What is neo-liberalism? Essay
What is neo-liberalism?
Neo-liberalism is an approach to economic and social studies in which control of economic factors is shifted from the public sector to the private sector. Drawing upon principles of neoclassical economics, neo-liberalism suggests that governments reduce deficit spending, limit subsidies, reform tax law to broaden the tax base, remove fixed exchange rates, open up markets to trade by limiting protectionism, privatize state-run businesses, allow private property and back deregulation. The concept of liberalism was introduced in 1776 by Adam Smith when he stated that government intervention in economic matters is diminishing.
That is, there is no restriction on manufacturing, no barriers to commerce, and no tariffs. This raised the idea of liberal in the sense of no controls, encouraging free enterprises and free competition which allow making huge profits. While Adams supported the ideology of liberalism to balance the market and achieve economical growth, Keynes had another opinion regarding liberalism. In 1930’s after the great depression and the increase in unemployment rate caused by liberalism and limited protectionism, Keynes challenged liberalism as the best policy for capitalist.
He claimed that full employment is necessary for capitalism to grow and it can be achieved if only government and central bank intervene to increase employment. The use of the term “liberal” in economics is different from its use in politics. Liberalism in economics refers to “freeing up” the economy by removing barriers and restrictions to what actors can do. Neo-liberalism’s policies seek to create a casual atmosphere for economic development. What are the features of neo-liberalism?
In the following list, twelve features of neo-liberalism are identified from a viewpoint heavily influenced by Michel Foucault’s (1979) notion of governmentality. In outlining the main features of neo-liberalism it is important to realise that there are similarities, connections, and overlapping concepts as well as differences and theoretical innovations with classical liberalism: The relation between government and self-government Liberalism as a doctrine which positively requires that individuals be free in order to govern; government as the community of free, autonomous,
self-regulating individuals; ‘responsibilisation’ of individuals as moral agents; the neo-liberal revival of homo economics, based on assumptions of individuality, rationality and self-interest, as an all-embracing redescription of the social as a form of the economic. Cultural reconstruction as deliberate policy goal (‘the marketisation of ”the social”’) The development of an ‘enterprise society’; privatisation of the public sector; the development of quasi-markets; marketisation of education and health; a curriculum of competition and enterprise Promotion of a neoliberal paradigm of globalisation
World economic integration based on ‘free’ trade; no capital controls; International Monetary Fund (IMF), World Bank (WB), World Trade organisation (WTO) as international policy brokers. The rule of the market Liberating “free” or private enterprise from any bonds imposed by the government (the state). Provide greater openness to international trade and investment, as in NAFTA. Reduce wages by de-unionizing workers and eliminating workers’ rights that had been won over many years of struggle. No more price controls.
All in all, total freedom of movement for capital, goods and services. Debating that; “unregulated market is the best way to increase economic growth, which will ultimately benefit everyone”. Privatization Sell state-owned enterprises, goods and services to private investors. This includes banks, key industries, railroads, toll highways, electricity, schools, hospitals and even fresh water. The most extensive privatization of public goods and spaces was justified done in the name of greater efficiency, which is often needed.
Privatizations often lead to higher costs and/or poorer quality – especially in areas where oligopolies of private profit-oriented businesses form (which is usually the case). Privatizations often go along with deregulation, that is, the dismantling of state regulations and control mechanisms. The latter is not always bad, e. g. reduction of escalating bureaucracy. Excessive deregulation as in the financial markets can have far-reaching consequences up to causation of a worldwide economic crisis. Positive effects of deregulations often benefit
only a few powerful market actors while society altogether is usually burdened with negative “collateral damage. ” Is there one or multiple versions of neo-liberalism? If there are more than one version, what are the variables? There are two main versions of liberalism; classical liberalism and modern liberalism: Classical Liberalism Classical liberalism associated with earlier liberals such as the already mentioned Adam Smith. Classical liberalism is often associated with the belief that the state ought to be minimal, which means that practically everything except armed forces, law enforcement and other “non-excludable goods?
ought to be left to the free dealings of its citizens, and the organisations they freely choose to establish and take part in. Modern Liberalism Modern liberalism is, on the other hand, characterised by a greater willingness to let the state become an active participant in the economy. This has often issued in a pronounced tendency to regulate the marketplace, and to have the state supply essential goods and services to everyone. Modern liberalism is therefore, for all intents and purposes, a deep revision of liberalism, especially of the economic policies traditionally associated with it.
