The end of a nation-state

Lawrence Solomon
The Next City
June 1, 1999

Kosovo calls forth images of ethnic cleansing, mass refugee movements, and Balkan barbarism, but history will pay scant attention to these staples of this year’s nightly newscasts, unsettling though they are. Kosovo is a milestone in the decline of the nation-state, an institution but a few hundred years old and already obsolete.

The 19 NATO nations, under pressure from their wealthy, democratically inclined citizenry, have abandoned the once inviolable principle of the sovereignty of nations. Yugoslavia invaded no country, claimed not an inch of foreign territory. Its ruthless suppression of the Kosovars occurred entirely within its own borders, letting it legitimately claim, under the diplomatic rules that nations have observed for centuries, that its conduct toward its minority population was an “internal matter” and no one else’s business.

Cruise missiles and soft bombs from the world’s most advanced democracies have blown up the fiction that national governments can act with impunity within their political borders. “Internal matters” no longer exist because national boundaries — breached by information technologies — are no longer impervious. Demands from sovereign countries that they be left alone have also lost their authority because nation-states — though they may be the last to know it — are no longer relevant in the global economy. National sovereignty is a spent force; while national governments retain the trappings of power, true decision making powers rest elsewhere.

Where previously most cross-border funds flowed between governments, or between government and multilateral government agencies such as the World Bank or the International Monetary Fund, in the 1990s most flows are business to business. Where governments once directed or facilitated global trade by subsidizing favored industries, today governments operate on the fringes of the global economy, primarily making their presence felt in outdated sectors unworthy of legitimate trade, such as nuclear plants and hydroelectric megadams, and in Third World countries, where strongmen with outstretched palms still direct business. Corporations still accept government inducements, but the inducements rarely sway fundamental decisions by multinationals as to where to invest; industry now bases its decisions on the real economy: It wants to locate where it can best serve its customers and where it can best be served by suppliers.

The coin of the realm has also been clipped. The world’s currencies are subject to the discipline of the capital markets, which have the power to overwhelm the central banks of virtually all national governments. In Russia, Argentina, and other major countries, corporations and the public routinely conduct business in the U.S. dollar, the only currency in the world managed to follow gold and other commodities and to be independent of any national economy, including that of the United States. Even the European countries have abandoned their national currencies — next to their flags, the most potent symbol of nationalism — and elites in Canada, Mexico, and other nations are debating the merits of following suit.

Legitimate business no longer needs government trade missions or embassies to open doors abroad — it already operates in a borderless world through multinational corporations and far-flung networks of suppliers and customers, obtained without the aid of national governments. Team Canada’s missions — none of them in developed countries — are little more than cynical public relations efforts: The deals signed with much fanfare had often been negotiated without government help, the government’s role being to show up for the signing ceremony. At best, national governments have become middlemen with little to offer, middlemen who mostly impede business through red tape, which arbitrarily changes with political jurisdiction.

Globalization has slain the nation-state by thwarting the ability of national governments to maintain the monopolies needed to dispense patronage and redistribute wealth, typically from the citizenry at large to preferred beneficiaries. Globalization has also taken much of the fun out of running a country by making the efficacy of central planning — in any event illusory — demonstrably futile. When economies operated closer to home and with fewer apparent complexities, national economic planners at the helm of economic models could hope to manipulate the national economy, say, by lowering interest rates to stimulate demand and so create jobs, or by raising them to slow down an overheated economy. Today, with capital so mobile and manufacturing so adaptable, many planners have lost confidence that economies can be predictably tweaked. Instead of stimulating jobs, lower interest rates could cause capital to flee to countries offering a better return, costing jobs. Or the lower interest rates could disproportionately stimulate a desire for products or services produced elsewhere, lowering the unemployment rate in a foreign country.

Who needs national governments? Not business, and not consumers, who are also learning how to bypass the government middleman. Operating on their own, consumers now buy plane tickets from non-national carriers and make long-distance telephone calls without the protection of federal regulators. In the United Kingdom, consumers need no longer fly from government-owned airports, no longer drink government-delivered water, no longer run their toasters with government-generated electricity. Not only did costs drop and service levels soar in all cases, but environmental standards rose. The airports joined local residents in opposing unneeded additional runways; the water utilities raised water quality standards dramatically after they invested billions in upgrades the previous state owners never seemed able to afford; the competitive electric power system that replaced the old central government monopoly discovered — as environmentalists had always claimed — that its polluting coal and nuclear plants could not compete with cogeneration and other modern gas technologies.

Thanks to the Internet and other low-cost information technologies, news of a success in one part of the world soon reaches all others. Canada, the U.S., Australia, and New Zealand, as well as countries in Latin America and the former East Bloc, are all importing U.K.-style reforms. With these technologies, the peoples of the world have the tools to seek out the products and services they need, from the worldwide array now on offer, and the tools to demand their commercial rights. They also have an unprecedented wherewithal to extend their moral and spiritual reach, for example through real-time images of the plight of the refugees and videotapes of atrocities that took place inside Kosovo, complete with satellite corroboration. Large segments of the citizenry inside Serbia also have such tools, despite the Serbian government’s efforts to control information, and the information in their hands may one day help resolve such conflicts, or help contract them. Certainly, there is no better hope for the end of oppression than an enlightened, empowered citizenry.

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