The Nation State in Service of Globalization

7 october 2012

How to Combine Modern Basic Trends

Yevgeny Gontmakher, Dr. Sc. (Economics), is Deputy Director of the Institute of World Economy and International Relations (IMEMO).

Nikita Zagladin, Dr. Sc. (History), is Director of the Center of the Institute of World Economy and International Relations (IMEMO).

Resume: The modern world is witnessing a shift of power in all spheres of public life towards supranational and transnational structures, and at the same time, growing aspirations of some regions of large states to gain autonomy or even independence.

The outlook for the world’s development has become ever less predictable over the past decades. In the 1980s, practically no one foresaw the collapse of the Soviet system of unions, and then of the USSR itself. True, in retrospect one may easily point to the symptoms that had indicated this sort of outcome was very likely, but it is well-known that it is far easier to explain retroactively accomplished events than to identify their probability in good time.

Practically nobody (exceptions are few) had predicted the global crisis that erupted in 2008, although cyclicity is immanent in the free market economy. In 2010 many experts thought that the turmoil was over and the world economy was showing signs of an upturn. However, as soon as 2011 the budget crisis in the south of Europe came as an unpleasant surprise to most economists as it put a big question mark over the very existence of the common European currency. In 2012 “volatility” was the forecasters’ catchword – a term as pretentious as incomprehensible. It can be interpreted as uncertainty or a combination of multi-vector trends, although in essence it denotes unpredictability.

Unpredictable but very typical of the modern world are inter-state conflicts – both violent ones and involving massive unrest (in some cases, with limited foreign military intervention) in countries which seem to have no conditions for change. The year 2011 alone saw the collapse of the ruling regimes in Tunisia, Egypt, Libya and Yemen, and the beginning of clashes in Syria and in Sudan’s oil-rich provinces bordering on South Sudan. Few had anticipated a surge of social and political activity in Russia.

The area of inter-state conflicts keeps broadening to have spread to not just states in Africa and Asia and the CIS countries. Risks have manifested themselves within the European Union and North America, including the United States.

Naturally, in each specific case there are some unique country-specific causes of tensions. But one cannot neglect the factors related to globalization and the world crisis that it has brought about. These factors of political, economic and ethno-socio-cultural nature undermine international stability and the prospects for sustainable and safe development of many states.

The ability to take the aforesaid factors into account, let alone to turn them to one’s advantage, is the precondition of successful functioning of any nation state, and also of a large corporation having interests outside the country of origin.

 

THE ENLIGHTENMENT PARADIGMS EXHAUSTED

Standard explanations of many conflict situations in the modern world are often superficial. Usually, two parties to this or that collision are identified.

The customary “conjugate” categories are: “champions of democracy” vs “undemocratic forces.,” “separatists” vs “advocates of territorial integrity,” “extremists” vs “safeguards of law and order,” etc. The standoff is regarded as a zero sum game. The success of one party spells defeat of the other.

This sort of approach has always been characteristic of ideology-biased mass media, and also some school and university audiences. The mentality of many experts, too, was shaped under the influence of such simplistic stereotypes. Moreover, the non-dialectical approach to the reality conceals a phenomenon that can be defined as a “conceptual crisis” of modern political and social science. Even the most progressive ideas and concepts stem from paradigms that emerged in the era of the Enlightenment and have undergone very little change since.

These paradigms stem from the natural-scientific approach, which was based on the denial of Divine Providence (quite daring in its day), the certainty that  it is possible to decompose the phenomenon under analysis into simple elements, identify the leading factors, devise relatively simple algorithms of their interaction and on that basis make a forecast of the expected changes. In the 20th century, after the discovery of radioactivity and the laws of the microworld, these primitive mechanistic explanations of the law of nature had to be discarded. It is not accidental that human sciences eventually borrowed from natural sciences the ideas of synergy and bifurcations, which deny primitive determinism.

The tradition to explain the processes of social development with the use of some imperatives, allegedly inherent in human nature, which dates back to the era of the Enlightenment, was no better than references to the Will of the Lord. Probably the first scholars to offer a formalistic, mechanistic, materialistic interpretation of history were Karl Marx and Friedrich Engels; this approach guaranteed their teaching’s long life. The founders of Marxism had at their disposal a rather limited specific historical material – mostly concerning Western Europe. To keep within the preset pattern they had to complement the five stages of social development with such terms as “Asian development” and “reactionary nations.”