Whereas “classical? or “economic? liberals favour laissez-faire economic policies- a theory or a system believing that government should intervene as little as possible in the direction of economic affairs- because it is thought that they lead to more freedom and real democracy, modern liberals tend to claim that this analysis is inadequate and misleading, and that the state must play a significant role in the economy, if the most basic liberal goals and purposes are to be made into reality. What is Washington Consensus?
Since the finish of World War 2, two economic models controlled Latin America; First import substituting subsidisation (ISI) and then it was replaced by Washington Consensus. First, the model of import substitution, took place until the seventies. Basically, import substitution is substituting the imported goods with the locally produced goods in order to meet the internal demand (Bruton, 1998). In order to put this policy into place, government intervention and protection were needed via applying higher tariffs, quotas, exchange rate, and interest rates on foreign industrial imports.
It is thought that the main advantage of the IS strategy is the decrease in the foreign currency expenditures and hence the decrease in the trade deficit. IS strategy is evaluated as the process of modernizing the local economy and reaching the level of developed countries. IS strategy comes to the picture with consumption goods, and then it enlarges by including intermediate goods. The aim of including intermediate goods is to form a basis in producing high level of technology. Because the countries that use IS strategy import intermediate goods in order to produce high technology goods, which in turn raises the level of trade deficit.
Disadvantage of import substitution policies cost at the expense of domestic consumers as well as the country because of its lower degree of the connection with the world market, resulting in a relatively small domestic market, high production costs, low economic efficiency, product quality is poor, competitive enough. Therefore, the implementation of IS in developing countries, although to some extent, the promotion of the domestic light industry development, industrial growth rate has accelerated, but only short-term phenomenon, and not long term.
This has forced them to have to be adjusted, or even to give up, switching to Washington Consensus policies. The second model that replaced Import Substitution is Washington Consensus, which begins to be applied in the countries of the southern cone (Argentina, Chile, and Uruguay). It was based on the independent opening of the economy, free movement of capitals, the reduction of the state power, the deregulation, the privatization of public companies, and the search of direct foreign investment as a way of finance and overcome the commercial deficits.
The model of Washington Consensus consists of ten main rules (John Williamson): 1. Fiscal Discipline. This was in the context of a region where almost all countries had run large deficits that led to balance of payments crises and high inflation that hit mainly the poor because the rich could park their money abroad. 2. Reordering Public Expenditure Priorities. It is about redirecting public expenditure from political sensitive areas to areas which have been previously neglected but would yield higher economical returns and potentially improve income distribution in areas such as; health, education, and infrastructure.
3. Tax Reform. The aim was a tax system that would combine a broad tax base with moderate marginal tax rates. 4. Liberalizing Interest Rates. 5. A Competitive Exchange Rate. Favour of ensuring that the exchange rate would be competitive, which pretty much implies an intermediate regime; in fact Washington was already beginning to edge toward the two-corner doctrine which holds that a country must either fix firmly or else it must float “cleanly”. 6. Trade Liberalization. 7. Liberalization of Inward Foreign Direct Investment. 8. Privatization.
This was the one area in which what originated as a neoliberal idea had won broad acceptance, it can be a highly corrupt process that transfers assets to a privileged elite for a fraction of their true value, but the evidence is that it brings benefits (especially in terms of improved service coverage) when done properly, and the privatized enterprise either sells into a competitive market or is properly regulated. 9. Deregulation. This focused specifically on easing barriers to entry and exit, not on abolishing regulations designed for safety or environmental reasons, or to govern prices in a non-competitive industry.
