International Production and Governance - Essay Example

International Production and Governance CONTENTS Introduction…………………………………………………………………. 3 2. Production and Governance………………………………………………... 33. Political and Economic Autonomy of Nation States………………………. 4 4. Internationalization of markets …………………………………………….. 5 5. Welfare States……………………………………………………………….. 5 6. Influence Governments Have on International Finance …………………. 6 7. Labour Markets and Regulations on Mobility of Finance ……………….. 7 8. Conclusion…………………………………………………………………….. 8 9. Bibliography …………………………………………………………………. 9 International Production and Governance Introduction The contemporary world today is becoming ever more organized economically, politically, socially and culturally. People around the globe are able to converse and do business with each other to a level never seen before in the past. Nation states work together to an unparalleled extent worldwide through medium such as the United Nations, the World Trade Organization (WTO), and the European Union. It is clear that the gradual substitution of trade wars with trade agreements is building levels of economic growth, social understanding and cultural prosperity record in history. There is no doubt the idea of globalisation will bring more prosperity to the mankind. At the same this essay discuss the limits of the idea of globalisation as a way of describing trends in the international market (World Growth, 2007). Production and Governance It is quite evident that the global economy has changed in major ways during the past decades, particularly in the areas of worldwide trade and business organization. The two important features of the modern economy are the globalization of production and trade, which have helped the growth of industrial potentials in a broad range of developing countries. The vertical breakdown of international corporations, which are redefining their core capabilities to focus on modernization and product strategy, marketing, and the highest value-added segments of manufacturing and services, though, reduces their direct ownership over ‘non-core’ tasks such as general services and quantity production. These two changes have laid the foundation for a variety of network forms of governance. The development of global-scale industrial organization affects not only the fortunes of firms and the organization of industries, but also shows the reason for countries advance – or fail to advance – in the global financial system. Global value chain research and policy work examine the different ways in which global production and distribution systems are integrated, and the possibilities for firms in developing countries to enhance their position in global markets. The theory of global value chain governance will be useful for the crafting of effective policy tools related to industrial upgrading, economic development, employment creation, and poverty eradication (Gereffi et al 2005). Political and Economic Autonomy of Nation States Marshall defined economics as the study of mankind in the ordinary business of life. The usual business of life of mankind involves actions of production, consumption and distribution. Basically transactions in finances would be compensatory in economic terms in nature i.e. potential losses and gains can be mostly evaluated in financial terms and all parties can be made agreeable to transactions. This is the essence of modern welfare economics. However such an approach is not applicable to political activities and transactions and where politics is the focus of attention, economics will have to become its second priority. The autonomy of economic activities is the role of the state subject. Terrorism introduces a different view and if political objectives use terrorism as an instrument, one has perhaps to deal both with the objectives and the instruments. International terrorism may have either national or international objectives. Hence weakening the financial base of such terrorist organization activities becomes an objective of the states that are affected. Since this cannot be achieved by individual state it is necessary to create an international action plan to prevent any state from being a financial supporter of terrorist activities. There has to be powerful and intensive international opinion to remove terrorist instruments as the means for achieving political goals. This is where politicians has to discuss about the legality of means within nation states and groups of nation states, and within the international world as a whole (Brahmananda, 2001). Internationalization of markets The liberalization of global assets account dealings in most states over the last decade has given rise to the fast growth of an integrated worldwide capital market. There seems to be an inclination for real interest rate differential between countries, to have narrowed. Since from last two decades, global financial businesses have grown at a fast pace. This expansion resulted from improved global integration of goods markets and from the multinational presence of a large number of enterprises. Import and export shares in GNP have doubled in many countries. However, the development of global financial markets, their rising complexity and the closer incorporation of national markets has gone well beyond the grip of trade. Under the segmentation of individual financial markets, global trade tends to work to reduce the international difference in the marginal product of capital through the eminent factor-price-equalization method. But, due to global differences in technology and other institutional features, this propensity towards factor price equalization would not be perfect. Hence the global integration of financial markets is necessary for a better international allotment of capital (Fukao and Hanazaki, N.D). Welfare States Lot of research has gone into topic of welfare state offer some excellent typology to explain differences in welfare state development and also to understand the effects of these differences. What has to be considered is that the type and level of government involvement in the provision varies. These divergences link to the power-distribution and the acceptance of certain ideological developments when social security programs were adopted. The states that followed the principle of Social Democracy accepted highly redistributive, universal social security measures. Christian democratic political system stood on measures that protect the income and status of the wage earner. Whereas the states that does not follow the above regimes inclined to depend on lean state participation providing basic social security nets and entrusting the creation of welfare mainly to the market, private programmes and families. The Social Democratic system