Q.It is often argued that globalisation reduces the capacity of the state. Examine the view that globalisation does not always weaken the state, and may in some respects even enhance its capacity.

Globalization undeniably transforms the state's role, but the claim that it uniformly weakens state capacity oversimplifies a more nuanced reality. While economic liberalization and the rise of transnational flows do constrain certain traditional powers—such as tariff autonomy or capital controls—states remain indispensable in creating the very conditions globalization requires. They negotiate trade agreements, enforce intellectual property regimes, and provide the legal infrastructure that allows markets to function across borders. Far from withering away, many states have expanded their regulatory and technological capabilities to manage these new complexities.

In several respects, globalization has actually enhanced state capacity. Developing countries have leveraged global institutions and norms to gain negotiating power they lacked in bilateral settings. The welfare state in advanced economies grew alongside globalization, as governments cushioned citizens from market volatility through social spending. Technology and information flows enable states to improve tax collection, surveillance, and service delivery in ways previously impossible. Even the spread of democratic norms and human rights standards—often carried by global networks—has in many cases strengthened state legitimacy and accountability rather than eroded sovereignty.

The key insight is that globalization reconfigures rather than eliminates state power. States that adapt by building institutional capacity, investing in education and infrastructure, and engaging strategically with global governance can emerge stronger. Those that fail to do so may indeed weaken, but the outcome depends on political choices, not globalization itself.

The conventional wisdom holds that globalisation—the accelerating flow of goods, capital, ideas, and people across borders—inevitably diminishes state power. The logic seems straightforward: when capital can move at the click of a mouse, when multinational corporations operate across dozens of jurisdictions, and when international institutions set binding rules, what room remains for national governments to act independently? This view imagines the state as a fortress whose walls are crumbling under the relentless tide of global forces.

Yet this picture is incomplete. Globalisation does not simply subtract from state capacity; it transforms the nature of that capacity, creating new demands and new opportunities for state action. The relationship is far more complex than a zero-sum game between global markets and national sovereignty.

The case for state weakening

The argument that globalisation weakens states rests on several observable trends. Capital mobility constrains fiscal policy: governments hesitate to raise corporate taxes or impose strict regulations for fear that investment will flee to more accommodating jurisdictions. This "race to the bottom" appears to hand corporations a veto over domestic policy. Trade agreements and membership in organisations like the World Trade Organization limit the ability of states to protect domestic industries or subsidise national champions. Financial crises that originate in one country spread rapidly across borders, revealing how little control individual governments have over their economic destinies.

The welfare state, in particular, seems vulnerable. If high social spending requires high taxation, and high taxation drives away mobile capital and skilled workers, then generous welfare programmes become unsustainable in an integrated global economy. The pressure to remain "competitive" pushes states toward leaner government and reduced social protection.

How globalisation enhances state capacity

This narrative, however, misses crucial ways in which globalisation actually requires and strengthens state action.

Regulation and market-making

Global markets do not function in a vacuum; they depend on complex regulatory frameworks that only states can provide. Financial markets require securities regulation, contract enforcement, bankruptcy procedures, and central banking—all state functions that have grown more sophisticated, not less, in the era of globalisation. The 2008 financial crisis demonstrated that markets need active state intervention to prevent collapse. Far from withering away, regulatory agencies have expanded their reach and coordination across borders. States create the legal infrastructure that makes globalisation possible.

Infrastructure and connectivity

Participation in global trade and investment flows demands world-class infrastructure: ports, airports, telecommunications networks, power grids, and digital connectivity. States that successfully integrate into the global economy—China, South Korea, Singapore—have done so through massive public investment in infrastructure. The capacity to plan, finance, and execute these projects represents a form of state strength, not weakness. Globalisation rewards states that can mobilise resources for long-term development.

Human capital and education

Competition in the global economy places a premium on skilled labour. States have responded by expanding education systems, investing in universities, and developing technical training programmes. The knowledge economy requires state capacity in education policy, research funding, and innovation systems. Countries that have thrived in globalisation—from Finland to Taiwan—have done so partly through strategic state investment in human capital.

Social protection as a complement to openness

Paradoxically, globalisation may increase the need for welfare spending rather than eliminate it. When workers face greater economic insecurity from trade competition and technological change, social insurance becomes more important, not less. The Nordic countries demonstrate that high levels of trade openness can coexist with generous welfare states. Social spending cushions the dislocations caused by global competition, making openness politically sustainable. States that provide robust safety nets may actually be better positioned to embrace globalisation because they can manage its domestic political consequences.

Strategic industrial policy

Even as formal trade barriers have fallen, states have found new ways to promote national economic interests. Technology policy, research and development subsidies, public procurement, and support for "national champions" in strategic sectors continue under different guises. China's state-led development model, whatever its other characteristics, demonstrates that states can actively shape their position in global value chains. The competition over semiconductor manufacturing, artificial intelligence, and green technology shows states asserting themselves in domains critical to future economic power.

Negotiating power in international institutions

Globalisation has created new arenas—the WTO, climate negotiations, regional trade agreements—where states exercise power collectively. Large states or coalitions of states shape the rules of the global economy through these institutions. The capacity to negotiate effectively, to form alliances, and to project influence in multilateral settings is itself a form of state capacity that has grown in importance.

The differentiated impact

Crucially, globalisation's impact on state capacity is not uniform. It depends on the pre-existing strength of state institutions, the size of the economy, and the strategic choices governments make.

Weak or fragile states may indeed find their capacity further eroded—unable to regulate effectively, provide basic services, or resist pressure from more powerful external actors. But strong states with capable bureaucracies, fiscal resources, and political legitimacy can use globalisation to enhance their position. The United States, the European Union, China, and other major economies shape global rules as much as they are shaped by them.

Middle-income countries face particular challenges and opportunities. They must build state capacity in regulation, infrastructure, and education to compete, but they also gain access to technology, capital, and markets that can accelerate development. The outcome depends heavily on domestic political and institutional factors.

A transformed, not diminished, role

The state's role has been transformed rather than eliminated. Some traditional functions—such as controlling capital flows or protecting domestic industries through tariffs—have indeed been constrained. But new functions have emerged or expanded: regulating complex financial systems, investing in innovation and infrastructure, managing the social consequences of economic change, and negotiating in international forums.

The most successful states in the globalised era are not those that have retreated, but those that have adapted—building new capacities while maintaining core functions. They act as strategic coordinators of their national economies, as providers of public goods that markets undersupply, and as buffers protecting citizens from the volatility of global markets.