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Contents
INTRODUCTION: ..........................................................................................................................3
CHALLENGES AND OPPORTUNITIES IN GLOBALIZATION:...............................................5
THEORETICAL PERSPECTIVES OF INTERNATIONAL POLITICAL ECONOMY ...............6
1. MERCANTILISM AND ECONOMIC NATIONALISM ............................................... 6
2. CLASSICAL LIBERALISM AND NEO-LIBERALISM ............................................... 7
3. IMPERIALISM, DEPENDENCY AND NEO-MARXISM ............................................ 8
STRATEGIES TO BALANCE STATE-MARKET TENSION:......................................................8
1. REGIONALIZATION: .................................................................................................... 9
2. MULTILATERALISM ................................................................................................... 9
MEANS TO COPE WITH GLOBALIZATION: ..........................................................................10
CONCLUSION: ............................................................................................................................12
INTRODUCTION:
Globalization is the phenomenon which connects the entire world, it is however debatable if this
is positive for world’s economy or not. Some countries benefit more than others that’s for sure, it
provides markets to developed countries for their goods and services and help developing
countries in building advanced infrastructure and facilities from foreign investments (Appadurai,
2001). The question is who the beneficiary is and who is being exploited and in developing
countries what should be the role of state in guiding the institutes and sectors in the realm of
globalization so as to gain maximum from the situation (Appadurai, 2001). When a country
becomes the centre of attraction for investors then various challenges arise for the state as well.
State has to regulate and monitor market forces to an extent that economy benefits (Appadurai,
2001).
Globalization is mainly driven by entrepreneurial spirit, technological breakthrough, trade
liberalization and participation on social networks across the globe (Boudreaux, 2008). The
deregulation of financial markets actually starts the process of globalization when interest rates
control is eased, financial capital is easily raised and available, import tariffs and restrictions are
relaxed, businesses are allowed to set up in minimum amount of time and investments in all
sectors are welcome even banking (Boudreaux, 2008). The critics of globalization consider it as
something blindly followed by everyone but even globalization has to follow some rules and
procedures stated by WTO (World Trade Organization).
Two factors that have really made the process fast are computers and internet (Boudreaux, 2008).
Computer and internet have become household names and technology transfer has become fast
as a result of these advancements (Boudreaux, 2008). Companies in different countries can buy
equity and ownership and hence go for mergers and acquisitions as a result of liberalization of
economies, take example of merger of German automaker company Daimler-Benz with their
American counterpart Chrysler. (Alberti)
As the globalization has strengthened itself over the years the conflicts among states have been
witnessed too. This is because the states think that in the name of globalization the bigger power
tends to make the smaller countries their hostage and only exploit them, they ask the developing
countries to liberalize their economies through pressurizing them by putting sanctions on their
aids and loans, but on the other hand do not open up their economy to that extent for developing
countries as they should. This creates hostility and may result in war. Therefore it is also
important to discuss and analyze the measures taken by international communities in order to
resolve this issue as it is threatening world peace the most.
World politics has always seen contentions and hostile takeovers by one country on another
because of resources and the struggle to get hold of more markets. Balance of power issues also
arise for the same reasons because one giant is threatened by the other on the basis of strength of
economy which means greater power in shaping politics. This paper also discusses these forces
in the light of globalization and other economic forces.
CHALLENGES AND OPPORTUNITIES IN GLOBALIZATION:
The impressive deliverable of globalization is that it’s not a zero sum game where one country
wins at the expense of another, all the countries involved can benefit from the situation. Some
countries benefit more than others (Brown & Labonté, 2011). This has been proved through
various researches that internal growth and production leads to economic growth and not balance
of trade (Brown & Labonté, 2011). It is worth noting that developed countries have not been as
forthcoming as they expect the developing countries to be. They have not lowered their trade
barriers in certain sectors like agriculture and textile where developing countries can really make
a difference (Brown & Labonté, 2011).
Intellectual properties rights and anti dumping policies also tend to discriminate against
developing countries (Gerdes, 2006). When developed countries make investments in developing
countries by setting up manufacturing facilities and offices they provide employment and open
doors to opportunities but since their head offices are in their native countries any restructuring
or strategic decision of curtailing leads to layoffs as well and this is where the state should
intervene in order to ensure that the negative externalities of globalization should be limited. For
example in Pakistan foreign banks were allowed to enter the market but somehow they couldn’t
retain their business as a result of which RBS, ABN AMRO, and Barclays all winded up their
business either through acquisitions or liquidation (Gerdes, 2006). After that State Bank of
Pakistan imposed very strict restrictions on banking sector (Gerdes, 2006).
