Table of Contents
Introduction
Globalization is gaining importance in the light of integrating different countries across the world and influencing the economic and social capacities globally with each other. It facilitate the growth and development of developing countries but at the same time as it is a set of policies made by humans it can be restructured and reshaped according to the will of the privileged countries and international institutions (Gul, 2003). Joseph Stiglitz in his article ‘Globalization and the economic role of the state in the new millennium’ talks about the role of state in moulding the process of globalization. He is trying to recover the visible hands of the state in nation building combating the ever widening process of globalization.
Role of state conceptualized in the context of globalization
Joseph Stiglitz in his article shows the impact of globalization, which is a product of capitalist country particularly in the west to the eastern countries which are mostly under developed. The concept of globalization in integrating the smaller economies with that of the global world are pressurizing the smaller economies to enhance large scale production and consumption which is a basic feature of globalization. The international financial organizations have served the interest of the G1 nation and when one single model of globalization or neo- liberal capitalism adopted in every economy, lead to the crumbling down of many smaller economies in East Asia particularly, Thailand, Indonesia etc. The problem was at the policy level but not with the countries.
These impacts can be analyzed by taking globalization and the role of the state into view. Stiglitz talks about the constraints on tax by the small countries on the capital. In order to protect the local market, the state put tax constraints on the capital. As capital is mobile this will induce the investor to invest in other country. The tax collected is usually used of redistribution to eliminate inequality and to promote social development. When there is inadequate external fund, it will affect the ability of redistribution, showing the dependency of smaller economies in foreign investment.
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Another point which Stiglitz put forward is the difference between nation building a century ago and now at the era of globalization where he talks about an ‘invisible hand’ of market than the ‘visible hand’ (Chandler, 1977) of the state. It decreases national sovereignty (Gul, 2003). This can be considered as the structured level which benefits monopoly and creates more inequalities as profit is the sole motive rather than social welfare.
Here, Stiglitz with the example of East Asia crisis (1997) where the developing countries crumbled down with the process of globalization.
The actual reason behind the crisis was the adoption of single model of American style of capitalism by other small economies without analyzing that a single policy structure can’t be used in every economy. The IMF criticized by arguing that lack of transparency is the reason for the collapse of East Asian countries by serving the specific interest of the prominent capitalist countries. But Stiglitz put the irony that even when both IMF and America talk about transparency, American government and IMF are the two least transparent and failure of other economies these two are the major institutions participating in formulating reforms. The IMF always supported the interest of G1 nation and in the case of developing countries; they gained only small achievements and big failures.
The East Asia crisis challenged ‘triumphant capitalism’ and made it clear that same method of capitalism can’t be adopted in different countries. Initially, IMF declared that it is not the problem of the institution but it is the problem of the countries which has taken other measures. But it got veined when Argentina, the pet country which moved according to IMF’s words also collapsed. When East Asia crisis got hit, the IMF being an international institution has gone with the interest of western banks preventing their downfall, rather than with the people in a crashing economy. Thus, unemployment increased with low level of income resulted in depression in other economies.
The economic role of the state must be recovered. Most of the countries are following the neo- liberal globalization. It is mandatory to recognize the harmful effects of capitalism which leads to a failure of several economies. The government has difficulties in addressing these failures due to bureaucracy, corruption, red-tapism etc. So, policy level intervention is needed to combat this. Nationalization of enterprises also creates lethargy by serving the manager but not the society. It will only focus on special interests rather than general interests.
Third way
Thus, Stiglitz talk about a third way which is evolved from limitations of the government and the limitations of the market. The third way talks about a balance between privatization and nationalization. When in the case of a free market, laissez faire will not work but in the case of socialism, government domination doest work. So, both socialism and laissez faire complement each other for an efficient functioning.
The principles of the third way call for partnership with both private and public sector where each one complements each other to give an output. It gives equal emphasis on social justice and democratic process as each should lead to each other in an efficient manner in bringing out quality of voice, opportunity, participation in decision making process etc. ‘It also facilitates the improvements in public sector by auctioning, procurement processes to meet the demand of the people and make them responsive to those they are trying to serve’ (p.11) which improves the efficiency and effectiveness of the government. He also talks about use of political powers to restrict competition with the example of Alcoa and Coca-cola company where the political interventions debarring competition. This also can be analyzed in the view of demonetization in India, the Prime Minister himself advertised for the private company Pay TM for online cash transfer boosting the private company market.
Stiglitz also talks about the improvements in public and private sector and the role of values in ensuring social justice and democratic processes to make it more efficient. Stiglitz has its argument that there is a significant role for the state in retirement security. People should get access to the securities with utmost fairness and equality. Efficiency, fairness and equity should be ensured in low transaction cost and there should be no adverse effect on labour supply and on savings and must be able to provide a strong retirement income. Programmes should be designed in a way that caters to the needs of the society or a particular population. The government has a proactive role in reducing the transactional costs.
When we opt for a third way, the government should set the rules for competition as state is the representative of the people. The competition policy is a great concern where the private participants by using the method of predatory pricing for monopolization. The role of the state is significant in this case deregulating excessive competition. The role of the state should not be only about minimizing or maximizing the governance but moulding proper regulatory structure.
Policy designing should be done in a way which satisfies the environment. The decision for the construction of Mumbai metro by destructing the Aarey forest was called out as protest arouse from the natives can be taken as an example. Stiglitz also put forward the independence of central banks are important and it should not be influenced by any political parties. There should be an efficient monetary policy to control the shortcomings of the economy. India has proved that the independence of central bank gives a strong basement for the economy while the case of Russia, having a central bank served the interests of oligarchs out of the country.
Conclusion
The state’s role can’t be devalued even though the concept of globalization is getting its hold day by day. State has the authority to control the process of globalization at policy level though both globalization and state are interlinked. More than increasing the profit, social justice and democratization process are the fundamentals of the state. Efficient Monetary policies, economic policies and fiscal policies can help to reduce the effect of globalization on developing countries combating American-style triumphant capitalism.
References
- Gul, N. (2003). Globalization and Developing Countries. Pakistan Horizon, 56(4), 49-63.
- Stiglitz, J. (2003). Globalization and the economic role of the state in the new millennium. Industrial and corporate change, 12(1), 3-26.
- Alfred, C. (1997). The visible hand: the managerial revolution in American business. Cambridge, MA, Harvard University Press, 51, 107-108.
