Is Neo-Liberalization in Crisis Today - Essay Example

Is Neo-liberalization in crisis today? Introduction Isaac Asimov had once said that the only thing constant today in society is change. This is reflected in the rapid changes seen across many spheres in the world at both the macro (national) and micro (organizational) level. Many countries and their governments have changed their ideology to survive and grow in today’s dynamic environment. Likewise, many organizations have changed their outlook to survive in a highly competitive market. Factors like globalization and free trade have changed the way business and politics is conducted. The lack of economic growth and prosperity in communist nations has resulted in their governments changing policies towards a more liberalized form of governance. In other words, a change towards a neo-liberalized world is taking place. Ronald Reagan and Margaret Thatcher had adopted such an approach much earlier as a means to economic growth and welfare of the citizens. But recent events like the global recession have brought about doubts regarding the long term effects of neo-liberalism. This paper looks at the impact of neo-liberalization with regard to organizational change at the macro and micro levels in the world today. It will review whether this concept is relevant and whether its future as a saviour of mankind is in peril. The paper will first review the concept of organizational change at micro and micro levels. It will then discuss the concept of neo-liberalism and then review its impact on organizational change. Organizational change: Change in organizations has been studied seriously by many authorities from diverse fields such as management, psychology, anthropology and sociology. Prominent among them are Kurt Lewin and John Kotter. This is what authors from the field of management have to say about the two authorities mentioned above. Richard Swanson, a noted authority on human resources development says that “The classic metatheory of change is Kurt Lewin’s (1951) field theory. This theory remains at the core of most change theories” (Swanson & Holton 2001, p. 137). About Kotter, authors George Manning and Kent Curtis has this to say - “There are many models for understanding organizational change. One of the best is an eight-stage process provided by John Kotter of Harvard University” (Manning & Curtis 2002, p. 281). These two theories apart from those propounded by others form a framework for implementing organizational change. But what is important in this context is the impact of neo-liberalism on organizational change. As mentioned earlier, the business world is changing rapidly due to many factors like globalization and free trade. Governments and businesses in many countries are now looking at neo-liberalization as a means to grow and survive in this competitive situation. The primary organizational changes that take place in such a situation are downsizing, outsourcing, and privatization. It is also seen that contractual employment is taking precedence over the concept of secure employment. The concept of job security in such a situation is no longer relevant. The contractual worker has no guarantee that he or she will be assured of a job once the contract period ends. Another factor is the increasing levels of outsourcing that is practiced by companies, especially in the developed markets. Governments also see privatization as a way of economic growth. These changes are discussed in detail with references to studies by economists and management experts. It is seen that the concept of neo-liberalization is beneficial to employers and harmful to employees at least in a short-term perspective. The next section will discuss the concept of neo-liberalization after which its impact on organizational change will be discussed. Neo-liberalism: Economies are classified according to the policies and value systems followed by the society and its governments. Communist and socialist governments have an interventionist approach with regard to the market. A capitalistic economy on the other hand will follow a free market based approach with little or no intervention. The concept of neo-liberalism which endorses this approach has its roots in the classical liberalism as propounded by economists like Adam Smith (eds Johnston et al 2000, p. 547). The markets in UK and US were relatively free markets which could be termed liberalistic until the great depression of the 1930s. Both governments were forced to intervene bringing in restrictions after it struck the economy. For example, the British government raised taxes, provided incentives to business, reduced interest rates and increased import duties of goods (The depression of the 1930s n.d.). In other words, it was a move away from a liberal market economy. But Reagan in the United States and Thatcher in the UK felt that a socialistic approach was not conducive to growth and once again began liberalizing the economy. Neo-liberalism is based on the following principles and tenets. Adam Smith promoted the concept of a free market where prices and availability are dependent on market forces. Neo-liberalism also endorses this view. They brought back a free market economy concept which is usually referred to as neo-liberalism. The basic difference between classical liberalism and neo-liberalism