Paradoxes of the Competition State: The Dynamics of Political Globalization

Author(s): Philip G. Cerny

Source: Government and Opposition , SPRING 1997, Vol. 32, No. 2, Special Issue: A
Tribute to the Work of Ghiţa Ionescu (SPRING 1997), pp. 251-274
Published by: Cambridge University Press

Stable URL: https://www.jstor.org/stable/44484037

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Philip G. Cerny

Paradoxes of the Competition State: The

Dynamics of Political Globalization

THE TRANSFORMATION OF THE NATION-STATE INTO A 4 COMPETITION

state* lies at the heart of political globalization. In seeking to adapt to
a range of complex changes in cultural, institutional and market struc-
tures, both state and market actors are attempting to reinvent the state
as a quasi-4 enterprise association* in a wider world context, a process
which involves three central paradoxes. The first paradox is that this
process does not lead to a simple decline of the state but may be seen
to necessitate the actual expansion of de facto state intervention and
regulation in the name of competitiveness and marketization.
Furthermore, in a second paradox, closely intertwined with the
first, state actors and institutions are themselves promoting new
forms of complex globalization in the attempt to adapt state action
to cope more effectively with what they see as global 'realities*. This
interaction of economic transformation and state agency is leading
to a restructuration of the state itself at a wide range of levels.
Although embedded state forms, contrasting modes of state interven-
tionism and differing state/society arrangements persist, such
models are feasible in the medium term only where they constitute
relatively efficient alternative modes of adaptation to economic and
political globalization. At the same time, however, pressures for
homogenization are likely to continue to erode these different
models where they prove to be economically inefficient in world
markets and therefore unattractive to state and market actors.

In this sense, a growing tension between economic globalization

and embedded state/society practices increasingly constitutes the
principal terrain of political conflict within, among, and across
competition states. Thus a third and final paradox is that the
development of this new political terrain in turn hinders the capacity
of state institutions to embody the kind of communal solidarity or
Gemeinschaft which gave the modern nation-state its deeper
legitimacy, institutionalized power and social embeddedness. The

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252 GOVERNMENT AND OPPOSITION

combination of these three paradoxes means that the c

and expansion of the competition state is itself driving
political globalization which is increasingly relat
sovereignty of states and, indeed, forcing the pace of g
in economic, social and cultural spheres too.

COMPETING EXPLANATIONS OF GLOBALIZATION AND THE

RELATIVIZATION OF SOVEREIGNTY

Sovereignty seemed to be making a comeback in the 1960s and 19

as newly independent nations copied Western forms; the So
empire was confronted with claims for 'different roads to socialism'
and the so-called 'free world' felt the impact of Vietnamese natio
ism, Gaullism and the new-found neo-realism of the American forei
policy establishment. Today, however, national boundaries are un
siege at myriad levels - from civil wars and economic transnat
alization, from cultural exclusivity and religious revivals, and fr
political disillusion and institutional decay (and reinvention). W
Ghiļa Ionescu has called 'the relativization of national sovereignt
has moved from the realms of internationalist idealism to the to
the agenda of both international and domestic politics.
There are several candidates for the role of independent variab
in any globalization process in the general sense. Three of th
are essentially economic. The first is the interpénétration of nati
markets for various goods and assets, from money to industria
products to labour, across borders. The second is the advent of n
technology which, in contrast to the hierarchical technological form
of the Second Industrial Revolution - the age of the industrial s
and the welfare state - is structurally amorphous and rapidly d
fused.3 The third candidate is that of private and public econom
1 Ghi(a Ionescu, The Break-up of the Soviet Empire in Eastern Europe , Harmondswor
Penguin, 1966.
2 Ghi(a Ionescu, 'The Impact of the Information Revolution on Parliament
Sovereignties', Government and Opposition , Vol. 28, No. 2, Spring 1993, p. 235.
sThis question, and the conviction that the world is entering upon a qualitativ
new industrial-technological era, was at the heart of Ghija Ionescu's work througho
his academic career, from his understanding of change in Eastern Europe and
Soviet Union, through Centripetal Politics, London, Hart-Davis, MacGibbon, 19
especially ch. 1 and his interest in Saint-Simon, to his article on the informat
revolution in Government and Opposition in 1993, op. cíl

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 253

institutions, from multinational enterprises to strategic alliances to

private and even public regulatory regimes. In contrast, sociological
hypotheses tend to give pride of place to cultural globalization, in
which people's perceptions of themselves as subjects or citizens of
a particular nation-state are undermined by the crystallization and
dissemination of global (or interacting global/local) images and
identities.4 For post-modernists, furthermore, the global village is
not so much a unified culture per se but an intensely speeded-up
world where cultural fragmentation is seen as undermining all grand
narratives and socio-political projects from underneath rather than
from above.5

Globalization as a political phenomenon basically means that the

shaping of the playing field of politics itself is increasingly
determined not within insulated units, i.e. relatively autonomous
and hierarchically organized structures called states; rather it derives
from a complex congeries of multilevel games played on multi-
layered institutional playing fields, above and across, as well as within,
state boundaries. These games are played out by state actors , as well
as market actors and cultural actors. Thus globalization is a process
of political structuration .6 Political globalization involves reshaping
political practices and institutional structures in order to adjust and
adapt to the growing deficiencies of nation-states as perceived and
experienced by such actors. Central to this experience is a deeply felt
failure to achieve the kind of communal goals which have been the
raison d'être of the Western state since the collapse of feudalism and
especially since the national democratic and social revolutions of
the eighteenth, nineteenth and twentieth centuries.
The modern world has seen only two truly internationalist
political projects, liberalism and Marxism. But both were also
assimilated into the confines and practices of the nation-state early
in their historical trajectories, the first through the British, French
and American revolutions, the second through the Russian and

4 Roland Robertson, Globalization: Social Theory and Global Culture, London and
Thousand Oaks, Cal., Sage, 1992.
5 Ian R. Douglas, 'Globalization, Governance and the Assembly of Forces: J'Accuse',
paper presented to a Workshop on Globalization and Governance, Indianapolis,
Indiana, 11-13 October 1996.
6 On structures and political structuration, see RG. Cerny, The Changing Architecture
of Politics : Structure, Agency and the Future of the State, London and Thousand Oaks,
Sage, 1990, chs 1-4.

