A cautionary tale for democracy and market economies - By Stephan Leibfried

Without a strong state, neither democracy nor market economies will survive, nor can political liberalism thrive. The anti-state mentality is fading in Europe and Germany.

As a student in the 1960s, I regarded the state as the "master of the production of obedient clones" and its university system accordingly as an "Untertanenfabrik," in short a "clone factory." These days, in turbulent times of a different nature, the state seems to be the last, fragile anchor of our political, social and civil liberties, something valuable to be preserved and extended at all costs.

German entrepreneurs have meanwhile come to the same conclusion. After their neo-libe­ral drive to reform their "Rhenish capitalism," it dawned on them that the political order they have grown accustomed to had slowly been put at risk by their overemphasis of the market economy and their belittling of the role of the state.

Berlin's political establishment stopped talking about "the retreat of the state" some time ago. More state-financed places in nursery school, German military excursions in Afghanistan, a legal framework for the integrated transatlantic market, a minimum wage, another attempt at a European constitution - the idea of a minimal state, at any rate, seems passé.

Not too long ago, an election slogan of the Christian Democratic Union (CDU) was "Freiheit oder Sozialismus" - freedom or socialism. The central rallying cry of politics then was "as much freedom for the individual as possible, as little state as necessary." Is the state, then, the antagonist of personal freedom, the enemy of political liberalism? Do we have to transform the state into an "outdated model" in the 21st century so we may enjoy more personal and market freedom?

Four centuries of state history should have taught us that this is the wrong approach.

Without a strong state, political liberalism is unimaginable. Without it, there is no free government under law, no secure market economy, no functioning democracy and no effective welfare state. Only thanks to a strong state did political liberalism succeed in the last four centuries. A glance at "failed" and "failing" states, like those still in Africa, reveals that such success cannot be achieved with weak states but only with strong, stable and sustainable structures. Beware anti-state preachers, there is something to be conserved here.

In my view, Western societies will also need strong states in the future, if the success of liberalism is to be an enduring one. Still, nowadays, state and "stateness" are no longer a monopoly of the nation-state.

Hobbes' idea that the free, rational choice of the individual is the foundation of government became reality only gradually. In 1648, the Peace of Westphalia finally ended the Thirty Years War. The peace treaty fashioned states that seemed sovereign vis-à-vis each other, provided for non-interference in internal affairs and in domestic politics and made room for the state's exclusive "monopoly of force."

The furnishings and symbols of the new territorial order - standing armies, comprehensive and deep administrative penetration and aristocratic representation - were so costly that previous systems of financing it, which were built on royal domains and estates, no longer sufficed. In the emerging mercantilism, the new territorial states then not only built trans-regional markets with standardized measures and currencies, they also pushed proto-industrialization and trade, and levied taxes on these products.

Single territorially expansive markets only work efficiently on a large scale when backed up by a constitutional state, the rule of law. The expanding territorial state, with its monopoly of force, offered the successful alternative to the political liaisons of the small states such as the Hanseatic League or the City Leagues in upper Italy.

"No taxation without representation." From the Boston Tea Party in December 1773 to the French Revolution of 1789, the 18th century brought forth a "bourgeois" citizen who only intended to shoulder his tax burden if he, as a citizen, would be allowed to influence what "his" money was used for. Then, the industrial revolution put the working classes and their demands on the agenda. They also clamored for equality. More recently, the American New Deal after 1933 proved that the modern welfare state is a legitimate child of democracy. In the age of the general and equal franchise, the state is to redress what was regarded as an unfair distribution of wealth and income in the market place for the benefit of the majority.

All those who still carry the banner "more market, less state" today have not learned these historical lessons. Without a strong state, there simply is no market, no effective democracy, no reliable rule of law, no effective "social security."

Since the 1980s, setting in with the first oil crisis in 1973-74, globalization has increasingly put the classic national, democratic, constitutional and interventionist state under pressure. At least two engines drove this development: technological change, such as the Internet, telecommunications and computing; but also political decisions. These political decisions are always made in a state context.

Globalization is, pointedly, in large part an outcome of the "self-transformation" of the collectivity of, at first Western, states. Worldwide liberalization and privatization depended - and depend - on political decisions. Consequently, their impact is political: namely, the increased opportunities for the now mobile capital to evade national taxation, the intensified trans-border market integration and the multi-level, sectoral systems of governance which have emerged with the EU and the World Trade Organization (WTO).

