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Learning Object: Neoliberal Economy – Opportunities and Challenges

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Learning Object: Neoliberal Economy – Opportunities and Challenges Learning object: Neoliberal economy – opportunities and challenges Explanation Neoliberalism is a term, which was first used in the 1930s, in the time of the Great Depression. Economists, who coined it, proposed a revival and renewal of classical liberalism trends, such as “laissez faire”. In general, they considered state intervention in economy as unnecessary, because market laws are more efficient for allocations of resources, than officials’ decisions. This trend gained popularity in the 1970s and 1980s in Latin America, US and Great Britain (“Reaganomics”, “Thatcherism”). Through the economics it entered realm of politics, governance and ideology. At the same time, neoliberalism gained pejorative meanings, such as self-interest, egoism, competition, unlimited (by any law) market, inequality. It began to be viewed as a simple set of oppositions, such as: individual vs. collective, freedom vs. obligation, free market and minimal state vs. welfare state, globalisation vs. nationalism. This idea was heavily criticized in the last decade of 20th and the first decade of 21st century, because of the financial crisis in Latin America and subsequent global economic crisis in 2008. Many social activists, politicians and scholars criticised neoliberal economics and discussed its negative aspects. Some corrections and alternatives were proposed as a result of such criticism. Therefore, it is useful to list both opportunities and challenges of neoliberal economics. Competitiveness, motivation and creativity, which cause increase of human capital and improvement of economic situation of the individuals, belong to the first category. There are conditions, such as free circulation of capital, freedom of investments and free trade, which create long-term economic growth and prosperity. Globalization facilitates exchange of information (scientific, technological, cultural etc.) and encourages improvements in development not only in economics, but also in area of human rights. It is also important to notice positive influence on reduction of bureaucracy and tax burdens, which leads to increase of the importance of consumer/citizen. The second category – challenges – is very timely, not because of the global economic crisis in 2008, but due to increasing lack of confidence in democracy in the Western World. In this context, it is worth considering, the selfishness of the rational individuals, which may cause disintegration of collectives and community cooperation. Concentration of wealth and rising levels of economic and social inequality is occurring, which provides populists and extremists with ample opportunity to seize the power. Corporations, banks and international economic organizations are increasing their importance over consumers, policy makers and national states, which reduces confidence in the general principles of the developed world, such as rule of law, voting power, majority rule and minority rights. The same phenomenas are connected with possibility of big market failures, which is caused – in popular view – by the “too big to fail” theory. The debate about neoclassical liberalism, post-Keynesian economics, socialism, “third way”, and many more possibilities is continuing and keeps challenging neoliberal way. However, from today’s perspective, neoliberalism is the most popular trend in economics and it is not likely to change any time soon. Definition One of the most recent and the widest definition of this concept were proposed by David Harvey. It states: ‘Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit’ (A Brief History of Neoliberalism, 2005). SPI application: Diversity of market players is the advantage of a free market. On one hand, people may be more generous and helpful when they know that disadvantaged individuals cannot count on state’s help. On the other hand, market players, without state regulations may prevent disadvantaged from the activity on the market. On the one hand everyone has a fair chance to develop under the conditions of a free market. On the other hand – disadvantaged people may need help of state regulations, SPI workers or generous entrepreneurs, because they do not have enough resources for development. Conclusions: Neoliberalism is a 20th-century approach to classical liberalism. It is used in economics, philosophy, politics. It assumes that state interventions in economy are unnecessary and even harmful and free market is more efficient in allocating the resources. Opportunities of neoliberalism: competitiveness, motivation, creativity, increase of human capital, improvement of economic situation of the individuals, exchange of information, reduction of bureaucracy and tax burdens, free circulation of capital, freedom of investments, free trade, long-term economic growth and prosperity. Challenges: selfishness of the rational individuals, disintegration of collectives and community cooperation, concentration of wealth, rising levels of economic and social inequality, reduced confidence in the general principles of the developed world, such as rule of law, voting power, majority rule and minority rights. Questions for discussion: 1. Is there a free market at all? What are the conditions of a free market? What are strengths and weaknesses of a free market? 2. Which other trends in the history of economics and politics do you know? Are they much different from neoliberalism? If so, what are the differences? 3. What are advantages and disadvantages of neoliberal politics and economics in your country? 4. Is it possible, that the same thing might be seen as opportunity or challenge, depending on who look at it? 5. What is your opinion about globalization? Is it good or bad direction of world’s development? 6. Do you know other than “Thatcherism” and “Reaganomics” examples of neoliberal applications? What do you think about German “Wirtschaftswunder” (“economic miracle”) in the 1950s, development of European community, Pinochet’s Chile, and Deng Xiaoping’s China? Exercises: 1. Try to convince other party, which is opposite to neoliberal economics and politics, to neoliberalism. List arguments, which you will use in such discussion and consider counterarguments. 2. Check basic facts about your country on the Internet (GDP, trade exchange, number of wars in last 100 years, number of government changes, entering international organizations etc.). Is it possible to establish whether neoliberalism improved your country development? 3. You are a head of state in your country. You know positive and negative effects of the neoliberalism. Build a short agenda to resolve some of the problems (e.g. disintegration of community cooperation, concentration of wealth, rising level of economic inequality, lack of confidence in democracy), without losing advantages, like free market, increasing level of human capital, long-term economic growth, democracy. Further reading: “Contemporary Economic Theory. Radical Critiques of Neoliberalism”, edited by Andriana Vlachou, Palgrave Macmillan, London 1999. David Harvey, “A Brief History of Neoliberalism”, Oxford University Press, Oxford 2005. “Polarising Development: Alternatives to Neoliberalism and the Crisis”, edited by Thomas Marois, Lucia Pradella, Pluto Press, London 2015. Manfred B. Steger, Ravi K. Roy, “Neoliberalism: A Very Short Introduction”, Oxford University Press, Oxford 2010. “The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective”, edited by Philip Mirowski, Dieter Plehwe, Harvard University Press, Harvard 2015..
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