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 254 GOVERNMENT AND OPPOSITION

Chinese revolutions. Only then did they attain insti

power, for it was at the nation-state level that the most fu
structures and institutions of society and politics h
embedded. The apparent history of the modern wor
absorbed into a historiography of nation-states.
The concept of globalization in general challenges tha
ing framework in two ways. The first is through a re
history. The emergence, consolidation and rise to stru
eminence of the nation-state itself is increasingly und
having been the product of a global conjunction of
longer-term structural developments, a quasi-accident re
global situation of the late feudal period. The secon
arises through the emergence of a new social-scientific
globalization itself. This discourse challenges the sig
the nation-state as a paradigm of scholarly research,7 sugge
nation-state-based 'normal science' in history and the so
- sometimes referred to as 'methodological nationalism
sufficiently undermined by new challenges and finding
of different analytical levels that its usefulness in constitu
facie scholarly agenda is rapidly being lost. A reshaping
place of the theoretical questions which have dominate
political philosophy and they are being reformulate
complex global context.8
Globalization in all its complexity, then, challenges wh
profoundly rooted in Western historiography, polit
sociology and economics. The nation-state superseded the
kaleidoscope of overlapping and intertwined communities and
authorities characteristic of the feudal era in a process which lasted
until the latter half of the twentieth century. In turn, the conceptions
of common interest and community which have legitimated the
institutional authority of the nation-state over the past several
centuries - however predatory in practice its origins and develop-
mental trajectory9 - have given the politics of the state an essential

7 See Thomas Kuhn, The Structure of Scientific Revolutions , Chicago, Chicago

University Press, 1962, for the notion of paradigms.
8 P.G. Cerny, 'Globalization and Other Stories: The Search for a New Paradigm
for International Relations', International fournal , Vol. LI, No. 4, Autumn 1996,
pp. 617-637.
9 Margaret Levi, The Predatory Theory of Rule', Politics & Society, Vol. 10, No. 4,
Autumn 1981, pp. 431-65.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 255

character well beyond pragmatism and 'interest' in the narrow

meaning of that term. They involve attributing to the state a holistic
character, a sense of organic solidarity which is more than any simple
social contract or set of pragmatic affiliations - what Ferdinand
Tönnies called Gemeinschaft .10 If there is an increasingly paradigmatic
crisis of the state today, it concerns the erosion of this posited
underlying bond, and the demotion of the state to a mere pragmati
association for common ends - what Tönnies called Gesellschaft and
Michael Oakeshott called an 'enterprise association'.11 So long a
the welfare of the people in a capitalist society was secured at least
minimally by the state and protected from the full commodification
of the market by national politics (the welfare state, or social state,
in the broadest sense of those terms) - then the image of a nationa
Gemeinschaft as the route to the common good could persist, even
strengthen and expand, over the entire globe. The latent crisis of
the nation-state today involves the erosion of that Gemeinschaft and
the fragmenting of the political bond from both above and below
Globalization itself is an elusive concept.12 To some observers it
is both bounded and well-defined, with a simple, sometimes even
unidimensional, core or driving force (e.g., the convergence of
interest rates or stock market prices, or the information technology
revolution); therefore globalization has all too frequently been
assumed to be a process of convergence, a homogenizing force
Increasingly, however, analysts are arguing that globalization i
fundamentally complex and 'heterogenizing' - even polarizing -
in its nature and consequences.13 Complexity means the presence

10 Ferdinand Tönnies, Community and Association , East Lansing, MI, Michigan State
University Press, 1957 (originally published as Gemeinschaft und Gesellschaft , 1887).
11 See Josiah Lee Auspitz, 'Individuality, Civility, and Theory: The Philosophical
Imagination of Michael Oakeshotť, Political Theory , Vol 4, no. 3, August 1976, pp. 361-
352; also Michael Oakeshott, 'On Misunderstanding Human Conduct: A Reply to my
Critics', in ibid., pp. 353-67.
12 Paul Hirst and Grahame Thompson, Globalization in Question: The International
Political Economy and the Possibilities of Governance , Cambridge, Polity Press, 1995;
Robert Boyer and Daniel Drache, (eds), States Against Markets: The Limits o
Globalization y London, Routledge, 1996; John Zysman, 'The Myth of a "Global
Economy: Enduring National Foundations and Emerging Regional Realities', New
Political Economy, Vol. 1, No. 1, Summer 1996, pp. 157-84.
13 Hugo Radice, 'The Question of Globalization: A Review of Hirst and Thompson',
presented at the annual meeting of the Conference of Socialist Economists, Newcastle-
upon-Tyne, 12- 14 July 1996.

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256 GOVERNMENT AND OPPOSITION

of many intricate component parts. It can mean a sop

elegantly coordinated structure, but it can also m
different parts mesh poorly, leading to friction and ev
globalizing world is intricately structured at many lev
within an already complex social, economic and politi
Many varied dimensions of convergence and diverg
do coexist. Different markets, firms and economic sectors are
organized in distinct ways. Owners of capital 'arbitrage' across these
categories precisely because they are differently structured - and
provide different rates of return. Even more problematic are the
subnational, transnational and supranational ethnic cleavages,
tribalism and other revived or invented identities and traditions -
from local groups to the European Union - which abound in the
wake of the uneven erosion of national identities, national econo-
mies and national state policy capacity characteristic of the 'global
era'. Globalization can just as well be seen as the harbinger not
simply of a 'new world order' but of a new world disorder , even a
'new medievalism' of overlapping and competing authorities,
multiple loyalties and identities, prismatic notions of space and
belief, and so on.14
Globalization cannot simply be verified empirically according to
measurable criteria such as the convergence (or not) of corporate
forms or social structures. Perhaps its most crucial feature is that it
constitutes a discourse - and, increasingly, a hegemonic discourse
which cuts across and gives meaning to the kinds of categories
suggested above. In this sense, the spread of the discourse itself
alters the a priori ideas and perceptions which people have of the
empirical phenomena which they encounter; in so doing, it
engenders strategies and tactics which in turn may restructure the
game itself. With the erosion of old axioms, the concept of
globalization is coming increasingly to shape the terms of the debate.
Analysts who emphasize 'interdependence' or 'internationali-