due to the highly redistributive plans does best in reduction of social or economic disparity. The Christian Democratic governments do not have the same balancing effects than the universal regimes, since welfare assistances and benefits mainly rely on the wage level. The liberal regimes have more or less neutral effects on social formation: neither the inequality reduced nor does the state contribute to preserve the status of an individual. The labour market is characterized by high mobility and the individual is largely self-responsible for coping with social risks (Wikipedia, 2007). Influence Governments Have on International Finance According to the World Bank, good growth strategies are those which speed up integration into global markets by removing barriers to the free flows of goods, services, and investment. It is believed that trade liberalisation will have positive outcomes for poverty decline and income distribution because of a conviction that market deregulation, including the deregulation of labour markets, will increase returns to the assets of the poor, particularly labour (Watkins, 1997). Government involvement can play a vital role in assisting the development of the technologies needed for successful participation in global markets (Watkins, 1997). There is anxiety about the nature of todays liberal international financial system and the enhanced international competition implied by universal market integration would control the power of national governments. As globally mobile capital and regulatory competition between countries can help to discipline governments and improve the competence of public institutions, it is thought that the political pressures created by the process of globalisation could strip some power of governments. But economists neither find major evidence for governments losing power nor are seen at risk. Summers (1999) argue that a country that follows greater global integration and ensures appropriate domestic policies can no longer pursue many national policy goals alone (Brussels, 2002). But according to World Trade Organisation, no decisions are made unless a consensus of governments is attained. This guarantees that the WTO reflects the will of its member nation states. As the work of the United Nations has confirmed, globalisation is more effective when there are strong governments, with sound domestic institutions (Globalisation Guide.org, 2002). Labour Markets and Regulations on Mobility of Finance The challenge that every integrating economy today has to look in to is that structural change and labour market modification have become quasi-permanent features of national economies in a global world. Globalisation and scientific change are revealing increasing shares of national economies to strong competition. Consequently firms have to adjust their operations and their labour force to meet fluctuations in demand and progress in productivity. However, reacting to firms’ want for flexibility, without taking care of the worker’s need for security, is socially incompetent. A significant social dialogue is essential in this regard. Because of globalisation and trade liberalisation the need to adapt new technologies are increasing fast in order to remain competitive. Fast changing talent requirements thus call for a wide-ranging effort to increase the educational level, particularly for developing countries. This is going to decide the wealth and prosperity of nations. Though labour market institutions and policies are common in industrialised countries, in developing countries they tend to be weak, incompetent and unorganised due to low budget available to finance them. The industrialised countries’ labour markets are mainly formal and characterised by paid employment, while developing countries are characterised by dual labour markets in which the absence of protection of employment security in the smaller formal economy. So, many developing countries need to be given the best social protection and other benefits of decent work to all (un.org, 2006). Conclusion It is understood that the market economy is the only arrangement competent of generating continued increases in prosperity, and giving individual human beings the opportunity to look for what they desire in life. However a market economy depends for its survival on a strong state, one that supports property rights, ensures macroeconomic stability, encourages competition, and ensures education and basic health. Further individual states remain the focus of political debate and authority (Wolf, N.D.). Even though, the anti-globalization movement has created an alarming imbalance of information about international organizations and translational businesses, world community looks for to restore balance to the debate by documenting how globalization promotes health, wealth and freedom. Bibliography Brahmananda, P. R. (2001) Terrorism vs. economic autonomy : Financial Daily from THE HINDU group of publications [Online]. Business line. Internet Edition. Available from: [Accessed 10 January 2007] Brussels, (2002). Responses to the Challenges of Globalization: A Study on the International Monetary and Financial System and on Financing for Development. [Online]. European Commission. Available from: [Accessed 10 January 2007] Fukao, M. and Hanazaki, M. (N.D} Internationalisation of Financial Markets and the Allocation of Capital [Online]. Available from: [Accessed 10 January 2007] Gereffi, G., Humphrey, J. and Sturgeon, T (2005) The governance of global value chains: Review of International Political Economy [Online]. Taylor & Francis Ltd. Available from: [Accessed 10 January 2007] Globalisation Guide.org, (2002) Is globalisation shifting power from nation states to undemocratic organisations? [Online]. Available from: [Accessed 10 January 2007]. Summers, L, (1999). Reflections on Managing Global Integration, Journal of Economic Perspectives, Vol. 13, No 2, 1999 pp 3-18. un.org, (2006) Labour market policies: balancing flexibility and social security. [Online]. Available from: < http://www.un.org/docs/ecosoc/meetings/2006/hls2006/e-forum/eForum06_LMP.pdf> [Accessed 12 January 2007]. Watkins, (1997) Globalisation and liberalisation: Implications for poverty, distribution and inequality. [Online]. Available from: < http://hdr.undp.org/docs/publications/ocational_papers/oc32a.htm> [Accessed 10 January 2007]. Wikipedia, (2007) Talk:Welfare state. [Online]. Wikimedia Foundation, Inc., Available from: [Accessed 12 January 2007]. Wolf, M. (N.D.) Globalisation And Interdependence. [Online]. Available from: < http://www.un.org/esa/documents/un.oct.2004.globalisation.and.interdepence.pdf> [Accessed 10 January 2007]. World Growth. ( 2007) Making Trade Free [Online] Available from: [Accessed 12 January 2007]. Read More