World systems Theory addresses the same issue of state intervention and shaping the market
forces (Haugen & Mach, 2010). States and markets are interlinked firstly through international
trade and means of production, secondly states compete with each other for capital, investments
and market for their goods and services, thirdly the form of state-market interaction is
transmitted to other countries (Haugen & Mach, 2010), through the organization who participate
in globalization for example when Unilever and P&G go to any country they bring their work
culture and ethics with them and also their means of doing business and since these are giant
corporations they start shaping the laws of country according to their own interests. (Riain)
THEORETICAL PERSPECTIVES OF INTERNATIONAL POLITICAL
ECONOMY
Following are the theories related to international political economy which explains the different
schools of thoughts related to how economies should be run and how should the state intervene
and how much should be left on market forces (Haugen & Mach, 2010). These theories are
important to understand because they act as guiding principles in shaping the foreign policies of
various countries. (Falkner, 2011)
1. MERCANTILISM AND ECONOMIC NATIONALISM
Originated in sixteenth century Mercantilism still governs the foreign policies of nations
(Martens, Akin, Maud & Mohsin, 2010). Under this school of thought the state is considered to
exercise more power over the market in case of international anarchy and in this pursuit of
security the state will be able to maximize its wealth (Martens, Akin, Maud & Mohsin, 2010).
Just as money is important to power, power is to money and according to mercantilists as the
state will accumulate wealth it will gain power, classic example of it is US and UK they rule the
world (Martens, Akin, Maud & Mohsin, 2010), have veto power and share so many privileges
because of the size of their economy. Money and wealth can go hand in hand and both can be
acquired simultaneously in the long run but may be for the short term state has to let go of
money in order to secure itself from external threats that exist as a result of international anarchy
(Martens, Akin, Maud & Mohsin, 2010). This theory also believes the international economics to
be the zero sum game in which different economies compete and win or lose (Martens, Akin,
Maud & Mohsin, 2010).
2. CLASSICAL LIBERALISM AND NEO-LIBERALISM
This was given birth to in Western world in nineteenth century. Liberalism supports and
advocates the market mechanism and least state intervention. Adam Smith’s work is mostly a
criticism to mercantilism (Martens, Akin, Maud & Mohsin, 2010). Liberalism supports
individualism and pursuit of individual interests above all and it is considered to be economically
beneficial as a person or state will be free to pursue the policies which are benefitting them the
most (Miller, 2007). Market is the centre of this theory as market is the place where economic
interests are met in the most optimized manner (Miller, 2007). Therefore states should allocate
considerable amount of attention and resources in developing market mechanisms. Governments
are considered to be a hindrance in achieving economic growth and prosperity and therefore their
roles should be limited in determining market rules and regulations. Liberals are also very
progressive in their thoughts and beliefs (Miller, 2007).
The critics of this theory put forward a main point that free trade that liberalism stands for
actually is a disguise for rich countries to exploit the poor countries and it safeguards the
interests of only developed nations (Nederveen Pieterse, 2012). Secondly despite the free trade
mechanism in place the World War II could not be prevented, therefore it is worth noting that
liberalism and free trade alone cannot guarantee world peace (Nederveen Pieterse, 2012).
3. IMPERIALISM, DEPENDENCY AND NEO-MARXISM
At the end of World War II international socialists, economists and scientists started thinking
about expansion to third world countries and economic stability in them (Raschke, 2011). Third
world or underdeveloped countries are marked by two main features: one is dependency on
agriculture and second is small industrial sector (Raschke, 2011). This is what creates
dependency on other nations in order to fulfill the needs of their nation as they themselves are
incapable of doing so. Neo Marxism views imperialism as responsible for dependency and under
development of certain states as rich and developed countries sell their goods at higher value in
these states. Take the example of British colonialism in India; they were following their
imperialistic interests by selling their goods in India. (Keet, 2002)
STRATEGIES TO BALANCE STATE-MARKET TENSION:
The rightist and leftist have always been in conflict with each other when defining the role of
state and market with rightist believing that markets should be given central position with
maximum powers to operate freely as state can be oppressive and therefore hurt the market
sentiments, on the other hand leftist view the market as pitiless in distribution of wealth and tend
to create gaps between the rich and poor. Let us examine the strategies that are advised by world
economists in order to reduce tension between state and market:
1. REGIONALIZATION:
Regionalization is basically globalization but with respect to the region in which the country
exists. The North American Free Trade Agreement (NAFTA) is a treaty signed by three
countries: United States, Canada, and Mexico and it is a classic example of regionalization, in
order to avoid conflicts and tensions between state and international markets where one state
might think that it has been exploited, this agreement was signed. It encompasses tariff
elimination, license relaxation and non tariff measures in order to control trade. Now the
technical and non trade measures have taken toll on the process of regionalization, sometimes the
technical standards and other stringent policies make countries to shift their preference
altogether. Custom unions are a part of regionalization, Caribbean Community, Central American
Common Market and Mercosur are examples of these unions formed in Latin part of America.
These unions ensure a uniform structure of trade among the participating countries. Foreign
direct investments can be majorly done through regionalization and it has been observed that it
takes place when a country expands its market or becomes part of some regional group. (Beyond
Borders: The New Regionalism in Latin America, 2002)
2. MULTILATERALISM
General Agreement of Tariffs and Trade (GATT) and WTO are examples of this arrangement.
