Globalisation can be defined as the intensification of political, economic and social relationships in a global context, such that events happening across the other world can have a very ‘local’ impact for a particular country. In the context of globalization where everything is seemed to be borderless and accessible, many have questioned the role and relevance of the state today. The state governs the direction and policies a nation adopts. In this essay I am going to argue that the responsibilities of the state have remained important, if not more essential. My opinion is that the role of the state has been refined and modified in a highly internationalized world; Globalists have underestimated the variety and value of state capacity. I am going to proceed by dividing the content of this essay to three parts, political, economy and social: the three areas of analysis where increased intensity of the role of state has been demonstrated.
In politics, regional integration is a common form of political cooperation within states in a globalizing world. Almost every country is part of a supranational body. In this new form of cooperation, it is easy to jump to the conclusion that countries are homogenous because they are now an element of a supranational organization where countries seemingly cooperate with each other when dealing with international issues such as military conflict and economic recessions. However, I believe these inter-nation relationships are shaky and unstable in nature. National interests are still primary. Different states have different agendas and not all are treated equally. For example, the European Union (EU) has been delaying its decision on whether to include Romania and Bulgaria in the “Schengen” area of borderless travel. Romanians and Bulgarians are subjected to non-EU border controls even though they are official members of the EU. As you can see, in contrast to what one would expect in a globalised world, state borders are hardly porous. A state’s border regulations are very much in place and restrictive as some might argue. Another popular example would be the United Kingdom’s reluctance to declare its participation in the EU in 2012. Cameron famously quoted “when we sit round that table, we listen not to the European parliament, which has its legitimate views, but to our own parliaments” (Watt, 2013). These cases indicate that national interests are still more important than supranational objectives.
I also believe the state is still important because it is still a singular reference point in political space. International, sub national and transnational agencies show the relevance of the nation as an important building block of all these organizations. It is still too early to ignore the pieces that make up the jigsaw puzzle. Unlike jigsaw puzzle pieces, nation states are not homogenous and equal in size (which in this context, means power). Without these nation states, ‘global corporations’ will cease to exist. The same applies to sub national governments. These governments are essentially derived from national powers. For example, GEO Mexico City, a sub national council that focuses on creating integrated environmental assessments, still answers to the Forum of Ministers of Environment of Latin America and the Caribbean. Therefore, the nation state is still the main reference point for transnational and sub national activities. Power and influence is still referred to the national sphere.
I will now move on to explaining how the nation state still has a pivotal role to play in a globalised economy. Globalists have incorrectly assumed that states once had absolute economic freedom. Thus, the changes in the relationship between states and economies have been largely exaggerated. For example, prior to World War 1 and the classical gold standard of fixed exchange rates, governments had little control over an economy anyway. However, in today’s age I will argue that the state has an even more important role to play in the market. A globalised economy is a by-product of the promotion of internationalization strategies by the State. A good case study would one of the East Asian Tigers, Singapore. Singapore provided foreign corporate companies with facilities similar to those back home in Singaporean industrial parks like the Changi Business Park and Seletar Aerospace Park. So, foreign companies were invited into Singapore to set up their businesses in these industrial parks, which proved to be very productive for the economy. The Singaporean state also encouraged their companies to go abroad to explore investment opportunities in the South East Asian Region. This was not entirely a smooth process. Dr Goh Keng Swee, the Minister for Economics said firms had to be ‘pushed’ to shift businesses offshore. From 1972 to 2001, Foreign Direct Investment (FDI) as percentage of GDP in Singapore increased from 0.7% to 21.9%. In line with this strategy, the China-Singapore Joint Steering Council was also set up to facilitate the relocation of local Singaporean companies in other countries (Weiss, 1998). Therefore, the State provided top down economic incentives for these firms to go abroad. Global economies are thus a product of state actions.
