Globalisation of The Economy and The Nation State

Essay by supersaadiUniversity, Bachelor'sA, June 2009

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1. INTRODUCTIONThe international economic organisations (IMF, World Bank, OECD, WTO, etc.) and most economists hold the view that global economic integration represents a vehicle for significant welfare enhancement.[1] The political climate on the level of the nation states, however, does not reflect this optimism. On the contrary, the catchword 'globalisation' appears to acquire more and more a decidedly negative connotation. It has become popular among national politicians, the media and sometimes even members of the business community to blame anonymous and sinister global market forces for all kinds of political and economic problems. Above all, the so-called 'globalisation trap' is held responsible for unpleasant labour market conditions -- unemployment in Europe and real wage reductions of low and middle income families in the United States -- and for the alleged dismantling of the welfare state.

The two views, in principle, need not be contradictory. The changes concomitant to global economic integration clearly do have distributional consequences.

In other words, there are gainers and losers from globalisation. The opponents of economic integration may thus simply place more emphasis on questions of distribution than those who advocate globalisation without qualifications. In any case, in order to properly evaluate the situation at hand, the efficiency and distribution effects of global economic integration need to be analysed in detail -- a task that the economics profession has attended to with great zeal over the last few years.

The literature on globalisation falls into two categories. The first strand deals with the effects of globalisation on the primary distribution of (labour and capital) income. This literature, which has its roots in the 'trade and wages debate' conducted mainly by economists, is discussed in two recent 'symposia' published by the Journal of Economic Perspectives (Vol. 9, No. 3, 1995) and by the Economic Journal (Vol. 108,