Neoliberalism


Neoliberalism

Neoliberalism is a pejorative label for economic liberalism. Economic liberalism stresses the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the political and economic priorities of the country. The label "neoliberalism" was created by its ideological opponents,[citation needed] but has also been used by proponents of neoliberal policies.[1][2]

Contents

Policy implications

Neoliberalism seeks to transfer control of the economy from public to the private sector,[3] under the belief that it will produce a more efficient government and improve the economic health of the nation.[4] The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's[5] "Washington Consensus", a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the International Monetary Fund (IMF) and World Bank). Williamson's list included ten points:

  • Fiscal policy Governments should not run large deficits that have to be paid back by future citizens, and such deficits can only have a short term effect on the level of employment in the economy. Constant deficits will lead to higher inflation and lower productivity, and should be avoided. Deficits should only be used for occasional stabilization purposes.
  • Redirection of public spending from subsidies (especially what neoliberals call "indiscriminate subsidies") and other spending neoliberals deem wasteful toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment
  • Tax reform– broadening the tax base and adopting moderate marginal tax rates to encourage innovation and efficiency;
  • Interest rates that are market determined and positive (but moderate) in real terms;
  • Floating exchange rates;
  • Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; thus encouraging competition and long term growth
  • Liberalization of the "capital account" of the balance of payments, that is, allowing people the opportunity to invest funds overseas and allowing foreign funds to be invested in the home country
  • Privatization of state enterprises; Promoting market provision of goods and services which the government cannot provide as effectively or efficiently, such as telecommunications, where having many service providers promotes choice and competition.
  • Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
  • Legal security for property rights; and,
  • Financialisation of capital.

History

Embedded liberalism

The term embedded liberalism refers to the economic system that dominated the non-communist global economy from the end of World War II to the 1970s. David Harvey argues that at the end of World War II, the primary objective was to develop an economic plan that would not lead to a repeat of the Great Depression during the 1930s.[6] Harvey notes that under this new system free trade was regulated "under a system of fixed exchange rates anchored by the US dollar's convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital."[7] Harvey argues that embedded liberalism led to the surge of economic prosperity that came to define the 1950s and 1960s.

Across much of the world, the work of John Maynard Keynes, which sought to formulate the means by which governments could stabilize and fine-tune free markets, became a highly influential approach. Within the developing world, several developments – among them decolonization, a desire for national independence and the destruction of the pre-war global economy,[8] and the view that countries could not effectively industrialize under free market systems (e.g., the Singer–Prebisch thesis) – encouraged economic policies that were influenced by communist, socialist and import substitution precepts.

The period of government interventionism in the 1950s and 1960s was characterized by exceptional economic prosperity, as economic growth was generally high, was contained,[9] and economic distribution was comparatively equalized.[10] This era is known as les Trente Glorieuses ("The Glorious Thirty [years]") or "Golden Age", a reference to many countries having experienced particularly high levels of prosperity between (roughly) World War II and 1973.

Collapse of embedded liberalism

David Harvey notes that the system of embedded liberalism began to break down towards the end of the 1960s. The 1970s were defined by an increased accumulation of capital, unemployment, inflation (or stagflation as it was dubbed), and a variety of fiscal crises. He notes that "the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working."[11] A number of theories concerning new systems began to develop, which led to extensive debate between those who advocated "social democracy and central planning on the one hand" and those "concerned with liberating corporate and business power and re-establishing market freedoms" on the other. Harvey notes that, by 1980, the latter group had emerged as the leader, advocating and creating a global economic system that would become known as neoliberalism.[12]

Some argue that the strains which occurred were located in the international financial system,[13][14] and culminated in the dissolution of the Bretton Woods system, which some argue had set the stage for the Stagflation crisis that would, to some extent, discredit Keynesianism in the English-speaking world. In addition, some argue that the postwar economic system was premised on a society that excluded women and minorities from economic opportunities, and the political and economic integration given to these groups strained the postwar system.[15]

Post-1970s economic liberalism

Global spread

Chronic economic crisis throughout the 1980s, and the collapse of the Communist bloc at the end of the 1980s, helped foster political opposition to state interventionism in favor of free market reform policies. From the 1980s onward, a number of communist and socialist countries initiated various neoliberal market reforms, such as the Socialist Federal Republic of Yugoslavia under the direction of Ante Markovic (until the country's collapse in the early 1990s), and the People's Republic of China under the direction of Deng Xiaoping.

Changes occurred from the 1970s to the 1980s. Started off with most of the democratic world governments focused primarily on the primacy of economic individual rights, rules of law and roles of the governments in moderating relative free trade. It was almost considered national self determination at the time.[citation needed]

Stances of organized labour shifted when governments of Ronald Reagan and Margaret Thatcher took strong stances to break down trade barriers entirely to reduce government power; thus allowing the market to be more important. Therefore industries will increasingly shift globally with integrated knowledge boosting the economy.[citation needed]

Chicago School

The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago.