Modern historians, free from the dogmas of Marx’s theory, acknowledge that in the so-called era of slavery slave labor was the basis of the economy in far from all parts of the world, including ancient Egypt, the Greek City States, and ancient Rome. A great role belonged to the peasant communities, there existed free labor and free craftsmen, etc. Today’s textbooks recognize that classical feudalism existed only in the countries of Europe, but not in Asia.

However, the latest attempts to update the Enlightenment approach to studying social development have basically the same flaw of mechanistic analysis that Marxism had. In particular, this is seen in Wallerstein’s world-system theory, Toffler’s historical wave theory, Fukuyama’s “end of history,” and others. The wish to draw a rigid pattern of humanity’s “vertical progress” is more often than not pegged to a specific policy of this or that superpower viewed as the carrier and advocate of the most advanced ideas.

The events of the past decades, which none of the social or political science theories had been able to forecast, may be regarded as evidence that any theories are ineffective and science is in crisis. In reality, however, it only points to the lameness of the Enlightenment mentality paradigm. Most probably we have to recognize that there are no universal laws of social development. There are only certain interacting (and often conflicting) trends in the social, economic, political and socio-cultural affairs and international relations that have certain temporal and spatial parameters. Their implementation depends on the civilizational or, to be more precise, ethno-socio-cultural parameters of society. They determine the attitude of individuals or groups of individuals making up a society towards certain changes in the reality. Some trends become dominating ones, but only for a short period of time.

For instance, the international division of labor – a significant world development trend in the 19th and 20th centuries – had little influence on the life of Europe in the early Middle Ages, when the natural economy prevailed. Trade routes, like the Silk Road, did exist, of course, but the duration of the journey, as well as the risks involved ruled out a significant role for it as a factor of development. Similarly, the trends towards the aggravation of social antagonisms in the countries that embarked on the road of industrial development were clearly noticeable in Europe in the 18th and 19th centuries. However, proclaiming class struggle as the universal driving force of history by Marx and Engels was a mistake. In the Middle Ages in Europe religious distinctions were of far greater importance. In the second half of the 20th century, when the middle class, tending to compromise, accounted for more than half of the industrialized countries’ population, conflicts gave way to social partnership.

The problem with most theoretical and analytical constructs is that their authors, who did a remarkable job worthy of a true genius to identify some basic modern trends and make on that basis a number of excellent effective forecasts, begin to absolutize their own conclusions. The followers of scientific schools fall into this trap particularly often. They build a certain system of primary, secondary and tertiary factors of the world development – probably correct for a certain period, but a finite one. When it comes to an end, the advocates of this theory find themselves in a stalemate – precisely the way we observe today.

The main challenges and complexities of the early 21st century are generally attributed to the uneven and unbalanced processes of globalization in various spheres of life. Some political scientists interpret globalization as an effect of some covert deals (or conspiracies) of some group of select few ruling the world, the top elite of transnational corporations or banks (TNCs and TNBs) and associated politicians.

If only such covert schemes did exist, the world’s development would be far less chaotic, because the situation would be changing according to a predetermined scenario. Although covert agreements between individual corporations and governments are certainly many, regrettably, they are not enough to ensure smooth and orderly flow of changes on the globe.

 

THE ORIGINS OF GLOBALIZATION

Prerequisites for globalization began to ripen a while ago. Back in the 19th century the system of the international division of labor started to take shape, the largest corporations of Western Europe and the United States established a chain of overseas branches. However, the clashes of the leading world powers’ geopolitical interests and the competition for foreign markets among domestically oriented financial and economic groups more than once upset the integrity of the world market (especially during World War I and World War II). The emergence of autarky-tending regimes (Hitler’s Germany) and of countries with centralized economies (the USSR and its allies) restricted the opportunities for the international division of labor. Nonetheless, this process – quite positive in principle and promoting the optimization of territorial distribution of production forces within market economy countries – slowly but surely gained pace after World War II.

