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CHAPTER TEN: Globalization, Deindustrialization, and Development

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Three distinct aspects of economic globalization impact national economies and economic policies. Globalization has led to increased trade, expanded foreign direct investment, and increased international capital flows. These have raised major questions about economic policy in both wealthy and poorer countries: Do states still maintain sovereign control over their economies? What policies can governments use most effectively to steer their economies? Does globalization force different regimes and societies with different values to follow the same economic policies?

This chapter looks at these questions, first in wealthy industrialized countries and then in poorer and less powerful states. Wealthy states face issues of how to respond to the movement of manufacturing out of their countries and whether they can maintain their levels of social spending. Two perspectives are applied to explain the responses of wealthy countries to these issues. The hyperglobalization perspective argues that globalization produces a convergence among the policies of wealthy countries, whereas the varieties of capitalism school distinguishes two broad types of economies among wealthy capitalist countries: liberal market economies (LMEs) and coordinated market economies (CMEs). Proponents of the varieties of capitalism approach argue that with globalization these two types of economies will become even more distinct.

Economic and social policies in poor states have long involved "development" as a key goal. The reigning conventional wisdom is that the state should allow the market to operate more or less unfettered. However, a number of scholars and practitioners now argue that states need to have more of a role in reform than the neoliberal model allows. Political science research suggests that neither democratic nor authoritarian regimes are inherently more successful at producing development.