The Role of the State in Economic Policy and Social Justice

Introduction

In recent times, there have been calls to let the state take a back seat to free markets and innovation instead of playing a more important role (Mazzucato, 2011 ). To some extent, this argument is also aiding the globalisation project and is aligned to the ideas that drive globalisation, particularly economic globalisation that seeks to reduce or remove boundaries in trade and commerce (Mazzucato, 2011 ). However, the counter argument to such calls is that strengthening of economic forces as against forces of the state to the point that the state is reduced “into weak and non-ambitious economic policy” is counter productive and acts as a barrier to making effective policyfor greater prosperity for all (Mazzucato, 2011 , p. 18). This argument is based on the premise that state should not be made weaker to aid the business, because this has adverse effects for social justice. This argument is also made by Sen (2011) who points out that capitalism without state intervention can have serious negative impacts in terms of social equity and lead to increase in disparities in different sections of the society.

Biggart and Guillen (1999) emphasised on an institutional approach which focuses on the role played by social organisation in economic development. This means that based on their historical experiences and level of social organisation, states will develop economically. The actors, be it states, or firms, will also play roles in the domestic as well as global economy based on the patterns of social organisation (Biggart & Guillen, 1999). Against this background of the role played by states in their own development, the processes of globalisation have made it essential to understand the role played by capitalism and its interaction with state power. As Biggart and Guillen (1999) note “capitalism is a global economic system with its own logic”, it becomes necessary to evaluate how capitalism strengthens state power and also how it challenges or even weakens it.

At the outset, it would be useful to set out a definition of globalisation, because as a concept it is complex and related to not just economic conditions, but also political and cultural conditions, making it a difficult term to define (Kellner, 1998). Lall (2002) defines globalisation as a multi-faceted phenomenon, with effects on employment as well as on economic, technical, social, legal and policy changes. Globalisation has also been defined as a social process with effects on social conditions (Steger, 2013, p. 9). Some authors relate globalisation to the west and portray it as a western phenomenon, with effects on the developing countries of the world (Zhou, 2013). From a more economic sense, globalisation has been defined as the increasing interdependence of world economies due to the international trade of commodities and services, and flow of international capital (Shangquan, 2000).

Due to these cross-border effects of globalisation, which may also include effects on law and policy of the states in an increasingly economically interdependent world, a question on how far the processes of globalisation impact the power of the state, both positively and negatively, becomes relevant. In this essay, the effects of globalisation on both the strengthening and weakening of the state, are discussed.

Strengthening of the state under globalisation

The processes of globalisation have led to economic growth in countries around the world; in this, not only the developed countries benefitted from the processes of globalisation, the developing economies too benefitted from these processes. Industrialisation and manufacturing increased in a number of countries leading to opportunities for export, rise in employment avenues and ultimately more economic development in the emerging economies (Szirmai, 2012). Therefore, globalisation strengthened the economies of countries primarily through increase in industrialisation and manufacturing activities (Szirmai, 2012). An example can be seen in the rise of China as an emerging superpower on the back of its economic and technological development, which for the most part is premised on China being a major exporter of industrial and manufactured goods. Thus, China took advantage of globalisation, and employed both global and local processes to become an emerging superpower in a time frame of little more than three decades (Guthrie, 2012).

China is not the only country that has taken advantage of the processes of globalisation to increase its economic power; other emerging economies like Brazil and India too have benefitted from the processes of globalisation. Emerging economies have been able to increase their economic strength due to the access to markets in developed countries, which has benefitted their manufacturers and made them more competitive (Lall, 2002).

Indeed, Lall (2002) notes that the processes of globalisation led to the developing country exporters gaining from the market access to developed countries, and import foreign products, services and technologies. As a consequence, developing countries have seen great technological development as well. The access to technological innovations in the developed world has meant that the developing countries, especially emerging economies have been able to catch up faster with the developed countries in terms of manufacturing and industrialisation as argued by Gerschenkron (1962) and more recently by Abreu and Fritsch (2016). Consequently, developing countries have witnessed increase in industrial and technological activity and have become significant source of exports (Abreu & Fritsch, 2016, p. 112). It is worthwhile to note that the period between 1960s to 1984 saw a three-fold gain in manufacturing exports by developing countries to become 13.4 percent by 1984, with gains in the steel and iron industry, clothing and engineering products (Abreu & Fritsch, 2016, p. 113). This strengthens the thesis posited by Gerschenkron (1962) that latecomers to industrialisation profit from the access to modern technologies developed in the leading industrial economies. It has been said that some developing economies witnessed a ‘growth spurt’ due to the access to technological developments brought to them through processes of globalisation (Szirmai, 2012).

