The Competitiveness of Nations in a Global Knowledge-Based Economy

13.0 The Nation-State

13.0 The Nation-State

13.1 Origins

13.1.1  Shifting Sands of Sovereignty Biological Sovereignty  Cultural Sovereignty  Ideological Sovereignty  Military Sovereignty  Political Economic Sovereignty

13.1.2  Reconciliation

13.2 Governance

13.2.1  Custodian

13.2.2  Facilitator

13.2.3   Patron

13.2.4  Architect

13.2.5  Engineer








A man standing alone and naked in a desert is sovereign.  He cannot be influenced by anyone or any power.  Yet he is impotent.  He is, if you like, in Albania.  Sovereignty means nothing unless it represents the ability to control our destiny.  And in the modern world, that means forming alliances and pooling influence.

Sir Leon Brittain

Competition Commissioner

European Community, July 17, 1989


* Index & Epithet not in published dissertation

 13.0 The Nation-State

1.         If all knowledge is personal & tacit and the Person is the ultimate input and output of a global knowledge-based economy, why did it take until the 21st century for such an economy to emerge?  Arguably, it is because humanity, like Science by Design, is dyadic.  Each of us is a “social solitaire” (Bronowski 1973), i.e., simultaneously a psychological and sociological being.  In Kaufmann’s terms, psychological and sociological developments coevolve.  Like a Kantian organism, each part mutually determines growth and development of the other.  In historical terms, the natural Person is, in fact, a recent arrival linked with emergence of both the experimental sciences and the modern Nation-State.  In introduction, I will briefly examine the emergence of the natural Person and its relationship to the modern Nation-State.

2.         It was only in the 15th century that the ‘individual’ Person, as Renaissance artist/engineer/humanist/scientist, began to rise above ancient and medieval subordination by birth.  In the 16th century, the Protestant Reformation or revolution recognized an individual’s direct link to a personal God rather than depending on intercession by Church, Pope, saint or priest.  With the scientific revolution of the 17th century, Nature began to reveal her secrets at the hands of the individual, isolated scientist using the experimental method, not Scripture nor the works of the Ancients.  With the republican revolution of the late 18th century, the ideological and legal foundation of the natural Person was laid.  It was not, however, until the industrial revolution of the 19th century that the human species escaped its near total dependence on natural power sources, especially human muscle.  With this development there began an accelerating division and specialization of knowledge. 

3.         While revolution prepared the path, it took World War I and the military might of a republican United States for the term ‘Nation-State’ to enter the language and for the republican ideal of “We, the People” to become a global norm.  Nonetheless, it still took the pain and suffering of the Great Depression for the liberal democracies to assume responsibility for national or macroeconomic policy guided by Keynes’s General Theory (Keynes 1936).  And it was only with the collapse of the Soviet Union in 1989 and creation of the WTO in 1995 that a truly global economy, including knowledge as a tradable commodity, emerged.   

4.         In a way, the Communist Revolution was a seventy-five year detour on a nearly five hundred year republican road leading to the progressive individuation of the individual, i.e., of


the natural Person.  Compared to the taste-driven consumer of the republican revolution, the ‘new socialist man’ of the communist revolution was not so much an individual or a Person but rather a replaceable part or component of a transcendent collective.  Power exercised by the leading vanguard of the revolution, the Party, flowed down from the top, not up from the bottom.

5.         If the natural Person is both ultimate input and output of a knowledge-based economy, then the Nation-State is the foundation upon which Persons collectively stand as ‘We, the People’ and, in fact, of the knowledge-based economy itself.   In this chapter I will first examine the nature and history of the Nation-State and the shifting sands of sovereignty upon which it stands.  I will then sketch out alternative modalities of governance of the national knowledge-base.


13.1 Origins

1.         What is a Nation-State?  First, there are many kinds of nations.  Some are folk- or language-based such as Germany, Japan and various ‘nations’ of aboriginal peoples around the world.  Some are based on religion like the Nation of Islam and Christendom.   Some are geographical entities resulting from colonial expansion of Western European nations during the last five centuries, e.g. Australia, Canada, Ghana, Indonesia, South Africa and the United States.  Such post-colonial ‘territorial’ nations have, in some cases, become stable and prosper; others remain unstable due, among other things, to arbitrary colonial splitting and mixing of pre-colonial tribal and/or folk nations.

2.         Some are ‘Nation-States’ a word that did not enter American English until 1918 (MWO, nation-state, n).  The OED, however, reports this as its second entry: “the ultimate genesis of the world conflict of to-day is sought… in… the existing European polity… based upon the recognition of the rights of a large number of Nation-States, entirely independent and nominally coequal.”  The first OED citation, however, is in 1895: “the Teutons, the architects par excellence of the nation-state” (OED, nation-state, n).  The disintegration of continental European empires built up over centuries – Austro-Hungarian, German and Russian – into sovereign Nation-States based on ethnicity and language – was the geo-political triumph of the Treaty of Versailles that ended WWI.  It was the vision of President Woodrow Wilson of the Republic of the United States of America.  Governance was increasingly exercised in the name of “We, the People”, not of the Crown or Cross.  In this regard, the word ‘nation’ derives from 12th century Anglo-Norman meaning “‘a people united by common language and culture’, and ‘family, lineage’” (OED, nation, n 1, Epistemology).  It is this sharing of language, culture,


geography, history and/or religion that coalesce into ‘national identity’, i.e., of being a people separate and distinct from others. 

3.         While the aspirations and competitiveness of folk nations subsumed within the borders of existing Nation-States can be intense and materially affect the well-being of their host, e.g. the IRA in the United Kingdom, the FLQ in Canada and ETA in Spain, such competitiveness is not my focus.  Nor is the struggle of Al Quaeda to establish a global Islamic caliphate directly relevant.  Furthermore, in this chapter, I will not consider trans-national epistemic communities like the Republic of Science (M. Polanyi 1962b).  Rather my attention concentrates on the Nation-State.  I will make only passing reference to other types of nations.

