World Economy: Neoliberalism - Essay Example

? World Economy: Neoliberalism (Module and number) World Economy: Neoliberalism News around the globe always contains the headlines regarding the world economy and the presence of a crisis. Economic downturns, turmoil and collapse have been reported throughout history. As the world changes, economy also changes. It also depends upon resources and currencies and it is a complicated system that thorough studies and understanding are both needed to cope up with the situation. At the same time, several economic movements existed throughout time to ensure the survival and recovery of the economy but sometimes the clash of ideas leads to the downturn also. Learning about the basics of economics and later on the subjects of microeconomics and macroeconomics would give solid foundations for the understanding of the world economy. The specific issue to be tackled in the paper is neoliberalism and its impact in the world economy. Before going on to the concept of neoliberalism, a brief discussion on basic economics would help in the understanding. In appreciating and understanding economics, the question must be answered first: what is economics? Once the word economics is heard, ideas to answer the question sprout such as images of “manic stock traders on Wall Street, an economic summit meeting in a European capital, a somber television news anchor announcing good or bad news about the economy,” (Hall and Lieberman 2010, p. 1). Usually what people see and know about economics is just a small fraction of what economics is. The usual complete definition of economics is “the study of how people choose to allocate their scarce resources,” (Wessels 2006, p. 2). The keyword in the basic definition of economics is scarcity. Resources are scarce which means they are limited in terms of quantity. They are not considered to be free goods because resources have value and they are limited. Free goods are usually unlimited. Therefore economics tackles the concept of scarcity. The same concept allows economics to stand out from other social sciences like sociology, psychology and political science (Hall and Lieberman 2010, p. 1). The study of economics is then guided by three critical questions: what are the real desires of people? What limited resources are needed to reach the desires? What priorities are there to get the desire and up to what level should the resources be allocated? (Daly and Farley 2011, p. 3). The three critical questions that guide the study of economics are answerable by the concepts of cost, scarcity and marginal analysis (Wessels 2006, p. 2). The concept of cost is usually the “monetary measure of the resources sacrificed or forgone to achieve a specific objective, such as acquiring a good or service,” (Drury 2008, p. 27). Cost is the sacrifice to get what a person wants usually measured in terms of money but it can also be measured in terms of time and other things. For the sake of economics, the study limits the concept of cost in terms of money. The second concept to answer the critical question is scarcity and it is “people wanting more than can be satisfied with available resources,” (Wessels 2006, p. 3). As resources available are limited, and so the goods and services that people want are also limited. People need to choose which means there is a decision to make as people have choices and trade-offs are unavoidable. Another term for trade-off is opportunity cost which means the thing people must give-up when making choices (Hall and Lieberman 2010, p. 2). The last concept to answer the critical question is marginal analysis. The concept of marginal analysis can be understood as it: …forms the basis of economic reasoning. To aid in decision making, marginal analysis looks at the effects of a small change in the control variable. Each small change produces some good (its marginal benefit) and some bad (its marginal cost). As long as there is more “good” than “bad”, the control variable should be increased (since net benefits will then be increased),” (Wessels 2006, p. 13). Marginal analysis helps in checking the cost of sacrifice and the pros and cons quantitatively. The basics of economics had been discussed. The next is the subjects of microeconomics and macroeconomics. Microeconomics is basically “the study of how individuals and firms find solution to the problem of maximizing their gains from their limited resources,” (Dwivedi 2006, p. 5). The study is concerned with the smallest unit of the economy which is the individuals and the firms as they make decisions in gaining more under the restriction of the limited resources. On the other hand, macroeconomics is concerned with the bigger picture of economics. The study of economics in large-scale is said to be macroeconomics. The aggregates do not stand alone as they are dependent upon individual decisions and the micro levels are dependent upon the bigger picture of the economy (Adams 2002, p. 16). Microeconomics and macroeconomics interact with one another and they are both important in studying the economic system as a whole. Economy is related to economic system as it is concerned with “the organization of production and supply, consumption and demand, markets, exchange, prices, and the rules or laws that facilitate and govern decisions by individuals, households and firms relating to all of these elements,” (Doyle 2005, p. 6). As such the elements interact and all of them are important components of the economic system or how the facilitation of exchange happens in a large scale. Talking about large scale, the economic system can also be studied based upon the situation of the economic systems of nations and how they influence one another in a global scale that gave birth to the concept of global economy. It can also be called as world economy as the nations and all resources on Earth are considered to be a single entity. World market comes into play in the global economy as it facilitates the economy and international businesses and exchange. It is concerned with the cyclical changes in economic growth and microeconomic existence in global economy such as factors of production, labor market, financial market, and world money market (Siebert 2007, p. 24). As such, global or world economy faced