Globalisation and the Nation-State

With international market opportunities, huge competition for consumers, government initiatives and cost drivers all influencing companies to start operating over national state borders it is no surprise to see millions of companies operating globally in all sorts of different economic sectors. Emerging nations such as China and India have also allowed companies to reduce production costs and target wider developing consumers. With these opportunities and with many of the other opportunities surrounding globalisation economics now look at the economy on a global scale as opposed to a national scale which has led to conflicting perspectives on the use of the nation-state. As early as 1969 economics such as Charles Kindleberger sparked the perspective that “the nation state is just about through as an economic unit” (Kindleberger 1969: 207)
The following essay will look at globalisation in terms of the economy and look at two of these businesses currently operating globally to see if the role of the individual nation-state government remains vital despite the trend towards globalisation.
Firstly one must define what globalisation actually is and what type of organisations qualifies as a ‘global company’. Researchers suggest that globalisation is ‘one of the most misused and one of the most confused words around today’ (Dicken, 2007). Globalisation is a widely used term that has no simple definition; instead researchers suggest that the word has become a ‘convenient summary term’ used by many to ‘bundle together virtually all the goods and bads facing contemporary societies’ (Dicken, 2007).
There is one definition that most globalists will agree upon and that’s that it is a “process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world.” In terms of the economic globalisation that essay will be concentrating on, “Globalisation is a level of economic activity that has outgrown national markets through industrial combinations and commercial groupings that cross national frontiers, and international agreements that allow businesses to operate internationally” (Hirst, 1996)
Lloyds TSB is one company that can be defined as a global organisation. Lloyds TSB is an international bank that’s part of Lloyds banking group. Its head office is in London and it originated in 1745 as a personal banking service with one single office in Birmingham. In the 1960s Lloyds began to expand offices through Europe, India and South America. In the late 1990’s Lloyds acquired other international businesses and soon had hundreds of offices in over 50 different countries.
MacDonald’s is a fast food restaurant. It was formed in 1948 in California and is currently the largest fast food restaurant in the world. It currently has 31,000 restaurants in 118 countries. MacDonald’s has become global as more than 75% of McDonald's restaurants worldwide are owned as a franchise. Both companies are huge global companies that are as successful as they are as they view the world as one place and not in terms of nation-state governments. Although both companies are similar in the sense that they operate globally they are both very different organisations. Lloyds TSB began in the UK and have bought other companies and diversified to gain its global recognition. MacDonald’s however, operates in the food sector and still mainly operates directly in the USA. It gained global standing by franchising the brand and the products across the world There are also other key differences between the companies. As well as operating in different economic sectors, Researchers suggest that although both organisations operate as transnational organisations their global operations are completely different. Lloyds TSB is a ‘global organisation’ as its overseas operations are delivery of the same service to just different consumers, whilst the same researchers would describe MacDonald’s as a ‘Multinational Organisation’ as it views much of its overseas operations as a portfolio of independently run businesses (Bartlett, 2000) On both Lloyds TSB and MacDonald’s there are major influences affecting them as they operate in the globalised economy. Globalisation and international companies arriving in individual national-states have always been met with a mixture of positive and negative opinions due to the instant challenge it brings to the uses and the very existence of the nation-state. There are currently 194 individual nation-states in the world (Rosenberg, 2009). Each state has its own common culture and has its own way of governing its state. With new technologies, transportation and communications and the fact that organisations are now creating a standardised way of living it can be assumed that the power and control once held by the nation-state is being severely reduced. Due to the claims by theorists such as Kindleberger (1969) there has been much debate sparked into the existence of the nation-state and the uses of globalisation. In the globalisation debate there are three conflicting perspectives on the uses of the nation-state. The first perspective is that of the Hyper-Globalists, who argue that we live in a borderless world and the nation- state is no longer relevant. The Hyper-Globalists view globalisation as a new development and suggest that the world’s cultures and experiences are becoming homogenised through standardised global products.
The second opinion is the ‘Sceptical Internationalists’ who accept that globalisation exists however believe that it’s not new and the grounding globalists who believe that quantitative date is just as important as qualitative date in the debate.
According to Dicken (2007:p175) the roles of the nation-state in the contemporary global economy has four key roles; containers of institutions and cultures, regulators of economic activities, competitors with other states and collaborators with other states and when globalisation intrudes these roles its often met with a degree of negativity
Lloyds TSB and McDonald’s are diversifying into these individual nation-states and as a result are sometimes met with this negativity and political concern targeted towards the hyper-globalists perspective. These companies and most of the companies that are globalising are often from Western dominated economies and arrive with western values and cultural interests. Holton (1998) suggests that one of the main negative impacts on these organisations and globalisation in general is that they are incorporating third world and developing economies into the global economy only as ‘passive consumers of standardised products and nothing more’ suggesting that although these companies are operating globally the economic wealth and growth still lives within its original national economy which widens the gap between the rich and poor countries.
Ohmae (1995) considers the ‘standardisation of culture’ as a negative impact on globalisation. These individual nation-states that companies like Lloyds bank and McDonald’s are penetrating have individual cultural values and beliefs. Both companies are bringing their Western cultural values into these individual nations and creating a standardised culture within. McDonald’s for example has a very western cultural style to its food, items on its menu such as ‘French fries’ and ‘hamburgers’ are very much western orientated foods. The very way in which McDonald’s delivers its food in fast food restaurants, through American style diners and drive through’s again reflect the western cultural values which are now being adapted and ‘standardised’ around the world. Ohmae (1995) suggests that these changes can be seen as negative impacts and are seen as a challenge to the importance and use of a nation-state if the world is starting to live in a standardised way.
