Globalization session 9 - Part 2: Globalization, governments and

policy-making

0. Introduction
Last week we worked about what is actually globalization and we discussed the fact that
globalization is very complex, long-lasting, and a significant phenomenon with both technical
dimensions, economic dimensions and even normative and political dimensions.
We focussed on the importance that ideas have in actually constituting the right process in
globalization.
Today, the main question is, in those changes that economic globalization have started, what
becomes with state ?
Globalization and policy-making: Economic patriotism and business power?
1. The symbiotic relationship between states and markets
2. Globalization and the non-death of states
3. States’ role in shaping markets
4. New state activism
5. Discussion of reading assignment

1. The symbiotic relationship between states and markets

« Symbiotic relationship » : states and markets are not completely isolated from each other.
Our main questions:
In times of globalization, how have states shaped markets? How has this role influenced the nature
of state?
→ The issue is that of the reconfiguration of the relationships between states and markets – how
has it happened?
• In line with our constructivist approach: globalization is a contingent phenomenon
• States and markets are not isolated from each other: economic activity is embedded in a broader
social and political context
We will discuss in this class several studies that explain the relationship between states and markets.
The first study is from Polany and is called « Great transformation ».

Polanyi’s Great transformation (1944), a seminal research in international political economy,

focuses on the embeddedness (= encastrement, inclusion) of the economic system in social
order and its evolution over time
This book really has change the way we think on the relationship between states and markets.
• He charted the 19th-century origins of the market economy in Britain and how it spread
internationally
• He is focussing on a very specific period of time in England. Most specifically, he looks in
studies the abolition of the Poor Law.
o Then, the market system was becoming a mechanism for ordering and maintaining the whole of
society, and society was becoming subject to its logic and laws
o Marketization created a social dislocation, starvation and deprivation (see the abolition of the
Poor Law in 1834) —> refers to the allocation of financial assistance for the poorest in England and
the rest of the United Kingdom between the 16th and 19th centuries.
• His analysis underlines how market orders are always political constructs
o In 19th-century Britain, « laissez-faire was planned »
o An expansive state intervention was integral to the spread of markets
→ So, he showed that not only is the view of markets as a natural order inaccurate,
→ But also the idea of self-regulating markets fails to recognize the integral role of the state in
constructing, maintaining and shaping these markets
Polanyi payed attention not only in the political construction of markets but also their outcomes,
and he elaborated on the concept of the « double movement » identified as a key driver of
historical change.
o It entails the extension of the market domain into ever more aspects of human society
o But as the socially damaging consequences of market liberalization advance, socially protective
resistance arises
o In 19th-century Britain: feudal lords, trade unionists and socialists
o This countermouvement (double movement), while deemed vital for the protection of society, is
also recognized to be incompatible with the self-regulation of the market
o This contradiction is a key source of the inherent instability of regulated capitalism in Polanyi’s
analysis

Conclusion of Polany’s study : Polany offers an analysis of how the economy and society relate to
one another and does that by looking and studying specific movements where markets expanse of
social stability and this generated an counted political movements supported by a series of unrelated
actors. That led to the development of specific type of welfare states, regulation of labor,… Thats
what in essence the symbiotic relationship between markets and states actually released. You can’t
study the extension of the markets without looking at what happens in the society levels and the
double movement that made at some point emerged from it. (If we follow Polany’s analysis).

In the 1980s onwards, economic markets and understandings of such markets altered sharply.
o Studies underlined oil crises, stagflation, fiscal constraints and, in the 1990s onwards, increased
capital mobility and internationalization
o Economic policies spread such as free trade, capital mobility, floating exchange rate
o Keynesian demand management became unfashionable and deemed difficult to implement
• In the face of these neoliberal changes, analyses underlined a transformation of the state structure
and role in markets, away from a direct role in shaping markets
o There were discussions on ‘the retreat of the state’ (Strange, 1988) or ‘the powerless state’
(Andrews, 1994) in the face of economic globalization
o Others saw ‘the state vs the market’, presenting them
as two opposed modes of governing economic
exchange. Either you have the market: driving economic
exchange or you have the state: organising it, but you
can’t have both.

This is a table that presents all the time governments expenditure as a share of GDP.

Yet, states have not retreated!

Little sign of state systematic retrenchment in some of the most highly open economies
In response to the global financial crisis, levels of spending expressed as a proportion of GDP have
risen steeply.
But in the Anglo-liberal economies, this sharp rise has been replaced by a steep and unprecedented
decline in state spending as a share of GDP since 2010.
 2.

Globalization and the non-death of states

Data on the proportion of the total workforce employed directly by the state reports the
development of large states
How has the state change his policy making ?

