Globalization's Impact on Public policy - Essay Example

Globalization and Public policy Student’s Name: Institutional Affiliation: Neoclassical versus Keynesian approach to economy Neoclassical and Keynesian/welfare state policies to the economy had decipherable differences in many aspects. The neoclassical theorists incorporated some concepts of the Keynesian and classical. Neoclassical synthesis integrates elements from both Keynesian and classical perspectives into one framework (Gordon, 1990, p.1117). Keynesian policies stressed the importance of markups, monopolistic competition, and costly adjustment in price in models where monetary policy is the integral part in models where monetary policy is core to fluctuations in macroeconomic. The welfare state approach which is in essence Keynesian, advocates for the intervention of the government in many aspects of the economy to make them available to the entire population of a country. This services may include healthcare insurance, education, agriculture, manufacturing, mineral exploitation, science research and development, tertiary training, labor market, money market, product market, and capital market. It was believed that if the self adjustment in the market could be expected to solve imperfection in the market, then there will be a point when all people will die owing to the deadlock. Consequently, government intervention is seen to be a vital solution to the imperfection in the market. Provision of the essential services to the entire public cannot be possible without government intervention (Dequech, 2008, p.285). The welfare state was ideal for catering for all the needs of a common man in the economy. Where there are industrial strikes and increased activities in the labor unions, the government has the responsibility of intervening to alleviate the imperfections that come with them. The economic depression in 1929 was highly attributed to governments’ inability to act when they had the chance. Sitting on the fence and watching the situation to re-adjust itself led to huge losses and reduction in industrial activity. Keynesian approach deviated from the perspective of the traditional or classical economists. In Keynesian perspective, the classic viewed the price system in a free economy as effectively directing the mutual adjustment of demand and supply in all markets, even in the market of labor. Unemployment could go up owing to imperfection in the market. This was brought about by government intervention of the labor unions actions and it could be done away with by eliminating the imperfection in the market (Akerlof, 2007, p.28-9). In the other perfective, Keynes shifted his focus from analysis of individual markets to that of the entire economy. He depicted that with the absence of market imperfections, aggregate demand might fall short of the aggregate capacity of production of its capital and labor. In such circumstances, unemployment is largely involuntary, that is, employees may be unemployed regardless of them willing to work at a lower wage than what the forms are offering. Keynes proposed state intervention in order to direct the business cycles amplitude. According to Keynes, excessive savings, which is saving beyond planned investment, was a serious setback that enhanced recession that could turn into depression. Excessive savings was a result of investment falls owing to reducing consumer demand, business expectations that are pessimistic, earlier year’s over-investment, and if investment failed to fall in step, the economy declined. The laissez Faire response of the classical approach was highly opposed by Keynes since it could easily lead to recession. Keynes postulated that investment and savings were not the key determinants of interest rates. This is especially in the short run (Colander, Holt & Rosser, 2004, p.487). The demand and supply for stock money were determinants of interest rates in the short term. Neither demand nor supply responded to changes in excessive savings to permit adjustment of interest rate. The neoclassical school of thought proposed reduced role of the government interference as minimal as possible in the economy. Neoclassical economics is known by its emphasis on rationality, through the application of maximization of utility; equilibrium emphasis, and avoiding strong types of uncertainty especially the fundamental uncertainty. Neoclassical economic was majorly monetarism, and one of its main proponent was Milton Friedman. Neoclassical theorist advocated for the used of monetary policy to alleviate the imperfections in the market. The neoclassical theorist deviated from the classical theorists who were for the idea of the self adjustment in the economy. Neoclassical policies call for some government intervention where imperfections are against the normal growth of the economy. Neo-Classical economists deviated from the aloofness of the classical economists in case of imperfections in the market (Felipe & McCombie, 2005, p.472). The government had a responsibility to intervene when certain aspects of the economy were not going in the right manner. Neoclassical economics conceptualized households, firms, and agents as actors who were rational. Agents were seen as optimizers who were driven to better outcomes. The equilibrium that resulted was best since any other allocation of services and goods would make someone to be worse off. The social system in the neoclassical perspective was free of conflict that is unresolved. The term social system is a measure of success of neoclassical economics having interacting components, parameters, constraints and variables. This system of rational mechanism was the framework which consisted by the neoclassical perspective. The neoclassical favored the monetary intervention by the government. The rest of the economy could be left to self adjust