Shrinking states? Globalization and national autonomy in the oecd

Abstract

This article refutes the conventional view that globalization, and most importantly the international integration of financial markets, has resulted in a policy race to the bottom among the OECD countries. I demonstrate that globalization has been associated with increasing divergence in national economic policy regimes that continue to be heavily influenced by domestic factors such as the partisan balance of political power and the strength of organized labor movements. Moreover, countries that have chosen to react to market integration by expanding their public economies have not suffered significant macroeconomic costs. Real economic performance has deteriorated substantially throughout the OECD since the 1960s, but this cannot be attributed to the costs of big government in the global economy. Governments have a critical role to play in promoting and maintaining an open international economy. By cushioning the short‐term dislocations of markets, governments can increase popular support for liberalization. These are important policy lessons for the developing countries as they become increasingly exposed to global market forces.