The Future of the State - MA International Studies with ... · social spending a cornerstone of counter-cyclical macroeconomic management. Nowadays, after several decades of development,

The Future of the State

Globalization TrendLab 2014



Based on a conference organized by the Joseph H. Lauder Institute of Management & International Studies and the Penn Lauder Center for

International Business Education and Research at the University of Pennsylvania, sponsored by Santander Universities, and distributed worldwide through

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© 2014 The Trustees of the University of Pennsylvania. All rights reserved.

1 | The Future of the State

The state is one of the most important institutions and actors. Its influence manifests itself through avariety of policies and programs, and also by reflecting demands from society. In the area of thewelfare state, recent trends show a rapid expansion of state activity in some parts of the emerging

world, at the same time that social programs in education, healthcare, unemployment benefits and old-agepensions have stagnated or even retrenched in the advanced industrial democracies. Meanwhile, the recentglobal financial crisis has triggered an increasing presence of the state as an actor and as a regulator, andstate-owned enterprises and sovereign wealth funds from the emerging economies are playing anincreasingly important role on a global scale.

The state operates in a context shaped by politics. Processes of political participation and accountabilityshape both the policies adopted and their implementation. In many parts of the world, including bothdeveloped and developing countries, state agencies have come under an increasing degree of capture fromspecial interest groups. In others, state fragility and failure pose new challenges to the local population and to the international system of states as a whole.

We offer several avenues for research, policymaking, and activism concerning the state, including therecognition of states as complex, diverse and heterogeneous in terms of both their internal characteristicsand the ways in which they relate to the society, to the economy, and to one another. We also emphasize theimportance of avoiding functionalist, triumphalist, and universalistic conceptions and explanations of thestate, making room for politics, ideology, and moral dimensions. We propose a view of state activity asdriven and enabled by the political process, with the resulting need for participation, inclusion, andavoidance of instances of state capture by special interest groups. We suggest alternative modes of organizingfor political mobilization, action and participation, including dues-based organizations that may helpcitizens gain a voice of their own. We also bring attention to the problems associated with economic,financial, political, and knowledge elites as fundamental actors making use of state structures to accomplishtheir goals. We see effectiveness and legitimacy as mutually reinforcing dynamics of state action. We warnagainst the ceremonial adoption of state structures and of democratic trappings which may not beconducive to an actual improvement in people’s living conditions and in the quality of democratic life. Weexplore new ways of bridging the gap between a rapidly globalizing economy and the local character ofpolitical dynamics.

Executive Summary

The Future of the State | 2

The State at a Crossroads

The state is both an institution and an actor ofutmost importance, and it is the subject ofmuch debate and criticism as well as praise.

The fiscal crisis in many parts of the world hasforced politicians, policymakers and voters torevisit some long-held assumptions about the roleof the state in the economy, the society, and theculture. In large swaths of the developing world the state has expanded, including welfareprograms, while in others state fragility andoutright failure has undermined the rule of law,the extension of basic services like security,education and healthcare to citizens, and economicgrowth. New models of governance have beenproposed to recalibrate and even to reinvent therelationship between state and society. It isrelatively uncontroversial to observe that the stateis in flux around the world.

In the so-called advanced industrial democracies,the 20th century inherited the idea of the modernnation-state and its bureaucratic apparatus fromthe 19th century. Extensive welfare statesdeveloped hand in hand at a time of economicoptimism. At the turn of the 21st century the statefinds itself under ideological attack and fiscalpressures have been mounting in Europe and theUnited States. While the welfare state has notshrunk significantly in Western Europe, it has lostsome of its legitimacy and political support.

In many emerging economies the state is alsoundergoing retrenchment in the wake ofprivatization policies, but in others a new model ofstate capitalism is gaining ground, and social andwelfare programs have been expanded. What arethe implications of these large-scale trends for thestate’s capacity to create the conditions for citizensto enjoy better living conditions now and into thefuture? What are the implications for economicgrowth and for inequality? What is the proper roleof the state in the economy? Will state capitalism

be the dominant economic arrangement in the21st century? These are some of the vexingquestions that scholars of the state have beentackling for the last few years.

The debate over the role of the state in the societyand the economy has come a long way since thecontroversies over Keynesianism, central planning,Hayek’s Road to Serfdom, and the Thatcher-Reaganso-called ‘revolution’. To be sure, the politicaldebate continues, often in polarized ways. In someacademic circles, much of the discussion is abouthow to make the role of the state more effectiveand efficient, although there is a diversity of viewsconcerning the appropriate size and scope of stateregulation and activity. Still, it is undeniable that in the advanced industrial democracies the state issuffering from a legitimacy crisis, one that has beenexploited by its political enemies. Rising levels ofsovereign debt have led to economic recessions andfinancial difficulties. In this part of the world, stateindebtedness rose during the 1970s and 80s tolevels not seen since the end of World War II. Bythe turn of the 21st century, sovereign debt reached70 percent of GDP in the advanced industrialdemocracies, and by 2012, as a result of the crisis, it approached 100 percent. In the emerging anddeveloping world, the debt ratio has actuallydeclined to less than 40 percent after havingsurpassed 50 percent in the early years of the 21st century.

New models of governance

have been proposed to

recalibrate and even to reinvent

the relationship between

state and society.


