The state began using its sovereignty for becoming an owner of industries and a strong regulator and determinant of the economic life of the society. Consequently, it began wielding a large amount of power over the socio-economic life of the people.
However, the last decade of the 20th century witnessed the liquidation of the socialist economic model and the consequent emergence of a strong wave of politico-economic liberalisation of economy and politics in all the states, Globalisation emerged in the sphere of international business, economic and trade relations. It began replacing the traditional concept of internationalism.
The role and functions of the state in the economic sphere began declining. While its role as a protector and promoter of conditions for human welfare continued to operate as before, its economic functions began undergoing a change from the role of an owner and regulator to a role of facilitator, coordinator and supervisor of the- economic life.
In fact today several factors have been acting to place some practical limitations on the sovereignty of the state:
1. The acceptance and March of the process of liberalisation-privatisation has acted as a source of limitation on the role of the state in the economic sphere. The failure of the public sector to deliver the desired goods and services, the decline of faith in the ability of the state to organise and manage production of goods and services for the people, have together led to a decline is the economic functions of the state.
2. The emergence of free trade, market competition, multinational corporations and international economic organisations and trading blocs like European Union, NAFTA, APEC, ASEAN and others, have limited the scope of the operations of state sovereignty in the sphere of international economic relations. The member states of the European Union, for example, have to abide by the rules and policies made by this organisation.
3. Increasing international inter-dependence has compelled the state to accept limitations on its external sovereignty. Each state now finds it essential to accept the rules of international economic system, the WTO, the World Bank and the IMF.
4. Globalisation has encouraged and expanded people-to-people socio-economic cultural relations among all the people of the world. IT revolution and development of fast means of transport and communications have been together making the world a real Global Community which, now appears to be developing towards a global village.
The people of each state now deal with people of other states as members of the World Community. The loyalty towards their respective states continues, but now they do not hesitate to oppose those policies of their states which they feel are not in tune with the demands of globalisation. Even the movement for opposing globalisation has tended to bring the people of world on one platform and instill among them a feeling of community living at the global level.
5. The state continues to maintain its military power as an important dimension of its national power. However, the strength being gained by movement for international peace and peaceful coexistence as the way of life has tended to reduce the importance of military power of the state.
6. Several international conventions and treaties have placed some limitations upon all the states. All the states are today bound by the rules and norms laid down by several such conventions. The need to fight the menace of terrorism and rogue nuclear proliferation as well as the shared responsibilities to protect the environment and guarantee all human rights of all have compelled all the states to accept such rules and regulations as are considered essential for the securing of these objectives.
Thus, Globalisation and several other factors have been together responsible for putting pressure on the sovereignty of the state. The role of the state in the economic relations has undergone a big change. It has got reduced. The operation of the new international economic system with globalisation as its objective has been further reducing the role of the state sovereignty.
Several scholars hold that globalisation has essentially limited the concept of state sovereignty. While some of them, the ‘die-hard pluralists’ accept it as useful and ideal some others—the ‘die-hard nationalists’ regard it as an undesirable and harmful development. Neither of these two views is however fully valid.
State sovereignty continues to be intact in its internal and external dimensions. The state continues to be a sovereign state and its sovereignty continues to be comprehensive, permanent and absolute. While its functions have undergone a change, the World has now 192 sovereign independent and equal sovereign nation-states. People continue to live and enjoy their lives as citizens of their respective states.
The new needs for global level economic and trade cooperation, protection of environment, protection and security of all human rights of all, the need to collectively fight the menace of international terrorism and the need to fight a collective war against poverty, hunger, disease and under-development have changed the role of state in the 21st century. It does not, however, mean either the end of sovereignty or a serious limitation on the sovereignty of state.