What Is Neoliberalism In The United States - Research Paper Example

ID Number & What is Neoliberalism in the United s? During the past couple of decades, the economic and public policies in the United States has been dominated by neoliberalism (Campbell and Pedersen). In general, neoliberalism is all about having a government bodies that strongly promotes the importance of free trading and open market which are common characteristics of economic liberalization (Fish; Boas and Gans-Morse). Unlike in other countries such as the Western Europe and Japan, the United States has been very successful in terms of the use of neoliberal policies in this country. This explains why the United States is considered the leader of imperialist countries (Dumenil and Levy 9). In general, the concept of neoliberalism is based on the classical liberal economic practice that was widely used in the United States for many years way before the Great Depression took place in 1930s (Dumenil and Levy 1, 12). However, between the mid-1930s up to mid-1970s, the US government decided to implement the use of the “interventionist” approach rather than the typical classical liberalism (Kotz). When Ronald Reagan was elected as the President of the United States back in 1980, the US government started supporting the use the classical liberalism in making public policies which aims to limit labor power, deregulate industries and agriculture within and outside the United States (Harvey). The main purpose of this study is to discuss the significance of neoliberalism in North Atlantic states particularly in the case of the United States. As part of analyzing the impact of neoliberalism in the U.S., this study will first discuss what neoliberalism is all about followed by discussing how neoliberalism in the United States has affected the developments in “deregulation” and “privatization” of public companies. What is Neoliberalism? According to Dumenil and Levy (5), neoliberalism is the “new phase in the evolution of capitalism”. Basically, the word “neoliberalism” is commonly used as a general term for economic liberalization of public policies and advocates (Fish; Boas and Gans-Morse). Since we are already in the era of globalization, a lot of academic institutions have considered neoliberalism as a “central guiding principle of economic thought and management” (Harvey). However, the question remains as to what neoliberalization really mean and why the United States has been very supportive of neoliberalism? As defined by Mirowski and Plehwe (13-14), neoliberalism is “the priority of the price mechanism, the free enterprise, the system of competition and a strong and impartial state”. It means that neoliberalism strongly believe in the idea that a society should never be considered as a product of natural development. Instead, people should continuously promote the importance of having a free society that is subject to a “free market economy” or an “unregulated capitalist system” (Harvey ; Kotz). In general, the neoliberals strongly believe that a free market competition could challenge each business entity to improve not only their knowledge in managing a business but also maximize the use of technology. By giving each person the freedom to choose, neoliberals explained that business people can support the increase in the country’s overall economic performance. It means that the business people are expected to become more focused in finding ways on how they can effectively increase their production efficiency and output, progress in the use of machineries and information technology, and promote distributional justice in order to increase the annual U.S. economic growth. As a free country that practices free trading, Kotz explained that the U.S. government has a limited role in its economic development. In general, the neoliberals consider the presence of state intervention as an external factor that can trigger more problems on the part of the business sectors. The public policy under neoliberalism aims at removing a state of welfare that is highly regulated by the government. Instead of regulating business activities and management of assets, the role of the U.S. government is made limited in terms of defining the intellectual property (IP) right, regulate the movement of money supply, and enforcing political contracts. Impact of Neoliberalism in the Developments of “Deregulation” and “Privatization” of Public Companies in the United States Under neoliberalism economy, the U.S. government strongly promotes business deregulation and privatization of government-owned companies. As part of promoting the implementation of business deregulation and privatization, the U.S. government eliminates social welfare programs and reduces taxes imposed on local businesses. Within the national boundaries, implementing these strategies made it possible to for the U.S. government to promote a free flow of locally made products, services and capital. Since multinational companies, banks and investors can freely move their business activities across the national boundaries, the U.S. government can indirectly support increase of investments in this country. Deregulation simply means that the U.S. government is removing its role and political influence over its public utilities and services in order to promote a free market movement of goods and services (Soifer, Hoffman and Voss). On the other hand, privatization is basically the act of fully or partially transferring the ownership, management, finance or control of a public asset(s) to the private sectors (ILO 5). Applicable in the case of the United States, the process of privatization means that “the government has decided to contract out some of its local public services to the private sector” (Lopez-de-Silanes, Shleifer and Vishny 447). Among these types of public services includes garbage collection, keeping the park vicinity clean, managing some of its public facilities such as the airport, schools and hospitals, and the provision of ambulance services among others (Lopez-de-Silanes, Shleifer and Vishny). Liverman and Vilas explained that privatization of public utilities simply means that the people will have to rely more on the private sector rather than the government when it comes to satisfying the basic needs