Meanwhile, the state has become bigger and moreactive in the emerging world, although startingfrom a much lower base than in the advanceddemocracies. Whereas in 2012 public spending, as measured by general government consumption,stood at nearly 19 percent of GDP in the high-income regions of the world (22 percent in theEurozone and 16 percent in the U.S.), the averagefor the low and middle-income countries wasabout 14 percent, according to World Bankstatistics. China’s government spends about 18percent, excluding investment. The trend isunmistakable: in the low and middle-incomecountries general government consumption grew from nearly 9 percent of GDP in 1960 to 14 percent nowadays, while in the higher-incomecountries it only grew from about 15 to just below19 percent. While in continental Europe levels ofstate spending have remained very stable since the1980s, they have declined markedly in the U.S. and the UK.

Taxation is another way of measuring the presenceof the state. Europe stands out as the region of the world with the highest ratio of taxation as apercentage of GDP. In the Eurozone it is about 16percent, compared to just below 10 percent for theU.S., about 11 percent for China, and a 13-percentaverage for the low and middle-income countries.

Military spending, which throughout history hasled to the buildup of state structures, also exhibitspronounced differences around the world. By farthe biggest spender is the U.S., which allocatesupwards of 4 percent of its GDP to the military, ornearly 40 percent of the world’s total spending. Theaverage for the high-income countries is nearly 3 percent of GDP, and for the low and middle-income countries just under 2 percent. China’s isthe only rapidly-expanding military budget in theworld. The country presently spends about 2percent of GDP. Overall, there is a markeddownward trend in global military spending since the end of the Cold War.

We begin our journey around the world byexamining one of the most importantmanifestations of state activity in thecontemporary world, namely, the welfare state,which became a central social, political, andeconomic institution in the industrial democraciesduring the post-World War II period, and is nowgrowing fast in the emerging world. We will thendebate state activity in the economy and thephenomenon of ‘state capitalism’, focusingattention on state-owned enterprises and sovereignwealth funds. Lastly, we will address the topic ofstate capacity and the problem of state failure insome of the poorest parts of the world, noting that political aspects involving participation andengagement are central to gaining an understandingof state legitimacy, effectiveness, and impact. n


What we know today as the welfare statefirst developed in several Europeancountries and in the United States as

relatively modest schemes to protect specificgroups in society such as soldiers, mothers,children, or blue-collar workers. In its origins, thewelfare state was the result of a complex set ofdevelopments, including the desire to protectcertain vulnerable groups, the attempt to‘domesticate’ the working class in order to avertsocial turmoil, and the rising political power of the middle class. The post-WWII era witnessed arapid expansion of the modern welfare state in theindustrial democracies of Western Europe, Japan,and the United States, at a time when theKeynesian consensus made fiscal policy and social spending a cornerstone of counter-cyclicalmacroeconomic management. Nowadays, afterseveral decades of development, the welfare state is a global phenomenon, although the extent towhich the government subsidizes and/or providesfor education, healthcare, unemploymentinsurance, and old-age pensions varies considerablyacross countries. The welfare state has come underintense scrutiny and attack due to the rise of neo-liberal and anti-state ideologies, the worsening ofthe fiscal outlook, and the trend towardspopulation aging.

According to Evelyne Huber, Professor of PoliticalScience at the University of North Carolina, one

must look at the emerging economies of East Asiaand Latin America for clues about the future of the welfare state. The crises of the 1980s and 90swere a turning point in the development of thewelfare state in those two regions. “In South Koreaand Taiwan the welfare state was relatively small,and thus could not be blamed for the crisis,” asHuber notes. These two countries have stepped up spending on pensions and health care, andcreated more comprehensive unemploymentinsurance schemes. Although neo-liberal ideologypresented the state and its high levels of debt as acause of the “lost decade” of the 1980s in LatinAmerica, subsequent political and economicdevelopments have made it possible for the largestcountries in the region to expand the number andscale of social programs. “While in East Asia thesechanges have been driven by the influence of civil-society organizations, in Latin America leftist andlabor-based parties have taken the lead,” accordingto Huber.

Nowadays, we are witnessing a rethinking of thewelfare state in both regions away from programstargeting specific groups to more “universal” andcomprehensive schemes aimed at providing a set ofguaranteed social services. One important program

The Welfare State

Mauro Guillén with panelist Evelyne Huber, Patrick Le Gales, Mitchell Orenstein, Jonas Pontusson,

John Stephens and Edward Mansfield

“The debate about the nature of

the nation-state has changed

significantly as a result of the

globalization of the economy

during the past thirty years.”– Dennis Davis


is Brazil’s Bolsa Família, which provides subsidiesfor poor families to maintain access to educationand healthcare, especially for children.

In Western Europe the welfare state has weatheredmultiple crises relatively unscathed, with overalllevels of spending remaining relatively stable. Oneinteresting development is the effect of the rise offar-right political parties. According to Patrick LeGales, CNRS Research Professor at Sciences PoParis, there is an attempt to redefine a crucialaspect of the welfare state, namely, who is entitledto benefit from its programs. On the one hand,“xenophobic parties are agitating for the exclusionof certain social and ethnic groups, especiallyimmigrants,” while on the other they areattempting to “use the welfare state to bolsternationalistic goals, including population growth.”Mitchell Orenstein, a Professor of Political Scienceat Northeastern University, concurs, adding thatthis phenomenon is also taking root in EasternEurope. Miguel Centeno, Professor of Sociology atPrinceton, adds that during the ‘golden era’ thewelfare state was based on an ideal of nationalcommunity that is presently being undermined byimmigration and cultural differentiation. Thus,much change is not about the state, but about whatconstitutes a nation, argues Le Gales.

