The Role of Government in a Globalized Economy - Essay Example

The role of Government in a Globalized Economy Name Course number University Date Introduction This essay focuses on the roles that national governments have to play in today’s globalized economy. Thereafter we make a comparison of these roles to those that were played by the previous social democratic governments. In the present day the social-cultural, political and economic systems have undergone a major transformation (Stiglitz, 2003). In the context of this essay, economies around the world are integrated in one way or another and they have developed interdependence. This has created new demands for governments yet they do not have the ability to meet some of these demands especially in terms of regulatory measures. In our country as well as in others, globalization is often viewed as having the ability to undermine the sovereignty and values of a nation, and the welfare of the society is also undermined. The role of government in today’s globalized economy Economic globalization is not a very new concept; reason being that trade has always been in existence throughout the history of the world. Trade between nation’s dates back to the years before the World War 1. However, in our present circumstances nations are very interdependent and this has brought about a need for world economic governing bodies like the World Trade Organization (Stiglitz, 2003). Governments of nations today have an important role to play in this global economy since the decisions they make, and the policies they formulate and implement directly or indirectly affect their citizens. Given the economic interdependence amongst nations in the world today, the success or failure of one country has a relative effect on other countries. The present day national governments have the task to ensure that the nation’s economy attracts investments which are crucial to grow their economies (Simerly, n.d). In this role they concentrate on developing new infrastructure as well as improving the existing infrastructure which is sure to attract factors of production. The current economic atmosphere allows for free and rapid movement of goods, services and ideas given the technological advancement that has eased the flow of information. In this case different national governments have taken up the role of allowing for economic interdependence and integration by adopting market regulations and elaborating different policies, at all levels. This is because they are now operating in a rather liberalized economic era (Stiglitz, 2003). Knowledge has become the most important factor of production today yet it is not a factor that can be easily controlled. Therefore the government today plays an important role in developing avenues for knowledge sharing and creation, in order to encourage innovation which is crucial to the growth of the economy (Simerly, n.d). In a major way the governments’ role is to protect its citizens from oppression and injustices originating from the society, to protect its own society from assaults by other countries and to establish infrastructure that can support the general welfare of the public (Jones, 2000). In a globalized economy an efficient and trustworthy judicial system assures citizens of safety and fair judgment in the case of disputes. This boosts their confidence in the system and they are able to invest their capital within that economy. The increased ease with which knowledge flows from one place to another due to advancement in technology, governments still have the heavy duty to protect their nations from invasion by others, though this is a very uphill task. However, the government formulates rules and regulations that govern the economic activities that take place within their boundaries. Comparing the role of the present day government in today’s globalized economy with the traditional roles fulfilled by social and democratic governments Traditionally, the governments assumed the role of organizing the economic activities of its country’s territories in a way that was socially and politically accepted. In regard to this they were able to regulate and take control of the economic activities being conducted on their soil (Garret, 1998). In addition they had the autonomy to formulate and implement economic policies within their country and also own some strategic industries. In the present era of economic globalization, governments are no longer interested in maintaining control of the strategic industries and sustaining the strength of their economies. Instead the government is more concerned with ensuring they are flexible in their response to the competitive market conditions both in the local and international scene. While the social and democratic governments were concerned with upholding the general welfare of the society (Jones, 2000), the role of the present day government leans towards the promotion of innovation and is concerned with boosting productivity in all economic spheres. While doing so the government also channels its resources towards the reduction of risks within the economic environment. The focus on democracy and social protection has been replaced with a focus on promoting profitable economic activities in a bid to ensure comfortable living standards, even though in the developing nations, the increase in capitalism has been a great contributor to the increase of poverty. Traditionally the government was faced with the task of providing efficient transport and communication systems in order to ease the flow of factors of production within their geographical jurisdiction. Today these systems are very developed in most economies and the factors of production in the globalized economy are attracted by the economic environment. Therefore the government today focuses on the formulation and implementation of investor friendly policies which are geared towards promoting economic growth through increased investments. While the government today focuses on creating an environment that allows for economic integration, the social and democratic government focused on taking overall control of the nations’ economic welfare and as such it controlled a quite a number of industries within its economy. Likewise the social democratic governments played the role of regulating the finance sector players such as banks and insurances and held major stake in this sector. Today this sector has largely been deregulated, giving way to freedom of trade across borders characterized by the removal of rules controlling the trade of foreign currency (Drucker, 1997). The social and democratic government focused on providing security in terms of fulltime employment for its citizens especially within state run organizations. Back then the working citizens would be content with their earnings unlike toady when the market forces work against this principle. In this globalized economy, government operates within a setting where workers are continuously displaying insecurity and the rate of unemployment is at an all time high. As a result this creates a very dynamic political environment since the insecure workers willingly support the political parties that promise to end their economic insecurity (Scheve & Slaughter 2002). In the current globalized economy, the government strives to avail knowledge and information to the public unlike the social and democratic government which traditionally guarded and kept information from the people. Conclusion It is evident that the roles of the government in this era of economic globalization, is to work towards attracting the factors of production that are crucial to promoting the growth of their economies. Unlike during the older days when the government was concerned with promoting the welfare of the society, present day demands call for increased economic cooperation. It is evident that the growth of the economy today is dependent on totally different forces than those experienced in the pre-globalization era. Today governments have to keep pace with local and international developments and the policies they adopt should be oriented towards the current market forces. In summary today the government is more concerned with managing economic risks unlike the traditional roles where the government focused on developing the social infrastructure. References Jones, B. R.J. (2000). “The World Turned Upside Down? Globalization and the Future of the State” St. Martin’s Press, New York. Scheve K. F. & Slaughter, M.J. (2002) “Globalization and Political Support for the Welfare State: The Role of Multinational Firms and Worker Insecurity” Santa Fe Institute’s Globalization and Egalitarian Redistribution Workshop Simerly, R.L. ( n.d). The Global Economy and the New Role of Governments. Retrieved March 3, 2014, from http://www.westga.edu/~bquest/2000/global.html Stiglitz, J. (2003). Globalization and the economic role of the state in the new millennium. Industrial and Corporate Change, 12(1), 3-26 Drucker, P. F. (1997). “The Global Economy and the Nation-State”. Foreign Affairs, 76(5). Garrett, G. (1998). “Global Markets and National Politics: Collision Course or Virtuous Circle?” International Organization, 52(4). Read More