The weakness of the nation state
30 January 2010
The banks’ apparent agreement on a future global levy, drawn through gritted teeth in Davos seems to indicate that at last that some are beginning to get the message. Better than nothing or the lesser of two evils – agree to a plan over which they might have some influence or have it thrust upon them by politicians using the popular backlash, which for once seems to have stiffened their resolve.
Amongst many disconnects brought about by globalisation is one that goes to the heart of economic orthodoxy-free trade, whether as understood by David Ricardo or originally state-sponsored, later private buccaneering by the English or Dutch East India companies. Economic policy making remains resolutely national, whilst the modern transnational corporation thinks and acts in a totally different manner. They are quoted on a variety of major exchanges; their capital is owned by institutional and retail investors from across the globe. They have the power to switch production and hence real capital and jobs between countries almost at will and are in effect, and irrespective of their founding origins, citizens of no country and hence not controllable by national governments, since they cannot be said to hold national interests as being paramount or even relevant.
This is at the core of the debate about bank regulation, since getting serious global agreement and perhaps more importantly policing it, is still virtually beyond reach. This is especially important in respect of banks or better put, global financial corporations, since this picks up the highly influential shadow institutions due to their ability to influence direction of capital flows through information, “ownership” of the means of transmission, affecting prices from commodities to exchange rates.
This power of course is not limited to financial corporations, but applies equally to mining, oil and gas, timber, food and pharmaceuticals though to defence goods.
To some extent this explains the reluctance of bank leaders to recognise their responsibility in respect of the millions of individual actions and transactions, for which they are the means of expression/transmission, as well as their own proprietary actions.
National Governments, even ones as large and powerful as the US are left flat-footed in response. Only, it seems, do centrally –controlled ones have the necessary grasp on the levers of power, as in China. Smaller countries are simply steamrollered, Iceland, even the UK. This asymmetry is hardly new and has been extensively commented on mostly by opponents of globalisation. Business is global; therefore the decisions and actions taken by corporations are in the narrow sense entirely logical. However the concomitant problems are also global, whether this means the felling of forests, strip mine land degradation or financial meltdown.
There is a gulf between the legislative reach of nation states and the largely weak supranational organisations. This might have been acceptable in a less economically interconnected world, although we now understand how much this means in terms of eco-systems. It is now extraordinarily vital for leaders to look beyond narrow interest and realise just how disenfranchised national governments have become, let alone their hapless citizens and equally how mega corporations bear wider responsibilities- bankers accepting the notion of a levy is a start, but I suspect it may be seen as a process which can be influenced, an entirely logical response, as argued.
Bodies like G20 must restore some symmetry in we are to avoid a repeat of the Great Recession and create an appropriate management architecture.
The weakness of the nation state