14 Alain Mine, Le nouveau Moyen Âge, Paris, Gallimard, 1993; Robert D. Kaplan,
'The Coming Anarchy', The Atlantic Monthly, February 1994, pp. 44-76; Bruce Cronin
and Joseph Lepgold, 'A New Medievalism? Conflicting International Authorities and
Competing Loyalties in the Twenty-First Century', paper presented to the annual
meeting of the International Studies Association, Chicago, 23-27 February 1995;
Stephen Kobrin, 'Back to the Future: Neomedievalism and the Post-Modern World
Economy', paper presented to the annual meeting of the International Studies
Association, San Diego, CA, 17-21 April 1996.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 257

zation', as supposedly distinct from globalization, by and large posit

that the international political playing field is still essentially one
constituted by the interaction of states concerned with their relative
power positions (whether military or economic power, or both).
Patterns of collective action by and among states in the international
system, shaped by complex (mainly economic) interdependence, is
thus seen as leading to the formation of both informal and formal
international structures and institutions which can take on an

autonomy of their own at the international level. Indeed, interdep-

endence is said by John Ruggie and others to be leading to a 'new
multilateralism', this time rooted in socio-economic behavioural
imperatives rather than in idealist-type legal or constitutional
structures.15 The traditional distinction between domestic and
international levels of analysis - embodied in 4 two-level games' - is
blurred, but not fundamentally undermined.16 In contrast, the notion
of globalization is an inherently more complex and heterogeneous
phenomenon economically, socially and politically, involving at least
three- level games.
Globalization is not part of a march to a higher - or indeed
lower - form of civilization. It is a path-dependent process, rooted
in real historical decisions, non-decisions and conjunctural turning-
points. Social, economic and political institutions emerge in an
environment where there is not one simple pathway or end point;
there are in economic terminology 'multiple equilibrium points'
available. However, once social relationships are established and
power structures set in place in particular conjunctural settings,
institutions tend to become 'locked in' and to resist fundamental

restructuring. 17 As the globalization process takes shape, then, it

does not involve some sort of linear process of the withering away
of the state as a bureaucratic power structure; indeed, paradoxically,
in a globalizing world states play a crucial role as stabilizers and

15 John Gerard Ruggie, James A. Caporaso, Steve Weber and Miles Kahler,
Symposium: Multilateralism , special section m International Organization , Vol. 46, No. 3,
Summer 1992, pp. 561-708.
16 Robert O. Keohane and Helen Milner, (eds), Internationalization and Domestic
Politics , Cambridge, Cambridge University Press, 1996.
17 Mark Granovetter, 'Economic Action and Social Structure: The Problem of
Embeddedness', American Journal of Sociology, Vol. 91, No. 4, November 1985, pp. 50-
82; Granovetter, 'Economic Institutions as Social Constructions: A Framework for
Analysis', Acta Sociologica , No. 35, 1992, pp. 3-11.

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258 GOVERNMENT AND OPPOSITION

enforcers of the rules and practices of global society.

states and state actors are probably the most impo
category of agent in the globalization process. As n
political organization surrounding, cutting across a
with - and fostered by- the state crystallize, states an
are the primary source of the state's own transforma
residual enterprise association.

FROM THE WELFARE STATE TO THE COMPETITION STATE

State actors have acted and reacted in feedback loop fashion to

more complex structure of constraints and opportunities chara
istic of the new environment. The outcome of the institutional
selection process - the ultimate choice as to which equilibrium is
eventually reached (if any) in attempting to cope with new pressures
- depends upon the way agents react in real time in the real world.
As international and transnational constraints limit the things that
state and market actors believe the state can do, this shift is leading
to a potential crisis of liberal democracy as we have known it - and
therefore of the things people can expect from even the best-run
government. In this context, for example, a new and potentially
undemocratic role is emerging for the state as the enforcer of
decisions and/or outcomes which emerge from world markets,
transnational 'private interest governments', and international
quango-like regimes.18
The essence of the post-war national welfare state lay in the
capacity which state actors and institutions had gained, especially
since the Great Depression, to insulate certain key elements of
economic life from market forces while at the same time promoting
other aspects of the market. These mechanisms did not merely mean
protecting the poor and helpless from poverty and pursuing welfare
goals like full employment or public health, but also regulating
business in the public interest, 'fine tuning' business cycles to
promote economic growth, nurturing 'strategic industries' and

18 A 'quango', or quasi-autonomous non-governmental organization, is an

authoritative body licensed by the state to carry out public regulatory functions but
made up of appointed representatives of private sector interests. It is probably best
considered to be a variant of state corporatism.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 259

'national champions', integrating labour movements into corpor-

atist processes to promote wage stability and labour discipline
reducing barriers to international trade, imposing controls on
'speculative' international movements of capital, and the like. The
expansion of the economic and social functions of the state wa
seen to be a crucial part of the process of social, economic and
political 'modernization' for any 'developed' country.
But this compromise of domestic regulation and international
opening - what John Ruggie famously called 'embedded liberalism'19
- was eroded by increasing domestic structural costs (the 'fisca
crisis of the state'20) as well as the structural consequences of growing
external trade and, perhaps most important, of internationa
financial transactions.21 The crisis of the welfare states lay in their
decreasing capacity to insulate national economies from the global
economy, and the combination of stagnation and inflation which
resulted when they tried. The world since then has seen the
emergence of a quite different beast, the competition state. Rather
than attempt to take certain economic activities out of the market
to 'decommodify' them as the welfare state was organized to do,
the competition state has pursued increased marketization in order
to make economic activities located within the national territory,
or which otherwise contribute to national wealth, more competitiv
in international and transnational terms. The main features of this
process have included attempts to reduce government spending in
order to minimize the 'crowding out' of private investment by state
consumption, and the deregulation of economic activities, especially
financial markets. The result has been the rise of a new discourse
and practice of 'embedded financial orthodoxy',22 which is in turn