itself, whereas the government could use monetary policy to tackle such things like inflation and unemployment (Arrow, 1950, p.231). Government subsidies could lead to investors opening businesses ion businesses in places that had hitherto been undesired to them. This use of money as a toll of intervention was referred to as monetarism. Monetarism advocates for the role of the state to be confined to the provision of a stable monetary policy to make sure that there is price stability. Keynesian goes against the belief of saving-investment model of classical economics, which held that investment and savings is directed by interest rates prevailing, Keynesian economists had a different perspective. Keynesian economists believed that household investments, and savings are based the desire to save and the disposable incomes for the commercial and future capital investments are only based on the profitability expected of the given endeavor. Differences between neoclassical and Keynesian are going to be explored using an education provision policy. Differences in education policy Keynesian approach Classical theorists saw no need to intervene so long as the economy was at full employment. Intervention was seen as inflationary and destabilizing. The course to stability that was a long term is to make sure there are free markets without imperfections via the supply-side policies and control money supply growth to ensure low rate of inflation. Policies of the supply side can be used in reduction of imperfection in the market. Neoclassical and Keynesian approach to the economy will have differences in the way they did with vital aspects of the economy such as health, education, and welfare. For instance in matters of education, Keynesian advocate for total control of the sector by the government without allowing the forces in the market to take their own course. It is important to for the government to intervene in matters of education to ensure that everyone in the country has access to formal education. Building of schools, distribution of teachers and putting in place a system of evaluation cannot be left to the private sector alone or the forces in the market to set the course. Quality control measures have to be put in place to ensure that the required standard of education is being provided and that students have equal access to formal education. If the education sector is left for self adjustment mechanism, many things could go wrong. It is essential that facilities and infrastructure of ensuring easy access to education are build. Building of roads to reach out to impassable places is the initiative of the government as it uses taxpayers’ money for the [provision of basic amenities (Barker, 1998, p.133) Classical theorist will allow people who can only access education to pursue education and those unable to pursue, to stay without. Education requires so many modalities that cannot be met in a free market economy without government intervention. The government has to vet all institutions offering educational courses to ensure that they meet the threshold that is required to offer such services. Governments all around the world have huge allocations in the budget for health and education due to their importance in economic growth. An ailing national cannot be productive, and in the same breath, an illiterate nation cannot maximize production. An education system of a country cements the foundation of training for professionals who later play an important part in the economy. Doctors, lawyers, artists, traders, dentists, and other professions are all products of an education system. If the education system is left to self adjustment, there will many cases where there will be people without education. The government has a responsibility of building schools and equipping them with required facilities to ensure its citizenry acquired the needed skills for national building. It is the role of the government streamline processes for the provision of education to all people. An examinational council that evaluates the growth of students from one level to another has to be constituted to reflect the national values of the country. Professionals are needed to provide services to various industries in the economy. Improving the levels of training and education makes the workforce to be occupationally mobile. The capitalists who engage in the provision of education are only interest in the profits that they make in the course of providing for the education without worrying about the standards. The classical contentment of self adjustment in policies of production and markets cannot support the provision of an education system that is viable (Dasgupta, 2005, p.223). There will be many imperfections and interruptions that come with stagnation with one aspect of the model. The private investors can only withdraw their investment when the going gets tougher. The government can use its power to allocate more resources to the education sector in respect to the provision of education where conditions are favorable. Private investors can only invest where there are no uncertainties and the possibility of failure is minimal. Profits have to be the driving force to propel private investors to invest in education. The government can provide educational services even where they are no profits to be gained. Neoclassical approach New classical policies, or neoclassical are largely based on rationalism and minimal intervention by the government in the provision of the certain factors in the economy. Human beings have rational preferences given a set of outcomes. Individual are engaged in the maximization of utility, whereas firms get busy maximizing profits. People act independently on the basis of relevant and full information. In the provision of education, neoclassical economists advocate for the provision of some but not all amenities that facilitate the provision of education. Education is a vital sector of the economy that cannot only be left in the hands of provide developers to handle it; some government inventions is allowed in some areas to streamline the process of provision of education. Both private agents and public are used to provide this basic foundation of any civilized society. Neoclassical approach allows some leeway for individual entrepreneurs to make adjustments that will favor them in the market. Production of education requires some incentives that can make the sector attractive. The neoclassical approach will be based on rational thinking. In this perspective, school will be build where they are supposed to be, and everyone will care about the rest of the population receiving training and education (Sullivan & Sheffrin, 2003).  