of the local people. In general, there is absolutely nothing wrong with privatizing public enterprises especially when there is a strong need for the government to come up with large amount of money to finance the development of public infrastructure or given that the government is no longer capable of properly managing a business enterprise. However, it is also possible for the entire society to experience economic and social problems given that the selling of public utility to the hands of the private sector heavily involves infrastructure (Strachan). As part of considering the social welfare of the general public, the U.S. government had to spend a large sum of money in order to improve the public utility services without overcharging the people with the quality of public services they receive from the government. Partly due to globalization and the limited amount of money that the U.S. government has been collecting out of taxes, Aulich and O'Flynn (154) explained that the most common reason why the U.S. government decided to privatise some of its public utilities is mainly due to the following reasons: (1) divestment of public enterprise; (2) outsourcing of the delivery of public services; and (3) the increase in the cost recovery by the government agencies. The word ‘divestment’ simply means that the government intentionally sells some of its public utility to the private sector (Aulich and O’Flynn). In general, the government could simply decide to let go out its ownership power over a public utility in case the state does not find it possible to manage and provide the people with outstanding services. Rather than going through a series of problem-solving trying to make the public utility operational for the public use, the U.S. government could simply choose to sell some of its public utilities that are no longer generating profit. This particular strategy will enabled the U.S. government to have more free time trying to solve other more important public issues such as the economic and social problems related to high levels of unemployment rate. Likewise, there are also some cases wherein the U.S. government simply needs to sell a public utility as a way of recovering from its excessively high operational costs. Privatization of public utilities is generally good in the sense that the process of allowing the private sector to participate in producing or offering utility services to the public attracts more competition in the local market. By increasing the number of private sectors who are capable of supplying the utility needs of the people, competition between two or more private firms that provides the same product and services to the public is likely to occur. As a result, the local people and immigrants will have the bargaining power to select their preferred utility provider based on the quality of product and services being offered aside from the cost of using the said utility. As a result, private sector(s) that operate public utility will have to compete with one another by offering high-quality customer service, outstanding quality product, and offering the service at a more competitive price. As part of promoting privatization in the United States, Aulich and O'Flynn explained that the U.S. government does not totally surrender its political power in terms of controling the business activities of public utility. In line with this, the U.S. government will always have the power to control and regulate the market prices and business operations of the public utility providers. Therefore, in order to expand the business opportunities to the private sector, President George W. Bush decided to privatized the military housing back in 2002 (Office of Management and Budget). Last year, the U.S. government was planning to privatize its Midway Airport on a 99-year lease (CAPA). Even though there are advantages with regards to implementing deregulation and privatization of government-owned companies, there are also some serious consequences with regards to this action. First of all, one has to realize that the main interest of the private sectors is to earn high profit out of capitalism. For this reason, the process of privatizing and deregulating the government-owned companies would mean an increased risk wherein the general public will have to submit to the operators’ dictated market price. In other words, the absence of government intervention on public utilities would mean allowing the private sectors to have more monopolistic power within the said industry. In the study of economics, monopoly means that there is only one firm within the industry (Djolov 3). Since there is no competition within the market, a monopolistic player can easily manipulate the market by charging more than the market price in which the company should be selling to the public. The problem with most of the government-owned facilities is that these facilities require huge capital investment. For this reason, it is expected that government-owned facilities such as a power plant, railway facilities or a domestic airport has a very few competitors in the local market. With this in mind, the presence of few majority players within the said industry could promote the practice of cartels. Oligopoly means that there is only a few players in the market. Commonly being practiced within an oligopolistic market structure, cartels is considered as a business strategy wherein the major players within an industry will collude or join together in order to control the market prices of similar products in the market (ecofine.com; Salin). Through cartels, these giant companies can easily earn higher profit at the expense of the general public. In other words, the presence of cartels within an industry actually destroys the perfect competition in the market. As compared to small-scale companies, it is the large-scale companies that have better advantage in terms of upgrading its existing technology. Not only does the use of new technology increase the production output of large-scale companies but also allow them to produce a better quality product for the consumers. Since large-scale companies are able to produce more goods and services as compared to the small-scale companies, it is the large-scale companies that has better bargaining power over its