The Retreat of the State: The Diffusion of Power in the World Economy

Strange argues that the territorial boundaries of states no longer coincide with the limits of political authority over economy and society[citation:15]. Power has diffused away from national governments toward non-state authorities—transnational corporations, mafias, accounting firms, insurers, cartels, and international bureaucrats—whose decisions determine who gets what in the world economy[citation:1][citation:4]. She rejects the realist paradigm that treats the state as the primary or only actor, and she rejects the assumption that states are unitary actors whose power remains intact. The book's paradox is that states themselves deliberately handed authority to markets[citation:5].

Strange develops a theoretical framework for analyzing who governs the world economy when state authority is no longer the only source of power[citation:1]. She builds on the four primary structures she introduced in States and Markets—security, production, finance, and knowledge—showing how each spills over territorial boundaries and is exercised by non-state actors as well as states[citation:15]. In the preface to Retreat, she offers a mea culpa, suggesting that 'Markets and Authorities' would have been a more accurate title for the 1988 book, acknowledging that her earlier emphasis on the state's primacy was a mistake[citation:16].

Strange argues that the shift from state authority to market authority has been largely the result of state policies. Transnational corporations did not steal power from governments; it was handed to them 'on a plate—and, moreover, for reasons of state'[citation:5]. Governments pursued privatization, deregulation, and liberalization at the behest of multilateral financial institutions, giving transnational corporations the role of determining who gets what in the world system. The paradox is that states actively created the conditions for their own declining authority, often in the name of national interest or economic efficiency.

Strange dedicates empirical chapters to a diverse range of non-state authorities: telecommunications and the control of communication, organized crime and the mafias, the insurance business as risk managers, the Big Six accounting firms, cartels and private protectionism, and international organizations she calls 'econocrats'[citation:6][citation:18]. She shows how each of these actors exercises power over outcomes that were once the prerogative of states. For example, transnational corporations control foreign direct investment, intra-firm trade, and tax extraction; accounting firms set global standards; and mafias exercise authority in spaces where state enforcement has receded.

Reception has been broadly positive, with Stephen J. Kobrin writing in the American Political Science Review that the book 'deserves a very wide readership among those interested in where the modern territorial state and the modern state system are headed'[citation:4]. Bertrand Badie of Sciences Po praised it for closing a debate and showing that while the territorial state has not disappeared, it loses capacity in all domains[citation:13]. A key criticism is that Strange does not extend her discussion to include conflicts and contradictions within the various sources of power, or who reconciles them. Some argue her anti-statocentric thesis does not invalidate the state as the determining unit of analysis[citation:5].

Strange ends with a reference to 'Pinocchio's problem,' a metaphor for the dilemma of authority in a world where states can no longer control the puppets they have created[citation:11]. The image captures her central concern: states have unleashed market forces and non-state authorities that now operate beyond their control, much like Geppetto's puppet who came to life and went his own way. The conclusion points to the need for new forms of accountability and governance to match the diffusion of power she has documented, though she remains skeptical that any single institution can replace the state's former role.