Two major developments shaping the force of multilateral systems includes multi polarity in
which many states are now playing major role and dominating the world unlike before when
only two three states tend to dictate trade terms for rest of the world. Earlier UN did not give
speaking rights to EU but as the economies grew they also started asking rights to take decisive
role in major matters and since then the forum has been opened for many states and regions.
Multilateral systems have also been utilized to protect intellectual rights and property. Services
that were excluded in regionalization were also made part of multi lateral systems. This means
opening up sectors like banking, finance, communication and transport to other countries. This
has helped in reducing the tension between state and market through creating acceptability and
close relations among nations. Lastly the states created rules to guide the activities and
operations of multinationals in their respective countries under multilateral agreements. This
reduced the complexities manifold and state can now govern the foreign companies and have
nothing to fear about the results. These systems help in reducing the conflict situations by
guiding the states in how to treat each other and what restrictions they can impose and what they
cannot. There are criticisms to this strategy as well, it is not as equality and fair distribution
supporter as it is thought to be, world’s greatest player demolished the rules by invading Iraq.
MEANS TO COPE WITH GLOBALIZATION:
When globalization hit the world and entered the developing countries, every other country tried
to benefit from it through focusing on exports and made it their vision for future development
plans (Reese, 2010). Financial crisis of 2008 taught the nations that world cannot be that open to
exports and economy should not be heavily reliant on it especially when many countries are
trying to develop it simultaneously (Reese, 2010). For example Pakistan, India and Bangladesh
all are competing for textile export and as a result of which they have to slash down their prices
and reduce their profit margins in order to be competitive (Reese, 2010). Therefore the first
strategy for developing countries in midst of globalization is to rely on internal demand.
Therefore it is important to analyze if there is enough potential in the markets to sustain the
demand and growth. Earlier this idea was mocked due to the low purchasing power parity of
developed countries (Reese, 2010). However the recent growth in developing countries and the
rise in middle clas (STEGER & WILSON, 2012) s have silenced the critics.
Secondly what the government in developing countries should do is to develop market forces in
order to ensure smooth flow of co ordination and information among government, market and
institutions ("Measuring Globalization", 2001). The government should take measure to improve
the organizational capacity of entrepreneurs. This is done through making sure corruption is no
longer present in institutions which would hinder the performance of entrepreneurs also in order
to make the operations seamless and hitch free they must implement policies which are business
friendly rather than imposing strict measures and controls which are unnecessary and increase
the time period for entrepreneurs (STEGER & WILSON, 2012).
Another important strategy is to privatize certain sectors in order to make the markets
competitive and not trying to control whole market. Private sector participation brings economic
growth and development to the country and reduces the state responsibility to provide
employment and livelihood to its citizens ("Measuring Globalization", 2001), but it is also
important to mention that not all the sectors and development projects should be given to private
sector as this signals that the government is weak and cannot handle anything on its own.
(Shantayanan Devarajan, 2012)
Initially in order to allow the local industries to develop and grow strict import controls have to
be in place otherwise the local manufacturers are not given fair chance and opportunity to grow.
But these controls should only be imposed in early stages of development (Martens, Akin, Maud
& Mohsin, 2010). As so as the economy moves to growth stage these controls should be removed
in order to make the market competitive. Otherwise the local producers don’t develop efficient
systems and start to slack in their performance (Martens, Akin, Maud & Mohsin, 2010). Their
systems are not updated and advanced, they don’t invest in research and development as much as
they should and they start charging higher prices for inferior quality goods because they have
support of government who would not allow foreign players to enter the domestic market.
(Mayer, 2013)
CONCLUSION:
In developing countries the role of state is very critical as market forces are not developed to that
extent. The classic example is that of Myanmar where the state controlled everything and did not
trade with any country the result was after 23 years of suppression, nothing was developed in the
country. Majority of the people were below poverty line and none of the institutions were in
place. There was immense international pressure on them to liberalize their economy and they
did so in 2014. Now look at them, most of the companies have declared them as the sleeping
giant and next big thing, telecommunication companies are viewing that region in order to grow
as that’s the country where nothing is developed and every company will have a chance to
increase its sales there with the growing middle class and increasing demand of people in order
to change their life style.
Developing countries therefore need to realize their importance and play in the world politics
accordingly. It is also a question asked by many that if democracy is better for developing
countries or dictatorship and it has been observed that initially when a country is developing then
it needs a form of government where decision process is fast and coherent which democracy fails
to provide, one of the biggest pitfall of democracy is that it doesn’t provide quick decision
making avenues. Take the example of Singapore, China and other successful countries which
were once developing and came below poverty line have successfully managed to change their
status quo and deliver growth rates above 7% for many consecutive years. Even the developed
countries now look up to them as a symbol of inspiration and seek their support in various
matters. These countries initially have dictatorship and same leadership for ten or more years, the
same leadership helped in quick decision making and these decisions remained intact for a
reasonable period of time till the results could be seen. The biggest advantage of democracy is
also its biggest pitfall, the government changes after every five years and so and the new
government takes pride in reversing every step that previous government has taken to improve
the conditions of the country and hence again the situation comes to zero.
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