is that the former is focused on exchange of goods and services (Adam Smith’s theories) while the latter focused on competitive forces (Read 2009, p. 28). According to Foucault, this approach focused on three factors namely interest, investment and competition. Hardt and Negri is of the opinion that neo-liberalism is the way to end imperialism through free flow of goods and services across national boundaries (Seidman 2004, p. 270). They feel that this concept will bring about a symbiotic relationship among nations with the help of international organizations like the World Bank and the European Union. It is likened to an empire where there is no sovereign and is flexible and dynamic. A level of state intervention must exist in a neo-liberalist society, according to Brown. But, this level of intervention should be limited to the extent of the health and growth of the economy (Brown 2005, p. 42). Even though this concept is gaining currency across the world as a means of economic development, there is growing criticism from many authors and economists regarding its long term consequences. A review of literature shows enough instances illustrating the above point. It also appears that the core aspect of this criticism is that neo-liberalism will enlarge the economic gap that exists between the rich and the poor. Neo-liberalism has “been unable to address growing levels of global inequality. Over the last 25 years, the income inequalities have increased dramatically, both within and between countries (Makwana 2006). Another accusation is that economic policies are influenced by large corporations and governments are forced to make them in accordance with their profit making motives. The overall well-being of the society is sacrificed in order to maximize profits for capitalists. According to Noam Chomsky, neo-liberalism started with what is known as the Washington consensus. “The neoliberal Washington consensus is an array of market oriented principles designed by the government of the United States and the international financial institutions that it largely dominates, and implemented by them in various ways – for the more vulnerable societies, often as stringent structural adjustment programs” (Chomsky 1999, p. 19). The author adds that huge (and powerful) multinational corporations based in the United States could influence the government and other international financial institutions by virtue of them being the ‘masters of the private economy’. The consensus, apart from imposing factors like fiscal discipline and improvement of infrastructure, wanted poor and developing nations to open up their markets through trade liberalization and foreign direct investment opportunities (Washington Consensus 2003). Protection and development of private property is another important condition here. In other words, “the sanctity of contracts and the individual right to freedom of action, expression, and choice must be protected” (Harvey 2007, p. 64). Cutting down on public expenditure, privatization across most spheres of human endeavour, and deregulation/liberalization of market and market polices are the other features required for this approach to succeed. In other words, corporate power forces governments to put forth policies that favour their growth and profitability. Worker rights are not given importance and their productivity is given more prominence. Another consequence of this approach is reduction of public expenditure in areas like health and social welfare. “Needs formerly met by public agencies on a principle of citizen rights or through personal relationship in communities and families, are now increasingly likely to be met by companies selling services in a market (Connell, Fawcett & Meagher 2009, p. 331). So people may find that they may have to pay for basic services that were once freely provided by the state. Health care in developed societies are expensive and the entry of private parties in social health care may make it unaffordable to poorer sections of the society. The emphasis on private property and individual rights over public welfare is also not beneficial for a society in the long run. It will only result in widening the gap between the rich and the poor. Neo-liberalism even influences micro level changes at the organizational level. The same principles that drive governments to move towards this approach also influence corporations to improve their profits in highly competitive markets. The fact that companies from developing countries can provide quality products and services at competitive rates will push domestic companies in developed economies towards outsourcing and other cost cutting measures. Read states that the concept of full time employees is now replaced by the contract worker. This is beneficial to the employer since they do not have to spend on certain benefits like healthcare (Read 2009, p. 30). But this will take away the concept of job security from the workplace. Some countries that accepted principles of neo-liberalism have been able to make maximum use of its positive aspects. One example, according to Harvey, is China and its liberalization policies under Deng Xiaoping. It was a balanced approach where the country opened its borders to international trade, but under strict supervision and control. It allowed selective regions like Guangdong