Transcript Problems with Neoliberalism

Problems with Neoliberalism
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Introduction
Neoliberalism’s “success stories”
Neoliberalism’s prescription
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Fiscal austerity
Privatization
Trade liberalization
Domestic market liberalization
Currency devaluation
Abolition of marketing boards
Retrenchment and deregulation
SAPs in Africa
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overall growth slowed
agricultural output did not keep up with
population growth
manufacturing did not increase its share of
output
investment and consumption dropped
incomes declined
unemployment increased
African states
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producing more primary goods for export
not increasing amount of processing by local
industries
governments spend less on education,
human-capital formation, creation and
expansion of skilled laborers, managers, and
engineers
likelihood of future industrial development
severely curtailed
“Declining terms of trade”
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successful development occurs when countries not
only increase exports, but alter composition of
exports
develop and build export industries
future revenues need to come from new industries
neoliberalism does not promote industrial capacity
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impossible for states to transcend “declining terms of trade”
improving living standards of first-world at the expense of
the third
Fiscal austerity
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reductions in government spending
does not necessarily lead to economic growth
neoliberals put too much faith in market
government spending can often complement
private spending
neoliberal belief “openness” is enough to
attract foreign investors is wrong
demand compression can have significant
negative consequences
Privatization
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selling-off of formerly public, state-owned firms
state only institution that can address market failures
or deficiencies
public firms provide benefits unlikely to be taken up
by private interests (e.g., human-capital formation)
little evidence private firms necessarily more
efficient than public ones
sectoral reform rather than strict privatization
reducing public sector does not necessarily improve
development
Trade liberalization
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eliminating or reducing restrictions on imports
world economy dominated by highly protected and
subsidized economies of first world
poor economies do not fare well
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do not have developed industries to take advantage of
improved access to foreign markets
cheap imported goods discourages local entrepreneurs
from moving into industry
impact depends on stage of economic growth
most effective in relatively industrialized economies
Domestic market liberalization
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eliminating price controls and marketing boards
farmers will not respond to price increases unless they have
access to good transportation infrastructure and inputs
(affordable credit, cheap land and labor, subsidized seed and
fertilizer)
state assists in transition; government-sponsored research and
development needed
governments assist in development of markets and capital
responses to price are greater in more-developed than lessdeveloped economies
in least developed economies, states have to intervene to make
domestic market liberalization beneficial
Currency devaluation
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hurts urban industry
shifts society’s revenue; profit-earners and exportcrop farmers better off
may reduce overall consumption and cause
economy to shrink
little to stimulate exports
positive in economies with strong industrial bases
undercuts prices on goods sold by competitors in
other third-world countries
chief beneficiaries are consumers in first world
Abolition of marketing boards
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increasing prices for primary good exports, increasing
production
doesn’t necessarily liberalize domestic markets
markets tend to be distorted
position of farmers can be relatively weak
re-regulation may be more beneficial than deregulation
marketing goods avoided by private traders
market integration through uniform national standards
even out differences in highly segmented markets
price stabilization encourages farmers to grow export
crops that earn foreign exchange
Retrenchment and deregulation
“crowding out” vs. “crowding in”
 financial deregulation
 labor market deregulation
 corruption
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“crowding out” vs. “crowding in”
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not all government spending “crowds out”
private investment, some “crowds it in”
public investment sometimes key
determinant of growth in agriculture
reducing education spending -- future
growth in world trade may favor goods
with higher human-capital content than
past, slow country’s development
Financial deregulation
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can raise credit costs
yields few gains if institutional framework to mobilize
domestic savings inadequate
effective re-regulation preferable to blanket
deregulation
state interventions promote local credit institutions and
competition
deregulation worsens income and wealth distribution
state banks provide credit to small and medium-sized
entrepreneurs who suffer from lack of access to credit
Labor market deregulation
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expected to depress wage rates by reducing
controls
lower wages attract new investment and
increase employment
if wages drop too low, local demand drops,
reduces demand for local firms’ output and
erases gains
finding optimum level -- firms preserve their
advantages on local and international
markets -- may require wage regulation
Corruption
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assume rent-seeking is economic and top-down
may emerge from society rather than state
bottom-up and political, competition for power and
resources controlled by state
rolling back state does not reduce rent-seeking but
drives up prices of resources or positions of power
reducing size of state may make competition for
resources sharper and potentially more violent