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Preface

Reversing the 'inside-out' argument, it acknowledges that the charac-

ter of globalisation over the long haul can also be institution shaping,

though in ways that globalist analysis does not anticipate. It would be re-

miss of me not to mention how much I owe as well to colleagues whose

invitations to speak at various gatherings - namely, UCLA, Purdue,

Simon Fraser, Aarhus, Roskilde, Gothenburg, the ANU, Griffith, and

Macquarie - allowed me to try out some of the key arguments of this

volume. In addition to the participants at these colloquia, I would like tothank Robert Brenner, John Degnbol-Martinusson, Mette Kjaer, Laurids

Lauridsen, Michael Mann, John Mathews, Stephen McBride, Ole

Nergaard, Ulf Olsson, Jonas Pontusson, Tim Rowse, Georg Serensen,

and Urban Strandberg. I am grateful to John Haslam, my editor at Cam-

bridge University Press, and Steve Smith for their support for the project.

Sheila Kane's assistance with copy-editing was much appreciated.

Elizabeth Thurbon, a much treasured research assistant and young aca-

demic extraordinaire in the making, ga ve her usual best in helping to turnthe typescript into a book.

--finally, the research for parts of this project was generously supportedby a grant from the Australia Research Council.

1 Introduction: bringing domesticinstitutions back in

An issue of central importance in the globalisation debate today

concerns the impact of increasing economic openness upon the state's

capacity to govern the national economy. As participants i~ that de-

bate we seek answers to the big questions, such as whether, m a world

of highly mobile capital, states - as territorially centred authorities -

are still vital to the social and economic well-being of their citizens. We

want to know what, if anything, states can do to promote wealth creation

and social protection in an era of economic interdepende~ce. An? we

want to know whether countries which travel the path of mternatIonal

economic openness must necessarily abandon their d.istinctive ins~i~u-

tions (and embrace the norms, arrangements, and policIes of competitive

liberalism).

These are not idle questions. The reason we are asking such ques-

tions so insistently at the turn of the century has much to do with the

widespread changes going on both inside and outside the nation-state-

ranging from welfare reforms, through financial liberalisation, to the

proliferation of intergovernmental agreements. . ..

These organisational and regulatory reforms appear. to be c~mCldmg

with other changes taking place in the structure of the mternatIonal ~o-litical economy - in particular, the mu1t~na~onalisation of production

and the growth of so-called 'footloose' business corpor~tions, as well as

the astonishing increase and speed of cross-border capItal flows. So the

assumption frequently made is that these two sets of change~ must be

intimately related, that the state's actions (or inactions) - from fiscal ~on-

servatism and deregulation to welfare restructuring - can be explamed

readily as a response of besieged or hapless governments to global flows

and similar pressures of openness and interdependence.

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This is why much of the discussion being conducted today about

globalisation's alleged impact on the state evokes that well-told tale

about a drunken fellow who loses his keys in a dark place and then

goes over ~y the light in order to search for them. 'What are you doing?'

asks a passIng stranger. 'Well', replies the inebriate, 'I won't get very far

searchIng for my keys in the dark place, so I'm looking over here wherethe light is brighter.'

Domestic institutions are a bit like the 'dark place' in the globalisationdebate. Challenges coming from the global arena are well illuminated.

But there is correspondingly little sense of how national authorities are

~anaging the challenges ofopenness. Indeed, a good many ofthe partic-

Ipants in the globalisation-national governance debate, somewhat like

the drunken figure, have been reeling from the many changes to the do-

mestic and international environments and, like that figure, they have

been searching over by the light of globalisation for clues as to what itall means.

. T~e result. is a story that is being told largely in terms of one-way

traffIc. That ISto say that most thinking about the changes going on at

the domestic level has been oriented towards the global arena because

that is where most light is directed, with global actors and markets al-ways seen to be 'constraining' national governance, and states either

responding ineffectually, or else retreating more and more from eco-nomic management.

I~ the standard tale, then, globalisation is very much a 'top-down'

affaIr, understood as a series of constraints that economic openness

places on the viability and effectiveness of particular national policies _

macroeconomic, fiscal, social, and industrial. Globalisation is seen to

be intrinsically constraining because openness involves the fall of na-

~ional ~arriers to trade, investment, and financial flows, exposure to

IncreasIng capital mobility (via the multinationalisation of production

and growth of global financial markets), and also conformity with in-

tergovernmental agreements requiring, for example, that governments

open their markets to foreign trade and financial institutions as well aseliminating certain subsidies to industry.

Openness is therefore seen to constrain and limit severely what

governments can do across a range of policy areas. Globalisation an-

alysts propose that economic openness not only drastically reduces

scope for expansionary fiscaland social protection strategies, but that it

also ren?ers u~viable a host of trade, financial, and industrial policies

supportIng natIonal wealth creation, since these would conflict with

Bri ngi ng dom esti c ins titu tio ns bac k in

international agreements. Such are the conclusions of the more 'mod-

erate' globalists1 who differentiate themselves from those who posit

the end of the nation-state (Ohmae 1990;Horsman and Marshall 1994),

the so-called 'hyper-globalists'. Since few scholars of the international

political economy seriously hold to the minority vi~w of the hy~er-

globalisers, we waste little time in that direction, turmng our attentIon

instead to the claims of the more moderate majority (hereafter, the 'con-

straints school').