19John Gerard Ruggie, 'International Regimes, Transactions, and Change:

Embedded Liberalism in the Post- War Order', International Organization , Vol. 36, No. 4,
Autumn 1982, pp. 379-415; Ruggie here also uses the word 'liberalism' in its American
meaning.
20 James O'Connor, The Fiscal Crisis of the State , New York, St Martin's Press, 1973.
21 Fred L. Block, The Origins of International Economic Disorder: A Study of United
States Monetary Policy from World War II to the Present , Berkeley and Los Angeles,
University of California Press, 1977; Susan Strange, Casino Capitalism , Oxford,
Blackwell, 1986.
22 P. G. Cerny, 'The Infrastructure of the Infrastructure? Toward "Embedded
Financial Orthodoxy" in the International Political Economy', in Ronen P. Palan and
Barry Gills, (eds), Transcending the State-Global Divide: A Neostructuralist Agenda in
International Relations , Boulder, Co., Lynne Reinner, 1994, pp. 223-49.

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260 GOVERNMENT AND OPPOSITION

shaping the parameters of political action everywher

Transnational factors and three-level games have
specific types of policy change to the top of the polit
a shift from macroeconomic to microeconomic interventionism, as
reflected in both deregulation and industrial policy; 2) a shift in
the focus of that interventionism from the development and
maintenance of a range of 'strategic' or 'basic' economic activities
in order to retain minimal economic self-sufficiency in key sectors
to one of flexible response to competitive conditions in a range of
diversified and rapidly evolving international marketplaces, i.e. the
pursuit of 'competitive advantage' as distinct from 'comparative
advantage';23 3) an emphasis on the control of inflation and general
neoliberal monetarism- supposedly translating into non-inflationary
growth- as the touchstone of state economic management and
interventionism; and 4) a shift in the focal point of party and
governmental politics away from the general maximization of welfare
within a nation (full employment, redistributive transfer payments
and social service provision) to the promotion of enterprise,
innovation and profitability in both private and public sectors.
The general rule in mainstream (classical and neoclassical)
economic theory is, of course, that the state should intervene as
little as possible beyond maintaining the legal framework necessary
for a working market system (private property rights, sanctity of
contracts, etc.), a currency system, defence, and so forth. State
intervention can also be justified in this context, however, where it
attacks or restricts obstacles to efficient market behaviour or
counteracts 'market failure' - e.g., through demand management
at the macroeconomic level and/or regulation at the mesoeconomic
and microeconomic levels. A further widely-accepted exception to
the rule is the argument that some activities are simply not amenable
to being organized and run according to market principles in the
long term or are in particular danger from 'exogenous shocks' -
natural monopolies, public goods, or 'strategic industries'. But these
activities are essentially pathological. The market mechanism is seen
to be 'natural'. The modern 'welfare state', using that term in a
broad sense, was seen to combine a series of such interventions.
Welfare spending, for example, can be 'justified' in mainstream
u The distinction between comparative advantage and competitive advantage is a
central theme of John Zysman and Laura d'Andrea Tyson, (eds), American Industry in
International Competition , Ithaca, NY, Cornell University Press, 1983.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 26 1

economic terms by its demand management role, stabilizing the

economic system and thus permitting the maximization of growth-
oriented market choices. Market-enforcing regulation, such as anti-
monopoly legislation or stock market regulation, is justified not
only by norms of 'public interest', but also as preventing 'unfair
competition' and anti-competitive (and thus anti-market) behaviour
by monopoly firms, cartels, or organizations such as trade unions
Even indicative planning is rationalized as a market-clearing
exercise.24 And more direct, non-market control or regulation is
legitimized by reference to the need to organize production by
natural monopolies, the provision of public goods and services, or
the need to maintain basic or strategic industries.
This is a powerful package of potential interventions indeed,
especially when politically galvanized by a social objective such as
full employment, social justice or increased economic growth. What
must be remembered, however, is that all of these forms of
interventionism have one thing in common: that they take for
granted a fundamental division of function, even an incompatibility
of kind, between the market , which is seen as the only really dynamic
wealth-creating mechanism in capitalist society (despite its
susceptibility to 'market failures'), on the one hand; and the state ,
which is seen as a hierarchical and essentially static mechanism,
unable to impart a dynamic impetus to production and exchange
(except in wartime), on the other. The state is thus seen as
characterized by a mode of operation which undermines market
discipline and substitutes 'arbitrary prices' for 'efficiency prices'25
- at best a necessary evil, at worst inherently parasitic on wealth
created through the market.
The welfare state was therefore based on a paradox. It might
save the market from its own dysfunctional tendencies, but it carried
within itself the potential to undermine the market in turn. From a
market perspective, then, the welfare state must be both a) restrained
in its application and b) regularly deconstructed - deregulated - in
order to avoid the 'ratchet effect' which leads to stagflation, the
fiscal crisis of the state and the declining effectiveness of each new

24 Saul Estrin and Peter Holmes, French Planning in Theory and Practice , London,
Allen & Unwin, 1982.
25 Charles E. Lindblom, Politics and Markets: The World's Political-Economic Systems,
New York, Basic Books, 1977.

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262 GOVERNMENT AND OPPOSITION

increment of demand reflation and functional expans

were not to be done, the result would be the eme
lumbering, muddling, 'overloaded' state. In this context
the international recession of the 1970s and early 1980s
consequences for the economic policies of advanced ind
generally, and political decision-makers have undergon
mental learning process which has altered the norms
which they operate on both a daily and a long-term b
This 'overloaded' state was seen to bump up against f
types of constraint. In the first place, chronic deficit
governments in a slump period is seen a) to soak up res
might otherwise be available for private capital allocat
cause interest rates to increase, in ways which 'crowd
investment, b) to raise the cost of capital, and c) to channe
both into consumption (increasing inflationary pressure
penetration) and into non-productive financial outlets
nationalized industry and tripartite wage bargaining (
tism) are blamed for putting further wage-push pressure o
while at the same time preventing rises in productivity
shedding of newly redundant labour (given the increa
cence of much fixed capital and the pressing need for r
thus lowering profitability through rigidities in the lab
Thirdly, attempts to maintain overall levels of econom
to maintain demand and infrastructure, and to preven
ment - are seen to lock state interventionism into a 'lame duck'
syndrome in which the state takes responsibility for ever wider, and
increasingly unprofitable, sectors of the economy. And fourthly, all
of these rigidities, in an open international economy, have negative
consequences for the balance of payments and for the exchange
rate.

All four of these constraints interact in recessionary conditions

to restrict the capacity of private capital to perform its supply-side
or productive function. Thus the challenge for state actors today, as
viewed through the contemporary discourse of globalization, is to
confront the perceived limitations of the state - mainly to attempt
to combine a significant measure of austerity with the retention o
a minimal welfare net to sustain sufficient consensus, while at the
same time promoting structural reform at the mesoeconomic and
microeconomic levels in order to improve international competi-
tiveness. In the industrial world generally, major changes in

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 263

government policy have resulted, changes which have serio

consequences for the welfare state model - especially a shift in t
focus of economic policy away from macroeconomic deman
management towards more targeted mesoeconomic and micr
economic policies.

DIVERGENCES AND CONVERGENCES: COMPETING FORMS OF

THE COMPETITION STATE

Despite the vulnerability of the welfare state model, howe

national policy-makers have a range of potential responses, old
new, with which to work. The challenge of the competition stat
said to be one of getting the state to do both more and less at
same time. Getting more for less has been the core concept,
example, of the 'reinventing government' movement which is a m
manifestation and dimension of the competition state approach
The competition state involves both a transformation of the po
roles of the state and a multiplication of specific responses to ch
In terms of policy transformation, several levels of governme
activity are affected. Among more traditional measures is, of cou
trade policy. The core issue in the trade issue-area is to av
reinforcing through protection the existing rigidity of the industri
sector or sectors in question, while at the same time fostering
even imposing adaptation to global competitive conditions in ret
for temporary protection. Transnational constraints are growi
rapidly in trade policy, however, as can be seen in the establis
ment of the North Atlantic Free Trade Area, the Asia-Pacific
Economic Cooperation group, and the World Trade Organization.
Two other traditional categories, monetary and fiscal policy, are
perhaps even more crucial today, and the key change is that relative
priorities between the two have been reversed; tighter monetary
policy (although with mixed results) is pursued alongside looser
fiscal policy through tax cuts. And exchange rate policy, difficult
to manage in the era of floating exchange rates and massive
international capital flows, is nonetheless still essential, as the British

26 David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial
Spirit is Transforming the Public Sector ; From Schoolhouse to Statehouse, City Hall to the
Pentagon, Reading, Mass., Addison- Wesley, 1992.

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264 GOVERNMENT AND OPPOSITION

devaluation of 1992 and the American devaluation of 1985-87 have

shown.27
Potentially more innovative, combining old and new measures,
is the area of industrial policy and related strategic trade policy. By
targeting particular sectors, supporting the development of both
more flexible manufacturing systems and transnationally viable
economies of scale, and assuming certain costs of adjustment,
governments can alter some of the conditions which determine
competitive advantage: encouraging mergers and restructuring;
promoting research and development; encouraging private invest-
ment and venture capital, while providing or guaranteeing credit-
based investment where capital markets fail, often through joint
public/private ventures; developing new forms of infrastructure;
pursuing a more active labour market policy while removing barriers
to mobility, and the like. The examples of Japanese, Swedish and
Austrian industrial policy have been widely analysed in this context.
A third category of measures, and potentially the most explosive,
is, of course, deregulation. The deregulation approach is based partly
on the assumption that national regulations, especially the
traditional sort of regulations designed to protect national market
actors from market failure, are insufficiently flexible to take into
account the rapid shifts in transnational competitive conditions
characteristic of the interpenetrated world economy of the late
twentieth century. However, deregulation must not be seen just as
the lifting of old regulations, but also as the formulation of new
regulatory structures which are designed to cope with, and even to
anticipate, shifts in competitive advantage. Furthermore, these new
regulatory structures are often designed to enforce global market-
rational economic and political behaviour on rigid and inflexible
private sector actors as well as on state actors and agencies. The
institutions and practices of the state itself are increasingly
marketized or 'commodified', and the state becomes the spearhead
of structural transformation to market norms both at home and
abroad.

Although each of these processes can be observed across a wide

range of states, however, there are significant variations in how

^Jeffry A. Frieden, 'Invested Interests: The Politics of National Economic Policies

in a World of Global Finance', International Organization, Vol. 45, No. 4, Autumn
1991, pp. 425-51.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 265

different competition states cope with the pressures of adaptati

and transformation. There is a dialectic of divergence an
convergence at work, rather than a single road to competitivene
The original model of the competition state was the strategic
developmental state which writers like John Zysman and Chalmer
Johnson associated with France and Japan.28 This perspective, wh
identifies the competition state with strong-state technocra
dirigisme , lives on in the analysis of newly industrializing countr
(NICs) in Asia and other parts of the Third World. However, t
difficulty with this approach has been that the scope of control
which the technocratic patron-state and its client firms can exerc
over market outcomes diminishes as the integration of the
economies into global markets and the complexities of third-lev
games proceeds.
And as more firms and sectors become linked into new patter
of production, financing and market access, often moving operatio
offshore, their willingness to follow the script declines. Howeve
there are distinctions even here. Within this category, for examp
Japanese administrative guidance and the ties of the keiretsu syste
have remained relatively strong despite a certain amount o
liberalization, deregulation and privatization, whereas in Fran
the forces of neoliberalism have penetrated a range of significan
bastions from the main political parties to major sectors of t
bureaucracy itself.
In contrast, the orthodox model of the competition state toda
is not the strategic state but the neoliberal state (in the Europea
sense, i.e. orthodox free-market economic liberalism, or what is
called 'nineteenth-century liberalism* in the United States)
Thatcherism and Reaganism in the 1980s provided both a politica
rationale and a power base for the renascence of free-mark
ideology generally - not just in the United Kingdom and the Unit
States but throughout the world. The flexibility and openness of
British and US capital markets, the experience of Anglo-America
elites with international and transnational business and their
willingness to go multinational, the corporate structure of American
and British firms and their (relative) concern with profitability and
28 John Zysman, Governments, Markets, and Growth: Financial Systems and the Politics
of Industrial Change, Ithaca, NY, Cornell University Press, 1983; Chalmers Johnson,
M.I.T.I. and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, Stanford,
Cal., Stanford University Press, 1982.

