To what extent can the nation
state influence the geographies of economic activity?

 

1525951

 

The state refers to a set of institutions that holds
sovereignty over a designated territory, exercising a monopoly of legitimate
force and law-making ability (Mackinnon and Cumbers, 2011). Its role in the
economy is wide-ranging but often invisible to individual consumers. It shapes
the provisions of goods and services through regulating markets, governing
business laws and helping workers to find employment (Mackinnon and Cumbers,
2011). However, globalisation and spread
of neo-liberalism have changed its forms and functions over time; highlighting
the 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 economy
through the shift towards a neo-liberal ‘competition state’ and introduction of
a ‘new’ regional policy in the UK. The growth of non-governmental institutions
and transnational corporations will also be discussed in relation to the
‘hollowing out’ (Jessop, 2002) of the state.

 

Changing
role of state

 

Since
the 1980’s the state has undergone considerable restructuring, driven by
neoliberal reform programmes and the globalization of the economy (Mackinnon
and Cumbers, 2011). Neo-liberalism is based on the belief in the virtues of
individual markets, liberty and private enterprise (Mackinnon and Cumbers,
2011), thus has influenced state policies through reductions of public sector and
welfare spending and increasing privatisation and deregulation. It highlights a
shift from the from the post-war Fordist
‘Keynesian Welfare State’..—to the post-Fordist ‘Schumpeterian Workfare
State’ (Jessop, 2002); focusing on
the national economic development rather than the provision of welfare services
to its citizens (Mackinnon and Cumbers, 2011). For example, the introduction of
‘workfare’ initiatives in UK – ‘a system that requires people to work in
exchange for welfare benefits and payments’ – (Mackinnon and Cumbers, 2011)
echoes this transition and neo-liberal ideas of reducing the reliance of
individuals on the state by helping people help themselves and promoting
entrepreneurship.

 

In
conjunction to this, a neo-liberal ‘competition’ state was promoted, emphasising
innovation, enterprise and workforce skills (Jessop, 1994) to strengthen the
economy and is closely aligned with shifts in UK regional policy aimed to address
the uneven development across the UK- often referred to as the ‘North South
Divide’. For example, Keynesian regional policy aimed to direct investment into
depressed regions through a range of incentives and controls (Amin, 1999),
following a highly ‘top down’ method of state intervention. However, after deprivation
persisted and hopes of prosperity in the North failed to materialise, a ‘new’
regional policy was introduced in 1997 that stimulated growth through
competitiveness of the regional economy, using ‘supply-side’ measures (Mackinnon
and Cumbers, 2011). For example, the state improved the efficiency of markets
through workforce conditions, providing infrastructure, labour training and
capital to promote innovation (Mackinnon and Cumbers, 2011). This new model of
local and regional development echoes a ‘bottom up’ approach, focusing on the
need to develop local skills and stimulate enterprise by giving the regions ‘a
hand up rather than a hand out’ (Mackinnon and Cumbers, 2011). As a result, state
intervention is reduced as planning responsibilities are redistributed to local
governments, allowing them to take control of their local environment, develop
local solutions to local issues and stimulate economic growth in appropriate
ways.  

Under the authority of the coalition government,
the creation of ‘Local Enterprise and
Partnership (LEPS) Scheme in England 2010’ demonstrates the success of the change
in policy responses to the North- South divide; an economic development underpinned
by a ‘local growth’ agenda which aimed at ‘realising every place’s potential’ (HM
Government, 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 to
help the area prosper (HM
Government, 2010). Thus, the government’s role is reduced to supporting and funding
the regions, enforcing many LEPs to public claim they are ‘free from central
control’ (Puglias et al, 2015).

 

Currently there are 39 LEPs in the UK, with Greater
Manchester as one of the first places to embrace the ‘collective approach to
planning’ (HM Government, 2010) and has since ‘leveraged at least £300 million of private funding’, which will support
city projects over the next decade. A success of the scheme is reflected
through the Manchester city airport ‘Enterprise zone’ which, through offering ‘business rates discounts, simplified local
planning laws, tax relief and support’ for businesses who locate there, has led
to the ‘Online giant Amazon … confirmed plans to open a new 654,000 sq ft
fulfilment centre at Global Logistics (HM Government, 2018). This will bring ‘over
1,500 jobs to the region’ (HM Government, 2018), helping to increase wealth into
the area and raise standard of living; demonstrating how enterprise zones can
be seen as a driving force of the local economy. Furthermore, direct flights to China seals the city’s reputation as a
major gateway for Asian businesses (HM government 2018) which will lead to
further 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 (Pike
and Tomenay, 2010) has been associated with the ‘hollowing out’ (Jessop, 2002) of
the state as it highlights a loss of power ‘downwards’ to local authorities. In
turn, regional scales of governance have become increasingly important in
promoting economic activities.

 

Furthermore,
globalisation has led to the growth of non-governmental institutions which
reinforces this ‘hollowing out’ of the state through the additional loss of power
‘upwards’ to ‘supranational bodies’ (Pike and Tomenay, 2010) such as the European
Union (EU). Initially established as an economic bloc in 1957, the EU has
become a major player in the global economy, with 28 nation state members
(Dickens, 2015). It highlights the state as ‘collaborators’ (Dickens, 2015) as its
creation is a result of state action to increase integration and demonstrates
the ‘internationalization of states’
(Mackinnon and Cumbers, 2011). Thus, their membership provides a forum to assert
and 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 people
throughout member states, was argued, would create ‘virtuous circle of growth
for the European community as a whole,
its member states and for those business firms’ (Dickens, 2015). It provides
access to large markets and protection against competition outside the EU
(Dickens, 2015), which ensures the stability and potential growth of a national
economy. 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 and
the setting of interest rates for the common currency (the Euro) have been
passed upwards to the European Central Bank (ECB) (Dickens, 2015). These decisions
have immense influences over the economies of individual member states,
however, negotiation or individual state influence is restricted which
reinforces a reduction in state control. Furthermore, through this economic
policy, the loss of arbitrary state power over national borders could highlight
the erosion of state sovereignty (Dickens, 2015).