Weakening of the state under globalisation

In the previous section, the example of China was used to demonstrate how Chinese state strengthened economically due to the opportunities offered by globalisation and how it used the processes of globalisation to improve its economy. However, it should also be noted that globalisation also weakened the Chinese state power to some extent. For instance, along with the increase in economic strength, China also witnessed a change in its domestic policy towards liberalisation as noted by Stiglizt (2015) and Guthrie (2012). This meant that in order to respond to the opportunities offered by processes of globalisation, China had to change some part of its communist philosophy to allow privatisation and greater liberalisation of the market. This can be taken as a weakening of the state power as it had to relinquish control over the market in order to take the opportunities for economic growth offered by globalisation. Another way in which state power in China was impacted is related to the labour market. Wu (2016) argues that globalisation is a double edged sword which led to increase in employment opportunities for the Chinese labour, but also put them in a somewhat vulnerable and marginalised position when the same workers worked overseas as they experienced vulnerability and marginalisation in foreign countries (Wu, 2016, p. 138).

The conditions of globalisation are aligned to capitalism and therefore, the increase of capitalist power also posits a challenge to the state power. As states rely more on major corporations to provide employment to their populations, and to improve the economy, capitalists gain power and to some extent control against the state; this is manifested in the way capitalist corporations have been able to gain greater control over conditions of labour in many countries like Bangladesh (Anner, 2015). In countries like Bangladesh, especially in the context of the apparel industry, market labour control regimes are on the rise; this means that there are unfavourable labour market conditions that affect the labour in these countries (Anner, 2015). Market controlled regimes also demonstrate conditions where worker organising is limited or restricted and such regimes are increasingly seen in low-income countries with very weak labour markets (Anner, 2015). What is important to note in the context of this essay is that such market control regimes are seen in weak states (Anner, 2015). Therefore, when a strong market control regime is seen in a state, it would imply that the state itself is weak; this is because the market labour control regime is in important ways antithetical to the state labour control regime (Anner, 2015). Weak states have weaker labour regulation and enforcement capability.

One of the areas in which the weakening of the state under the present conditions of globalisation is seen, is related to domestic manufacturers, producers and labourers (Kumar, 2020). The dissatisfaction with the processes of globalisation in these areas is seen since the late 1990s at least when domestic activism against globalisation took momentum; for instance, in 2000, there was an increase in activism against capitalism, which also led to the activists laying siege to the International Monetary Fund and World Bank summit in Prague. The activists were demanding rights for labourers that in ideal conditions should be protected by the state, such as, liveable wages, and rights to collective bargaining (Kumar, 2020). Thus, while many developing countries have seen an increase in productivity due to the processes of globalisation, this has not translated into higher wages for the labour in these countries (Dean, 2015). Instead, as Dean (2015) argues the degree to which wages of the labour increase as productivity increases depends on the domestic institutions that protect workers’ rights to act collectively. In countries, where the level of protection for labour rights is weaker, globalisation has tended to keep workers underpaid as market forces have dictated wages and the weaker state mechanisms have not been able to protect workers’ rights (Dean, 2015).

