How Neo-Liberal Policies Drive Globalization - Coursework Example

How Neo-liberal Policies Drive Globalization Name of Student Name of Instructor Date of Submission Introduction Neo-liberal policies comprise of all the economic policies which are based on the principles of neoclassical economics that suggest the removal of trade barriers and regulations which restrict economic actors from carrying out the trade. Neo-liberal policies seek to utilize laissez-faire approach to economic development by enhancing and open free markets. These policies have facilitated the creation of open market economies, eliminated trade barriers and consequently stimulated globalization. This study analyses the various neo-liberal policies and how they have driven globalization at both domestic and international level. Neo-liberal policies and how they have driven globalization Privatization Privatization involves the transfer of economic resources and functions from the public sector to the private sector. Privatization has formalized and established well-defined property rights, and this has created stronger incentive individuals. As a consequence of this, people make decisions in their own interest, and this has seen the effective handling of transactions (Wang, Lee & Hsu, 2014, p. 139). Well-defined property rights have increased the production of goods and services since people are sure and secure concerning their ownership of property. Increased production has translated to increased trade activities, and people are transversing countries to market and sell their goods and services. Privatization has helped eliminate unnecessary government bureaucracies which previously hindered the efficiency of markets. Giving the private sector control has promoted clearly defined economic goals, and this has in turn improved market efficiencies. Efficient markets have attracted foreign direct investments as investors are looking for efficient markets. By granting the private sector the right to control resources, resources are no longer wasted unnecessarily. Effective utilization of resources has stimulated growth, and this has also increased foreign direct investment (Iamsiraroj & Doucouliagos, 2015). Investors from developed countries are therefore seeking opportunities in emerging markets which are experiencing rapid growth rates. Specialization of goods in the economy can be attributed to privatization. Private firms are highly motivated by profits and are therefore focusing on highly productive ventures. Private businesses are also taking advantage of the economies of scale and are engaging in specialization. Firms have recognized the importance of privatization and are therefore looking for state-owned enterprises which are in the process of privatization. Privatization has also made the investors record higher profits which can be used to expand their product lines by reinvesting in other countries. The investors are looking for similar business opportunities where they can gain control over the public resources and record even much higher profits. Privatization has also eliminated the concept of public good, and this has been translated to individual responsibility. In this case, therefore, individuals have to struggle to meet their needs such as education and public health. Foreign investors are therefore attracted to provide the once “public goods.” Privatization of public goods has increased the efficiency of providing these goods and services thereby attracting consumers from various parts of the world. Reduction in government spending When the government reduces its domestic spending, it increases the role of private sector in the economy. For instance, by reducing the amount of expenditure on infrastructure, the government allows the private sector to take control of the country’s infrastructure. Cutting government spending also creates investment opportunities which in turn attract foreign investment. Reduction in government spending is mostly evident in emerging economies, and foreign governments are taking up these opportunities. Foreign investors who pursue the opportunities which have resulted from reduced government spending bring new technologies and production techniques in these countries thereby stimulating globalization. A reduction in government spending creates a gap in the market, and this offers an opportunity for business persons to exploit ((Storper, 2016). The demands of people increase, and this stimulates production. The untapped markets have low competition, and business will start channeling their resources towards these markets to meet the growing demands. Reduced government spending also drives innovation as individuals will have to devise new ways of addressing their needs. Innovation is subject to globalization. Governments do not fully finance business operation but instead, offer subsidies to investors. The subsidies have attracted investors who seek lower business costs. Businesses are also receiving tax benefits from the government as evinced by export processing zone in many countries. A reduction in government spending has therefore created a business opportunity for investors who have a profit motive and at the same time provision of subsidies and tax benefits has increased the number of foreign investors (Iamsiraroj & Doucouliagos, 2015). Deregulation States reduce or remove government regulations on businesses, and this has fostered more efficient marketplaces in countries. Deregulation makes the economic more favorable and thus increased trade (Ball, 2012). Foreign corporations can enter countries without following lengthy procedures in acquiring licenses or complying with too much trade restrictions. Deregulation has heightened the level of competition in different countries and companies are striving to develop strategies that will enable them to survive in the highly competitive markets. Local industries are also developing global orientation so as to keep up with the highly dynamic business environment. The increased competition which results from deregulation has seen increased partnership as domestic companies merge with foreign corporations. Strong competitors are acquiring weak competitors and this has made corporations to travel across the globe in search of mergers and acquisition. A company like Apple Inc., has taken advantage of deregulation and is forming partnerships with various stakeholders in different countries and even purchasing business ideas from countries which do not have capital and technical know-how to develop these ideas. Deregulation has also limited the control of the government on businesses, and this has helped eliminate monopolies which were the essence of market inefficiencies (Wang, Lee & Hsu, 2014). Deregulation has enhanced perfectly competitive markets where there are limited barriers to entry and firms can exit as they wish. Foreign institutions can now access business resources, and this has seen countries with limited resources travel to countries which have plenty of resources. For