 

In
turn, the decision for the UK to leave the EU in 2017, ‘Brexit’, highlights a significant
state intervention as the controversial move could have drastic implications
for the future stability of the UK’s economy. However, ultimately it was
fulfilling 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 by
neo-liberalism free market ideology, has transformed the global economy with
many arguing that we live in a ‘borderless world’ where ‘states no longer
matter’ (Dickens, 2015). ‘Hyperglobalists’ express this exaggerated view in
relation to the growth of transnational corporations (TNCs), arguing these
‘transnational forces’ are eroding state power (Dickens, 2015). Dickens (2015) argues
a shift of power from the nation state to TNCs is a result of their large, and
growing, economic size. For example, ‘the 1999 sales of each of the top five
corporations .. are bigger than the GDP’s of 182 countries’ (Dickens, 2015).
This helps them gain economies of scale and leverage over the global economy; manipulating
state structures to their economic advantage.

 

Furthermore, technological advancements and improvements
in transport have fuelled TNCs priority to maximise profits through the ability
to outsource production to less developed countries and benefit from the cheap
labour. In turn, this foreign direct investment (FDI), injected into the host
country (FDI) is seen as pivotal to the growth of a developing country’s
economy. Therefore, TNCs have the power to play countries off from each other
to seek out the cheapest sites, a process often referred to as the ‘race to
bottom’ (Dickens, 2015) as states reduce tax rates and use other incentives to attract
the investment of TNCs. Therefore, perhaps TNCs have a larger influence over economic
development 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 in
the construction of globalisation, through measures such as the ‘reduction of
trade 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 such
as TNCs, to help stimulate national growth. Therefore, firms and the state express
a ‘dialectal relationship’ (Dickens, 2015), as they are both ‘cooperative and
competing’, yet neither one is completely able to dominate. This reinforces the
fundamental power of the state, and suggests global actors have ‘transformed’ rather
than ‘eroded’ (O’Neil, 1997) its roles.

 

The importance of the state in regard to economic
development was visible amongst the industrialization of Asian countries such
as, Singapore and South Korea in the 1960s, but arguably most prominent in the
case of China. For example, China’s
political economy shifted and in 1979 the state began its ‘open policy’,
the central decision to open up its economy to foreign direct investors, ‘based
upon a carefully controlled trade and inwards investment strategy’ (Dickens,
2015). The state recognised the economic benefits of attracting foreign
investors and made it central within development policies. For example, in
1979, the first four ‘Special Economic Zones’ (SEZ) were established which
offered incentives such as tax breaks, duty free import arrangements and
serviced infrastructure for businesses that located there (Dickens, 2015). The state
remained in control as the SEZ steered FDI to specific location and as a
result, FDI now
‘accounts for 10 per cent of (China’s) GDP’ (Dickens, 2015). This highlights how
state remains central to the economy of a country, adapting to the global
restructuring of a capitalist free market economy to meet new national needs.

 

Globalisation
and neo-liberalism may have reduced the centrality of the nation state through
the growth of TNCs and supranational bodies, such as the EU. However, the loss
of 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 their
power through collaboration and establishing international trade agreements, for
example the EU policies discussed above. It demonstrates nation states taking
advantage of the progressive reduction in political barriers and reinforces the
ideas that states ‘actively construct globalisation’ (Dickens, 2015).

 

Overall,
the increased prominence of certain scales, both international and
local/regional, should not be regarded as resulting in the erosion or decline
of 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 of
the nation state. This reinforces the state as more than a ‘fixed entity’ but a
‘large number of different institutions and agencies’ (O’Neil, 1997); creating
a more complex, yet presently accurate image. In conclusion, this essay argues that
despite state intervention perhaps becoming more ‘indirect’ in its approach, its
role will remain fundamental to the economic development all countries.

 

2008.

Bibliography

 

Amin,
A (1999) ‘An institutional perspective on regional economic development’. International journal of Urban and Regional
Research, 23: 365-78

 

Dicken, P (2015) The Global Shift:
Mapping the changing contours of
the world economy (7th
eds) New York, Guilford Press

 

HM
Government (2010) Local growth: realising every place’s potential, London, The
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Accessed 14 Jan. 2018

 

HM
Government (2018) Manchester Enterprise
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http://enterprisezones.communities.gov.uk/enterprise-zone-finder/manchester-enterprise-zone/
Accessed 13 Jan. 2018.

 

Jessop,
B (1994) ‘Post- Fordism and the state’ in Amin, A (ed.) Post-Fordism: A reader,
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Jessop,
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O’Neil,
P (1997) ‘Bringing the qualitative state
into economic geography’, in Lee and Wills (1997), pp.290-301

 

Painter,
J (2002) State and Governance. In Barnes, T, and Shepherd, E A companion to Economic Geography. Oxford:
Wiley

 

Peck,
J (2001) ‘Neoliberalising states: thin policies/ hard outcomes’. Progress in
Human Geography, 25:445-55

 

Pike,
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in England, 2010- Cambridge Journal of
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Pugalis, L Townsend, A, Gray,
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Accessed 8 Jan. 2018.

 

Pike,
A and Tomaney, J. (2010) State and Economy. In Coe, N.M and Jones, A. The economic geography of the UK.
London: Sage

 

Mackinnon,
D and Cumbers, A (2011) An introduction
to Economic Geography: Globalization, Uneven Development and Place,
Prentice Hall: London