TRADE AND FINANCE

How has globalization of trade and finance affected state capacities for economic regulation?

How has globalization of trade and finance affected state capacities for economic regulation?

Introduction

Globalisation is a long-term historical process of world integration involving social, economic and political changes as a result of technological advances. As McLuhan (2001) says, "The concept is of one being connected by an electric nervous system within which the actions of one part will affect the whole".

Globalisation, intended as the removal of barriers to free trade and the closer integration of national economies, can have the potential to enrich everyone in the world. However, the mismanagement of the processes of privatisation, liberalisation and stabilisation has led to more people worse off now than they were before. Furthermore this mismanagement has caused a serious deterioration of the environment and created great global economic instability.

While the development of economic sector shows that a gradual integration can produce better results, the creation of a trading bloc with a strong tradition of social protection, the EU, has not yet proved a challenge to the USA led anti-social policies accompanying globalisation.

Definition Of Globalization

The concept of an interconnected world is not new. In the late 19th century, there was already an open global economy, with a great deal of trade, including trade in currencies (Castells, 2000).

However today's globalisation is a revolutionary phenomenon. The driving forces behind it have been changes in Information Technology, politics and policies, global economy and a more enlightened population. Above all, globalisation has been influenced by developments in systems of telecommunication, dating back only to the late 1960s, mainly Internet and electronic mail (Igbaria, 1999).

The fuzzy concept of globalisation has been mainly interpreted in economic terms, pinned down in two specific figures: international trade and capital flow. Today the level of world trade is much higher than it ever was before, and it involves a much wider range of goods and services. However today's biggest difference is in the level of finance and capital flows, which took off spectacularly during the 1990s (Castells, 2000).

These patterns have been propelled by the decision of governments, first and foremost the USA, to liberalise, privatise and deregulate their national economies. In fact, to many, globalisation looks like Americanisation, since the USA is now the sole superpower, with a dominant economic, cultural and military position in the global order. And since most of the giant TNCs are based in the USA (Castells, 2000).

Benefits

The three main institutions that have been governing globalisation - IMF, WB and WTO - point out that the free market policies of the Washington Consensus have brought enormous benefits to global competition through the reduction of costs of transportation and communication, the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders (Stiglitz, 2002). However, for these institutions this is a marked ideological change. In fact, the originally Keynesian oriented IMF and WB emphasised market failures and the role of governments in job ...