State Actors and International Organizations in the Contemporary Global Economy - Case Study Example

State Actors and International Organizations Have Definitively Lost Power to Private Actors in the Contemporary Global Economy Abstract Some of the major developments and changes that the global economy has gone through particularly in the last century is the drift towards liberalism and trends such as privatization. With these, have come tools such as lobbying as elaborated in the body of this paper. A state actor is an individual or entity who executes their role on behalf of a governmental body and as such is subject to checks placed by the constitution to protect fundamental freedoms and rights of individuals from being violated. A private actor refers to a person or group of people, in this case in an economic context, who are motivated by their profit motive and not under government control. An international organization refers to a body that has a presence, membership or scope that transcends one country. Lost power in this context refers to the authority or ability that state and private actors once held, but no longer hold. This paper is a painstaking work of research that involved a literature review of already published works such as journals and articles that touched on the subject of global economy in the context of the political and economic dynamics. It aims at taking a comprehensive perspective on both sides of the debate starting with the perception that state actors have lost power to private actors and then the argument that state actors have not lost power. Both arguments will be looked at from the prism of 2 key regimes in the global economy, that is, taxation and transparency; and trade and production. Preamble Economic governance refers to the collectivist organization of an economy with respect to investments, distribution, consumption, and production. Economic governance involves the invocation of tools such as management and policy formulation. The organization of activities that constitute the economy of the world such as households, private business, governmental organizations, labor unions, and financial institutions is all included in economic governance. Mechanisms through which any of these constituents of the economy can intervene depend on efficiency, public policies and policy objectives (Cohn, 2016). Trends in the recent affairs of economic regulation reveal a shift towards market mechanisms as a growing tool of governance (Blanton & Kegley, 2016). This is realized via strategies such as deregulation, privatization, and marketization. Devolution of economic function to lower tiers of political governance, lower taxes and decreased public spending are other hallmarks of this shift towards the markets. State actors are increasingly playing a more regulatory role as opposed to the more active controlling role that they once played (Miller & Rose, 2017). These restrictions of government interventions have fuelled economic growth by creating an enabling environment in which private actors can best thrive in (De Búrca, Keohane, & Sabel, 2014). There has also been a recent shift marked by reviewing of welfare regulations and social security systems in a bid to achieve equilibrium between revenues and expenditures (Ravenhill, 2017). The past century has also seen the increased privatization of once-public utilities and the increased use of contractual agreements and market instruments in the organization of public sector activities (Castells, 2014). State actors and international organizations HAVE definitively lost power to private actors in the global economic governance of Taxation & Transparency A key change in the past century has been the indirect lobbying that multinationals, private actors in the context if this paper, have been using in an effort to gain a significant market share in both the developed and the developing world (Hall, & Biersteker, 2002). Indirect lobbying refers to where the multinational of a given country prevails on its mother country to lure the host country in which that multinational is doing business to pass favorable policies that will smoothen their business operations. These include incentives such as favorable tax policies and tax holidays. These liberal interventions by those host countries increased significantly in the past century and this can be attributed to the reliance that those multinationals put on foreign markets for their goods and services. Liberalism has thus spurred this bilateral, multilateral, regional and market strategy (Nye, 2004). Liberalization agreements have also been signed between governments and these have fuelled investments and trade that are largely centered on big business. Mercantilist arguments have been at the core of government's liberalization efforts, that for greater success in foreign markets a concession of domestic liberalization must be made this cementing the standard economic welfare arguments that support international trade. Business lobbyists thus provide political support that is founded on the concessions that are made by foreign governments. These private actors appeal by virtue of the manner in which their products meet quality standards and how transparent their dealings such as procurement procedures are, as opposed to state actors that may be involved in corrupt practices due to the minimal competition they face as a result of having the backing of the government of the day. Support from legislative bodies such as the US Congress has been secured by pro-trade blocs such as the Business Roundtable, US Chamber of Commerce and the Emergency Committee for American Trade where multilateral trade deals such as the North Atlantic Free Trade Area (NAFTA) are involved (Pagliari & Young, 2014). Private actors have garnered even more political clout than state actors especially in Europe where political influence has been checked thanks to a complex policy-making structure that involves splitting lobbying efforts between Brussels (the capital of the European Union) and the individual capital cities of the involved countries (Woolcock, 2016). Another change that has witnessed in the last century is the argument that the political marketing strategy and liberalized business grouping had a fate that was intertwined and thus mutual liberalization would lure both unionists and voters (Saskia, 2017). Reciprocal liberalization has also resulted in regulatory barriers in what share of the market that these multinationals can access once the domestic political economy has been unraveled. Business lobbyists have succeeded in pushing the political class to emphasize reciprocal deregulation of key sectors of the economy and enforcement of dispute resolution mechanisms. State actors and international organizations HAVE NOT definitively lost power to