The Global Economy and the Nation-State

Peter F. Drucker

From Foreign Affairs, September/ October 1997

Article preview: first 500 of 4,345 words total.

Summary:  Doubters dating back to Immanuel Kant have predicted the demise of the nation-state. And globalization has staged an assault on state sovereignty, exploiting its vulnerabilities in financial markets and elsewhere. But the nation-state has shown amazing resilience. It will persist, albeit in a greatly changed form, especially in its control of domestic fiscal and monetary policies, foreign economic polices, international business, and war.

Peter F. Drucker is Clarke Professor of Social Science at Claremont Graduate University.

A TRUE SURVIVOR

Since talk of the globalization of the world's economy began some 35 years ago, the demise of the nation-state has been widely predicted. Actually, the best and the brightest have been predicting the nation-state's demise for 200 years, beginning with Immanuel Kant in his 1795 essay "Perpetual Peace," through Karl Marx in "Withering Away of the State," to Bertrand Russell's speeches in the 1950s and 1960s. The latest such prediction by eminent and serious people appears in a book called The Sovereign Individual by Lord William Rees-Mogg, former editor of the London Times and now vice chairman of the BBC, and James Dale Davidson, chairman of Britain's National Tax Payers' Union. Rees-Mogg and Davidson assert that for all but the lowest earners the Internet will make avoiding taxes so easy and riskless that sovereignty will inevitably shift to the individual, leaving the nation-state to die of fiscal starvation.

Despite all its shortcomings, the nation-state has shown amazing resilience. While Czechoslovakia and Yugoslavia have been casualties of a changing order, Turkey, a nation that never before existed as such, has become a functioning nation-state. India, rarely united except under a foreign conqueror, is holding together as a nation-state. And every country that emerged from the nineteenth-century colonial empires has established itself as a nation-state, as have all the countries emerging from the breakup of the Eurasian empire forged by the czars and tied together even more tightly by the czar's communist successors. So far, at least, there is no other institution capable of political integration and effective membership in the world's political community. In all probability, therefore, the nation-state will survive the globalization of the economy and the information revolution that accompanies it. But it will be a greatly changed nation-state, especially in domestic fiscal and monetary policies, foreign economic policies, control of international business, and, perhaps, in its conduct of war.

THE NATION-STATE AFLOAT

Control of money, credit, and fiscal policy was one of three pillars on which Jean Bodin, the brilliant French lawyer who coined the term "sovereignty," set the nation-state in his 1576 Six Books of the Republic. It has never been a sturdy pillar. By the late nineteenth century, the dominant currency was no longer state-minted coins or state-printed bank notes, but credit created by fast-growing privately controlled commercial banks. The nation-state countered with the central bank. By 1912, when the United States established the Federal Reserve System, every nation-state had its own central bank to control the commercial banks and their credit. But throughout the nineteenth century, one nation-state after another put itself (or was put) under the control of the nonnational gold standard, which imposed strict limits on a country's monetary and fiscal policies. And the gold exchange standard, established in the Bretton Woods agreements after World War II, while a good deal more flexible than the pre-World War I gold standard, still did not give individual countries full monetary and fiscal sovereignty. Only in 1973, when President Nixon floated the ...

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