Globalisation and the Global Financial Crisis (GFC) have presented major challenges to orthodoxy. John Farrar and David Mayes discuss the implications of these challenges for the role of the state across the globe and argue that it is high time to confront our theory with reality.
The Portuguese lawyer and sociologist, Boaventura de Sousa Santos, has described the globalisation process as a “multifactored phenomena with economic, social, political, cultural, religious and legal dimensions, all interlinked in a complex fashion.” He emphasises the paradoxical character of these processes, how they manifest universality on the one hand and localisation on the other.1
The GFC developed out of the US subprime mortgage crisis which was complicated by the securitisation of mortgages and financial innovation in the form of complex derivatives. These led to the development of the shadow banking system which went unregulated by banking, insurance or securities regulation. As such it represented systemic failure, ultimately on a global basis. This led to the failure of financial institutions, a major economic recession, sovereign debt crises, the Euro Crisis and the need to prop up systemically important financial institutions.
As part of the new reality we have multinational enterprise rivalling nation states and state-owned enterprise having varied relationships with nation states. The resulting complexity which is in a state of constant flux has led to increased scepticism about existing trading blocs and the Washington Consensus policies. The domination of the West after the collapse of the USSR and the leadership of the US are now being challenged. We see the rise of Asia and the BRICS alliance. The G8 has been overtaken by the G20.