The school emphasizes non-intervention from government and rejects regulation in laissez-faire free markets as inefficient. It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. The school has impacted the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics"– that is, empirically based studies using statistics to prove theory.

Approximately 70% of the professors in the economics department have been considered part of the school of thought.[citation needed] The University of Chicago department, widely considered one of the world’s foremost economics departments,[16][17][18] has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university.[citation needed]

Those who attend to the Chicago School prefer some form of competition law, school vouchers, a central bank, intellectual property and prefer Milton Friedman's negative income tax as a replacement to the existing system.[citation needed]

Australia

In Australia, neoliberal economic policies have been embraced by governments of both the Labor Party and the Liberal Party since 1983. The governments of Bob Hawke and Paul Keating from 1983 to 1996 pursued economic liberalisation and a program of micro-economic reform. These governments privatized government corporations , deregulated factor markets, floated the Australian dollar, and reduced trade protection.[19]

Keating, as federal treasurer, implemented a compulsory superannuation guarantee system in 1992 to increase national savings and reduce future government liability for old age pensions.[20] The financing of universities was deregulated, requiring students to contribute to university fees through a repayable loan system known as the Higher Education Contribution Scheme (HECS) and encouraging universities to increase income by admitting full-fee-paying students, including foreign students.[21] The admitting of domestic full-fee-paying students to public universities was stopped in 2009 by the Rudd Labor Government.[22]

When the Liberal Party returned to power in March 1996 under prime minister John Howard, the programme of economic liberalisation was continued with the privatisation of more government corporations, notably the sale of the telecommunications provider Telstra, and the Reserve Bank of Australia was made independent of the government in determining monetary policy. A 10% Goods and Services Tax GST (similar to European VAT) was introduced with the aim of combining and simplifying the previous duties and taxes to make the system more efficient. A series of reforms were enacted to deregulate the labour market.[23]

Canada

In Canada, the issues identified with neoliberalism (reducing taxes and welfare spending, minimizing of government and reform of public healthcare and education, among others) are often associated with Brian Mulroney, Mike Harris, Ralph Klein, Gordon Campbell and Stephen Harper.[24]

Ralph Klein, who supports and has supported extraction of Alberta's vast oil and natural gas reserves, is credited by the Pembina Institute as generating a relatively small amount of provincial revenue compared to the increase in oil sand production. Between 1995 and 2004, production grew by 133%, but government revenue shrank by 30%, leaving large fortunes in the hands of corporations.[25]

Under Mike Harris in Ontario during the 1990s, industry and social responsibilities were transferred to the cities. Toronto during this time was forced to amalgamate and enter a period of development. The Amalgamation of Toronto was intended as a cost saving measure and, in 2000, Michael R. Garrett noted a yearly savings of $136.2 million (CDN)[26] However, in 2007, Barry Hertz reported in the conservative national newspaper National Post that cost savings never materialized. He also noted that government staff had grown, with the city employing 4,015 more people in 2007 than it did in 1998.[27]

Canadian politics were also affected. Trade tariffs were ended, allowing less restrictions on trade. Government sizes were decreased limiting their power towards industries.[28] The federal government rules during that time and municipalities had no power.

Chile

Milton Friedman used the term "Miracle of Chile" in reference to Augusto Pinochet's support for liberal economic changes in Chile carried out by the "Chicago Boys". Their implemented economic model had three main objectives: economic liberalization, privatization of state owned companies, and stabilization of inflation. These market-oriented economic policies were continued and strengthened by successive governments after Pinochet stepped down.[29] At the time, Milton Friedman stated that the Chilean experiment was "comparable to the economic miracle of post-war Germany."[30]

Some of Pinochet's neoliberal policies were continued after the termination of his 17-year-long dictatorship, though with more social policies to counter the great social-economic inequality.[31][32] According to the Heritage Foundation and the Wall Street Journal, in 2007 Chile was the world's 11th "most free" economy, and 3rd in the Americas.

According to the United Nations Development Report of 2009 Chile has high competitiveness, quality of life, political stability, globalization, economic freedom, low perception of corruption and comparatively low poverty rates.[33]

According to the International Monetary Fund Chile "ranks high regionally" in freedom of the press, human development and democratic development. Also according to the IMF Chile has the region's highest GDP to popular ratio (at market prices[34] and purchasing power parity)[35] and also has a high degree of income inequality, as measured by the Gini index.[36]

The experience of Chile in the 1970s and 1980s, and especially the export of the Chilean pension model by former Labor Minister José Piñera, has influenced the policies of the Communist Party of China and has been invoked as a model by economic reformers in other countries, such as Boris Yeltsin in Russia and almost all Eastern European post-Communist societies.[37]

Mining of copper in Chile is publicly owned (see Chilean nationalization of copper). Chile is the world's top producer of copper, which is by far the largest Chilean export good (accounting for over 40% of export revenue).

