The economics of globalization: problems and policy responses

This chapter explored the economic process known as globalization. That process extends to the international arena many of the processes which have driven the formation of unified national economies. Globalization is driven by the market forces of profit maximization, cross-country price arbitrage, and technological and organizational innovation. It is also driven by policy initiatives that have reduced barriers to international movement of goods and financial capital. Globalization changes the economic environment in a manner that shifts the balance of power away from national governments and labor toward business, and it makes the conduct of autonomous national economic policy more difficult. It also changes the pattern of incentives facing private actors in a manner that resembles the infamous prisoners dilemma. That promotes socially sub-optimal outcomes. Fixing those problems requires a range of policy interventions that involve coordinated international agreement and remove the private incentive to make socially sub-optimal choices. Those interventions include coordinated cross-country macroeconomic policy, new rules for international financial markets, and the adoption and enforcement of core labor standards.