Neo-Liberal World Order And Economy Of The Developed World - Admission/Application Essay Example

s Neo-Liberal World Order and Economy of the Developed World: A Shift in the Business Model Global Political Economy, New World Order and Globalization are only a few concepts which have been incorporated into the political rhetoric in the new millennium. In the last century, the macro as well as micro-economic models differed drastically from the ones prevalent in the current scenario. With Industrialization and rapid economic growth in the developed countries, states started coming out of their isolated shells. With the outbreaks of war and enhanced communication paradigms, the world saw a shift in the economic models where states now started opening up doors for other states. This paved way for a free competition where all states were competing for their share of revenues in the market, the market being the entire globe. With modernization prevailing in the developed world, these developed states carved out a model to serve the developing states as well. On the face of it, the model seems quite intriguing since it promises to act as a gateway to increased wealth in the global economy. However, the economic model is coupled with political sanctions and utilities as well which tend to complicate the scenario. The practical application of the model clearly reflects certain loopholes where the developing countries are facing issues with the dominant business models. The business models, especially in the developing states, tend to favor the large corporation since with added resources the operational costs are minimized and the break-even point as opposed to smaller firms is much favorable for these multinational ones. Therefore, while competing in a free market, the business model predicated by the new world order tends to reduce the aggregate economic outcomes for the developed world, at the same time tends to affect the social pillars of the society. The neo-liberal economic order has left a damaging effect on the developing states due to the flawed policy objectives of the model. This neo-liberal order lobbied around a few policy lines to be implemented at microeconomic as well as macroeconomic level to be adopted by these developing states to help them achieve economic well being as well. The main idea behind the propagation of the ideals behind neo-liberal order were the free flow of capital across borders, including the free flow of services along with the goods, increasing market efficiency by monitoring and assistance via International Financial Institutions i.e. the IMF (International Monetary Fund). The core execution body of these policies were the IFI`s functioning with the agenda of maintaining the status quo of the developed world. This agenda received massive critique from the intellectual community lobbying for the rights of the developing world. These IFI`s designed policies to ensure liberalization and massive privatization amongst these states receiving loans as part of the model. These policies included reforms in the fiscal policies, restructuring subsidies, expanding tax base of economy, adopting market dictated interest rates, ensuring trade liberalization i.e. opening up markets for competitive imports and exports across the borders, Liberalization of rules for FDI (Foreign direct investments), deregulation reforms and also the rights for protection of property (Yovanovich 2003). Also, the idea behind implementation of these reforms was to ensure minimal state control over financial assets; in other words, minimal role of the government in the economic affairs. However, in the longer run, these policies failed to produce the desired results since they weren`t suited to the under-developed economic business models. The basic flaw with these policies is that they already presume that the market forces would be self regulatory, i.e. government intervention would be unnecessary for smooth functioning of the economy of the state. However, with respect to the business models functional in developing states, the market equilibrium for the middle-sized or smaller firms have different technicalities, usually ill prepared for neo-liberal order. Furthermore, the definition of market efficiency in the context of developing states is also debatable. Market efficiency generally implies that the supply and demand of the firms are at equilibrium which also means that there is maximum output (Stubbs & Underhill 2006). For a capitalist, this definition may be conclusive, but for a business investor in a developing state, the social factors may not be ignored. In other words, in developing states the concept of distributional justice also concerns the economic policy. Thus, states having a low social index are at a high risks since chaos may prevail in social order of the state if government control over a few economic pretexts isn`t ensured. If the wealth is saturated amongst the already wealthy class, the model doesn’t seem to be of any advantage to these states. Though during the 1990`s, trends indicated that strict government intervention was a factor in the collapse of states, yet that doesn’t justify uniform policy interventions in all states alike. The strong bias against the policy of government performing economic functions, irrespective of state preferences must be removed to bring real progress in the world economy. In addition, the developing states don`t have a stable business environment, which is a pre-requisite if the neo-liberal economic order has to work. The much lobbied capitalistic economic model implies that there is an invisible hand which will automatically achieve market efficiency. However, without government controlling a few perspectives, the model doesn’t work well with states in not equipped enough to deal with these market forces on its own. The economic model which is imposed by the west ignores the proposition that in the issues of externalities or the role of various market turbulences which the markets may have to face. Also, the model is best suited for those states which have trained labor at their disposal, also where there is industrial capital to produce goods which are competitive in the market. Therefore, in the real sense, the multinational firms set up industries in these developing states and the smaller firms in the state find it very hard to compete, which is a recipe for disaster for the aggregate economy of the state. To further add insult to injury, these IFI`s often impose barriers on these developing states on producing certain processed products which negates the basic principle of equity. As a result, the capital inflow continues to be in favor of the Global North. Due to these injustices, there is a heated debate on this new world order where there is an urgency to develop a new model which suits the business models of these developing states as well. (Hill 2014) In addition, the enhanced debt along with the weak accountability measures further reduces the positive impact of the model being discussed. For instance, Africa is a living example of how the entire capital collapsed after trade liberalization model was implemented there. Other developing states have also faced similar fate as a consequence to liberalization model. Contrary to what was expected, the increased debts further deteriorated the economic position of these developing states with little prospects of recovery. Latin American states suffered drastically as a result of Washington Consensus (Liberalization model), which is why most of the intellectual opposition towards the model originated from Latin America. Countries like Bolivia are also one of the countries who were quick in adopting the model, yet they have been found suffering immensely. States like Mexico are the one who demonstrated extreme caution while adopting this model, as they were already dealing with the inflation rate and strict fiscal policies, yet their economy collapsed. Therefore, these cases are indeed a wakeup call for advocates all around the world. As a counter-attack the defenders of liberalization model still attribute corruption as the sole reason why the model collapsed, which is not true since even the most cautious states were badly bruised as a result. (Foot, Gaddis & Harrel 2003) Therefore conclusively, the business model functional in the developing states tends to favor the large corporations which have abundant resources at their disposal, and thus the operational costs are minimized. Thus, the break-even point of these big multinational firms as opposed to smaller firms is creates an environment much favorable for these multinational ones. Consequently, while competing in a free market, the business model predicated by the new world order tends to reduce the aggregate economic outcomes for the developed world, at the same time tends to affect the social pillars of the society. There are various reasons behind the failure of this model in various developing states of the world. Firstly, the policy measures advocated by the IFI`s are not suitable to the social environment prevalent in the developing part of the world. Secondly, without government intervention, these developing states fail to maintain the system whereby distributional justice is maintained and equity is ensures, which creates chaos in the society. Lastly, the model leaves these states indebted which further deters any chances of progress which these states may have. Thus, the global political economy must find a new paradigm to suit the needs of the changing world, especially the needs of the poorer states of the world. Works Cited: Foot, R., Gaddis, J. L., & Hurrell, A. (2003). Order and justice in international relations. Oxford: Oxford University Press. Hill, C. W. L. (2014). International business: Competing in the global marketplace. Stubbs, R., & Underhill, G. R. D. (2006). Political economy and the changing global order. Don Mills, Ontario: Oxford University Press. Yovanovich, G. (2003). The new world order: Corporate agenda and parallel reality. Montréal: McGill-Queens University Press. Read More