relative freedom to grow thereby avoiding a conflict of ideals with Beijing which was rooted in communist philosophy. The policy allowed partnerships between Chinese and foreign companies so that a technology transfer became possible. Deng focused on the concept of a Xiaokang society which is one where there is modest prosperity and growth for all members of the society. This concept is aimed at making sure that the benefits of development passes on to the poorer sections of the society which does not really happen in pure forms of neo-liberalism. It is more a case of “market preserving federalism” according to some authors (eds Lou & Wang 2008, p. 95). It can also be said that “the spectacular emergence of China as a economic global superpower after 1980 was in part an unintended consequence of the neoliberal turn in the advanced capitalist world (Harvey 2007, p. 121). This is an example of a country deriving the benefits of this approach adopted in other countries when it follows a controlled form of neo-liberalism. According to Hill and Kumar, a neo-liberalistic approach is ineffective in handling certain situations outside the field of economics. They state that the American government was ill-equipped to handle the aftermath of hurricane Katrina because the state machinery did not have a proper plan and infrastructure. The authors argue that this resulted in lack of assistance on the part of the government to the most affected, poorer sections of the society. Neo-liberalism and organizational change: Companies are free to outsource jobs in a neo-liberal economy and many do follow this practice, especially in developed economies (Hyslop-Margison & Sears 2006, p. 10). In order to remain competitive, companies resort to such practices by cutting costs and focusing on core competencies. Another factor is induction of new technology for which training current employees is required. Companies now find that qualified employees in countries like India and China can provide these services at lower costs (savings on training costs and salaries). “Outsourcing, they argued, saves labour costs and time, and it ensures that new products are developed and get to the market soon. Many small companies might never get started without the economic benefits of offshore outsourcing” (Ong ,p. 2006, 157). Ong argues that this outsourcing entails organizational change in companies that accept outsourcing assignments. It usually happens when the company is situated in Asian countries and the outsourcer is an American or British company. This is especially true in cases of outsourcing of customer service operations. Employees in the Asian country will have to change their accent and even names to suit Western tastes and preferences. This change in accent and names could come in conflict with their Asian identities in the long run. Another related aspect is that there is shortage of trained manpower in US and UK with regard to emerging technologies. Education lacks a long term vision without government intervention, which should ideally create an environment for youth to pursue relevant academic disciplines. This does not happen in a neo-liberal economy. To make the situation worse, “youth increasingly have to come to be seen as a problem rather than as a source for investing in the future” (eds Hill & Kumar 2008, p. 34). Examples of job losses due to outsourcing include downsizing of local workforce by Accenture in the UK and Deutsche Bank across Europe. This organizational change can affect the morale of employees since they are not sure about job security. The emergence of the post-Fordist approach and its relationship with organizational change and neo-liberalism is also worth mentioning here. According to Amin, the emergence of neo-liberalism coincided with the acceptance of a post-Fordist approach to manufacturing. It has resulted in a “recomposition of the collective labourer and a resegmentation of the labour market, involving skill polarization, flexibilization in internal and external labour markets, decentralized pay bargaining and new forms of social wage” (Amin (ed) 1994, p. 293). In such a situation, only qualified employees are in a position to get good compensation. As mentioned earlier, the trend now favours contractual workers rather than permanent ones. In other words, “post-Fordist trends toward the weakening of internal labor markets have consequences that may be neutral or even positive in some portions of the skill distribution even as they are negative for other workers” (DiPrete, Goux & Maurin 2002, p.175). This proves that organizational change due to neo-liberalism (and other trends) can result in a situation that is beneficial to certain sections of employees (with regard to skills) while it is not so in the case of the majority of others. As mentioned earlier, neo-liberlisation policies had resulted in the privatization of state owned enterprises in (e.g. Margaret Thatcher’s policies) in many countries. This had a profound effect on organizational change due to the following factors. The goals of the privatized organization changed from pure service to one of profit oriented service. The mindset of the employees needs to be changed in this instance. The organizational structure needs to be changed to a flatter one in order to bring in dynamism and flexibility. Privatization