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266 GOVERNMENT AND OPPOSITION

shareholder returns rather than traditional relationshi

share, the enthusiasm with which American man
embraced lean management and downsizing, and
flexibility of the US and UK labour forces, combined w
length state tradition in both countries, are widely th
fought off the strategic state challenge and to hav
emerged more competitive today.
Nevertheless, liberalization, deregulation and privat
not reduced the role of state intervention overall, just shi
decommodifying bureaucracies to marketizing ones. 'R
government', for example, means the replacement of b
which directly produce public services by ones which cl
and supervise contracted-out and privatized services a
complex financial criteria and performance indic
industrial policy is alive and well too, secreted in the i
a decentralized, patchwork bureaucracy which is t
tradition and the new British obsession.

Throughout the debate between the Japanese model and the

Anglo-American model, however, the European neocorporatist
model, rooted in the post-war settlement and given another (if
problematic) dimension through the consolidation of the European
Community (now the European Union), has been presented by many
European commentators as a middle way. In bringing labour into
institutionalized settings, not only for wage bargaining but for other
aspects of the social market, in doggedly pursuing conservative
monetary policies, in promoting extensive training policies, and in
possessing a universal banking system which nurtured and stabilized
industry without strategic state interventionism, the European
neocorporatist approach (as practised in varying ways in Germany,
Austria and Sweden in particular) has seemed to its proponents to
embody the best aspects of both the Japanese and the Anglo-
American models. However, despite the completion of the single
market and the signing of the Maastricht Treaty, the signs of what
in the early 1980s was called 'Eurosclerosis' have reappeared; the
European Monetary Union project is widely regarded as deflationary
in a context where costs are unevenly spread; and the liberalizing,
deregulatory option is increasingly on the political cards again (as
it was, for a while, in the 1980s), especially in the context of rapidly
rising German unemployment. The competition state, then, comes
in myriad forms. 'National developments' - i.e., differences in

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 267

models of state/economy relations or state/societal arrangements-

as Zysman writes, 'have, then, driven changes in the global
economy.'30
At another level, of course, states and state actors seek to convince,
or pressure, other states- and transnational actors such as
multinational corporations or international institutions - to adopt
measures which shift the balance of competitive advantage. Such
pressure will generally combine elements of neo-mercantilistic self-
interest, limited reciprocity, and multilateral hard bargaining -
whether to limit trade in sensitive sectors such as textiles,
automobiles or semiconductors, to develop new regional initiatives
such as the European single market, to expand multilateral trade
regimes in agriculture or services, or to reach agreements in areas
such as exchange rate policy. The search for competitive advantage
in a relatively open world adds further layers and cross-cutting
cleavages to the world economy which may undermine pure
multilateralism, but which increase the complexity and density of
networks of interdependence and interpénétration. Finally,
transnational pressures can develop- whether from multinational
corporations or from nationally or locally based firms and other
interests (such as trade unions) caught in the crossfire of the search
for international competitiveness - for the establishment or
expansion of transnational regimes, transnational neocorporatist
structures of policy bargaining, transgovernmental linkages between
bureaucrats, policy-makers and policy communities, and the like.
In all of these settings, the state is no longer able to act as a
decommodifying hierarchy (i.e., taking economic activities out of
the market). It must act more and more as a collective commodifying
agent - i.e., putting activities into the market) - and even as a market
actor itself. It is financier, middleman, advocate, and even entre-
preneur, in a complex economic web where not only do the frontiers
between state and market become blurred, but also where their
cross-cutting structures become closely intertwined and their
behavioural modes become less and less easy to distinguish. National
differences therefore do not so much concern the possibility of
resisting globalizing trends per se> but are best seen instead as
representing different modes of managing a complex transition in
30 John Zysman, 'The Myth of the "Global" Economy': Enduring National
Foundations and Emerging Regional Realities', New Political Economy , Vol. 1, No. 1,
Summer 1996, pp. 157-84.

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 268 GOVERNMENT AND OPPOSITION

which emerging political and economic structures are

be closely interwined but not yet terribly clear, and th
for alternative equilibria are fluid.
Today the state remains the central focus for consen
and social discipline - the 'collective capitalist' mai
social fabric while fractions of capital compete. But t
the state into an increasingly contradictory locatio
economy terms. Not only is the 'collective capitalist' ro
has to be exercised in a more and more complex field
both other states and transnational economic and socia
states are also increasingly quasi-market actors and co
agents themselves. In such complex conditions, the st
times structurally fragmented, sometimes capable of strat
Despite elements of convergence, significant divergen
for different states have different sets of advantages a
ages in the search for international competitiveness. T
endogenous structural capacity for strategic action both
and internationally. They differ in the extent to which th
economic structures, with or without government inte
easily adapt to international conditions. And they dif
vulnerability to international and transnational trends

