The Importance of Neo-Liberalism to Economic Policy-Making - Assignment Example

Introduction It was after the Second World War that the corporate enterprises helped in the creation of a wealthy class in the society of the time where they enjoyed excessive political influence which they had with the governments both in Europe and the U.S. this was what led to the surfacing of neo-liberalism from the reaction by these wealthy elites so as to counteract the policies of post war that looked to favour the working class as well as strengthening the welfare state. The policies advocate for commercial activity and market forces as the methods that are most efficient for the production and the supplying of goods and services. It the same instance, they happen to shun the state role thereby discouraging government intervention into economic, social affairs and finance. The importance of neo-liberalism to economic policy-making The neo-liberalism concept has in the past twenty years become widespread in some academic and political debate. Neo-liberalism is suggested to be the dominant ideology that is shaping today’s world and therefore the claim that we are living in the age of neo-liberalism. According to Thomas Friedman, neo-liberalism is perhaps perceived to be a descendant of liberalism where traditional liberal demands for ‘equality of liberty’ are bent into a demand for a total liberty for those who are most talented and their enterprises too. This means that without laying proper economic policies in today’s world, it will be very hard to put up with the economic pace (Martinez, 2006). The concept of neo-liberalism is one that advocates for a trilogy of policies that are known as, privatisation, liberalization, and also stabilization. With liberalization referring to the freeing of firms and markets from the state regulation, this comes with the need to make economic policies so as to be able to remove the barriers to the movement of goods as well as capital across the boundaries in an organised way. And to be able to achieve stability, there is need for economic policies. On the other hand is privatization, this is the turning of the state corporations/enterprises to privately owned ones. If there are no clear economic policies while a government does this, it may have all these enterprises fall on the wrong hands. Lastly we have the stabilization which refers to the shifting o the monetary policies so that they can focus solely on inflation prevention instead of promoting economic growth and lower unemployment. The state fiscal policies are directed to the reduction of taxes on the rich and businesses or even eliminating social programs. Neo-liberalism comes in and makes the governments reinvest in better economic policies (Palley, 2004). Being a set of economic policies, neo-liberalism has its effects seen where the rich grow richer while the poor continue to grapple in poverty and this may mean that the poor need to make effective policies that may enable. That being the argument from the critics, neo-liberalism is in economic terms the desire to expand and intensify the market. This can be done by increasing the frequency, number, repeatability, and the formalisation of transactions. This requires that there be proper economic policies (Palley, 2004). Neo-liberalism’s goal is there to be a universe where every action of being in a market transaction and the transaction done in a competitive with every other being while at the same time influencing more. This requires policy making. With most of its aspects, such as supplier maximisation, creation of sub-markets, speeding the speed of trading al require there to be efficient economic policies. This means that neo-liberalism is important for it brings in the need for various policies. In efforts to ensure that any given aspect of globalisation is fully met, there will be a great need to have decisive economic policies. For instance, having a new expansion in space and time of the market will require that economic policies are made considering that there has been a global-scale market economy in the past. To make things better or rather the aspects of neo-liberalisation bare fruits such as finding new areas of marketisation. On the other hand, the expansion of trading hours as a neoliberal policy where the shops close late in the night, this mean that with neo-liberalism, it is clear that there is a 24 hour economy and this will mean that it will be most important to have clear economic policies to facilitate the 24 hour economy. With neo-liberalism, there is the creation of transaction-intensive markets 5that are based on the model of the stock exchange, also the electricity exchanges, to telephone-minute exchanges. Typically for neo-liberalism, it will be found that there is no relationship that maybe found between the growths in the number of transactions that are made and the underlying production. For this reason, for this aspect of neo-liberalism to be fully utilised clear and decisive economic policies need to be made to match the need. This will help economies to gain, stabilise the transactions with the making of the economic policies. How convincing are the arguments of those, such as Martin Wolf, who support the neo-liberal agenda of the free market? An economic philosophy known as neo-liberalism has dominated the public’s thinking and the economic policy. The neo-liberalism agenda is practically associated with the Chicago School of Economics where the efficiency of market competition, as well as the role of the individuals in the determining of the economic outcomes, and the distortions that are associated with government intervention not forgetting the regulation of markets is highly emphasized (Palley, 2004). In the wake of Second World War, the government of America chose to end