To free markets from states: thus has neo-liberal ideology trumpeted the cause of the untrammelled financial speculation, export competition and capital accumulation that goes by the name of ‘globalization’. Even more critical analysts have repeated the theme. ‘The most convenient world for multinational corporations’, Eric Hobsbawm wrote in Age of Extremes, ‘is one populated by dwarf states or by no states at all.’footnote1 Yet states, and above all the world’s most powerful state, have played an active and often crucial role in making globalization happen. Increasingly, they are now encumbered with the responsibility of sustaining it. This was made dramatically clear in the wake of the East Asian financial crisis of 1998. As Robert Rubin and Lawrence Summers returned from Seoul, where they had been dictating policy to the new Korean government, the US Treasury and Federal Reserve interrupted their Christmas holidays to rope together the Japanese Finance Ministry, the Bundesbank and the Bank of England in coordinating private bank lending to Korea. ‘We were all told, “Thou shalt not cut”,’ one managing director for global markets at an American bank in Hong Kong later admitted.footnote2 The Wall Street Journal also quoted a UK banker who put this ‘rescue operation’ in broader perspective: ‘The sad fact is that international banks never accomplish much unless they are pushed by the US Treasury.’ On 8 January 1998, shortly after Rubin’s return from Seoul, the economist Rudi Dornbusch was quipping on CNBC that the ‘positive side’ of the financial crisis was that South Korea was ‘now owned and operated by our Treasury’. This elicited a knowing chuckle from the other pundits: after all, it used to be the State Department or the Pentagon that ran the Korean franchise—not the Treasury.

As the contagion spread through 1998, neo-liberalism’s usual misrepresentations of powerless states overwhelmed by unstoppable market forces grew increasingly untenable. The world was treated to the fascinating sight of the New York Stock Exchange going up on the news that the Japanese Government had nationalized one of the world’s biggest banks (the Long-Term Credit Bank), and then to the spectacle of New York Federal Reserve officials summoning the CEOs of Wall Street’s leading firms and telling them they would not be allowed to leave the room until they had agreed to take over the insolvent hedge fund, Long Term Capital Management (something of a misnomer for a financial institution engaged in short term arbitrage). This was hardly a case of globalization freeing markets from states. But then, there is nothing like a crisis to clarify things. Nine months later, amidst the aftershocks of the Russian default, with the Brazilian economy swaying on the brink, the principals on the world’s capital markets seemed more dependent on, and certainly more attuned to, the latest word from the monetary authorities in Washington than Soviet managers could ever have been to Gosplan. As Alan Greenspan and the Federal Reserve fine-tuned the lowering of interest rates, opening the way for the newly-formed European Central Bank to do the same, it grew perfectly clear just how inconvenient it would be for capitalists if the world really was populated by ‘dwarf states or no states at all’.

None of this was new; nor was it confined to dramatic, lender-of-last-resort interventions of the kind presaged in the 1980s Third World debt crisis, the Savings and Loan bailout, the 1987 stock market crash and the 1994 Mexican crisis. The deregulation policies that set globalization on its way not only involved a host of new rules allowing free markets to operate; they also increased the scope for political leadership and discretionary intervention by central banks and finance ministries—a necessary step, given the (constantly) chaotic and (intermittently) crisis-prone nature of free markets. A new systemic relation between the state and capital had indeed emerged; but it was not one that diminished the role of states—and least of all the American state. Neo-liberalism as ideology occluded our view of this; but it must also be said that most of the critics of neo-liberalism, adopting the same impoverished state-market categories but inverting the values attached to them, did nothing to help. Lamenting the ‘eclipse’ of the state by the market, they have restricted their contributions to extolling the success of ‘strong states’ in East Asia or Northern Europe in contrast to the ‘statelessness’ of the Anglo-American model, somehow hoping that by pointing to Japan or Germany they could prove neo-liberalism wrong. The problem with this response was not just that most of the ‘state-led’ models were dubious as progressive alternatives to globalization; nor that most writers in this vein were remarkably blind to the tensions and contradictions that were undermining these models, and making them increasingly vulnerable to global pressures. The greater problem was the very notion that these were ‘strong’ states, in comparison to a ‘weak’ American one.