4.         While the term ‘Nation-State’ is less than one hundred years old, it has become locked in as the dominant form of nationhood today.  Only Nation-States can be members of the United Nations (UN) and, with the historical exception of Hong Kong, the same is true of the World Trade Organization (WTO) as well as various international agencies such as copyright and patent unions.  Only Nation-States can sign diplomatically binding treaties.  Among the current 189 members of the UN some are vast continental Nation-States like Australia, Canada, China, Russia and the United States.  Others are geographically tiny like Andorra, East Timor, Monaco and San Marino.  Some have populations in the billions, like China and India.  Others count citizens in the tens of thousands or less.


13.2 Shifting Sands of Sovereignty

1.         Quoting John Stuart Mill in 1860, the OED defines sovereignty as “supreme controlling power”.  For our purposes, this refers to a territorial entity called a Nation-State (OED, sovereignty, 3 b).  Since his time, however, the de facto, if not de jure, definition has changed dramatically.  Thus, some one hundred and thirty years later, Mill’s compatriot, Sir Leon Brittain expressed the contemporary concept of sovereignty just as the last Stalinist state in Europe was about to fall. 

A man standing alone and naked in a desert is sovereign.  He cannot be influenced by anyone or any power.  Yet he is impotent.  He is, if you like, in Albania.  Sovereignty means nothing unless it represents the ability to control our destiny.  And in the modern world, that means forming alliances and pooling influence.  (Brittain 1989)

2.         Sovereignty, however, involves more than alliances and pooling influence.  I will examine sovereignty with respect to five dimensions: biological, cultural, ideological, military and political economic.


13.2.1 Biological Sovereignty

1.         In many ways, a Nation-State is like a biological organism.  First, like a cell it has a semi-permeable membrane called borders that separate it from an environment populated by other Nation-States and common or shared resources like the oceans, seas and outer space.  It is in competition, and sometimes conflict, with its neighbours for control of such resources.  Osmotic forces are also at work across such borders.  There is thus a tendency for high concentrations on one side, e.g., American entertainment programming, to seep across cell walls into another, e.g., Canada.  Second, like a multi-celled, multi-organed animal, the Nation-State has institutions that: (i) centrally govern and regulate its activities like the nucleus of a cell or brain (national government); fuel its activities like mitochondria in a cell (energy industry); defends against invaders and rogue elements like the immune system (military and police); and, erects and maintains infrastructure like DNA-induced proteins building and maintaining its structure (construction industry). 

2.         Third, Nation-States coevolve and specialize filling ecological or ‘market’ niches like the organs of an animal.  Furthermore, the competitiveness of nations is dynamic, i.e., it changes and mutates over time.  It exhibits emergent evolution, i.e., “the appearance of new characters and qualities at complex levels of organization (as the cell or organism) which cannot be predicted solely from the study of less complex levels” (MWO, emergent evolution, n).

3.         Fourth, using Kaufmann’s definition of a biosphere, a Nation-State can be seen as a  “… a self-consistent coevolutionary construction of autonomous agents making livings, the natural games that constitute those livings, and the search mechanisms that allow such modes of living to be persistently mastered by adaptive natural selection” (Kaufmann 2000, 75).


13.2.2 Cultural Sovereignty

1.         In July 1947, Foreign Affairs published an anonymous article signed “X” entitled “The Sources of Soviet Conduct.”  It proposed what became the foundation of U.S. policy towards the Soviet Union and Communism in general – containment.  This policy endured through a fifty year global Cold War, or the Third World War.  The author was soon revealed to be George Kennan (1947).

2.         With the fall of the Berlin Wall and the end of the Soviet Union, a new post-modern era began.  Almost immediately, a search started for the pattern of this new and unexpected era.  One scholar, Samuel Huntington, penned what may be the “X-article” for the post-Cold War era – “The Clash of Civilizations?” (Huntington 1993).  Huntington argues that global conflict based


on ideology has been replaced by the clash of cultures.  He suggests it will be where the “tectonic plates” of different cultures – language, religion and race – meet that conflicts will erupt.  He identifies eight major ‘civilization identities’: Western, Confucian, Japanese, Islamic, Hindu, Slavic-Orthodox, Latin American and African.  The chaos in the Balkans during the 1990s, where Catholic Croat, Orthodox Serb and Moslem Bosnian (all Southern Slavs sharing the same Serbo-Croatian language) were at each others throats, lends weight to his premise that any major cultural difference can lead to collective violence and ‘ethnic cleansing’.  

3.         Arguably the ‘global war on terror’ beginning with the September 11th, 2001 attack on the World Trade Center constitutes a Fourth World War in Huntington’s clash of civilizations.  In many ways, Al Qaeda is a classic emergent social process identified by Emery and Trist (1972, 24) – starting small and parasitically it attached itself to the Islamic government of the Sudan and then to Taliban Afghanistan growing in their shadow until strong enough to challenge and survive, in the case of the Taliban, the host itself.  

4.         Yet more subtle and simmering differences and disputes, long suppressed by allies and adversaries in a coordinated bi-polar global Cold War are re-surfacing after fifty years of quiescence.  Such differences can be summed up as the struggle for ‘cultural sovereignty’.  By 1989 this term was current in Canada having been introduced into the public policy lexicon in the 1970s during the struggle for Quebec independence.  Globally, however, cultural sovereignty involves the struggle to be heard at home and abroad above the booming voice of the American entertainment industry.  The one remaining superpower is also a global cultural colossus spanning East, West, North and South.  

5.         In this struggle one side argues that national and regional identity is based upon a distinct set of values embodied in cultural goods and services.  Even in the United States, some are raising this argument as foreign interests acquire American cultural enterprise, e.g., Hollywood studios and Rockefeller Center in New York.  The other side argues the universality of human values.  This global village argument contends that experiences shared on a global scale through communications media transcend differences among citizens of separate nations or regions.  Some observers suggest this vision is becoming a reality and point to developments in the former Soviet Union, Eastern Europe and China as responses to values of freedom, dignity and prosperity transmitted through penetrating networks of global mass media and communications.

