Neoliberal Policies in the development of the International Economy since the early 1980s Essay
Neoliberal Policies in the development of the International Economy since the early 1980s
International Economy has always been volatile as it is subject to the activities of the market itself and the market players. Since global in composition, all countries constituting the international arena have a significant effect in the economy as a whole. Neoliberalism is a school of thought that traces its beginnings in Neoliberal Manifesto; it believes that social progress can be attained through economic liberalism. Therefore, it believes that social aggrandizement can be made through transferring the control of the economy from the public (government) to the private sector.
It advocates that since the private sector is more adept in handling the economy it is righteous to have them control it so that results will be favourable for all, economy-wise. While this move dismantles competition and espouses oligarchy and monopoly, John Williamson (one of the premier minds behind Neoliberalism) argues that it is for the best interest of the nation as more business and firms will be built. It embraces ten points of contention.
The first being the Fiscal policy where deficits are seen to be used only under occasional stabilization purposes, it therefore believes that large deficits should not be run by the government as it will only be paid later on by the citizens. It has a great tendency to lead to low productivity and inflation. And no country would like to experience inflation as it is tantamount to economic suicide. Second is the redirection of subsidies to public spending; while subsidies has is purpose, the truth is there are more people in need of more services and it is the responsibility of the government to aid them.
The government spending will focus on education, health care and infrastructure development. This espouses emphasis and control of the government to social sectors. Social Welfare should be one of the key priorities of the government. Third is Tax reform which aims to adopt moderate marginal tax so that citizens will be encouraged to innovate and be efficient. This means that people are actually encouraged to be active participants of the market and not mere observers.
Fourth is floating exchange rates which imply that the value of the money is volatile, it can go down or up depending on the performance of the currency. This only means that there are many rooms for development as the exchange rate is not fixed, only it has its equivalent risks. Fifth is trade liberalization which affirms the dismantling of quantitative restrictions in order that competition will be encouraged and the quality of products that will be produced will grow more and more.
This does not only motivate people and firms to work hard but also to innovate, to invent new things and develop new ideas so that the buyers will purchase their products. Sixth is Liberalization, while the fifth focuses on trade, this one embraces monetary trade that opens the doors for people to invest their resources overseas and in turn to attract foreign investors as well. It works both ways, letting the market run from one country to another thus strengthening trading tie between and among nations.
Privatization of state enterprises is one of the most interesting points of Williamson as it gives more power to the people. It battles monopoly by opening to the private sector the opportunity to create firms and companies that will provide services similar to that provided by governments, it brings about venues for competition and more importantly choices for the people. Deregulation is basically removing market restrictions. As market restrictions tend to limit competition it also promotes standards both for quality and security.
Deregulation removes the market restrictions but retains those with lawful justifications and phyto-sanitary standards. Legal security for property rights is the 9th point and is seen as protection for the public as they are given exclusivity to their rights. No one from the government or the government itself can claim ownership over one’s property, which again empowers the people economically and politically. And finally the Financialization of capital. This promotes more power to the economy. Neoliberalism inspired the many changes in the International Economy in the 1980s.
As more and more people understand and see the benefits of having an economy that operates on its own more and more people supported and adopted it. The 1980s was a time of Economics transformation. It was the inspiration for the collapse of Communism, countries like Yugoslavia and China freed themselves from the Communist ideology as they embrace liberal policies in economics. Democratic countries further supported the cause of neoliberalism as they focused on economics individual right where not only firms and institutions get to be play and participate in the market but people as well.
Governments also prioritized free trade. Since neoliberalism is a rather new idea, nations cannot abruptly turn 360 degrees to embrace it, therefore the changes were implemented in moderation but created great impact in several of the most stable and prolific economies of the world. Two of the most important people in the 1980s were greatly influenced by economic liberalism, they are Margaret Thatcher, United Kingdom’s Iron Lady and United States’ 41st President, Ronald Reagan.
Both of them had the same understanding and view with regards to economy, they were determined to propagate neoliberalism as they see it very efficient and effective for majority of the markets. Reagonomics, the term used to refer to the economic policies of then US President Ronald Reagan was anchored greatly in neoliberalism. Its four pillars were close to the ideas promoted by neoliberalism. The four pillars were to reduce government spending, to reduce income and capital marginal taxes, to reduce government regulation of the economy and control money supply to reduce inflation.