Hong Kong

Hong Kong practices relatively laissez-faire policies.

Milton Friedman described Hong Kong as a laissez-faire state and he credits that policy for the rapid move from poverty to prosperity in 50 years.[38] Hong Kong's GDP grew under British colonial control between 1897 and 1997, while possessing central banking, school regulations, environmental regulations and government ownership of housing — all examples of economic intervention.[39] These regulations were however light in comparison to many other countries, and in terms of economic regulation Friedman's analysis of Hong Kong as a 'laissez-faire' state seems justified: Hong Kong has no capital gains tax, no interest tax, no sales tax and only a 15% flat income tax. It also has no tariffs or other legal restrictions on international free trade, no minimum wage laws (until 2010), and no price or wage controls. Further it extends no unemployment benefits, enacts no labour legislation, provides no social security and no national health insurance.[40]

A 1994 World Bank report stated that Hong Kong's GDP per capita grew in real terms at an annual rate of 6.5% from 1965 to 1989, a consistent growth percentage over a span of almost 25 years[41] By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom.[42] In 1960 the average per capita income in Hong Kong was 28% of that in Great Britain; by 1996, it had risen to 137% of that in Britain.[43]

Since 1995 Hong Kong has been ranked as having the world's most liberal capital markets by the Heritage Foundation and Wall Street Journal.[44] The Fraser Institute concurred in 2007.[45]

Japan

Junichiro Koizumi, a popular Japanese leader who fought for privatization.

The largest privatization in history was that of Japan Post. It was the nation's largest employer and one third of all Japanese government employees worked for Japan Post.

In September 2003, Koizumi's cabinet proposed splitting Japan Post into four separate companies: a bank, an insurance company, a postal service company, and a fourth company to handle the post offices as retail storefronts of the other three. After privatization was rejected by upper house, Koizumi scheduled nationwide elections to be held on September 11, 2005. He declared the election to be a referendum on postal privatization. Koizumi subsequently won this election, gaining the necessary supermajority and a mandate for reform, and in October 2005, the bill was passed to privatize Japan Post in 2007.[46]

Mexico

Mexico is presently the eighth largest trading nation. Mexico joined GATT, or General Agreement on Tariffs and Trade in 1986 and has been a part of the North America Free Trade Agreement (NAFTA) since 1990. Another trading partnership Mexico entered into was the Uruguay Round (UR).

The reforms brought about by NAFTA resulted in a huge opening of the Mexican economy and “ increased the political and economic costs of trade policy reversals and restrained trade policy with other countries to compatibility with (if not subservience to) NAFTA,” (Mena, 48). Tariffs were reduced across most sectors of the economy. They also opened the door for factories along the border of the US and Mexico. Maquiladoras account for most of the Mexican export market. A reform of the 1973 Foreign Investment Law, “Foreign Investment is not allowed in oil production or refining.” (Mena, p. 49).

Mexico benefited greatly from its relationship with the UR and the WTO. There were low tariffs on Mexican goods and Mexico was not bound to alter its tariffs for UR members. “Mexico’s preferences on non-agricultural subsidies were largely borne out in the URAs,” (Ortiz Mena, 60). Mexico continues to have restrictions on foreign ownership and has been criticized for not signing the Agreement on Government Procurement. NGOs are also critical of the reforms that had been made.

After joining NAFTA, Mexico entered into over thirty free trade agreements (FTA). Mexico also signed FTAs with the European Union (EU), European Free Trade Agreement (EFTA), and Japan. As a result of these agreements, exports increased, manufactured goods became more important, and Mexico became the US’s second largest trading partner.

The Mexican government feels that the benefits of liberalism have been slowed due to a lack of implementations of URA policies by developed countries. The government fears that environmental and labor issues might affect the trade agenda. They are looking to the developed nations to help with a clean transition to the post-Doha work program. There are eleven areas that Mexico will focus on in the future: agriculture, export subsidies, TRIM, Service, IPR, dispute settlements, FDI, competition policy, government procurement, industrial goods, and labor and environment. Also, Mexico seeks to improve access for its important exports by complying fully with URAs.[47]

New Zealand

The term Rogernomics was created by analogy with Reaganomics to describe the economic policies followed by New Zealand Finance Minister Roger Douglas from his appointment in 1984.