accredited suppliers. This theory is basically one of the best explanation wherein the presence of neoliberalism in the United States could widen the gap between the rich and the poor. Furthermore, the fact that the U.S. government has decided to privatize some of its government-owned companies would mean that the government will no longer be receiving profits from the privatized companies. In line long-run, the U.S. government will be heavily relying on its collected taxes. Specifically the strict collection of taxes would add up to the socio-economic burden of the local people especially in times of serious economic recession. With regards to deregulation law, the fact that the U.S. government has already withdrawn its control over the privatized companies would mean that the government does not have any more control with regards to the increased in unemployment rate as a result of massive workers lay-off due to organizational downsizing. Instead of hiring excessive labor forces, most of the privatize companies preferred to invest on technology in order to make the flow of business operations more effective and efficient. This combined with the U.S. economic recession partly explains why the unemployment rate in the U.S. failed to go down below 8.0% since April 2010 (Bureau of Labor Statistics - U.S. Department of Labor). (See Appendix I – Unemployment Rate in the United States between April 2010 to April 2012 on page 12) Conclusion In order to promote a free market economy, neoliberalism aims to liberalize the political and economic practices in the United States. By implementing deregulation and privatization laws, the U.S. government strongly believed that the process of allowing the private sector to manage the government-owned companies would mean better public service to the people. According to Aulich and O'Flynn (154), the main reason why the U.S. government has decided to privatise some of its public utilities is because of their need to promote divestment of public enterprise, outsource the delivery of public services, and increase the cost recovery of the government agencies. Even though the process of deregulating and privatizing the government-owned companies can result to short-term advantages on the part of the U.S. government, its long-term socio-economic consequences outweigh these advantages. First of all, deregulation and privatization of government-owned companies does not necessarily mean that the private company who will be assigned to manage the business would consider the socio-economic status of the unemployed individuals. Since private companies are more interested in earning higher profits, there is an increased risk that the process of deregulating and privatizing the government-owned companies will do more financial harm to the general public. Even though neoliberalism strongly promote a free market economy, the presence of four (4) major players within a given industry does not necessarily mean that the end consumers will have the advantage to enjoy low market prices on basic commodities. Since a very few large-scale companies may end up forming a cartel, these companies will still have the option to manipulate the market prices of goods and services similar to that of a monopoly. Although neoliberalism promotes a free market competition, the use of this particular economic strategy does not always lead to an increased benefit on the part of the end-consumers. Therefore, the U.S. government should re-evaluate the implementation of this type of economic system. References Aulich, Chris, and Janine L. O'Flynn. "From Public to Private: The Australian Experience of Privatisation." The Asia Pacific Journal of Public Administration 29.2 (2007): 153-171. Print. Boas, Taylor C., and Jordan Gans-Morse. "Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan." Studies in Comparative International Development (SCID) 44.2 (2009): 137-161. Print. Bureau of Labor Statistics - U.S. Department of Labor. “THE EMPLOYMENT SITUATION —APRIL 2012.” Bureau of Labor Statistics, 2012. Web. 31 May 2012 . Campbell, John L. and Ove K. Pedersen. The Rise of Neoliberalism and Institutional Analysis. Princeton NJ: Princeton University Press, 2001. Print. CAPA. “US update – 2011 a make or break year for airport privatisation.” CAPA, 21 December 2012. Web. 31 May 2012 . Djolov, George. The Economics of Competition: The Race to Monopoly. NY: Haworth Press Inc., 2006. Print. Dumenil, Gerard and Dominique Levy. The Crisis of Neoliberalism. US: Harvard College, 2011. Print. ecofine.com. “Cartel - or - Cooperative Oligopoly” ecofine.com, 2008. Web. 30 May 2012 Fish, Stanley. Neoliberalism and Higher Education, New York Times, 8 March 2009. Web. 31 May 2012. < http://opinionator.blogs.nytimes.com/2009/03/08/neoliberalism-and-higher-education/> Harvey, David. A Brief History of Neoliberalism. NY: Oxford Unviersity Press, 2005. Print. ILO. The Impact of Decentralization and Privatization on Municipal Services, Report for discussion at the Joint Meeting on the Impact of Decentralization and Privatization on Municipal Services. 15 - 19 October. Geneva: International Labour Organization, 2001. Kotz, David M. "Globalization and Neoliberalism." Rethinking Marxism 12.2 (2002): 64-69. Print. Liverman, Diana M., and Silvina Vilas. "Neoliberalism and the Environment in Latin America." Annual Review of Environment and Resources 31 (2006): 327-363. Lopez-de-Silanes, Florencio, Andrei Shleifer and Robert W. Vishny. "Privatization in the United States." RAND Journal of Economics 28.3 (1997): 447-471. Print. Mirowski, Philip and Dieter Plehwe. The road from Mont Pelerin: the making of the neoliberal thought collective, 1st Edition. Harvard University Press, 2009. Print. Office of Management and Budget. “The President’s Management Agenda (Washington: OMB, 2002), pp. 35-42.” 2002. Web. 29 May 2012. . Salin, P. Cartels as Efficient Productive Structures. The Review of Austrian Economics 9.2 (1996): 29-42. Print. Soifer, Paul, Abraham Hoffman and Stephen D. Voss. American Government (Cliffs Quick Review). 2001. Print. Strachan, Graham. “Privatisation and Telstra.” 1998. Web. 31 May 2012. . Appendix I – Unemployment Rate in the United States between April 2010 to April 2012 Source: Bureau of Labor Statistics - U.S. Department of Labor Read More