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State Irrelevance: How Globalization is Eroding State Power and Sovereignty

Dejan Eskic 110738080 PO 231 Tutorial 2 Josef Filipowicz 11/19/2013 11/21/2013

Introduction The state is at war with globalization over authority, power, and sovereignty. The victor will undoubtedly be the one that reflects changing norms and perspectives and market preferences by global citizens. Max Weber said state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory (Gerth & Mills, 1946). The states claim is being challenged more so than before in enforcing its borders and securing its national sovereignty. The Westphalian state as the grand authority of the citizens can no longer provide the services that were originally its responsibility. In this paper, the erosion of state sovereignty will be demonstrated through the increase in capital flows between countries, the increasing relevance of international non-state actors, and the standardization of human rights resulting in foreign intervention. Two articles by Richard W. Mansbach and Stephen D. Krasner, respectively, will be compared and contrasted as to which theory of globalization they employ as well as a brief assessment on each articles strengths and weaknesses. A case study will follow providing a justification for the hyperglobalist perspective of globalization highlighting the increase in multinational enterprise influence in Singapore. Comparison and evaluation of the articles Mansbachs The Future of the Nation-State provides a more compelling argument for globalizations effects on state power and sovereignty than Krasners Abiding Sovereignty. While both articles are well researched and make strong arguments for both sides, Mansbachs article makes a stronger case that globalization weakens state autonomy. The fate of the state is ambiguous, (Ferguson & Mansbach, 2012) reflecting a transformationalist viewpoint of globalization. Krasner adopts a skeptic view and elaborates how globalization and human rights issues are not new and that sovereignty has always been violated.

While capital flows existed prior to the 20th century, their biggest impact has been during recent times with the advance in communications technology. The telegraph allowed for information to be transmitted in minutes though not always precise rather than be subject to sail across the turbulent Atlantic for weeks at a time. The acceleration of information, coupled with the advent of the gold standard made longterm investment feasible for governments and stabilized exchange rates (Ferguson & Mansbach, 2012). Krasner mentions this increase in speed but maintains that past foreign capital flows were larger than they were before with foreign investment equaling 53% of Englands GDP from 1910-1913 (Ferguson & Mansbach, 2012). His skepticism of the novelty of globalization does have some merit; however, foreign investment as a percentage of GDP is higher in small nations now (World Bank, 2013). Globalization has made it feasible for non-state actors like banks, investors, credit unions, and corporations to invest in foreign treasury bonds. This would not be possible if it were not for the advancement of communications technology. Governments are now accountable to more than just their citizens as much of their means of fund raising are in the hands of foreign investors. Capital markets take place online and the flow of capital is free from state control. The value of foreign exchange trading daily averaged $5.3 trillion in 2013 (Bank for International Settlements, 2013) and it would be unlikely that states would even attempt to directly involve themselves in the foreign exchange market. What states are doing rather than directly intervening is allowing alternative actors to assume the responsibilities that the Westphalian state was originally granted authority to do. Both authors agree that institutions are changing to reflect dynamic needs although Mansbach sees political and economic structures changing outright, Krasner sees new institutions coexisting with the status quo (Ferguson & Mansbach, 2013).

Corporations now account for 70% of all world trade and 20% of world production (CorpWatch, 2010) and reflect shifting trade volume from developed to developing economies (Taylor, 2013). Mansbach explains how increased competition for foreign investment and market share cause states to adopt policies attractive to transnational corporations and financial markets (Ferguson & Mansbach, 2013). Political leaders use the need to be globally competitive to align with corporate interests and give up some sovereignty in order to benefit from increased economic activity. Krasner argues that states become more powerful in this regard because their interests are one with business elites, but more often the state is the one that gives into business interests. Western workers fear job outsourcing to emerging economies and in turn, demand their governments to protect them (Ferguson & Mansbach, 2013). This has led to distrust of the state and with the 2008 financial collapse, distrust is even stronger. Krasner does not see the recent financial crisis as any more of a detriment to state sovereignty than others that occurred historically like the bailout of Baring Brothers by the Bank of England in 1890 (Ferguson & Mansbach, 2013). While financial crises are not new, the global implications of Lehman Brothers filing for bankruptcy caused massive reverberations that halted global trade, sparked the Occupy Wall Street movement, and resulted in massive bailouts of banks and corporations by states using taxpayer money. The state accomplished its directive of restoring consumer confidence, reregulating industries, and stimulating economies but it would not have been able to do otherwise. International and corporate interests trumped state interests in response to the financial crisis. Krasner expands the vague definition of sovereignty into four types that represent sovereignty in different aspects of political life. Interdependence sovereignty is the ability of

