What is the impact of globalization on the functions of the state?

The functions of the state have undergone a sea change due to the impact of globalization. The states are eager to increase their share in the world market by means of exports and imports. Multinational corporations are playing a vital role in the domestic economy of the states.

International agencies like International Monetary Fund (IMF), the World Bank (IBRD) and the World Trade Organization (WTO) control and modify, to some extent, the fiscal policies of the states. Public sectors are being privatized. Private enterprise is preferred to the public sector. Foreign Direct Investments (FDI) is being encouraged.

The states are gradually withdrawing themselves from economic, social and welfare activities. Individual initiative is being emphasized at every level. Market economy has replaced the command economy. Imperative planning has been replaced by indicative planning. Moreover, neo liberals advocate for the promotion of free economy for the best realization of human potential. The state exhorts the people to act on the principle that “self help is the best help”. In other words, the state’s role is now confined to be a facilitator rather than serving people from cradle to grave.

Justification

The era of globalization is opening many opportunities for millions of people around the world. Increased trade, new technologies, foreign investments, expanding media and Internet connections are fuelling economic growth and human advance. All these offer enormous potential to eradicate poverty in the twenty first century.

As tariff and other barriers are being lowered, trade is expanding. Thus, globalization is turning the whole world into a common village. Hence, it has opened up new opportunities for developed as well as developing countries. Explaining point-wise, globalization may be justified on the following grounds.

(1) Globalization aims to achieve free trade between the economies.

(2) It allows no restriction in the form of licenses and controls in taking up any industrial activity.

(3) It allows multinationals to have free access to investment in enterprises to enable the natural flow of capital and technology.

(4) It allows no curb on imports and exports.

(5) It advocates that the customs and tariff should be based on a sound rationale to encourage free international trade.

(6) It advocates enormous increase in direct investment.

(7) It advocates growth of organization and administrative structures to manage resources and risks across sovereign borders.

(8) It advocates gains in technology and their transfer from one economy to another.

(9) It advocates consumer gains, faster rate of growth, specialization, development of infrastructure, employment generation and above all availability of capital at competitive rates

Criticism

Globalization is more criticized in developing countries than developed ones. In a developing country like India, the 1990s has seen more retrenchment as firms downsize or merge to stand has rigors of competition. This is happening in an environment when Gross Domestic Product (GDP) growth is not generating jobs. Trade liberalization has resulted in increase in cheaper imports which hurt local manufactures. Further. Globalization has income levels with the rich getting richer and the poor becoming poorer. Skeptics doubt that the WTO may not give justice to the developing countries.

Explaining point wise, globalization may be criticized follows:-

(1) International competition affects domestic industry and leads to unemployment.

(2) Exchange rate may become more volatile due to free flow of capital.

(3) National resources of the developing countries may be exhausted.

(4) The global happenings affect directly a country’s economy on account of interdependence of economies.

(5) Globalization may adversely affect the social, political and cultural life of the people of the country.

(6) It affects the economic sovereignty of a nation.

(7) The developing states are compelled to be guided by international agencies, like IMF, World Bank and the WTO etc.

(8) Globalization affects local security measures and leaves the individual to his lot.

(9) Under globalization, health and education become more expensive and they are available to the rich only.