The policies included cutting agricultural subsidies and trade barriers, privatising public assets and the control of inflation through measures rooted in monetarism, and were regarded in some quarters of Douglas's New Zealand Labour Party as a betrayal of traditional Labour ideals. The Labour Party subsequently retreated from pure Rogernomics, which became a core doctrine of the more right-wing ACT party. Roger Douglas planned to create a 15% flat tax in New Zealand, and to privatise schools, roads and hospitals, which was moderated by the Labour cabinet at the time,[48] although the resultant reforms were still generally considered radical in a global context. After Douglas left the Labour party, he went on to co-found ACT in 1993, which regards itself as the new liberal party of New Zealand.

Since 1984, government subsidies including those for agriculture have been eliminated; import regulations have been liberalised; exchange rates have been freely floated; controls on interest rates, wages, and prices have been removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The Deregulation of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt, but simultaneously massively increased the necessity for greater welfare spending and has led to considerably higher rates of unemployment than were standard in New Zealand in earlier decades. However, unemployment in New Zealand lowered again by 2006-2007, hovering around 3.5% to 4%.

Deregulation created a very business-friendly regulatory framework. A survey 2008 study ranked it 99.9% in "Business freedom", and 80% overall in "Economic freedom", noting amongst other things that it only takes 12 days to establish a business in New Zealand on average, compared with a worldwide average of 43 days. Other indicators measured were property rights, labour market conditions, government controls and corruption, the last being considered "next to non-existent" in the Heritage Foundation and Wall Street Journal study.[49]

In its Doing Business 2008 survey, the World Bank (which in that year rated New Zealand as the second-most business-friendly country worldwide), gave New Zealand rank 13 out of 178 in the business-friendliness of its hiring laws.[50]

New Zealanders have a high level of life satisfaction as measured by international surveys; this is despite lower GDP per-head levels than many other OECD countries. The country was ranked 20th on the 2006 Human Development Index, which also accounts for non-economic factors such as literacy and public health, and 15th in The Economist's 2005 worldwide quality-of-life index.[51] The country was further ranked 1st in life satisfaction and 5th in overall prosperity in the 2007 Legatum Institute prosperity index.[52][53] In addition, the 2007 Mercer Quality of Living Survey ranked Auckland 5th place and Wellington 12th place in the world on its list.[54]

Scandinavia

Carl Bildt's government liberalized Sweden's capital flows and privatized public services.

Scandinavian countries have embraced many neoliberal policies.[6]

Anders Fogh Rasmussen, former Prime Minister of Denmark.

Anders Fogh Rasmussen, former Prime Minister of Denmark and leader of Venstre, has written books advocating minimal state influence on market activities. Denmark is a European leader on economic freedom indices. Denmark has ranked as the world's 11th "most free" economy, of 162 countries, in an index created by the Wall Street Journal and Heritage Foundation, the Index of Economic Freedom 2008.

In Sweden, Carl Bildt's government program was one of liberalizing the Swedish economy, privatizing public services and making the country a member of the European Union. Carl Bildt signed the accession treaty at the European Union summit of Corfu, Greece on June 23, 1994. Economic changes were enacted, such as voucher schools, liberalized markets for telecommunications and energy[clarification needed] as well as the privatization of publicly owned companies.[which?] The Bildt government made it possible for counties to privatizate health care (although few did), contributing to liberalizing the Swedish economy. Privatization of state owned companies and deregulation of business were also carried out by the following social democratic governments.

Iceland began implementing neoliberal economic policies beginning in the late 1980s. As measured by the Economic Freedom of the World, it had the 53rd "freest economy" in 1975 and it was one of the poorest countries in Europe. In 2004, it had the 9th freest economy and it was one of the richest.[55] However, by 2009, the country was facing severe financial problems, a consequence that a number of observers have attributed to Iceland's extensive deregulation.[56][57][58][59][60]

South Africa

South Africa’s GDP has grown since the beginning of the new government system in 1994, which ended the rule of apartheid in South Africa. While some see the implementation of neoliberal policies inside South Africa as having spurred the country's growth rate, others cite policies such as maintaining high interests rates to quell inflation as actually hurting economic growth. Meanwhile, the implementation of GEAR (Growth Employment and Redistribution Strategy) policies have caused a decline in employment that started after the new government in 1994, which caused an increase in South Africa's poverty level.[61]

United Kingdom

Margaret Thatcher and Ronald Reagan instituted economic liberal policies.

