The Nation-State and International Capital Flows in Historical Perspective

Abstract

IN RECENT YEARS IT HAS BECOME A COMMONPLACE OF BOTH academic and financial discourse that we are living in a new economic and political world in which financial globalization is destroying the economic autonomy of individual states and hence the foundations of the nation-state as the focus of political authority and the possibilities of politics. Of course, other threats to the nation-state exist — most crucially, the inability to reconcile its virtual monopoly of political authority, and the constraints it imposes on cooperation between states, with ecological causality — but it is the macro-economic crisis of the state which has captured most attention. Undoubtedly, the contemporary international financial environment makes macro-economic management an extremely difficult practical task for many states. With the daily value of foreign exchange transactions amounting to over $1200 billion, governments run the perpetual risk that their choices, or indeed those of other governments, will precipitate an unsustainable rise or fall in the value of their currency. At the same time they must, if they wish to borrow in international capital markets, pursue policies which will secure, and retain, the confidence of international investors. This, of course, creates a very considerable incentive for governments to choose policies which, in both fiscal and monetary terms, prioritize low inflation over growth and employment.

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