ey have formed the nucleus of industrial success. As information becomes the most important factor of production, products contain progressively less material. Machines get smaller and factories shrink, use less energy, and require fewer workers. Labor is substituted by information. In the leading industrialized economies, workers work only about half as many hours a year as they did two decades ago, but the production capacity of these economies to pro-duce wealth has grown by about twenty times over the same period. Th at is, in the modern economy, to create value one needs to put more information into products and services. A societys source of wealth has a crucial eﬀ ect on its political and social structure. For nomads, who raised herds of animals by moving from pasture to pasture, wealth was counted by the size of their herd. Land was not regarded as an asset. Later, in village agriculture, land and water became forms of wealth. Men laid down rules about the ownership of land and water, and political power shifted from nomadic chieftains to territorial rulers. In the industrial economy, real wealth comes from industry. Indus-trial products are machined and solid, which can be seen and touched. Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization68It is manufacturing that creates real value by producing real goods for sale. Th e mercantilists emphasized three ways of increasing wealth: by increasing the population; by mining; and by controlling international trade to increase the inﬂ ow of hard currency and gold, which the state could use to pay for its army. It was a daunting task to convince the sovereign states to relinquish some of their powers over international trade and increase the states own wealth. Th e current information economy requires concessions by sovereign states far greater than those asked of the mercantilist sovereign states. Th e notion of state sovereignty began in medieval era when kings tried to break the power of feudal lords, city-states, the Church, and trade guilds. In modern times, sovereignty means that power of a sovereign to act alone, without the consent of any higher authority. In international aﬀ airs, the ordinary decisions of a sovereign state are not reviewable by any other state. In a modern sovereign state there are many social and economic institutions, such as churches, universities, corporations, and volun-tary associations, which compete with the state for power. All such institutions, even those who are more powerful, live and act under the sovereignty of the state. Th e information revolution has eroded the centralizing power of the state. Th e nation-state and sovereignty will not vanish; and as a matter of fact, there will be many new sovereign nations formed. However, the power of the state and its sovereignty vis-à-vis other institutions within society will diminish. Information is not only power, but also wealth. It is nonmaterial and with the help of modern technology it has become extremely mobile. It can escape government control very easily. Bureaucratic systems of governments for controlling the ﬂ ow or use of information tend to destroy or waste it. Useful economic information is usually original, innovative, timely, nuanced, precise, complex, and challenging. Gov-ernment bureaucracies destroy all those qualities. Governments may well-govern matter but misrule mind, i.e., intellectual capital. Govern-ment controls frustrates and demoralizes them. Governments may be good at regulating, taxing, conﬁ scating, and controlling real products, assets, and businesses which can easily be seen, measured, and kept track of within their borders. Governments do not have much controlling power over what readily move out of Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Globalization and the State69town or across the borders and are concealed inside a humans brain. Whereas the real economy is a very important source of government power and wealth, the information economy can be a source of the erosion of government power and wealth because the information capital can leave the states territory. Industrial economys progress was built on massive economies of scale, in which ﬁ rms, plants, and machines grew larger, and they could not be moved in the event of government harassment or expropriation. Governments had great advantage with respect to the captive capital ?? mines and land, forests and factories ?? that allowed and promoted an enormous expansion of the government power. On such capital, which consisted of factories, heavy equipment, and natural resources, governments felt free to impose rules and exact payments with no fear that the nations capital base would move away over night. Of course, extreme impositions reduced productivity, but after all, government held to the power. In contrast, intellectual capital goes where it is wanted and wel-comed, and it stays where it is attracted and well-treated. It freely moves across borders and around the world, and even the most totali-tarian governments can only temporarily impede its movement. States that subject information enterprises to exorbitant taxes, regulation, political control and repression, or police and military might lose their information capital. Global competition for information capital leads governments to reduce such impositions rather than raise them. In industrial economy, natural resources are the dominant factor of production and therefore, the conquest and control of territory enhances national power. In information economy, the conquest of territory is not worth the cost to the nation. Th is is because war and years of paciﬁ cation and repression scatter intellectual capital, and the natural resources which are gained by conquest are declining in value. Also, size may be an advantage but it has lost its priority. Th e information economy is global because trade in information, which is not bound by geography and is not made of matter, is global. Global economy requires compromises of states power and sovereignty and it deﬁ es mercantilist or protectionist strategies. Th is is not easy for some