several problems and movements to cope up with the situation. One of the concept or movement that existed is liberalism and neoliberalism. Liberalism leads to certain freedom and it is not just freedom but it is concerned with individual liberty. The prevailing belief is that people should have control in their decision-makings for their own lives so they can fashion their lives according to the image that they perceive and create. It differs from Capitalism and Socialism as Capitalism is based on money and Socialism is based on State intervention for equality. Both systems are based upon economic relations while liberalism is based on power. Liberalism is the antonym of authoritarianism as the latter has dictator or dominating leader (Reid 2010). Liberalism started as a concept when: In Britain the landed classes defended these tariffs because they helped maintain the price of agricultural produce. Ultimately, this situation resulted in a humanitarian and political crisis – the poor were starving, and something had to be done about it. This led to the repeal of the so-called Corn Laws. The ‘free-traders’ triumphed, and the result was the formation of a political party which was committed to free trade – the Liberal Party (Badger 2010). Economic Liberalism had happened after the war as democracies took over the prevailing Fascist forces. Economic Liberalism should be considered to be different from laissez faire as the latter is only used to achieve the former that works under certain conditions only. The idea of Economic Liberalism is to give the individual his own freedom to pursue his desires as long as he does not affect the freedom of other people (Harris 1942, p. 127). Based upon the classic concept of liberalism, a new concept emerged as it also allows people to have freedom in pursuit of their desire but changes happened such as the existence of credit and how the political and economic theory led to economic turmoil. The turmoil made large companies to downsize and close around the world leaving thousands or even millions of people without jobs. The concept said by some people to be the replacement of globalization in terms of policies and ideologies. To make it easy to understand, neoliberalism is a method to promote free market and individualism and pay less importance to collectivism (Bezanson 2011, p. 86). Basically group rights are not the focus of neoliberalism as it frees the individual from the ties and restrictions of the group or concept of collectivism. The basic foundations of neoliberalism are: Liberating "free" enterprise or private enterprise from any bonds imposed by the government […] cutting public expenditure for social services like education and health care. […] Reduce government regulation of everything that could diminish profits […] Sell state-owned enterprises, goods and services to private investors. […] Pressuring the poorest people in a society to find solutions to their lack of health care, education and social security all by themselves (Martinez and Garcia, n.d.). There are positive and negative sides of neoliberalism. Through free enterprise, new products emerge and growth for some people is great. Despite of that, majority still live in poverty and innovation are not easily adaptable for the immediate needs. Global inequalities are still rampant as half of human population lives below two dollars a day and 86 percent of the resources globally are used by the upper 20 percent of the human population (Shah 2010). The concept is a risky one since it restates the regulation existing already instead of lowering the restriction and allowing self-regulation. Examples of the regulations are low salaries and more insecure jobs and moving the capital to other countries becomes easy. Neoliberalism also intervenes with the method of capital and credit systems and movement. Crisis and freedom dictate neoliberalism as it contradicts subtly the freedom of individuals (Bezanson 2011, p. 87). Neoliberalism may have good intentions of helping others but since it is driven by crisis, it blocks democracy and has some hidden agenda. The failure of neoliberalism can be traced back in history as it emerged in Great Britain. It occurred through the Conservative Party under Margaret Thatcher in 1979 and Ronald Reagan in 1981. Today, it spreads until China. When it comes to economic development, it has been a disaster as the free market had been done in Russia in the time of Yeltsin and the result is just increase in poverty and creating large wealthy class that later on transformed into an authoritarian government (Blond 2008). After all the efforts made by international people in power and organizations to help the poor and reduce inequalities, neoliberalism still proved to be a failure as it was not able to address the long-term economic decline in industrial economies and has done more harm than good. The gap between the rich and the poor just increased in the presence of neoliberalism. Bibliography Adams, F 2002, Macroeconomics for business and society: a developed/developing country perspective of the “new economy,” London, World Scientific Publishing. Badger, P 2010, What is liberalism? Philosophy Now, viewed 22 November 2011, . Blond, P 2008, ‘The failure of neo-liberalism’, The New York Times, 2 February, viewed 22 November 2011, . Daly, H and Farley, J 2011, Ecological economics: Principles and applications 2nd ed, USA, Island Press. Doyle, E 2005, The economic system, England, John Wiley & Sons Ltd. Drury, C 2008. Management and cost accounting, London, Cengage Learning. Dwivendi, D 2006, Microeconomics: theory and applications, India, Dorling Kindersley Pvt. Ltd. Hall, R and Lieberman, M 2010, Economics: principles and applications 5th ed, USA, Cengage Learning. Harris, S 1942, Postwar economic problems, Florida, New World Book Manufacturing. Martinez, E and Garcia, A n.d., What is neoliberalism? a brief definition for activists, CorpWatch, viewed 2 November 2011, . Reid, K 2010. FAQs about Liberalism. Kiron Reid Official Website, Viewed 22 November 2011, . Shah, A 2010, A primer on neoliberalism, Global Issues, Viewed 22 November 2011, . Siebert, H 2007, The world economy, New York, Routledge. Wessels, W 2006, Economics, New York, Barron’s Educational Series.   Read More