There are many negative opinions in the role of the nation-state debate and evidence to suggest that we are beginning to live in a homogenized environment however, there have been many recent events that have shown that despite the trend to globalisation the nation-state is still vital and that we do not live in a homogenized world.
One recent event that’s affected nearly everyone is the global recession or the ‘Credit Crunch’ the world is currently experiencing. The Credit Crunch can be defined as “a severe shortage of money or credit" (BBC, BBC NEWS, 2009) and is caused by banks not lending out money.
Lloyds TSB is one of many financial institutions affected in the credit crunch due to the very nature of the business and the fact that deregulation in the global financial economy allowed banks to lend money in unsecure ‘lax’ borrowers, especially in the American mortgage economy ‘where billions of dollars was invested into mortgages made available to sub-prime borrowers (people with bad credit rating, no jobs, no repayment amounts) at a low interest rate. When interest rates started to increase people began to default on borrowings which meant the value of these investments plummeted resulting in huge losses for banks globally’ (Budworth, 2009), including Lloyds TSB.
As a result of this lax lending Lloyds and many other global banks were forced to write off millions of pounds of debts. Lloyds were ‘left 250 million short’ (BBC 2007) which left them at a huge loss and unconfident to lend out more money. As a result of the financial difficulties Lloyds were forced to make over two thousand people redundant and were left to turn to the nation-state for help.
In terms of the nation-sate debate it’s evident in economic downturns such as the global ‘credit crunch’ and the current recession the nation-state is vital for companies such as Lloyds to survive. The British government used tax-payers funds to ‘bail’ out the bank by supplying them with over a billion pounds worth of investment.
McDonalds, operating in a completely different economic sector completely survived the economic downturn as people looked to them for a cheap source of food and drink. McDonald’s made a profit through the economic downturn and look set to do the same this year (McDonalds.com 2009).
Further to the debate that we do not live in a homogenized world is the fact that states regulate trade, foreign investment and industry and each state takes an individual stance on how they do this. Policies towards imports and exports are individual in every state and McDonald’s and Lloyds TSB have to comply with these policies in each individual state.
Lloyds TSB operate in the financial service sectors which “have been the most tightly regulated of all economic activities. Such regulation can be divided into two types, the bodies governing the running of the financial actives and those governing the entry of the firms into the financial sector” (Dicken, 2007)
Although the regulations governing Lloyds TSB on a nation-scale is tight the hyper-globalists could argue that it is down to the deregulation of the financial sector globally that has allowed it to grow into different nations. “The rapid growth in financial services has been facilitated by the progressive deregulation of financial markets across the world allowing it to spread to other parts of the world at exceptional speed through new technologies and communications”
The Nation-sate also has control over McDonald’s in a similar way; McDonald’s must comply with all nation regulations including environmental laws and trade policies.
Further to the debate, the nation-state can also be seen as competitors and collaborators in the globalising economy creating its own debate whether or not it should operate in this perspective. “States compete to enhance their international trading position to capture a large share as possible of gains from trade” (Dicken, 2007:p189).
As well as competing the state also creatres its own collaborations with other states allowing economic intergration to happen, this is evident more so in Europe with the European Union agreements and polocies allowing Mcdonald’s and Lloyds TSB to operate in europe quite freely and trade quickly as opposed to the ten years it took to open a McDonalds store in Moscow in 1995 due to the regulations by Russia. (Holton, 1998, p. 3). These factors alone show that the state has a great degree of control over international trading and proves that the nation-state is extremely important to create and keep a global economy flowing efficiently.
In conclusion to the debate it is clear that the necessity to have a nation-state in a globalised economy has been met with opposing views.
Hyper-Globalists claim that we now live in a ‘borderless world’ and the role of the nation-state is unimportant. Economics such as Kindleberger (1969) agree with this theory and claim that the world is becoming homogenised and standardised in favour of capitalism and western culture. This is certainly evident in McDonald’s and Lloyds TSB as they do seem to be operating freely in the globalised economy.
Opposing the opinion that ‘the nation-state is through as an economic unit’ there are strong perspectives from economics such as Dickens (2007) Hirst (1996) Ohmae (1995) and Holton (1998) who suggest that the nation-state plays an important role in the global economy. It sets the rules, controls how companies operate and restricts activities such as finance and environmental influences. These perspectives also suggest that the nation-state controls globalisation in terms of competing with other states and more importantly setting up agreements for collaborations between states and acting as the very stepping stone for globalisation to continue.
Both views have a degree of validity in them. However, in conclusion to this argument one can assume that although there are new revolutionary technologies, transportation and communications aspects allowing organisations to operate globally the role of the nation-state remains vital. McDonald’s and Lloyds TSB would not be global companies if it wasn’t for the nation-state acting as the stepping stone for their global success. By allowing deregulation of the financial sector and creating trade agreements between states McDonald’s and Lloyds have been able to invest and diversify into different states.
As well as being the stepping stone, through recent economic activities such as the ‘Credit Crunch’ and the depression the nation-state has been a vital player in the globalised economy by bailing out banks such as Lloyds and supporting McDonald’s through regulations that have allowed them to survive both nationally and globally.
It can be concluded that although one should recognise that the role of the nation-state as being redefined and perhaps not containing the exact same control and power it has had in the past, there is no doubt that it still acts as a major player in the globalised economy and without the nation-state globalisation would not exist or continue as it does today.

Bibliography

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