instance, multinational enterprises from developed nations are traveling to third world countries like Africa which has plenty of unexploited resources. These corporations can also form a partnership with the locals. Globalization has also been achieved by deregulation which has reshaped the boundaries between the state and the civil society. The state is not very concerned about the affairs of the civil society, and this has granted the civil society sufficient freedom to carry on with business activities (Storper, 2016). Deregulation has helped reduce any interference by the government that could most likely diminish profits. Deregulation has increased the number of capitalists globally who are after accumulating higher profits. Government deregulation has also seen the restructuring of the economic sectors, and this has consequently changed how resources are allocated. Investors are looking for markets which have been allotted more resources since they have the confidence that these markets are highly efficient. Investors are therefore keeping an eye on the markets which have been allotted more resources. They are also migrating to these markets where they can place their portfolio expecting higher returns. Free trade Free trade has seen the elimination of trade barriers which restricted or banned imports or exports from foreign jurisdictions. Countries can trade freely without paying for tariffs, quotas, and import duty (Audretsch, Lehmann & Wright, 2014, p. 306). In as much as a free trade agreement is present in some countries, the agreement is not applicable to all sectors. For instance, America applies the free trade agreement in the manufacturing sector to help manage foreign competition. Business persons are taking advantage of the free and open economy and are therefore traveling all over the globe in search of growth opportunities. As people move from one country to another, they transfer the new skills gained in respective countries. Highly skilled individuals living in countries which have little or no resources are moving to countries with comparative advantage. As they continue moving to these countries, they create networks for their friends and families in countries which have plenty of opportunities. The latter groups of migrants do not face any challenges entering foreign countries because free trade has removed barriers to trade, including free movement. Free trade has made it possible for people and goods to move freely across the globe and this has further stimulated globalization. Through the free movement of individuals and goods, trade has intensified across the international and national boundaries. Free trade has made it possible to have all kinds of commodities in highly efficient markets, and thus one does not have to travel to look for items that they have a comparative disadvantage in. Accessing any part of the world has become very easy, and this supports the claim that the world has become a small village. If an individual needs any item he can just accessing it within the comfort of their physical location without necessarily traveling. People can also buy the commodities at much lower prices than what is being produced locally. Free trade has also enhanced globalization by enhancing information symmetry. One can easily access the market information of any country, and this has been made possible by the internet. Lobby groups are lobbying for an open and free Internet where individuals can access any crucial information (Audretsch, Lehmann & Wright, 2014, p. 303). Groups such as the anonymous subcultural are looking for ways that they can manipulate information systems of businesses so as to make critical information available to various stakeholders. Free trade has ensured price transparency, and thus consumers are using the information on the market prices to determine the cheapest and affordable commodities that they will seek (Ball, 2012). Countries are also engaging in free trade agreements so that the member countries can carry out business activities without threats of trade barriers. An example of a free trade agreement is NAFTA (North Atlantic Free Trade Agreement), the world’s largest free trade area. The agreement unlocked opportunities for NAFTA partners who can trade freely across the United States, Canada, and Mexico. The integration between NAFTA partners has created made in America jobs for its citizens who do not have to travel across the globe to seek employment opportunities necessarily. Austerity Austerity is a neo-liberal policy which seeks to reduce the future tax burdens. Such measure includes increasing the interest rates. By increasing the domestic interest rates, the foreign exchange rate decreases and this attracts foreign investors who want to gain higher returns from the rising interest rates. Foreigners will start purchasing the domestic currency while the locals will reduce their consumption because they know that increasing their consumption will cost them higher tax burdens in future. This policy also increases the consumers’ marginal propensity to save since consumers are aware that when they increase their present consumption, they will have to bear higher taxes in future. Austerity measures, therefore, intend to attract foreign spending by increasing the interest rates. When the interest rates are high, the exports become more expensive, and the imports become cheaper. Foreign nationals will, therefore, prefer to place their investment portfolios in the domestic country as they expect higher returns when they export the commodities. Conclusion Neo-liberal policies have significantly contributed to globalization by eliminating trade barriers. Through the elimination and reduction of trade barriers, people, goods, and capital can move freely across the globe. Foreigners are taking advantage of the opportunities which have been created by the open economy while consumers are searching for cheaper commodities that will help address their needs. The implementation of these policies have facilitated trade, and this has helped increase the integration between people from different countries. Through technology, the world has become more open, and individuals can access any corner with just a single search. It is, therefore, clear that neoliberal policies have enhanced the openness of the economy and consequently globalization. References Audretsch, D. B., Lehmann, E. E., & Wright, M. (2014). Technology transfer in a global economy. The Journal of Technology Transfer, 39(3), 301-312. Ball, S. J. (2012). Global education inc: New policy networks and the neo-liberal imaginary. Routledge. Iamsiraroj, S., & Doucouliagos, H. (2015). Does growth attract FDI? (No. 2015-18). Economics Discussion Papers. Storper, M. (2016). The neo-liberal city as idea and reality. Territory, Politics, Governance, 4(2), 241-263. Wang, L. F., Lee, J. Y., & Hsu, C. C. (2014). Privatization, foreign competition, and social efficiency of free entry. International Review of Economics & Finance, 31, 138-147. Read More