The new globalist orthodoxy posits the steady disintegration of national economies and the demise of the state’s domestic power. This article, instead, seeks to show why the modern notion of the powerless state, with its accompanying reports about the demise of national diversity, is fundamentally misleadingfootnote1. It is undeniable that striking changes have taken place inside nation-states in recent times. On the social policy front, there has been a decisive move towards fiscal conservatism, whether from the Right or the Left, with reforms to taxation systems and the trimming of social programmes. In the economic sphere, governments have moved towards greater openness in matters of trade, investment and finance. These changes are often represented as prima facie evidence of the emergence of a new global ‘logic of capitalism’. According to this logic, states are now virtually powerless to make real policy choices; transnational markets and footloose corporations have so narrowly constrained policy options that more and more states are being forced to adopt similar fiscal, economic and social policy regimes. Globalists therefore predict convergence on neoliberalism as an increasing number of states adopt the low-taxing, market-based ideals of the American modelfootnote2.

In contrast to the new orthodoxy, I argue that the novelty, magnitude and patterning of change in the world economy are insufficient to support the idea of a ‘transnational’ tendency: that is to say, the creation of genuinely global markets in which locational and institutional—and therefore national—constraints no longer matter. The changes are consistent, however, with a highly ‘internationalized’ economy in which economic integration is being advanced not only by corporations but also by national governments. Proponents of globalization overstate the extent and ‘novelty’ value of transnational movements; they also seriously underrate the variety and adaptability of state capacities, which build on historically framed national institutions. My argument therefore seeks not simply to highlight the empirical limits and counter-tendencies to global integration. More importantly, it seeks to elucidate theoretically what most of the literature has hitherto ignored: the adaptability of states, their differential capacity, and the enhanced importance of state power in the new international environment.

Given such variety, even where globalization has gone furthest, as in finance, we continue to find important differentials in national levels of savings and investment, the price of capital, and even the type of capital inflows and outflows. This suggests that any significant ’weakening‘ in the capacity for macroeconomic management—to the extent that this has occurred—may owe at least as much to ’domestic‘ institutions as to global processes.

Indeed, evidence from Japan and the East Asian nics (newly industrialized countries) indicates that strong states—that is, those with fairly firm control over socio-economic goal setting and robust domestic linkages—are often facilitating the changes identified as ’globalization‘. Thus, rather than counterposing nation-state and global market as antinomies, in certain important respects we find that ’globalization‘ is often the by-product of states promoting the internationalization strategies of their corporations, and sometimes in the process ’internationalizing‘ state capacity. However, because state capacities differ, so the ability to exploit the opportunities of international economic change—rather than simply succumb to its pressures—appears much more marked in some countries than in others.

Since much—though by no means all—of my evidence of robust state capacity is drawn from East Asia, it is important to clear away at the outset any possible misconceptions which recent events (notably, the Thai currency crisis) may have encouraged. It needs to be emphasized that, due to historical-geopolitical, institutional and policy differences, the state capacity concept does not apply in any uniform sense to the countries of East Asia. Even at the most basic level there are major differences between first- and second-generation nics in the number, quality and organizational commitment of career bureaucrats who might be mobilized to coordinate transformative projects. The relatively weaker developmental capabilities of states in the second-generation nics—that is, the Southeast Asian economies, Malaysia, Indonesia, and Thailand—have rendered these economies more vulnerable to external pressures than their northern counterpartsfootnote3. In Thailand in the 1990s, for example, the availability of easy finance coupled with the virtual absence of investment guidelines contrasts dramatically with the highly coordinated investment strategies put in place earlier by the Taiwanese, Koreans, and Japanese at a similar stage of development. Whereas the state-guided strategies of the latter generated high levels of investment in strong-growth industries, the Thai‘s uncoordinated approach has encouraged intense speculative activity, leading to a frenzy of over-investment in the property sector and ultimately contributing to the recent currency crisis.footnote4

If these points remind us that no region or country is ’crisis-proof‘, they should not be taken to imply that the East Asian region as a whole—as opposed to some parts of it—is inherently fragile.footnote5 The Western media has certainly helped to propagate this image, offering up every crisis emanating from the region as somehow portending the end of the ’East Asian miracle‘. While some short-term spillover effects are unavoidable in a highly integrated system, such episodes often tell us more about the relative weakness of domestic institutions in particular countries than about the generalized strength of globalization pressures. Indeed, the evidence suggests that East Asia‘s industrial star is still on the rise, the region‘s transformative potential far from exhausted.footnote6

While I have thus far alluded only to the ’strong globalization‘ hypothesis, there are in fact at least three hypotheses that can be identified in the literature: