Democratic Governments Role in the Global Economy

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Introduction

Recently there has been an ongoing debate about the role of democratically elected governments in the global economy. There are some who are of the opinion that the government and not the international finance should be the ultimate source of discipline for national economies. While others argue that democracy itself is the problem when it comes to the global economy.

Democratic government in the global economy

Democracy is one of the most effective forms of government in today’s increasing integrated World. As it allows governments to be accounted to the electorate who brought them into power and not the global financial institutions. While the international finance players advocate for free market economy system without considering the effects that it would have in the local economy.

Democratic governments have come up with fiscal policies aimed at insulating the local market against risks brought about by the free market especially those that originate externally. This has enabled these countries to have a good welfare state, as evidenced by countries such as the Netherlands and Denmark who have an open market system but still manage to keep the risks as low as possible (Rodrik 316).

As globalization has allowed workers to be easily substituted across national boundaries. Democracy has permitted governments to come up with minimum working conditions in order to safeguard the domestic workers from exploitation, as their main priority is the electorate.

Democratic form of government has allowed countries to develop their own form of capitalism nationally. This has allowed countries to come up with their own style of corporate governance, mode of organizing the labor markets and ways of administering safety nets. This has ensured that the system does not suffer from the backlash of globalization (Rodrik 310).

Problems Posed by a democratic government in the global economy

Though, the democratic form of government is one of the effective ways of dealing with globalization, there are various problems it poses in dealing with the global economy. Milton (90) argues that, while fiscal policies by governments are viewed by many as ways of helping the economy grow, they in fact make the economy to be smaller and less stable.

This is because as governments increase their expenditure it results in the GDP rising by the same margin. In addition, when governments institute trade barriers, they prevent the local market from competing effectively in the global market thus resulting in the imbalance of trade with other countries.

Also Sachs (30) argues in his book that, while many democratic governments applied blanket trade barriers in the hope of protecting the local market, they ended up hurting it. Since the results of the barriers became more detrimental than those that would have been caused by a free market. Also through protectionism, governments have limited the local market from accessing a variety of commodities in the global economy. This has denied the electorate freedom of choice, which they promised to protect.

Solutions to problems caused by the government

While there are many problems which democratic governments pose to the global economic system, they can take the following steps to solve these problems. First they need to understand the trade agreements keenly in order to avoid applying blanket barriers to trade, thus avoiding the negative effects caused by them (Sachs 30).

Also the governments need to monitor their fiscal policies so as to ensure that they grow the economy rather than destroying it (Milton 90). Governments need to come up with effective measures to globalization to protect the electorate as well as reap the benefits that come with it.

Works Cited

Milton, Friedman. Capitalism and Freedom. 40^th anniversary ed. Chicago, IL: University of Chicago Press, 2002. 85-107. Print.

Rodrik, Dani. Has Globalization Gone Too Far?. New York: Institute for International Economics, 1997. 316. Print.

Rodrik. Dani. The New Global Economy and Developing Countries: Making Openness Work”. New York: Overseas Development Council, 1999. 310. Print.

Sachs, Jeffrey. The end of poverty: Economic possibilities for our time (introduction). New York: Penguin Press, 2005. 30. Print

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Democratic Governments Role in the Global Economy

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