Passage

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 view 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 restrictions 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 by 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, the basic philosophy of globalization is to

(a) give absolute freedom to producers to determine prices and production.
(b) give freedom to producers to evolve distribution patterns.
(c) give absolute freedom to markets to determine prices, production and employment. ✓ UPSC's answer
(d) give freedom to producers to import and export.

Why the answer is (c)

• The passage states that the basic philosophy underlying globalization “emphasizes absolute freedom to markets to determine prices and production and distribution patterns.”

• It further says employment and wages should be governed by the free play of market forces.

• The passage links this philosophy to reducing the role of the State, privatizing public enterprises, and removing restrictions on workforce adjustments and closures.

• Thus, the philosophy is not limited to producers or trade flows, but centers on markets determining prices, production, and employment.

• Therefore, option (c) follows.

Why the other options are wrong

(a) give absolute freedom to producers to determine prices and production.: Option (a) is wrong because the passage attributes absolute freedom to markets, not specifically to producers, and it also includes employment, not only prices and production.
(b) give freedom to producers to evolve distribution patterns.: Option (b) is wrong because the passage says markets determine distribution patterns, not that producers are given freedom to evolve them.
(d) give freedom to producers to import and export.: Option (d) is wrong because import and export freedom relates to international trade, whereas the passage identifies the basic philosophy as market-determined prices, production, and employment.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2014, held on 24 August 2014. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.