Precisely because of the variability of welfarearrangements, it is necessary to examine the

evolution of welfare states across time andspace. This is not to deny that somemodels and practices have spread globally,and that transnational forces and pressurescontinue to shape the evolution of welfarestates around the world. For instance,Orenstein notes that “many conceptsborrowed from the business world havebecome widely discussed, and in somecases implemented. For instance, there isan emphasis on performance standards,auditing, outsourcing, and other types ofrationalization processes.” These practicesare fundamentally reshaping the state ingeneral, and the welfare state in particular,around the world. Dennis Davis, High

Court Judge in Cape Town, South Africa, takes thispoint one step further by arguing that “the debateabout the nature of the nation-state has changedsignificantly as a result of the globalization of theeconomy during the past thirty years.” Theimplication is that “policy changes set into motionby the state are fashioned, to a considerable extent,by economic and political forces which lie beyondthe control of the state,” he observes.

Orenstein offers a second example regarding theprivatization of pension systems, starting with thepioneering Chilean reforms of 1981, which laterspread throughout Latin America. A similardiffusion of private pension schemes, promoted by USAID and the OECD, took place in Eastern

Patrick Le Gales, Mitchell Orenstein and Jonas Pontusson

Evelyne Huber and Patrick Le Gales

Europe. An interesting question, Orenstein notes, is why after 2005, i.e. three years before the crisis,the tide turned towards, a recalibration of privatepension schemes. One example was the reforms by President Michelle Bachelet in Chile, whichintroduced public non-contributory pensions tocomplement the privatized system and compensatefor its shortcomings. In the wake of the financialcrisis, many countries faced budgetary difficultiesand households saw the value of their privatepension funds plummet. Meanwhile, multilateralagencies such as the IMF did not recommendfurther privatization, although some countriesdecided to pursue it. Another interesting aspect,Orenstein observes, is that the Great Recession hasdelegitimized the notion that periods of crisis areideal for introducing market-oriented reforms and deregulation.

For Jonas Pontusson, Professor of Political Scienceat the University of Geneva, “one would haveexpected welfare states in Western Europe toexpand given the growth in unemployment,inequality, and other social problems since thecrisis.” Anti-state ideologies, global economicconstraints, and the emphasis on austerity policiesto tackle the crisis, however, continue to stand inthe way. He also argues that welfare states seem toplay less of a role today than in the 1980s and 90swhen it comes to creating the foundations forsustainable export-oriented growth, especially in

small, openeconomies. In thepast, spending ineducation andhealthcare made itpossible to pursue astrategy of high-endproduction andexport. Butnowadays,Pontusson notes,domestic costs havebecome much moreimportant forexport

competitiveness becauseof the race to thebottom brought aboutby globalization, and theincreasingsophistication ofemerging economieswhen it comes tomanufacturing a widearray of goods.

Another importantchange in the effects ofthe welfare state has todo with redistribution.Since the turn of the 21st century and especiallysince the crisis, European states have been lesseffective at reducing poverty, and inequality morebroadly, through redistributive policies. Pontussonargues that “spending cuts and tax reforms havepartially reshaped the role of the welfare state inredistribution.” The reasons have to do withspending, which has been cut, and with taxreforms, which have reduced progressivity,especially when it comes to capital gains. Changingrules regarding who qualifies for state benefits andfor how long are also relevant. For instance, inmany countries unemployment benefits are nowconditional on undergoing job training andactively looking for a job. Pontusson also highlightsas important the shift of the burden away from thestate and towards companies, especially inContinental Europe, while in the liberal marketeconomies of the UK and the U.S. the privatesector continues to extricate itself from providingcertain employee benefits. More broadly,Pontusson argues that the recent evolution ofwelfare states in Western Europe indicates “adecline in national standardization and in nationalsolidarity.”

Taking a more general, less Europe-focusedperspective, Peter Evans, Professor of SociologyEmeritus at Berkeley, sees the situation moreoptimistically. He notes that the need for the statehas never been greater. “There is a hunger for


Jonas Pontusson

Miguel Centeno


‘capacity-enhancing public goods’ which must beprovided mostly by the state.” In his view, “thereturns for investing in state capacity are high, andgetting higher. Long-run productivity can beincreased through investments in infrastructure,human quality, and civil society.” He adds thecaveat in that the finance-dominated logic that hasbecome so widespread tends to discourage thesetypes of investments, but notes at the same timethat states that have embraced capacity-enhancingpolicies, like the Nordic states among the richcountries and emerging countries like Brazil,Taiwan and Korea in the South, have done well inthe global economy.

According to John Stephens, Professor of Sociologyat the University of North Carolina, the overallpicture is not one of welfare state retrenchment,but of reconfiguration. “The welfare state is notshrinking, it is being restructured, at least in theNordic countries, to become a ‘social investmentstate,’ not abandoning efforts at social protectionbut focusing more effort on investment in humancapital. Stephens observes that welfare stateprograms that contribute to employment andgrowth account for a higher percentage of the totalin the Nordic countries. “The state is on the retreatonly in macroeconomic terms,” notes Stephens,The best examples have to do with currency

devaluations, cross-border and domestic capitalcontrols, trade restrictions, and other similardevices that governments traditionally used toimprove competitiveness and manage the businesscycle. Neoliberal reforms, multilateral agreements,and the expansion and deepening of trade blocshave drastically reduced the latitude ofgovernments when it comes to independentmacroeconomic management.

The different manifestations of the welfare statehave also become part of the debate over economicgrowth and competitiveness with spending incertain areas like education considered asinvestment rather than consumption. Lars Pernice,who teaches at the National AutonomousUniversity of Mexico, notes that the distinction istricky. Theda Skocpol, Professor of Governmentand Sociology at Harvard, notes that spending oneducation and family health care is especially likelyto generate social and economic returns. Huber,however, notes that spending on primary andsecondary education in Latin America is not justan investment that increases productivity but hasalso had a role in reducing inequality bydiminishing the “education premium” that hadexpanded income inequality among wage earners.

