Chapter 10

Three distinct aspects of economic globalization impact national economies and economic policies. Globalization has led to expanded foreign direct investment, increased trade, and increased international capital flows. These have raised major questions about economic policy in both wealthy and poorer countries: Do states still maintain sovereign control over their economies? What policies can governments use most effectively to steer their economies? Does globalization force different regimes and societies with different values to follow the same economic policies?

This chapter looks at these questions, first in wealthy industrialized countries and then in developing states. Wealthy states face issues of how to respond to the movement of manufacturing out of their countries and whether they can maintain their levels of social spending. Two perspectives are applied to explain the responses of wealthy countries to these issues. The hyperglobalization perspective argues that globalization produces a convergence among the policies of wealthy countries, whereas the varieties of capitalism (VOC) school distinguish two broad types of economies among wealthy capitalist countries: liberal market economies (LMEs) and coordinated market economies (CMEs). Proponents of the varieties of capitalism approach argue that with globalization these two types of economies will become even more distinct.

Economic and social policies in poor states have long involved “development” as a key goal. The reigning conventional wisdom has been that the state should allow the market to operate more or less unfettered. However, a number of scholars and practitioners now argue that states need to have more of a role in reform than the neoliberal model allows. Development success in the face of globalization has varied greatly by region.  Developmental states in East Asia remain the great success story.  In Latin America, neoliberal structural readjustment programs began as a response to debt crises, but had varying effects. A backlash against neoliberalism, the ‘pink tide,’ stems from high levels of inequality and repeated financial crises. Scholars are also concerned about the bottom billion, the billion people living in the poorest states, mostly in Africa, who have benefited the least from globalization.

Learning Objectives

After reading this chapter, you should understand:

• Differences between liberal market economies and coordinated market economies.
   
• How and why globalization may create different or similar policy responses in these different types of economies.
   
• The various effects of globalization on different regions of the developing world.
   
• Differences in policy responses to globalization by developing states.
   
• How regimes type may or may not affect economic development.