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Oto Šereš: Is globalization rendering the nation-state obsolete?

Oto Šereš: Is globalization rendering the nation-state obsolete?
Author: Oto Šereš

 

In this article the question of whether globalization is rendering the nation-state obsolete will be tackled. In order to assess this question, it is necessary to evaluate the main consequences that globalization allegedly has on the nation-state in terms of its sovereignty, identity and general role in international relations. However, in order to do that, a closer inspection of globalization and the processes associated with it is in order. In it the various claims of the globalists will be presented in order to understand where the notion of a nation-state eroding or becoming obsolete is even coming from. Afterwards through addressing these claims it will be argued that globalization is not rendering the nation-state obsolete. To support this claim, it will be explained that although nation-states’ ability to control the flow of money, goods or ideas has been curtailed, they still fulfill many important functions such as the control over population, provision of stability in international relations, provision of legitimacy and accountability and they also serve as source of identity.

 

Globalization and its perceived dangers to the nation-state

Globalization according to the Merriam-Webster dictionary represents: “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets”. Already from this definition it is possible to see where the nation-state might be at a disadvantage in terms of control and eroding sovereignty. The modern rhetoric of globalization likes to stress that in an era of precisely free trade, free flow of capital, in short, an era of global economy the nation-states’ domestic and economic policies are forced to succumb to global forces, most notably the capital. One of the consequences of mobile capital is that ”a nation state has ceased to be an effective economic manager…it can only provide those social and public services international capital deems essential and at the lowest possible overhead cost” (Hirst & Thompson, 1995, p. 414).

It is also worth noting that one of the main characteristics of globalization is omitted in the aforementioned definition. The technological side of globalization, more precisely the effortlessness of communication and dissemination of information provided by the inventions of the telephone and later the internet. In this regard the claim of the globalists lays in the diminished capacities of the nation-state to exercise control over culture and homogenization of their people. It is virtually impossible to be involved in global markets and ignore the internationalized cultures that come along with them (ibid.). The consequences include the growth of heterogeneity in nation-states which supposedly in time will discredit the justification for citizenship based on ethnicity and unique domestic culture as the advanced states themselves are not homogenous anymore. The doomed prediction would be that without any justification for exclusion other than “that states are fearful of the consequences of large-scale migration” (ibid.) the situation surely would not remain stable between the richest and the poorest of countries and their peoples.

However, it has to be said that globalization is not exactly a new phenomenon as “the trade and capital flows prior to 1913 are not dissimilar in size to flows in the recent post-war period. A number of studies concur that the level of international openness was in certain respects no less remarkable in earlier periods than today” (Weiss, 1997).

Globalization is also often perceived to limit the nation-state’s ability to tax according to its needs as in the globalized world with workers’ and capital mobility and electronic commerce it faces rough competition (Wolf, 2001). The authority of the nation-state to tax its citizens that was considered absolutely essential to state’s sovereignty therefore decreases under the global capitalist pressures of eternal search for the lowest taxes.

Overall, globalization seems to be rendering the nation-state powerless in its ability control national economy, to retain cultural and ethnic homogeneity and the authority to tax against the various forces of the global market and cultural heterogenization through modern communication and information technologies. According to this approach the nation-state has lost its control in multitude of domains in which it formerly had the supreme authority. The nation-state’s task has „become like that of municipalities within states heretofore” (ibid.). Its role has become to provide the public services that are requested by the global economy (ibid.).

 

Response to the dangers and a defense of the nation-state

The first misconception to address would be the idea of a strictly global economy. As there is a difference between a completely globalized economy and a highly internationalized one. The globalized economy would strictly abide by global market forces and genuine transnational companies which do not associate themselves with any particular country which definitely would render the nation-state obsolete. However, this notion is false as the number of true transnational companies is small, as almost every company has a national economic base. According to Weiss (1997): “On virtually all the important criteria—share of assets, ownership, management, employment, the location of research and development — the importance of a home base remains the rule, not the exception.” Therefore, it is more appropriate to talk about highly internationalized economy in which the national policies still retain their importance. In this version of the economy, nation-states and their policies have an important role in providing stability in the form of property rights and settled trade rules. These are vital necessities that allow companies to further plan ahead and prepare for the future. This kind of setting is only available thanks to nation-states that cooperate, set future common goals and enter into agreements and treaties in order to provide stability. Therefore, as it is in the companies’ interest to have these securities it is very unlikely that a stricly global economy will come into being. (Hirst & Thompson, 1995)