6.         The battle for cultural sovereignty, however, is not just defensive.  For example, Canada, France and Sweden lead an international alliance fighting to maintain cultural exemptions under


GATT and, if possible, extend them (Chartrand 2002).  Similarly, most Nation-States including Canada are engaged in developing commercially viable national cultural industries of their own.  In practical terms, this means cultural products that sell in the American marketplace and therefore sell anywhere.  At worst, this policy fosters cultural clones of American entertainment programming.  Such attempts generally involve international film, television and musical recording agreements to share production costs and the billing of stars from co-operating Nation-States (Acheson & Maule 1994, 2002).

7.         There are also ongoing efforts to establish the ‘Brand State’.  Through organized advertising campaigns, Nation-States strive to create a positive image in the minds of foreigners.  Singapore and the Republic of Ireland are examples that have successfully created an emotional resonance with other peoples (van Ham 2001).  On the one hand, the Brand State reflects the importance of tourism as the largest industry in the world.  A quality brand, however, also lubricates the sale of other goods and services on world markets.  On the other hand, contemporary branding is arguably just an extension of ancient historiography practiced by royal dynasties in medieval and Renaissance western European history.  National historiography, the origins of nations, differ between the Nations States that coalesced into modern Europe out of the Germanic occupation of the Western Empire (Chartrand 1992a).  In France, it was the Chanson de Roland telling tales of glory about Charlemagne’s champion stopping the Islamic invasion of Western Europe.  In England, it was the Arthurian legend and the Holy Grail used to support the Tudors and the Anglican Church (MacDougall 1982).  

8.         Another emergent cultural process laden with significance for the competitiveness of nations is global urbanization.  The world has experienced unprecedented urban growth in recent decades.  In 2000, about 47 percent of the world’s population lived in urban areas (about 2.8 billion people).  There were 411 cities over 1 million.  In the more developed Nation-States about 76 percent of the population lived in urban areas, while 40 percent in less developed countries.  However, urbanization is occurring more rapidly in less developed countries and it is expected that 60 percent of the world’s population will be urban by 2030 (Population Division, 2002).  A global society where there is virtually contiguous urban development separated only by natural barriers is called the ‘Ecumenopolis’ by urban designer Constantinos Doxiadis (1976, 327).  This global reality is strikingly portrayed in a composite photograph of “The World at Night” published by the NASA (November 27, 2000).


9.         In this regard, arguably another new “X article” has been penned by Robert Kaplan: “The Coming Anarchy”.  Kaplan argues that national security in the sense of defending borders is outdated (Kaplan 1994).  He argues few live in the countryside any more.  Borders are now simply lines on a map.  Everyone lives in cities.  For the first time in human history, the majority is, or shortly will be, “civilized”.  However, it is in the cities that tribes of barbarians – old and new – are gathering; tribes that pose, according to Kaplan, the real threat to 21st century national security.  Whether it is street gangs in south Los Angeles, St. James Town in Toronto or Mogadishu in Somalia or Al Quaeda cells in major cities around the world, low grade urban conflict threatens the sovereignty and security of the post-modern Nation-State.  Furthermore, given urban innovation clusters are the foundation stone of a national innovation system (OECD 1997), urban unrest has implications for the competitiveness of nations.


13.2.3 Ideological Sovereignty

1.         Beyond geographic size, population and culture, Nation-States can also be classified according to ideological development.  From a Cold War past we have inherited a global village with four neighborhoods – the First, Second, Third and Fourth Worlds.

2.         The First World includes member countries of the Organization for Economic Cooperation and Development (OECD).  These are advanced industrialized countries with well-developed market economies enjoying political democracy.  They also have well developed legal systems as well as customs and institutions supportive of a self-regulating market.

3.         The Second World includes countries of the former Communist Bloc which, until the collapse of the Soviet Union, formed a body corporate parallel to the OECD and to the GATT called the Council for Mutual Economic Assistance (COMECON).  They had one-party politics and command economies using ‘material balances’ rather than market prices.  With the breakup of the Soviet Union many adopted, to one degree or another, democracy and market economics, i.e., the last ideology standing.  Only North Korea and Cuba maintain command economies.  China, and more recently Vietnam, by contrast, retain a communist monopoly of political power but have adopted a market economy.  Markets truly have triumphed over Marx.  Nonetheless, the Second World still exists.  It has relatively high levels of education and advanced technology in selected sectors, particularly defense.  It also has underdeveloped democratic, legal and market institutions and customs.  They have also inherited, by First World standards, antiquated public infrastructure including communications, environmental and transportation systems.


4.         The Third World includes the formerly nonaligned Nation-States especially countries of the “South”, i.e. the southern hemisphere.  They are politically diverse.  Some are political democracies with market economies; some are authoritarian; some are ruled by military regimes.  Third World economies in the 20th century depended on natural resources and cheap labour to compete in world markets.  In the 21st century this is changing with India now leading the way.

5.         Finally, there is the Fourth World, which, unlike the previous three, is not made up of Nation-States.  Rather it includes native or aboriginal nations of the Old and New Worlds.  They live in northern Europe, i.e. the Lapp or Suomi people; in Asia, the so-called tribal or nomadic peoples (Stackhouse 1994); in Africa, e.g., the pigmy peoples; in Australia, the “Aborigines”; and, in both North and South America, the Amerindian peoples or ‘First Nations’ sometimes including mixed blood communities such as the Metis peoples of Canada.  Essentially, they have been dispossessed by colonization and/or modernization.  They have also begun to organize at the global level, e.g., the International Covenant on the Rights of Indigenous Nations initialed July 28, 1994 in Geneva, Switzerland (Centre for World Indigenous Studies 1994).  They are also struggling to protect their rights to ‘traditional ecological knowledge’ or TEK.  Do traditional and/or Fourth World peoples have property rights to the herbs, medicines and foods that they have cultivated and cross-breed for generations?  Under both Anglo-American Common Law and European Civil Code such rights belong only to a Person, natural or legal, and are in effect only for a limited numbers of years, not as long as the rain falls and the wind blows.  In many ways this legal battle places collective versus individual rights at the centre of the knowledge-based economy


13.2.4 Military Sovereignty

1.         Beyond geography, population, culture and ideological status, Nation-States can also be classified according to military power or potential.  Today there are three great powers in the military sense – China, Russia and the United States.  Of these the United States is a superpower with global military reach.  Beneath the great powers are middle powers such as France, India and the United Kingdom then regional powers like Brazil, Indonesia and Iran.  Two Nation-States are potential great powers – Germany and Japan – but they function under constitutional limitations imposed by the victors of the Second World War.

