Economics, Library

The Rise of the Nation-State

In these rapidly changing times, there is much mention of the economy. Most of us recognize economics as an underlying system behind our network of jobs, businesses, and marketplaces. We know there is a relationship with the health of the economy and our quality of life, but can miss the relationships between day-to-day activities and the big picture system. Before we further discuss where we are now, it is important to understand how we got here, and the origins of the current status quo. In the interest of presenting a foundation for further macroeconomic exploration, this article introduces some historical context for the modern world’s expression of the nation-state.  

Global trade is essential to our modern lifestyles. In a single day, a typical American may consume Columbian coffee, Filipino bananas, Mexican avocados, and Congolese chocolate, wearing clothing manufactured in Indonesia, Turkey, and Vietnam, operating a cellular device manufactured in China to communicate with technical support in India, sitting on Swedish furniture and absorbing audiovisual content from worldwide sources via the Internet. A complex system of supply chains, multinational businesses, legal agreements, and distribution channels supports this lifestyle and enables a massive supply of resources to circulate globally.

The primary actors in global trade are the governments of nation-states. Unified currency, coordinated production, and collective consumption reinforce each nation’s cultural identity while governments negotiate foreign policy and trade agreements. This modern system of nation-states has undergone multiple shifts as the Industrial Age passed into the the Information Age, and analysis of the implications has been ongoing.

To correct imbalances, affluent states must either lower their standards of living or learn to maintain modern lifestyles more sustainably.

Our current system is functional in many ways, but is worn down by heavy baggage. The global economy inherited many historical imbalances, leading to devastating consequences for societies and ecosystems. Growth is often achieved unsustainably, at the expense of other nations. Exploited countries are still recovering from centuries of colonization and imperialism, trapped in a cycle of poverty and lacking the resources to improve their economic health. Meanwhile, affluent state infrastructures are so deeply rooted in toxic economic traditions that they feel trapped into perpetuating exploitation and environmental damage to maintain the lifestyles expected by their citizens. Both sides of the situation are entrenched in historical economic baggage and are unable or unwilling to reform systemic toxicity. 

In a Nutshell

Economics is the science of resource allocation. Market transactions enable services, information and goods to be exchanged between entities. Currencies act as proxies for valuation, with pricing established by the relationships of supply and demand. These underlying principles have been the foundation of economic understanding for thousands of years. Economic study is generally divided into Microeconomics, which refers to individual and business decisions, and Macroeconomics, which analyzes the decisions of countries and governments.

Civilizations evolved from the divisions of labor across populations. Specialization led to social hierarchies, coordinated production, population density and competition for resources at scale. Communities were consolidated into Empires, which began interoperating through global trade. The Age of Conquest shifted to Colonization, Imperialism, and Globalization, integrating regional resource networks into an increasingly interdependent worldwide system, with nation-states representing the interests of their respective populations on the global marketplace.

Today, the status quo of nation-states and their borders seems relatively stable. There are various “shake-ups” and territorial disputes from time to time, but for the most part the boundaries of nation-states are established, reinforced by world maps and formal recognition by international agencies.

The Rise of the Nation-State

Western civilization has dominated the global landscape in recent centuries, defining many of today’s social and economic constructs. The acceptance of the nation-state construct in particular has significant influence on our economic perspectives. There are various definitions of the nation-state. At risk of oversimplification, we will summarize the term as a geographically-bound region with social and cultural linkages between inhabitants. The political entity of the state becomes integrated with the cultural entity of a nation. Public policy is intended to empower currency valuation for trade leverage and to encourage unified cultural identity, particularly in nations with diverse ethnic groups.

Our modern system of states is derived from the Westphalian System, named for the 1648 Treaty of Westphalia, which outlined a European system in which clearly defined, controlled, and independent entities recognized each other’s sovereignty and territory. The state’s identity became an instrument of economic, social, and cultural unity, enabling the centralization of regional resources and a balance of power through national borders. Notably, recognition of sovereignty did not apply to states outside of Europe.

The Silk Road spanned Asia, enabling the sharing of knowledge and resources across cultures and geographic distances.

By then, Global Trade across the Silk Road had accelerated the exchange of information and technology between the East and West, allowing European powers to learn and leverage innovations in nautical navigation and military expertise, key drivers of Colonization. Colonies infused European states with a wealth of resources: precious metals and gems, information, raw materials, labor, foods, spices and more. The advantages of controlling another territory’s valuable resources led to intense competition among European states to dominate regions of Asia, Africa, and the Americas. In lieu of warring within Europe, countries fought to “acquire” resources and colonies through generally violent and suppressive maneuvers (In the interest of objective brevity, we will omit the humanitarian implications of Colonization and focus on the economics.)

Colonization & Imperialism

Colonization generally implies settlement by colonizing peoples. The dominant state “absorbs” the colony into their cultural identity with formal “empire”-style dominance and sends its own populace to live there, claiming the land directly. Imperial states continued the power dynamic but with less significant settlement, as Imperial states focused more exclusively on controlling the politics and economics of supplier states.

Dependency Theory is a concept based on the global relation of economic domination and exploitation by the more economically powerful countries over the less economically powerful countries. As a result of the unequal distribution of power and resources, some countries have developed at a faster pace than others.”

Matthew Rose, OurPolitics.net

For hundreds of years, Colonization and Imperialism established massive, almost one-directional exploitation of resources, providing major advantages for European states to accumulate resources. Many social, religious, and cultural justifications were established by Imperial Powers to validate the imbalanced relationships between nation-states and their subjugated territories, many of which continue to affect the balance of power between ethnocentric groups in modern society. 

Imperial Inheritance

The Age of Imperialism nominally ended with the World Wars of the 20th century. Dependent states began mobilizing nationalist identities and reclaiming sovereignty while European states were facing off in cross-continental conflicts. Though the constructs of Imperialism were crumbling, post-Imperialist states still retain(ed) their dramatic advantages of wealth, infrastructure, and technology, leading to the continuation of many biased trade deals that are reminiscent of Imperialism.

Economic advantages by post-Imperialist states accelerated their transition into Industrial and Information Ages, deepening inequality as supplier states became increasingly drained of resources and economic leverage. These inequalities are still evident in today’s globalized supply chains. However, until recently, the accessibility of information was limited, and so there has been minimal accountability for the individuals who actively perpetuate this status quo.

A greater understanding of the economic forces that influence the flow of resources is necessary to improve overall decision-making and reform the social imbalances and environmental risks of the current global system. As digital connectivity enables private citizens to exchange information at rapid rates, individuals are beginning to recognize the consequences of their lifestyle choices. Recognizing the implications of personal activities in the context of the global landscape can empower our decision-making to reform the system. By casting dollar votes in the direction of our values, it is possible to contribute towards a world that emphasizes Environmental Sustainability, Social Equality, and Economic Justice.

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About Chris O'Colla

Chris O’Colla is an economics enthusiast and generally swell dude (self-assessed). Chris studied various things at universities and acquired his MBA at great expense (debt). Realizing that that fatalist attitudes and poor decision-making in regards to money often stem from a lack of economic understanding, Chris decided to share his learnings, opinions and experiences in the hopes of educating people about the logistics of the Money Economy. Chris enjoys herbal teas and winged armchairs, usually alongside literature by economists Milton Friedman, Friedrich Hayek, and John Kenneth Galbraith.