In sum, it is important to debunk the myth ofwelfare state retrenchment on a global scale, oreven within specific regions, and to highlight itscontinuing transformation under rapidly changingcircumstances. The funding and provision of socialservices by the state have been expanded, reduced,and restructured around the world followingcomplex patterns, the result of equally intricatedomestic and global forces. Welfare states continueto be institutional arenas in which socialmovements and politics play out. At the same time,much of the recent transformation of welfare statesover the last two decades has been due toideological and political realignments, and bysocietal demands. n

Evelyne Huber and Theda Skocpol


Another area of intense debateregarding the state has to do with itspresence in the economy above and

beyond the welfare state, specifically in theareas of production and finance. While theglobal economy is increasingly governed bya set of liberal economic principlesemphasizing the free unfolding of marketforces, some non-conventional actors andways of participating in global economicactivity have gained in stature during recentyears, including the global expansion ofstate-owned enterprises and the growth ofsovereign wealth funds. The rise of theemerging economies as net foreign investorshas brought about a revival of old and newforms of state intervention in the economy.State-owned enterprises from countries asdisparate as Brazil, China, India, Russia andVenezuela, to name but a few, have become majorinternational investors in energy, construction, and infrastructure. These companies enjoycommanding market shares in their respectivehome countries, and access to privileged fundingfrom the state, including national developmentbanks. Large current account surpluses or increasesin commodity and energy prices have led countriesto transfer part of their foreign reserves from thecentral bank to newly created sovereign wealthfunds. These funds initially invested in fixed-income securities, but have most recently shiftedtheir strategy to include equities, a trend that hasproved controversial in some cases.

Cumulative foreign direct investment by state-owned enterprises from the emerging economieshas reached 1.5 trillion dollars as of the end of2012, while the assets under management atsovereign wealth funds now top 2.5 trillion dollars.These figures are large enough to make a differencein the global economy, and will likely becomelarger over the next few years. Taken together, “the

global significance of state-owned enterprises andsovereign wealth funds is on the rise,” notes AldoMusacchio, an Associate Professor at HarvardBusiness School. “The influence of the statethroughout the productive economy is on theincrease in many parts of the emerging world,” he adds.

Tulia Falleti, Professor of Political Science at theUniversity of Pennsylvania, asks if state-ownedenterprises are merely consuming resources andexploiting their privileged position, or also makingpositive contributions. Musacchio argues that thereis considerable debate regarding this issue. Incountries like Norway regulation is effective whenit comes to making Statoil, the national oilcompany, accountable. But this is not always thecase. “New models of governance and managementof state-owned enterprises borrowed from theprivate sector, however, have made them moreeffective at contributing to economic andemployment growth,” he notes. Evans rightly asksthe important question of whether state-ownedenterprises do anything differently than the privatesector. “There is considerable evidence indicatingthat state-owned firms,” according to Musacchio,

State Capitalism

Richard Deeg and Aldo Musacchio


“adopt longer time horizons when it comes toinvesting.”

The idea of ‘state capitalism’ needs to be put inhistorical perspective, argues Fred Block, Professorof Sociology at the University of California, Davis.He invokes Karl Polanyi to note that markets havealways developed thanks to the institutions put inplace by centralized governments. Centeno andEvans agree. “Finding evidence of stateinvolvement in the economy does not prove thatstate capitalism is at work,” observes Evans. Thereis a great deal of variation in terms of theinvolvement of the state in the economy. DennisDavis notes that the terms ‘neoliberal’ and ‘statecapitalism’ are used too loosely. “Having said that,is the state fading? Not really,” he argues, becausestates all over the world are devising new ways toraise taxes and to shape the economy. Tax reform,privatization, and the degree of state involvementin the economy are all deeply political andideological issues as well as technical ones. Theconfluence of those forces produces a wide varietyof configurations of state-economy and state-society outcomes. According to Richard Deeg,Professor of Political Science at Temple University,

“the state is capable ofdesigning andimplementingeconomic, financial andindustrial policy using avariety of tools, but onlysome countries meet theconditions for the stateto play that rolesuccessfully.” Inparticular, Deeg arguesthat “states need to becapable and not subjectto corruption.” Thepresence of the state inthe economy, furthernotes Skocpol, is

complex, constantly shifting, and diverse in itseffects. Clearly, the term ‘state capitalism’ should be defined more narrowly to include only specificvehicles such as state-owned enterprises andsovereign wealth funds, as Musacchio argues.

Block observes that one of the best examples toillustrate the pivotal role of the state in theeconomy has to do with technological innovation.“The Federal government has been instrumental infunding and shaping new technologies, providing akey nexus between the research lab and thecommercial sphere.” While he believes that the U.S.system of innovation works relatively well, one ofits key weaknesses is providing finance for newtechnology firms. He argues for a greater role fornonprofit or public finance both at the nationallevel and at the global level. Multilateralinstitutions should follow the World Bank modeland should issue bonds and then disburse loans to public and private entities around the world that need resources for economic and socialdevelopment. In his view, “this solution overcomesthe most important constraint in many parts of the world, namely, the difficulty of raising revenuethrough taxation.”

