Hostname: page-component-cd9895bd7-mkpzs Total loading time: 0 Render date: 2024-12-25T02:42:39.011Z Has data issue: false hasContentIssue false
  • English
  • Français

The Nation-State and International Capital Flows in Historical Perspective1

Published online by Cambridge University Press:  28 March 2014

Helen Thompson
Get access Rights & Permissions [Opens in a new window]

Extract

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.

Type
Articles
Information
Government and Opposition , Volume 32 , Issue 1 , January 1997 , pp. 84 - 113
Copyright
Copyright © Government and Opposition Ltd 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

2 See, for example: Cerny, P., The Changing Architecture of Politics: Structure, Agency and the Future of the State, London, Sage, 1990 Google Scholar; O’Brien, R., Global Financial Integration: the End of Geography, London, RIIA/Pinter, 1992 Google Scholar; Ohmae, K., The Borderless World, London, Harper, 1990 Google Scholar; Ohmae, K., The Evolving Global Economy, Cambridge, Mass., Harvard Business School Press, 1996 Google Scholar; Pauly, L, ‘Capital Mobility, State Autonomy and Political Legitimacy’, Journal of International Affairs, Vol. 48, No. 2, Winter 1995, pp. 369–88Google Scholar; Reich, R., The Work of Nations: Preparing Ourselves for 21st-Century Capitalism, London, Simon & Schuster, 1993 Google Scholar; Schmidt, V., ‘The New World Order, Incorporated: The Rise of Business and the Decline of the Nation-State’, Daedalus, Vol. 124, No. 2, Spring 1995, pp. 75–106 Google Scholar; Strange, S., ‘The Limits of Politics,’ Government and Opposition, Vol. 30, No. 3, Summer 1995, pp. 291–311 CrossRefGoogle Scholar. For a more sceptical view see, Hirst, P. and Thompson, G., Globalization in Question: The International Economy and the Possibilities of Governance, Cambridge, Polity, 1996 Google Scholar.

3 For a general discussion see Dunn, J., The History of Political Theory and Other Essays, Cambridge, Cambridge University Press, 1996 Google Scholar, Ch. 12.

4 See Hurrell, A., ‘A Crisis of Ecological Viability? Global Environmental Change and the Nation-State’, Political Studies, Vol. 42, Special Issue, 1994, pp. 146–65CrossRefGoogle Scholar.

5 See, for example, Susan Strange’s stark comparison between a ‘past [when] states competed for control over territory and the wealth creating resources within territories, whether natural or man-created and ‘now [when] they are increasingly competing for market shares in the world economy.’ Strange, S., ‘The Defective State’, Daedalus, Vol. 124, No. 2, Spring 1995, p. 55 Google Scholar.

6 See, for example, Henderson, D., ‘International Economic Integration: Progress, Prospects and Implications’, International Affairs, Vol. 68, No. 4, 1992, pp. 633–53CrossRefGoogle Scholar.

7 Hont, I., ‘The Permanent Crisis of a Divided Mankind: Contemporary Crisis of the Nation-State in Historical Perspective’, Political Studies, Vol. 42, Special Issue, 1994, p. 170 CrossRefGoogle Scholar.

For a discussion of the limits on modern politics imposed by participation in international trade see Hont, I., ‘Free Trade and the Economic Limits to National Politics: Neo-Machiavellian Political Economy Reconsidered’, in Dunn, J. (ed.), The Economic Limits to Modem Politics, Cambridge, Cambridge University Press, 1990 Google Scholar.

8 For discussions relating to the historical development of more general fiscal limits to politics see Hoffman, P. and Norberg, K. (eds), Fiscal Crises, Liberty and Representative Government, 1450–1789, Stanford, Stanford University Press, 1994 Google Scholar. For a discussion of the constraints on using fiscal policy for state building in early modern politics see, Almond, G., ‘Financial Policy and the Economic Infrastructure of Modern States and Nations’ in Tilly, C. (ed.), The Formation of National States in Europe, Princeton, Princeton University Press, 1975 Google Scholar.

