Taha

POLS 525Dr Ibrahim El NurInternational Political Economy and Political ChangeHagar Ahmed M. Taha900-02-1652Book Review 28th, October, 2007

The Retreat of the State: A Book Review

Susan Strange ends her thoughtful and controversial

book, The Retreat of the State: The Diffusion of Power in the World Economy,

with what she calls “Pinocchio’s Problem.”1 “His problem, at

the end of the story,” in her point of view, “was no longer

that when he told lies his nose grew longer. He has already

learnt that lies were wrong.” Rather, “his problem when he

finally turned, magically, from a wooden puppet into a real

boy was that he had no strings to guide him. He had to make

up his own mind what to do and whose authority to respect

and whose to challenge and resist.”2 Interestingly, Strange

argues that “we too have Pinocchio’s problem.”3 With the

All this book review is based mainly on Susan Strange's book; The Retreatof The State. I have tried as much as I can to cite her words whenever I quoted her, but I apologize if any part of my writing has been affected unintentionally by her words and which I failed to recognize and thus cite. 1 Strange, Susan. The Retreat of the State: The Diffusion of Power in World Economy. Cambridge University Press: London, 1996. 2 Ibid, p.1993 Ibid, p.199

- 1 -

Taha

triumph of the market economy and the end of the Cold War,

the strings that used to connect us forcefully to the

nation-state started to diminish and we began to be left

alone –like Pinocchio – with nothing to move us to a certain

direction as we used to. We are left in a world with

multiple allegiances, loyalties and identities and we have

nothing but our "individual consciences" to guide our way.

Strange’s aim in this book is to prove that “the impersonal

forces of world market integrated over the postwar period

more by private enterprise in finance, industry and trade

than by the cooperative decisions of governments, are now

more powerful than states to whom ultimate political

authority over society and economy is supposed to belong.”4

The argument of the book depends a great deal on two

neglected factors in the study of International Political

Economy and they are rapid technological advancement and the

other one is finance and the input of capital. Underlying

Strange’s argument, there are three premises and they are;

first that politics is a common activity and not restricted

4 Ibid, p.4

- 2 -

Taha

to politicians and state officials. The second one is that

power over outcomes is exercised impersonally by markets and

often involuntarily by those who buy and sell and deal in

these markets. The third premise underlying Strange’s

argument is that authority in society and over economic

transactions is legitimately exercised by mediators other

than states and this also has come to be acknowledged by

those who are subject to this authority.5 For proving these

premises, Strange dedicates the first part of her book to

lay the theoretical foundation in which she challenges and

tries to redefine the concepts of power, politics, and

authority in International Relations and International

Political Economy fields. She lays this foundation for the

sake of testing three hypotheses in her book and they are

first that power has shifted upward from weak states to

stronger ones who have more regional as well as global reach

beyond their frontiers. The second hypothesis is that power

has shifted “sideways” from states to market and other non-

state actors who derive power from their market shares. The

5 Ibid, p.12

- 3 -

Taha

third one is that some of the power that was traditionally

practiced by the state and its government is now basically

practiced by no one, creating some sort of power vacuum.6 In

the second part of her book, Strange tests her hypotheses

through examining six sources of authority other than the

state with their growing influence in world markets and thus

affecting politics and weakening the traditional authority

of the sates. These sources are not even in the state

acceptance of them – though they are all powerful – and they

are telecommunications, mafias, insurance business, the Big

Six Accountants, cartels and private protectionism and the

last source of authority examined by Strange is

international organizations.

Susan Strange (June 9, 1923 - October 25, 1998) was an

influential British academic in the field of International

Political Economy and her books include Casino Capitalism, Mad

Money, States and Markets and Rival States, Rival Firms to name just a

few. She was the first female president of the International

Studies Association and was involved in setting up the

6 Ibid, p.189

- 4 -

Taha

British International Studies Association besides her early

career in journalism.

This book review is organized into two main parts; the

first one will be mainly dedicated to the brief statement of

Strange’s argument and the evidences she provides to support

this argument and the final conclusions she drew at the end

of her book. The second part will be mainly the evaluation

of the author’s argument, the way she supported it and

whether this is all was convincing and contributing to the

study of International Political Economy or not, and at the

end I will be finishing this part with final remarks.

