Economic transformation: the effects of globalization

Economic globalization (see also Chapter 9), is about the intensification of all kinds of economic relations across borders: production, distribution, finance, management. No-one denies that economic globalization takes place: the national economies of the world are more inter-connected than ever before.

Some argue that a global economy is in the making (Dicken 1998). So-called ‘shallow integration’, which is ‘manifested largely through arm’s length trade in goods and services between independent firms’ is being replaced by ‘deep integration’ meaning that ‘larger parts of economic activity became organized primarily by transnational corporations (TNCs). “Deep” inte­gration extends to the level of production of goods and services and, in addition, increases visible and invisible trade. Linkages between national economies are therefore increasingly influenced by the cross-border value adding activities within TNCs... and within networks established by TNCs’ (UNCTAD 1993: 113). This type of analysis frequently supports the ‘retreat of the state view’.

State-centrists, by contrast, argue that economic globalization is not really new. Economic relations between states were very developed already at the eve of World War I; in other words, there is little news in the fact of economic interdependence (Thomson and Krasner 1989).

This debate on the ramifications of economic globalization is not easily settled because the whole process is so comprehensive in scope and content that it is always possible to find some support for both of the views presented here. But there is also room for common ground between the extremes. Most observers on either side would agree that economic globali­zation is taking place in the following ways:

• internationalization of national economic spaces through growing penetration (inward flows) and extraversion (outward flows);

• formation of regional economic blocs embracing several national economies - including, most notably the formation of various formally organized blocs in the triadic regions of North America, Europe and East Asia - and the development of formal links between these blocs, notably through the Asia-Pacific Economic Co-operation forum, the New Transatlantic Agenda and the Asia-Europe meetings;

• growth of more ‘local internationalization’ or ‘virtual regions’ through the development of economic ties between contiguous or non-contiguous local and regional authorities in different national economies - ties that often bypass the level of the national state but may also be sponsored by the latter;

• extension and deepening of multinationalization as multinational companies, transnational banks and international producer services firms move from limited economic activities abroad to more comprehensive and worldwide strategies, sometimes extending to ‘global localization’ whereby firms pursue a global strategy based on exploiting and/or adjusting to local differences;

• widening and deepening of international regimes covering economic and economically relevant issues; and

• emergence of globalization proper through the introduction and accept­ance of global norms and standards, the adoption of global bench­marking, the development of globally integrated markets together with globally oriented strategies, and ‘deracinated’ firms with no evident national operational base. (Points quoted from Jessop 2002:115-16)

Economic globalization also has consequences for the relationship between states and markets.

Changes since the 1980s have not meant a reduced, but sooner a changed role for the state. First, the activity of states has moved away from stressing functions of economic management towards stressing procedural-regulatory functions. The creation of a single market in the context of the EU, for example, has involved a huge number of regulatory directives aimed at enabling the free movement of goods, services, capital and people.

Second, political authority is being disaggregated into a diverse array of various government or public agencies, each of which interacts with a wide range of private companies, groups and organizations. Such public policy networks engage both private and public units in order to complement existing market-based or government-based arrangements considered insuf­ficient (Reinicke 2000: 50).

In this way, states and markets are brought closer together. The state is becoming a more polymorphous entity, diffused into complex networks invol­ving a range of other actors. On the one hand, there is a movement away from the ‘central role of the official state apparatus in securing state-sponsored economic and social projects’ (Jessop 1997: 574). On the other hand, the making of state regulations to a large extent takes place in transgovern­mental networks also involving a diverse group of other actors.

In conclusion, states as well as markets have been transformed under conditions of economic globalization. Instead of a reduced role for the state, the role of the state has changed. States operate under different circumstances than before; in some way they are subject to new constraints, but states have also developed new ways of regulating the market. Thus the transformation that has taken place contains elements of states both ‘losing’ and ‘winning’.