There are two recurring themes that continue to stir interest in the topic of economic globalization. One concerns the character of the global system that is apparently being created through the integration of production, finance, and trade. Can the world economy be selfequilibrating, as many of the more neoliberal commentators claim, or does it condemn countries caught up in the system to endure destructive swings of capital inflows and outflows? The other theme is the scope left to industrial countries to pursue their own policy preferences. Under what circumstances can governments implement programmes supportive of social protection and productivity, which are more socially ambitious than those anticipated by neoliberalism?

Two recent books address these themes in particular. Global Instability (GI) and Globalization and Progressive Economic Policy (GPEP)footnote make three important points. First, globalization does not have to take a neoliberal form. Economic openness does not require or compel state retreat from social protection and wealth creation. On the contrary, openness is more likely to be sustained and served by effective governance of such processes. Not only do international differences in socio-economic régimes and their management continue to exist; such differences may be quite sustainable in a global economy, thus offering scope for more ‘progressive’ policies at the national level. Second, the domestic institutional context matters: it shapes the way that capital mobility impacts domestically. Indeed, whether and to what extent country X benefits or not from investment flows, foreign direct investment (fdi), and so forth depends to a large degree on the prevailing rules and institutions. Multinational corporations’ (mnc) bargaining power to attain tax holidays, for example, may be offset by linking these inducements to the upgrading projects of state agencies. Third, finance is the most genuine face of ‘globalization’. It is also the most fleeting, the most volatile, the most disconnecting. It follows that the benefits of openness may be served least by undiscriminating exposure to global flows.

These concerns are dispersed across two multi-authored collections. Because it concentrates on the Asian crisis, the sources of instability, and the reforms required to reshape the global financial system, GI is the more tightly focused of the two. GPEP—also written by a group of prominent economists, but based largely in the United States rather than Britain—ranges over a wider variety of issues and topics, from trade, fdi, and finance to housing, migration, and macroeconomic policy. It is hard to do justice to the quality, variety, and scope of these volumes, or indeed to the many provocative insights that emerge from collections that together comprise thirty chapters. Nevertheless, the three concerns I have identified, though at times more implicit in the material than fully developed as arguments, are sufficiently striking and important to deserve some sustained discussion. I address each in turn.

Globalization appears to confront nation-states with stark options. On the one hand, countries are told they must open up to the world for fear of being left behind. On the other, opponents of openness urge putting up the shutters—re-imposing capital controls and trade protection—for fear of letting in a socially and economically destructive ‘virus’. But neither resignation nor resistance define the real range of options, as the books under review make clear. Such options involve being open to the opportunities and benefits of international trade, capital, technology, and production networks, while maintaining prudent and responsible control of the national domain in order to foster wealth creation and furnish social protection.

This is not to suggest a ‘third way’, but rather to indicate that between the extremes of passivity and closure that have attracted most attention lies a substantial area for analysis, institutional reform, and policy action. Many of the proposals discussed in GI and GPEP imply a framework of analysis and policy choice that is both ‘open’ to the benefits of international economic flows and relationships, but ‘managed’ in terms of their effects. I propose that we call this set of options that of ‘managed openness’. Managed openness implies that global and national are not necessarily competing principles of organization, that they can be—and indeed in many ways already are—complementary.footnote1

For many commentators, that complementarity can only be guaranteed by governance structures operating at a supra-national level. Strengthening the capacity for international regulation, especially of short-term financial flows, is, of course, highly desirable. But, even if such a governing structure were to be put in place, it would not override the more fundamental point that prudence and responsibility begin at home. In other words, for the key to managed openness, look in the first instance to what Elissa Braunstein and Gerald Epstein refer to—in Chapter 5 of GI—as the national regulatory context. While ‘regulation’ is the key for these writers and other economist contributors, the question of how and why particular regulatory arrangements rather than others are defined in the first place—or not defined, as the case may be—is one with which comparative and international political economists have tended to wrestle. State capacity—embodied in domestic purpose, priorities, and institutions—is one way of making sense of differences in national regulatory contexts. Taiwan’s ability to liberalize its financial system in the 1990s without abandoning its developmental project of promoting industrial upgrading and productivity enhancement, or Singapore’s capacity to attract mnc investment while steadily upgrading domestic skills, technology, and wages offer equally important instances of institutional capacity to manage openness in order to effect positive-sum outcomes.

This is tantamount to saying that, in matters concerning the global economy, the character of domestic institutional capacity matters a great deal, perhaps more than under closed conditions. Phrased differently, global flows impact domestically in different ways according to the character of the state’s purpose and capacity—which are reflected in its regulatory and developmental environment. One can certainly round out the equation by acknowledging that global flows, in turn, impact on state behaviour. Governments, for example, can hardly be unaware that, if they pursue expansive macroeconomic policies which entail persistent deficit spending and budgetary blow-out, they are highly likely to induce capital flight as markets respond to anticipated inflation. But this ‘globalization constraint’ has been greatly overplayed by implying that, were it not for international integration, states would typically favour such options. Andrew Glyn, however, argues in Chapter 17 of GPEP that the constraints on deficit spending tend to apply even in the absence of financial globalization. That is because the adverse reaction of capital to persistent budget deficits—in response to anticipated inflation—would occur in any developed financial market and is not dependent upon international financial integration. Since the constraint would remain just as real in the absence of globalized finance, the main independent effect of globalization would therefore appear to be rather less than conventionally claimed.