The Defective State

Strange argues that states themselves have not rendered obsolete. Collectively they are still the most influential and therefore the critical authority sources of authority in the world system. But they are increasingly becoming hollow or defective institutions. Their authority in society and over economic transactions within their defined territorial borders is seriously impaired.
Strange bases her argument on three prepositions:
1. The nature of the competition between states in the int’l system has changed. 
2. As a result, their nature and behavior towards each other has changed too.
3. The state is coming to share its authority in economy and society with other entities.
In past states were competing for control over territory (resources to be found there), but now they are competing for market shares in the world economy.  Result:
1. Industrial policy and trade policy are now more important than defense and foreign policy.
2. States seek commercial allies rather than military ones. 
For Strange, the main reason behind the changing nature of competition between states is scientific advance and technological change. Here she is talking about a structural change. As science and technology advance, capital costs (needed for research and development of new products) increase. States need more capital for investment; sales made in domestic market are not enough, therefore they orient themselves to exports. Products designed for national markets are now designed for global markets. As Strange says: “It is the markets, not the enterprises that are multinational.” 
When a company enters a foreign market, it brings attractive assets (such as technology, managerial  know-how, finance, etc) that local ones lack. The host country needs these assets and this is why states (esp. developing countries) compete against each other to attract foreign companies to their markets. They offer greater inducements, waive more rules and demands. Result: states give up on two important sources of their authority, i.e. power to tax and power to regulate markets. 
In today’s world, affluent states know that their affluence depends on a continued market share rather than a command of territory. Because war could destroy this affluence, they show every sign of regarding a major war between themselves is unthinkable. But they still spend a lot of money of defense industries. This is because states want to increase world market shares (not only in arms but also other markets where products use same technologies, such as aviation, etc) and states will continue to support defense industries because people still have doubts whether a major conflict between affluent states is really out of question.
That the nature of a state can change is nothing new. What is new in today’s world is that all states undergo substantial changes of the same kind within the same short period of time. These are structural changes (such as shift from land/labor/capital to capital/information/energy as key factors of production; shift from production for local market to global markets). But how do these changes undermine the state’s authority?
Strange answers this question by three major hypotheses and a minor one:
1. Increase in the asymmetries in state authority.
The world market is influenced by political decisions made by the USA. It lost some authority, not to other states, but to markets. The rest became more vulnerable to the greater global outreach of the US authority. In other words, the USA exercises structural power over other states, markets, private individuals and firms. Strange provides examples of cases where the USA has the power to put pressure on another country, which does not have the countervailing power, which prove that the notion of sovereignty is actually fiction. In her own words: “Now that the US has largely succeeded in creating an open world economy in its own liberal image, and patterned according to its own value preferences and judgments, the fig leaf of equal sovereignty even before the law has become more flimsy than ever.
2. Some authority (on less politically sensitive issues) shifts from the state to other entities. 
a. “Upward shift” from the state to intergovernmental organizations (such as the IMF, EU), nongovernmental organizations (such as Greenpeace, Amnesty International)
b. “Sideways shift” from the state to private and commercial organizations. A minor hypothesis: There is a third direction, but it is not experienced universally. It is  “downward shift” from central authority to local authorities (decentralization).
Here, Strange is concerned “with a shift between the sources of structural power, not a change of hands on the on the levers of that powers.” She looks at the changes experienced by developing countries in 80’s and 90’s (protectionism>liberalization; state ownership>privatization; import substitution>export orientation) and argues that these changes came about through the control exercised by foreign firms over the means to the end of earning foreign exchange which host governments desperately needed and had no other way of obtaining. This was “new diplomacy”, based on the bargaining power exercised by firms and derived by the assets coveted by the state.
3. As a result of greater interconnectedness in finance, logistics, communication and production, there are some important responsibilities of political authority that no one in a system of territorially defined states is in a position to discharge.
At the end of her discussion, Strange arrives at two conclusions:
1. Western social science has overemphasized both the role of the system and the violent conflict between the states as the core problematique of the system. 
2. The changing problematique of international studies could resolve the opposition of paradigms (realists vs idealists) in the study of the international system.
Both conclusions lead to questions, for which Strange does not have certain answers. She points to the importance of these questions for a sustainable system in the long term and mentions that they have to be undertaken with a fresh look freed from the impedimenta of the past:
1. If the core problematique is not the probability of major conflict, what is it then?
2. In this system in which the asymmetry of power between states has increased; if the hegemon will not or cannot play its stabilizing role, what can be done?
3. How much in the way of rules, supervision and intervention by political authority is necessary for the system’s continued stability, equity and prosperity? What is the sine qua non of political management for a capitalist, market-oriented, credit-dependent system of production, trade and investment?
4. Where is that authority to come from, given the fact that the process of diffusion of authority away from the state can’t be reversed? Can we devise a coherent substitute for the authority of states?