by Paul Kennedy

About 500 years ago, in parts of Western Europe, a funny thing happened to human society. In place of smaller territorial units, dukedoms, principalities, free cities, areas ruled by anarchic warlords, and violent borderlands, there arose a number of unified nation-states (Spain, France, England and Wales) whose governments claimed unique powers: a monopoly of military and police force, the right to levy taxes and the establishment of uniform structures of government -- plus a national assembly, common language, anthem, flag, postal system and all the other attributes of sovereignty that the U.N.'s present 192 members take for granted.

The national state had arrived, and the world would never be the same.

Now, that state was never without its foes and critics, including those many intellectuals who boldly predicted its demise. Karl Marx, for example, forecast that the coming success of international communism would inevitably lead to the "withering away of the state." The World Federalists of the 1940s looked to the establishment of various forms of global governance, even to a parliament of all humankind.

More recently -- and this brings us closer to this column's theme -- observers of unfettered free-market capitalism have argued that the world was becoming a single bazaar, with governments much diminished in effectiveness, with wars and conflicts a thing of the past, the Cold War a historical curiosity, and cosmopolitan finance the dominant force in international affairs.

Readers will recall such tantalizing book titles as "The Borderless World" (Kenichi Ohmae, 1990) and provocative articles on "The End of History" (Francis Fukuyama, 1989) as examples of this thinking. If the world belonged to any group of players, it was to youthful Goldman Sachs bankers, venture capitalists and breathless laissez-faire economists. The state was passť, especially in its "big" or totalitarian-like forms.

Well, two very large eruptions in the early 21st century have checked the assumption that we no longer require, nor need pay attention to, what American conservatives derisively term as "big government."

The first was the terrorist assault of 9/11. Those unexpected and deadly actions by non-state actors badly hurt the most powerful nation on earth, driving it to an amazing array of responses against al-Qaida and then the Taliban, and driving it also into the mobilization of most other governments around the globe to act in defense of the state-centered order of things.

Security measures of all sorts, the vast accumulation of data on individual citizens, the sharing of national intelligence with other states, and the coordinated measures against shady bank accounts and prohibited goods were some of the many consequences of the so-called war on terror.

On a personal note, I composed this piece during a recent round-the-world trip during which the "state" was ever-present -- at the airport in Rome I went through three separate security checks before reaching the business lounge, with further checks to follow. This would have seemed bizarre 20 years ago.

Then put such fears of terrorism alongside the massive unease about and measures against illegal immigration, and one has the impression that the "borderless state," if it ever existed, has now been replaced by government controls and displays of authority everywhere.

The second unwelcome and scarifying event has been the international financial crisis of 2008-2009, in which widespread fecklessness in the U.S. sub-prime housing market has had ripple effects all over the globe, hurting individuals, banks, companies and entire societies thousands of miles away.

There are many observations to make about this dramatic upset, but one of the most important must surely be the way in which it has humbled what the American novelist Tom Wolfe sarcastically termed "the masters of the universe," that is, the merchant bankers, the hedge-fund advisers and the false prophets of an ever-increasing Dow Jones Index. Some of the most venerable and distinguished financial houses have also been crushed. (The last time I was in Rome was a mere 12 months ago, speaking at a Lehman Brothers conference; now that firm is history.)

To people who have lost their houses, or seen their savings and pensions decimated, the public humiliation of bankers and CEOs that has happened over the past year offers only a partial, grim consolation for their own pain; to the thousands, perhaps millions of workers who have lost their jobs or been placed on part-time labor due to the world recession, the level of punishment of the world's high-flying nabobs is not enough.

But that is not my point here.

My point is that the world of unfettered, free-market capitalism has come to an abrupt, shuddering end and that the state has stepped in to reassume control of matters financial as well as of things political.

In various parts of the world, of course, the state never went away and by the late 1990s there were already signs that it was augmenting its powers, in countries as varied as Russia, China, Venezuela and Zambia. It is therefore the turnaround in the hitherto market-oriented economies, above all in the United States, that has been the most striking change of all.

To watch the U.S.'s top bankers being repeatedly grilled by congressional committees, to see their companies being subjected to governmental "stress tests," to learn that their previously out-of-control salaries and bonuses must in the future be "capped" is to watch giants being laid low. It is also a powerful reminder of the latent strength of the nation-state.

The same is true, by logical extension, in the international sphere. Who are the masters of the universe now -- the private Lords of Capital whose limos and helicopters hustled them each year in and out of the World Economic Forum at Davos, or the grim-faced heads of our largest national Treasury Departments and central banks? The answer is obvious.

Even the great global financial institutions dance to the tune of their political masters, that is, the governments that have the largest voice within them. True, the International Monetary Fund may be given extra hundreds of billions of dollars in resources to assist damaged economies and collapsing currencies, but where did that authorization come from? It came, of course, from a group of national governments that saw the need to rescue the world's financial system. Whether that was decided on by the old G7 or the new G20 at its recent London meeting doesn't really matter -- it was clearly a "G"-something, that is, a "Government" action.

In sum, the state is back at center stage (if it ever left the theatre at all, rather than just resting behind the curtains). The governmental portion of most countries' GDPs is soaring, in line with state spending and national debts. All roads seem to lead to the Congress, or Parliament, or the Bundestag -- or to the People's Bank of China. Markets anxiously watch the slightest hint of an alteration in interest rates or a remark, whether calculated or clumsy, about the strength of the U.S. dollar.

None of this would have surprised the Valois kings of France, or the Tudor monarchs, or Philip II of Spain. At the end of the day, and to borrow a favorite phrase of President Harry Truman, "The buck stops here" -- that is, political leaders, whether elected or not, normally hold the reins of power. It was a folly to think that that old truth had ever been made redundant just because of the speculations of certain hedge-fund bosses and overly ambitious bankers in recent years.






The State is Back & How - International Politics & Foreign Affairs