To what extent can the nationstate influence the geographies of economic activity? 1525951 The state refers to a set of institutions that holdssovereignty over a designated territory, exercising a monopoly of legitimateforce and law-making ability (Mackinnon and Cumbers, 2011). Its role in theeconomy is wide-ranging but often invisible to individual consumers. It shapesthe provisions of goods and services through regulating markets, governingbusiness laws and helping workers to find employment (Mackinnon and Cumbers,2011). However, globalisation and spreadof neo-liberalism have changed its forms and functions over time; highlightingthe state as a ‘dynamic process’ rather than a fixed ‘thing’ or ‘object’ (Peck,2001).
This essay will explore the changing role of the state on the economythrough the shift towards a neo-liberal ‘competition state’ and introduction ofa ‘new’ regional policy in the UK. The growth of non-governmental institutionsand transnational corporations will also be discussed in relation to the’hollowing out’ (Jessop, 2002) of the state. Changingrole of state Sincethe 1980’s the state has undergone considerable restructuring, driven byneoliberal reform programmes and the globalization of the economy (Mackinnonand Cumbers, 2011).
Neo-liberalism is based on the belief in the virtues ofindividual markets, liberty and private enterprise (Mackinnon and Cumbers,2011), thus has influenced state policies through reductions of public sector andwelfare spending and increasing privatisation and deregulation. It highlights ashift from the from the post-war Fordist’Keynesian Welfare State’..—to the post-Fordist ‘Schumpeterian WorkfareState’ (Jessop, 2002); focusing onthe national economic development rather than the provision of welfare servicesto its citizens (Mackinnon and Cumbers, 2011). For example, the introduction of’workfare’ initiatives in UK – ‘a system that requires people to work inexchange for welfare benefits and payments’ – (Mackinnon and Cumbers, 2011)echoes this transition and neo-liberal ideas of reducing the reliance ofindividuals on the state by helping people help themselves and promotingentrepreneurship. Inconjunction to this, a neo-liberal ‘competition’ state was promoted, emphasisinginnovation, enterprise and workforce skills (Jessop, 1994) to strengthen theeconomy and is closely aligned with shifts in UK regional policy aimed to addressthe uneven development across the UK- often referred to as the ‘North SouthDivide’. For example, Keynesian regional policy aimed to direct investment intodepressed regions through a range of incentives and controls (Amin, 1999),following a highly ‘top down’ method of state intervention. However, after deprivationpersisted and hopes of prosperity in the North failed to materialise, a ‘new’regional policy was introduced in 1997 that stimulated growth throughcompetitiveness of the regional economy, using ‘supply-side’ measures (Mackinnonand Cumbers, 2011).
For example, the state improved the efficiency of marketsthrough workforce conditions, providing infrastructure, labour training andcapital to promote innovation (Mackinnon and Cumbers, 2011). This new model oflocal and regional development echoes a ‘bottom up’ approach, focusing on theneed to develop local skills and stimulate enterprise by giving the regions ‘ahand up rather than a hand out’ (Mackinnon and Cumbers, 2011). As a result, stateintervention is reduced as planning responsibilities are redistributed to localgovernments, allowing them to take control of their local environment, developlocal solutions to local issues and stimulate economic growth in appropriateways. Under the authority of the coalition government,the creation of ‘Local Enterprise andPartnership (LEPS) Scheme in England 2010’ demonstrates the success of the changein policy responses to the North- South divide; an economic development underpinnedby a ‘local growth’ agenda which aimed at ‘realising every place’s potential’ (HMGovernment, 2010).
It encourages the partnership between local governments,businesses and non-governmental bodies, allowing them to collectively decide on what the priorities should be for investment tohelp the area prosper (HMGovernment, 2010). Thus, the government’s role is reduced to supporting and fundingthe regions, enforcing many LEPs to public claim they are ‘free from centralcontrol’ (Puglias et al, 2015). Currently there are 39 LEPs in the UK, with GreaterManchester as one of the first places to embrace the ‘collective approach toplanning’ (HM Government, 2010) and has since ‘leveraged at least £300 million of private funding’, which will supportcity projects over the next decade. A success of the scheme is reflectedthrough the Manchester city airport ‘Enterprise zone’ which, through offering ‘business rates discounts, simplified localplanning laws, tax relief and support’ for businesses who locate there, has ledto the ‘Online giant Amazon … confirmed plans to open a new 654,000 sq ftfulfilment centre at Global Logistics (HM Government, 2018). This will bring ‘over1,500 jobs to the region’ (HM Government, 2018), helping to increase wealth intothe area and raise standard of living; demonstrating how enterprise zones canbe seen as a driving force of the local economy. Furthermore, direct flights to China seals the city’s reputation as amajor gateway for Asian businesses (HM government 2018) which will lead tofurther economic development through the encouragement of foreign investors.
However,the abolishment of ‘top down’ initiatives and the shift towards ‘arms-length’state organisation with more indirect connections to their populations (Pikeand Tomenay, 2010) has been associated with the ‘hollowing out’ (Jessop, 2002) ofthe state as it highlights a loss of power ‘downwards’ to local authorities. Inturn, regional scales of governance have become increasingly important inpromoting economic activities. Furthermore,globalisation has led to the growth of non-governmental institutions whichreinforces this ‘hollowing out’ of the state through the additional loss of power’upwards’ to ‘supranational bodies’ (Pike and Tomenay, 2010) such as the EuropeanUnion (EU). Initially established as an economic bloc in 1957, the EU hasbecome a major player in the global economy, with 28 nation state members(Dickens, 2015). It highlights the state as ‘collaborators’ (Dickens, 2015) as itscreation is a result of state action to increase integration and demonstratesthe ‘internationalization of states'(Mackinnon and Cumbers, 2011). Thus, their membership provides a forum to assertand extend their state power on the economy through regional trade agreements(Dickens, 2015).