Conflict-prone “free competition” among states was replaced by the negotiated control of competition within the framework of the General Agreement on Tariffs and Trade, eventually succeeded by the World Trade Organization. Rivalry among the leading countries of the world over the zones of their currency control gave way to the agreement on the leading currency (the dollar) and the reserve currencies, and to an orderly system of international settlements. The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) were established with the aim to unify budget forming policies to assist countries in confronting internal problems. Regional integration institutions began to be formed: the EEC and then the European Union in Europe, the ASEAN in Southeast Asia, NAFTA in North America, and others. Within their framework, in particular inside the EU, there developed a tendency to shift from a union of nation states to common spaces for the movement of goods, capital and workforce and to gradual harmonization of their legislations. This policy and the regulation of competition rules (production quotas, etc.) considerably expanded the national markets of individual countries.

Admittedly, the scale of the activity for putting international competition in order, initiated by the Western governments (partly due to the desire to prevent wars among them in view of the confrontation with the USSR), proved optimal for the zone of the world adhering to market economy rules. It was in that period, in the 1950s-1970s, that the acuteness of cyclical crises was minimized and economic miracles happened in West Germany, Japan and Italy.

Lastly, transnational corporations started to crop up to take their present shape mostly back in the 1970s and 1980s. In contrast to large corporations of the past, which opened branches in other countries, TNCs split the integral production cycle into segments and distributed them in different countries in accordance with economic feasibility. These virtual assembly lines stretched over dozens of countries and the amount of intra-corporate international trade in parts and components came very close to the sales of finished products.

Some purely objective material factors fuelled TNCs’ emergence and growth: on the one hand, better transport infrastructures, lower transportation costs in the 20th century (the emergence of container carriers, automated reloading, etc.), and, on the other hand, the emergence of information technologies which helped optimize the management of the corporations’ branches and improve the marketing of their products.

The role of TNCs in the modern world economy is a great controversy. According to the Munich Business School, in 2008 (before the global crisis) there were 79,000 TNCs in the world with 790,000 branches outside the countries of origin. They accounted for more than 10 percent of the world’s GDP growth, and their aggregate workforce was growing by an annual 82 million. Overall sales by TNC-owned enterprises achieved 31 trillion dollars. At this point it would be appropriate to recall that the world’s GDP today stands at about 70 trillion dollars.

The strongest impetus to globalization followed when China launched its market economy reforms, the centralized economy in the USSR and the East European countries collapsed, the Cold War came to an end, and the Soviet Union fell apart. In a word, when the integrity of the world market economy was restored. The intensification of global processes was greatly influenced by decisions of the Organization for Economic Cooperation and Development (OECD), uniting the most advanced market economies, to liberalize banking activity (at the end of 1990s), and also the WTO policy towards the liberalization of foreign trade.

The acceleration of globalization rates had both favorable and adverse effects, which, if looked at impartially, should be neither idealized nor demonized, although the theorists of pro- and anti-globalization political movements find it quite easy to present convincingly-looking concepts.

The global crisis that began in 2008 was not just one more in a row of upheavals common in a cyclical free market economy. It is a systemic crisis that had been ripening for about two previous decades. It involves the basic principles of the operation of a state, social development, the application of international regulatory and legal norms, and the functioning of the world economy’s basic institutions.

Here we should specify the notion of “systemic crisis.” Vladimir Lenin described the revolutionary situation as a state of affairs in which the lower classes do not want to live the old way, and the upper classes are unable to live the old way. In principle, the symptoms of such a revolutionary situation are observed in Russia today. The upper classes have begun to realize that the current level of corruption, the dependence of the economy on the raw materials export and the continuing flight of capital will soon turn Russia into a third-rate country, unable to preserve its territorial integrity. And this, in turn, may cost the upper classes the loss of power. The lower classes are increasingly demonstrating their reluctance to tolerate corrupt officials and the authorities that show little ability to address the problems facing the nation.

A “systemic crisis” is considerably different from the “revolutionary situation.” It implies the existence of contradictions that cannot be resolved within the framework of the existing paradigms of world outlook. However, these contradictions do not necessarily and immediately cause any major collision, they usually generate changes indirectly and manifest themselves differently in countries belonging to different civilizational communities.

Many discussions nowadays revolve around the question to which extent a nation state loses its sovereignty under the influence of global changes and how its functions are transformed. In reality, the changes concern the fundamentals of the world civilization’s development. For many years, they were related to the evolution and improvement of state governance. It was the nation state that acted as society’s backbone, interacted with society in the controlled territories and influenced it – and also changed in line with society’s requirements and expectations. Relations between nation states determined the nature of international relations, their type and their evolution. This sort of situation lasted up until the middle of the 20th century.