9 See Hamilton, E., ‘Origin and Growth of the National Debt in Western Europe’, American Economic Review, Vol. 37, No. 2, 05 1947, pp. 118–30Google Scholar; Neal, L., The Rise of Financial Capitalism: International Capital Markets in the Age of Reason, Cambridge, Cambridge University Press, 1990 Google Scholar.

10 See J. Jones, ‘Fiscal Policies, Liberties and Representative Government During the Reigns of the Last Stuarts’ in Hoffman and Norberg (eds), Fiscal Crises, Liberty and Representative Government.

11 See Einzig, P., The History of Foreign Exchange, 2nd edn. London, Macmillan, 1970 CrossRefGoogle Scholar.

12 For further discussion see Harris, S., The Assignats, Cambridge, Mass, Harvard University Press, 1930 CrossRefGoogle Scholar. Bosher, J., French Finances 1770–1795: From Business to Bureaucracy, Cambridge, Cambridge University Press, 1970 Google Scholar.

13 Brezis, E. and Crouzet, F., ‘The Role of Assignats During the French Revolution: An Evil or A Rescuer?’, Journal of European Economic History, Vol. 24, No. 1, Spring 1995, p. 7 Google Scholar.

14 This was also in part the result of the war with England.

15 Quoted in Hont, ‘Permanent Crisis of a Divided Mankind’, p. 222.

16 Hont, ‘Permanent Crisis of a Divided Mankind’.

17 Furet, F. (Translated by E. Forster), Interpreting the French Revolution, Cambridge, Cambridge University Press, 1981, p. 127 Google Scholar.

18 See Furet, Interpreting the French Revolution.

19 For a discussion of Britain’s return to gold see Hilton, B.. Corn, Cash and Commerce: The Economic Policies of the Tory Governments 1815–1830, Oxford, Oxford University Press, 1977 Google Scholar.

20 See de Cecco, M., Money and Empire: The International Gold Standard, 1890–1914, Oxford, Basil Blackwell, 1974 Google Scholar.

21 See Pflanze, O., Bismarck and the Development of Germany: Vol. 11: The Period of Consolidation 1871–1880, Princeton, Princeton University Press, 1990 CrossRefGoogle Scholar.

22 The League of Nations (Ragnar Nurske), International Currency Experience: Lessons of the Inter-War Period, League of Nations, Economic, Financial and Transit Department, 1944, pp. 162–163.

23 For further discussion see Simmons, B., ‘Who Adjusts?’ Domestic Sources of Foreign Economic Policy During the Inter-War Years, Princeton, Princeton University Press, 1994 Google Scholar.

24 For further discussion see The League of Nations, International Currency Experience, Ch. 5. Most crucially, the franc was under-valued and sterling was over-valued. Whilst sterling’s over-valuation was not reflected in a balance of payments deficit, Britain could only avoid gold-losses through deflation, and most dramatically the imposition of the wage cuts which led to the 1926 general strike.

25 See Ruggie, J., ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, Vol. 36, No. 2, Spring 1982, pp. 379–415 CrossRefGoogle Scholar.

26 Taylor, A. J. P., English History 1914–1945, Oxford, Oxford University Press, 1975, p. 288 Google Scholar.

27 See Skidelsky, R., Politicians and the Slump: The Labour Government 1929–1931, London, Macmillan, 1967 Google Scholar.

28 for discussion of the problems of social democratic and socialist parties during the inter-war years from different perspectives see A. Sturmthal, The Tragedy of European Labour 1918–1939, London, Victor Gollancz, 1944; J. Schumpeter, Capitalism, Socialism and Democracy, London, Routledge, 1994, Ch. 27; Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Times, Boston, Beacon Press, 1944 Google Scholar.

29 For further discussion see Mouré, K., Managing the Franc Poincaré: Economic Understanding and Political Constraint in French Monetary Policy 1928–1936, Cambridge, Cambridge University Press, 1991 CrossRefGoogle Scholar.

30 For discussion of the economic policies of the Popular Front see Wolfe, M., The French Franc Between the Wars 1919–1939, New York, Columbia University Press, 1959 Google Scholar, Chs 5–6.

31 For further discussion see Petzina, D., ‘Germany and the Great Depression’, Journal of Contemporary History, Vol. 4, No. 4, 10 1969, pp. 59–74 CrossRefGoogle Scholar.