Coming to power in 1979, Margaret Thatcher's political and economic philosophy emphasised reduced state intervention,[62] freer markets,[63] and more entrepreneurialism.[64] She once slammed a copy of Friedrich Hayek's The Constitution of Liberty down on a table during a Shadow Cabinet meeting, saying, "This is what we believe."[65] Thinkers closely associated with Thatcherism include Keith Joseph, Friedrich Hayek and Milton Friedman.[66]

Thatcher's political and economic philosophy emphasised reduced state intervention as well as free markets and "entrepreneurialism".[66] She vowed to end excessive government interference in the economy and attempted to do this through privatizing nationally-owned enterprises. After the James Callaghan government had concluded that the Keynesian approach to demand-side management failed, Thatcher felt that the economy was not self-righting and that new fiscal judgements had to be made to concentrate on inflation.[67] She began her economic reforms by increasing interest rates to slow the growth of the money supply and thus lower inflation.[68] In accordance with her "less government intervention" views she introduced public spending cuts[69] particularly on housing and industry subsidies. She also placed limits on the printing of money and legal restrictions on trade unions.

By January 1982 the inflation rate had fallen to 8.6% from earlier peaks of 18%. By 1983 overall economic growth was stronger, while inflation and mortgage rates were at their lowest levels since 1970.[70] The term "Thatcherism" came to refer to her policies as well as aspects of her ethical outlook and personal style, including moral absolutism, nationalism, focus on individuals rather than society as a whole and an uncompromising approach to achieving political goals.

After the 1983 election, the Conservative majority expanded, Thatcher continued to enact her economic policies.[69] The UK government sold most of the state's large utilities.[69] The policy of privatisation was a main component of Thatcherism. When Thatcher was forced to resign as British Prime Minister in 1990 British economic growth was on average higher than the other large EU economies (Germany, France and Italy). However this was accompanied by poor social conditions compared with the rest of the EU.

The price of these economic policies was a temporary and dramatic increase in unemployment that embarrassed the Thatcher government so much that the definition of unemployment was changed 31 times in order to come up with lower figures. Despite this, the official rate of unemployment in the United Kingdom increased to 9.1% in the years 1979-89 after it had been 3.4% between 1973–79 and 1.9% between 1960-73.[71][72]

In 2001 Peter Mandelson, a Member of Parliament belonging to the British Labour Party and closely associated with Tony Blair, declared that "we are all Thatcherites now."[73] In reference to contemporary British political culture it could be said that a "post-Thatcherite consensus" exists with regard to economic policy. In the 1980s the now defunct Social Democratic Party adhered to a "tough and tender" approach in which Thatcherite reforms were coupled with extra welfare provision. Neil Kinnock, leader of the Labour Party from 1983–1992, initiated Labour's rightward shift across the political spectrum by concurring largely with the economic policies of the Thatcher governments. The New Labour government of Tony Blair has been described as "neo-Thatcherite" by some since many of their economic policies mimicked those of Thatcher.[74][75]

The coalition government of Cameron and Clegg, that came into office in 2010 has been described as Neoliberal, with neoliberal 'Orange Book' Liberal Democrats playing key ministerial roles.[76]

United States

The Administration of Ronald Reagan, from 1981 to 1989, made a range of decisions that served to liberalize (in contemporary US terminology, this is more likely to be described as conservative economics rather than liberal; in the sense of this article, liberalize refers to an economic system involving few regulations) the American economy.[77][78] These policies are often described as Reaganomics, and are often associated with supply-side economics (the notion that, in order to lower prices and cultivate economic prosperity, policies should appeal to producers rather than consumers).

During Reagan's tenure, GDP grew at an annual rate of 2.7% per year.[79] Per capita GDP in real terms was $31,877 in 1989 a rise of 24% from the $25,640 in 1981. Unemployment dropped from its high in the 1983 recession but it averaged higher than the previous decade and the subsequent decade. Also, inflation significantly decreased.[80] Average real wages were stagnant, however, as inequality began to grow for the first time since the 1920s. Some, like William Niskanen, would point out two facts in response, the first being that average compensation for workers (that is wages+fringe benefits) went up through the 80s, and that every quintile of society performed better during the 80s. He neglects to mention that inequality increased significantly, beginning a trend that continued through to 2007. [See the work of Emanuel Saez] The policies were derided by some as "Trickle-down economics",[81] due to the significant cuts in the upper tax brackets. There was a massive increase in Cold War related defense spending that caused large budget deficits,[82] the U.S. trade deficit expansion,[82] and contributed to the Savings and Loan crisis,[83] In order to cover new federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $700 billion to $3 trillion,[84] and the United States moved from being the world's largest international creditor to the world's largest debtor nation.[85]

Peter Gowan has argued that the United States has been the main force behind the adoption of neoliberal policies in the rest of the world. The basic argument is that since the dollar is the international reserve currency, American banks are at a competitive advantage with respect to non-American banks, which cannot directly lend in dollars, so that their operations involve more foreign exchange risk. (Since the dollar is the international exchange currency, most international reserves are held as dollars, and the price of commodities such as oil are set in dollars, it is in general less risky to hold dollars than to hold other currencies, in the short term, at least.) Thus, once the United States liberalized its financial markets and controls over its banking industry, other countries were forced to follow suit.[86]

