January 10th, 2018
Neoliberalism and its Global Effects
The advancements of the Keynes theory faced great criticism as the events of great depression faded into oblivion and with the stagflation that prevailed in the 1970s (Krugman, “How Did Economists” 3). After approximately 30 years of its application from 1945, a new regime of economic ideology emerged. The new school of thought – neoliberalism – contended that government intervention at times of economic adversity, actually did not lead to better outcome since the policies instituted had more grave problems than the challenges of depression (Colander 201). This school advanced similar arguments like the laissez-faire classical theory advising the roll back in government economic interventions and that more control of economic outcomes ought to be left in the domain of the market forces (Wade 5; Krugman, “How Did Economists” 2). The strategy for the neoliberalism was that state policy ought to be inclined towards privatization, deregulation and liberalization (Wade 5; Golob, podnar and Lah, 627).
The neoliberalism school of thought, unlike the classical liberal view, however, was expanded to global realms. It advanced that international markets ought to be liberalized, protectionist stances such as tariffs weakened and that the sure way for development even in the weaker economies was allowing free trade (Shah 1; Woong 63). Such a thought reflected on the earlier classical focus on the production side to create its own demand, only that the new trend focused on the producer being allowed unabated access to the international markets (Shah 1). Acting as primer to such economic shift were various wars (and colonization of other countries) with justifiable reasons as humanitarian intervention but whose underlying cause was trade and access to cheap resources (Shah 1). Further the concept was associated with technological advances that allowed improved communication around the world (Golob, podnar and Lah, 627). The core policies of neoliberalism as evidenced by some of its offshoots such as the Washington consensus and the economic globalisation were thus; to allow the market to self regulate, reduction on government expenditure on social services, deregulation, and privatization of public entities (Shah 1).
One of the offshoots of neoliberalism was the Washington consensus. The Washington consensus was a list of ten policies that the author – John Williamson – argued were generally perceived, in Washington, to be desirable in bringing about development in Latin America and largely interpreted as prescriptions for economic development for the developing economies (Williamson 1; Fischer 6). The consensus had ten elements; (a) instituting fiscal discipline by maintaining small budget deficits that can be financed without the aid of inflation tax (b) to prioritise public expenditures towards more “economically sound” areas such as education, health and infrastructure, (c) tax reforms aimed at broadening the tax base and moderating marginal tax rates, (d) liberalized financial markets that are allowed to determine the interest rates, (e) unified exchange rate that was competitive enough to allow rapid increase in non traditional exports, (f) import liberalization through progressive reduction of quantitative trade restrictions, (g) encouraging foreign direct investment by elimination of barriers, (h) privatization of state corporations to generate efficiency and profitability, (i) deregulation with an aim of promoting new firms’ entry or spurring competition and, (j) protection by providing secure property rights (Williamson 3-12; Fischer 6). Such consensus was representative of what neoliberalism embodied and was the policy that characterised global economies that were indoctrinated to the system.
Resulting from such Washington consensus-informed policy is what has come to be referred to as economic globalisation – the transmission of the school of thought to other regions. In Africa, for instance, neoliberalism is advanced to have arisen out of application of the Washington consensus-like prescriptions by the IMF and the World Bank in their lending guidelines towards countries in the continent (Harrison 1308). Though established in a Keynesian framework the institutions had been transformed with the transformation of the economic ideology (Shah 1). Lending conditionalities to African states ensured that the operational policies aligned to the neoliberalism advancements the result being increased indebtedness of the continent (Harrison 1308). With time however the social repercussions of neoliberalism-lead lending programs resulted into some of the African countries implementing social amelioration attempts such as consumer subsidies and price controls to avert possible unrests that could result from run away food prices (Harrison 1308).
Neoliberalism has faced criticism for increasing poverty in developing economies contrary to the growth it proposed to institute (Fischer 6-9). Linder and Pritchett for instance note that even after two decades of reform in Latin America in the line advocated for by neoliberalism school of thought, the outcomes (irregular growth and stagnant real wages) were not what it promised (1). Similarly though inequality among the world’s citizen’s could have declined during the years that neoliberalism has operated (Lindert and Williamson 2), inequality within many countries has risen and likely that inequality in view of the global citizens could start increasing if growth in Africa does not take root (Fischer 11). One such case is exemplified by South Africa transition to independence that promised improvement of living conditions for the black population that hitherto had faced widespread discrimination thus lived in abject poverty (Peet 55). Despite the political gains that have been achieved in the post apartheid era, the economic well being of many people has been curtailed by a policy aligned to neoliberal global underpinning (Peet 54). Such neoliberalism ideologies have also been associated with increased social and environmental consequences in transitional economies that have adopted the ideology to benefit from advantages advanced to arise from such adoption such as economic growth resulting from liberalization and lower costs arising from greater economic specialization (Tisdell 577). Such social costs include the development of problems such as unmanageable un employment levels, inability of the population to meet basic needs and breach in social safety nets such as programs for children, elderly and women; problems that were not noted with communistic regimes (Tisdell 577). Structural adjustment policies advocated by the IMF and World Bank with regard to Latin America have also been associated with adverse effects on women’s relative employment in the region (Ball 974).
The worst mistake of neoliberalism economics and that has proved to be its death trigger however has been in its emphasis on people’s rationality; that markets can work without government intervention (Krugman, “How Did Economists” 2). As such the view that technological advancements, globalization and the establishment of multinational corporations had altered the boundaries between the government and business became entrenched (Wolnicki 477).The misperception was that the market driven economies had managed to address areas such as nation’s health, economic inequities, education and nation security without government interference (Wolnicki 477). This partly was fuelled by the failure of communism in the 1990s presenting the neoliberalism school of thought a lifeline to offer guidance to the post communist world economy (Wolnicki 477). Through this contention, the role of government in the economy was to promote free enterprise (Wolnicki 477). With the failure of markets in 2007-2008, the rise of a new economic regime –state capitalism has been predicted (Wolnicki 477).
Following the collapse of neoliberalism, various outcomes have suggested that state capitalism could be the next ideology to advance economic growth. One of these is the institution of government policies that seem misinformed in the prevailing conditions – the application of contractionary policies as noted for Greece in times of recession (Krugman, “The Third Depression” 1). Such approaches however point to the return of the state into playing an active role in moderating economic outcomes through various monetary and fiscal policy alternatives.
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