Globalization is Eroding the Government’s Power from an Economic Perspective

For many, the merging global civil society is gradually replacing the government as the defender of democratic values and principles. As the ability of national governments to influence decision making at the international and national level continues to erode, so does their capacity to protect the political and civil rights of their citizens. These non-governmental organizations are challenging traditional state-based notion of politics and are advancing the idea of a cosmopolitan democracy in which the members of different societies can come together as world citizens in a global political community.

Globalization has brought prosperity to those who follow its principles in some form, yet it has not been without costs. The gap between the rich and the poor has been increasing in developing countries, as outlined by Mr. Der Hoeven; increased demand for skilled workers, coupled with differences among countries in the growth of the supply of skilled workers, explains the increasing differences [in wage gaps]. The economic benefits of globalization have not necessarily ameliorated the welfare status of the poorer in these societies, since at its essence, low-skilled manufacturing is moving away from developed countries to maximize corporate profits.

This creates a strong economic pressure towards lower-skilled labour supply in the labour market of developed countries to remain competitive in the global economy. Hence, these competitiveness concerns can cause developed countries to limit wages and the generosity of new social insurance policies. Consequently, the government tries to avoid having steep minimum wages since the producers of goods and services could ultimately leave and establish the workshops in lower production cost countries.

[pullquote]It’s clear that globalization is fundamentally capable of affecting a country’s economy, creating social inequalities and even reducing the government’s power to act and influence.[/pullquote]

Also, the workers must accept the fact that they have to work at lower-than-expected wage rates in order to keep their job in the long-run. This leads to social inequality as the poorer live on tighter budget constraints, while the wealthier can increase their profits at the expense of the lower classes.

Consequently, the capacity of unions to organize and demand better wages in collective bargaining is severely limited because the producers can establish their factories elsewhere, and the government cannot force a producer to remain within its borders. This has been clearly pointed out by der Hoeven; he argues that “[there is] a massive trend worldwide towards “flexibility” of the labour force: trade unions [are] sidelined and coerced to toe the line”.

Likewise, individuals are required to have better skills than their predecessors. The lower-skilled jobs are moved to lower production cost countries. The more valuable and better paying jobs remain in developed countries, yet they require higher educated individuals. It’s only these types of individuals who can enjoy job opportunities with higher revenue. Consequently, there are fewer jobs in the lower-value-added part of the tradable sector and competition for similar jobs in the non-tradable sector has to increase as a direct side effect. Therefore, income growth is further depressed in the lower-value-added income sector. Wages must decrease as the supply of lower-skilled labour increases, while the demand for lower-skilled labour decreases.

However, arguments about the social consequences of globalization cannot be reduced to the simple view that globalization has disastrous consequences. Employment opportunities and income have indeed increased for many people in the developing countries that have adopted trade liberalization strategies due to Globalization. This has led to greater standards of living and workers earning greater incomes than they previously could have imagined. They might not have the same minimum standards of living as developed countries, but they have the opportunity for a better life.

This economic approach has allowed for a better understanding of the consequences globalization has brought forward to the governments. It’s clear that globalization is fundamentally capable of affecting a country’s economy, creating social inequalities and even reducing the government’s power to act and influence. Yet, globalization is not a new phenomenon and due to the rapid increase of information technology, communication, transportation and market laissez-faire, the government will continue to see its power eroded as countries continue to push for a global economy.

ARB Team
Arbitrage Magazine
Business News with BITE.

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