Globalisation and the state: Still room to move?

In recent years, scholars and policy makers have questioned the extent to which the nation-state – specifically, the modern welfare state, marked by intervention and publicly-provided social protection – is compatible with economic globalisation. While transnational actors, including multinational corporations, institutional investors, banks and non-governmental organisations, undoubtedly influence contemporary national policy making, they have not brought about the demise of the nation-state. Nor have the pressures generated by such actors eliminated crossnational diversity in policy outcomes and political institutions. In the face of economic globalisation, governments retain ‘room to move’, particularly in the developed world but also in developing nations. This essay reviews the empirical and theoretical evidence in support of this claim, beginning with the general issue of economic globalisation and government policy making. I then turn to the relationship between global capital markets and government autonomy. In conclusion, I ask why the ‘race to the bottom’ (RTB) logic remains a feature of contemporary public debates and explore variation across countries and investors in the pressures emanating from global capital markets. Economic globalisation and national government policies Many popular discussions of economic globalisation invoke the ‘race to the bottom’ hypothesis, which is grounded in the imperatives of cross-national competition and economic efficiency. 1 Nations benefit, in aggregate terms, from trade and financial openness, but openness forces them into competition with one another. Competition reduces governments’ abilities to provide goods and services to their citizens and renders governments more accountable to external economic agents than to citizens. This hypothesis implies not only a convergence of national policies, but also a convergence toward the lowest common denominator. It has become a favourite straw man of comparative and international political economists. There are myriad reasons to be sceptical of the claim that the competitive pressures set off by economic openness will lead nations to pursue a similar, bare bones set of economic and social policies. First, domestic institutions play