The conflicting ideologies in Economics have more or less revolved around mainly two institutions- Markets and Governments. The Capitalists believe ‘Markets’ to be the panacea for all economic problems, while the Socialists replace the ‘market’ with the ‘government’.
Market is the institutional framework within which the act of exchange takes place or the institutional milieu which is the context of the relationship of exchange between the parties. [Kurien 1993] Thus market is an institution which allows for exchange. This exchange is only possible if one of the parties have adequate purchasing power.
Markets exclude people as consumers or buyers of goods and services if they do not have any incomes, or sifficient incomes, which can be transalated into purchasing power. People experience such exclusion if they do not have assets, physical of financial, which can be used (or sold) to yield an income in the form of rent interest or profits. [Nayyar 2002]
So, relying on markets alone will exclude a large chunk of the populace of a nation. Those with relatively higher purchasing power will benefit over those will less purchasing power. And for the former, the world will become a flatter place, as Thomas L Friedman says.
A government is a body that has the authority to make and the power to enforce rules and laws within a civil, corporate, religious, academic, or other organization or group. In its broadest sense, “to govern” means to administer or supervise, whether over a state, a set group of people, or a collection of assets. [Wikipedia]
In our formal analysis of exchange and producation, the role of social norms ( Smith proposed that market exchange is sustained by the underlying social ‘norms’ resulting frm sympathy, for example, trust in exchange, respect for contracts etc.) are left out and we tend to exaggerate on one hand, the efficiency of an abstract market mechanism based on an invented ‘auctioneer’. On the other, we tend to neglect the roles which the state could play in either reinforcing or destroying these norms which are essential for the functioning of the market economy. [Bhaduri 2002]
Globalization is predominantly a ‘market’ centric process.
Globalization, both then and now, has been associated with an exclusion of countries and of people from its world of economic opportunities. [Nayyar 2002]
Economic globalization challenges the political authority, which the nation state had attained by undermining gradually many of the norms of the traditional civil society.[ Bhaduri 2002]
Globalization has resulted in high growth only in a selected few sectors. [Thomas 2007]
Relying solely on the Government to undertake the functions of the market will lead to social unrest and will result in economic inefficiency. And government regulations are a check on the markets so that a market failure does not occur.
Can markets and governments exist peacefully? Can market and governnment produced goods and services reach an equilibrium? Will this result in a state, where those excluded from the market will be included by the government machinery? Is this sustainable in the long run?
1)Deepak Nayyar (edited), Towards Global Governance, Governing Globalization, 2002.
2)Amit Bhaduri, Nationalism and Economic Policy in the Era of Globalization, Governing Globalization, 2002.
3)C. T. Kurien, On Markets in economic Theory and Policy, 1993.