In an integrated economy, one would assume that an intense exchange of goods and services between countries would be occurring. However, this is not the case. Production is mainly for domestic consumption. Thus, it is useful for development students to distinguish the difference between a strictly global economy and a highly internationalized economy (Hirst and Thompson, 2009). Production within national borders still makes up for 90% of its economic activities. In a study of 11 highly international economies, exports only make up an average of 12% of Gross Domestic Product (GDP). Countries are not engaged in global trading to suggest that economies are highly integrated. If we look at Foreign Direct Investment (FDI), data suggests that tendencies for local companies to invest abroad and form Multinational Companies (MNCs) are not encouraging. For example, in Japan and US, private funded outward FDI is only a small element of its Net Domestic Investments, clocking in at 0.5% and 14% respectively. Another interesting observation is the reluctance of MNCs to move away from the North to set up businesses elsewhere. This indicates that ‘footloose’ and ‘stateless’ MNCs are a myth. Most MNCs keep their assets and employees in their respective national territories. General Motors in 1989 had 70% of its employees and assets in the United States alone. Two thirds of inward FDI in the world is concentrated in the US and European Union in the 1990s (Wade, 1996). Thus it is not accurate to imply that a corporation is ‘stateless’. There is always a location that a firm will be more loyal to, compared to other places. This is because a firm will encounter sunk costs. Sunk costs consist of start up costs and gaining acceptance from the. This is how the government is still responsible to provide a platform for ‘homegrown’ firms to participate in the global market.
In the financial sector, there is no doubt that globalization has played a part in minimizing the barriers for transfer of government bonds and currencies, due to the high tech software applied to financial transactions. However, stock markets are still very much controlled by the State. Technology itself cannot overlook the political interests related to the stock market. Outside national boundaries, companies find it difficult to trade their stock because of financial barriers in the foreign market. Weiss (1998) stated that there is a dualism rather than trans nationalism pattern that affects the operation of financial markets. Shares seem to be “fixed” to specific national stock markets, not transnational markets like bond and currency markets. Generally companies are not likely to trade their stock at a foreign market where their reputation is not as established as at home. Financial regulations, tax systems and corporate ownerships are still set up by the state to protect national interest in respective stock markets.
Secondly, the price of capital has not converged. Real interest rates across national markets are still very much differentiated, contrasting to what one would expect in a globalised economy. For example, in the light of the Eurozone crisis, Italy saw a rise from 5.55% to 5.82% in their interest rate. Small businesses in Italy and Spain faced a surge in interest rates/borrowing costs thus further diverging from the German interest rate (Atkins, 2010). Also due to the differences in interest rates across the globe, there are market differences in savings and investment rates. In 1992, the ratio of savings to GDP in 11 countries ranged from 0.5 to 25%. The Northern countries like the US and UK had ratios from 0.5 to 2% while the East Asian Tigers Japan, Taiwan and Korea had higher savings ratio between 20-25%. Investment-GDP ratio also follows parallel patterns. This indicates that there is still national autonomy in setting interest rates.
Next, the state is still the ‘go-to’ body in handling economic crises. One does not need to look far to remember the significant role of several states that carried out damage control during the 2008 subprime mortgage crisis. Without state intervention in the highly globalised financial market, the unemployment crisis would have definitely been much worse. Mega rich banks such as JP Morgan and Bank of America had to be bailed out by the United States Treasury (government agent in finance) by amounts of $25 billion and $15 billion respectively (CNN, 2009). It is often said that private financial institutions like investment banks exert a powerful hold on the governmental decisions. Although I think it is a valid opinion, but I think the state still has more control over financial markets. The government holds a higher bargaining power because it has the power and reserves to bail out banks when financial crises happen. This therefore gives the right to State to refuse to help out banks during a crisis, like what happened to the Lehman Brothers Corporation.
I will now explain how the State’s role became more important in social policies. Globalisation, a theory associated with neoliberalism, has in many ways restricted redistribution programs. Profits have now become the primary incentives in the private sector. Public provision is arguably now a second hand priority to private investments. It has triggered the ‘race to the bottom’ and encouraged ‘social dumping’. Social dumping occurs when private firms decide to exploit cheaper labour in order to increase profits at the expense of labour rights and standards. This pessimism of the relevance of the welfare state is reflected in Beck’s article where he quoted ‘All premises of a welfare state “melts” under the sun of globalization” (Beck, 2000). However, I disagree that the welfare state has declined in the face of global challenges. Instead, welfare policies have been modified to cover a wider range of social issues. The state has the responsibility of preventing a further decline of welfare by offering more comprehensive public service provision programs. Only the state can guarantee a free system of democracy via its tools of institutional reform, healthcare and human resources development. I will now explain more specifically about the state’s influence in social policy.
