Economic Governance

Economic governance in market-based economies such as that of the United States is largely a question of when and how governments should intervene in those markets. Neoclassical liberal theory suggests that interventions should be minimized, limited to ensuring that markets function efficiently and providing public goods that markets fail to provide. Various forms of democratic theory argue, in contrast, that political rather than market processes should play a primary role in allocating resources and setting economic priorities. This debate has engendered a voluminous literature in economics, political science, and public policy, and has been at the heart of many elections as candidates vie for voters oriented toward less government and more market-based freedoms and those who favor increased equality of resources and aggressive regulation of markets.

Globalization has undoubtedly contributed to global economic growth. Throughout the 1980s, according to World Bank data, the world economy grew by an average of 3.3 percent a year, but during the 1990s, it grew by an average of 2.7 percent a year. Even in 2001, when global growth was only 1.1 percent, that translated into an increase of more than $300 billion in economic output. Total global household consumption grew from US$12.9 trillion to US$18.9 trillion between 1990 and 2001, a 3.3 percent rate of growth. But economic growth has been uneven: The high growth rates in China and other East Asian and Pacific countries mask much more modest improvements in the economies of other poor countries, and economic prospects continue to weaken in Sub-Saharan Africa. World Bank data on the growth in household expenditures between 1980 and 2001, for example, show that growth has occurred in South Asia and the East Asia and Pacific region in contrast to little growth in Latin America and a decline in Sub-Saharan Africa.

In the United States, economic governance is central to debate between Republicans and Democrats regarding public policy. Republicans have been champions of tax cuts and supply-side economics, reduced regulation of business, and subsidies to key industries. Democrats counter with more redistributive tax policies, increased regulation to protect environmental and other values, and increased investment in programs to help low-income residents. Republicans champion an ownership society that maximizes individual freedom; Democrats focus on equal opportunity and empowering those who cannot compete in labor markets without some help. Some argue that economic issues are eclipsed by concern with moral values or that the similarities between the two parties and their pursuit of campaign contributions and support from industry dwarf any differences, but economic governance is clearly a contested issue.

The apparent polarization of this debate in the United States masks a fundamental truth of economic governance—that markets depend on a variety of public policies to ensure they actually produce the important and valuable benefits they promise, to secure the stability and public order required for economic activity to flourish, and to guarantee the health of the natural environment on which it depends. Regardless of the ideological debate between Republicans and Democrats and proponents and critics of globalization, capitalism inescapably depends on institutions of government for a host of functional policy prerequisites of markets, including the

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