Economic and Social Impact of Neoliberalism

Neoliberalism has been a mammoth concept in the history of economics and has had a vast impact on the courses of the nations of the world as well as impacting on the lives of millions of people. It has furthermore remained a controversial concept the advantages and disadvantages of which are still fervently under debate. However, from rising to great prominence in some parts of the world, to getting diluted with other thoughts, Neoliberalism has been involved in shaping the history of the world to some extent. Understanding the economic and the social impact its implementation has had requires studying what the concept entails and the changes it brings.

The foundation of the thoughts that gave birth to the concept of Neoliberalism can be traced to the work of Adam Smith and David Hume. It basically involves the giving greater power over the economy to the private sector and thus transferring control of the resources of a country from the public sector to private enterprise. This is encouraged to achieve two primary aims, a greater degree of efficiency in the handling of these resources spurred by the profit motive, and thus betterment in the economic indicators of a nation which is taken to trickle down to the major sections of the population. The application of this concept requires certain policy changes that have been the core of the Neo-liberal model. First off, it requires disciplined application of the fiscal policy, the taxation and government spending by the state. Secondly, there is a focus on less intervention of the government in the market via subsidies and legislation and quotas, thereby allowing the forces of the market to operate freely to determine efficient allocation of scarce resources. This is complemented by tax reform, whereby the burden is made less for the higher earners by applying more moderate tax brackets so as to foster more investment and growth by owners of resources in a country. There is also a focus on floatation of the exchange rate of the countrys currency to make it more competitive as well as liberalization of trading activities by lifting of import restrictions and artificial barriers.

Policies are further stressed that encourage the inflow of foreign direct investment into the country by multinational corporations. This makes the market more competitive as well which is further aided by policies of deregulation of the market, to allow the invisible hand of the market to operate freely. To make the use of resources more efficient, state owned industries are encouraged to be privatized, lifting the traditional role that the state has played in health care and education. All this needs to be coupled with the provision of legal security for the right to private property and the easy access to finance required by entrepreneurs. Interest rates need to be market determined but remain positive. All these policies have the impact of transferring control of the resources from the public to the private sector and lessening the role of the government in the economy.

Neoliberalism brought about many economic as well as social changes with it. Many of these can be argued to be significantly good. The Chicago school was instrumental in the development of the policies linked with this model, soured by popular names such as Milton Freidman. One of the most significant impacts that it had was in the United Kingdom during the Thatcher days. Margaret Thatcher adopted the policies in an attempt to quell the tide of economic decline of the once fledgling island by utilizing the market forces and the efficiency that accompanied it. This was done by privatizing state owned enterprises at the time which was accompanied by a rise in the interest rates aimed at slowing down the increase in money supply and the accompanying inflation. Some of these actions were specifically aimed at reducing the power of the trade unions that had become powerful in the country in order to create greater flexibility and mobility of labor and to reduce resistance. This was done not only through legislation but also through the use of privatization. This was accompanied by a reduction in government spending on education and health care so that the market was given a greater role in the economy with government intervention to a minimum. These policies brought many advantages. Inflation which had been a problem before was brought to acceptable levels of around 8. Economic growth increased manifold and UK became one of the fastest growing economies of Europe. The cut down in regulation also helped London become the financial hub of the world and transformed the country altogether. Apart from these economic changes, the high growth and the stronger currency brought in many educated individuals from developing countries, making the society a strongly multicultural one and forming a blend in the metropolitan city of London. It also developed a broad consensus among the political parties in the country that the free market ideology espoused by Thatcher was correct and subsequent elections were carried out by parties building on the Neoliberal mandate of Thatcher.

The biggest success story of the free market ideology can be described as Iceland. It is a small icy island with a population of roughly 300,000 but it was able to transform itself in a few short years to one of the soundest economies of the world. This was achieved via Neoliberal policies. It decreased regulation in its markets to a great extent and reduced the barriers to international trade that existed. In addition it lessened the role of the government. This had the impact of making access to credit from international institutions very easy in Iceland. In addition, the banking sector in the country began to take full advantage of these policies, shortly becoming very strong and even buying considerable shareholding in the United Kingdom and Denmark. GDP per capita became one of the highest in the world and the lifestyle in the country improved a lot. The people in Iceland enjoyed many luxuries, with the lower jobs in the country increasingly being handled by Polish and Lithuanian immigrants who wanted to work to send the strong Krona currency back to their families in the homeland.

