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Challenges of Globalization: Internationalism and the Changing Role of Government to Global Context

Provided by: Parisa Maroufkhani MPA student Faculty of Economic and Administration

October 2012

Globalization Globalization is defined as the ongoing process of greater interdependence among countries that sometimes this process is complex and varied. It is explained as a permanent increase of cross-border economic, financial and lately social activities. For instance, the economic globalization is reflected in the increasing quantity of cross-border trade in goods and services, the increasing volume of international financial flows, and increasing flows of labor. If, however, globalization is realized as simply a quantitative change in the amount of cross border activity, its full consequences may not be fully captured (Fischer, 2003; Reinicke & Witte, 1999). Globalization also signifies a more underlying change. A qualitative change of an international system with same permanent implication for the private and public sectors, such as changes in the nature of the legal processes and forms that shape the interactions and relationships among states. This qualitative change can be exhibited by describing an analytical distinction between the concept of economic interdependence and globalization. Economic interdependence is a concept that portrayed international relations for four decades after World War II and globalization that has come to take over the debate during the last decade. In the concept of interdependence, the internationalized economy was characterized by a sensitivity of economic transactions between two or more nations in order to have economic developments within those nations, versus the process of economic globalization describes a movement towards one integrated world market (Zurn, 2002). The critics of globalization point out some problems that many of them are true. Some of these problems are referred to economic matters and others are about non economic issues. For example, economic growth is a solution for poverty. Of course, economic growth requires good policies and many evidences confirm that the integration in global economy will lead to have a good economic policies (Fischer, 2003). Bertucci and Alberti (2003) named four driving forces as the reason of increasing globalization; 1) the liberalization of trade in investment in worldwide, 2) Entrepreneurship,

3) The innovation in technology and decrease in communication cost, 4) Global social networks. While many regard the innovation in technology and entrepreneurship as the main reason for globalization, but these two factors cannot entirely justify the process of increased economic integration. Governments have played a key role in letting greater globalization and economic integration by the expansion and implementation of market-oriented regulations and policies. In 1980s, when a number of governments approved economic liberalization, the global integration had increased in different economic areas. Some of them are such as the deregulation of financial sector, the elimination of control on foreign exchange and also increased free trade. World Trade Organization (WTO) has led to the reducing of barriers to trade in goods, and also continued to liberalize services and capital flows. Transnational corporations (TNCs) are regarded by many as essential agent of development and promoting integration of developing countries. The rise of attention toward TNCs led to increase in the importance of Foreign Direct Investment (FDI) as an activity of TNCs. According to World Bank developing countries on average obtained about a quarter of world FDI inflows between 1988 till 1998. Economic globalization is generally described by the quick expansion of FDI, international trade, and capital market flows (Bertucci & Alberti, 2003). Two top performers of East Asia namely, Korea and Taiwan, preferred to use the foreign technology and capital under national management rather than to rely heavily on TNCs. This situation was more sever in Korea. They tried to encourage joint ventures, preferably under local majority ownership in order to transfer technology and managerial skills. In 2000, the Millennium Report underscores that: "Inclusive globalization must be built on the great enabling force of the market, but market forces alone will not achieve it". Of course, the government intervention is needed in this achievement.

Globalization and the changing role of government There are some remarks for countries to ensure that the society acquires the most possible benefits from globalization and also reduce the side-effects, these remarks consist of; 1) reinforce democratic state institutions and promote decentralization 2) strengthen social policies 3) reinforce social capital 4) promote an efficient public administration 5) promote an effective strategy of resource mobilization and improve tax administration systems 6) build capacity in the public sector to support the creation and application of knowledge, innovation and technology for development Rodrik (1998) investigated the relationship between globalization and the size of government for more than 100 countries around the world. He concluded that there is a positive association between trade exposure and the size of government. DeMille (2012) stated that under the new standard of globalization, the role of

government is everything that is desirable for state. He pointed that this is the end to a limited government and government should perform whatever is required to achieve whatever it considers popular or important. The role of government in the era of globalization has changed and will keep changing in future. The traditional role of government that the government is a superpower has been challenged by many institutions and forces, including other governments and governmental organizations (World Bank, IMF, and UN). Today, according to a good number of observers, governments have been transformed from their traditional role into a market-based government (Farazmand, 2005) . Thus, the government is working as a facilitator to promote market capitalism toward growth, development, and service delivery. With the new and changed role of government, where privatization, contracting out, and outsourcing are commonplace under globalization and serve the goals of globalization of corporate capitalism worldwide, the government is now the one that have to act double side, on

one hand like agent and on the one hand like principal. Under the role of principal, the government duty is to supervise the privatization, the projects of outsourcing and contracting and public authority programs. Therefore, the government would make sure that the agents are doing their job correctly. But, under the role of agent, the government is a responsible agent. The government would still carry out some of the functions independently, such as security, health or education of citizen and national defense. In the agent role of government, citizens are the principal. The functions and role of the government have been changed significantly. The overall form of its responsibilities has altered and this brings a need for significant adjustments in the policy area. Bertucci and Alberti (2003) mentioned that the changing role of government aims to shift the focal point of government activity from being a direct producer of goods and service to strategic planner with a view toward the establishment and maintenance, refinement and reform of an enabling framework for private enterprise and individual initiative. Interestingly, the State at different level of governance is sometimes called a "linking pin" of processes of planning, consultation, negotiation and decision-making. It aims to connect multiple partners and stakeholders from very varied fields, regions, cultures, occupations, professions and interests. The Governments that appear to be riding the wave of globalization are those who have ability to embrace change that is related to an attitude of openness to diversity, comfort with uncertainty, and optimism about the future. With the progress of globalization, the government has a significant role to play in the constitution and protection of an enabling environment for private enterprise, individual creativity and social action. Experience has indicated that Governments have a critical role in making an effective legal and regulatory environment in which the private sector is enabled to operate efficiently. The private sector cannot develop fully unless the Government establishes a legal environment that guarantees and protects private property, govern business relationships and enforces the commitments involved in business contracts. To take the full advantage of the opportunities of globalization, the banking and financial sectors also require to work in a transparent and efficient way. Moreover, keeping inflation down through a proper monetary policy is of great importance to facilitate investments. A sufficient

legal framework is vital in developing an enabling environment in which business creation and operation can function successfully and therefore creating a favorable investment climate and attracting foreign direct investment. Most importantly, governments should simplify the procedures and regulations for the registration and licensing of businesses. Without simplifying bureaucratic procedures and rules to set up a business, entrepreneurial initiative will be muted. An era of globalization calls for constructing strong partnerships between the State and civil society. Globalization in fact requires improved channels of participation. There is a growing demand for greater citizen participation and new participatory policy-making processes.


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