Globalisation has resulted in an erosion of state capacity, meaning the ability of governments to do what they do has diminished. The old 'welfare state' is now giving way to a more minimalist state that performs only core functions such as the maintenance of law and order and the security of its citizens, withdrawing from earlier welfare functions directed at economic and social well-being.

In place of the welfare state, the market becomes the prime determinant of economic and social priorities. The entry and increased role of multinational companies all over the world leads to a reduction in the capacity of governments to take decisions on their own.

Critics argue that the weakening of the state leads to a reduction in its capacity to protect the interests of its poor. This withdrawal benefits a small section while impoverishing those dependent on the government for jobs and welfare. Some economists have even described economic globalisation as re-colonisation, necessitating 'social safety nets' to minimise negative effects.

However, globalisation does not always reduce state capacity. The primacy of the state continues to be the unchallenged basis of political community. In some respects, state capacity has received a boost as a consequence of globalisation, with enhanced technologies available at the disposal of the state to collect information, making the state better able to rule.