Fred Block, Dennis Davis, Regina Abrami, Richard Deeg and Aldo Musacchio


Regina Abrami, Director of the Global Program at the Lauder Institute, adds a note of cautionregarding the role of the state in some emergingeconomies. “Contrary to the conventionalwisdom,” she notes, “China is not really statecapitalism in the sense of the state playing the most important role mobilizing resources fordevelopment.” She observes that in China mostemployment and output is to be found in theprivate sector, in services, and in small firms.China is as hybrid a model as one can imagine,difficult to classify, and certainly path-breaking in its own way.

This diversity of institutional arrangements andstate-market configurations seems to continue togrow unabated. The crisis has actually increaseddiversity, according to Deeg. Initially, the effect ofthe Great Recession was to raise questions aboutthe proper role for the state to play in the economyand in the financial sector, including governance,regulation, intervention, and ownership. Policyinnovation led to the outcome that non-market,institution-mediated coordination has been given a chance to contribute to the solution to the crisis.For him the result has been an ironic combinationof “state-neoliberalism.” n

“Contrary to the conventional wisdom, China is not really state

capitalism in the sense of the state playing the most important

role mobilizing resources for development.”– Regina Abrami


State Capacity

Central to any debate regardingthe welfare state and statecapitalism is the idea of state

capacity. In her landmark 1985 essayon the state, Skocpol referred to statecapacity in the plural as “capacities”related to the state’s “territorialintegrity, financial means, andstaffing.” For his part, Michael Manndefined state capacity as theinfrastructural power to implementpolicy, a concept separate from policypriorities. Invoking the work ofCharles Tilly, Centeno and Skocpolargue that taxation is directly relatedto state capacity because raisingrevenue is not only a critical functionof the state but also an indicator of its power overterritory and populations, a sign of its ability toshape the landscape and to secure resources for its programs and activities.

Randall Collins, Professor of Sociology at theUniversity of Pennsylvania, proposes to use as the point of departure the traditional Weberiandefinition, which includes the key ingredients ofthe monopoly over the legitimate use of force, thepower of taxation, and the bureaucratic ability toget things done. According to Skocpol, this conceptof the state is grounded in a specific geopoliticaland historical context, which is different fromtoday’s circumstances. Still, she argues thatdifferent combinations and configurations ofsovereignty, force, and taxation must be necessarilyat play in order for the state to adapt to local socialand political circumstances, and to be effective.

The stakes surrounding the issue of state capacityare very high, argues Simon Johnson, Professor at

the Massachusetts Institute of Technology andformer IMF Chief Economist. “The U.S. is a classicexample of state capture in that special interestshave managed to gain control over the regulatoryagenda,” he says. “It is ironic that a few years after amost serious crisis, the banking sector is now evenmore concentrated, and financial reforms havestalled or are ineffective.” At the present time fewgovernment officials subscribe to the deregulationagenda once proposed by a Republican-controlledCongress, the Democratic administration duringClinton’s second term, and the Fed’s AlanGreenspan. “There is a new concern with systemicrisks,” Johnson observes. Still, “the ‘influenceindustry’ has become a pivotal piece of thepolicymaking landscape, including lobbyists, thinktanks, and other organizations.” State capturerepresents a big threat to state capacity, not justbecause it check-mates regulations necessary tolower the risk of future crises but also because itshifts political power toward groups with littleinterest in the “social investment state” to saynothing of traditional welfare expenditures. n

Fred Block, Diane Davis, Evelyne Huber and Theda Skocpol


According to Skocpol, the debate about statecapacity and state capture needs to be castagainst the larger background of the

political process. One should not take the state forgranted, in the sense that state formation is not anirreversible process. “The ability of the state to actin pursuit of the public good is certainly supportedby bureaucratic capacity and the power to tax, butmost importantly by the way in which the state isembedded in the political process,” she observes.She recommends a methodological approachfocused on systematically analyzing cases of policysuccess and cases of policy failure to discover theunderlying political roots of state capacity. “Forinstance, the main reason why in the United Statescarbon-capping initiatives failed while there hasbeen a partial success in the case of healthcarereform has to do with public pressure onCongress.” Clearly, state capacity is not enough tobring about outcomes. The political processprovides the impetus and the direction, or it stiflesand derails initiatives. “Both enactment andimplementation are driven by politics,” she asserts.As a counterweight to a financial logic, Evans andSkocpol argue for the importance of scholars aswell as other citizens to become more engaged inrevitalizing a culture of democratic accountabilitygrounded in the idea of a sharedcommonweal in which all membersof society have a stake.

Tamara Kay, Associate Professor of Sociology at Harvard, providesanother example of the importanceof politics. The process leading to the signing of the North AmericanFree Trade Agreement demonstratesthat “pressure and guidance frombelow” can lead to better outcomes.Although environmentalists andlabor groups were opposed to thetrade deal throughout the process,“they managed to add

environmental and labor provisions to theagreement, setting an important precedent.”

When it comes to extending this type of analysis to other countries, Jack Goldstone, Professor ofPublic Policy at George Mason University, warnsthat “participatory politics are not perceivedeverywhere as a universal model.” Moreover,research has indicated that the sequence ofdemocratic institution building is problematic, asexemplified by the many failed attempts at makingdemocracy work in certain parts of the world.According to Goldstone, “only one billion peoplelive in countries with both a capable state and ademocratic process in place.” Louise Arbour,President and CEO of the International CrisisGroup, concurs in that democratization is adifficult task in many parts of the world. “Electionsare very dangerous when they challenge veryentrenched interests in the short term,” she notes,“and they are very dangerous if they don’t doprecisely that in the long term.” In many parts ofthe world political elites react negatively againstwhat they perceive as a conception of the state andof state action enshrined in Western values,including certain categories of human rights.“Russia, for instance, presents itself as bulwark

Bringing Politics Back In

Louise Arbour, Peter Evans, Simon Johnson and Theda Skocpol


against that conception, as epitomized by itsideology and policies concerning gay rights,” sheargues, adding that such a view “has enormousresonance around the world.”

