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The States And Globalisation Economics Essay

In this paper, we examined whether states lost sovereignty in a globalised world. We need to distinguish between sovereignty and authority and temporal and spatial authority. There is some loss of sovereignty (especially temporal) when states adjust to globalisation requirements of deregulation. States need to prepare themselves before plunging into globalisation. However, there is no justification to states surrendering their authority to markets in the name of globalisation. Harmful results of globalisation, including recent economic crisis, have highlighted the need for a more regulated approach to globalisation. Here, states have sovereignty to decide its own course of development albeit within the narrow policy space. Overall, states should not surrender their sovereignty until fully prepared for globalisation.


Globalisation can be defined as a process associated with increasing economic openness, growing economic interdependence and deepening economic integration in the world economy (Nayyar, 2010: 3)

Globalisation is the process of integration of regional economies, societies and cultures through networks of communication, transportation and trade. Sometimes, the term is used specifically to economic aspects (economic globalisation). National economies are integrated into international economy through trade, foreign direct investment (FDI), capital and technology flows. UN ESCWA considers it as reduction and removal of barriers between national borders to facilitate free flow of goods, services, capital and labour. Thus in a completely globalised world, anyone can do business in any part of the world at any time without any restrictions. Implicit in it is the principle of using and sharing available resources most efficiently by each country for equitable distribution. However, profit maximisation motive of multinational firms have converted it into global competition. This has resulted in a new economic doctrine called “Neo-liberalism”.

Globalisation has produced more inequalities among nations due to the following effects-

Globalisation leads to the concept of world government. This has meant, in effect, control of international affairs by powerful countries like USA which have strong economic power. Thus some countries are placed better than others.

Worldwide access to products and services by consumers due to internationalisation of production, trade and development. This has benefited international firms more at the expense of local firms leading to displacement of local jobs, destruction of local industries, lowering of wages and benefits to workers in developing countries. Freedom of exchange of goods, capital and services resulted in economic collapse in some areas and prosperity in some other areas.

Commoditisation of welfare items like health care, education and even life essentials like drinking water.

International financing institutions like World Bank and IMF rendered so called “development assistance” to developing and poor economies pressurising them for deregulation and privatisation with detrimental consequences.

Brain drain, environmental degradation and climate change, threat to food security, spread of infectious diseases, drugs and illicit goods trade are other effects of free market.

In summary, globalisation is a novel idea if meant only for most efficient utilisation of resources and equitable distribution. However, dimensions of competition for profit maximisation, insistence on privatisation and complete deregulation have resulted in many harmful effects on poor economies. The economic crisis of 2007-2010 (and still continuing) is often ascribed to failure of neo-liberalism (Nayyar, 2010) [1] . These events have only added to the state responsibilities (United Nations, 2010: 5) [2] .

It is difficult for any nation to remain in isolation when globalisation happens. Realising this fact, countries like China have liberalised its economy considerably. With the specified characteristics of globalisation, states have little room for manoeuvrability. Does it mean that countries cannot remain sovereign when full globalisation happens? We examine this question here by matching globalisation attributes with functions of the state.


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An UN document on globalisation (Millennium report, Chapter 1) [3] wanted states to realise their dual role within their boundaries and towards entire world. International decision making structures should be reformed to reflect the views of all states of the world. Better governance comes with greater participation and accountability. This is especially applicable to global firms. Consistent financial and economic policy by all states needs to be ensured. Subsequently, in 2010 (United Nations, 2010) [4] , UN reiterated these changes. Surrendering state powers to market is not desirable. In developed countries, superior regulations, informational framework and infrastructure already exist to take full advantage of globalisation. Developing countries plunged into globalisation without fulfilling these pre-requisites. Need for reporting systems of capital account transactions for macro-economic policy making and optimal financial regulation is such a requirement. Stable financial environment promotes investments. The G-20 meeting of November 15, 2008 recognised regulation as the most important top priority of nations to prevent market instability. For management of global financial interdependence, nations need to work with minimum global standards and commitments. Adequate policy space with globalisation needs is not available to developing countries to do this. Volatility of private flows due to international market behaviour needs to be controlled first. Thus, control of donor activities, industrial development, economic diversification, re-establishment of capital controls, well-structured regulations and legal systems and social development are the areas available to states. Each nation needs to adopt context-specific approaches on the twin issues. Market without a strong state can lead to substitution of unaccountable state power with unregulated private wealth accumulation resulting in economic and social decline. Good governance is very important.

Nayyar (2010: 2) cautioned about the risk of integrating national economies with global economy. Free markets and globalisation may not result in development. National governments are political, but not economic, players. Autonomy of states in economic sector has declined due to globalisation for both developed (with less adverse effect) and developing nations. (This was discussed in terms of policy space above). However, states are still powerful to determine rules of the game but with unequal powers between developed and developed nations. Political cloud required by multinational firms and financial organisations is provided by developed states. Developing nations simply fall in line as they have no other option. WTO can enforce domestic economic policies. No rules exist to determine what multinational firms can or cannot do. States are helpless in setting rules to control them as WTO has decision powers. This role of WTO is contested by Lash & Grisford (2010: 3-4). They insisted that WTO had power only to approve complaining nation to impose sanctions. It has no power of punishment. Thus functions of international organisations do not affect sovereignty of nations.


For multinational firms to grow, states guarantee domestic and global rights of capital through new institutions and regulations. In the global/national duality, one wins when the other loses. New international legal regimes resulted in concentration of wealth, poverty and inequality. These occur under the specific modalities of global cities as noted by Sassen (1998: 166) [5] . Deregulation resulted in denationalisation particularly in global cities. On the other hand renationalisation has occurred in the case of anti-immigrant feelings and politics. Highly localised national politics is involved here (Sassen, 1998:166) [6] . New forms of legalities and regimes facilitate capital to become a global factor with required denationalised spaces (global cities) provided by the state (Sassen, 1998: 167) [7] .

Jessop (2010: 40-41) [8] referred to three declining trends in power of states-

Power shifted from nations upwards to regional or international and downwards to local administrations with corresponding allocation of state powers. Yet, states can produce/regulate extra-territorial spaces like foreign investment centres, export processing zones and tax havens.

Territorial power centres weakened compared to non-territorial political power. These could bypass or circumvent states through new forms of international regime and extra-territorial arrangements. It may either be due to deliberate action by state policy managers or independent of them.

Rapid integration with global market resulted in loss of temporal sovereignty. Considerably less time was available to determine and coordinate policy responses to rapidly changing global economic events and crises.

Thus states enjoy only spatial sovereignty to some extent and loose spatial sovereignty due to globalisation.

States have been reduced to mere facilitators of global political, economic and regulatory systems. States try to protect their sovereignty through international agreements in spite of increased global consciousness (Rothe & Mullins, 2010: abstract) [9] .

Richer states have capacity to assume multiple roles of collaborating and building successful regional and multinational institutions. States will be hesitant to sacrifice their sovereignty to globalisation due to absence of an effective substitute. Ferguson & Mansbach (2010) [10] in an html document, argue that sovereignty is a collection of myths in the context of globalisation-

States monopolise over violence and in control of their territory.

States create impermeable boundaries.

Under anarchy, states are like units.

Sovereignty is authority, competence or capacity (and not legitimising state authority). It enables prevention of outside interference with the nation’s affairs.

The gap between sovereignty and authority determines the extent of loss of control.


Sovereignty includes authority….

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