Globalization and the Perfect Market - Research Paper Example

?Globalisation and the Introduction There is an ongoing debate that focuses on globalisation and the challenge it poses to the traditional concept of the nation-state. Under the traditional nation-contained political-economic system, the state is sovereign and regulates the economic affairs of the nation through policies governing corporations that operate within its borders. States are presumed to have absolute, supreme and unlimited power (Jackson 2007). As the trade and commerce grew among nations and mutual economic prosperity was seen as an advantage among the states, business relations became more complex, allowing for the development of multinational corporations. Companies which grew their subsidiaries in different countries and continents found themselves in a unique situation of transcending those states where they had a presence. As globalisation become more prevalent, states find themselves unable to enforce sovereign power that is supposed to be absolute, supreme and unlimited; instead, in the name of economic progress, states have learnt to negotiate, compromise, and in some extreme cases, capitulate before the large MNCs. Globalisation challenges the traditional link between constitutionalism and the state, and elevates constitutionalism to a transnational context (Anderson 2012). The purpose of this brief discussion is to cursorily explore the various issues posed by globalisation and how in response to them the nation-state has evolved, as embodied in the academic literature existing to date. The topic will cover the political, economic and legal implications of globalisation upon the state, and how the concept of statehood is being reinvented and redefined to adjust to the recent phenomenon of modern globalisation. Dimensions of Globalisation Ewoh, Matei and Matei (2013) distinguished among three dimensions of globalisation: economic, political and social globalisation. Economic globalisation refers to the long-distance flow of goods, capital, services, information and perceptions that influence the movement of valuations in market exchanges. Political globalisation includes the diffusion of government policies. Social globalisation is characterised by the spread of ideas, information, images and people. Among the three types of globalisation, it is political globalisation that has had the greatest impact on the manner in which states have transformed. Of particular interest in the investigation was the link between corruption and globalisation. In this empirical study, a direct correlation was found to exist between political globalisation, stability and impact of the anti-corruption strategies put to effect in states. The most powerful influences on political globalisation are related primarily to political stability, and secondarily to anti-corruption strategies. These findings indicate that the greater the degree of political globalisation of the state, the less likely it is subject to corruption. Globalisation and the Perfect Market Globalisation requires deregulation, but deregulation of the markets is premised on the condition that perfect market opportunities are present – this means complete transparency, complete information available to all players, transaction costs are zero, and the market is therefore efficient. It is well known, however, that markets are in reality inefficient, so deregulating the markets will be done without the assurance of free market conditions. The study by Prentis (2012) proved empirically that deregulating stock markets (and it assumed any auction market), particularly as a measure leading to globalisation, can actually hinder rather than help in returning stability to the markets. The findings of this study relate political ideology of the state to the level of its globalisation. The implication of a national economy that participates more fully in globalisation is that it tends to be more competitive, with greater openness to the free market forces; conversely, the less globalised a nation’s economy is, the more likely it is to be a welfare state where large government plays a role in regulation and control of economic activity. The nature of a welfare state vis-a-vis a competition state flows from this distinction. The Welfare State and the Competition State A theory of the modern state turns on the controversy among globalisation, the welfare state and the competition state (Horsfall 2010). The welfare state is otherwise known as the ‘post-Fordist state’ of Regulation Theory. It is grounded on the principle that the state has ‘the generic function of stabilizing the national polity and promoting the domestic economy in the public interest’ (Cerny & Evans 1999, n.p.), and provision of welfare entitlements to its citizenry, while the competition state espouses the rule of the market in the creation and distribution of wealth. The welfare state operates through use of state intervention not only to adjusting but also to sustaining, promoting and expanding the economy. On the contrary, the competition state focuses on disempowering the state from within, so government intervention cannot operate to skew the outcomes of market-oriented reforms. The competition state thesis contends that the competition state is a global phenomenon which was formed by the forces of globalisation. Thus, a welfare state will have difficulty in thriving in an increasingly globalising environment, in which case it will have to evolve into a post-welfare competition state that supports (1) market-oriented reforms in international structures of governance, (2) introduction of financial orthodoxy within, (3) extension of pro-competitive micro-industrial policies, (4) flexibilisation of the state apparatus, and (5) creation of the contract-based post-welfare state (Cerny & Evans 1999). Global Democratisation Amusan and Oyewole (2012) viewed the process of globalisation also as the process of global democratisation, particularly pertaining to the opening up of China to world trade and the collapse of the Soviet