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Analysis from Washington: A New Challenge to the Nation State

Washington, 2 January 1998 (RFE/RL) -- In the course of 1997, the increasingly integrated global economy became the latest force to challenge the power of nation states and the stability of an international system based on them.

For most of the past decade, the greatest challenge to the nation state had come from below, from ethnic challenges to the power of the state and the territorial integrity of particular countries.

But during the last few months, this challenge has been surpassed in importance by another one, this time from above -- the globalization of economic life and the inability of governments either individually or collectively to deal with it.

The first challenge has declined largely as a result of the solidarity of existing states against any expression of national self-determination that would result in changes in existing political boundaries.

But the second has increased precisely because neither any individual government nor international body currently has the capacity to respond to the impact of enormous and uncontrolled capital flows among countries in the new globalized economy.

Instead, governments have had to cede much of their control to corporations, privately owned banks, and increasingly independent central banks. And not only have governments had to take this step, but they have had to do so in the full view of their own citizens.

Many Pacific rim governments have had to accept the dictates of international financial bodies such as the International Monetary Fund and the World Bank in order to secure loans and other assistance.

But when aid from these institutions proved insufficient, these countries increasingly have had to accept the dictate of foreign bankers and corporations.

To that extent, these countries were doing no more than many other countries such as Mexico have had to do when they found themselves in extreme economic difficulty.

But in one important respect, the current situation is different. Now, along with the debtor countries, major Western governments that would like to contain and even overcome the crisis also find themselves at the mercy of private economic power.

This new development was very much on public view this week when U.S. government officials found themselves in the unaccustomed role of observers rather than leaders in putting together a package to help South Korea overcome its economic crisis.

They had to watch as the leaders of major American and European banks met in New York to discuss what they could do to help South Korea now that government-backed efforts to restore confidence have appeared to fallen short.

U.S. Treasury deputy secretary Lawrence H. Summers acknowledged this shift in the balance of power when he told reporters after the sessions that he had been at these meetings as an observer but that the "process" sponsored by the banks "is proceeding in a constructive way."

Much commentary on the Pacific rim economic crisis and the response of the international community to it has celebrated the power of the market to force countries to open up their economic systems.

While such conclusions are not without force, they miss three fundamental aspects of the situation, all of which are likely to have a significant impact on the political life of countries around the world.

First, at least in the short term where most people live, many people and the political figures who represent them are likely to be angry about their own loss of power to unelected representatives.

In some countries, particularly those where foreign banks are now dictating economic policy, this may generate demands for closing off the country to foreign influences even at the cost of future economic growth.

In others, particularly those whose governments have generally taken the lead in managing international affairs, this sense of a loss of capacity to influence events may undermine confidence in political institutions and contribute to an isolationist impulse.

Second, while many are now celebrating the power of the market, those who feel themselves the losers in this process either in reality or psychologically, may demand that the state again assume a larger role in controlling private economic power.

And such demands could seriously challenge the largely uncritical faith of the last decade that the market rather than the political system should be the unquestioned measure of all things.

And third, the inability of individual states to cope with these economic challenges may spark a new drive for the creation of new international and government-controlled institutions to bring greater order to the global market.

But regardless which of these three aspects of the current situation becomes predominant, both they and the economic globalization underlying them appear likely to be the most important challenges to the current nation states in 1998 and beyond.