2.         Traditionally the competitiveness of nations reflected the ability (or potential) of a nation to engage in military conflict with other nations and impose its will upon them, or defend


itself against them.  The 20th century witnessed many examples including two hot world wars, one cold, together with the rise and fall of empires – aristocratic, colonial, communist, fascist and national socialist – all through the force of arms.  The current 21st century global war on terror is similarly galvanizing Nation-States in defense against yet another transnational ideology.  This one, however, is rooted in religion aiming at a global Islamic caliphate working from within a Nation-State’s borders, not from without, cum Kaplan.  Some sacrifice of privacy and other human rights in the name of wartime is part of the price paid.  As will be demonstrated in more detail below, it is, however, a price that Bertrand de Jouvenel sees as part of a much larger trend towards increasing intrusion of the State into the personal lives of citizens.

3.         The current conflict, however, highlights a critical characteristic of the global knowledge-based economy, i.e., it is a crazy quilt of overlapping temporal gestalten (Emery & Trist 1972, 24).  Some nations are effectively living in the 6th century of the common era while others function in the fifteenth century of the Islamic calendar and yet others inhabit a 21st century world where there is but one planet, one biosphere and one human race seen from the vantage point of space.

4.         While the economy provides the wealth to exercise military power, success is historically in the hands of leaders who make the most of what they have.  Thus an Alexander the Great made a small marginalized part of ancient Greece (Macedonia) the greatest power in the world.  Similarly, Genghis Khan took tribes of nomads whose economic strength was negligible and converted them into an empire stretching from the Pacific Ocean to the gates of Warsaw.  Thus while economic strength may serve as the foundation for military power it has not always, is not now (e.g., North Korea and Iran) and may not in future be the case.  Put another way, new military knowledge can quickly change the balance of power and such new knowledge need not be the product of economic strength.

5.         The great events of the 20th century involved formation of shifting military alliances each of which, by definition, compromised sovereignty, e.g., NATO and the Warsaw Pact.  Nonetheless two global attempts were made to establish a forum to avoid and/or settle military and political disputes between Nation-States without resort to arms.  These were the League of Nations after WWI and the United Nations after WWII.  In effect, the family of Nation-States agreed to resolve their conflicts through the United Nations.  While not totally effective, arguably the UN played a pivotal role in keeping the Cold War ‘cold’ until its end in 1989.  In the process, however, military sovereignty was significantly compromised and the degrees of freedom available to a Nation-State reduced.


13.2.5 Political Economic Sovereignty

1.         In 1944 Karl Polanyi, brother of the chemist and philosopher of science, Michael Polanyi, published the first edition of The Great Transformation.  According to some scholars this book is of renewed relevance in a post-Cold War world due to the emergence of a global knowledge-based economy (Block 2001; Munck 2002).

2.         Polanyi traces the evolution of the market from its prehistoric roots to The Great Transformation of the 19th century.  Until then the market was, Polanyi contends, embedded in and subordinate to the social system.  In Western Europe, this embedding was evidenced by charters and patents granted by monarchs to guilds, municipal corporations, trading companies, universities and other bodies corporate.  Arguably the first break in this system was the 1624 Statute of Monopolies which, in England, ended royal grants of industrial privilege with the notable exception of patents of invention and copyrights.  This marked the beginning of the laissez faire economy, i.e., let producers produce what they want, not what the Crown wants.  The final break was arguably abrogation in 1814 of the Statute of Artificers that ended guild control of the labour market and signaled the beginning of a laisser passer economy, i.e., let workers move to where they can find work.  With the 18th century Republican Revolutions, the underlying political system of subordination also slowly gave way before popular democracy in the form of a republic or constitutional monarchy. 

3.         While markets have always existed as places or networks where goods are bought and sold, the new free or self-regulating market was society-wide.  Both outputs and inputs including capital, labour and natural resources went up for sale.  State involvement in the economy was minimized according to selectively interpreted principles articulated in Adam Smith’s 1776 The Wealth of Nations.  These were, however, most succinctly expressed by Smith’s contemporaries, the French Physiocrats as laissez faire and laissez passer.  In this regard, “Polanyi is insistent that ‘laissez-faire was planned; planning was not’” (Block 2001, 12).  It is ironic that the Republican Revolutions that gave birth to modern political democracy based on the inalienable ‘rights of man’ coincidentally converted human beings and nature into marketable commodities.

4.         For Polanyi, “the definition of a commodity is something that has been produced for sale on a market” (Block 2001, 9).  By this definition, labour and natural resources are ‘fictitious’ commodities because they were not originally produced to be sold on a market.  The Standard Model assumes, however, that such inputs behave like ‘real’ commodities. 

5.         To Polanyi, this assumption is false and places human society at risk.  It is false for two reasons.  First, it “violates the principles that have governed societies for centuries: nature and


human life have almost always been recognized as having a sacred dimension” (Block 2001, 9).  According to Polanyi, it is impossible to reconcile this sacred dimension with the subordination of labor and nature to market price.  Second, while the economy is supposedly self-regulating, the State actually plays an inevitable role in, for example, control of the money supply as well as managing education, unemployment, training and a host of other policies that effectively, even if unnoticed, regulate the marketplace (Block 2001, 9-10).  This contradiction of market liberalism is evident with respect to intellectual property rights.  Knowledge, by its nature, is not a private good yet government fiat converts it into a legally enforceable monopoly.   