32 For further discussion see Hirschman, A., National Power and the Structure of Foreign Trade, Berkeley, University of California Press, 1945 Google Scholar, Ch. 2; Grenzebach, W, Germany’s Informal Empire in East-Central Europe: German Economic Policy Towards Yugoslavia and Rumania 1933–1939, Stuttgart, F. Steiner, 1988 Google Scholar; Ránki, G., ‘Surmounting the Economic Crisis in South-Eastern Europe in the 1930s’, Acta Historica, Vol. 27, No. 3–4, 1981, pp. 499–522 Google Scholar; Raupach, H., ‘The Impact of the Great Depression on Eastern Europe,’ Journal of Contemporary History, Vol. 4, No. 4, 10 1969, pp. 75–86 CrossRefGoogle Scholar; Royal Institute of International Affairs, South-Eastern Europe, Oxford, Oxford University Press, 1939; Basch, A., The Danube Basin and the German Economic Sphere, New York, Columbia University Press, 1943 Google Scholar.

33 For a discussion of the problems of industrial development see Augustinon, G., Diverse Paths to Modernity in South-Eastern Europe: Essays on National Development, New York, Greenwood Press, 1991 Google Scholar and Mazower, M., Greece and the Inter-War Economic Crisis, Oxford, Clarendon Press, 1992 Google Scholar. For a discussion of the tension between the failure of industrialization in the Balkans and the implementation of parliamentary politics in comparative context see Mouzelis, N., Politics in the Semi-Periphery: Early Parliamentarism and Late Industrialisation in the Balkans and Latin America, London, Macmillan, 1986 CrossRefGoogle Scholar.

34 For a discussion of the development of Germany’s general approach in the Balkans, see Hitchens, M., Germany, Russia and the Balkans: Prelude to the Nazi-Soviet Non-Aggression Pact, New York, Columbia University Press, 1983 Google Scholar.

35 Moggridge, D. (ed.), The Collected Writings of John Maynard Keynes Vol XXV, Activities 1940–1944 Shaping the Post War-World: The Clearing Union, Cambridge, Cambridge University Press, 1980, p. 15 Google Scholar.

36 For a discussion of the importance of this understanding to the initial European integration project see Milward, A., The European Rescue of the Nation State, London, Routledge, 1992 Google Scholar.

37 Moggridge (ed.), Collected Writings of Keynes Vol. XXV, pp. 178–179.

38 ibid., p. 149.

39 ibid., p. 11.

For a discussion of the centrality of the welfare state for the political leaders of the six West European states which originally signed the Treaties of Paris and Rome, see Milward, European Rescue of the Nation-State.

40 Moggridge, (ed.) Collected Writings of Keynes Vol. XXV, p. 149. Keynes’s thinking on these lines began for different reasons in the early 1930s. Despairing of international solutions to that economic crisis, he urged Britain to remain as free as possible of interference from economic changes elsewhere, ‘in order to make our own favourite experiments towards the ideal social republic of the future’. Keynes, J., ‘National Self-Sufficiency’, Yale Review, Vol. 22, No. 4, 06 1933, p. 769 Google Scholar. For a discussion of Keynes’s intellectual analysis of capital controls see Crony, J., ‘On Keynes and Capital Flight’, Journal of Economic Literature, Vol. 21, 03 1983, pp. 59–65 Google Scholar.

41 For a discussion of the Bretton Woods negotiations see Gardner, R, Sterling-Dollar Diplomacy in Current Perspective: The Origins and Prospects of Our International Order, New York, Columbia University Press, 1980.Google Scholar

42 See Milward, A., The Reconstruction of Western Europe 1945–1952, London, Methuen, 1984 Google Scholar.

43 In 1950 the Organization for European Economic Cooperation established a European Payments Union to manage the problem of short-term current account imbalances so that, within certain limits, automatic lines of credit were granted by surplus to debtor states. For discussion see Kaplan, J. and Scheiminger, G., The European Payments Union: Financial Diplomacy in the 1950s, Oxford, Clarendon Press, 1989.Google Scholar

44 Britain was the one advanced industrial economy in which the problems of exchange rate management still exerted a considerable constraint on expansion. As successive British governments continued to allow the free flow of capital within the former sterling area and maintained an extensive array of overseas commitments, financed in dollars, they found it difficult to maintain the sterling parity without recourse to frequent, if moderate, deflation. Whilst the policies pursued did not compromise the ability of British politicians to deliver on the welfare state, the stop-go cycle which dominated British economic policy in the 1950s and the 1960s ensured that the British economy grew less rapidly than those of other West European states.

