The Retreat of the State: The Diffusion of Power in the World Economy

Abstract

Kobrin reviews "The Retreat of the State: The Diffusion of Power in the World Economy" by Susan Strange.

The Retreat of the State: The Diffusion of Power in the World Economy. By Susan Strange. Cambridge: Cambridge University Press, 1996. 218p. $49.95 cloth, $16.95 paper.

Susan Strange ends this provocative and thoughtful book with a reference to "Pinocchio's problem." Not his nose growing when he lied-a metaphor better left alone-but the lack of strings to guide him once he turned into a real boy. The diffusion of state power, and a more general systemic entropy of authority, has left us with "a ramshackle assembly of conflicting sources of authority" (p. 199). We all share Pinocchio's problem: The strings that bound us unambiguously to state and nation have snapped, and we are left adrift in a world of multiple authorities, allegiances, loyalties, and identities.

Strange's central argument is that the authority of all states is diminished as a result of changes in technology and finance and of the integration of national economies into a global world economy. In part, authority has shifted to non-state actors, most notably transnational corporations (TNCs). Yet, some authority in the system has been "lost" in the sense that it has shifted from states to impersonal markets; some of the fundamental responsibilities of the state are not being exercised by anyone. "The diffusion of authority away from national governments has left a yawning hole of nonauthority, ungovernance it might be called" (p. 14).

The state is not disappearing; Strange does not argue for the "end" of anything. She does argue forcibly (no surprise here!) that the state is in the midst of significant change-a "metamorphosis"-brought on by structural change in the world economy. It can no longer make exceptional claims; it is now one source of authority among several.

The Retreat of the State follows logically from Rival States, Rival Firms (1991), in which Strange and John Stopford argued that competition for global market shares has replaced competition for territory. Here, the shift in authority from states to markets is seen as "probably the biggest change in the international political economy to take place the last half of the twentieth century" (p. 43). At this point, "there is not much left of the territorial basis of authority" (p. 45). Territoriality is neither the sole source of political power and authority nor a critical factor determining the prosperity of national society.

In a sense, Strange is "taking the state back out." While she only alludes to premodern political structures, she clearly looks both back ("once more and as in the past," p. 73) to times when multiple authorities (e.g., church, emperor, prince, and lord) coexisted and when multiple political loyalties were the norm. She believes that international relations and other social sciences must transcend state centric theory and analysis: the "colonization" of the study of the study of politics by the state (p. 32).

Thus, power is "the ability of a person or group of persons to so affect outcomes that their preferences take precedence over the preferences of others" (p. 17). Power should be seen in terms of relationships-as a social process affecting outcomes-rather than in terms of resources or capabilities. One can then ask how and by whom values are allocated and decisions taken to affect outcomes. And Strange's answer is-in large part-economic actors and impersonal markets.

TNCs, for example, are not "powers behind the throne" but "political institutions having political relations with civil society" (p. 44). As Strange sums the three major premises of the book, politics is no longer confined to politicians and officials; power is impersonally exercised by markets; and authority is legitimately exercised by authorities other than states. After developing her argument, Strange looks at five examples of "authority beyond the state": telecoms, organized crime, insurance, the Big Six accounting firms, cartels, and international organizations. While the case studies are interesting, if somewhat superficial, they leave me with the old Scotch verdict of "not proven."

The idea that the growth of markets can compromise state authority is certainly not new; Charles Lindbloom (Politics and Markets, 1977) made the point in considerable detail twenty years ago. The question here is whether recent developments have transformed changes in degree into changes in kind: whether the shift of authority from states to markets, from governments to private actors, is marginal or systemic. Strange clearly believes the latter. What is new this time around is that all states are undergoing change in the same relatively short period. She notes that the last time this happened was the medieval to modern transition from feudal agriculture to capitalist industry. While I happen to agree, the question is whether the cases support the argument. Of that, I am not so sure.

There is no question that the global spread of enterprise, changes in technology, and American deregulation have resulted in major changes in the telecommunications industry: in pressure for privatization of PTTs, the opening of markets to competition, and the emergence of international groups of alliances. States have lost power over the sector.

There is no question that two functions critical to a capitalist economy are largely in private hands: insuring against risks and auditing accounts. I am not convinced, however, that the evidence presented here adds up to strong support for Strange's arguments. These cases are not the best examples of structural change in the power and authority of states versus other actors in the system; of states being rendered as one among many alternative sources of authority.

Two minor quibbles with these cases may be noted. Political risk insurance did evolve from Lloyds coverage of ships at sea against hazards such as piracy. What happened in the 1930s, however, is that after Fascist bombing of Spain, Lloyds realized that land-based war risk could be serious, and it decided that neither the company nor anyone else would take them on. While the Big Six global accounting firms may have considerable power as a group, auditing has become a commodity as a result of digitalization, and there is fierce competition among them; their profits, "which might otherwise go to the shareholders" (p. 143), increasingly come from other sources.

Strange is on much more solid ground when she considers cartels and asks why this phenomenon has been virtually ignored by academics in the last quarter century. (While Paul Samuelson may have ignored cartels, I do suspect that he would be surprised to be placed on the political right.) The strongest potential argument here is not well developed, however. At this point, "cartels" are implicit rather than explicit; they reflect dense oligopolisitic concentration resulting from dramatic increases in the cost, risk, and complexity of technology rather than an ex ante attempt to collude. The best example is commercial airframe manufacture, the world market for which will only support two huge players: Boeing and Airbus. Semiconductors and telecommunications are other sectors in which the number of viable players is limited by the size of a competitive R&D budget relative to the size of the world market.

The fact that in many of these sectors the scale of technology is mandating cross-national alliances among the largest players (e.g., IBM, Siemens, and Toshiba in semiconductors) exacerbates the problem. If size and concentration result from structural change, and the capabilities reside in transnational alliances, then power may really be shifting to actors beyond the reach of the territorial state.

One glaring omission is the absence of any discussion of the literature on transnational actors which has developed similar arguments-albeit in a very different context. Neither early efforts (i.e., Robert Keohane and Joseph S. Nye, Jr., eds., Transnational Relations and World Politics, 1971) nor more recent work on the emergence of global civil society are even cited.

I have one last qualm. While it may well reflect my own national bias-globalization only goes so far even for us believers-I think that Susan Strange has more than made the point by now that arguments about hegemonic decline are a mask for the incompetent use of American power and that international organizations tend to serve American interests. How about a truce?

The critical question is how the world economy-and the international political system-will cope with the diffusion of state authority; the spread of power to other actors; and more important, the vacuum that has arisen as the sum of authority gained by other actors is less than that lost by states. "How much disorder can the world market economy tolerate before it starts to unravel, wind down, fall apart" (p. 191)?

As Strange notes, international political economists are split between the "nothing has changed" and the "maybe a lot has changed" views of globalization. Given even a slight possibility that globalization entails a major systemic change in economic and political governance, however, it is irresponsible to ignore both the phenomenon and its consequences for our societies.

In this uneven but important book Strange raises a number of critical questions intelligently and provocatively. Reflecting her earlier life as a journalist, it is very well written and intellectually coherent. The Retreat of the State is rich in detailed argument and discussion and covers many more topics and subtopics than I can mention here. This book deserves a very wide readership among those interested in where the modern territorial state and the modern state system are headed as we enter the twentyfirst century.