The desire to counter neo-liberalism by strengthening states vis-à-vis markets is in some ways understandable; it reflects the hope that votes rather than dollars might determine the choices that govern our lives. But what has resulted is a remarkable idealization of the state as the repository of community values and societal needs. ‘Embeddedness’ has become the new cant word: as long as markets are ‘embedded in society’, they can be prudent and efficient and just. Vague as their models may sometimes have been, the ‘market socialists’ of the 1980s at least had some idea of ‘embedding’ markets in egalitarian social relations. Today the notion has more to do with measures of capitalist state regulation and expenditure. This unproblematic identification of the state with the interests of ‘society’ is the hallmark of a newly flourishing variant of Left-Hegelian idealism. Contradictory class interests are swept away by the invocation of an active state, which can simultaneously serve capital (making the penetration of markets more effective), upgrade education and welfare as social infrastructures of ‘progressive competitiveness’, and forge a ‘synergistic’ alliance with ‘civil society’.footnote3 Again, nothing new. The notion of the ‘activist state’ now fulfils what Ernst Bloch once identified as one of the key functions of ideology—‘the premature harmonization of social contradictions’ within existing social relations. More than it likes to admit, this critique of neo-liberalism has much in common with the cynical idealism of the Third Way and the World Bank’s current project of building a ‘post-Washington Consensus’—globalization with a social-democratic face.

The static duality of the categories of state and market, which so many would-be opponents of neo-liberalism accept without reservation, is a barrier to understanding the political economy of neo-liberalism. In retrospect it is now clearer than ever that the abandonment of attempts to develop Marxist theories of the capitalist state in favour of notions of state autonomy was a disastrous diversion. As one international finance expert put it at the recent American Political Science Association conference in Atlanta: ‘In 1980, even Marxists thought an instrumental account of the capitalist state was not sophisticated enough, and by 1990 no one took any sort of Marxist theory of the capitalist state seriously at all. But what are we to say today when Goldman-Sachs controls the American Treasury?’ However refreshing from such a source, this reversion to vulgar notions of ‘the executive committee of the bourgeoisie’, even if much closer to reality than new Hegelian notions of the state as a repository of community values, will not do. Globalization has rendered the role and nature of the state more complex—if still transparently capitalist. Where, then, should we begin?

Nicos Poulantzas’s work on ‘internationalization and the nation state’, written in the early 1970s, still stands as the most fruitful point of departure.footnote4 Against ‘the ideology of “globalization”’ Poulantzas insisted that it was wrong to think of globalization as an abstract economic process in which social formations and states are seen ‘merely as a concretization and spatialization of the “moments” of this process’. Such formulations, which inevitably took the state to have ‘lost its powers’ to multinational capital, were ‘fundamentally incorrect’. Poulantzas’s outstanding contribution was to explain: (i) that when multinational capital penetrates a host social formation, it arrives not merely as abstract ‘direct foreign investment’, but as a transformative social force within the country; (ii) that the interaction of foreign capital with domestic capital leads to the dissolution of the national bourgeoisie as a coherent concentration of class interests; (iii) but far from losing importance, the host state actually becomes responsible for taking charge of the complex relations of international capital to the domestic bourgeoisie, in the context of class struggles and political and ideological forms which remain distinctively national even as they express themselves within a world conjuncture.

These elements still provide the conceptual building blocks we need to develop a theory of globalization. But I have abstracted them, as Poulantzas did not, from the actual states and specific conflicts and conjunctures that compose the world in the era of globalization. In developing his critique of the ideology of globalization, Poulantzas was above all concerned to trace the contours of a new epoch of American global dominance, entailing a new type of non-territorial imperialism, implanted and maintained not through direct rule by the metropolis, nor even through political subordination of a neo-colonial type, but rather through the ‘induced reproduction of the form of the dominant imperialist power within each national formation and its state.’ Transcending the restrictive confines of earlier Marxist theories of imperialism,footnote5 Poulantzas understood that, in and through the crisis of the Bretton Woods system and American defeat in Vietnam, a new era of imperialism was being born.footnote6