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Contents INTRODUCTION: 3 ..........................................................................................................................

CHALLENGES AND OPPORTUNITIES IN GLOBALIZATION: 5 ...............................................

THEORETICAL PERSPECTIVES OF INTERNATIONAL POLITICAL ECONOMY 6 ...............

1. MERCANTILISM AND ECONOMIC NATIONALISM 6 ...............................................

2. CLASSICAL LIBERALISM AND NEO-LIBERALISM 7 ...............................................

3. IMPERIALISM, DEPENDENCY AND NEO-MARXISM 8 ............................................

STRATEGIES TO BALANCE STATE-MARKET TENSION: 8 ......................................................

1. REGIONALIZATION: 9 ....................................................................................................

2. MULTILATERALISM 9 ...................................................................................................

MEANS TO COPE WITH GLOBALIZATION: 10 ..........................................................................

CONCLUSION: 12............................................................................................................................

INTRODUCTION:

Globalization is the phenomenon which connects the entire world, it is however debatable if this

is positive for world’s economy or not. Some countries benefit more than others that’s for sure, it

provides markets to developed countries for their goods and services and help developing

countries in building advanced infrastructure and facilities from foreign investments (Appadurai,

2001). The question is who the beneficiary is and who is being exploited and in developing

countries what should be the role of state in guiding the institutes and sectors in the realm of

globalization so as to gain maximum from the situation (Appadurai, 2001). When a country

becomes the centre of attraction for investors then various challenges arise for the state as well.

State has to regulate and monitor market forces to an extent that economy benefits (Appadurai,

2001).

Globalization is mainly driven by entrepreneurial spirit, technological breakthrough, trade

liberalization and participation on social networks across the globe (Boudreaux, 2008). The

deregulation of financial markets actually starts the process of globalization when interest rates

control is eased, financial capital is easily raised and available, import tariffs and restrictions are

relaxed, businesses are allowed to set up in minimum amount of time and investments in all

sectors are welcome even banking (Boudreaux, 2008). The critics of globalization consider it as

something blindly followed by everyone but even globalization has to follow some rules and

procedures stated by WTO (World Trade Organization).

Two factors that have really made the process fast are computers and internet (Boudreaux, 2008).

Computer and internet have become household names and technology transfer has become fast

as a result of these advancements (Boudreaux, 2008). Companies in different countries can buy

equity and ownership and hence go for mergers and acquisitions as a result of liberalization of

economies, take example of merger of German automaker company Daimler-Benz with their

American counterpart Chrysler. (Alberti)

As the globalization has strengthened itself over the years the conflicts among states have been

witnessed too. This is because the states think that in the name of globalization the bigger power

tends to make the smaller countries their hostage and only exploit them, they ask the developing

countries to liberalize their economies through pressurizing them by putting sanctions on their

aids and loans, but on the other hand do not open up their economy to that extent for developing

countries as they should. This creates hostility and may result in war. Therefore it is also

important to discuss and analyze the measures taken by international communities in order to

resolve this issue as it is threatening world peace the most.

World politics has always seen contentions and hostile takeovers by one country on another

because of resources and the struggle to get hold of more markets. Balance of power issues also

arise for the same reasons because one giant is threatened by the other on the basis of strength of

economy which means greater power in shaping politics. This paper also discusses these forces

in the light of globalization and other economic forces.

CHALLENGES AND OPPORTUNITIES IN GLOBALIZATION:

The impressive deliverable of globalization is that it’s not a zero sum game where one country

wins at the expense of another, all the countries involved can benefit from the situation. Some

countries benefit more than others (Brown & Labonté, 2011). This has been proved through

various researches that internal growth and production leads to economic growth and not balance

of trade (Brown & Labonté, 2011). It is worth noting that developed countries have not been as

forthcoming as they expect the developing countries to be. They have not lowered their trade

barriers in certain sectors like agriculture and textile where developing countries can really make

a difference (Brown & Labonté, 2011).

Intellectual properties rights and anti dumping policies also tend to discriminate against

developing countries (Gerdes, 2006). When developed countries make investments in developing

countries by setting up manufacturing facilities and offices they provide employment and open

doors to opportunities but since their head offices are in their native countries any restructuring

or strategic decision of curtailing leads to layoffs as well and this is where the state should

intervene in order to ensure that the negative externalities of globalization should be limited. For

example in Pakistan foreign banks were allowed to enter the market but somehow they couldn’t

retain their business as a result of which RBS, ABN AMRO, and Barclays all winded up their

business either through acquisitions or liquidation (Gerdes, 2006). After that State Bank of

Pakistan imposed very strict restrictions on banking sector (Gerdes, 2006).