Reach and effects

Neoliberal movements ultimately changed the world's economies in many ways, but some analysts argue that the extent to which the world has liberalized may often be overstated. Some of the past thirty years' changes are clear and unambiguous, like:[87]

  • Growth in international trade and cross-border capital flows
  • Elimination of trade barriers
  • Cutbacks in public sector employment
  • The privatization of previously public-owned enterprises
  • The transfer of the share of countries' economic wealth to the top economic percentiles of the population.[88]

Other changes are not so apparent, and are debated in the literature[87]:

  • Reduction in the size of governments. Governments do not appear to have shrunk wholesale. With the exception of exceptionally high-spending governments, government expenditures (as a percentage of GDP) appears to have stayed the same since 1980. Most of the cuts to government spending appear to have been a temporary phenomenon that took place during the 1990s.

Effects in Latin American urbanization

Between the 1930s and the late 1970s most countries in Latin America used the import substitution industrialization model (ISI) to build industry and reduce the dependency on imports from foreign countries. The result of ISI in these countries included rapid urbanization of one or two major cities, a growing urban population of the working class, and frequent protests by trade unions and left-wing parties.[89] In response to the economic crisis, the leaders of these countries quickly adopted and implemented new neoliberal policies due to prospect theory.

A study based on the transformations of urban life and systems as a result of neoliberalism in six countries of Latin America was published by Alejandro Portes and Bryan Roberts. This comparative study included census data analysis, surveying, and fieldwork focused in Argentina, Brazil, Chile, Mexico, Peru, and Uruguay. Predictions of the neoliberalism were extended to these six countries in four areas: urban systems and primacy, urban unemployment and informal employment, urban inequality and poverty, and urban crime and victimization. Data collected support a relationship between the economic policies of neoliberalism and the resulting patterns of urbanization.

In the area of urban systems and primacy two tendencies were revealed in the data. The first was continuing growth in total size of urban populations while the second tendency was the decline in size of the principal city with decreased migration flows to these cities. Therefore, when calculating the urban growth rate each of these countries all showed minimal or a significant decline in growth. Portes and Roberts theorize that the changes are due to the “loss of attraction of major cities...due to a complex set of factors, but is undoubtedly a related to the end of the ISI era”.[89] Although the relationship between the open-market and the transformation of urban systems has not been proven to be a perfect one-to-one relationship, the evidence supports the acceleration or initiation of these two tendencies following neoliberal changes.[89]

There was also a variation in the inequality and poverty in the six countries. While the majority of the population within these countries suffered from poverty, the "upper classes" received the benefits of the neoliberal system. According to Portes and Roberts, “the ‘privileged decile’ received average incomes equivalent to fourteen times the average Latin American poverty-line income”.[89] According to the authors, a direct result of the income inequality is that each country struggled with increased crime and victimization in both urban and suburban settings. However, due to corruption within the police force it is not possible to accurately extrapolate a trend in the data of crime and victimization.[89]

Support

Political freedom

In Capitalism and Freedom (1962), Friedman developed the argument that economic freedom, while itself an extremely important component of total freedom, is also a necessary condition for political freedom. He commented that centralized control of economic activities was always accompanied with political repression.

In his view, the voluntary character of all transactions in a free market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Friedman feels that competitive capitalism is especially important to minority groups, since impersonal market forces protect people from discrimination in their economic activities for reasons unrelated to their productivity.[90]

It is important to take into account, however, that an early neoliberal regime was attempted in Chile under what some would consider a military dictatorship and severe social repression. However, despite what most would consider a highly objectionable context for implementation of economic liberty, Chile now enjoys the highest rate of GDP per capita in Latin America; this lends strong credence to the assertion that economic freedom is more important to prosperity than are democratic institutions. Also, increased economic freedom put pressure on the dictatorship over time and increased political freedom.In The Road to Serfdom, Hayek argued that "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."[91]

State-centric approach

The state-centric approach to neoliberalism is not critical, but it concurs with the critical approach that neoliberal ideas are really just laissez-faire liberal prescriptions that overthrew Keynesianism. State-centric theorists hold that neoliberalism is "the attempt to reduce the role of the state in the market through tax cuts, decreases in social spending, deregulation, and privatization."[92] However, the state-centric approach argues that state actors were the political entrepreneurs who formulated neoliberalism – rather than, as critics of neoliberalism would claim, capitalist political organizations, and economists and economic departments, think tanks, and politicians all supported by class-conscious capitalists. State-centric theorists argue that neoliberalism spread because it fit the voters' preferences best; they disagree in this with the critical approach, which maintains that neoliberal framing and policies were propagated by well-heeled, highly organized political machines that insisted to the public, "There is no alternative". State-centric sociologist Monica Prasad (2006) further argues that neoliberalism became dominant where the (federal) tax structure was progressive, where industrial policy was "adversarial" to business, and where welfare was associated with the poor. She asserts this was the case in the U.S. and UK, relative to France and Germany. However, in France and Germany, taxation by the national government was regressive[citation needed], industrial policy favored business[citation needed][clarification needed], and the welfare state was widely recognized[who?] to benefit the middle class; consequently neoliberalism was not widely favored by either business or the middle classes in these two countries.