Globalisation and the rise of capitalism has led to the creation of certain market conditions that weaken the state; one of these conditions is that of monopsony, which relates to the market condition in which the market is controlled by the buyer (Kumar, 2020). Because the buyer controls the market, they are also in the position of dominance which is engendered by the fact of the buyer becoming the primary or only supplier of employment, thus having the power to set wages (Kumar, 2020). The buyer in a monopsony also has more bargaining power and can negotiate prices and terms with suppliers (Kumar, 2020). The global garment sector is a good example of monopsony. In the global garment sector alone, there are problems with the workers in developing economies not getting liveable wages and not having rights to collective bargaining and unionisation; these problems are compounded by the way the industry is structured with vertical disintegration, subcontracted manufacturing, and just-in-time production practices (Kumar, 2020). The failure of the governments in the Global South countries to protect the rights of the workers in the garment industry that produces clothes primary for the consumers in the Global North, reflects on the weaknesses of the state under conditions of globalisation. An extreme example of the effects of such control exercised by the capitalist corporations over the market conditions can be seen in the Rana Plaza incident of 2011 in Bangladesh which involved collapse of sweatshop factories killing scores of Bangladeshi workers; the premises had been deemed unsafe by the authorities but the factory owner under great pressure to provide time bound deliveries to the buyers did not shut the factory (Anner, 2015). It is argued that events such as the Rana Plaza incident manifest both the despotic market control regime as well as weak domestic labour market conditions. Indeed, the inability of the developing countries to match the power of the corporations of the developed world is only increasing as domestic enterprises find it difficult to compete with the major corporations unless they are able to build their competitive capabilities quickly (Lall, 2002, p. 11).

Perhaps a more significant way in which globalisation impacts state power is through the impact on domestic law and policy and even at times on the sovereign power of the state to make such law and policy without any external influence and interference. This is discussed at some length in this final part of the argument in this essay. There is now a considerable literature on how major corporations have been able to control or guide the law and policy making functions of the states especially in the developing world where such corporations have become a major source of employment; for instance, literature indicates that corporations like ENRON, Lehman Brothers, General Motors, and Toyota, wield considerable political clout or influence in many countries (Dörrenbächer & Geppert, 2011). The fact that many corporations have capital greater than the GDP of some nations also speaks to the power that can be exerted by these corporations; for instance, EXXONMOBIl’s profit in 2001 was 15 billion dollars; while the state of Chad had the GDP of 1.4 billion dollars (Ngomba-Roth, 2007, p. 101). Indeed, corporations have been able to dominate the capitalist world economy as well as some smaller less developed states (Chapman, 2004, p. 66).

It can be said that just like the processes of globalisation increased the pace of economic growth of the states, it also increased the profitability and hence the power of the corporations. Coming back to the point of the market controlled regimes versus state power, it can be argued that increase in the power of the corporations also signifies decrease in the power of the states. That this is something that has happened can be seen in the context of the ability of the corporations to influence national and global politics, exploit labour in the absence of strong state control, and exploit resources in the absence of strong domestic legislation in the developing nations (Blanchard, 1996). This led one commentator to ask whether corporations have the “propel changes within nations and amongst them as well as in the global marketplace”? and answer the question in the affirmative (Kegley, 2008, p. 208).

The juxtaposition of the stronger capitalist corporation and the weaker state is also established by the fact that there exist laws and policies that prevent states from taking sovereign action to legislate lest such laws affect the investments of the corporations in their economy. The restrictions on the states can be made due to the link between the Transnational banks, the corporations and the states. Transnational banks, a manifestation of economic globalisation, influence global and domestic politics as they are part of global economic integration; at the same time, as major funders of the corporations, such banks are also interested in the profitability of these corporations (Kegley, 2008). Thus, the influence on domestic law and policy to prevent changes that can adversely affect the profitability of the corporations. At the same time, the demands of interdependent economic life, which is also a part of globalisation have led to states agreeing to limit their sovereign powers to make laws and policy under international investment treaties that restrict them from making law and policy changes that can adversely affect investors from the treaty member states. Such agreements made in the desire to increase cross border investment activities are leading to what is called as ‘regulatory chill’, which has been described as a situation wherein “a State actor will fail to enact or enforce bona fide regulatory measures because of a perceived or actual threat of investment arbitration” (Tietje, et al., 2014 , p. 40). Therefore, it is found that states refrain from making legitimate legislation and regulation as they fear the possible repercussions of these policies in the investment disputes (Tietje, et al., 2014 ). Clearly, there is a link between processes of globalisation and the weakening of the power of the state.

Conclusion

In conclusion, it can be said that while processes of globalisation have aided states in gaining economic growth and power, the same processes have also weakened states by juxta positioning interests of the capitalist corporations and the capitalist economy with the interests of the states in the sovereignty to make laws and policy as well as to protect the rights of the workers. What is seen instead is that in order to participate in the global capitalist economy, states have to either compromise on their right to make laws and policy leading to regulatory chill, or allow greater control to the market over labour, which weakens the rights of the labour of the state. Therefore, globalisation has both positive as well as negative effects for state power.

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