Part one: Brief examination of Argument, Evidences and

Conclusions

As mentioned earlier in the introduction, the main

argument of Strange is the diminishing authority of the

state over societies and economies unlike what used to be

the case since the Treaty of Westphalia in 1659 that led to

the creation of the modern nation-state. It is very

important here to note that Strange does not claim that the

state is disappearing. Rather, she argues that it is no

- 5 -

Taha

longer the main source of authority over societies and

economies and it is just becoming one of the many different

and rival sources of power. As Strange argues in her book,

it is very hard for IR and IPE students to grasp Strange’s

argument without her challenging their “state-centric”

academic discourse and redefining the basic three

assumptions on which her argument and their discourse may

differ. These assumptions are; the concepts of power,

politics and authority.

In her point of view and away of semantic discussions,

“Power is simply the ability of a person or group of persons

so to affect outcomes that their preferences take precedence

over the preferences of others.”7 Under this definition, not

only the state - which dominates the power of using violence

- but also any other actor that can affect outcomes in a way

that favors its preference is in fact powerful and this

gives way to the power of markets. Power has been neglected

– as a concept – in the study of IR and IPE because of three

reasons and they are; first the “bounded rationality” to

7 Ibid, p.17

- 6 -

Taha

which the discipline is obliged and which does not allow for

a messy concept such as power. The second reason is what

Strange’s call “the hegemonic obsession” in these

disciplines which defines power more on the basis the

capacity of resources rather than the ability to affect

outcomes and this counter the argument that the power of the

US is declining because she says that the American ability

to affect outcomes – more than its actual resource

capability – is still there and growing.

Then Strange challenges the concept of politics in

which she introduces a more comprehensive understanding than

the one usually provided by political scientists or

economists. She argues that “Against the political

scientists, one is constantly crying for more attention to

economic factors, to market, to prices, to finance. To the

others, the economists, one is constantly protesting with

equal vehemence the relevance of the choices that are

essentially subjective and political, the importance of law

and organization for functioning of markets and to

constraint the behaviour of markets operators, the role of

- 7 -

Taha

history and perceptions of history in policymaking.”8 In

light of this complex understanding of politics, Strange

provides a more comprehensive understanding of the subject.

She rejects the state-centered understanding of the concept

of politics which was based on the main two functions of the

state; security and issuing currency, as the two of them no

more revolve around or are restricted to the state alone.

Thus she suggests that the definition of politics to be

adopted is De Jouvenel’s definition in which he sees

political science as “the study of political life – the

capacity to bring into being a stream of wills: to canalise

the stream and regularise and institutionalise the resulting

cooperation.”9 To this definition she adds that the

definition of politics should cover not only the bringing

into being of stream of wills, but also “the consequences

while the association lasts, and if and when it

disintegrates, how and why it does and with what results.”10

This makes the agenda that defines what political is much

8 Ibid, p.319 Ibid, p.3510 Ibid, p.36

- 8 -

Taha

more comprehensive in Strange’s point of view; the thing

that enables the inclusion of forces of power other than the

state such as Transnational Corporations.