3. State’s role in shaping markets

In times of globalization, states do .. in shaping markets.
States have remained deeply involved in markets through forms of re- regulation and privatization
« Freer markets, more rules » (Vogel, 1996)
o As competition spread, state regulatory activities have grown
o Giandomenico Majone (1994) argued that the ‘regulatory state’ had replaced the ‘positive
state’ due to changing economic conditions, European integration and the perceived failure of
public ownership and Keynesianism
o The ‘positive state’: state activities and political conflicts centered on redistribution, with a key
role played by the executive and ministerial departments, political parties and civil servants
o Policymaking based on corporatism, i.e. a small number of actors
o The ‘regulatory state’ core activity is rule-making; the role of the central executive is reduced
relative to other institutions like the EU and independent regulatory agencies, as well as experts and
judges
o Rule-making is based on a greater pluralism, including singe-issue movements and experts
→  The speed of change may differ across
polities – with the change being the
strongest at the EU level
→  Majone’s central claim is that the EU
and national states are moving towards more
indirect regulatory state roles
→  On a side note, speaking of deregulation
is inaccurate as markets are in fact re-
regulated by state actors
States shape different types of markets
Jane Gingrich (2011) conducts a systematic
analysis of welfare market variation and
shows that markets differ along two
dimensions.
The allocation dimension distinguishes markets where the responsibility for access to the service
or the public good is collective or individual
The production dimension distinguishes markets based on whether the structure of competition
gives the state (or third-party payers), users or new producers control over the incentive structure in
the delivery of services
Ruling parties from the right as well as from the left have introduced welfare markets

So, why do policymakers choose particular types of market?

o Right-leaning and left-leaning parties tend to use different types of welfare markets, in
different ways, to meet their own particular ideological ends
→ This variation is systematic with the potential to be strategically manipulated by political
actors (Gingrich, 2011)

The Left prefers markets which feature collective financing of services

The Right favours markets which encourage individual responsibility in the
way services are accessed
→ Political parties alter markets on services in ways that either benefit their core supporters or
harm them less than their opponents’ supporters
So, states do shape markets, based on their ideological leaning and electoral strategies
Undeniably, the state’s direct role in markets is no longer what it used to be because of re-

regulation and privatization notably

→ There is evidence that supports Majone’s analysis according to which in times of
globalization, states’ role in the economy is less direct and more regulatory
4. New state activism
However, the sole focus on states’ regulatory roles overlooks other developments that are layered
on top of them

Economic patriotism: countries can pursue ‘nationalist’ objectives through means other than
mercantilism, including different forms of liberalization (Clift and Woll, 2012)
→ Even if markets are highly exposed to cross-border trade and capital flows, the state can
engage in economic partiality

= ‘Economic choices which seek to discriminate in favour of particular social groups, firms or
sectors understood by the decision-makers as insiders because of their territorial status’ (Clift and
Woll, 2012, 308)

How so?
o The classic response is protectionism: barriers to trade that close markets to outsiders or measures
that favour domestic firms like subsidies
o More recently, ‘liberal economic patriotism’ has gained prominence: selective liberalization of
certain policy domains where policymakers believe domestic firms enjoy a strategic advantage or
by reregulating with rules that are unfavourable to overseas firms

Why? Politicians face ‘the paradox of neoliberal democracy’ (Crouch, 2008)

o Their political mandate is to pursue the political economic interests of their citizenry
o But they also face constraints imposed by international trade regulation or competition authorities
which increasingly proscribe traditional industrial policy
→  How can policy elites liberalize in a way that benefits mostly its own and how can an industry
remain shielded from foreign competition without contravening international / European market
rules?
→  The issue has become: what kind of economic liberalism to espouse to defend local economic
interests in interconnected markets
→ They had to become creative with policy strategies to find how to negotiate compromises
between abstract economic objectives and territorially bound political obligations!

What are the policies and policy instruments that governments rely on to support the economy in
times of globalization?
—> Supporting insiders without in principles excluding outsiders but still in effect strengthening
the position of national target groups
—> Blocking outsiders from participating on an equal footing with insiders but without distinctly
national criteria or with reference that are not territorially bound in principle
Mark Thatcher takes this analysis a step further by suggesting that states have developed new
direct instruments for shaping markets (2016) →Majone is right... but partly only!
Therefore, as Jonah Levy argues: « the state also rises... Globalisation and liberalisation have
spelled not the erosion of state activism but rather the redeployment of state initiatives on behalf
of new missions » (2006)

Wolfgang Streek suggests that this period can be analyzed in the terms of a « second great
transformation of the state » in face of changed international conditions of state action (2001)
→ States have become more market-making and market-conforming than market-limiting and
market-distorting
Globalization has resulted in government policies moving from Q 4 to Q3, Q2 and Q1. (See image)
Q2: thats the case where the idea is to resist to outsiders while being open to the entry to outsiders
on the *SERENA QUI TOUSSE* :/

5. Discussion of reading
assignment
Hoeffler, Catherine (2012), “European Armament Co-operation and the Renewal of Industrial
Policy Motives”, Journal of European Public Policy, 19 (3), 435-451
C’était pas très clair cette partie , si qq a des notes