International Business - Economic Policies and Market intervention in the UK - Essay Example

Neoliberalism is a term that is often cited as the basic theoretical philosophy behind the free market economy and the lesser and lesser role of government in regulating the market. Based on this philosophy, major developed countries of the world started to de-regulate the economy in order to give free-market forces a chance to achieve economic objectives. It was because of this reason that there was a significant shift in the macroeconomic policies of the Government of the United Kingdom which required less government intervention in the market. Why this shift in the policy happened is the question to be discussed in this essay.

In the UK, the architects of the free market policies were Margret Thatcher who was largely considered as the Prime Minister with the mandate to reverse the economic decline of the UK. The major influence on Margret Thatcher was from Milton Friedman- a Noble Prize-winning economist whom she described as the reviver of the economics of liberty. (Cornwell,2006). It started with the privatization process initiated basically in order to make institutions more competitive because of the long-term chronic problems of the UK economy. The process of privatization was slow and done in phases where the government gradually sold their stakes in the public enterprises to make them function under the private management in order to make them more efficient. (Cook, 2009). The long-term failure of financial economics as the UK was facing strong inflationary pressures. The policy response from the Thatcher government was to gradually decrease the State intervention into the affairs of the free market by leaving them on their own to float and regulate the market. Further, the initial steps also included banning unionism within the organizations to increase their efficiency and at the same time providing rights to the workers in order to balance the power within the organizations.

Another very important measure taken while making a stride towards free markets was the fact the monetary policy was made largely independent. However, it was largely directed at controlling and managing inflationary pressures on the economy. Interest and tax rates were cut besides reducing expenditure on the social security nets in a bid to lessen the influence and intervention of government from the market. As a result of this, UK witnessed a gradual decrease in its inflation and could achieve growth rates that were above the growth rates experienced by other countries in Europe.(Henisz et.al,2005).