10. Property rights Providing the informal sector with the ability to gain property right at acceptable price. Although the main advantage of Washington Consensus policies is that they overcome the disadvantages of IS, Stiglitz argued that the policies advanced by the Washington Consensus are not complete, and they are sometimes misguided. He argued that making markets work requires more than just low inflation, it requires sound financial regulation, competition policy, and policies to facilitate the transfer of technology and encourage transparency.
Moreover, The Washington Consensus policies were based on a rejection of the state’s activist role and the promotion of a minimalist, open-minded state. It is true that states are often involved in too many things, in an unfocused manner. Trying to get government better focused on the fundamentals—economic policies, basic education, health, roads, law and order, environmental protection—is a vital step. But states can also improve their capabilities by reinvigorating their institutions.
This means not only building administrative or technical capacity but instituting rules and norms that provide officials with incentives to act in the collective interest while restraining arbitrary action and corruption. Perhaps some of the most promising and least explored ways to improve the function of government is to use markets and market-like mechanisms. What were the main problems with these agreements-other than that they were non-binding? There are many problems and issues with the climate change summits and agreements. These problems are discussed in answer.
The first problem is that the targets and objectives of these agreements have not been as challenging as they could be. By 2004 businesses had achieved annual emissions savings of 2. 4 MtC (million tonnes carbon) in excess of their targets, resulting in a considerable surplus of emissions reductions which companies can use or sell in future periods. In part, this reflects businesses choosing to make the required investments earlier rather than later. However, it seems likely that some proportion of Agreements targets have not been as strict as possible.
This applies to both the initial targets set and the revised targets established in 2004. Evidence for this is as follows: surveys found that 24 businesses subject to Agreements considered their 2010 targets to have been set at ‘achievable’ levels. Within that, ten were willing to indicate that their carbon emission targets had been relatively simple to achieve so far. 16 businesses thought that future targets would pose greater difficulty, though this may reflect the fact that most businesses have opted to make investments early on and now have fewer options.
The second problem with these agreements is that some of the sector savings may have been efficiencies driven by the Agreements target, but the massive overachievement of the sector target was mostly due to the reduction in industrial output. Therefore, some significant sectors were excluded from these agreements just because their inability to achieve the target emission savings. Absolute figures are shown excluding the steel sector, which is the most significant sector, representing roughly a quarter of all emissions from sectors subject to Agreements.
The steel industry suffered significant operational difficulties soon after Agreements were signed. Steel output and energy use were significantly reduced: thus emissions periods were well below target levels. Excluding the steel sector therefore gives a better indication of absolute savings achieved by energy efficiencies. The third problem is the future uncertainty in the climate change agreements. Future uncertainty in these policies (i. e. what will happen when current policies reach the end of their lifetime) leads to uncertainty for businesses trying to make investment decisions.
Three of the thirteen sector associations noted that future uncertainty was currently of concern to businesses within their sectors. Two of these stated that uncertainty over climate change policy in general was a barrier to investment, including one association which claimed that investment projects have already been halted because of this. The fourth problem is that some policies conflict with demand for energy efficient products. Pressure to save energy and reduce emissions is mounting.
However, products which in use are energy efficient can be energy intensive to manufacture. Sectors further down the supply chain increasingly demand products that will allow them to make energy efficiency improvements; however, this can result in additional energy input in the sectors which manufacture such products. For example, the automotive sector is looking to improve the fuel efficiency of its products. A critical component in this is reducing the weight of the vehicle while maintaining the structural integrity and strength.
This can be achieved by using thinner, lighter steel. Demand for such material has increased but its production requires the input of more energy by steel manufacturers. Although, climate change agreements have many problems as mentioned above, there are many benefits these agreements have brought. Businesses in general have appreciated the role given to sector associations within the Agreements. One benefit is that sector associations are perceived as being better able to interpret government guidance or regulation; they can relay this to businesses in simpler terms.
Businesses commented that having to deal directly with government is more difficult. Moreover, a recent paper on the macroeconomic effects of the Agreements suggests that the energy efficiency improvements brought about by them have led to improvements in international competitiveness for sectors subject to Agreements. Is international economic development incompatible with attempts to tackle climate change? What was the purpose of various climate change summits and agreements? What are the common problems associated with carbon reduction?