Government Policy & Globalisation
Geography: Edexcel A Level, topic 4.1.4
Government Policy and Globalisation
National Governments can adopt policies such as free-market liberalisation, privatisation and encouraging business start-ups which accelerate globalisation.
Free-market liberalisation
- Free-market liberalisation is also known as neoliberalism. It is where you remove the influence of the state in the economy and allow the markets to act more freely.
- By doing this, it is hoped that markets will be efficient and the benefits of economic growth will trickle down to the poorest in society. This does not always work as intended.
Privatisation
- Privatisation is where state-owned businesses or infrastructure is sold to private TNCs. It allows foreign investors to gain a share and so can represent a form of FDI.
- It was the policy of the UK government in the 1980s under Margaret Thatcher's Conservative government. Companies like BT and British Airways (now called IAG) were privatised.
Privatisation cont.
- The policy is based on the view that businesses are run more efficiently in the private sector because of the incentive to make profit.
- It reduces government spending and gives a one-off payment to the government for selling shares. Royal Mail was privatised by the UK government in 2013.
Subsidies to TNCs
- National Governments can offer subsidies, perhaps to TNCs, to set up in a particular area and thus encourage FDI into a region or a country.
- The Irish government was punished by the EU for having a favourable tax relationship with Apple and other tech companies. Apple paid a tax rate of 0.005% in Ireland.
Encouraging business start-ups
- Encouraging business start-ups is another government policy that can accelerate globalisation. If you adopt methods to encourage businesses to start up in an area then you can encourage TNCs to increase FDI in your country.
- Methods to encourage business start-ups include: offering lower tax rates to these companies, installing high-quality infrastructure in an area (e.g. high-speed broadband) and allowing them to make more profit (e.g. by relaxing Sunday trading laws). Subsidies could also be used.
Test yourself on Government Policy & Globalisation
What is it called where state-owned businesses or infrastructure are sold to private TNCs?
Privatisation was the policy of the neoliberal UK government in much of the 1980s. Companies like BT and British Airways (now called IAG) were privatised. Who was Prime Minister at this point?
Free-market liberalisation is also known as neoliberalism. What do these phrases mean?