6.         On the one hand, the self-regulating market displays a remarkable efficiency of knowledge especially compared to centrally planned material balances as practiced by the failed Marxist command economies.  The knowledge efficiency of the price system was central to the work of one of Polanyi’s archrivals, Fredrick von Hayek (Hayek 1937, 1945, 1989).  On the other hand, the self-regulating market places costs associated with economic downturns on the atomized individual rather than on the guild, corporation, community or government.  The resulting stress on business as well individuals, according to Polanyi, produces an inevitable political countermovement to regulate the supposedly self-regulating market economy.  Taken together – movement towards the self-regulating market and movement towards its regulation – represent what is called the ‘double movement’ of Polanyi’s Great Transformation (Munck 2002, 17).

7.         For Polanyi, this double movement can only be resolved by the eventual disappearance of the self-regulating market to be replaced by some form of socialism.  Like Marx, he was wrong with respect to the end state (as of today) as demonstrated by membership of the communist People’s Republic of China in the WTO.  In law, the self-regulating market now rules a world no longer split between capitalist and socialist blocs.  Like Marx about alienation, however, Polanyi appears correct in that counter-movements to globalization have arisen (Munck 2002).  I can identify three.  Before examining them, however, I must establish what I call ‘Phase II’ of The Great Transformation.

8.         As previously noted, the success of the self-regulating market rests on the inherent knowledge efficiency of the price system.  This has been amplified to levels unthinkable by Karl Polanyi or von Hayek in the 1930s and ’40s.  In the 1970s, a global electronic payments system emerged spinning a transactional web over all market-based economies and subsequently all Nation-States with the exception of North Korea and Cuba.  Visa, Mastercard and American Express are everywhere.  The technological ability to collect, compile and process transactional data on a global scale marks what I call Phase II of The Great Transformation.  What must be


appreciated is that Polanyi and Hayek agree that there is something happening above the range of conscious human control, i.e., the self-regulating market (Polanyi) and the price system (Hayek).  In this regard, Vacel Havel has suggested that what the West did not appreciate that the fall of Communism was marked the end of the Age of Reason, i.e., in the belief that the economy could be rationally planned and centrally controlled.  This belief has surrendered to a belief in a transcendent function - the market - over which, ideally, no economic agent exercises market power and in which the ‘invisible hand’ produces the greatest good for the greatest number (Havel 1992).  The ideological foundation of this belief is, of course, the Standard Model of economics.

9.         Phase II succeeded, however, because of an institutional matrix created after the Second World War and designed by another of Polanyi’s rivals, John Maynard Keynes.  The Bretton Woods Conference of July 1944 planted the roots for a global monetary order designed to escape the damaging effects of the Gold Standard that both Polanyi and Keynes believed doomed the pre-war global market.  Out of this conference came the International Bank for Reconstruction and Development (later divided into the World Bank and Bank for International Settlements) and the International Monetary Fund.  Within four years, the General Agreement on Tariffs and Trade (GATT) came into effect (January 1, 1948).  In turn, GATT gave birth to the WTO in 1995 marking the arrival of a truly global self-regulating market governed by international law.  Thus, on the one hand, the self-regulating market has become formally embedded in the law of nations, or more precisely, the law of Nation-States.  On the other hand, economic sovereignty and the ability to set national policies have been compromised to gain admission to the global marketplace. 

10.        With respect to counter-movements to the global marketplace, the first, and most obvious, is the non-governmental anti-globalization movement around the world.  In effect, it rejects embedding society within the economy.  Put another way, one should work to live, not live to work and anti-globalization forces do not want the tail to wag the dog.

11.        The second is the New Regionalism in international studies (Spindler 2002).  According to this school of thought, business is responding to globalization by reshaping the regional geo-political landscape, e.g., NAFTA, to allow a more efficient and effective embedding of business in a reconstituted political economic matrix.  Polanyi argued, of course, that the political system (and society as a whole) is being embedded in the economy.

12.        The New Regionalism also raises the question of whether such regionalization is a stepping stone or stumbling block to globalization.  The question must, I argue, be addressed


with respect to the ideology of the market, i.e., the Standard Model of economics.  This claims that the market works best without political interference.  It is on this basis that if the WTO finds in its ‘courts’ that a member state has interfered then countervail is authorized.  That surreptitious efforts are constantly being made to subvert the market is clear - banana wars, steel wars, BSE bans, GM restrictions, et al.  Nonetheless, the ideal is equally - Let the market do it’.  This is the ideological bench mark against which the global market behaviour of Nation-States is judged. 

13.        Regionalization is, to my mind, a stepping stone towards a global economy so long as the ideology of the market remains the bench mark, e.g., in NAFTA and the EU.  Of course, similar surreptitious attempts to intervene occur at the regional level, e.g., the ongoing softwood lumber controversy between Canada and the United States.  However, to the degree that these attempts are subject to countervail then the direction remains clear: towards a self-regulating market.

14.        The third counter-movement to globalization is the internal growth of government itself.  Bertrand de Jouvenal, in his 1949 Power: Its History and the Nature of Its Growth, demonstrates the process whereby the power of the Nation-State has grown from the time of the Absolute Monarchs of the 17th and 18th centuries.  This process he characterizes as the increasing penetration of the State into the daily life of its citizens and the growing sophistication of its organization to enhance internal sovereignty.  He documents the resulting increase in the scale and damage of warfare up to WWII.  He also notes that traditional inhibitions on state power resulting from its embodiment in the person of a Monarch disappeared with the arrival of popular democracy (Jouvenal 1949, 8-9).

