Martin Kaspar is head of business development at a German Mittelstand company in the automotive industry. E-mail: martin.georg.kaspar@googlemail.com

In recent decades, power emphatically resided with the corporate sector. The economic clout of companies like Shell or Volkswagen towered over mid-sized European nations like Finland or Portugal, let alone the smaller east European or Baltic nations. The prowess of large multinationals allowed them to side-step national rules, surpassing the regulatory reach of all but a few large states. Foreign direct investment (FDI) became a major factor in capital formation and job creation, and seemed to only be decided upon in corporate boardrooms. With the rise of the digital economy, many believed nation states would lose the last vestiges of control, and were seen to be a phase-out model, a relic of the past. 

As it turns out, this couldn’t have been more wrong. A series of events triggered a remarkable reversal of history: the 2008 financial crisis brought the global financial system to its knees and banking sectors were bailed-out by their governments. The Covid-19 pandemic couldn’t have been managed without them, either. The most dramatic development, however, is the forceful return of geopolitics: Russia’s invasion of Ukraine, a war in the Middle East, a series of coups in Africa and Houthi rebel attacks that choked a main artery of global trade. 

The narrative has now changed and we are faced with the fallout of ‘America First’, Brexit and a surge of investment-screening schemes. In a growing number of corners, globalisation is no longer seen as the motor for wealth creation, but the reason for income inequality and social decline. To a certain degree, this might have a kernel of truth.

The rules-based system of the past, based on institutions such as the World Trade Organization, is giving way to states pursuing their own interests with tariffs, export restrictions and — in the case of the EU — regulatory hyperbole. The costs of the single market’s countless new reporting and disclosure obligations arguably outweigh the benefits, and are starting to kill off a much-needed economic recovery.

Taming corporates’ sway was needed to rebalance power, but overshooting might make the current reassertion of the nation state a short-lived episode.

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This article first appeared in the April/May 2024 print edition of fDi Intelligence.