World systems Theory addresses the same issue of state intervention and shaping the market

forces (Haugen & Mach, 2010). States and markets are interlinked firstly through international

trade and means of production, secondly states compete with each other for capital, investments

and market for their goods and services, thirdly the form of state-market interaction is

transmitted to other countries (Haugen & Mach, 2010), through the organization who participate

in globalization for example when Unilever and P&G go to any country they bring their work

culture and ethics with them and also their means of doing business and since these are giant

corporations they start shaping the laws of country according to their own interests. (Riain)

THEORETICAL PERSPECTIVES OF INTERNATIONAL POLITICAL

ECONOMY

Following are the theories related to international political economy which explains the different

schools of thoughts related to how economies should be run and how should the state intervene

and how much should be left on market forces (Haugen & Mach, 2010). These theories are

important to understand because they act as guiding principles in shaping the foreign policies of

various countries. (Falkner, 2011)

1. MERCANTILISM AND ECONOMIC NATIONALISM

Originated in sixteenth century Mercantilism still governs the foreign policies of nations

(Martens, Akin, Maud & Mohsin, 2010). Under this school of thought the state is considered to

exercise more power over the market in case of international anarchy and in this pursuit of

security the state will be able to maximize its wealth (Martens, Akin, Maud & Mohsin, 2010).

Just as money is important to power, power is to money and according to mercantilists as the

state will accumulate wealth it will gain power, classic example of it is US and UK they rule the

world (Martens, Akin, Maud & Mohsin, 2010), have veto power and share so many privileges

because of the size of their economy. Money and wealth can go hand in hand and both can be

acquired simultaneously in the long run but may be for the short term state has to let go of

money in order to secure itself from external threats that exist as a result of international anarchy

(Martens, Akin, Maud & Mohsin, 2010). This theory also believes the international economics to

be the zero sum game in which different economies compete and win or lose (Martens, Akin,

Maud & Mohsin, 2010).

2. CLASSICAL LIBERALISM AND NEO-LIBERALISM

This was given birth to in Western world in nineteenth century. Liberalism supports and

advocates the market mechanism and least state intervention. Adam Smith’s work is mostly a

criticism to mercantilism (Martens, Akin, Maud & Mohsin, 2010). Liberalism supports

individualism and pursuit of individual interests above all and it is considered to be economically

beneficial as a person or state will be free to pursue the policies which are benefitting them the

most (Miller, 2007). Market is the centre of this theory as market is the place where economic

interests are met in the most optimized manner (Miller, 2007). Therefore states should allocate

considerable amount of attention and resources in developing market mechanisms. Governments

are considered to be a hindrance in achieving economic growth and prosperity and therefore their

roles should be limited in determining market rules and regulations. Liberals are also very

progressive in their thoughts and beliefs (Miller, 2007).

The critics of this theory put forward a main point that free trade that liberalism stands for

actually is a disguise for rich countries to exploit the poor countries and it safeguards the

interests of only developed nations (Nederveen Pieterse, 2012). Secondly despite the free trade

mechanism in place the World War II could not be prevented, therefore it is worth noting that

liberalism and free trade alone cannot guarantee world peace (Nederveen Pieterse, 2012).

3. IMPERIALISM, DEPENDENCY AND NEO-MARXISM

At the end of World War II international socialists, economists and scientists started thinking

about expansion to third world countries and economic stability in them (Raschke, 2011). Third

world or underdeveloped countries are marked by two main features: one is dependency on

agriculture and second is small industrial sector (Raschke, 2011). This is what creates

dependency on other nations in order to fulfill the needs of their nation as they themselves are

incapable of doing so. Neo Marxism views imperialism as responsible for dependency and under

development of certain states as rich and developed countries sell their goods at higher value in

these states. Take the example of British colonialism in India; they were following their

imperialistic interests by selling their goods in India. (Keet, 2002)

STRATEGIES TO BALANCE STATE-MARKET TENSION:

The rightist and leftist have always been in conflict with each other when defining the role of

state and market with rightist believing that markets should be given central position with

maximum powers to operate freely as state can be oppressive and therefore hurt the market

sentiments, on the other hand leftist view the market as pitiless in distribution of wealth and tend

to create gaps between the rich and poor. Let us examine the strategies that are advised by world

economists in order to reduce tension between state and market:

1. REGIONALIZATION:

Regionalization is basically globalization but with respect to the region in which the country

exists. The North American Free Trade Agreement (NAFTA) is a treaty signed by three

countries: United States, Canada, and Mexico and it is a classic example of regionalization, in

order to avoid conflicts and tensions between state and international markets where one state

might think that it has been exploited, this agreement was signed. It encompasses tariff

elimination, license relaxation and non tariff measures in order to control trade. Now the

technical and non trade measures have taken toll on the process of regionalization, sometimes the

technical standards and other stringent policies make countries to shift their preference

altogether. Custom unions are a part of regionalization, Caribbean Community, Central American

Common Market and Mercosur are examples of these unions formed in Latin part of America.

These unions ensure a uniform structure of trade among the participating countries. Foreign

direct investments can be majorly done through regionalization and it has been observed that it

takes place when a country expands its market or becomes part of some regional group. (Beyond

Borders: The New Regionalism in Latin America, 2002)

2. MULTILATERALISM

General Agreement of Tariffs and Trade (GATT) and WTO are examples of this arrangement.