15.        De Jouvenal notes how in the name of ‘the Nation’ or ‘the People’, modern government can do things which a supposedly Absolute Monarch dared not dream.  This is summed up in the Second World War concept of ‘Total War’, i.e., the use of all available national resources – physical, institutional and individual – to wage war.  Before the Republican Revolutions, Total War was simply not possible (Jouvenal 1949, 8).

16.        De Jouvenal exposes the equation of power, or what he calls “the Minotaur” of popular democracy.  For Marx there is struggle between Top (the rich) and Bottom (the poor) leading to revolution.  De Jouvenal, however, argues the struggle is between the Top (the State) in alliance with the Bottom (the oppressed) squeezing the Middle (the Establishment) and progressively penetrating ever deeper into the personal lives of citizens.  As a new Bottom is recognized, the Middle is squeezed again and again so that State Power perpetually grows.


17.        Arguably, De Jouvenal’s power equation is demonstrated by the sequential rise of the labour, civil rights, women’s and children’s movements.  The dynamic involves:

·     labour allying itself with government to regulate the behaviour of ‘Robber Barons’ beginning with abolition of conspiracies acts against unions in the 1880s;

·     blacks and other visible minorities allying themselves with government to regulate ‘white’ behaviour beginning with the mid-1960s Civil Rights Movement;

·     women allying themselves with the State to regulate the behaviour of men in the 1970s Feminist Movement; and,

·     children allying themselves with the State in the 1990s to regulate the behaviour of parents and adults including international efforts against ‘kiddie porn’.

18.        There are, however, different ways for state power to grow, ways that may not be publicly visible or apparent.  In a comparative analysis of the constitutions of the United Kingdom, the United States, France, Germany and Austria, three British constitutional lawyers conclude their findings in their title: Government by Moonlight: The Hybrid Parts of the State (Birkinshaw, Harden and Lewis 1990).

19.        While Lord Keynes is best remembered for rules governing the ship of State in the economic ocean, the authors remind us that he also foresaw the growth of semiautonomous bodies associated with the State which, like dolphins swimming ahead, lead the way towards the public good.  In this regard, Keynes was father to the Arts Council of Great Britain, a postwar institution funded by the State but operating at arm’s length from its political direction (Chartrand & McCaughey 1986).

20.        Written just after Margaret Thatcher had left the political stage and as the Soviet Union collapsed, the authors argue that contrary to orthodox Thatcherism and its North American variants, the ship of State is not returning to some mythic free market port with a crisply defined coastline separating public policy from a mainland of private self-interest.  Rather, in keeping with Keynes’s prescience, semiautonomous bodies have become vessels in a public/private convoy used to ‘offload’ responsibilities accumulated by the ship of State during the rising tide of the postwar Welfare State or now required in a post-modern era.  The course of the ship, however, remains unchanged – increased State control.

21.        From the constitution emerging after the English Civil War of the mid-1600s to the republican revolutions of the 18th century, first American and then French, the authors argue there has been a progressive constitutional co-optation of private interest in pursuit of the public good.  The most evolved examples are the post-WWII constitutions of Austria and Germany that


make explicit provision for the accountability of private interests serving the public good.  Concentrating on the least formalized, the ‘unwritten’ constitution of the United Kingdom, the authors demonstrate off-loading ranges far and wide – from accounting standards, financial markets, industrial strategy, land-use planning, labour relations, national defense, professional self-regulation, R&D as well as art, education, health, housing, voluntarism and welfare.

22.        This restructuring has been necessitated by the inherent complexity of modern life, the limits of rationality resulting from imperfect information and a turbulent policy environment.  This fuels a perestroika as fundamental, if not as apparent, as that which shattered the Soviet Union.  The authors argue that through bargaining, cooptation and threat of legislation, the State has effectively transferred various public responsibilities to a spectrum of public/private institutions.  It has done so to reduce costs, increase effectiveness and simplify its policy environment.

23.        The authors use a body of literature about ‘corporatism’ to define this restructuring in terms of stable bargaining relationships between associations of private interest like the defense industry and the State.  They point out that corporatism is not necessarily incompatible with, but rather potentially complimentary to, traditional geographic-based constituency democracy.  While the author’s suggest ‘tripartism’, i.e. government, management and labour cooperation, is passé, an ironic legacy of Thatcherism and its legislative imposition of the secret ballot on unions in the U.K. is potentially the re-democratization of the union movement – a step towards realizing Sydney and Beatrice Webbs’ dream of industrial democracy.

24.        But public authority exercised by private interests raises questions of accountability.  With the exception of the post-war Austrian and German constitutions, there has been no equivalent glasnost or openness.  Various factors conspire to obscure, at least in Britain, the exercise of public authority by private interests.  These include free market rhetoric, failure to develop a body of administrative law comparable to that on the Continent or even in the United States and a self-serving conspiracy of silence between the State and recipients of public authority.  Ministerial accountability, while arguably no longer functional, is also a powerful incantation in a parliamentary democracy and has blinded citizens to the changing nature of their democracy.

25.        The authors present a range of accountability regimes to make the new public/private partnerships transparent to public scrutiny.  In this regard, they define ‘constitutional’ in procedural terms such as participation by citizens in open and informed debate about the objectives, policies and procedures of public policymaking.  They call not only for freedom of


information but also creation of intermediating institutions to process information into forms accessible to the public.  This would represent a significant increase in the size of the public domain and hence the national knowledge-base.  In the process it would foster what I call ‘information demoracy’.

26.        A recent example in Canada highlights the accountability problem associated with hybrid parts of the State.  In March 2001 the Canadian Institutes of Health Research (CIHR) announced preliminary guidelines for stem cell research (a culturally and political controversial issue) due to the failure of Parliament to do so.  In April 2002 a political outcry was heard in Parliament when the CIHR was about to fund research according to these guidelines (Laghi Apr. 30, 2002, A1).