The third challenge Strange presents in the first part

of her book which is dedicated to theoretical foundations

for her argument is for the concept of authority. Strange

argues that the growing authority of the TNCs can only be

understood if one examines the questions posed by the

previous outlined concepts in a much broad sense. If the

power concept poses the question of “what outcomes can make

a certain force powerful?” and if the concept of politics

poses the question of “what aims can be used to organize

people?”, the answers of these two questions can determine

the extent of the authority of TNCs. Narrow answers such as

having security as the main outcomes and maintaining

international balance of power as the aim of politics, then

TNCs are not exercising any valuable authority on modern

societies and economies. But since this would be

contradiction to the reality of the daily lives of all

people, Strange suggests that the answers should be tackled

- 9 -

Taha

in a broad sense to include outcomes and aims other than

security and international balance of power – such as

production structure, knowledge structure and financial

structure that affect the politics in our world. Strange has

four main arguments to support the growing authority of

TNCs thesis and they are; first, that “states collectively

have retreated from their former participation in the

ownership control over industry, services and trade, and

even from the direction of research and innovation in

technology,”11 through the privatization process. The second

one is that “TNCs have done more than states and

international aid organizations in the last decade to

redistribute wealth from the developed industrialized

countries to the poorer developing ones.”12 The third

hypothesis is that is the significant area of labour-

management relations, “TNCs have come to take from

governments the major role in resolving, or at least

managing, conflict interest.”13 The last one is that “firms

11 Ibid, p.5412 Ibid, p.5413 Ibid, p.54

- 10 -

Taha

have increasingly escaped the taxation of corporate profits

by governments and themselves are in some respects acting as

tax-farmers and collectors or revenues.”14 Strange - for

these four factors - argues that the authority of TNCs is

growing in parallel to the authority of the modern state. To

prove that the state is “becoming, once more and as in the

past, just one source of authority among several, with

limited powers and resources,”15 she discusses ten important

power responsibilities traditionally attributed to the state

but now moving to other non-state actors such as the

traditional power of the state to define national territory

against foreign invasion but in fact “territory is no longer

a crucial factor in determining the prosperity of the

national defense,” as the competition for world market

shares has replaced competition for territory as “the name

of the game between states.”16 Thus, Strange argues that the

declining authority of the state is being now shared by

other non-state sources such as TNCs. But this share of

14 Ibid, p.5415 Ibid, p.7316 Ibid, p.73

- 11 -

Taha

authority does not mean that the state is not there anymore

or actually vanishing, but rather, she argues that people

still depend on states on certain functions but in other

functions they became more aware of the other and

competitive growing authorities other than the state.

The second part of the book is dedicated to providing

empirical evidence to the argument presented by Strange. She

basically provides six examples of different kinds of

growing non-state authorities in today’s world. These six

examples are: telecommunications, mafias, Insurance

Business, Big Six Accountants, cartels and private

protectionism and international organizations. Strange has

picked these examples on the basis of the state acceptance –

not necessarily allowance – of their existence. She argues

that for the mafia their existence is delegitimized by the

government, whereas the existence of Big Six Accountants and

insurance business is legitimized and acceptable. Between

those two extremes, there is a grey area for both cartels

and international organizations whose existence sometime is

- 12 -

Taha

legitimized and acceptable by the state while in other

times, it is not.

Strange’s conclusion examines the effect of the

diffusion of authority over markets and society in regard to

what she considers the most major issues that affect almost

all societies and economies and they are; security issue,

job, income and employment issue and management of money as

the very foundation of any market economy in Strange’s point

of view. She suggests that in regard to the issue of

security, there is a growing disregard to the rule of law

and in general a loss of security. On the second issue she

argues that market economy has indeed generated more jobs

and wealth for many people in the world but at the same

time, it has led others to more poverty and distress. In

regard to the third issue, she argues that she actually has

an “optimistic answer” to how it will unfold. She believes

that though we live in a world economy full of grey areas

with many towns have neither security nor property, but

“many people nevertheless manage to eat, sleep and keep

- 13 -

Taha

warm.”17 She argues that the world economy acts like a body

when it loses its limbs; it finds a way to function in a

less than complete and ideal way. The system will find a way

to survive and adjust to the structural changes it is going

through. But the most crucial thing that the world is in

need of – in Strange’s point of view – is “loyal

opposition.”18 What she means by that is that the growing

and competitive authorities are in need for a “balance of

power” system that might in fact creates a new world order.

Part Two: Evaluation and Final Remarks

At the very beginning of her book, Strange confessed

that "There is no great originality in the underlying

assumption of this book"19 and this is very true. The

argument that the territorial nation-state is no longer

exerting the ultimate authority on societies and economies

is an idea that has been brought up by other writers and

17 Ibid, 191 18 Ibid, 19819 Ibid, ix

- 14 -

Taha

academics in social science field. In spite of that, the

contribution of Strange's book is not to be undermined

because her thoughtful analysis brings together the

different parts of the argument properly in a precise and

comprehensive way. At a certain point, the reader of the

Retreat of the State would think that it is somehow a literature

review of the contributions of previous writers on the issue

whatever their orientations or disciplines. This itself – in

fact – adds to the importance of Strange's work because she

was able to creatively examine a dense amount of literature

on the subject and present it nicely and to a great extent

convincingly and use all that to support her argument and

pin point at future areas that need further research. Thus,

Strange is not original when it comes to the main argument,

but she is definitely original in the methodology with which

she used to prove her argument. The theoretical basis which

takes the first half of the book was actually very important

in order to challenge the "colonization" of state-centrism

to social science fields – in her words. The basis was

important because she was actually aiming at changing the

- 15 -

Taha

foundations on which modern social sciences are built on.

