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, which of the following is/are necessary for ensuring globalization ? 1. Privatization of public enterprises 2. Expansionary policy of public expenditure 3. Free play of market forces to determine wages and employment 4. Privatization of social services like education and health Select the correct answer using the code given below :

(a) 1 only
(b) 2 and 3 only
(c) 1, 3 and 4 ✓ UPSC's answer
(d) 2, 3 and 4

Why the answer is (c)

• The passage states that public enterprises have to be privatized through disinvestments and sales, so statement 1 is necessary.

• It states that employment and wages should be governed by the free play of market forces, so statement 3 is necessary.

• It extends the same privatization logic to social services like education and health, so statement 4 is necessary.

• It requires low taxation and minimum government expenditure, not an expansionary policy of public expenditure, so statement 2 is rejected.

• Therefore the correct combination is 1, 3 and 4, which is option (c).

Why the other options are wrong

(a) 1 only: Option (a) is wrong because the passage also requires free market determination of wages and employment and privatization of social services, making statements 3 and 4 necessary.
(b) 2 and 3 only: Option (b) is wrong because statement 2 contradicts the passage's requirement of minimum government expenditure and it omits statements 1 and 4.
(d) 2, 3 and 4: Option (d) is wrong because statement 2 contradicts the passage's requirement of minimum government expenditure, while statement 1 is also necessary.

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.