In neighboring Malaysia, Dr. Mahathir had boldly reinstituted capital controls, a move applauded by the likes of Paul Krugman only if the imposition of controls is temporary. Dr. Mahathir s actions illustrated the residual capacities of nation-states entities believed to be on their way to the museum of antiquities due to globalization. While globalization may have the immediate effect of undermining both state capacity and legitimacy everywhere in the world, it does not eliminate the continuing need of even transnational economic actors for public goods that only a public agency such as the state can best provide. In the long run, however, returns on these markets depend on the existence of an interstate system in which the principal national economies are under the control of competent and responsible state actors. In this sense, markets also need competent states.
States can also tame the wide gyrations of wayward markets.
These points will be elaborated in future installments of this column. Today, as I take stock of what I stand for and believe in, I must confess that I have gone on an intellectual transformation of sorts. I now argue, unlike before, that states and markets are not adversarial institutions. Indeed, curbing the over-bearing state may be necessary for markets to grow and flourish. The magic of the market is only realized insofar as markets are free and unmonopolized.