Tue, Jul 13, 2004 - Page 9 News List

The return of the nation state

Francis Fukuyama shocked the world with his "end of history" thesis that the market would take over the role of nations, but Sept. 11 changed all that: he now argues that our very survival depends on stronger government

By Francis Fukuyama  /  THE OBSERVER , London


The death of former US president Ronald Reagan last month and the moving tribute paid to him by former British prime minister Margaret Thatcher remind us that we still live in their shadow, in an era in which the chief impulse of politics has been to reduce the size of the state.

That agenda was critical in

its time, for it was clear that the enormous growth of state sectors in the developed world in the 20th century had become economically harmful and socially stultifying. China and India have begun to free themselves from excessive state control, which reached monstrous dimensions under communism.

But there are signs that the Reagan-Thatcher era is ending and that the pendulum will swing the other way. Many recent problems have tended to come from the lack of sufficient state oversight, as with the Enron, WorldCom and other auditing scandals, or the privatizations of railways in Britain or electricity in California.

The easy gains from privatization and deregulation have long since been achieved.

The real date of the end of the Reagan-Thatcher era, however, was Sept. 11, 2001. The terrorist attacks on New York and Washington put back on the table foreign policy and security, which are pre-eminently issues for nation states. The US created a new Cabinet-level agency, the Department of Homeland Security, in direct response. But Sept. 11 also underscored a key feature of the post-Cold War world. While the great problems of world order in the 20th century were caused by too-powerful nation states such as Germany, Japan and the former Soviet Union, many of the problems of our current age, from poverty to refugees to human rights to HIV and AIDS to terrorism, are caused by states in the developing world that are too weak.

This lies at the roots of Africa's development problem; and a band of weak or failed states from North Africa through the Balkans and the Middle East to South Asia has become the breeding ground of radical Islamism and terror.

It is important to distinguish between the scope of states and their strength. State scope refers to a state's range of functions, from domestic and foreign security, the rule of law and other public goods, to regulation and social safety nets, to ambitious functions such as industrial policy or running parastatals. State strength refers

to the effectiveness with which countries can implement a given policy. States can be extensive in scope and yet damagingly weak,

as when state-owned firms are run corruptly or for political patronage.

From the standpoint of economic growth, it is best to have a state relatively modest in scope, but strong in ability to carry out basic state functions such as the maintenance of law and the protection of property. Unfortunately, many developing countries either combine state weakness with excessive scope, as in the case of Brazil, Turkey or Mexico, or they do little, and what little they do is done incompetently. This is the reality of such failed states as Liberia, Somalia or Afghanistan. Some, such as the Central Asian dictatorships that have emerged after the collapse of the Soviet Union, manage to be strong in all the wrong areas: they are good

at jailing journalists or political opponents, but can't process visas or business licenses in less than six months.

The Reagan-Thatcher revolution was properly directed against excessive state scope, seeking to reduce regulation and government interference with private economic activity. But applied to developing countries, it had a perversely damaging effect. The policies known as the Washington consensus, pushed by international financial institutions such as the IMF and the World Bank, including such measures as privatization, trade liberalization and deregulation, failed to take account of missing institutional capacity in many developing nations.

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