Globalisation is a major part of geography. When you think about whom the key players are in promoting globalisation, do you think about governments? Well, governments are key players in our society and help enforce globalisation through a variety of intervention methods associated with politics and the economy. Keep reading this explanation to understand the various roles of governments.
Government role in globalisation
In today's modern society, globalisation is becoming increasingly commonplace. Countries' ability to connect is easier than ever.
Globalisation is the increased interconnection of the world. This occurs due to economic, political, and social factors, such as the global trade of goods and services and flows of investment.
This increase in the rate of globalisation is driven by political and economic arrangements. But what are these arrangements, and how do governments fit into them? On a range of scales, from international to local, governments permit freedom in the economic integration of certain actions. This is the government's contribution to globalisation.
Role of government in capitalism
Capitalism is an economic system within society. It is a system that does not require government aid, but rather relies on industry and trade by private owners. Despite this, the government can have some influence over capitalism and capitalist decisions through a variety of methods.
Some countries are open to the effects of globalisation and therefore encourage economic liberalisation. These countries follow western democratic capitalist ideologies.
Democracy is a type of government. It allows decisions to be made by the majority of people and is therefore considered fair and equal.
Capitalism is an economic system wherein instead of state ownership, private owners have control over industry and trade.
Therefore, democratic capitalism is a system within politics and economics that allows the granting of resources based on social entitlement.
These ideologies are increasingly spreading worldwide, due to globalisation helping to spread information around the globe.
On the other hand, some countries are completely 'switched off' from the worldwide connection that generates globalisation. In terms of the government and the economy, this means that trading with other countries is limited or in some cases non-existent. Basically, these countries see no effect of globalisation. North Korea is an example of one of these 'switched off' countries. These countries that are 'switched off' and do not follow western democratic capitalist ideologies are often corrupt states. You can read more about this in our explanation of Globalisation, so don't forget to take a look!
Role of government intervention
Governments play a role in economic liberalisation. Economic liberalisation consists of processes that minimise government constraints and principles. Examples of this include the promotion of free trade and the removal of subsidies. It is thought that economic liberalisation offers opportunities in a trade that can further increase the economy of a nation.
The intervention of government in economic liberalisation can increase globalisation. This is done through:
One of these processes that governments contribute to is the promotion of free trade blocs.
Free trade blocs are agreements between a set of countries that allow a reduction of trade barriers, quotas, and tariffs. This is done to increase the flow of goods and services between the countries.
This aids in increasing globalisation because the countries within a trade bloc become interconnected through freedom of trade due to a lack of trade quotas and tariffs.
Tariffs are taxes placed on imported or exported goods, which allow governments to gain revenue and protect the businesses within their state.
Quotas are restrictions on the number of goods that can be imported from another country within a particular amount of time. This aims to reduce the number of imports, yet increase the amount of production within the country.
Some examples of free trade blocs are the European Union (EU) and the Association of South East Asian Nations (ASEAN).
EU
The European Union (EU) is an example of a free trading bloc. This means there is free trade between the 27 members of the EU. In addition to this, many EU members share the same currency (the Euro, used in the Eurozone) and follow the same labour and environmental regulations, and economic policies. This allows the close connection of the countries within the trade bloc, which aids in globalisation.
ASEAN
The Association of South East Asian Nations (ASEAN) is another free trading bloc comprised of 10 countries. The 10 countries include Indonesia, Cambodia, Brunei, Malaysia, Laos, Myanmar, Thailand, Singapore, the Philippines, and Vietnam. This trade bloc contains low tariffs on the trading of certain goods, although its main focus is the political connection to prevent any issues between the countries whilst simultaneously encouraging globalisation.
Fig. 1 - Map of the countries in ASEAN.
Free market liberalisation
Free market liberalisation is similar to free trade blocs. It is the removal of restrictions in the economy that are set in place by governments. Free market liberalisation encourages competition and removes monopolies and price controls, which improves the efficiency of trade and encourages globalisation.
Privatisation
Privatisation is the process of businesses going from the public sector to the private sector. Industries becoming privatised instead of being owned by the state is therefore another way governments can boost globalisation. This is because private owners can be from foreign destinations.
Encouraging business start-ups
By encouraging business start-ups through grants and loans, the government can further grow specific industries, which also increases competition in businesses. A whole array of industries and businesses, including renewable energies, pharmaceuticals, and ICT development, are critical across the entire globe and this can connect various countries, therefore increasing globalisation.
The role of government in international trade
Governments also play a role in international trade, for example, in drawing Foreign Direct Investment (FDI), which also encourages the spread of globalisation, especially into new global regions. Attitudes to FDI, subsidies and special economic zones (SEZ) are ways in which governments do this.
Attitudes to FDI
Attitudes to FDI have changed over time.
FDI is when an investor, company, or government from another country purchases interest in a foreign organisation or company.
FDI was considered harmful, suggesting it was exploitative as it offered poor wages, bought resources for low costs, and negatively impacted the environment. More recently, it has been considered in a more positive light, stating that it offered jobs, better wages, and suitable working conditions.
This change in opinion of FDI, through globalisation, allows fast economic growth in countries that were not developing economically originally, as developed countries can place direct investment in the new areas, which are often developing countries.
Subsidies
Subsidies are payments from the government to an individual, organisation, or firm to promote an additional factor which is usually economically related. It is essentially an incentive set by the government, as subsidies can invite FDI.
Special Economic Zones (SEZs)
SEZs are specific areas within a country that have different rules than the rest of the country’s rules regarding the economy. SEZs involve taxes, tariffs, trading, and quotas. The aim of these areas is to increase investment, trade balance, and employment, as well attracting FDI, which can help spread globalisation, especially to new areas.
Fig. 2 - Special Economic Zone in Laos.
SEZs are located in a specific area that is surrounded by good infrastructure and nearby emerging markets. It is also important SEZs are not close to corruption, crime, and violence because SEZs require laws to remain withheld.
Role of government policy
An example of economic liberalisation is China’s ‘Open-Door Policy’ which was introduced in 1978 by Deng Xiaopeng.
China was previously a very closed country that did not often trade with other countries. However, the policy opened up the country to increase trading and foreign business. This allowed large amounts of FDI from other countries. Additionally, SEZs were also set up to further attract FDI. This ultimately led to the modernisation of industries in China and dramatically increased their exports, making the country one of (if not the) largest trading nations in the world.
This policy can be attributed to the fact of why many products around your house may be stamped 'Made in China'.
Role of Government - Key takeaways
- Globalisation can be driven by governments through economic liberation.
- Capitalism is an economic system that does not require the government to function, yet the government plays a role in influencing capitalist decisions.
- Free trade blocs (EU and ASEAN), free market liberalisation, privatisation, and encouraging business start-ups can help encourage globalisation.
- Attitudes to FDI, subsidies, and SEZs can also encourage the spread of globalisation, especially into new regions.
- China’s Open Door Policy is an example of economic liberalisation which led to the modernisation of the industry and expansion of its economic markets in China.
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