Hyper Globalization and the Nation State

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Dani Rodrik's recent book on the Globalization Paradox is reviewed here in The American Prospect. The basic idea in his book is that markets need states to operate effectively but the advancement of globalization weakens the nation state. Hyper-globalizaion weakens the markets they cherish as well as the state's capacity to reflect the wishes of its citizens.

Some people view states and markets as substitutes for each other. They have the idea that there is capitalism and socialism and that they oppose each other. In fact, markets and states complement each other. Some do it well and others do it less well. There are no examples in history of pure laissez-faire economies. Britain advocated free trade but it benefited from its colonies and the extensive role of the state in facilitating business interests. Economists cooperated by making the theoretical case for free trade which has been a fundamental tenet of economics ever since.

Rodrik argues that the post war Bretton Woods era was the ideal middle ground of moderate globalization. There were moderate tariffs and tight regulation of global capital movements and speculations on currencies. After the collapse of Bretton Woods, we moved towards hyper-globalization. Global businesses could escape regulation at home and economists supported the movement by arguing that an institutional underpinning would catch up, and that it would have no effect on the domestic institutional arrangements. Hyper-globalzation may have resulted in greater efficiencies, but at the cost of increased instability. In particular, global finance outran domestic institutional arrangements and international arrangements are weak and ineffective. The scope of workable globalization limits the scope of desirable globalization. Its desirable to have effective markets, democracy and competent nation states. With hyper-globalization we can only have two of these at best.