Confusion shrouds globalisation debate

In: Uncategorized

7 Aug 2007

There follows a comment by me on the debate about financial globalisation in the latest Fund Strategy (6 August). It refers to a cover story I wrote on the subject

There are more misconceptions about globalisation than most other areas. What is more the key features of the global markets and the global economy are little discussed.

Of course there are heated debates around aspects of globalisation. Some argue it should be welcomed while others see it as largely negative. There are also discussions about the best ways to regulate it.

But the substance of the notion of globalisation is generally left unchallenged. It is almost universally assumed that the increase in cross-border trade and finance inevitably means a decline in the power of the nation state.

Daniel Ben-Ami questions the orthodoxy in this week’s cover story. He argues there are several reasons why the conventional view of global finance is flawed. For example, a crude use of statistics can exaggerate the size of the global financial markets relative to nation states. More fundamentally he argues, among other things, that the power of the state has increased at the same time as the world has gone more global.

Confirmation that the state’s role is crucial in globalisation was apparent
last week in a new paper (PDF) published by the International Monetary Fund (IMF). Contrary to those who see globalisation as purely a market phenomenon it argues that complementary “institutions” are necessary for its success.

The World Bank has taken a similar view in relation to trade. A report published last year argued that state institutions were a key component of successful globalisation.

Such reports slightly redress the balance in the discussion but they do not go nearly far enough in recognising the state’s role in globalisation. It is not a question of more state intervention, or better “institutions”, being a desirable policy option. It is, rather, that the state is an inextricable part of the globalisation process.

Just as trade and finance have become more globalised the state has taken on a broader role in economic activity. Old-fashioned forms of intervention, such as exchange controls, have disappeared but new ones have emerged. For instance, financial markets are regulated by far more powerful regulators than in the past. Until the early 1980s the City of London was largely run as an old-fashioned gentlemen’s club. Today the Financial Services Authority has enormous regulatory power.

It would be more accurate to describe today’s markets and economy as international rather than global. The scale of cross-border trade and finance has become enormous but the state still plays a substantial role in economic activity.

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