Prasad's analysis suggests that neoliberalism has been a corrective to policies that favored the working class over capitalist interests, and it was championed by autonomous state actors.

Opposition

Opponents of neoliberalism argue the following points:

  • Globalization and liberalization subvert nations' ability for self-determination.
  • Neoliberalism as a form of capitalism increases productivity but erodes the conditions in which production occurs long term, i.e. resources/nature, requiring expansion into new areas. It is therefore not sustainable within the world's limited geographical space. [93]
  • Exploitation: critics consider neo-liberal economics to promote exploitation.
  • Negative economic consequences: Critics argue that neo-liberal policies produce inequality.
  • Increase in corporate power: some anti-corporate organizations believe neoliberalism, unlike liberalism, changes economic and government policies to increase the power of corporations and large business, and a shift to benefit the upper classes over the lower classes.[94]
  • There are terrains of struggles for neoliberalism locally and socially. Urban citizens are increasingly deprived of the power to shape the basic conditions of daily life.[28]
  • Trade-led, unregulated economic activity and lax state regulation of pollution may lead to environmental impacts or degradation.[95]
  • It is claimed that deregulation of the labor market produces flexibilization and casualization of labor, greater informal employment, and a considerable increase in industrial accidents and occupational diseases.[96]

Anglo-American

"The standard neoliberal policy package includes cutting back on taxes and government spending; eliminating tariffs and other barriers to free trade;[clarification needed] reducing regulations of labor markets and[clarification needed] financial markets and focusing macroeconomic policies on controlling inflation rather than stimulating the growth of jobs," reports economist Robert Pollin (2003).[97] Arising out of a rejection of the class compromises[clarification needed] embedded in previous liberal political-economic policies, including Keynesian and Active Labour Market Policies (ALMPs), economic neoliberalism usually brings about strong economic inequality. While proponents of neoliberal shifts, such as George H.W. Bush and Bill Clinton argue that over time all levels of income are better off, some claim that empirical evidence has shown this not to be the case.[6]

Criticism from left

Critics on the left sometimes refer to neoliberalism as the "American Model," and they make the claim that it promotes low wages and high inequality.[98] According to the economists Howell and Diallo (2007), neoliberal policies have contributed to a U.S. economy in which 30% of workers earn "low wages" (less than two-thirds the median wage for full-time workers), and 35% of the labor force is "underemployed"; only 40% of the working-age population in the U.S. is adequately employed. The Center for Economic Policy Research's (CEPR) Dean Baker (2006) has argued that the driving force behind rising inequality in the U.S. has been a series of deliberate, neoliberal policy choices including anti-inflationary bias, anti-unionism, and profiteering in the health industry.[99] However, countries have applied neoliberal policies at varying levels of intensity; for example, the OECD (Organisation for Economic Cooperation and Development) has calculated that only 6% of Swedish workers are beset with wages it considers low, and that Swedish wages are overall lower due to their lack of neoliberal policies[100] John Schmitt and Ben Zipperer (2006) of the CEPR have analyzed the effects of intensive Anglo-American neoliberal policies in comparison to continental European neoliberalism, concluding "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes. Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility than all the continental European countries for which data is available."[101]

Notable critics of neoliberalism in theory or practice include economists Joseph Stiglitz, Amartya Sen, and Robert Pollin,[102] linguist Noam Chomsky,[103] geographer David Harvey,[6] and the alter-globalization movement in general, including groups such as ATTAC. Critics of neoliberalism argue that not only is neoliberalism's critique of socialism (as unfreedom) wrong, but neoliberalism cannot deliver the liberty that is supposed to be one of its strong points. Daniel Brook's "The Trap" (2007), Robert Frank's "Falling Behind" (2007), Robert Chernomas and Ian Hudson's "Social Murder" (2007), and Richard G. Wilkinson's "The Impact of Inequality" (2005) all claim high inequality is spurred by neoliberal policies and produces profound political, social, economic, health, and environmental constraints and problems. The economists and policy analysts at the Canadian Centre for Policy Alternatives (CCPA) offer inequality-reducing social democratic policy alternatives to neoliberal policies. In addition, a significant opposition to neoliberalism has grown in Latin America. Prominent Latin American opponents include the Zapatista Army of National Liberation rebellion, the Brazilian MST, and the socialist governments of Venezuela, Bolivia and Cuba.

