The Case for Policy Space

Crowded out: corporate giants are cramping developing nations’ sovereign styles.

Rick Rowden looks at the impact of corporate moves to homogenise global trading and investment agreements and how developing countries are struggling to preserve their sovereignty amid audacious legal manoeuvres by multinationals.

Global corporations want seamless operations across the world economy to reduce transaction costs as they operate in multiple national jurisdictions. Ideally they’d like to see global uniformity on regulations – and at the lowest level possible. Unfortunately for them, things like national borders, uneven economic development among countries, public health concerns, environmental reality, labour rights and other aspects of democracy keep getting in their way.

To pursue the dream of seamless operations, major industry associations lobby governments to negotiate international trade agreements and treaties on foreign direct investment (FDI) with other countries. They lobby for rules that require the parties to liberalise, privatise and deregulate as much of their national economies as possible in the name of unfettered free trade and free markets, while stepping up enforcement of intellectual property rights (IPRs) and other investors’ rights.

But every time a country signs such a trade deal, it gives up a bit of its sovereignty, or the right to adopt certain policies or use certain policy tools in its national economic policy toolbox. In other words, such agreements reduce a country’s available policy space. Observers have documented how the deepening degree of lost policy space has gradually become a problem over time, particularly for developing countries that have lost access to industrial policies they will need to be able to industrialise.

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Rick Rowden

Rick is Senior Economist as Global Financial Integrity (GFI) and has a Phd in economics from Jawaharlal Nehru University in New Delhi. Previously he worked as an inter-regional advisor for …

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