states to control movement across borders, domestic sovereignty is the ability of domestic authority structures to regulate citizens behaviour, Westphalian sovereignty means no external sources of authority, and international legal sovereignty is mutual recognition of authority by states (Ferguson & Mansbach, 2013). Krasner distinguished types of sovereignty to show that it is not a concrete concept and can vary in certain circumstances. Mansbach does not expand on different types of sovereignty and sticks to the general definition but he might have benefitted from differentiating them. International organizations can violate all types of sovereignty and have done so increasingly in modern times. There has been what Mansbach calls [an] erosion of the distinction between the foreign and domestic arenas of life (Ferguson & Mansbach, 2013) and a blurring between the functions of state and non-state actors. Even territory is not the number one concern for the Westphalian system since it struggles with enforcing its rules within its own borders. Krasner uses human rights as an example of domestic sovereignty being put in the hands of supernational organizations. Political leaders themselves have voluntarily signed declarations such as the European Convention on Human Rights, and the UN Universal Declaration of Human Rights. These charters undoubtedly take away the right for states to determine what they constitute as human rights and instead enforce a standard to which every state has to adhere to. In an increasingly smaller and interconnected world, human rights violations feel realer when a citizen can see violations on the news or the internet or meets a migrant that has experienced it. Due to lower telecommunications costs, smaller NGOs can operate effectively worldwide increasing their power as lobbyists and their ability to sway public opinion (Ferguson & Mansbach, 2013). Krasner claims they are not alternatives to government structures but rather

exist to change policy. They are a product of international legal sovereignty (Ferguson & Mansbach, 2013) but can violate other forms of sovereignty. Mansbach looks at state-to-state interventionism, a major violation of Westphalian sovereignty, and explains the changing nature of interventionism where Krasner does not. Before looking at specific cases, the transformation of political structures, particularly the bureaucracy, must be examined. At the core of a states obligation is the provision of national defense, then the provision of any other collective goods depending on the scope of the welfare state. The state arose from the changing nature of warfare and the resulting change in political institutions as a response. Mansbach gives a brief history on the Westphalian state as the city-state system evolved to kingly states then to territorial states, state-nations, and the nation-state (Ferguson & Mansbach, 2013). In a feudalist king-subject system, a king would grant dukes some power over subjects and territory in exchange for fealty i.e. an oath of loyalty. The dukes were essentially contractors that would fight for the king and spread his authority. Technological advances caused war to become large-scale and more expensive and sub-national powers could no longer be isolated. The nation-state was born to extract resources effectively from its populace and a central bureaucracy to levy taxes for fighting wars against other states (van Creveld, 2006). This need to fight other states has largely been diminished. The post-Cold War era leaves a unipolar world where most military conflicts involve a large power intervening in a smaller states affairs. The atomic bomb and its subsequent advancements have made large scale war and standing armies ineffective so the military institution is changing into a security role. Mansbach mentions the 2003 Iraq war, where the US army did not have enough standing personnel to

accomplish all their goals so they contracted private security firms to provide security, food, construction, and transportation (Fifield, 2013). Outsourcing combined with the changing nature of security threats is causing a change in how military action is administered. Intervention in Kosovo, the Greek war of independence, and the Balkan Wars according to Krasner demonstrate that sovereignty has been violated in the past quite easily by powerful states in the name of international order and human rights (Ferguson & Mansbach, 2013). Mansbachs article states that the growing economic interdependence of the world cant afford large-scale war and states that get out of line are promptly dealt with. In conclusion, though both articles have merit and discuss many of the same issues, Mansbachs article indicates the changes in state responsibilities and the structure of institutions stronger than Krasners. Mansbach views globalization through a transformationalist lens and talks about the erosion of state sovereignty in certain areas like monetary policy and security but leaves the fate of the state as ambiguous. Case Study Singapore is perhaps one of the best examples of the internationalization of the state (Phelps, 2007). It has taken advantage of international capital and foreign direct investment by attracting multi-national enterprises into its borders. Compared to other Northeast Asian states, it did not have a domestic business base at the time of independence and so out of necessity had to align itself with the interests of overseas MNEs (Phelps, 2007). National economies are becoming more and more internationalized and states are feeling the pressure of remaining globally competitive and cutting welfare spending. Singapore is best viewed through a hyperglobalist perspective as it is a fairly recent state and has reaped the benefits of globalization significantly. It has one of the highest GDP per-