A related, and politically important, debateemerges out of the fact that the provision ofcapacity-enhancing public goods and services cannever be undertaken by the state operating on itsown. Evans reiterated Elinor Ostrom’s basic insightthat services like health and education can never beeffectively delivered unless they are notsimultaneously “co-produced” by the activeengagement of the people who use and benefitfrom them. Yet, at the same time, Kay worriesabout the expanding phenomenon of socialentrepreneurship at the grassroots level as analternative to state-orchestrated action toovercome social problems because it tends toshort-circuit the political process and is verydifficult to scale up. For Falleti, socialentrepreneurship circumvents civil society as wellas the state. Another hotly debated alternative tostate provision of public services is philanthropy,often seen as undermining the democratic processbecause of its elitist character. Arbour argues thatstates feel relatively more comfortable withphilanthropic approaches to the provision ofcertain education and healthcare services thanwhen it comes to dealing with issues ofinternational peace and human rights. In fact,many states resist the presence of foreign non-governmental organizations, invoking theirsovereignty. At the core of the discussion, Arbourargues, is the idea that “the state has aresponsibility to protect people against all sorts ofharms, from genocide to famine,” adding that

“sovereignty is a bundle of obligations on the partof the state towards its citizens.”

Pontusson reminds us about an important issueregarding the influence of politics and civil societyon state action. In his view, rising working-classsupport for populism in Europe is in part areaction to neo-liberalism, but it is also “a starkreminder that civil society dynamics do not alwayslead to good outcomes.” The failure of leftistparties and progressive intellectuals to articulate aprogram that appeals to large segments of theworking class threatened by globalization lies at theroot of the problem, argues Pontusson. DianeDavis, Professor of Urbanism and Development atHarvard, adds that this phenomenon can beconceptualized as a risk issue, while Huber notesthat part of it is generational in nature, includingthe younger generation’s gloomy job prospects,and the older generation of displaced workers.

Huber concludes that the study of politics mustoccupy a central place in the analysis of the stateand of its effectiveness as an actor. “Thedistribution of power in civil society, and itslinkages to the state are very relevant.” She addsthat “state capacity is endogenous, it can expand orcontract as a result of the relationship among civilsociety, political society, and the state.” For herpart, Diane Davis notes that “the normativerelationship between citizens and the state shouldoccupy a central place in any analysis of the state,”and that we need new theoretical constructs tounpack it. She proposes the concept of risk and therole that the state plays in mitigating it as apotential line of inquiry into how the state designsand justifies new policies and programs. n


Failed and Fragile States

Perhaps one of the most significant challengesto the global geopolitical system as a wholeinvolves the problem of failed states, or the

breakdown of state authority and capacity.According to the Polity IV project housed at theCenter for Systemic Peace, a failed state is one inwhich central authority is weak or nonexistent,that is, the government has lost control over lawand order in part or all of the country’s territory,cannot provide for minimal public services, andcannot interact with other states as part of theinternational community. While according to thismetric the number of failed states in the world hasdeclined from nearly 80 in 1995 to just over 50 in2012, this phenomenon affects parts of the worldaffected by serious problems. The so-called longarc of instability in terms of state failure starts inLatin America at relatively mild levels, worseningconsiderably throughout Africa, the Middle East,and South Asia, and begins improving again as itreaches the Pacific Ocean. These regions arecharacterized by rapid population growth, poverty,corruption, and vast reserves of minerals, oil, andother sources of energy. It is also important to notethat nearly half of the land not currently used forfood production is located in Sub-Saharan Africa.Some of the most egregious examples of statefailure include Chad, Somalia and Afghanistan.

These, however, are just the most publicized cases.The problem is widespread and daunting, althoughthe downward trend is encouraging, as is the endof the many civil wars that wreaked havoc on statestructures during the 1970s and 80s, especially inSub Saharan Africa.

In addition to failed states, the world is alsoconfronting another crisis regarding the future ofthe state from the rise of anocracies. According tothe Polity IV project, an anocracy is an incoherentpolitical system with an odd combination ofdemocratic and autocratic authority patterns. Thenumber of anocracies has grown from fewer than30 during the 1970s and 80s to more than 50 at thepresent time. Anocracies are to be found all overthe world, though especially in Eastern Europe,Asia and Africa: Russia, Armenia, Bhutan, SriLanka, Cambodia, Algeria, Morocco, Mauritania,Angola, Chad, Guinea, Zimbabwe and Madagascar,among others. Venezuela is also classified as ananocracy.

According to Goldstone, the unravelling of thestate is a serious problem. Some fragile statespresent one face to the international community,which tends to focus on positive developments likeelections or economic achievements, but internally

Rob Blecher, Miguel Centeno, Diane Davis, Jack Goldstone and Tamara Kay


they behave very differently and often in ways thatare not conducive to socioeconomic development.States need both effectiveness and legitimacy, butmost research and rankings focus on the former.“Recent outbreaks of civil unrest in Egypt,Thailand, Brazil and elsewhere suggest that statesare being challenged, revealing a lack of botheffectiveness and legitimacy,” Goldstone argues. Inhis view, “population growth, even with decliningfertility, in Sub Saharan Africa, the Middle East,and parts of South Asia exposes state fragility innew ways, with poverty in outgrown citiesspinning out of control and young people notbeing able to find stable jobs.” Goldstone calculatesthat “within two or three decades half of theworld’s population will live in countries withfragile states,” warning that “the numericallydominant generation of young people 30 yearsfrom now will feel frustrated, in large measure dueto the lack of state capacity in the countries inwhich they live.”