Since her aim was not simply to just sketch out the changes

happening in the world economy, she actively engaged in a

critique to both the study of International Relations and

International Political Economy. She criticized the state-

centrism of the study of IR which is dominated by Realist

School and at the same time she criticized the economic-

rationality-centrism of the study of IPE which is mainly

dominated by Neo-liberal discourse. Since the world in

reality is much more complicated than these sciences claim,

she argues that these disciplines needs to be diffused as

well as seriously examined in order for them to be more

explanatory to the real world. That is why she dedicated the

first part of her book just for defining three of the most

controversial concepts of social sciences - power, politics

and authority - and she rightly argued that for any one who

wants really to understand her main thesis in the book, s/he

has to look at these cornerstone concepts and the way she

defines them. The theoretical foundation of the book could

- 16 -

Taha

be indeed considered the original contribution of Strange in

her book.

Regarding the second part of the book is the empirical

evidences of her argument in which she examined six of the

growing non-state authorities and the challenge they pose to

the authority of the state, she was less original and less

convincing in this part than the previous theoretical one.

One reason for the weakness of this part could be due to –

according to what she actually admits in the book – her lack

of knowledge on many of the subjects discussed in the

examples she provided. She admitted that she does not know

much about mafias and if it were not for Letizia Paoli and

his assistance she would not have been able to write on the

subject, but still it was clear in her writing and made the

chapter looks neither coherent not well supported, and the

same could be said for her chapter on international

organizations. Her power of analysis is back in topics

related to her expertise such as the chapter on

telecommunications and insurance business. The chapter on

cartels was magnificent because it was more of a discovery

- 17 -

Taha

to a whole area of world economy which has been literally

almost unspoken of by modern academics in IR and IPE. This

second part of the book gives a good introduction to these

wide subjects that may be later on further examined by

future research. May be this was Strange's concern from the

beginning. She knew that she did not master all the examples

that she was dealing with in the second part of her book,

but yet she decided to write about them and deal with them.

She may wanted to draw the attention of readers, students

and academics to the existence of these examples – no matter

weak the presentation was – and leave the rest for other

future research. It is also important to look at this book

as somehow the updating of her other two previous books on

the same subject and they are; States and Markets (1988) and

Rival States, Rival Firms: Competition for World Market Shares (1991) which

was written with John M. Stopford. Those other two books

give more analysis to the forces of market and its growing

authority so may be she did not want to repeat those books

but only wanted to add to them and put them in a more modern

and comprehensive picture. Indeed, Strange's book – whether

- 18 -

Taha

one agrees with its underlying assumption or not – is a

comprehensive and thoughtful analysis to today's world

economy and a good critique to the discipline of studying

it.

Strange's career in journalism has a profound impact in

her style of writing and approach to the topic. She writes

in a very simple, though sophisticated way about a very

important issue that our daily lives is directly and

indirectly affected with it in many ways. Like her, we

should open our eyes to our daily lives and take a deep look

at what is happening around us. As social science students,

we are disciplined in the most rational and empirical way

that we reach a point in which we think that creativity or

criticism to the mainstream academic understanding of

society, economy or international system is some sort of

"apostasy" with what we have been learning. But we should

constantly examine what we learn against the reality we are

living in everyday. The nation-state as it was designed to

be about four centuries ago in the Treaty of Westphalia is

no longer there. It did not disappear, but our daily lives

- 19 -

Taha

and connections are no longer directly and solely dependent

on it. Many people define their identity and allegiance on

much more wider and diverse communities other than their

states'. Many people would not be willing to sacrifice their

lives for their state, but would gladly do that for other

authorities to which they belong. Territories no longer

confine people and limit their options in life; migration –

whether legal or not – for many economical, ideological

and/or social reasons that we witness every day represents

in fact a real challenge to the decline of this sacred

territorial assumption. The growing power of market economy

that affects every single human being in the world – some

positively and some negatively – and the effect of that on

the conduct of state as well non-state politics in its broad

definition, is something that we witness in everyday

headlines. The power of Strange's book comes form this

simple idea that exists around all of us. She was sensitive

and critical enough to detect it not only to mention it as

an "interesting and exceptional" phenomenon, but as a proof

to the systematic change of the world order as we know it.

- 20 -

Taha

Till this new order takes shape, we are all left alone to

decide which authority to follow and which authority to

challenge, just like Pinocchio.

Bibliography

Strange, Susan. The Retreat of the State: The Diffusion of Power in

World Economy. Cambridge University Press: London, 1996.

Kobrin, Srephen. "The Retreat of the State: Review."

The American Political Science Review, Vol. 92, No.1. March, 1998,

pp.270-272.

- 21 -