13.3 Reconciliation

1.         In summary, sovereignty as “supreme controlling power” over the territory of a Nation-State is a myth with a twist.  Many, if not a majority, of members of the United Nations do not exercise military sovereignty over their territory but rather share it in alliance with other Nation-States.  In effect, with the exception of the great, middle and regional powers, the defense of the Nation-State is in the hands of the United Nations itself.  The UN, as an organization, however, is dedicated to maintaining existing borders and the integrity of member states even if such borders and states are the collateral damage of the 19th century struggle for European colonial empires.  

2.         If military sovereignty has been compromised then economic sovereignty has similarly been eroded by membership in the WTO which defines the rules for a global self-regulating market economy in which arbitrary actions in one’s national self-interest carries with it the threat of countervailing measures authorized by the WTO.  Cultural sovereignty, on the other hand, remains an arena in which sovereignty is still exercised under the protection of exemptions granted by the original 1948 GATT agreement.  Cultural quotas, subsidies and other barriers to trade are currently accepted as the prerogative of the sovereign Nation-State.  Arguably, IPRs are another arena of competition subject only to the ‘national treatment’ provisions of the TRIPS Agreement.  Similarly, health and safety have become arenas in which sovereignty remains intact, witness the closing of borders to Canadian and American beef exports after the discovery of one case of BSE in Canada and one in the United States.  Unlike cultural sovereignty and IPRs, however, such health and safety barriers must be justified on scientific, not moral, cultural or historical grounds. 


13.4 Governance

1.         In the Standard Model of economics there is no role for government.  Under conditions of perfect competition all costs are internalized by producers into the market price.  There are no uncosted externalities like pollution.  In turn, the consumer paying the market price internalizes all benefits.  There are no external benefits as with a public good.  There are, in fact, no costs or benefits external to the market transaction.  There is, therefore, no need for government in the economy.  Ironically, the Standard Model shares this conclusion with Marxism.  Under conditions of perfect communism there will be a ‘withering away of the State’.  In Leninist terms, there will be no role for the Party as a revolutionary vanguard because the revolution would have happened.

2.         In a knowledge-based economy, however, government is not a necessary evil that will eventually disappear.  Rather it is a positive necessity for such an economy to exist.  This is most evident with respect to the privatization of new knowledge through legislated intellectual property rights.  Government plays, however, at one and the same time, five different roles: as Custodian, Facilitator, Patron, Architect and Engineer of the national knowledge-base.


13.4.1 Custodian

1.         The Custodial State is directly responsible for access to and conservation of the national knowledge-base, i.e., the public and private domains of knowledge.  This is evidenced by institutions like national archives, museums, libraries and arts centres.  It is also evidenced by cultural patrimony legislation controlling the export of national treasures and by departments of government mandated to protect, preserve and promote national culture, e.g., Heritage Canada or, in French, Patrimoine Canada.  Through intellectual property legislation, government is also responsible for the preservation and extension of the public domain or national knowledge-base.


13.4.2 Facilitator

1.         The Facilitator State supports production and conservation of knowledge through tax expenditures, i.e. taxes foregone or forgiven.  Government can choose not to tax certain types of income and/or expenditures made by citizens because relevant activities are considered merit goods.  A merit good is one whose consumption or production is encouraged on the basis of non-market value judgments.  It is the opposite of a demerit good or service, e.g. smoking or, at the extreme, crime.  As with public goods, of which merit goods are a subset, the private market cannot profitably provide the quantity or quality government requires.  A charitable donation


made by an individual or an organization is an example of tax expenditure.  In this case government mandates that a donation to a recognized charity should, in whole or in part, be subtracted from income tax due to the government.  Donations in support of the nonprofit arts (Arts), education (HSS) and scientific (NES) research including medical research (Practices) are knowledge-based examples as are donations to religious (Revelation) and sports (Sensation) institutions.  To the degree a charitable organization is engaged in knowledge production it is relevant to a knowledge-based economy.  Exemption from income tax of copyright income earned by resident artists, i.e., natural Persons, in the Republic of Ireland (Eire) is an example relevant to all knowledge domains.

2.         The Facilitator supports diversity rather than specific knowledge domains or disciplines.  Specific standards are not established by the State because the Facilitator relies on the preferences and tastes of corporate, foundation and individual donors.  The policy dynamic is random in that tax expenditures reflect the changing tastes of private donors.  The United States has traditionally relied most heavily on facilitating private giving rather than direct public spending as, for example, in most western European states.  Arguably, however, a convergence of funding patterns is emerging on both sides of the Atlantic (Chartrand 2002).

3.         The strength of the Facilitator lies in the diversity of funding sources.  Individuals, corporations and foundations choose which knowledge domains and disciplines to support.  The Facilitator also has weaknesses.  First, once tax exempt status is granted, standards of excellence are not required.  Second, the State cannot easily target priority activities.  Third, valuation of donations-in-kind, a common practice in the Arts, e.g., a painting donated to a museum or art gallery, is problematic.  Fourth, the Facilitator cannot necessarily restrict benefits to domestic communities, e.g. reconstruction of the Versailles palace was funded in large part through tax-exempt contributions made by American taxpayers to the Versailles Foundation in New York City (Le Figaro 1980).  Fifth, it is difficult to calculate the cost of tax credits and expenditures to government (Wilson 1985, 17).  They have been likened to a car with holes in its gas tank.  You know how much goes in but not how much is dripping away out of sight.


13.4.3 Patron

1.         The Patron State funds the production and conservation of knowledge through arm's length councils in all knowledge domains and some practices, e.g., the Canadian Institutes for Health Research (CIHR).  The government determines how much total support to provide, but not which organizations or creators will receive that support.  A council is usually composed of a board of trustees appointed by the government.  Having been appointed, however, trustees fulfill


their grant-giving duties independent of the day-to-day interests of the party in power, much like the trustee of a blind trust.  Granting decisions are generally made through a system of peer evaluation.

2.         The grant-giving council supports creativity, discovery and invention with the objective of promoting standards of excellence.  The policy dynamic of the Patron State is evolutionary, responding to changing trends and paradigm shifts expressed by knowledge-based communities themselves through peer evaluation.

