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NeoliberalismNeoliberalism
Introduction – Rise of NeoliberalismIntroduction – Rise of Neoliberalism Neoliberal traditionNeoliberal tradition Neoliberal diagnosisNeoliberal diagnosis Neoliberal prescriptionNeoliberal prescription
• Fiscal austerityFiscal austerity• PrivatizationPrivatization• Trade liberalization, currency devaluation, Trade liberalization, currency devaluation,
abolition of marketing boardsabolition of marketing boards• Retrenchment and deregulationRetrenchment and deregulation
ConclusionConclusion
Neoliberal traditionNeoliberal tradition
Individuals rational utility maximizersIndividuals rational utility maximizers Self-interestedSelf-interested Act rationally and efficientlyAct rationally and efficiently Left to pursue their own narrow self-Left to pursue their own narrow self-
interests, society as a whole benefitsinterests, society as a whole benefits The less state the betterThe less state the better
Hayek and the Chicago schoolHayek and the Chicago school
Monetary policyMonetary policy Governments tighten money supply Governments tighten money supply
during high inflationduring high inflation Loosen it during times of recessionLoosen it during times of recession Task of government – stabilize Task of government – stabilize
monetary growthmonetary growth
Neoliberal political theoryNeoliberal political theory
Stressed individualism, saw individuals as Stressed individualism, saw individuals as building blocks of societybuilding blocks of society
Minimalist state produced better economy Minimalist state produced better economy and societyand society
Modern liberalism = society contained Modern liberalism = society contained many historical inequalities; only state many historical inequalities; only state could level the playing field to give all could level the playing field to give all people the same degree of freedom and people the same degree of freedom and opportunityopportunity
Neoliberal political economyNeoliberal political economy People behave according to self-interest; they People behave according to self-interest; they
seek out opportunities to maximize gainsseek out opportunities to maximize gains If opportunities are in market, self-interested If opportunities are in market, self-interested
behavior creates spin-off benefits, including new behavior creates spin-off benefits, including new jobs, products, etc.jobs, products, etc.
Solution: reduce size, role of state; free up Solution: reduce size, role of state; free up market and make it attractive to entrepreneurs; market and make it attractive to entrepreneurs; remove opportunities for corruption, rent-seeking, remove opportunities for corruption, rent-seeking, and other economically harmful behaviorsand other economically harmful behaviors
Policy recommendations: less government Policy recommendations: less government intervention, more freedom in the market, intervention, more freedom in the market, abandon ISI in favor of outward orientationabandon ISI in favor of outward orientation
Neoclassical prescriptionNeoclassical prescription Structural adjustment seeks to make state Structural adjustment seeks to make state
and market more efficient to accelerate and market more efficient to accelerate growth and eliminate wastegrowth and eliminate waste
Places market at the center, relies on Places market at the center, relies on individual initiative, creativity, and individual initiative, creativity, and ingenuityingenuity
Structural-adjustment programs (SAPs)Structural-adjustment programs (SAPs)• fiscal austerityfiscal austerity• privatizationprivatization• trade liberalization, currency devaluation, and trade liberalization, currency devaluation, and
abolition of marketing boardsabolition of marketing boards• Retrenchment and deregulationRetrenchment and deregulation
Fiscal austerityFiscal austerity Reductions in government spendingReductions in government spending Tends to promote inflationTends to promote inflation ““Crowds out” private investorsCrowds out” private investors Inhibits investmentInhibits investment Private investment becomes cheaper, and Private investment becomes cheaper, and
environment for business more attractiveenvironment for business more attractive Lowers costs of borrowing, which should Lowers costs of borrowing, which should
encourage investmentencourage investment Reduces overall consumptionReduces overall consumption More goods for exportMore goods for export Foreign exchange should flow in, stimulating Foreign exchange should flow in, stimulating
economic growtheconomic growth
PrivatizationPrivatization
Abuses and inefficiencies often Abuses and inefficiencies often associated with public firmsassociated with public firms
Private firms have greater interest in Private firms have greater interest in maintaining efficiency and maintaining efficiency and profitabilityprofitability
Raises money for cash-starved Raises money for cash-starved governments, enhances operation of governments, enhances operation of market economy, improves efficiency market economy, improves efficiency and performance of privatized firmsand performance of privatized firms
Trade liberalization, currency Trade liberalization, currency devaluation, marketing boardsdevaluation, marketing boards
Maximizing free flow of goods and servicesMaximizing free flow of goods and services Trade liberalization -- eliminate/reduce Trade liberalization -- eliminate/reduce
restrictions on imports; devaluationrestrictions on imports; devaluation Domestic market liberalization – eliminate price Domestic market liberalization – eliminate price
controls and marketing boards; devaluation gives controls and marketing boards; devaluation gives producers of export goods incentive to increase producers of export goods incentive to increase productionproduction
Firms have to find ways to lower costsFirms have to find ways to lower costs Comparative advantageComparative advantage Devaluation boosts agriculture by giving export-Devaluation boosts agriculture by giving export-
crop farmers increased income; farmers increase crop farmers increased income; farmers increase outputoutput
Retrenchment and deregulationRetrenchment and deregulation
Free market and entrepreneurs; enable Free market and entrepreneurs; enable market to function more effectively; market to function more effectively; encourage efficient resource allocation encourage efficient resource allocation
Retrenchment addresses problem of Retrenchment addresses problem of corruption; reduces chances for abusecorruption; reduces chances for abuse• Opportunities for rent-seeking diminishOpportunities for rent-seeking diminish• Less patronage appointmentsLess patronage appointments• Fewer chances to use public firms or marketing Fewer chances to use public firms or marketing
boards to skim resourcesboards to skim resources
ConclusionConclusion
Losers = large, protected industries Losers = large, protected industries producing for home market, producing for home market, inefficient state firmsinefficient state firms
Winners = export industries, smaller Winners = export industries, smaller firms, and farmers, especially export-firms, and farmers, especially export-crop farmerscrop farmers
5/3, strengths and weaknesses of 5/3, strengths and weaknesses of neoliberalism in practiceneoliberalism in practice