Economic policy in a global environment

Abstract

Prevailing commercial and political orthodoxy suggests that as the world economy has become more integrated, the rapid growth of international trade and the increased mobility of capital have internationalised policy making to the extent that it is beyond the control of domestic policy. Consequently governments have lost control of their economic destiny. This paper examines claims that global integration is emasculating the state's policy making ability. It discusses the effects of globalisation on the ability of the New Zealand government to autonomously determine economic policy and finds that these allegations are too simplistic. The ability of an economy to adapt to external influences will differ depending on the nature of the domestic economy itself. Where an economy is allowed a modicum of flexibility to respond to changes then the effects of exogenous influences may be more readily moderated. In this respect New Zealand has developed policy that will help to reduce the impact of external implications on the economy by creating an environment in which actors are able to respond flexibly to changes as they present themselves. On closer examination it becomes clear that the reforms that give rise to New Zealand's global economic exposure did not amount to a change in the boundary between state and society and consequently, governments have managed to maintain their ability to determine policy.