Two major developments shaping the force of multilateral systems includes multi polarity in

which many states are now playing major role and dominating the world unlike before when

only two three states tend to dictate trade terms for rest of the world. Earlier UN did not give

speaking rights to EU but as the economies grew they also started asking rights to take decisive

role in major matters and since then the forum has been opened for many states and regions.

Multilateral systems have also been utilized to protect intellectual rights and property. Services

that were excluded in regionalization were also made part of multi lateral systems. This means

opening up sectors like banking, finance, communication and transport to other countries. This

has helped in reducing the tension between state and market through creating acceptability and

close relations among nations. Lastly the states created rules to guide the activities and

operations of multinationals in their respective countries under multilateral agreements. This

reduced the complexities manifold and state can now govern the foreign companies and have

nothing to fear about the results. These systems help in reducing the conflict situations by

guiding the states in how to treat each other and what restrictions they can impose and what they

cannot. There are criticisms to this strategy as well, it is not as equality and fair distribution

supporter as it is thought to be, world’s greatest player demolished the rules by invading Iraq.

MEANS TO COPE WITH GLOBALIZATION:

When globalization hit the world and entered the developing countries, every other country tried

to benefit from it through focusing on exports and made it their vision for future development

plans (Reese, 2010). Financial crisis of 2008 taught the nations that world cannot be that open to

exports and economy should not be heavily reliant on it especially when many countries are

trying to develop it simultaneously (Reese, 2010). For example Pakistan, India and Bangladesh

all are competing for textile export and as a result of which they have to slash down their prices

and reduce their profit margins in order to be competitive (Reese, 2010). Therefore the first

strategy for developing countries in midst of globalization is to rely on internal demand.

Therefore it is important to analyze if there is enough potential in the markets to sustain the

demand and growth. Earlier this idea was mocked due to the low purchasing power parity of

developed countries (Reese, 2010). However the recent growth in developing countries and the

rise in middle clas (STEGER & WILSON, 2012) s have silenced the critics.

Secondly what the government in developing countries should do is to develop market forces in

order to ensure smooth flow of co ordination and information among government, market and

institutions ("Measuring Globalization", 2001). The government should take measure to improve

the organizational capacity of entrepreneurs. This is done through making sure corruption is no

longer present in institutions which would hinder the performance of entrepreneurs also in order

to make the operations seamless and hitch free they must implement policies which are business

friendly rather than imposing strict measures and controls which are unnecessary and increase

the time period for entrepreneurs (STEGER & WILSON, 2012).

Another important strategy is to privatize certain sectors in order to make the markets

competitive and not trying to control whole market. Private sector participation brings economic

growth and development to the country and reduces the state responsibility to provide

employment and livelihood to its citizens ("Measuring Globalization", 2001), but it is also

important to mention that not all the sectors and development projects should be given to private

sector as this signals that the government is weak and cannot handle anything on its own.

(Shantayanan Devarajan, 2012)

Initially in order to allow the local industries to develop and grow strict import controls have to

be in place otherwise the local manufacturers are not given fair chance and opportunity to grow.

But these controls should only be imposed in early stages of development (Martens, Akin, Maud

& Mohsin, 2010). As so as the economy moves to growth stage these controls should be removed

in order to make the market competitive. Otherwise the local producers don’t develop efficient

systems and start to slack in their performance (Martens, Akin, Maud & Mohsin, 2010). Their

systems are not updated and advanced, they don’t invest in research and development as much as

they should and they start charging higher prices for inferior quality goods because they have

support of government who would not allow foreign players to enter the domestic market.

(Mayer, 2013)

CONCLUSION:

In developing countries the role of state is very critical as market forces are not developed to that

extent. The classic example is that of Myanmar where the state controlled everything and did not

trade with any country the result was after 23 years of suppression, nothing was developed in the

country. Majority of the people were below poverty line and none of the institutions were in

place. There was immense international pressure on them to liberalize their economy and they

did so in 2014. Now look at them, most of the companies have declared them as the sleeping

giant and next big thing, telecommunication companies are viewing that region in order to grow

as that’s the country where nothing is developed and every company will have a chance to

increase its sales there with the growing middle class and increasing demand of people in order

to change their life style.

Developing countries therefore need to realize their importance and play in the world politics

accordingly. It is also a question asked by many that if democracy is better for developing

countries or dictatorship and it has been observed that initially when a country is developing then

it needs a form of government where decision process is fast and coherent which democracy fails

to provide, one of the biggest pitfall of democracy is that it doesn’t provide quick decision

making avenues. Take the example of Singapore, China and other successful countries which

were once developing and came below poverty line have successfully managed to change their

status quo and deliver growth rates above 7% for many consecutive years. Even the developed

countries now look up to them as a symbol of inspiration and seek their support in various

matters. These countries initially have dictatorship and same leadership for ten or more years, the

same leadership helped in quick decision making and these decisions remained intact for a

reasonable period of time till the results could be seen. The biggest advantage of democracy is

also its biggest pitfall, the government changes after every five years and so and the new

government takes pride in reversing every step that previous government has taken to improve

the conditions of the country and hence again the situation comes to zero.

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