This system worked just great for a long time. However, the organization of the nation has a new enemy, and that is the Transnational Entity.
A Transnational Entity (transnation/metanation), like a nation, claims ownership over a group of citizenry. It administers this ownership through a set of shared ethnic, religious, philosophical and other cultural connections. These citizens are universally members of an extant nation, but hold their allegiance to the metanation over the allegiance to thier home nation.
The best examples of this metanation are generally religious. While many Jews are citizens of other nations, they are first and foremost, Jews. The same goes for Muslims. Specialist fields often form into metanations, as scientists on both sides of the Iron Curtain would share information, smuggling secrets in and out.
The most important feature of a metanation is that it trumps the actual nation of residency when it comes to decision making. This works out okay when the metanation's goals are inline with the nation's, but what happens when American Citizens decide to buy in with Al Qaeda because they have a stronger connection with their faith than the US? Or when programmers ship cryptograhpic algorithms to other programmers, in other nations (constituting arms trafficking).
The European expulsion of the Jews happened, not because of religion, but because historically, we have had a fear of metanations. Historically, they were more ethnic than anything else, Jews, Gypsys, etc., but they were uncontrollable. A metanation has the capacity to slip in, self organize, and conquer you from within faster than you could imagine.
The US has created a unique solution to metanations- our government and society encourages metanations, to such a degree that a large mass of metanations are all competing, and what arises is a gestalt. The "Melting Pot", though the latter half of the twentieth century has reversed that to a degree.