PSIR Optional (Globalization in Contemporary Era) by Viraj C Rane

Model Answer

Question #1. Competition state in the globalized world. 10 marks (150 words)

Approach:

• Introduction: Market-state interaction led to competition state.
• Body: The impact of globalization and changed nature of state; state is still relevant.
• Conclusion: Post 2008 global financial crisis the importance of state in economic matters became significant.

The competition state is a state that aims to secure economic growth within its borders by securing competitive advantages in the wider global economy. Competition states are distinguished by the recognition of the need to strengthen education and training as the principal way of guaranteeing economic success in the new technology-dependent economy, and this approach was adopted by the Asian ‘tiger’ economies from the 1970s onwards.

The changed relationship between the state and the market that has been brought about by the pressures generated by economic globalization. Robert Cox has argued that the growing global organization of production and finance had transformed conventional conceptions of government and society, leading to the ‘internationalization of the state’. Globalization can be seen to have promoted such developments in at least three ways.

• First, a greater exposure to global markets has encouraged many countries to adopt strategies designed to attract foreign capital and inward investment.
• Second, intensified foreign competition forced countries to keep wage levels low and to promote labour flexibility, which meant scaling down welfare costs and other impediments to international competitiveness.
• Third, TNCs acquired growing influence at the expense of the state, by virtue of the ease with which they are able to relocate production and investment in a globalized economy if state policy is insufficiently responsive to corporate interests.

State is still relevant:

However, the changed relationship between markets and states may not simply mean a reduced role for the state but, rather, a different role for the state.

Views of scholars:

• The state may have been transformed, not eclipsed altogether (Sørensen).
• Although this implies that states have lost substantial power over the economy, the process of economic globalization nevertheless, requires a political framework that is provided by the state, notably in the form of the ‘military-territorial power of an enforcer’ (Robert Cox).

Conclusion:

States such as China and Russia each modernized their economies by making significant concessions to the market, but an important element of state control has been retained or re-imposed. On a wider level, the state’s vital role in economic affairs was underlined by the 2007–09 global financial crisis whichmarked the watershed between three decades of anti-statist neoliberal globalization and a new era of regulated globalization, in which states, through international organizations or sometimes acting alone, play a more active economic role. The G20 is a case in point where the co-ordinated global response requires the states for implementation.

Question #2. Despite the impact of globalization, State remains to be the most decisive political actor. Comment. 15 marks (250 words)

Approach:

• Introduction: State as an important unit in global politics being challenged by globalization.
• Body: Views of different schools of thought arguing retreat and return of the state.
• Conclusion: The state continues to be relevant in a modified form.

The state has long been regarded as the most significant actor on the world stage, the basic ‘unit’ of global politics. Its predominance stems from its sovereign jurisdiction. As states exercise unchallengeable power within their borders, they generally operate as independent and autonomous entities in world affairs. However, the state is under threat, perhaps as never before. In particular, globalization, in its economic and political forms, has led to a process of state retreat, even fashioning what Scholte called the post-sovereign state. According to Kenichi Ohmae in The End of the Nation State, ‘Traditional nation-states have become unnatural, even impossible units in a global economy’.

Views of different schools of thought:

• Realist view:All realists agree that the state is the dominant global actor; hence they adopt a state centric view of global politics. From a realist perspective, globalization and the state are not separate or, still less, opposing forces: rather, globalization has been created by states and thus exists to serve their interests. Other actors thus only exert influence to the extent that the state allows.
• Liberals have generally accepted that globalization has been marked by the decline of the state (and perhaps the transition from nation-states to ‘postmodern’ or ‘market’ states), as power has shifted away from the state and towards, in particular, global markets and transnational corporations (TNCs), but also to individuals. Furthermore, liberals insist that the constitutional and political make-up of the state has a crucial impact on its external behaviour.
• Neo-Marxists and post-Marxist theorists have abandoned the orthodox Marxist belief that the state is merely a reflection of the class system. According to them the mutual dependence between markets and states has in fact intensified as a result of globalization, leading to what Robert Cox called the ‘internationalization of the state’.

Retreat of state:

• Cultural globalization: The rise of international migration and the spread of cultural globalization have tended to make state borders increasingly ‘permeable’.
• Economic globalization resulted in the rise of ‘supra-territoriality’, reflected in the declining importance of territorial locations, geographical distance and state borders. An increasing range of economic activities take place within a ‘borderless world’ (Ohmae 1990).
• Financial markets that have become genuinely globalized, in that capital flows around the world seemingly instantaneously and no state can be insulated from the impact of financial crises that take place in other parts of the world.
• Political globalization:Internationalbodies such as the UN, the EU, NATO and the WTO have undermined the capacity of states to operate as self-governing units.

Changed nature of state:

• Although states, when acting separately, may have a diminished capacity to control transnational economic activity, they retain the facility to do so through macro frameworks of economic regulation, as provided by the G-20, the WTO and the IMF.
• Market-based economies can only operate effectively within a context of legal and social order that only the state can provide.
• States are now exerting their influence through reginal blocs through pooled sovereignty. EU is an example.
• In the recent decades countries like China, India, Russia or Brazil have shown a model of state (competition state) where states modernized their economies by making significant concessions to the market, but also invest in education and training to boost productivity to support the export industry. This results in important element of state control has been retained or re-imposed.

Conclusion:

The changed relationship between markets and states may not simply mean a reduced role for the state but, rather, a different role for the state. The state may have been transformed, not eclipsed altogether (Sørensen).

There is evidence that, while globalization may have changed the strategies that states adopt to ensure economic success, it has by no means rendered the state redundant as an economic actor. The process of economic globalization requires a political-legal framework which only a state can provide. As the state has the unique capacity to maintain domestic order and protect not only its citizens but also foreign economic investments in its market. That the state cannot be written off is clear from the bailout by the American government of American banks and financial institutions when they were hit by the financial crisis in 2008-09.