The most fervent protector of the Neoliberal policies has been the United States. It has invested increasingly in the freeing up of the market and lessening the amount of government intervention. Indeed, the Cold War was also fought partly over the Capitalist system which let the market dictate the allocation of resources rather than centrally planning them via government intervention. Now it is the worlds sole superpower, having outlasted the Soviet Union and boasts the strongest economy in the world. Particular focus on Neoliberalism can be said to have come during the Reagan years however. In this era, inflation fell and average incomes increased in the country as well as a rapid rise in commercial activity. GDP grew at a rate of 3.4 every year.

Thus broadly speaking, Neoliberalism had a strong economic impact on the developed world. It helped many get a control over inflation as well as spur rapid economic growth in the country through a substantial rise in commercial and trading activity. This had the effect of increasing incomes of the entrepreneurs while also raising the average incomes of the working class, thus increasing spending power of the populace. This increase in spending power and better economic condition helped raise the lifestyle in the countries, as they increasingly became some of the best places to live in the world according to ratings (Feo 2008). New Zealands reduction of agricultural subsidies and freeing up of its markets created a better economy and a rise in lifestyle which saw the country rise to number one in terms of life satisfaction by the Legatum institute. The Economist also raised its ranking substantially which was also the story with Icelands rapid development. The rise in prosperity also created a more educated population that was aware of social problems and responded to them through opting to vote for parties that took care of such problems. Thus the spread of welfare homes and human rights promotion activities increased. This proved so successful that previously centrally planned economies started to explore the route of Neoliberalism. One was Chile, which experimented with the policies promoted by the Chicago school, being under the control of a dictator (Schaefer 2003). China also followed the route under Deng Xiaopeng. Chile saw social change in the form of the dictatorship of Pinochet eventually ending, forming a democratic government in the country. Chinas policy saw it rise to prominence on the world stage as the fastest growing economy in the world and not overheating because of the rapid changes. This was accompanied by a massive rise in the living standards of the previously agrarian economy. Another important feature of Neoliberalism is its strong fostering of globalization as the economies of the world open up to free trade and free flow of resources. This leads to an increasingly globalized society as well where multiple ethnicities and sects work and live together. This has the impact of forming a blend and fostering increasing acceptance in society as well as promoting dialogue and finishing off age old prejudices that can be seen as the route cause of ethnic and racial hatred in the past.

These advantages of Neoliberalism aside, there have been massive disadvantages of following the policies of this model as well. The United Kingdom during the Thatcher years was able to enjoy one of the highest rates of economic growth in Europe which even exceeded those of France and Germany at the time. However, the social indicators of the country were worse off. France and Germany remained ahead in terms of lifestyle and other indicators such as education as well as healthcare which saw greater government intervention. This was because when the economic situation became uncertain, the automatic stabilizers in the economies of both countries came active to aid the population, via increases in government spending. The UK became a more globalized country in terms of absorbing a greater degree of ethnicities and races but it also led to problems for the indigenous people of the country, which saw an increase in support for right wing conservative parties in 2009 as more jobs and posts were captured by migrants to the country. In addition, the social problems of the country were highlighted when parties kept Thatchers broad policy moves intact but molded them to allow a greater degree of welfare provision for the people.

Icelands woes make a further case about the disadvantages of Neoliberalism. The island nation became exorbitantly rich almost overnight with a high degree of living standards and soaring salaries for its fledgling population. The financial sector became one of the strongest in the world. However, as one writer pointed out, much of this was as a result of the rapid inflow of hot money. The development of Iceland was effectively financed by substantial borrowing. A normal person could walk into an automobile showroom and purchase an SUV with immediate 100 credit being granted by a bank in Japan in less than ten minutes. Stock holding in the British stock market also aided the rapid rise in wealth. However, with the sudden financial crisis in 2008, the stock market tanked and the vast investments of the banks in Iceland fell in value. This was accompanied by one of the three biggest banks in the country being taken over by the government on account of rising debts and many others receiving government support. Loans were quickly taken out from the International Monetary Fund as well as British and Danish governments to keep the countrys economy afloat. The Krona fell to half its value, leading to an outflow of the Polish and Lithuanian labor that flowed in for blue collar jobs. The country effectively became bankrupt.