45 Milward, European Rescue of the Nation-State, p. 21.

46 For a discussion of post-war taxation in its historical context see Steinmo, S., Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern State, London, Yale University Press, 1993 Google Scholar.

47 For a discussion of the growth of the welfare state during this period see Pierson, C., Beyond the Welfare State?: The New Political Economy of Welfare Policy, Cambridge, Polity, 1991 Google Scholar, Ch. 4; Flora, P. and Heidenheimer, A. (eds), The Development of Welfare States in Europe and America, London, Transaction, 1981 Google Scholar.

48 C. Pierson, Beyond the Welfare State?, p. 131.

49 Different states used capital controls to different degrees and for different purposes. In Europe, West Germany, Switzerland and Austria deployed controls more infrequently than other states, and then usually just to control capital inflows. For further discussion see Helleiner, E., States and the Re-Emergence of Global Finance: From Bretton Woods to the 1990s, Ithaca, Cornell University Press, 1994 Google Scholar.

50 For a general discussion of the post-war nation-state in Europe in regard to economic performance see Milward, European Rescue of the Nation State, Ch. 2.

51 For a discussion of the end of Bretton Woods see Gowa, J., Closing the Gold Window: Domestic Politics and the End of Bretton Woods, Ithaca, Cornell University Press, 1983 Google Scholar.

52 See Helleiner, States and the Re-Emergence of Global Finance.

53 For discussion of the inability of Japan and West Germany to persuade the United States to cooperate in this regard see Helleiner, ibid.

54 For an extended argument of the thesis that capital liberalization was a process driven by particular states, not markets and technology, see Helleiner, ibid. For the counter view see Edwards, S. (ed.), Capital Controls, Exchange Rates and Monetary Policy in the World Economy, Cambridge, Cambridge University Press, 1995 CrossRefGoogle Scholar

55 For a discussion of the consequences for financing balance-of-payments deficits after capital liberalization see Cohen, B., ‘Balance-of-Payments Financing: Evolution of a Regime’, International Organization, Vol. 36, No. 2, Spring 1982, pp. 457–78Google Scholar.

56 For a discussion of the dilemma see Helleiner, States and the Re-Emergence of Global Finance.

57 For further discussion see: Helleiner, ibid.; Goodman, J., ‘The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets,’World Politics, Vol. 46, 10 1993, pp. 50–82 CrossRefGoogle Scholar; and Schmiegelow, M. (ed.), Japan’s Response to Crisis and Change in the World Economy, Armank, NY, M. E. Sharpe, 1986 Google Scholar.

58 Blöndal, G., Fiscal Policy in the Smaller Industrial Countries 1972–1982, Washington, DC, IMF, 1986, pp. 14, 36Google Scholar. For a general discussion of the impact of the 1970s crisis on Scandinavian welfare states see Marklund, S., Paradise Lost?: The Nordic Welfare States and the Recession 1975–1985, Lund, Arkiv Forlag, 1988 Google Scholar.

59 For a discussion of the development of American international economic policy from Kennedy to early Reagan see Calleo, D., The Imperious Economy, Cambridge, Mass., Harvard University Press, 1982 Google Scholar.

60 For a discussion of the French socialist experiment see Ross, G., Hoffman, S. and Malzacher, S., The Mitterrand Experiment: Continuity and Change in Modern France, Cambridge, Polity, 1987 Google Scholar; P. Hall, Governing the Economy: The Politics of State Intervention in Britain and France, Cambridge, Polity, 1986.

61 See Thompson, H., The British Conservative Government and the European Exchange Rate Mechanism 1979–1994, London, Pinter, 1996 Google Scholar.

62 The Italian government, however, found life outside the ERM a rather more costly affair. See Gilibert, P., ‘Living Dangerously: The Lira and the Pound in a Floating World’ in Steinherr, A. (ed.), Thirty Years of European Monetary Integration: From the Werner Plan to EMU, Harlow, Longman, 1994 Google Scholar.

