Comprehension : Comprehension

Q 358 / 466

UPSC CSE Prelims 2014

It is often forgotten that globalization is not only about policies on international economic relationships and transactions, but has equally to do with domestic policies of a nation. Policy changes necessitated by meeting the internationally set conditions (by WTO, etc.) of free trade and investment flows obviously affect domestic producers and investors. But the basic philosophy underlying globalization emphasizes absolute freedom to markets to determine prices and production and distribution patterns, and government interventions as processes that create distortions and bring in inefficiency. Thus, public enterprises have to be privatized through disinvestments and sales; sectors and activities hitherto reserved for the public sector have to be opened to the private sector. This logic extends to the social services like education and health. Any restrictions on the adjustments in workforce by way of retrenchment of workers should also be removed and exit should be made easier by removing any restriction on closures. Employment and wages should be governed by free play of market forces, as any measure to regulate them can discourage investment and also create inefficiency in production. Above all, in line with the overall philosophy of reduction in the role of the State, fiscal reforms should be undertaken to have generally low levels of taxation and government expenditure should be kept to the minimum to abide thy the principle of fiscal prudence. All these are policy actions on the domestic front and are not directly related to the core items of the globalization agenda, namely free international flow of goods and finance.

According to the passage, under the globalization, government interventions are viewed as processes leading to:

EXPLANATION

Correct Option

The passage explicitly states that the basic philosophy underlying globalization emphasizes "absolute freedom to markets to determine prices and production and distribution patterns," and views "government interventions as processes that create distortions and bring in inefficiency." Therefore, according to the passage, government interventions are regarded as leading to distortions and inefficiency in the economy.

Incorrect Options

  • Option 2 (optimum use of resources): The passage identifies government interventions as creating "inefficiency," which is contrary to the concept of optimum resource utilization. Within the globalization framework described, free markets, rather than government intervention, are posited to drive efficiency and optimal resource allocation.
  • Option 3 (more profitability to industries): The passage does not suggest that government interventions lead to increased profitability for industries under the globalization paradigm. Instead, it advocates for market forces to govern economic outcomes, implying that interventions would impede, rather than enhance, market-driven profitability.
  • Option 4 (free play of market forces with regard to industries): The passage clearly positions government interventions as antithetical to the "absolute freedom to markets." Interventions are viewed as creating distortions and inefficiency, thereby obstructing the free play of market forces, rather than facilitating it. The core tenet of globalization, as described, involves reducing state intervention to enable market forces.