The United States is the worlds sole super power and the primary force backing the spread of Neoliberal policies around the world. However, it continues to face its own string of problems because of the application of the model. The health care and the education sector are marked by rampant inefficiency in the country which has led to a drop in living standards as well. Broad tax margins at the top means that the top earning people in the country have gotten exorbitantly rich while the bottom ten percent have had a smaller increase in wages, leading to a widening gap between the rich and the poor. This fosters class conflict in society where the bottom rung are looked down upon and often deprived by those in control of resources. The application of the Neoliberal policies did not come cheap either. The United States saw its debt rising so much that it became the largest debtor nation in the world eventually, having to finance further financial stimuli through borrowing from China and the oil rich Middle Eastern countries.

Another feature of Neoliberalism is that it promotes lower wages for the working class as the entrepreneurs look to cut costs for profit maximization. Social exclusion goes on the rise as a certain class benefits extremely from these policies while the rest are assumed to develop via a trickle down effect whose complete impact is still under debate. Inequality rises accompanied by a dip in the educational standards as well as the health coverage offered to the population. An interest contrast is drawn between the United States and Cuba in this regard, two opposite countries in terms of size and resources but with the smaller nation of Cuba enjoying better figures for health coverage and education for most of the population. Latin America is one region that suffered massively from the application of Neoliberal policies. Countries such as Argentina embraced the path to free market, taking on the route offered by the Chicago School but it was never able to attain economic breakthrough. The policies were in fact accompanied by a rapid rise in the debt level of the country to a highly unsustainable level. The servicing of this debt eventually spiraled out of control as the currency of the country had to be devalued leading to a period of hyperinflation, rising unemployment which created a massive informal sector in the country and the creation of a new poor class in the lower to middle class.

Singapore presents a unique case of the adverse social impact of Neoliberalism accompanied by great economic success. The Neoliberal policies brought about following the 1960s proved immensely beneficial for the small country for which free trade was important in developing a strong economy. The effect served to bolster the security of the country through its position in international trade and make the port of Singapore the busiest in the world in terms of cargo handling. However, this came at the price of human rights violations and repression of the population. The rate of incarceration increased under the firm hand of the ruling party and most of those in jail were either union members of students. The suppression of the other side was carried out rapidly to dust it under the carpet and highlight the economic success. This was unique because Neoliberalism was believed to increase human rights practices but in Singapore, it served a different purpose. The homeless and the destitute in the population were promptly picked up and moved to welfare homes, out of the sight of the shiny buildings and roads that were being constructed and also the conscience of the developing Singaporeans.

The globalization fostered by free trade under Neoliberalism brings its own ills. As the society becomes a blend of global culture, it finishes off the indigenous and the local. This was a particular problem in Latin America where identity became a major issue and the indigenous ways were increasingly looked down upon. Local cuisine, age old practices and other elements of society unique to a country get hit as well as the local industry bearing a large part of the damage of the inflow of multinational corporations that can take advantage of economies of scale and wipe out local businesses. Diversity as we know it seizes to exist eventually. There is also the case of deregulation of the labor market leading to unemployment as the private enterprises seek to make greater profits by cutting costs. This has a tendency to increase the degree of health relates problems and the frequency of industrial accidents in the country. Additional disadvantages accrue from the increasing externalities from private investment. The corporations and factories are established by taking into account the costs to the investors which does not account for environmental damages. The aggregation of such external costs has to borne by the population and the government. Exploitation because of class differences becomes rampant as the corporations and owners of private enterprise are able to gather disproportionate amount of power to even influence government actions which can then be used to exploit the lower class, fostering the class conflict that Marx predicted to a certain extent. As multinational corporations gain a greater role in the economy, the nations tend to lose a degree of sovereignty as their actions can be dictated to benefit the foreign investors. This loss in self determination also lessens the political power the people have and the amount of representation they can get at the centre which ultimately does not act to benefit the greater section of the population.

Thus it can be concluded that Neoliberalism has had a mixed impact on the world stage from an economic and a social perspective. At one end, it had fostered massive economic growth in many countries which has seen rising levels of GDP growth as well as additional control over inflation, rising living standards in some countries and an average increase in inflation as well as impacting society to make it more homogenous and doing aside with old prejudices. However, it is also true that these advantages have come primarily to the developed countries with Singapore and China being the significant names among the developing countries that benefited from application of a certain degree of Neoliberal policies. Otherwise, the policies resulted in massive inequality, raising difference in wages between the higher and lower classes which fostered exploitation and class conflict as well as a drop in welfare such as health care and education. The trends that are currently being followed by the countries around the world are of adopting Neoliberalism but molded to account for greater welfare policies and government control over healthcare and education as well as a certain degree of regulation. This tends to make use of the economically stimulating impact of Neoliberal polices but according greater protection to the local population and controlling the adverse impact of the policies.

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