POGO 8082: Short Assignment 2 U4779649

Does Globalisation make domestic policy-making easier?

In contemporary literature, there is strong inclination towards placing globalisation as a deterrent in

effective domestic policy-making. Globalisation is often seen as the 'enemy' of domestic policy,
dictating non-negotiable conditions that must be implemented in order to maintain agreeable
economic performance at par with the rest of the world, while taking no consideration of the
accountability of domestic policy-making (Hay 2008). This paper argues in favour of this notion.
Based on Hay's (2008) set of mechanisms that act as constraints to domestic policy-making, this
paper focuses on the increasing mobility of capital for investment and environmental degradation as
possible deterrents that does not make domestic policy-making easier.

Globalisation is rather difficult to define as it is multifaceted and complex in nature. One possible
way of defining globalisation is “increasing
“ integration & global interconnectedness of trade,
markets, products and culture. It is enabled by technological innovations and underpinned by
shifting power relations that sees finance capital as relatively dominant and transnational
corporations as very powerful vis-à-vis the nation state” (Capling et al 1998). This definition is
relative to understanding both the above-mentioned constraints in domestic policy-making as the
focal point here and also in the constraints is the 'increasing integration and global
interconnectedness' that is brought about by globalisation.

The first problem posed by globalisation is the increasing fluidity of economic activity across
national borders. Advocates against this notion claim that this fluidity would cause states to
compete in order to attract capital by lowering tax rates, thus leading to a 'race to the bottom',
eventually resulting in an international convergence on relatively low tax rates (Campbell 1998).
Unfortunately, this has not happened. If taxes, in any society are seen to be too costly in nature or
constraining, investors will pull up their stakes and transfer them elsewhere. Workers on the other
hand cannot move so easily. Therefore, the labour force will have to bear a greater part of the tax
burden, thereby, resulting in a decline in the society's ability to fund social welfare expenditures.
Globalization hence, manages to reduce controlling authority of the state by reinforcing the political
resources of those groups in society who desire minimum state control to address outcomes in the
market (Berger 2000). Joseph Stiglitz affirms that both the crises in East Asia in late 1990s and the
recessions in Latin America indicate that “premature capital market liberalisation can result in
economic volatility, increasing poverty, and the destruction of the middle classes” (Held 2004).
Moreover, “there is no strong, robust and uniform support for the theoretical argument that financial

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POGO 8082: Short Assignment 2 U4779649

globalisation per se delivers a higher rate of economic growth” (IMF 2003).

The second problem posed by globalisation lies in the area of environmental degradation.
According to Hardin's (1968) theory of 'tragedy of the commons', globalisation result in transfer of
pollution and exploitation of the environment and that it will continue despite collective interest
among all affected states. Every actor knows that it is expensive to engage in strict compliance of
environmental regulations. Therefore, this additional cost would be a burden on the competitiveness
of a nation in an open international economy. Since, there is no international agency regulating and
enforcing compliance among all nations, the issue of free-riding discourages any action by the
individual nations. Thereby, despite knowing the long-term consequences of degradation of
environment, states remains in limbo, refraining from implementing any policy that would incur
additional costs and taxes. China's E-waste problem is one classic example. The country takes in
90% of the world's total high-tech trash. Labourers in the process, are exposed to heavy metals and
toxic compounds causing potential health and environmental damage. E-waste recycling can
generate huge profits for local governments, so authorities often turn a blind eye to the practice,
which serves as passive encouragement to its spread (Liu 2006).

The above-mentioned arguments strengthens the notion that globalisation does not make domestic
policy-making easier. However, it must be remembered that globalisation is a phenomena that
cannot be escaped from. Therefore, steps need to be taken to mitigate such constraints and reap
benefits. Stronger domestic policy-making needs to be ensured. The State, in partnership with
civil society and the private sector, needs to play a major role in providing social
equity and sustainable development. Reforms in the public administration and
governance systems is extremely important in making globalization work for all.

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References

Berger, S 2000, “Globalisation and Politics”, Annual Review of Political Science,

vol. 3, pp. 43-62.

Campbell, John L. 2003, States, Politics and Globalization: Why Institutions Still Matter, Pp.
234-259 in The Nation-State in Question, Princeton University Press.

Hay, C 2006 ‘Globalization and public policy’ in M.Moran, M. Rein and R. Goodin (eds) The
Oxford Handbook of Public Policy, Oxford: OUP, chapter 29.

Hardin, G 1968, “The Tragedy of the Commons”, Science, vol. 162, no. 3859, pp.
1243-1248.

Held, David 2004 'Globalisation: The dangers and the answers', openDemocracy,
viewed 19 September 2010,

<http://www.opendemocracy.net/globalization-vision_reflections/article_1918.jsp>

Liu, Yingling 2006, 'China's E-Waste Problem: Facing up to the challenge',

Worldwatch Institute, viewed 20 September 2010,

<http://www.worldwatch.org/node/3921>

Prasad, E, Rogoff, K, Wei, S & Kose, M 2003, ' Effects of Financial Globalization on
Developing Countries: Some Empirical Evidence', International Monetary Fund, viewed September
19 2010,

<http://www.imf.org/external/np/res/docs/2003/031703.htm>