Union, giving rise to the Eastern European independent republics. Increased cross-border economic activities have fostered a regime where distances are shortened and problems have become increasingly common. Heightened globalisation has increased awareness of international control of resources through the establishment of institutions that address comprehensive resource management across borders (Mika, Joonas & Valtteri 2011). The effects of globalisation on humanitarian welfare are evident from this distribution and control of the usage of common natural resources. In a purely competitive regime where survival of the fittest is the rule, few will tend to survive at the peril of extinction of the many, leading to the distinct chance of ‘total or partial neglect of human security cost’ (Amusan & Oyewole 2012, p. 56). At the domestic level, the responsibility lies squarely with the national government to properly align the governance of the state and its resources according to the values of the people (Osaghae 1995). At the international level, it becomes necessary ‘to arrange and rearrange the world to be accommodative and complimentary’ so that all human interests are fit into the common space in terms of resource usage (Amusan & Oyewole 2012, p. 56). Globalisation and the Power Regimes in Weak States The common wisdom concerning globalisation is that it is presumed to lead to a convergence of states with commonly shared corporate governance structures and social norms. Moore (2011) dissented, alleging the contrary view that globalisation is a force leading towards greater divergence in the patterns of governance, in so far as the smaller and poorer countries are concerned. These divergences are driven by the changes in sources of government and elite revenues, or ‘political revenues’ (Moore 2011). The 20th century globalisation trend has influenced public finance, so that only a few governments are expected to be funded by broad-based general taxation; as a result, the elites in the poorer countries are confronted with the greater motivation to employ their authority to obtain some personal benefit or profit instead of channelling these resources towards the collective good (Moore 2011). Through this approach that takes into account the fiscal sociology involved, the fact of globalisation appears to point to an increasing differentiation rather than increasing homogenising. This is particularly true among the poor countries which have weak institutional frameworks, and where the elites who control the resources have a great incentive to serve their own private interests at the expense of the general population. The early globalisation of economic activity and the legal process that supports it are also seen by Acharya (2013) as a mechanism of hegemony, i.e. the powerful Western nations have employed international law to advance their own national interests at the expense of the interests of those poorer countries. The more recent trend in globalisation, however, has seen large corporations supersede the states in the role of the powerful party in the relationship. Because of the fall of the Soviet Union in the 1990s, the development of new technologies and the rise of multinational corporations, a new order has been established where it is corporate capitalism that acts in its own interests vis-a-vis the poorer, less powerful states. ‘We are now in a new world order of hegemony shift from states to corporate capitalism…[with] the states functioning as a conduit for corporate capitalism’ (Acharya 2013, p. 968). Conclusion The impact of globalisation on states is multifaceted and has redefined the nature and role of states in the governance of nations. Once states wielded absolute, supreme and unlimited sovereignty; they have now been reduced (according to Acharya) to agents serving the interests of corporate capitalism as a result of political and economic globalisation (Ewoh et al. 2013). The reason for this is that globalisation requires a perfect market to be truly successful; however, perfect market conditions do not exist, necessitating the enforcement of some level of international regulation to rein in elements that seek to serve only the interests of a few. Presently, effective regulation does not yet exist, leaving the states, in the name of economic progress, to either seek to limit multinational corporations’ activities, or to allow concessions that enable MNCs to exploit the nation’s resources and people. Globalisation has its advantages, however, as studies have linked it to reduced levels of corruption among countries that are forced to turn from being inefficient welfare states to becoming competitive. It allows for technology transfer from rich countries to poorer ones, and provides poorer countries with the chance to participate more effectively in the international market. The state, on its part, is forced to comply with greater transparency requirements and to abide by international standards of governance. In the end, the state may be said to have a diminished role compared to the period prior to globalisation; however, globalisation is a phenomenon that will continue to persist and to which the states will have to adjust. This does not mean that states will be rendered totally ineffective as the governing power, because the government has the important role of enforcing regulations that bring discipline to the market and bring under control possible abuse being done by multinationals. In this, the states have the support of the multilateral agreements and treaties, particularly those of the UN, the OECD, and the World Bank. Bibliography Abegg, A 2013, 'The legitimacy of the contracting state', Law & Contemporary Problems, vol. 76, no. 2, pp. 139–150, Academic Search Complete, EBSCOhost, viewed 21 October 2013. Acharya, UD 2013, 'Globalization and hegemony shift: are states merely agents of corporate capitalism?', Boston College Law Review, vol. 54, no. 3, pp. 937–969, Academic Search Complete, EBSCOhost, viewed 21 October 2013. 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