Then, an erosion of the nation state began – inconspicuously for the contemporaries; as it proceeded, the nation state was losing the ability to act as a system-forming factor of the world civilization. That process can be likened to a gradual destruction of the supporting structure of an old apartment house, as its dwellers carelessly and incompetently rebuild their apartments.

Nation states voluntarily delegated part of their functions to supranational organizations and vowed to abide by their decisions; they liberalized foreign trade and international financial transactions, often getting hefty dividends in exchange. As a result, there has developed an odd situation where many countries of the world are formally sovereign and act as system-forming structures of the world civilization, but in fact most of them are turning into helpless dummies.

First and foremost, at the present level of the international division of labor nation states have become economically interdependent and inter-vulnerable, which already now limits the room for maneuver for them not only in the international scene, but also in shaping their home social and economic policies. Transnational corporations and banks have taken over the key positions in the world economy. In many cases they act against the interests of the countries of origin, and they have resources strong enough to dictate their will to the governments of formally independent countries. The latter have already lost control of capital transactions, and they can estimate capital influx or flight only tentatively. The monopoly on using violence has been lost, too. Quite often private paramilitary and security agencies act on their own, with national governments often resorting to their services. There emerged forces of international terrorism and piracy on the world scene, which systematically resort to violence.

Control over migration processes has become largely ineffective. Most of the previously mono-ethnic countries, regions and cities have already turned into conglomerates of conflicting ethno-cultural communities.

Non-governmental and non-state organizations have acquired their own role in world politics, and this has been officially recognized de facto. The United States – the strongest country of today – is in a state of war with al-Qaeda and other groups of the drug-trafficking, criminal and terrorist “International,” which have no statehood or territory of their own.

In the conditions of information globalization, nation states are unable to control the content of the Internet, including the one that challenges their bodies of power. In the national and international scene various network communities and non-governmental organizations have manifested themselves as ever more influential actors.

To put it in a nutshell, we may be witnessing not the nation states’ loss of sovereignty, but a shrinkage of the role of the nation state in world developments, of the opportunities of nation states to influence the course of processes occurring in their territories.

The ongoing process was most accurately described by British sociologist Roland Robertson as he offered the term “glocalization” in his book Globalization – Social Theory and Global Culture (1992). He postulates that globalization, which raises the role of supranational political, military and economic institutions, proceeds along the particularization of regions (territories) seeking to participate in the globalization processes separately from their central governments and at the same time retain their own identity.

It is beyond doubt that the modern world is witnessing a shift of power in all spheres of public life towards supranational and transnational structures, and at the same time, growing aspirations of some regions of large states to gain autonomy or even independence. Likewise, it is nakedly clear that many political leaders are determined to resist these trends, which they consider as running counter to the national and state interests of their countries and peoples. But these trends are objective realities, they are calculated on the basis of modern methods of economic, sociological and socio-cultural analysis. The wish to resist the trend towards change merely makes these transformations harder to accomplish and is fraught with destabilization of vast territories.

 

“DEMOCRATIC DEFICITS”

The most distinguishing features of the modern transitional period are turbulence and unpredictability.

Most nation states, including the largest ones, which are in fact self-styled civilizations (the United States, China and, possibly, India), have already found themselves in a situation where the ability to control their own development is nothing but wishful thinking. At the same time, international and supranational organizations, even the most developed ones in the European Union, have been demonstrating their insufficient effectiveness in the situation of crisis. This fact puts on the agenda the question of their reform, although it is still unclear along what lines.

The central problem of today is the multi-vector nature of impulses that influence change in the modern world. Most nation states show very controversial aspirations.

On the one hand, they wish to regain (enhance) national control of the economy, which they expect will help them resolve the aggravating internal problems of social, ethno-social and regional development.

On the other hand, there exists the understanding that default on the previously assumed international liabilities and reduced participation in the globalized division of labor can cause an extremely unfavorable effect on the economic situation in the corresponding countries and the chances the ruling elites will stay in power.