A state’s role in healthcare has been dramatically transformed in global conditions. Medical threats are now more international and easily transmitted. Intense migration has intensified due to the spatial and temporal shifts in a global environment. Obviously the concern has been about preventing transmissions of viruses from low income and developing countries to higher income countries. With the increased speed of transportation around the world, viruses can easily be a global pandemic if they are not contained. This is where the State via the Ministry of Health has to control border regulations and enforce medical screenings at airports. Recently, in the global panic regarding the Severe Acute Respiratory Syndrome (SARS), the United States’ Department of Homeland Security authorized the detention of SARS Symptom carriers from Asian countries such as Beijing and Singapore where the virus was apparently more active (Philips, 2003). Next, due to the cognitive shift in a global environment, perspectives are highly influenced by advertisements and marketing. This can prove as a medical threat when life-threatening products are sold to the developing world to reap profits. For example, it is estimated that, by 2030, 70% of all tobacco-related deaths will occur in developing countries (Lee, 2003). Thus, states have enforced rules to educate the public about the dangers of smoking. The Malaysian government even printed out gruesome pictures of premature born babies on cigarette packs to ‘disgust’ smokers out of the habit. In the United Kingdom, every cigarette pack has a sign saying “Smoking Kills”. Therefore, the nation state is still very much relevant in providing healthcare education and protection to its people.
Global education has been a major result of the integration of intellectual networks. This is why the State has to provide the academic platform for its citizens to share local knowledge to a global crowd as well as internalize information from other academics abroad. However, global education has also provided challenges to a nation’s human resource. One of the challenges is brain drain, where intellectuals are fleeing from their own country to ply their trade elsewhere. This seriously undermines human resource development in a country. For example, 40% of Sub Saharan Africa’s educated populations are abroad (Velde, 2005).
This is how the State comes into play. In order to prevent brain drain, Singapore’s Economic Development Board (EDB) has coordinated the demand of investors with educational provisions. Therefore, they can “groom” their graduates according to specific requirements of companies. In Malaysia, the government created a facilitating corporation called TalentCorp to act as the middleman between high skilled graduates and high ranked companies back home. Several government recruitment policies such as the Retain Expert Program (REP) helps to recruit Malaysian graduates abroad to come back to their country to serve in the economy (Lee, 2012).
Another form of social protection is based in the labour market. In a highly global market, employers adopt capitalist measures to exploit the cheapest labour available. This brings about negative effects to underrepresented workers. In June 2011, China implemented the new Social Insurance Law where unemployment benefits were modified to avoid worker exploitation and post-redundancy dissatisfaction. For example, the employer now needs to give evidence of a worker’s termination within 15 days from when he/she is released. With this document of evidence, it makes it easier for unemployed workers to claim unemployment benefits. The Chinese government also included a paternity leave in line with the maternity insurance fund to provide fathers time off to settle down from a new child (Livermore, 2012).
Minimum wage legislations are also important state intervention tools in social protection policy. The minimum wage has been imposed in many nations such as Chile to counter the dangers of negative global impacts such as the Asian crisis in 1998. Lastly, the State is in charge of handling global climate crises that have occurred due to the irresponsibility of some industrial actors. The environment has to be protected for future generations. In a highly liberalized world, environmental preservation incentives are frequently ignored to achieve short-term profits to ‘boost the economy’. Nations have taken initiatives to form pacts on reducing carbon dioxide emissions such as the Kyoto Protocol. The State is very much in charge of preserving the environment for future generations.
In conclusion, I have explored the three areas where globalisation is most prominent, which are the political, economy and social spheres. Within these areas I have provided the justifications on why the State has an even more important role in this global age. I have provided these illustrations by looking at case studies in Singapore, China, United States and other countries. I believe that globalists and neoliberals underestimate the novelty and capacity of the State to affect our everyday lives as citizens. The nation is still very much as relevant as it was, if not more important. The ’end of nation’ approach is too deterministic. The disintegration of the state cannot be assumed to be inescapable. In addition, I think the question that we should be asking is how do we provide an equal share of the ‘globalisation pie’ to all nations? An unplanned expansion of global relations will not provide the most fair of outcomes. For example, Third World Countries are often at a disadvantage when it comes to key decision-making regarding global resources. Economic and political superpowers dominate the key positions in so called ‘global institutions’ such as World Bank and the International Monetary Fund. This is why as scholars we must continue to engage in a discourse to provide a fair platform for all countries to participate in the globalizing environment. Inequalities that exist in the global world must be identified and eradicated to the best of our abilities.
References
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7) CNN Money, 2009. Bailed Out Banks (online) Available at: http://money.cnn.com/news/specials/storysupplement/bankbailout/ (Assessed 22nd March 2013)
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New York Times (online) Available at:
http://www.nytimes.com/2003/05/07/national/07HOME.html
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11) Velde, D. 2005. Globalisation and Education
What do the trade, investment and migration literatures tell us?
Overseas Development Institute.
Shahrul Hamdan 