63 This is not to suggest that long-term credibility does not matter in itself. For example, the foreign exchange markets did not turn against the German Social Democratic governments in the 1970s. But I do want to argue that in states which have since the early 1970s lacked long-term credibility, social democratic governments are significantly more vulnerable to capital flight than centre-right and rightist governments.

64 For discussion of the Swedish crisis see Lachman, D. et al., Challenges to the Swedish Welfare State, IMF, Washington DC, 1995 CrossRefGoogle Scholar; Lindbeck, A, Turning Sweden Around, Cambridge, MIT Press, 1994 Google Scholar; Pierson, P., ‘The New Politics of the Welfare State’, World Politics, Vol. 48, No. 2, 01 1996, pp. 143–179 CrossRefGoogle Scholar; OECD, Sweden Economic Survey 1995, Paris, OECD, 1995.

65 Financial Times, 18 March 1996, p 2.

66 For discussion of the politics of Plaza and Louvre see Funabashi, Y., Managing the Dollar: From the Plaza to the Louvre, 2nd ed., Washington, DC, Institute for International Economics, 1989 Google Scholar.

67 For contrasting views about the general prospects for international economic cooperation see Keohane, R., After Hegemony: Co-operation and Discord in the World Political Economy, Princeton, Princeton University Press, 1984 Google Scholar and Gilpin, R., The Political Economy of International Relations, Princeton, Princeton University Press, 1990 Google Scholar.

68 See Funabashi, Managing the Dollar.

69 There can be very little doubt that during the 1980s the ERM states benefited in monetary terms from fixing their currencies. For most of the decade Britain ended up paying an interest rate premium over most of the ERM states both in nominal and real terms because the Thatcher governments more often than not lacked counterinf lationary credibility in the foreign exchange markets. Despite its relatively poor inflation performance since the 1970s, Italy, for instance, from 1985 enjoyed lower interest rates for a given rate of inflation than did Britain. See Thompson, British Conservative Government and the European Exchange Rate Mechanism.

70 The French government turned to the single currency project after it had been thwarted first in its efforts to reform the ERM to make the burden of adjustment more equitable – the Basle-Nybourg Reforms – and then to use the Franco-German Economic Council, created in 1987, to reduce the power of the Bundesbank. Defeated in finding a bilateral solution, the French turned to the Community. See Dyson, K., Elusive Union: The Process of Economic and Monetary Union in Europe, Harlow, Longman, 1994 Google Scholar; Kennedy, E., The Bundesbank: Germany’s Central Bank in the International Monetary System, London, Pinter, 1994 Google Scholar.

71 For further discussion see Cameron, D., ‘Transnational Relations and the Development of the European Economic and Monetary Union’ in T. Rieper-Koppen (ed.), Bringing Transnational Relations Back In: Non-State Actors, Domestic Structures and International Institutions, Cambridge, Cambridge University Press, 1995, pp. 37–78 CrossRefGoogle Scholar.

72 In the French case some reform of the welfare state was inevitable, given that otherwise the social security system would ultimately go bankrupt. But the absolute urgency with which Chirac and Juppé grasped the nettle must be explained by the Maastricht convergence criteria.

73 Financial Times, 10 May 1996.

74 Financial Times, 12 September 1995; Financial Times, 11 November 1995.

75 The Economist, 9 December 1995, p. 21.

76 Financial Times, 11 September 1996.

77 For a discussion of citizens’ enduring expectations of the welfare state see Clarke, H. et al., ‘The Political Economy of Attitudes Towards Polity and Society in Western European Democracies’, journal of Politics, Vol. 55, No. 4, 11 1993, pp. 98–109 Google Scholar.

78 How far this is a viable practical option is a matter of some dispute. For a defence of the view from within the international financial circle itself that it is both possible and desirable see Soros, G., The Alchemy of Finance: Reading the Mind of the Market, New York, John Wiley & Sons, 1994 Google Scholar; Soros, G. with Wien, B. and Koenen, K., Soros on Soros: Staying Ahead of the Curve, New York, John Wiley & Sons, 1995 Google Scholar.