private actors in the global economic governance of Taxation & Transparency An important point that proves that state actors have not lost definitive power to their private counterparts is the macroeconomic stability that necessitates government intervention. Some schools of thought from previous era academicians reckon that unemployment that is present in recessions and the inflation rampant in the end stages of a boom both constitutes the natural workings of an economic cycle. However, the last century has taught us that with effective government policy and regulations from international organizations such as the World Bank and the International Monetary Fund (IMF), free-market economies can prevail with their dynamic growth mechanisms while at the same time substantially reducing the burden caused by inflation and unemployment (Chimni, 2017). This is a testament to the power that state actors have over their private counterparts. This is especially profound in democracies where the average citizen is more inclined to take the word of governments led by politicians over the word of corporate organizations that represent elitism and the unchecked power of raw capitalism (Fukuyama, 2017). Another point that state actors have retained their power is based on the fact that government plays a role in affecting economic outcomes via levying taxes and the subsidies enjoyed by human capital such as reduced tuition fees paid by college students, worker mobility loans and student loans enjoyed by college students which are payable upon completion of studies. This rides on the fact that there can be missing markets, missing in the sense that there is the unavailability of a market for the selling and buying of human capital in contrast to the physical assets such as land and machinery which can always be traded. Human capital formation thrives on this and many more initiatives such as work safety regulations that are provided by state actors (Gilpin, 2016). Public goods and externalities are also more examples on the upper hand that state actors have over private actors. Externalities can be defined as the situation which arises where a private transaction accrues benefits which trickle down to 3rd parties who were not a party to the initial transaction. This includes positive externalities such as vaccination from communicable diseases and negative externalities such as the pollution that is caused when privately manufactured automobiles discharge their effusions into the environment. In the case of a positive externality, there is scarcity because all benefits do not appropriate to the decision makers. In a negative externality, there is an oversupply of goods because all costs are not borne by the decision makers (Dunleavy, 2014). The power of state actors in all this comes up based on the precinct that government intervenes via subsidies, regulations, and taxation to ensure appropriate market quantities. Other measures that state actors can do are distribution and taking up ownership. State actors also have not lost power because of the presence of consumer goods which cannot be excluded from consumers. Producers are unable to appropriate returns since there is no rationing system that can be implemented. Lack of consumer rivalry effectively renders the marginal cost to be zero, and as such, the most efficient price. Private actors are unable to venture in the production of public goods, unlike state actors, because some form of collectivism is necessary (Mazzucato, 2015). Sectors that exhibit this property of public goods include academia, particularly research in matters touching public life, and national defense. Both industries are worth hundreds of billions of dollars in annual spending. Worth noting is that the dealings of these sectors are open to public scrutiny to increase transparency. State actors can also be said to have lost definitive power because of the presence of government failure. Government failure necessitates the reliance on the market system since the efficient allocation of scarce resources may be hampered by government activities and bureaucracies (Bennett & Raab, 2017). Economic decision making is a possible source of government failure because of the vast amount of information that is required and state actors fare poorly in this aspect. The rent-seeking behavior of state actors is also another possible source of government failure. Rents, in this context, can be defined as the profits which are far above the profit that would have been realized had the market been competitive. The entry of other firms into the industry subjects private actors to having their rents competed away in their attempt to accrue "first over" benefits in technology and goods. State actors and international organizations HAVE definitively lost power to private actors in the global economic governance of Trade & Production In the last century, there has been a strong and resurgent influence of non-state actors and private actors in the undertakings of multinational business and international affairs as seen in many examples such as the talks surrounding a multilateral investment agreement at the Organization for Economic Cooperation and Development (OECD), though unsuccessful. That is just but one of the many instances that can be cited. The craving for international investments that are based on liberal multilateralism compelled the United States (US) government to launch in 1955, interventions that acknowledge the wide role that corporate play in the modern world economy. A number of theories have been postulated to try to explain the reason behind the influence that non-state actors play in the global economic order (O’brien & Williams, 2016). A literature review from sources written close to 30 years ago points out that this could be due to the interdependence and transnationalism that has informed the need for greater emphasis to be put on economic interdependence over the less important role that security played in the global political sphere (Duffield, 2014). At the core of this transformation was the contribution from special interest groups such as the banking industry representatives and advocacy from some academicians a few groups, however, opposed liberalization when interdependence was fostered and domestic structures and policies informed international negotiations (Scherer, Palazzo, & Matten, 2014). A popular school of thought posits that technological shift that favors non-state actors over their state counterparts is responsible for this current trend through factors such as the rise in mobile capital (Nye, 1990). This improved mobility provides a mind of structural power for capital agents via their “exit” power. In today’s context, multinational corporations are able to leverage different economic contexts and political jurisdictions