Rob Blecher, who works at the International CrisisGroup, argued that while state fragility remains acrucial problem to solve, “today in the Middle East,it is also a political strategy. States have shownthemselves willing to target their own capacities in order to deny their opponents political power”.Centeno notes that it is difficult to assess andcategorize state failure because the state is notmonolithic to begin with. “The state isheterogeneous in its reach, in terms of the extent to which it interacts with the society and theeconomy,” he adds. “Some spheres, areas, and social strata within countries are more permeatedby state activity than others.” Therefore, a more

nuanced analysis of state fragility and failure isneeded. “When the state fails,” he asks, “for whomdoes the state fail and exactly in what sense?” Inmany parts of the world large proportions of thepopulation are not reached by the state, operatingas they do in the informal economy. Centeno alsowonders if the goal should be to maximize thepresence of the state or if it is better to ensure thatcitizens enjoy a baseline level of protection andempowerment. In his view, “the worst-casescenario is not a failed state but a frustrated state,one that wants to get something done in responseto societal demands but cannot deliver it.”

Diane Davis concurs in that state failure in LatinAmerica is felt very intensely in certain urban areasaffected by violence, and also in some rural areas.Kay also agrees that states are not of one piece, andexcel in certain areas but fail in others. “States areheterogeneous in their ability to provide certainpublic goods and services.” From a methodologicalpoint of view, she proposes to examine cases ofstates in the middle of the distribution and not just the extremes of the very rich or the very poorcountries.

For Diane Davis the issue of state failure is bestanalyzed on a case by case basis. Mexico, forinstance, is a case of dual transition towards a moreglobally integrated economy and a political shiftaway from one-party rule. The concern waswhether the state was ready for these changes, asthe uncontrolled increase in violence shows. Thesuggestion by some observers that Mexico hadbecome a failed state like Somalia or Afghanistangenerated much controversy. Violence can

“Recent outbreaks of civil unrest in Egypt, Thailand, Brazil and

elsewhere suggest that states are being challenged, revealing

a lack of both effectiveness and legitimacy.”– Jack Goldstone


undermine the internal legitimacy of the state, andalso the ability of the state to interact with otherstates. “Now, is violence a cause or an effect of statefragility?” she asks. “The two are dialecticallyrelated, and in Mexico they co-evolved in the wakeof the transition from agriculture to importsubstitution and the growth of cities, with the statenot keeping pace with the ensuing social, political,and economic changes.” The proliferation ofarmed non-state actors and groups cannot beunderstood without taking state fragility intoaccount. It represents a situation of “fragmentedsovereignty,” which further undermines the state.Diane Davis concludes that “in the developingworld we need to redefine what the state is and issupposed to do before we can analyze state fragilityand failure, without ignoring the principles ofsovereignty, coercion and taxation as fundamentalto state authority.”

According to Arbour, President and CEO of theInternational Crisis Group, who formerly served asthe United Nations High Commissioner forHuman Rights, the future of the state hinges onhaving an order that moderates conflict overterritory and resources, and protects citizens andnon-citizens. The case of the Ukraine is illustrativeof the complexity of the problems and the need forlasting solutions. She argues that identity politicsaround ethnic, religious and other cleavages are amajor driver of conflict in every region of theworld. The UN was founded on the principle ofsovereignty and non-interference in internalmatters, but it has felt it necessary to interveneduring humanitarian crises. She wonders whetherthe UN, in order to be effective, needs to add abody representing the peoples of the world asopposed to just states. n


An Agenda for Research, Policy, and Activism

The shifting character of the state as an actorand as an institution across time and spacecalls for changes in the ways in which

research, policy, and activism unfold. In light of thedebates concerning the welfare state, new forms ofstate intervention in the economy, state capacity,and state failure, there are a number of potentiallyfruitful paths of inquiry:

• States as complex, diverse and heterogeneous interms of both their internal characteristics andthe ways in which they relate to the society, to theeconomy, and to one another, with implicationsfor policymaking and policy outcomes.

• The importance of avoiding functionalist,triumphalist, and universalistic conceptions andexplanations of the state, making room forpolitics, ideology, and moral dimensions.

• Legitimate state activity is driven and enabled bythe political process, with the resulting need forparticipation, inclusion, and avoidance ofinstances of state capture by special interestgroups.

• Alternative modes of organizing for politicalmobilization, action and participation, includingdues-based organizations that may help citizensgain a voice of their own.

• Economic, financial, political, and knowledgeelites as fundamental actors which make use ofstate structures to accomplish their goals.

• Effectiveness and legitimacy as mutually-reinforcing dynamics of state action.

• Attention to the ceremonial adoption of statestructures and of democratic practices whichmay not be conducive to an actual improvementin people’s living conditions and in the quality ofdemocratic life.