THE SCOPE AND LIMITS OF THE COMPETITION STATE

The 'competition state', then, is a complex actor in a com

'structured action field',31 compelled to wear different hat
different times and in differently structured situations. State a
and market actors intermingle in changing international
transnational conditions. This complexity is nowhere more evi
than in such fields as, for example, financial market regulation
environmental protection. On the one hand, financial ma
deregulation is of particular significance for understanding
nature of the new, more complex regulatory structures characterist
of a more integrated global financial marketplace.32 On the ot
51 Michel Crozier and Erhard Friedberg, L'acteur et le système: les contraintes de l'a
collective , Paris, Editions du Seuil, 1977.
M P. G. Cerny, 'The Dynamics of Financial Globalization: Technology, Ma
Structure, and Policy Response', Policy Sciences , Vol. 27, No. 4, November 199
319-42.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 269

hand, environmental protection has gone through cycles of both

regulation on a national level and deregulation or regulatory
restructuring in the more freewheeling pro-market atmosphere of
the early-to-mid-1980s; at the beginning of the 1990s, however, wit
environmental protection coming to be seen as not only a cross-
border issue but also as representing a truly transnational public
good, the dynamic of reregulation is once again at the forefront.
But the rapid rise of the competition state has given rise to a
further paradox. As states and state actors have attempted to promote
competitiveness in this way, they have - seemingly voluntarily -
given up a range of crucial policy instruments. The debate rages
over whether, for example, capital controls can be reintroduced o
whether states are still able to choose to pursue more inflationary
policies without disastrous consequences.33 The 'genie is out of the
bottle' - David Andrews has called it hysteresis 34 - and states are
seeing their policy capacity and political autonomy eroding in ways
which may not be recuperable. Political and social development is
not merely a question of frictionless rational choices and cost-benefi
analyses, but is inherently path-dependent and 'sticky', a process
where conjunctural shifts can have structural consequences.
The nation-state, of course, is not dead, but its role has changed.
In the first place, citizens will probably have to live more and mor
without the kind of public services and many of the redistributive
arrangements characteristic of the national welfare states. The 'new
public management' seeks not only to reorganize the state alon
the lines of private industry,35 but also to replace public provision

ss John B. Goodman and Louis W. Pauly, 'The Obsolescence of Capital Controls?

Economic Management in an Age of Global Markets', World Politics, Vol. 46, No. 4
October 1993, pp. 50-82; Ethan B. Kaplan, Governing the Global Economy: International
Finance and the State, Cambridge, Mass., Harvard University Press, 1994; Eric N
Helleiner, 'Post-Globalization: Is the Financial Liberalization Trend Likely to be
Reversed?', in Robert Boyer and Daniel Drache (eds), States Against Markets: The Limit
of Globalization, London, Routledge, 1996; P. G. Cerny, 'International Finance an
the Erosion of State Policy Capacity', in Philip Gummett (ed.), Globalization and Public
Policy, Cheltenham, Glos., and Brookfield, VT, Elgar, 1996, pp. 83-104.
54 David M. Andrews, 'Capital Mobility and State Autonomy: Toward a Structural
Theory of International Monetary Relations', International Studies Quarterly, Vol. 38
No. 2, June 1994, pp. 193-218.
S5 Patrick Dunleavy, 'The Globalization of Public Services Production: Can
Government Be "Best in World"?', Public Policy and Administration, Vol. 9, No. 1,
Summer 1994, pp. 36-64.

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270 GOVERNMENT AND OPPOSITION

with private provision (pensions, prisons, etc.) and to rep

payments for unemployment compensation, income supp
poor, etc., with time-limited, increasingly means-tested
related measures (or none at all). In the second place, the
goal of state actors is increasingly one of minimizing in
order to maintain the confidence of the international business and
financial community. Central bankers have always played this role
but are doing so to an ever-increasing extent.
In this context, states are less and less able to act as 'strategic' or
'developmental' states, and are more and more 'splintered states'.36
State actors and different agencies are increasingly intertwined with
'transgovernmental networks' - systematic linkages between state
actors and agencies overseeing particular jurisdictions and sectors,
but cutting across different countries and including a heterogeneous
collection of private actors and groups in interlocking policy
communities. Furthermore, some of these linkages specifically
involve the exchange of ideas rather than authoritative decision-
making or power-broking- what have been called 'epistemic
communities'.37 The functions of the state, although central in
structural terms, are increasingly residual in terms of the range of
policy instruments and outcomes which they entail.
In international terms, states in pursuing the goal of competi-
tiveness are increasingly involved in what John Stopford and Susan
Strange have called 'triangular diplomacy', consisting of the complex
interaction of state-state, state-firm, and firm-firm negotiations.38
But this concept must be widened further. Interdependence analysis
has focused too exclusively on two-level games and the state as a
Janus-faced institutional structure. Although this is an oversimpli-
fication, I argue that complex globalization has to be seen as a
structure involving (at least) three- level games, with third-level -
transnational - games including not only 'firm-firm diplomacy' but
also transgovernmental networks and policy communities, inter-

36 Howard Machin and Vincent Wright (eds), Economic Policy and Policy-Making Under
the Mitterrand Presidency , 1981-84 , London, Pinter, 1985.
37 Peter Haas (ed.), Knowledge, Power, and International Policy Coordination, special
issue of International Organization, Vol. 46, No. 1, Winter 1992; cf. Diane Stone,
Capturing the Political Imagination: Think-Tanks and the Policy Process, London, Frank
Cass, 1996.
38 John Stopford and Susan Strange, Rival States, Rival Firms: Competition for World
Market Shares, Cambridge, Cambridge University Press, 1991.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 271