such that their costs of doing business and regulatory policies create a race to the bottom situation with the state actors. The aggregate result is a growing political voice that these multinationals are able to generate a skewed economic policy towards their business preferences via this implicit threat of exiting. The accrued structural power enables these multinational companies to overcome the elaborate lobbying processes that are supposed to be open and competitive and which are the hallmark of modern-day democratic societies. This in part informs the decision that these multinationals take in setting base in jurisdictions that lack fully functional pluralist institutions (Baylis, Smith, & Owens, 2017). A possible weakness of this school of the thought is the exaggeration with which the result of stronger capital mobility is thought to have an effect on business in policymaking. The race to the bottom analogy given varies considerably with issue are and has mixed empirical evidence. This could be due to the fact that nations traditionally still restrict investment and trade in a number of sectors of the economy to check liberalization (Sassen, 2016). In countries with such stringent restrictions, multinationals enjoy a relatively lesser degree of success in terms of their influence in the policy-making process, inconsistent with the theory of capital mobility which if true would mean that the fear of capital exit or non-investment would mean that policies would be arbitraged away. State actors and international organizations HAVE NOT definitively lost power to private actors in the global economic governance of Trade & Production This section of this paper drives the argument that state actors and international organizations have not definitively lost power to private actors in the global economic governance of taxation and transparency. It is vital to appreciate the role that the state, through its actors or agencies, attempts to influence the market via economic governance mechanisms (Gerston, 2014). The market can be thought of as the avenue for bringing out the best in a person’s potential so that a societal goal is achieved. The core goal is to realize economic development and economic growth as well as to effectively distribute resources to all players in all sectors of the economy (Weiss & Wilkinson, 2014). The symmetry of information that is a key tenet of perfect competition is thus a potent tool used by market players to achieve their economic transactions. The biggest motivating factor that state actors use to justify their actions in economic activities is the possibility of market failure whereas private actors prevail on the notion that government failure is inevitable. The state actors believe that this market failure can be avoided or overcome via interventions made if the state implements and designs ideas centrally. Private actor proponents of government failure emphasize the inefficiency that is characteristic of collectivist actions that government agencies advocate for and that these are less efficient than market outcomes that are the product of the forces of demand and supply. Ideally, the success of one model should, in essence, offset the failures made by the other model. An example that comes in very handy is the Asian financial market crisis of 1997 and 1998 where appropriate prudential regulatory measure did not accompany the easing of the numerous government restrictions on foreign ownership of financial assets and the international financial flows. Market failure arises where their resources are allocated inefficiently if the markets are left to operate by themselves. This necessitates state actors to intervene hence giving them the upper hand since they have the full backing of the state (Lairson, & Skidmore, 2014). A classic example of market failure can be seen where the existence of monopolies leads to higher profits, restricted quantities, and higher prices, departing from a perfectly competitive market (Cerny, 1997). The mere fact that market failures are common especially in some sectors of the economy such as healthcare, where there is asymmetrical information between providers such as doctors and consumers such as patients, means that state intervention is inevitable thus making state actors have an upper hand over their private actor counterparts (Levi-Faur, 2017). Conclusion In conclusion, having assessed both strengths and shortcomings of both sides of the argument, I side with the notion that state actors have not ceded ground to private actors given the nature of risk they are willing to take and the policymaking process which the state creates and which private actors rely on to operate in. It also, to an extent, depends on what political and economic ideology you believe in. A right-wing conservative is likely to side with the strides made by private actors whereas a left wing liberal is more likely to side with big government interventions perpetuated by state actors. Even though I have been swayed by the bigger role that state actors undertake, I acknowledge the immense role played by private actors and it is my assessment that both are required for greater sustainable growth and development, and as earlier mentioned, the successes of one should offset the weaknesses of the other (Börzel, & Risse, 2005). It is, for this reason, that firm state-based governance institutions should be founded by both transition economies and developing nations as they also strengthen the free market as a tool for economic growth and development. Government interventions should be grounded on a rational assessment of the economy as opposed to biased ideological perspectives. The roles of private and state actors as key players of economic governance leads to a general assessment of the upper hand that the state plays in activities that private actors have little reach. These include: their ability to foster a conducive legal and regulatory institutional framework such as the enforcement of contracts and protection of property rights, creating an enabling infrastructural and political environment that private actors can best thrive in, the power that the state has in enforcing social and economic regulations that are binding to private actors, organization of welfare programs and collectivist socialist schemes that are meant to cover risks and entrench stability, the ability of the state to implement macroeconomic fiscal and monetary policies that aim at achieving sustainable growth and development. It is these fundamental functions that affirm the supremacy of state actors as institutions of economic governance (Hill & Varone, 2014). Effective leadership and management, proper spending, fair regulatory and taxation principles are all essential in this. 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