Neo-Liberalism and Open Market Policies - Assignment Example

1. Neo-liberalism and ‘open market policies’. Influence on international business Neo-liberalism means a new form of liberalism. Neoliberalism is a policy model that is based on the assumption that the economy is best when left to operate on its own. That is, under neo-liberalism, the government is supposed to leave the economy to function on its own. Therefore, the government is not supposed to intervene through measures such as quotas, tariffs, subsidies or other kinds of mechanisms in the economy since such interventions are regarded to be hindrances to the growth of the economy. In essence, this means that states that pursue neoliberal economic policies have to let their economies operate on their own without interference. On the other hand, an open market means an economic system that has no barriers to the free operations of the market. This means that open market policies are those policies that promote the existence of a free market, i.e. a market that does not have tariffs, taxes, subsidies, or other types of regulations that can interfere with the free operations of the market. This implies that in an economy that has open market policies, there may be competitive barriers to entry into the market, but the market does not have regulatory barriers to entry. The effects of neo-liberalism and open market policies on international business is that since both approaches do not call for government intervention in the economy, markets are likely to be run based on forces of demand and supply. That is, different players from different regions of the world can do business in any country without legal restrictions, and buying and selling of goods and services is based on conditions that exist in the market. For instance, a company from China could sell its products in Australia without any restrictions by the Australian government. As well, the Australian government may not intervene in trade through measures such as import restrictions, taxation of imports or providing subsidies to Australian producers and so forth. 2. IMF, World Bank and WTO. Functions today and earlier times. The role of the IMF in the past was to correct the economic system in countries that had been affected by the Great Depression. The IMF was meant to ensure that member states adhered to the Bretton Woods system or the par value system, whereby the currencies of different states were pegged on the United States dollar, and adjustments were only made to the exchange rate to correct for significant imbalances in balance of payments. After the dissolution of the Bretton Woods system between 1968 and 1973, the supervisory role of the IMF became limited due to the presence of a “flexible exchange rate” system. Today, the IMF advises and offers short-term financing to states that are faced with a wide range of problems and circumstances. The World Bank was formed as the “International Bank for Reconstruction and Development”. Its initial role was to help in the reconstruction of countries’ economies after the Second World War. The bank acted as a “lender of last resort”, meaning that countries could borrow funds from if they could not find avenues to borrow elsewhere. Today, the World Bank still helps different countries in reconstruction, but its role has changed to include reduction of poverty through an inclusive and sustainable framework. The WTO was formed in 1995 to take over the roles of the GATT. The GATT had been formed to see to it that there was some form of free trade between countries. The WTO continued to promote free trade among countries across the world. Today, the WTO is the only international organization that deals with the rules of trade between countries. At the center of this are negotiated trade agreements which are ratified by different countries. WTO also helps in settling trade disputes between countries and building the capacity of trade. 3. Neo-liberalism/social-democracy/effect on international business Neo-liberalism is a policy model and ideology that gives emphasis to the existence of a free market as well as competition. That, is the policy is based on the view that the economy can function best when it is left to work on its own. Therefore, under the ideology, the government should not intervene through approaches like subsidies, quotas and tariffs or any other form of intervention because such measures are considered obstacles to economic growth. Thus, states that pursue neo-liberalism are supposed to let their economies function on their own without interference. The effect of this on international business is that there is likely to be more trade openness among countries since a company from country can easily do business in another country without restrictions such as quotas. Countries can also easily import or export commodities without restrictions. Social democracy means a social, political and economic philosophy that advocates social and economic interventions to advance social justice within the context of a capitalist economy. Social democracy also involves commitment to representative democracy, collective bargaining, having measures to redistribute income, state welfare provisions, and regulation of the economy in accordance with the interest of the public. This implies that in a social democratic state, the state will be at the forefront of ensuring that there is a more equal society, unlike capitalism in which owners of capital determine the direction of the economy. The effect of this on international business is that social democratic policies would promote private possession of capital and means to produce that is subject to strict taxation and regulation. Unlike capitalism that focuses on maximizing wealth for owners of capital, firms in social democracy would be required by the government to reduce income inequality and promote redistribution of wealth. 4. Privatization/deregulation. Winners/losers. Nation-state capacity and democracy. Privatization means the transfer of ownership of property or enterprises from the public sector (government) to the private sector. This means that through privatization, the government stops to be in possession of businesses or entities that it was operating. For instance, if a government initially owned and operated a national airline company and then privatized it, the airline ceases to be a public organization or government-owned entity and becomes a private company. There is no clear winner or loser in privatization as this depends on what is being privatized and why it being privatized. For instance, when a government sells a government-owned telecommunications company, the government will earn revenue that will improve its budget in the year of the sale. The government may also be a loser in case the company is sold for less than it is worth. The public may also win if the privatization of a company makes the company more competitive. But the public may also be a loser if the privatized company becomes less efficient than it was when it was owned by the government or when the private owner uses the opportunity to exploit the public. Deregulation means the process of reducing or removing state regulations on the business sector. It involves the abolition or removal of government regulations on the economy, meaning that the economy is let to run without the regulations that it was subject to initially. Winners of deregulation can be said to be the public since deregulation leads to increased competition and greater efficiency, which results in reduced prices for consumers. As well, deregulation eliminates the high costs of bureaucracy that are associated with regulation. On the other hand, the nation state and the public can also be losers due to deregulation since deregulation can lead to the formation of monopolies in the provision of utilities such as water, communication services and electricity. Deregulation can also cause small firms to be eliminated from the market, which implies loss of jobs and hence poor state welfare. Read More