‘Hyperglobalists’ perceive that the current era of globalisation is characterised by “declining relevance and authority of nation-states” (Held, et al., 1999). They believe that through the advent of open markets and free trade and investment opportunities across the global markets, economies are becoming “denationalised”. Within the broader theory of hyperglobalists, the scholars have varying opinions about the outcome of globalisation.
Neo-liberals believe in minimalist role of state in the free markets and economic organisation. They believe that national governments will no longer control their geographically bound economies, rather they will facilitate free trade and movement across boundaries through supranational organisations like NAFTA and the EU. Neo-liberals view globalisation as the tool that will usher in an era of global equality. In contrast, the neo-Marxist scholars view globalisation as a tool that is beneficial only for the capitalists and will lead to greater income disparity across the world. Though differing in the opinion about the outcomes, both set of hyperglobalist scholars agree that the era of globalisation is here to stay and will lead to denationalisation of economies.
However, with the great recession of 2008-2009 and the response of various nation-states to the same has exposed some flaws in the theories proposed by hyperglobalists. The recession exposed the inherent fragility of global markets that lack the institutional foundation of their national counterparts (Rodrik, 2011). The response was largely protectionist in nature and most economies resorted to imposing restrictions on trade and free movement of market sources. This response was directly in contrast to the neo-liberal hyperglobalist theories. The aftermath of the great recession was the “return of the state in its economic role”. In this context, the IPE is trying to explain the logic and reasons for the decisions of states to respond to the recession in the way have responded. In the next section, we will review how the nation-states response to the recession either validates or contradicts the hyperglobalists theories.
Hyperglobalists believe that countries will become borderless and national governments will function merely as facilitators of global trade and flow of investments.
As described in Chapter 10 of the coursework, this was the ‘neo-liberal’ view established in the 1970’s and 80’s, which asserted the market over the state. This view is also referred to as the American model where states followed the markets and not vice-versa. However, the great recession witnessed the same United States implementing the TARP (Troubled Asset Relief Program), which represented a $700 billion investment into real estate securities to attempt to contain the credit crisis (Hoshi & Kashyap, 2008). Around the world, many nations adopted similar measures to alleviate their respective economies. China gave its economy as $586 billion stimulus package with the government announcing to “ease credit restrictions, expand social welfare services and launch an infrastructure spending program that would include the construction of new railways, roads and airports” (Cha & Fan, 2008).
Thus, the economies became more nation-bound than ever before after the great recession, exposing the failure of hyperglobalist theory in anticipating the nation-states reactions.
Supranational institutions will replace the current political system of the world as characterised by nation-states and individuals will owe allegiance not to nations but rather to principles of free trade and economic integration.
The decade of 1990’s saw the establishment of many free trade markets and supranational institutions like European Union (EU), The North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations Free Trade Area, Common Market of Eastern and Southern Africa (COMESA) among others. The idea of these institutions is to establish free movement of goods and services among these nations by abolishing tariff and non-tariff trade barriers with no common policy towards non-members (OECD, 1999). Hyperglobalists held the view that these supranational organisations will gradually replace the nation-states bound by geographies and will pave the path to establishment of world order where individuals would owe allegiance to transnational economic principles of free trade and economic integration.
This view was defeated during the great recession of 2008-09. The supranational organisation which is called the world’s most power “collective state’ and boasts of trying to establish a single market, EU was caught discombobulated by the severe depression in the member state of Greece, followed by Portugal, Italy, Ireland, and Spain. As the debt crises in Greece unfolded in 2010, the EU tried to deal with the situation in Greece as an aberration that would not effect the rest of the countries and they tried to stem the fear within the global investor community that nations other than Greece were not under the risk of sovereign default. However, this response was inadequate. European Central Bank working in particular with the International Monetary Fund, and also U.S. and the other G7 economies and the G20, over the weekend of May 8 ad 9th announced a one trillion dollar rescue operation “one of the most ambitious and aggressive market interventions of the last thirty years” (Dolan, 2010).
This intervention by the European Union signalled to the world that if speculators tried to mess with them, there would be consequences. The neo-liberal theory of free trade and economic integration that hyperglobalists viewed individuals would owe allegiance to, was quashed. The Supranational organisation held protecting of its member states a higher principle than letting the economies be ruled by market forces.
In his book “The Globalization Paradox: Democracy and the Future of the World Economy”, Dani Rodrick argues that proponents of hyperglobalisation face a “political trilemma,” i.e., “we cannot simultaneously pursue democracy, national determination, and economic globalization. If we want to push globalization further, we have to give up either the nation state or democratic politics. (Rodrik, 2011)” Assuming that “we” here represents individual nation states, this trilemma sums up the role of the state, regionalism and financialization in the context of hyperglobalisation and why the theory of hyperglobalisation and its success is deeply flawed. The response of the world economies during the great recession and the economic and political policies adopted by nation-states since then shows a trend that domestic politics ultimately trumps the dictates of hyperglobalisation.