The additional political layers "overlay" local, state and national governments. These multi-layered systems do not replace the classic nation-state. They don't decompose it or make it redundant. While it is true that the state, indeed, can do hardly anything just on its own today, it is also true that little happens without it. This is evident above all in two arenas: implementing legislation and democratic legitimacy.

In today's new political topology, the classic nation-state is part of a tightly woven network. It is made up of diverse states, various players in society - most importantly, multinational companies and transnational interest groups - and international organizations. In the light of this, various flaws in recent thinking of some liberal critics of the state become apparent.

The American neo-liberal Grover Norquist - an intellectual father of the U.S. tax revolt movement - once said he didn't really want to abolish the state, he merely wanted to shrink it to size, to make it small enough, so he himself could carry it into the bathroom and drown it in the tub, if necessary. But in a multi-layered system of governance, it is already flawed thinking to simply do away with one element, the nation-state. And, in shrinking the state to bathtub-size, Norquist already significantly weakened democracy and the rule of law.

The new political topography together with the classic nation-state is made up of various individual and corporate players. Today, new conditions and challenges prevail and complexity has intensified. Politics now has to take on two tasks.

First, the integration of the multi-layered political system itself becomes the central objective of constitutional action and legislation. In the old nation-state, it was pretty clear who was to be integrated, where and how.

Multi-layered systems of governance also face the "constitution-building" task but they have no similarly clear territorial or institutional basis. Transposing principles associated with the nation-states' political culture to such a system is enormously tricky, as all these principles are part and parcel of the old "national container state." Multi-layered systems function differently; they are not immediately comparable to the classic nation-state.

Just take a look at the EU. It comprises 27 member states. A total of 31 states participate in the free movement of goods, services and capital - including Lichtenstein, Norway, Iceland and Switzerland. The free movement of people, guaranteed under the Schengen Agreement, embraces only 13 member states plus Liechtenstein, Iceland, Norway and Switzerland. Ireland and Great Britain are partially included and the 12 new Eastern European member states require a lengthy transition period. Again, 13 member states - but not identical with the Schengen states - plus Montenegro, Macedonia and Kosovo have introduced the euro as legal tender.

Here you can get a glimpse of four quite different interwoven arrangements of "governance beyond the nation-state" at work, four different functional structures of multi-layered governance. These arrangements do not have much in common with the political system of a classic nation-state or with federalism as we know it. So, today, we have to envisage and develop a new form of integration, one which can work independent of the nation-state.

Second, from where do these multi-layered systems draw their democratic legitimacy? Such systems of governance need democratic legitimacy if they are to make political decisions - and are charged with such decision-making. Classical modes of democratic legitimization - elections, referenda - rapidly reach their limits here.

Such large systems have a hard time to distinguish the "we" and the "they," to develop an "us feeling." Quite a few people claim that this feeling has pre-political origins: political systems can only exist when a "we" already exists. But, neither market nor democracy - and not even the nation - are pre-political, "natural" givens. We construct and create them; they live with and in our political decisions.

In the new topology of politics, we need to change the wheels of a locomotive while it is in full motion, or, for the citizens of maritime nations, to rebuild the ship on the open sea. To solve the political problems of the day goes, inevitably, hand in hand with the development and construction - the "constitutionalization," the legal fashioning - of this multi-layered system, as the struggles over the European constitution demonstrate.

Today, those who desire further liberalization and privatization have to explain how they will continue to secure the freedoms of the individual. A globalized, free market - if it is to remain a market and not to turn into a battlefield - requires an even stronger rule of law and a social safety net that actually buffers. Such coercive means in this day and age require democratic legitimacy.

Democracy, however, must first be organized to slowly become politically self-evident. The state as "container state" is an outdated model. But as a crucial element of "the new political topography", of the multifaceted functionally organized system of multi-layered governance, the state is elementary for every future scenario.

Today, a strong state is imperative precisely because we remain committed to liberal modernity. Not even German entrepreneurs calling for "more market" would want to wind up beyond the remit of state-guaranteed order and the confines of a well-regulated economy.

- Stephan Leibfried is director of the National Research Center on Transformations of the State at the University of Bremen, which is financed by the German Research Foundation. He co-edited the books "Transformations of the State?" (Cambridge University Press 2005) and "Transforming the Golden-Age Nation State" (Palgrave Macmillan, Fall 2007). The article is a condensed version of a keynote speech given at the 45th Colloquium of the Walter Raymond Foundation of the Confederation of German Employers' Association on March 25 in Berlin.