According to (Pollin 2003), neoliberalism under the U.S. Bill Clinton administration– steered by Alan Greenspan and Robert Rubin– was the temporary and unstable policy inducement of economic growth via government-supported financial and housing market speculation, featuring both low unemployment and low inflation. He claims that this unusual coincidence was made possible by the disorganization and dispossession of the American working class. Santa Cruz history of consciousness professor Angela Davis and Princeton sociologist Bruce Western have claimed that the high rate (compared to Europe) of incarceration in the U.S. – specifically 1 in 37 American adults is in the prison system – heavily promoted by the Clinton administration, is the neoliberal U.S. policy tool for keeping unemployment statistics low, while stimulating economic growth through the maintenance of a contemporary slave population and the promotion of prison construction and "militarized policing."[104] The Clinton Administration also embraced neoliberalism by pursuing international trade agreements that would benefit the corporate sector globally (normalization of trade with China for example). Domestically, Clinton fostered such neoliberal reforms as the corporate takeover of health care in the form of the HMO, the reduction of welfare subsidies, and the implementation of "Workfare".[105]

European and Latin American opposition

Neoliberalism and globalization are considered related to one another. While generally theorists describe neoliberalism as the contemporary version of capitalist expansionism,some theorists argue that the terms "globalization" and "neoliberalism" must be rigorously separated and that culture should be the primary lens through which the concepts are understood. “Free markets and global free trade are not new, and this use of the word (neoliberalism) ignores developments in the advanced economies...Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism.”[106]

One Euro-Latin American perspective critical of neoliberalism focuses upon the way in which neoliberalism becomes habitually embedded in the economic system itself. For example, Dutch author Paul Treanor argues that the ideas derived from neoliberalism (and neoliberalism itself) are a philosophy and not just an “economic structure.” For example, a neoliberal perceives the world in a “term of market metaphors” and when members of a society commonly refer to countries as companies, that civilization would then be deemed a neoliberal instead of a liberal culture. Yet Treanor also recognizes continuity between historical liberal and contemporary neoliberal cultures. “When this is a view of nation states, it is as much a form of neo-nationalism as neoliberalism. It also looks back to the pre-liberal economic theory — mercantilism — which saw the countries of Europe as competing units. The mercantilists treated those kingdoms as large-scale versions of a private household, rather than as firms. Nevertheless, their view of world trade as a competition between nation-sized units would be acceptable to modern neoliberals.”[106]

Two of Treanor's collaborators, Elizabeth Martínez and Arnoldo García, find that neoliberalism is a collection of economic policies that has spread its ideals from country to country over the last 25 years. They claim that neoliberalism clearly treats its poorest citizens badly, by allowing for the increased disparity of the distribution of wealth ("the rich get richer, while the poor get richer at a slower rate"). Highlighting ideology, Martínez and García explain the difference between neoliberalism and liberalism by pointing to liberalism's association with class compromising ideology, stating that “"Liberalism" can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right-wing.”[107] However, they further argue that this liberal social contract was broken by the elite political movement which included neoliberalism in the U.S.[108][page needed]

Argentine economic collapse

Decades of poor governance, a spend-thrift military dictatorship, labour market reforms, and neoliberal structural adjustment programs eventually led to the 1999-2002 Argentine economic crisis. During the Menem administration, Argentina was under the guidance of the International Monetary Fund (IMF), the World Bank (WB), and U.S. Treasury. Although heavily indebted, the IMF continued to lend Argentina loans, and public debt sky rocketed as loans were postponed. Argentina commenced a neoliberal restructuring process. This small case study exemplifies how neoliberal policies directed with a top-down approach under the guidance of the 'Washington Consensus' were inefficient and only caused further damage to the Argentine economy. The unofficial mantra of the 'Washington Consensus' was "stabilize, privatize, and liberalize".[109] A number of labour market reforms were enacted, including the establishment of new regulations for public employment, the decentralizarion of social services, the deregulation of the private economy along with weakened labor laws, the partial privatization of the social security system, and the flexibilization of the labor market.[110] During this time Argentina’s foreign debt grew substantially from US $57.6 billion in 1990 to US $144.5 billion in 2001.[110] This debt accumulation, coupled with the immediate devaluation of the Argentine peso, led to hyperinflation, high unemployment rates, a large informal labour sector, an increase in poverty levels, and basic educational and health service cuts. A reduction in public salaries and numerous lay-offs stemming from privatization resulted in the loss of income of masses of workers, effectively creating a "new poor" among lower- to middle-class Argentines.[110] At the same time that Argentina's economy grew increasingly uncompetitive as a result of convertibility, international debt continued to rise and government corruption became rampant, deregulation resulted in the flight of capital and heightened levels of anxiety among the public.[110]

See also

Notes

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