The four pillars can be found in Williamson’s 10 points of contention as well, only re-affirming that Reagonomics was inspired by neoliberalism. Historically, the United States faced inflation and massive unemployment before Reagan’s presidency. His strategy of reinventing the approaches to the American economy was greatly different from the Presidents before him as they embraced monopoly and state governance instead of free market. Margaret Thatcher worked to the best of her ability to dismantle trade barriers and limit the intervention of the government in the market.
This may sound ironic as the n Prime Minister Thatcher is the head of government but she is actually reducing the power of her office. This only tells us that the leadership of Thatcher wanted so badly to rebuild the status quo when it comes to economic policies. This also suggests that the Margaret Thatcher paid emphasis to the importance of economic stability in achieving political stability. At that time, neoliberalism was the key to advancement both socially and more importantly politically.
In turn, industries increase its shift from locally to globally. Therefore integrating the different and varied economies of the world to arrive at a compromise and a common ground to negotiate and maximize the utilization of the world’s resources. Not only are the tangible resources shared but the intangible ones as well. Research and development was able to advance because of the collaboration of various minds giving different perspectives to a specific subject.
The effects and influence of neoliberalism were vast, not only was it seen and accepted in the West but in all other parts of the world. In key countries like Australia, Canada, Japan, Scandinavian countries, United Kingdom and United States, neoliberalism was greatly accepted even in striving countries like Chile and South Africa. Even Latin American countries which embraced and adopted neoliberalism achieved economic gains as they became less dependent on imports from foreign countries and achieved urbanization.
Neoliberalisms’ effects can be summarized in several points. First is the growth in international trade and cross – border capital flow. Since neoliberalism espouses freedom in economy, therefore eliminating and limiting trade barriers nations are given the lee way to trade with whoever they want as long as legal standards are respected. This way, the capitals are maximized and other opportunities for business are explored not only locally but internationally as well.
In relation with the first, the elimination of trade barriers is one of the major legacies of neoliberalism. It is perhaps its essential value; people and firms are no longer under the role of government standards. The rules made are made essentially and specifically for economic purposes and aims in mind, unlike the trade barriers which is more government – serving. And last, privatization of public owned companies. Among all the many legacies neoliberalism left us, the privatization of government operated companies is probably the most beneficial for the public.
As the private sector handle the previously government owned companies (example: telecommunication, television and water systems) the buyers and purchasers are given more choices, more quality and more products. Since the market is now open and anyone can put up a telephone or television company, the present business owners will be driven and pressured to keep on improving their services as competitors are everywhere, next they need to constantly modernize and innovate so as consumers will have something to look forward to, in the same way that it makes them ahead of the competitors.
And lastly, the market is controlled by people who are focused on economy, unlike when a company is controlled by the government the focus of the company is torn between economic purposes and government aims. It is also believed that economic freedom brings about better standards of living, it attracts investors and finally pushes technology to do and achieve more. Political Scientist Thomas Friedman said that political freedom can be achieved when there is economic freedom.
As politics and economics are gravely intertwined with another, when the economic composition of a nation is controlled by a certain sector of the society, the political control is on its side. While, if there is economic liberalism, the economic sector and political sector can serve as checks and balances of one another, therefore securing that both sectors are doing what they are supposed to do.
Friedman also noted that economic power should be separated from political power as the tendency to abuse and be abused is so vast. However, critics of neoliberalism believe that economic liberalism bastardizes the concept of a nation’s right to self – determination as the government loses its hand over one of the most important divisions, the economy, it assumes that the once a government has limited access over its economy the state itself becomes weaker.
Capitalism is also viewed as a tool to exploit; because everything is market and results – driven critics say that the poor will only get poorer and the rich richer because the market is controlled by the rich. However, proponents of neoliberalism that Capitalism only maximizes the resources and provides limitless opportunities for people who are willing to grab them. In summary, the effects of neoliberalism in the movement of the international economy is incomparable.
It is one of the few schools of thought that was accepted and supported worldwide and later on became the model of how economies should function. Although perceived by some to be exploitative and conflicting with the government, the benefits it had done to countries and nations which have adopted its policies are clear and surviving, from the 1980s to this day. And more and more economies continue to grow and strengthen as the further enhance the legacies left behind by neoliberalism.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 10 October 2016
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