• Exploration of new ways of bridging the gapbetween a rapidly globalizing economy and thestill local character of political dynamics. n


Political Constraints Indexhttp://mgmt5.wharton.upenn.edu/henisz/POLCON/ContactInfo.html

Polity IV: Political Regime Characteristics and Transitionshttp://www.systemicpeace.org/polity/polity4.htm

OECD Statisticshttp://stats.oecd.org/

Sovereign Wealth Fund Institutehttp://www.swfinstitute.org/

United Nations Conference on Trade and DevelopmentStatistics on Foreign Direct Investmenthttp://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics.aspx

World Development Indicators (The World Bank)http://data.worldbank.org/data-catalog/world-development-indicators

Sources


Regina Abrami, The Lauder Institute, University of Pennsylvania

Matthew Amengual, Department of Management, Massachusetts Institute of Technology

Louise Arbour, President and CEO, International Crisis Group

Luis Ballesteros, Department of Management, University of Pennsylvania

David Bargueno, Foreign Affairs Officer, U.S. Department of State

David Barkin, Department of Economics, Universidad Autonoma Metropolitana

Matthew M. Barton, The Lauder Institute, University of Pennsylvania

Mark Beautement, Department of War Studies, King's College London

Marcin Bedzieszak, Department of Finance, University of Szczecin

Rob Blecher, International Crisis Group

Fred Block, Department of Sociology, University of California Davis

Astra Bonini, UNDP

Katarzyna Boratynska, Department of Economics and Organization of Enterprises, Warsaw University of Life Sciences – SGGW

Miguel Centeno, Department of Sociology, Princeton University

Randall Collins, Department of Sociology, University of Pennsylvania

Dennis Davis, High Court Judge, Cape Town, South Africa

Diane Davis, Department of Urban Sociology, Harvard Graduate School of Design

Bendreff Desilus, Department of Economics, Universidad La Salle

Raymundo Diaz Robles, School of Accounting and Administration, Universidad Autonoma de Coahuila

Karol Dobrzeniecki, Department of Law and Administration, Nicolaus Copernicus University

Elaine Enriquez, Department of Sociology, Princeton University

Peter Evans, Department of Sociology, Brown University, University of California Berkley

Tulia Falleti, Department of Political Science, University of Pennsylvania

Stanislaw Flejterski, Department of Management and Service Economics, University of Szczecin

Jack Goldstone, Department of Sociology, George Mason University

Gwen Gordon, Department of Legal Studies & Business Ethics, University of Pennsylvania

Ronald Granieri, Foreign Policy Research Institute

Mauro Guillén, The Lauder Institute, University of Pennsylvania

Martine Haas, Department of Management, University of Pennsylvania

Witold Henisz, Department of Management, University of Pennsylvania

Zeke Hernandez, Department of Management, University of Pennsylvania

Anna Hnatyszyn-Dzikowska, Department of Health Economics, Nicolaus Copernicus University

Globalization TrendLab 2014 Participants


Evelyne Huber, Department of Political Science, University of North Carolina

Jason Jackson, The Lauder Institute, University of Pennsylvania

Simon Johnson, Sloan School of Management, Massachusetts Institute of Technology

Simcha Jong, Department of Management Science and Innovation, University College London

Matthew Kavanaugh, Department of Political Science, University of Pennsylvania

Tamara Kay, Department of Sociology, Harvard University

Hanna Kociemska, Department of Finance, University of Economics in Wroclaw

Eryk Kosinski, Department of Law and Administration, Adam Mickiewicz University in Poznan

Patrick Le Gales, CNRS research Professor at Sciences Po Paris

Edward Mansfield, Department of Political Science, University of Pennsylvania

Marek Martin, Department of Organization and Management, Lodz University of Technology

Francisco Mendoza Escobar, Department of Strategic Planning and Institutional Evaluation, University of Celaya

Michael Moszynski, Department of Economic Sciences and Management, Nicolaus Copernicus University

Aldo Musacchio, Business, Government, and International Economy Unit (BGIE)

Mitchell Orenstein, Department of Political Science, Northeastern University

Rachel Pacheco, Department of Management, University of Pennsylvania

Justyna Patalas-Maliszewska, Department of Mechanical Engineering, University of Zielona Góra

Lars Pernice, Department of Economics National Autonomous University of Mexico (UNAM)

Sanjay Pinto, Center for Global Thought, Columbia University

Jonas Pontusson, Department of Political Science, University of Geneva. Harvard Business School

Juan Poom, Department of Political Science and Public Affairs, El Colegio de Sonora

Leszek Preisner, Department of Management, AGH University of Science and Technology

David Reinecke, Department of Sociology, Princeton University.

Tobias Schulze-Claven, Department of Management, Rutgers University

Theda Skocpol, Department of Political Science, Harvard University

Marek Smoluk, Erasmus Faculty Coordinator, University of Zielona Góra

John Stephens, Department of Political Science, University of North Carolina

Martin Sybblis, Department of Sociology, Princeton University

Andrzej Szablewski, Department of Economics, Lodz University of Technology

Keren Weitzberg, The Lauder Institute, University of Pennsylvania

Nathan White, Department of Defense, National Defense University

Magdalena Ziolo, Department of Management and Service Economics, University of Szczecin

Globalization TrendLab 2014 Participants


• Global Risk: New Perspectives and Opportunities (2011)http://lauder.wharton.upenn.edu/pages/pdf/other/Global%20TrendLab%202011%20Global%20Risk.pdf

• Sustainability: New Perspectives and Opportunities (2012)http://lauder.wharton.upenn.edu/pages/pdf/other/Global_TrendLab_2012_Sustainability.pdf

• Poverty and Inequality: Persistent Challenges and New Solutions (2014)http://lauder.wharton.upenn.edu/pages/pdf/other/Global_TrendLab_2013_Poverty.pdf

Download the white papers from past Global TrendLab Conferences:



The state is at a crossroads. Welfare programs are rapidly expanding in the

emerging world, while they are stagnant or retrenching in the rich economies.

New forms of state intervention in the economy have resulted from the global financial

crisis and from the rise of emerging economies. States continue to differ in terms of

their capacity to act, and their relationship to civil society. Future research, policy, and

activism must take into account the growing diversity of states around the world.

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