capita (International Monetary Fund, 2013) due to free trade, high exports, low taxes, and both the financing of FDI outflows, and the FDI inflows it receives. Its sovereignty is being eroded but Singapore voluntarily gives up sovereignty in order to make foreign investment attractive. The state is not going to disappear; in fact, its aspirations to become a trade nexus in the region have benefitted its companies. Extraterritorial industrial and technology parks located in China, Indonesia, Vietnam, and India (Phelps, 2007) make up 20% of the industrial land in Singapore. Investing in industrial territory outside of Singapores borders has allowed it to increase its production possibilities frontier (Heng, 1993) by producing externally. These parks are a result of coordination between state governments and an alignment with private sector interests. What Singapore demonstrates is that a powerful state is not necessary to protect the welfare of its citizens. It does not provide a minimum wage but acute poverty is virtually nonexistent through assistance programs for needy families. It spends a quarter of all government spending (which is already relatively small) on the military which is a diplomacy and deterrence force. The state was originally conceived to be able to fund and fight wars but globalization has created severe economic and political repercussions of warring with trade partners. Singapore still maintains the basic state need of defending its population and provides basic services for the poor. It absolutely uses its need to cater to foreign investment as a justification for not providing extensive social services (Ferguson & Mansbach, 2013). Though globalization has increased the size of the economic pie, whether everyone will get a bigger slice is debatable. Singapore has one of the highest income inequalities in the world, and the highest population of millionaires (Phelps, 2007). One in six people in Singapore is a

millionaire and that figure excludes property; with property included the number would be even higher. This is a result of the outsourcing of industry to low wage countries while keeping head offices in Singapore (Phelps, 2007). Thus, it remains an economic apex in the region managing the operations in other states. Its own sovereignty is eroded by the power of MNEs but it also violates foreign state sovereignty by installing companies with headquarters in Singapore. The extraterritorial parks have had mixed economic benefits. Two of the parks had a positive economic impact, three had marginally positive impacts and one had a negative impact (Phelps, 2007). Thus, the benefits of globalization are not always apparent, and the state can only do so much to help out its industries. Control of the economy was much easier in the past when MNEs were not operating in hundreds of countries. Disintermediation is necessary for the Singaporean state to survive as it does not have the territory necessary to further develop the economy. The congruency between government and government-linked companies and overseas MNEs has been part of the Singapore Economic Development Boards strategy to integrate the national economy with the international one (Phelps, 2007). The state is increasingly pressured to conform to international standards to maintain its accumulation of wealth. Singapore itself is also facilitating the erosion of other states sovereignty reliant on foreign investment for employment. Conclusion The increase in economic globalization is eroding traditional state powers but whether the state will completely disappear is unknown. States are unable to control flows of capital and migrants in an increasingly interconnected world and are pressured by supernational organizations and multinational corporations to conform to their rules. Small countries are

especially submissive to transnational actors out of necessity; large countries have a higher degree of resilience to international organizations and in some cases have control. Mansbachs article makes a more compelling argument about the erosion of state sovereignty increasing but the structure and purpose of political institutions are changing along with it. Krasner is skeptical that the erosion of state sovereignty is a new phenomenon caused by globalization and uses historical examples of sovereignty violation to prove his theory. Singapores economic decisions reflect an increasingly interconnected world where the whole is becoming greater than the sum of its parts. International actors are attracted to its policies that the state creates for the specific purpose of keeping business interests. Is globalization eroding state sovereignty? Absolutely, but whether the state will cease to exist is ambiguous. The change in economic and political structures is apparent but in some cases the state gives up authority to non-state actors and in others it coexists with alternative institutions. International organizations play a bigger role in the economy and their responsibilities are increasing. The state is competing with outside actors but it cannot adapt to change as quickly as these non-state actors can. Ultimately, the state will become increasingly weaker as international organizations take over state roles and perform them with greater efficacy.

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