governments because the control of international trade has been one of the most important aspects of sovereign powers since well before the Industrial Revolution. People who embody intellectual capital pose a dilemma to gov-ernments. On the one hand, governments must retain their human Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization70resources in order for their nation to prosper. On the other hand, the specialized knowledge of such citizens makes them more diﬃ cult to be governed. In many areas of economic and social life, these citizens are better informed than government regulators, who are resented and opposed by an increasing number of such citizens. Th ese citizens carry the means of production in their brains and their power and numbers are growing. Governments dilemma is more evident in nongovern-mental organizations whose subordination to the state is essential to the sovereignty of the states. Th e government is the only organized power center, but the society and polity contain power centers, which should be given relative autonomy to produce results. Subjecting or-ganizations, whether for-proﬁ t or non-for-proﬁ t organizations, to the control of central government bureaucracy is not compatible with the new realities. II. Perspective Two or Interpretive View Th e international relationship among states is anarchic because there is no central worldwide authority above the nation-states. Th e international relationship among states is a self-help system and each state looks after its own interests. Th e state is the principal and dom-inant actor in international arena and devotes considerable eﬀ orts to the preservation of national sovereignty. Internal sovereignty refers to the states monopoly on the legitimate use of force within its territory, and external sovereignty refers to the states being free of control by any outside authority. Th erefore, power and security are the aims of states and they place considerable emphasis on their ability to survive and pursue their national interest. 2 Th e state is not only the most important international actor but also a unitary actor. Th e state sets its policies by considering subnational and transnational actors, who operate within the framework of state policies. States act rationally by maximizing the beneﬁ ts and minimiz-ing the costs when pursuing national objectives. States may be biased, have misperceptions, and lack information and capabilities to make the best decisions. Instead of making optimal value-maximizing decisions, states may settle for satisfactory decisions. Overall, states are essentially rational decision makers. Each state is most concerned about its gains vis-à-vis other states, that is, its position vis-à-vis other states. Th us, if two states are gaining wealth in absolute terms, it is the eﬀ ect of these gains on their relative power positions that is of primary importance to them. Th e states em-Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Globalization and the State71phasis on relative gains is based on the view that their relationship forms a zero-sum game, that is, one states gain means another states loss. States compete with each other in supporting research and devel-opment (R&D) in high-technology sectors, restructuring industry, and deregulating ﬁ nancial markets. Th e high economic growth rates of some states are related to their success in fostering a symbiotic relationship with the competitive marketplace. Politics has priority over economics such that powerful states can structure economic relations at the international level. It is not the case that the increases in interdependence and globalization erode state control. In contrast, globalization is occurring because states permitted it to occur. Th us, the most powerful states have the capacity to either open or close world markets, and they can use globalization to improve their power position relative to smaller and weaker states. Th e hegemonic state has the ability to create an open and stable economic order that can enhance the globalization process. Global-ization can happen if the hegemonic state has both a large share of resources to support its leadership and the interest to pursue policies necessary to create and maintain an open economic order. In addition to being able to lead and having the interest to pursue globalization, the hegemon must follow policies that other major states believe are relatively beneﬁ cial. When there is no global hegemon or its power is declining, economic stability and openness become more diﬃ cult, but not impossible, to maintain. Globalization is a political process, that is, it is the successful mobi-lization of political power in unleashing the forces of globalization. It rests on active human agency. Th e shape of economic globalization is politically determined and any change in political preferences changes the shape of globalization and the accompanying social conditions. Cur-rent economic globalization is the result of a political decision made by governments to lift the international restrictions on capital. Th erefore, nation-state and territory matter even in a globalized context. States have the power to regulate economic activities within their sphere of inﬂ uence, and they are far from being impotent bystanders to the workings of global forces. In the same way that political decisions changed international economic conditions in the direction of deregula-tion, privatization, and globalization, a diﬀ erent set of political decisions can reverse the trend. Of course, it takes an international crisis brought on by globalization to provide states with the incentive to make their boundaries less porous to transnational ﬂ ows. Th at is, it is possible to Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization72reverse seemingly irresistible globalizing tendencies by politics, which is the foundation of a proper understanding of globalization. Survey of the political scene at the start of the twenty-ﬁ rst century provides convincing evidence that this is the age of the modern state. States have increasingly