Competition State

Globalization is not just about economics—more open trade, financial globalization, or the internationalization of production. States and political actors are among the greatest promoters of globalization, leading to a transformation of the state itself—from the postwar national industrial welfare state (IWS) to a competition state. The essence of the IWS lay in the state's capacity to insulate key elements of economic life from international market forces—not merely protecting the poor and helpless from poverty and pursuing welfare goals such as full employment or public health, but also

• regulating business in the public interest,
• “fine tuning” business cycles,
• nurturing “strategic industries” and “national champions,”
• integrating labor movements into neocorporatist and collective bargaining processes, and
• managing international trade and capital movements so as to reinforce the previously mentioned—the “embedded liberal compromise.”

But this compromise was eroded in the 1960s and 1970s by increasing domestic structural costs (the “fiscal crisis of the state”), as well as by growing external trade and international capital mobility. Today, the main aim of state actors is to make domestically based economic activities as competitive as possible in global markets. This mainly involves

• a move from macroeconomic to microeconomic interventionism in both regulatory and industrial policy,
• a shift from supporting “strategic” or “basic” economic firms and sectors to a strategy of flexible response to competitive conditions in a diversified and rapidly evolving international marketplace,
• a core focus on the control of inflation and monetarism as the touchstone of state economic management, and
• the transformation of party and governmental politics away from full employment, redistributive transfer payments, and social service provision to the promotion of enterprise, innovation, and profitability in both private and public sectors.

Potentially the most explosive issue area is regulation. Deregulation is not just the lifting of old regulations, but also the formulation of new, promarket regulatory structures based on general rules of economic behavior rather than specific outcomes. These are designed to cope with and anticipate shifts in competitive advantage, as well as to enforce global market-rational economic and political behavior on rigid and inflexible private-sector actors (as well as on state actors and agencies). The state itself is increasingly [Page 129]marketized too, remodeled around practices copied from business—that is, the new public management or “reinventing government.”

The dominant model of the competition state today is the neoliberal state, associated with the United States and the United Kingdom—instead of the developmental or strategic state model of Japan or France, on the one hand, or the neocorporatist or coordinated state model of Germany or Sweden. Competition states also play a crucial external role as enforcers of the rules and practices of the global political economy abroad as well as at home. Domestically, they negotiate distributive outcomes among the various winners and losers from globalization. Thus, paradoxically, the actual total amount of government economic interventionism and imbrication in social life can increase significantly. Promarket regulation can be even more intrusive than old-fashioned, liberal social redistribution. At the same time, the power of the state to control specific social and economic activities and market outcomes continues to diminish.