January 10th, 2018
How Neo-Liberal Ideas have affected the Direction of Global Development
Economic adversity has characterized the change in economic norms and the recent financial crisis promises such a change. Before the 1930s great depression the widely held view – the classical economics – was that markets could self regulate (Colander 202). Short-run problems were viewed to be temporal in nature and the economy, if allowed time, would go back to its potential output level and to the natural unemployment rate (Colander 202). The policy prior to the great depression was thus a laissez faire approach that discouraged external interference with the market characteristics (Colander 202). Following the great depression however, the focus shifted to Keynesian economics. The great depression ensured such a shift. Characterized by massive declines in output (30 percent decline) and high unemployment rates (25 percent), the classical focus on the long run effects did not seem to be based on a prudent foundation (Colander 202). Lead by John Maynard Keynes, a section of economists began focusing on the short-run. The contention was that if the long run was so prolonged that short run efforts were not employed to help it come about; then the long run might eventually not arise (Colander 204). Such a scenario, for the Keynesians, where high unemployment rates persisted could make the citizenry opt for fascism or communism; alternatives that were viewed to be more undesirable (Colander 204). The period following the great depression through the Second World War to around 1975 thus emphasized Keynesian perspectives as implemented via international Bretton Woods arrangements that lead to formation of institutions such as the International monetary fund (IMF) and the World Bank (Wade 5).
After the breakdown of the Bretton woods financial regime around 1975, a new regime that favoured liberalization of the economy, privatization of state corporations, and deregulation prevailed (Wade 5). This latter regime – that has been referred by the terms neoliberalism, globalization consensus, and the Washington consensus – is thought to come to an end with the outcomes of the 2007-08 global credit crisis (Wade 5). The purpose of this paper is thus to highlight how the ideas of the latter regime – neoliberalism – have shaped the direction of global development. The paper first gives an historical analysis of the transition from classical to Keynesian to neoliberal economic ideologies, then focuses on the impact that the latter has had on developments at the global arena. Go to part 2 here.