In principle, most political leaders of the world do not rule out a further expansion of the functions of supranational institutions and even the introduction of harsher sanctions for defying their decisions provided favorable conditions are created for exiting the crisis and enhancing the global competitiveness of nation states. However, as the problems of the world’s leading countries vary, efforts to achieve accord are rarely successful. Besides, lobbying by the TNCs and TNBs for their interests makes itself felt and these interests are quite ambiguous. The modern transnational super-corporations would not like to see any changes to the principles of the liberalized world economy they control at their sole discretion, but they have to reckon with the risk of social explosions in the zones of total deprivation, which result from their desire to get super profits, and the risk of global destabilization. For this reason most TNCs are forced to bear a certain share of social responsibility.

The ostensible antagonism of the impetuses of influence in the modern world and the respective trends should not mislead anyone.

Strictly speaking, the aspirations of statists and advocates of a more rigid socially oriented national policy, which implies the existence of a stronger nation state, by no means run counter to the trend towards enhancing the role and functions of supranational and international institutions – provided the nation state itself becomes a sort of executive body translating their decisions into reality. In other words, the transnational elites of corporations and supranational structures have nothing against expanding the powers of the nation state – provided the latter will be doing what it is told. Quite possibly, the transformation of the nation state over next several decades will bring about changes in the structure and functions of civil society and the functioning of institutions of democracy.

At the nation state level they will most probably be getting more formal. With the inevitable failure to honor populist election pledges (like those of France’s new socialist president, Francois Hollande) the traditional political parties will increasingly lose credibility with the electorate. Sooner or later the public at large will get aware that whatever rose-colored pictures may be drawn by their national authorities, the decisions will be implemented at the nation-state level only if they are backed by transnational elites. The possibility of joining them and influencing their decisions depends on the competitive advantages of the largest private and public corporations on the world market, and not by the will of the people. As Anthony Giddens said back in 1999, “...under the impact of globalization, sovereignty has become fuzzy. Nations and nation-states remain powerful, but there are large democratic deficits opening up – as the political scientist, David Held points out – between them and the global forces that affect the lives of their citizens. Environmental risks, fluctuations in the global economy, or global technological change, do not respect the borders of nations. They escape democratic process – one of the main reasons... for the declining appeal of democracy where it is best established.”

In a situation like this it is quite possible that, on the one hand, the activity of civil society will be focused on addressing local issues, including harsh confrontation with the national “centers of power.” The solution of problems in “social disaster” areas, resistance to ecologically hazardous projects of the central authorities, preservation of the local ethnic, social and cultural identity will become the main issue of domestic policies. On the other hand, transborder network communities, both real and virtual, capable of influencing the global agenda for the supranational governing structures, will become an influential and system-forming force of the new age. Rival transborder network structures, capable of staging mass protest actions (including those in support of local campaigns) in the territory of dozens of states will most probably surpass the modern political parties in terms of influence.

The possibility of democratizing the supranational institutions is a great question. In any case, in the modern world the policies of the IMF and the World Bank, which have a major impact on the course of world developments, depend on the amount of money contributed to their fund, and not on ballots cast. The activity of the United Nations is far from being democratic, too. The permanent members of the UN Security Council have a privilege – they are free to do whatever they please with immunity against any sanctions. The activity of the UN General Assembly is not quite democratic either: a situation where states with populations of several hundred thousand have as much power as countries with populations of hundreds of millions is not exactly what one may call democracy.

One can hardly hope for a profound reform of the existing international organizations in the foreseeable future. It is far more likely that the development of transborder communication technologies will help strengthen global civil society institutions, capable of influencing the course of world development.The role of the nation state as an institution in such circumstances should be rethought – not by the state itself but primarily in the course of discussions by the structures of civil society that are becoming increasingly global in nature. They should bear an additional responsibility to accumulate experience in reformatting the state not only in the framework of transnational initiatives, but also at the lower level (regions, municipalities, etc.). The discussions should also involve businesses, ranging from small firms to TNCs and TNBs. The only role that the nation state should play in this process is probably to provide formal platforms for this kind of discussion.

This does not mean that the nation state as an institution should be reduced to the role of a technical servant. Formulating and making accurate decisions requires the state’s professionalism – or rather, the professionalism of the better part of the bureaucracy. This is particularly true with regard to effective implementation of a new public interest, which sooner or later will be translated into decisions.

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