may also necessitate a downsizing of the workforce creating fear and uncertainty among employees regarding job security (eds Burke & Cooper 2000, p. 47). There are both advantages and disadvantages to privatization as per literature and studies regarding this. According a World Bank publication, privatization can increase operational efficiency and bring down public expenditure. The privatization of airports and air services was considered in this case. Governments feel that if money needed to improve infrastructure in certain areas can be saved, it can be used productively elsewhere. After the privatization of the Belfast International Airport, “passenger traffic through the airport has increased by 17 percent, cargo freight by 17 percent, and turnover by 13 percent” (Juan 1996, p. 4). The sale of the airport also yielded 72 million USD for the government. In this instance, it is beneficial for customers, the general public and the government. But, all privatization efforts need not be successful as in the case of the bankruptcy of Railtrack in the UK in 2001 (BBC News 2001). This privatized company needed government assistance to come out of the red which is an instance of failure of the concept. Neo-liberalism and recession: There are many who attribute the current recession to reckless neo-liberalism. The logic that markets needs to be free without any form of intervention has not worked in the wake of the current recession (Erickson et al 2009, p. 264). The authors state that this recession which is a by-product of neo-liberalism has resulted in a ‘tightening of belts’ by people. This in turn brings about further fall in business activities, especially with regard to consumer goods and services. There are also lessons to be learnt from countries like Mexico and Chile, where neo-liberalism was implemented in totality. “While the neoliberals are anxious to point out their victory over inflation and their taming of government deficit, the Mexican economy has been plagued by modest growth, declining or stagnant living standards, massive migration into the United States and the near elimination of much of the small-business sector” (Cypher & Dietz 2008, p. 218). But neo-liberalists claim that such situations occur due to imperfect policies which do not reflect a true free market economy. The fact remains that none of these claims can be verified to a great degree of accuracy (Harvey 2007, p. 152). The apparent failure of neo-liberalism is illustrated in the large number of bail-out plans by governments in many countries, especially in the US and UK. This is in direct contradiction to free enterprise and lack of government intervention as promoted in neo-liberalism. Financial institutions have been hit hard through unrestricted finance in housing and business. “In October, for instance, the U.K. government launched a GBP500 billion (US$737 billion) bailout plan that included GBP37 billion of investment into the banks” (Associated Press 2009). This bailout plan extends to other sectors of the industry as well. The United States government has announced packages for the survival of several major automobile manufacturers like General Motors, Ford and Chrysler (Newman 2008). Conclusion: It can be seen that neo-liberalisation had been adopted as a policy by many countries. On the whole it has not yielded the expected result of overall well-being of the society. It is a fact that governments could reduce expenditure on certain wasteful areas. In the case of organizational change, the concept is not advantageous to the employees. It has brought about uncertainty regarding job security through concepts like contracting and outsourcing. The power of labour through collective bargaining has also been negatively affected. It can be conclusively said that neo-liberalism has brought about organizational changes that are detrimental to employee rights and aspirations. Outsourcing has brought about new opportunities in various sectors (employment and investment) in some competitive economies like China and India. Unrestricted neo-liberalism has had negative repercussions in countries like Mexico and Chile. There is also evidence that neo-liberalism is responsible for the current global economic recession to a large extent. It can be said that neo-liberalization in a pure form will not work in the long run. Some sectors will be at an advantage while the need is overall social development. The governmental intervention with regard to bailout packages as mentioned above is testimonial to the fact. The fact that countries like China have made use of this concept in a mixed form supports this point of view. Communism in its pure form failed in the erstwhile USSR and other Eastern bloc countries. It could be possible that pure neo-liberalization also is not a practical way to long term economic growth. There is no doubt that some form of intervention is necessary for sustained market growth and overall economic and social welfare. Governments should be able to provide a direction that is conducive to this. This can only be done if the influence of private corporations and multinationals is brought down. It can be concluded that neo-liberalism in its current form is in peril as is seen by its consequences at the micro and macro levels in the economy. 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