nationalized market structures, transnational cause groups and many

other linked and interpenetrated markets, hierarchies and networks.
As states and state actors get drawn more and more into the minutiae
of cross-cutting and transnational economic relations, their activities
become further constrained by the less manageable intricacies of
complex situations.
Thus the actual amount of government imbrication in social life
can increase while at the same time the power of the state to control
specific activities and market outcomes continues to diminish. One
example is the way financial globalization and deregulation have
intensified pressures for governments to increase monitoring of
financial markets, criminalization of insider trading and the like.
The growth of competing authorities with overlapping jurisdictions
does not reduce interventionism; it merely expands the range of
possibilities for splintered governments and special interests to carve
out new fiefdoms, both domestically and transnationally, while
undermining their overall strategic and developmental capacity. The
political dimension of complex globalization, then, is no less
'embedded' than the social dimension.
Such changes have a crucial socio-psychological function too. On
the one hand, can the residual state maintain this gemeinschaftlich
bond in spite of the circumscription of its gesellschaftlich functions?
On the other, might there be some alternative structural form which
could evolve into a repository for this feeling of social belonging?
Some countries, because of their infrastructure, education
systems, workforce skills, and quality-of-life amenities, are able to
attract mobile, footloose capital of a highly sophisticated kind
(employing lots of 'symbolic analysts' engaging in 'high value-added
activities'); others may increasingly have to depend upon low-wage,
low-cost manufacturing or agricultural production.39 If the developed
'trilateral' states of the United States, Europe, and Japan (along
with perhaps some others) are able to provide these advanced
facilities better, then gemeinschaftlich loyalty in those states may erode
more slowly or perhaps even stabilize. On the other hand, mobile
international capital may well destabilize less favoured states, whose
already fragile governmental systems will be torn by groups
attempting to recast those gemeinschaftlich bonds through claims for

59 Robert B. Reich, The Work of Nations: Preparing Ourselves for 21st-century

Capitalism , New York, Knopf, 1991.

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272 GOVERNMENT AND OPPOSITION

the ascendancy of religious, ethnic, or other grassroots l

Max Singer and Aaron Wildavsky have characterized this b
of the world as leading to the differentiation of 'zones o
and 'zones of turmoil',40 but it is unclear whether the zone
will expand or contract.
If we want to look for an alternative way of conceivin
residual state, probably the best place to look is at Amer
governments. These governments can claim only a partia
from their inhabitants, and their power over internal econ
social structures and forces has been limited indeed. Howe
have been required to operate over the course of the
centuries in an increasingly open continental market, with
being such a thing as state 'citizenship' (only residence, a
the free movement of persons within the United States as
Nevertheless, they do - like counties, provinces and region
countries - foster a sense of identity and belonging th
quite strong. In economic policy matters they represent t
of the 'competition state'. Their taxing and regulating po
been seriously constrained in many spheres by the expans
weight and the legal prerogatives of the federal governme
same time, their ability to control development planning,
and use the tax revenues they do impose (as well as offer
incentives and subsidies), to build infrastructure, to run
and training systems, to enforce law and order, and the li
these subnational states a capacity to influence the pro
immobile factors of capital in significant ways - indeed m
many governments in Third World countries.
The main focus of the competition state in the world - i
that is partly analogous to the focus of American state gov
- is the promotion of economic activities, whether at
abroad, which will make firms and sectors located within the
of the state competitive in international markets. In this
however, the state becomes an agent of its own transforma
civil association to enterprise association. Rather than
public goods or other services which cannot be efficiently
by the market - in other words, rather than acting as a
modifying' agent where market efficiency fails - the state

40 Max Singer and Aaron Wildavsky, The Real World Order: Zones of Pea
Turmoil, Chatham, NJ, Chatham House Publishers, 1993.

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 THE DYNAMICS OF POLITICAL GLOBALIZATION 273

into promoting the commodification or marketization of its own

activities and structures (including the internal fragmentation of
the state itself) as well as promoting marketization more widely in
both economic and ideological terms.
At the same time that the state faces these changes, however, the
search is on to find new ways for it to function and new roles for it
to play. The attempt to make the state more 'flexible' has moved a
long way over the past decade or so, not only in the United States
and Britain - where deregulation, privatization, and liberalization
have evolved furthest- but also in a wide range of other countries in
the First and Third Worlds (and more recently in the Second World,
too). Privatization and deregulation are particularly important
because they involve the increasing interweaving of the domestic
economy and the global economy. The 'ratchet effect'- the term
used by Mrs Thatcher's guru Sir Keith Joseph for what was once
called 'creeping socialism,' i.e. that each attempt to use the state to
achieve a new discrete policy goal ratchets up the size and unwieldi-
ness of the state as a whole- has been turned on its head. In a
globalizing world, the competition state is more likely to be involved
in a process of competitive deregulation and creeping liberalization.

CONCLUSION: GLOBALIZATION AND THE COMPETITION STATE

AS PARADOXES

The central paradox of globalization is that rather than creatin

one big economy or one big polity, it also divides, fragments
polarizes. Convergence and divergence are two sides of the s
coin. Globalization is not even a single discourse, but a contest
concept giving rise to several distinct but intricately intertwi
discourses, while national and regional differences belie t
homogeneous vision as well.
Indeed, the power of globalization itself as process, practice
discourse - and thus as a paradigm - lies in this very complexi
Whatever direction the future takes, however, it will be a pat
dependent one where hard political choices will have to be m
and the very complexities of globalization will increasingly sh
both the problematic and the understanding of potential solutio
The state is no longer the overarching institutional structure it
seemed to be, and the 'nation' as it has been known in the West is

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274 GOVERNMENT AND OPPOSITION

also succumbing to Gemeinschaft fatigue in the face of the de

deficit, the challenge of transnational pressures, and the
and ideological forces of religious revival and new tr
Political strategies and projects, therefore, will increasing
multilayered and globally oriented - whether on the
('globalization' in the sense of pursuing economic efficien
liberalized world marketplace) or on the Left (a regen
genuinely internationalist socialism?).
Although state apparatuses are becoming bureaucratical
powerful and more intrusive in terms of monitoring
activity, they have become residual in terms of the pursui
more profound form of common good. Social bonds a
reformulated around and through other structures and p
and new types of embeddedness are crystallizing - in inte
finance, in ethnic groups both subnational and, indeed,
transnational, in the world of international communications and
the media, in strategic alliances among firms, in the mindset of
international investors, in transgovernmental policy networks and
transnational pressure groups, and in the discourse and practices
of state actors themselves. In this context, different national models
of state/economy relations or state/societal arrangements will at
one level continue to shape developments in the global economy
precisely because of the interaction of their differences; at the same
time, however, that very interaction will generate new political
pressures for convergence. The post-modern irony of the state is
that rather than simply being undermined by inexorable forces of
globalization, the competition state is becoming increasingly both
the engine room and the steering mechanism of political
globalization itself.

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