The development of increasingly transnationalized ('globalized') financial markets raises several key issues for the analysis of politics, public policy, and the national state. This article suggests that financial globalization increasingly constrains policymakers and circumscribes the policy capacity of the state. After looking briefly at a range of approaches to the process of financial globalization itself, the author suggests that technological change is the main independent variable, by reducing transaction costs and dramatically increasing the price sensitivity of financial markets across borders, while at the same time making possible a range of economies of scale. These very developments have a knock-on effect throughout the domestic and international economies. They in turn make obsolescent the political economies of scale the governance structures - which have characterized economic policy in modern nation-states, undermining the capacity of the state to produce public goods. At the same time, globalized financial markets interact with rapidly changing interest group structures and divided state structures, especially through 'regulatory arbitrage.' Without the development of transnational regimes capable of regulating global financial markets, the structural basis of the national state itself is being undermined, and Polanyi's 'Great Transformation' is over.