3.         The very strength of the arm's length council is often perceived, however, as its principal weakness.  Fostering excellence is sometimes seen as promoting elitism.  It may also result in knowledge that is simply not accessible to the general public, or their democratically elected representatives.  In most Patron States there are recurring controversies in which politicians, reflecting popular opinion, express anger and outrage at support for various knowledge-based activities perceived, at the time, to be unacceptable, such as child pornography in the guise of Art or fetal tissue research.  With an arm's length council, however, politicians can claim neither credit for success nor responsibility for failure.  Great Britain is the prime example of the Patron State. 


13.4.4 Architect

1.         The Architect State funds knowledge production and conservation through ministries, departments and specialized agencies.  Bureaucrats, in effect, make grants and spending decisions.  The Architect supports knowledge as part of its general social welfare objectives based on the historic tradition of western European culture since the fall of Rome.  It was first practiced by the Church in praise of God then of Monarch & Nobility and today, of the citizen and culture of a Nation-State.  Since the arrival of democratic government, the Architect role in the Arts, for example, has evolved from ministries of church affairs and culture to ministries of education and culture to a separate and distinct ministry of culture, and sometimes back again.

2.         The Architect tends to support established standards and practices rather than creativity, discovery or invention.  The policy dynamic of the Architect is revolutionary.  Inertia usually results after the entrenchment of established standards developed at a particular point in time.  This, in turn, often leads to stagnation as has been observed with respect to the Arts in France (The Economist, August 3, 1985, 77-84).  This, in turn, may lead to a revolution with the old guard thrown out and a new guard entrenching itself to repeat the revolutionary cycle.  The 


‘Tomato Revolution’ in Dutch theatre in the 1970s and its subsequent evolution demonstrates the dynamic (Chartrand & McCaughy 1986).

3.         The strength of the Architect role is that government can target support according to its priorities.  The weakness is that long-term funding can lead to creative stagnation.  The most recent example of the Architect is design and development of national innovation systems.  In these systems nonprofit academic institutions partner with government and private for-profit actors to create networks of specialized research centres in priority domains, disciplines, sub-disciplines and specialties (OECD 1997).  Such centres are intended to facilitate commercial exploitation of new knowledge and enhance the competitiveness of the nation.  At the regional and local level this policy fosters clusters of knowledge-based activities to benefit from increasing returns to scale first identified by Marshall as industrial districts in the late 19th and early 20th centuries (Marshall 1920, 271).  The contemporary incarnation – industrial clusters - is part of the ‘New Economic Geography’ (Martin & Sunley 1996, 282).


13.4.5 Engineer

1.         The Engineer State owns selected, critical and commanding means of knowledge production, distribution and conservation.  Five examples will demonstrate.  First, each Nation-State, irrespective of ideology, owns and regulates (subject to international treaty) the electromagnetic spectrum and related media of communications including broadcast licensing within its borders.  Each consciously plans and decides how this resource will be allocated to further its national purpose.  Second, Article XX sub (a) and (f) of the General Agreement on Tariffs and Trade (GATT), now part of the WTO single undertaking, recognizes that a country can control the flow of cultural materials in and out of its borders.  In Islamic countries, this ‘morals clause’ is used to stop Western media and its alien portrayal of women.  In France - and most of Western Europe - cultural filtering included quotas on movie screens before WWII and after the war, of both film & television to assure ‘national content’ is available. 

2.         Third, each Nation-State controls the privatization of knowledge and the status of the public domain through IPR legislation.  Without such government action a market for new knowledge would not exist.  As previously noted, the law is a cultural artifact, i.e., it varies in principle and practice between countries and cultures.  IPRs therefore vary significantly between countries.  Furthermore, unlike other internationally traded goods and services subject to harmonization under the World Trade Organization (WTO), IPRs are subject to the milder constraint of ‘national treatment’.  This means a Nation-State must extend to foreigners the same rights it grants its own citizens but such rights need not be, and generally are not, the same –


nation to nation.  This degree of freedom allows government to use IPR legislation as a 21st century equivalent of railroads and transportation infrastructure that made the Industrial Revolution possible (Paquet 1990).  Canada’s decision to exclude intellectual property from the North American Free Trade Agreement suggests that the government of the day either recognized the role of IPRs as critical policy instruments in a knowledge-based economy, or they simply were reserving judgement.

3.         Fourth, each Nation-State (at least among First World countries) owns and operates its own knowledge producing facilities.  These include central statistical agencies, cultural facilities like that national arts centre, national broadcasting systems, research laboratories, etc.  While such publicly funded knowledge logically falls into the public domain, many governments have instituted cost-recovery policies that price such knowledge out of the reach of many creators and researchers.  In Canada, this policy has led many to rely upon American data sets for which the U.S. government does not charge or charges a modest access fees (Chartrand Spring/Summer 1997).

4.         Fifth and finally, national security considerations are also applied by government to restrict access to certain types of knowledge in both the private and public sector.  As the connexion between academic, for profit and public institutions matures under the umbrella of a national innovation system, it can be expected that such restrictions will increase, reducing the flow of free new knowledge.  This is, alas, understandable given the growing problem of state-sponsored as well as private sector economic and military espionage.  Examples include:

·         the long history of state-sponsored economic espionage by France  (Whitney & Gainsford 1996);

·         strategic considerations in development of ‘National Information Infrastructure’  (O’Connell & Tomes 2004); and,

·         international controversy over the Echelon satellite surveillance system (operated by the United States, United Kingdom, Canada, Australia and New Zealand - effectively the Anglosphere) that collects virtually all electronic communications on the face of the planet that can then potentially can be used for economic, political and/or military espionage purposes (Dailey February 24, 2000).

5.         Having defined the Nation-State and demonstrated its relationship to the natural Person and the knowledge-based economy, I will now unleash the definitional avalanche about knowledge on the Nation-State to assess the competitiveness of nations in a global knowledge-based economy.



14.0 Competitiveness

The Competitiveness of Nations in a Global Knowledge-Based Economy