Globalised firms are dependent on state

It would be easy to conclude from this week\'s cover story that the state\'s role in economic life is diminishing. Many assume that as companies become increasingly globalised, the state necessarily becomes weaker. However, on closer inspection this assumption proves to be wrong.

It is true that the largest British companies have become global. Some 62% of the total sales of FTSE 100 companies are made overseas. Many FTSE 100 companies are also listed on exchanges besides London and some produce their accounts in dollars.

Of course, these stocks are only part of the economy. Medium-sized and small companies tend to be more domestically orientated than their larger peers. The typical FTSE 100 company is substantially more global than corporate Britain as a whole.

But even if the economy is examined in aggregate it is still pretty international. External trade is equivalent to about half of Britain’s GDP. Britain also plays an important role in the global circuit of financial flows around the world.

The mistake that many commentators make is to assume that greater globalisation means less state intervention. In recent decades the state has become more interventionist at the same time as firms have become more globalised. The two trends are mutually reinforcing rather than contradictory.

Obviously state intervention takes the form of nationalisation less often than it did in the past. Some of the lumbering state-owned giants of old, such as British Steel and the National Coal Board, have become part of the private sector. In the process they have changed their names and shed a large part of their workforce.

But while nationalisation has lost popularity, the web of regulation has become ever greater. National legislation has become more intrusive and detailed European Union rules have often been added to it. The former nationalised sector even has its own specialist regulatory bodies to watch over it.

A key indication that the state plays a central role in the economy is the continuing high level of public spending as a proportion of economic output. In 1979 Margaret Thatcher’s first Conservative government was elected with the self-proclaimed mission of rolling back the frontiers of the state. Yet despite the self-congratulatory rhetoric, it failed in its task. It seems today’s globalised companies depend on ever higher levels of state intervention.