Please answer the following 2 questions: 1. Why have some states sustained high economic growth rates and developed quickly while others have failed? What are the roles of the market and the state? What are the different schools of thought on this matter? Is “globalization” relevant? Explain. 2. Are multinational corporations (MNC) exploitive enterprises that contribute to the worsening income gap between the developed and developing world? Or are they a mechanism that brings economic growth to underdeveloped countries? Footloose and stateless entities? Or national champion firms? Explain.

QUESTION

Please answer the following 2 questions:
1. Why have some states sustained high economic growth rates and developed quickly while others have failed? What are the roles of the market and the state? What are the different schools of thought on this matter? Is “globalization” relevant? Explain.

2. Are multinational corporations (MNC) exploitive enterprises that contribute to the worsening income gap between the developed and developing world? Or are they a mechanism that brings economic growth to underdeveloped countries? Footloose and stateless entities? Or national champion firms? Explain.

Please use info from these sources:
Jeffry A. Frieden, David A. Lake, and J. Lawrence Broz, International Political Economy:
Perspectives on Global Power and Wealth, 6th Edition (W.W. Norton, April 2017),
ISBN-13: 9780393603880.

Miles Kahler and David A. Lake, editors, Politics in the New Hard Times: The Great Recession in Comparative Perspective (Cornell University Press, April 2013), ISBN-13: 9780801478277.

ANSWER

The Role of the Market, State, and Globalization in Economic Development and the Impact of Multinational Corporations

Introduction

The process of economic development has been a subject of great interest and debate among scholars and policymakers. Understanding why some states have achieved sustained high economic growth rates and rapid development while others have struggled to progress is a complex task. This essay aims to explore the roles of the market and the state in economic development, discuss different schools of thought, and examine globalisation’s relevance. Additionally, it will address the question of whether multinational corporations (MNCs) contribute to the worsening income gap or serve as a mechanism for economic growth in underdeveloped countries.

The Roles of the Market and the State in Economic Development

The market and the state play crucial and interrelated roles in economic development. Proponents of the market-oriented approach argue that economic growth is best achieved through market mechanisms, emphasizing the importance of free trade, competition, and private sector entrepreneurship. According to this perspective, the state’s role should be limited to ensuring a conducive environment for market activities through the provision of infrastructure, protection of property rights, and the enforcement of contracts.

Contrarily, proponents of the state-centered approach contend that the state must actively intervene in the economy to promote development. This school of thought emphasizes the significance of state-led industrial policies, strategic planning, and targeted interventions in key sectors. The state’s role is seen as critical in providing public goods, fostering technological advancements, and addressing market failures such as inequality, externalities, and information asymmetries.

Schools of Thought on Economic Development

There are various schools of thought regarding economic development, which often align with the market-centered and state-centered perspectives.

a) Neoclassical School: The neoclassical perspective emphasizes the market’s efficiency in allocating resources and generating economic growth. It advocates for free markets, limited government intervention, and adherence to market-friendly policies such as deregulation and trade liberalization.

b) Developmental State School: The developmental state approach, often associated with the experiences of successful East Asian economies, emphasizes state intervention and strategic industrial policies. This school argues that the state’s active role in fostering technological advancements and coordinating economic activities is essential for development.

c) Institutional School: The institutional perspective emphasizes the significance of formal and informal institutions in shaping economic development. It highlights the role of institutions in providing a stable and predictable environment for economic activities, ensuring property rights, and reducing transaction costs.

The Relevance of Globalization

Globalization, the increasing interconnectedness of economies, has a significant impact on economic development. Proponents argue that globalization facilitates the flow of goods, services, capital, and technology, leading to increased economic integration and growth opportunities. Access to global markets and foreign direct investment (FDI) can boost productivity, stimulate innovation, and foster economic development.

However, critics of globalization highlight potential negative consequences. They argue that globalization can exacerbate inequality, weaken domestic industries through competition with multinational corporations, and undermine labor rights and environmental standards. Developing countries may face challenges in terms of unequal power relations, limited bargaining power, and vulnerability to global economic shocks.

Multinational Corporations: Exploitative or Growth-Enhancing? 

The role of multinational corporations in economic development is a subject of debate. MNCs can be viewed as exploitative enterprises that contribute to the worsening income gap between developed and developing countries. Critics argue that MNCs often extract resources from host countries, exploit cheap labor, and engage in harmful practices such as tax avoidance. They may also create dependency and hinder domestic industries’ growth by dominating local markets.

On the other hand, MNCs can be seen as mechanisms for economic growth in underdeveloped countries. They bring in foreign investment, technology transfers, andknowledge spillovers, which can stimulate local industries, create employment opportunities, and enhance productivity. MNCs often introduce advanced management practices and foster innovation through research and development activities. They can also facilitate access to international markets, providing developing countries with opportunities to integrate into global value chains and diversify their economies.

Conclusion

Understanding the factors that contribute to economic development requires considering the roles of both the market and the state. While the market-oriented approach emphasizes the efficiency of market mechanisms, the state-centered approach highlights the importance of state intervention and strategic planning. Different schools of thought offer varying perspectives on the best path to development, such as the neoclassical, developmental state, and institutional schools.

Globalization plays a significant role in economic development, offering opportunities for growth through increased trade, investment, and technology diffusion. However, it also poses challenges, including potential inequalities and vulnerabilities for developing countries.

Regarding multinational corporations, they can be viewed as both exploitative enterprises and catalysts for economic growth. Their impact depends on various factors, including the regulatory environment, the nature of their operations, and the policies implemented by host countries.

A nuanced understanding of these complex dynamics is essential for policymakers to navigate the path towards sustainable and inclusive economic development. By considering the interplay between the market, the state, globalization, and multinational corporations, countries can strive to strike a balance that maximizes their economic potential while ensuring social and environmental well-being.