the politics of isolation to pursue a role that was more pro-active in the world community. The role was to touch both the political and the economic spheres to secure peace, prosperity and stability mostly in the west of Europe. This according to Holmgreen (2003) was fostered by the adoption of neo-liberalism, i.e. In the American pro-active role together with its development of the IT and communication technologies, it emerged and was accepted in the industrialized world as the leading superpower. For those people such as Martin Wolf who support the neo-liberalism agenda, they argue that the neo-liberalism is the leading economic agenda with far reach consequences for the world economy such as opening up markets resulting to near unrestricted competition. This has non-state multinationals playing an important role. In this argument, they are convincing in their support for the neo-liberalism agenda. They further argue that the two critical tenets of neo-liberalism are its theory of aggregate employment determination and the theory of income distribution which are not convincing. The critics of this theory hit them hard on the fact that they are not fully implemented in the economic sectors and also on the fact that the theories are not practical in practice (Wolf, 2004). With regards to the theory of income generation, the neo-liberalism agenda asserts that the factors of production which are; labour and capital should get paid what they are worth. According to this theory, this should be accomplished through the demand and supply process where the payment highly depends on the factor’s relative scarcity (supply) together with its productivity which we know affects demand. On the other hand, with regard to the aggregate employment determination, the neo-liberalism policy asserts that free markets will ensure that the valuable factors of production that includes labour do not go to waste. Instead, there will be an adjustment in prices to ensure that demand is imminent and that fully employment of all the factors of production (Palley, 2004). The appeal of neoliberals is enhanced by the cultural factors as well as the economic ones. At the economic level is the success of the New Deal Keynesianism which may have contributed to its own undoing. There was rising prosperity which was built upon the Keynesian policies between business and labour. This may have engendered beliefs where the core economic problems of mass unemployment and income distribution had finally been solved. While the Keynesian contributed greatly to the understanding of the factors of aggregate demand together with its role in the determination of the employment outcomes. Neo-liberals insist that there should be price adjustments so as to ensure that there is an automatic tendency toward full employment (Palley, 2004). Neo-liberals are also known for their promotion of the labour market deregulation cause. This is not convincing for it has taken the form of allowing the real value of the minimum wage to fall. In return, it has created a labour market climate which is full of unemployment insecurity. The neoliberal policy has only been true to its theory that maintains that employment protections and wage rigidities are not needed. This has resulted to the widening of the wage and income inequality which the neo-liberals argue that are as a result of the market paying people what they are worth. But according to the Keynesians, it is because of the power balance in the labour markets which have tilted in favour of the business. Looking at neo-liberalism in regards to the macroeconomic policies, it has applied inconsistency and opportunistically departing from its theoretical rhetoric. On the other hand, the neoliberal cooption of stabiluization policy happens to raise two issues. First, while the stabilization policy is the correct response, is employment by the neo-liberals have been in suboptimal manner. For instance, the Bush administration used the recession of 2001 opportunistically to cut the taxes. These tax cuts happened to be directed toward wealthy individuals predominantly therefore yielding very little if any economic bang per buck, and to make matters worse, they were structured to be permanent. Secondly, the stabilization policy need for recourse speaks to the inadequacy of the neoliberal economic theoretic account (Palley, 2004). Where it asserts from its model that market economies are supposed to rapidly and automatically self adjust to full employment; making it not a convincing as an economic agenda. Conclusion From the above findings, neo-liberalism is an ideology which looks to be mean and A selfish mode of economy. Moreover, being founded and formulated by the old imperial powers it is only adopted by the economically dominant nations. With the state of the global trade and finance structures, the wealthy countries of the world can maintain their economic advantage in this agenda by pressurizing the developing countries to adopt the neo-liberal policies even where they themselves have not fully implemented the neo-liberal policies. With its main goal being the doing away with all barriers to commerce, privatization of available resources and services, it results to the public life being on the mercy of the volatile market forces and profits extracted benefiting just a few individuals. References Martinez, E. (2006). What is Neoliberalism? Retrieved December 12, 2011, from CorpWatch: http://corpwatch.org/article.php?id=376 Palley, T. I. (2004, April). From Keynesianism to Neoliberalism: Shifting Paradigms in Economics. Journal of , 785 - 804. Wolf, M. (2004). Why Globalization Works. World’s Resources. (2006 , November 26). Globalization. Retrieved December 12, 2011, from http://www.stwr.org/globalization/neoliberalism-and-economic-globalization.html Read More