In the language deployed by the constraints school, the state is chang-

ing and the changes are not generally reinforcing or strengt~ening i~s

capacities, its autonomy, or control. On the contrary, accordIng to thIS

influential view, state powers are being severely 'constrained', and ulti-

mately 'transformed'. To 'constrain', according to the dictionary, means

'to compel'; 'to forceor produce in an unnatural or strained manner'; 'to

confine'; 'to hold back by force'. This constraints view of globalisation

has many adherents, and although they disagree about many things,

they are united in the view that changes in the international political

economy have radically restricted policy choice and forced policy shifts

that play to the preferences of global investors and mobile corpora-

tions, rather than to the needs of the domestic political economy and its

citizenry.2

Proponents of the constrained state thesis thus advance strong clai~s

about how much political autonomy states have lost (compared wIth

some usually unspecified previous era); about how restricted are their

policy choices; and ultimately about how little states can do to provide

decent socialprotection and promote wealth creation. From this perspec-

tive, managing the national economy to promote growth, industrial up-

grading, and employment - whether by maintaining or raising taxat~on

and spending levels, coordinating an investment strategy, encouragIng

industrial upgrading, or supporting technological innovation, and so

on - are nowadays seen to be increasingly beyond the capacities of ter-ritorially centred states. , .

Moreover, this view of the 'constrained state' is often accompamed

by another claim about the 'erosion of national capitalisms'. This is t~e

contention that - from East Asia to continental Europe - we are WIt-

nessing the end of an era of 'coordinated market economies' (read also

'organised' and 'managed capitalism') and moving towards a world

more consistently 'liberal market' in orientation. In such a world, gov-

ernment's role is restricted to providing rule of law, basic regulation,

and minimum social safety nets.

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Br ing ing dom est ic ins titu tion s bac kin

so-called 'measurement critique' of globalisation - and its limitations

are detailed in the second section. Subsequent sections (three and four)

then outline the approach developed in this book, which is represented

in Figure 1.1below. Section three sets out the case for studying globalisa-

tion as a process with enabl ing - not just constraining - effects on policy.

Section four explains why institutions are important and how they mat-

ter to an analysis of globalisation's impacts, and summa rises aspects of

existing research on domestic institutions of relevance to this volume. Iconclude with an outline of the main propositions of the present study.

Ther~ is clearly something to these claims. It is not hard to recognise

that natIonal governments are at times constrained by various pressures

beyond their borders and that some of these pressures can be ascribed to

international interdependence and economic openness. After all, who

could fail to be impressed by the 'electronic herd' which - as Thomas

Friedman (999) and many others endlessly point out - can readily move

vast amounts of capital in and out of countries in accordance with the

herd's perceptions of their political and economic merit?In short, the idea of 'globalisation' can certainly help to shed some light

on national governance issues. But the general point should be clear:

b~for~ we aband?n the darker place and go heading off in the generaldIrectIon of the hght, we need to strain our eyes and look more care-

fully a~ ~hat is going on inside nation-states - particularly as nationalauthontIes set about responding to the global economy.

t. Th~t is the, starting point for this volume. The issue to be explored

,. In thIS book ISthe extent to which the global economy has the poten-

tial not only to constrain but also to enable governments to pursue their

policy objectives. It asks: 'To what extent does the outcome depend on

the ~haracter of t~e domestic institutional context (including its nor-

matIve and orgamsational aspects)?' It is the central contention of thisvol~me that i~we wis~ to account for impacts of globalisation in any

partIcular natIonal settIng, we must start with the domestic institutions

of governance, which mediate the challenges of openness. Such insti-

~tions embody regnant ideas and normative orientations (especially

Ideas about the state's economic role and public purpose) as well as

organ~sational, st~~tures (in particular, arrangements which produce

coheslV~ or disumfied elites, structure policy networks linking state

and socIety, and more generally aggregate and represent interests in

the political and policy process). This book proposes that rather than

national states being generally constrained, hollowed out, and trans-

formed ~~ global markets, domestic institutions - especially, b u t n o t

only, pohtI~al ones - are key to understanding the effects of openness

and where Interdependence may be heading. In general, one cannot de-

duce the impacts of global markets - whether constraining or enabling-

because t~ese a:e me~iated by domestic institutions, which in turn shape

the ways In whIch natIonal authorities choose to deal with the challengesof openness.3

In this introductory chapter I analyse in the first section the key claims

of.the.constraints hypothesis at the core of the standard account along

wIth ItS strengths and weaknesses; the main critical response _ the

Globalisation as constraint: the standard view

The standard view of globalisation conceives the process as a constrain-

ing force that limits what governments can do and ultimately transforms

the state into a weaker, meaner, or leaner version of its former self. The

globalisation thesis is a two-pronged claim which combines both de-

scriptive and causal statements. It asserts:

(a) that the world is becoming more interconnected through in-

creasing economic openness and the growth of transborder net-works that accompany that process, and

(b) that this interconnectedness is increasing the power of global

(economic and political) networks of interaction at the expense of

national (economic and political) networks.

The first is a descriptive claim, the second a claim as to impact or causa-

tion. Both are frequently bundled together in various definitions of glob-

alisation. Thus many conceptualisations elide the nature of globalisation

(what it is)with its effects (how it impacts) in the domestic arena. From this

confusion stem two features which have framed much of the debate to

date. One is the tendency towards 'circularity of argument', whereby

globalisation's effects become true by definition.4 This explains in

part the importance attached to measuring intert!Onnectedness through

foreign direct investment (FDI), trade, and other such indicators - often

seen implicitly at least as a proxy for gauging consequences or impacts,

a point taken up in the next section.

The other feature is the embodiment of a 'win-lose logic' in discus-

sions of the global-national relationship. This logic has been expressed

in more or less nuanced ways: from the more extreme views positing

the extinction of the nation-state or its demise as a sovereign power

(Ohmae 1995; Camilleri and Falk 1992),to those of the more 'moderate'

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