claimed a monopoly of the legitimate use of force and judicial regulation; established permanent military forces as a symbol of statehood as well as means of ensuring national security; consolidated tax-raising and redistributive mechanisms; established nationwide communication infrastructures; sought to systematize a national or oﬃ cial language; raised literacy levels and created a national schooling system; promulgated a national identity; and built a diverse array of national political, economic, and cultural institutions. In ad-dition, many states have tried to construct welfare institutions, partly as a means to promote and reinforce national solidarity, public health, and social security. Moreover, states have pursued macroeconomic management strategies in order to help improve and sustain economic growth with high level of employment. States seriously protect their sovereignty no matter how limited their actual control over their territories might be. Fundamental to state legitimacy is the bargaining process that they create with their citizens. National political traditions are still prevailing, political bargains can be entered into by governments and electorates, and states rule. Th e choices open to states vary dramatically depending on their location in the hierarchy of states, but at the same time, the principle of sover-eignty and its implied independence is very important to them in this age of nation-states. Modern nation-states, as political communities, strongly maintain their ability in establishing national communities of fate. National politics, and the competence with which it is performed, is at least as important as it was when states were being formed. In order to meet national objectives, developed countries try to enhance their strong state capacities and developing countries need to develop theirs. Of course, national governments are partly constrained by various pressures coming from international interdependence and economic openness. In order to understand how national governments respond to globalization one needs to understand what goes on inside the nation-state. Th e global economy not only constrains but also enables govern-ments to pursue their national policy objectives. Th e extent of the outcome depends on the domestic institutional context, including its normative and organizational aspects. Th e domestic institutions of Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Globalization and the State73governance mediate the challenges of openness. Th ese institutions reﬂ ect ideas about the states economic role and public purpose, ar-rangements that produce cohesive elites, structural policy networks connecting state and society, and the representation of interests in the political and policy process. Th e global constraints are most eﬀ ective in the ﬁ nancial realm (most prominently the monetary policy) and least eﬀ ective on the social, trade, and industry and innovation policies. It should be noted that even the loss of monetary policy control under conditions of capital mobility and ﬂ oating exchange rates is not complete. It is not complete because it applies mostly to the loss of control over the exchange rate. Howev-er, with respect to the levels and types of private debt, governments can regulate domestic credit expansion. Th e loss of monetary policy control tends to apply more to the small, highly open economies, but less to the larger ones. With respect to ﬁ scal policy and its social implications, some argue that globalization places constrains on the governments ability to run ﬁ scal deﬁ cits and follow inﬂ ationary monetary policy because global ﬁ nancial markets react negatively to inﬂ ationary policies. Th e count-er-argument is that this market-imposed constraint does not disappear in the absence of global ﬁ nancial markets. Th at is, such policies have always been subject to private sector evaluation, irrespective of capital market integration. Overall, globalization imposes macroeconomic constraints on gov-ernments, but not completely, such that governments retain autonomy in many signiﬁ cant areas. Economic interdependence has grown very signiﬁ cantly over the past several decades (though not necessarily beyond what it was a century ago), but some people overstate the consequent constraints imposed on government policy. In contrast, it is shown quantitatively that the all-powerful, bor-der-erasing globalization is far less advanced than it is claimed. By set-ting quantitative changes in trade, capital, and investment ﬂ ows within a larger perspective and evaluating their overall weight as a proportion of national economic activity it can be concluded that economies are still primarily national in scope. International ﬁ nance is the exception, where genuinely global markets (especially in foreign exchange, bonds, and derivatives) are central characters. Overall, there is little doubt that economic interdependence in trade, investment, and ﬁ nance has not displaced the national networks. It has made the system more complex such that both international and transnational networks have Ardalan, Kavous. Understanding Globalization : A Multi-Dimensional Approach, Taylor & Francis Group, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/csun/detail.action?docID=3411322.Created from csun on 2023-01-20 04:57:43.Copyright ? 2014. Taylor & Francis Group. All rights reserved.
Understanding Globalization74developed in parallel with, and complementary to, national systems of production and ﬁ nance. Th erefore, the reach of globalization is limited; it has important historical parallels that counter the notion of state power depletion; and borders and national states still matter very much. Th e discussion related to the extent of globalization is limited be-cause it has little to do with the national responses to, or capacities for managing, the challenges of economic openness. Interdependence has both enabling and constraining eﬀ ects on the nation-states, and its speciﬁ c concrete results depend to a signiﬁ cant degree on the existing national institutions. Th ree enabling aspect