The second misconception lies in the panic stemming from the decreased control of ideas by the state and homogeneity of its population. Even though countries are becoming more heterogeneous as can be seen in almost every major city where cultures, ethnicities and religions mix, the nation-state is still the one deciding about who to let in and who can obtain citizenship. In this sense the state’s role as a sole possessor of a territory that has control over its population gives it an international legitimacy to speak for that population that no other body could have. The obvious way out of the doomed scenario mentioned in the first part is to recognize that fundamentalist nationalism in hopes of retaining the state’s homogeneity at all costs is not the proper solution. Instead the nation-state should find its role in being able to provide, manage and regulate such a setting where multiple cultures, ethnicities and religions are able to peacefully coexist with each other (ibid.).

The third misconception is revolving around the power of a nation-state to change taxes according to its needs. Surely, globalization has brought certain obstacles that make the process of taxation more difficult such as tax havens or the increased mobility of labor. Governments even created cartels to stop the competition in taxation (Wolf, 2001) .

However, this threat from competition should not be exaggerated as:

“The fiscal implications of labor, capital, and spending mobility are already evident in local jurisdictions that have the freedom to set their own tax rates. Even local governments can impose higher taxes than their neighbors, provided they contain specific resources or offer location-specific amenities that residents desire and consume. In other words, differential taxation is possible if there are at least some transport costs – and there always are.” (Wolf, 2001, p. 186)”

Getting rid of the legal barriers that constrained mobility therefore definitely makes it more difficult for the state to raise and collect taxes than it used to be in the past. In the same breath, it certainly calls for a change in tax policy of nation-states in order to be able to tax e.g. internet-based transactions or incomes of mobile capital. However, since the taxes on corporate income very seldomly reach more than ten percent of a modern nation-state’s income, whereas labor income and spending create the bulk of it, there is no reason to overstate the impact of such changes in the era of globalization. (Wolf, 2011)

To sum up the response, it is necessary to differentiate between global and highly internationalized economy because each of them represent a strikingly different picture of the impact that global economic forces and transnational companies have on nation-states. As mentioned before the number of truly transnational companies is low and they themselves rely vitally on the stability stemming from rules that nation-states create. Furthermore, even though nation-states have lost control over the flow of money, goods and ideas, they still play a fundamental role in the control over the population. Lastly, regarding the nation-states’ ability to change and collect taxes, it is important to highlight that although globalization has brought with it certain challenges that make the process of taxation more difficult, under closer inspection the impact of globalization in this regard should not be overestimated.

Conclusion

In this article the question of whether globalization is rendering the nation-state obsolete was tackled. In order to assess this question, it was necessary to evaluate the main consequences that globalization allegedly had on the nation-state in terms of its sovereignty, identity and general role in international relations. However, in order to do that, a closer inspection of globalization and the processes associated with it was in order. In it the various claims of the globalists were presented in order to understand where the notion of a nation-state eroding or becoming obsolete even came from. Afterwards through addressing these claims it was argued that globalization is not rendering the nation-state obsolete. To support this claim, it was explained that although nation-states’ ability to control the flow of money, goods or ideas has been curtailed, they still fulfill many important functions such as the control over population, provision of stability in international relations, provision of legitimacy and accountability and they also serve as source of identity.

References

Hirst, P., & Thompson, G. (1995) Globalization and the future of the nation state, Economy and Society, 24:3, 408-442, DOI: 10.1080/03085149500000017

Mann, M. (1997). Has Globalization Ended the Rise and Rise of the Nation-State? Review of International Political Economy, 4(3), 472-496. Retrieved from http://www.jstor.org/stable/4177235

Reis, E. (2004). The Lasting Marriage between Nation and State despite Globalization. International Political Science Review / Revue Internationale De Science Politique, 25(3), 251-257. Retrieved from http://www.jstor.org/stable/1601666

Weiss, L. (1997). Globalisation and the Myth of the Powerless State. New Left review. 225.

Wolf, M. (2001). Will the Nation-State Survive Globalization? Foreign Affairs, 80(1), 178-190. doi:10.2307/20050051

 

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