For example, the introduction of the ‘single market’ in 1992,involving the removal of technical barriers to allow the free flow of goods and peoplethroughout member states, was argued, would create ‘virtuous circle of growthfor the European community as a whole,its member states and for those business firms’ (Dickens, 2015). It providesaccess to large markets and protection against competition outside the EU(Dickens, 2015), which ensures the stability and potential growth of a nationaleconomy. On the other hand, the EU challenges the ‘centrality’ of the nation-state in the field of economic policymaking and regulation (Painter, 2002). For example, the control of the monetary policy andthe setting of interest rates for the common currency (the Euro) have beenpassed upwards to the European Central Bank (ECB) (Dickens, 2015). These decisionshave immense influences over the economies of individual member states,however, negotiation or individual state influence is restricted whichreinforces a reduction in state control.
Furthermore, through this economicpolicy, the loss of arbitrary state power over national borders could highlightthe erosion of state sovereignty (Dickens, 2015). Inturn, the decision for the UK to leave the EU in 2017, ‘Brexit’, highlights a significantstate intervention as the controversial move could have drastic implicationsfor the future stability of the UK’s economy. However, ultimately it wasfulfilling the will of the people which has a tremendous impact on the state,and how it impacts capitalism, through the democratic election of governments. TNCS and the state Since the 1970’s, increased trade liberalisation, fuelled byneo-liberalism free market ideology, has transformed the global economy withmany arguing that we live in a ‘borderless world’ where ‘states no longermatter’ (Dickens, 2015). ‘Hyperglobalists’ express this exaggerated view inrelation to the growth of transnational corporations (TNCs), arguing these’transnational forces’ are eroding state power (Dickens, 2015). Dickens (2015) arguesa shift of power from the nation state to TNCs is a result of their large, andgrowing, economic size.
For example, ‘the 1999 sales of each of the top fivecorporations .. are bigger than the GDP’s of 182 countries’ (Dickens, 2015).This helps them gain economies of scale and leverage over the global economy; manipulatingstate structures to their economic advantage. Furthermore, technological advancements and improvementsin transport have fuelled TNCs priority to maximise profits through the abilityto outsource production to less developed countries and benefit from the cheaplabour.
In turn, this foreign direct investment (FDI), injected into the hostcountry (FDI) is seen as pivotal to the growth of a developing country’seconomy. Therefore, TNCs have the power to play countries off from each otherto seek out the cheapest sites, a process often referred to as the ‘race tobottom’ (Dickens, 2015) as states reduce tax rates and use other incentives to attractthe investment of TNCs. Therefore, perhaps TNCs have a larger influence over economicdevelopment than the state through their decision of where to locate operations. On the other hand, O’Neil(1997) introduced the idea of a’qualitative state’, rejecting the claim that globalizing forces, such as TNCs,have eroded state power, and instead argues the state is actively involved inthe construction of globalisation, through measures such as the ‘reduction oftrade barriers and the abolition of control on the movement of capital’ (O’Neil,1997). Furthermore, the state engages with the interests of non-state bodies suchas TNCs, to help stimulate national growth. Therefore, firms and the state expressa ‘dialectal relationship’ (Dickens, 2015), as they are both ‘cooperative andcompeting’, yet neither one is completely able to dominate. This reinforces thefundamental power of the state, and suggests global actors have ‘transformed’ ratherthan ‘eroded’ (O’Neil, 1997) its roles. The importance of the state in regard to economicdevelopment was visible amongst the industrialization of Asian countries suchas, Singapore and South Korea in the 1960s, but arguably most prominent in thecase of China.
For example, China’spolitical economy shifted and in 1979 the state began its ‘open policy’,the central decision to open up its economy to foreign direct investors, ‘basedupon a carefully controlled trade and inwards investment strategy’ (Dickens,2015). The state recognised the economic benefits of attracting foreigninvestors and made it central within development policies. For example, in1979, the first four ‘Special Economic Zones’ (SEZ) were established whichoffered incentives such as tax breaks, duty free import arrangements andserviced infrastructure for businesses that located there (Dickens, 2015). The stateremained in control as the SEZ steered FDI to specific location and as aresult, FDI now’accounts for 10 per cent of (China’s) GDP’ (Dickens, 2015). This highlights howstate remains central to the economy of a country, adapting to the globalrestructuring of a capitalist free market economy to meet new national needs. Globalisationand neo-liberalism may have reduced the centrality of the nation state throughthe growth of TNCs and supranational bodies, such as the EU.
However, the lossof state control in some areas has led it to gain powers in others. In fact,more powerful states have used globalisation as a means of increasing theirpower through collaboration and establishing international trade agreements, forexample the EU policies discussed above. It demonstrates nation states takingadvantage of the progressive reduction in political barriers and reinforces theideas that states ‘actively construct globalisation’ (Dickens, 2015). Overall,the increased prominence of certain scales, both international andlocal/regional, should not be regarded as resulting in the erosion or declineof state power. Therefore, rather than viewing the state as ‘hollowing out'(Jessop, 2002), it could be viewed as the ‘filling in’ (Pike and Tomaney, 2010)of new scales and institutions that still function under the coordination ofthe nation state. This reinforces the state as more than a ‘fixed entity’ but a’large number of different institutions and agencies’ (O’Neil, 1997); creatinga more complex, yet presently accurate image. In conclusion, this essay argues thatdespite state intervention perhaps becoming more ‘indirect’ in its approach, itsrole will remain fundamental to the economic development all countries.
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