With the intervention of the government being limited to a certain degree, some aspects of provision of education can be left to the private sector. Recruiting and training of teachers can be left to the private sector or shared between the two. Ensuring accountability and instituting quality control measures can be left to the government while the other part is left to individual developers. In this approach, demand and supply for education will be determined by the factors in the market with minimal intervention from the government. Neoclassical perspective advocate for certain aspects of the education sector being left to run using market forces (Markwell, 2006).  Demand for higher education can lead to private developers coming up with universities and other colleges offering degrees and advanced diplomas. In this approach, demand for education needs drives the need of creating avenues to meet these needs. Neoclassical believers advocate for rationality in distribution of resources. Strengths of Keynesian approach Equitable distribution of resources is ensured through the Keynesian approach. Private investors are not allowed to exploit people where they can provide services at minimum costs. Target of huge profits as the only driving force into the provision of education is avoided. Government intervention make providing education and accessing it to be easy for many if not all of then in the economy. Education is a sensitive and vital area of the economy that cannot be left to the market forces to decide its provision. Forces of demand and supply can result into education not being provided in some areas of the country (Hodgson, 2007, p.7-25). Private investors can exploit people without government regulation on demand and supply. Use of bogus teachers can be used at the expense of quality of education that is required for vital economic growth. Uncertainties in the provision of services are eliminated as the government ensures there is stability. Government subsidies provided in the education sector make providing education for other investor easier. Weaknesses of Keynesian approach The Keynesian approach can make direct foreign investment to decline owing to excessive government interruption or intervention. Private investors invest in education reservedly fearing adverse reaction from the government in case of introduction of a certain policy. Subsidies sometimes make provision of education to be unattractive to private investors. Stringent rules, when it comes to registration, make private investors to opt to other sectors of the economy. Strengths of neoclassical approach Minimum government inventions encourage foreign direct investment owing to the possibility of making huge profits. Control mechanisms that are provided by the state ensure that education is provided to where it is needed. Foreign and private investment in the education sector is made profitable and economic gains lead to expansion of the education sector (Davidson, 2009). Many people are encouraged to invest in education when there is minimum government interference. Weaknesses of neoclassical approach Minimum government involvement can lead to exploitation of citizens and some areas being neglected due to low returns anticipated. People are venerable to being given substandard services before the government intervenes. A mistake by the private investor can be costly to both the government and consumers of the education service. The private investor can provide skewed programs if the government controls are not monitored carefully. There could be areas neglected by the government due to the policy of minimum interference. Conclusion Keynes provided a huge contribution to the world of economy through the Keynesian economics. The aloofness of the classical economic was not going to benefit anyone in the long run. Keynes brought new ideas as to the aspect of interest rates and investment and the involvement of the government in matters of the economy. Keynesian policies directed that the government should have a big role to play in the provision of basic services to its people. The free interactions of factors in the market were not assurance free adjustments. It required some kind of intervention by the government to remove some of the imperfections in the market. Provision of education is a vital role that the government has to play. Equitable distribution of resources was assured in the Keynesian approach. Neoclassical economic was of the perspective of minimum intervention of the government in the matters of economy. The state could use the monetary policy to deal with inequities that arose in the market. The neoclassical approach revolved around rationality. Both the Keynesian approach and neoclassical approach have advantages and disadvantages. References  Akerlof, G.A. (2007). The Missing Motivation in Macroeconomics. American Economic Review, 97 (1), 5–36. Arrow K.J.(1950). A difficulty in the concept of social welfare. 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