In the Westphalian state system the basic unit of economic governance is the national market defined, as is the sovereign state, in terms of mutually exclusive geographic jurisdiction. Economic governance – attempts to exert authority over economies and economic actors – is exercised through borders and territorial jurisdiction.

In this chapter I argue that the emerging global world economy compromises the effectiveness of national market-based economic governance. As the minimal spatial extent of product markets grows larger than the geographic scope of the larger national markets, the latter no longer remain viable as basic units in the world economy. As an electronically networked world economy renders economic borders less meaningful, jurisdiction loses significance. As markets are increasingly constructed in cyberspace, control through control over territory becomes problematic.

In contrast, an international or crossborder world economy comprising a system of interconnected, geographically defined, national markets does not necessarily compromise territorial control. Although jurisdictional ambiguity or conflict may make economic governance more difficult, regulation and taxation through territorial national markets remain viable.

Globalization entails a systemic change in the organization of economics (and politics) comparable in scope to the transition from the feudal epoch to the modern or Westphalian system in Europe roughly four hundred years ago.