Business and Politics: Neoliberal Globalization - Essay Example

Task: Neoliberal globalization Neoliberalism is a term used to describe the political-economic theory that advocates for freetrade, privatization, reduced government interventions in business operations and less expenditure on development of social services and amenities. The concept of neoliberalism first emerged in America during the rule of President Ronald Reagan in the 1980s. He made changes in the political system in America that eventually led to the emergence and development of neoliberalism. During this time, political changes of the same nature were being experienced in other parts of the world like Britain, Germany, France, Japan and China (Went, p.48). These changes in the running of economies and societies in different parts of the world gave rise to the concept of globalization. Globalization is defined as the integration of the world economies into a liberal capitalist market economy which is controlled by seven countries also known as the Group of Seven. The seven countries include USA, France, Germany, Britain, Canada and Italy. These countries have a controlling power over the creation of world economic policies that will ensure that monopoly capitalism is maintained. Globalization is at time seen as a natural and unavoidable phenomenon which involves rapid technological advances and integration of economic, social and cultural values all over the globe (Mathers, p.46). The neoliberal ideology tried to explain the intentions of financial liberalization stating that these measures would restore economic growth and stability. It would be as a result of improving the efficiency of the economy. It was expected that neoliberalism would result to increased access to credit, reduced cost of credit and accumulation of capital would increase rapidly hence constant economic growth all over the globe. However, it was not the case as developing nations were trapped with abnormal interest rates as a result of neoliberal globalization policies like deregulation. The developing nations experience an accumulation of foreign debts, dependence on imports and increased unemployment levels (Prempeh, p.50) The neoliberal theory states that globalization has benefits among which include; consumers will benefit by affording goods and services produced in foreign countries as a result of low transport costs and relaxed tariffs. The neoliberal theory argues that the liberalization of the world economy will lead to higher productivity all over the world as a result of diffusion of knowledge and technology from other parts of the world (Went, p.38). For many years, neoliberalism has dominated the making of economic policies mainly in the United States and The United Kingdom. The United States has managed to dictate neoliberal policies in many third world countries through the International Monetary Fund, World Bank and through use of pressure. Neoliberal theory argues that a free market economy will ensure there is optimum economic performance in reference to increasing efficiency, economic growth, technical advancements, and distribution fairness. Neoliberal globalization advocates for policies that recommend deregulation of businesses, privatization of public operations and activities, dismissal of social welfare activities and cutting of taxes on businesses investing in host countries. Neoliberal globalization promotes the free flow of goods, services, capital and money across countries but not the free movement of people. This therefore, means that corporations, banks, and individual investors are free to move their assets across countries all over the world and that they can also acquire property across national boundaries all over the world. Free flow of individuals is not included in the neoliberal policy (Scholt, p.32). The main features of neoliberal globalization include; Economic liberalization The main aim of economic liberalization is to create one big economy that does not have borders. The borderless economy ensures there is no control on the movement of goods, services and capital. The free flow of goods and services will allow increased investments in foreign countries. Neoliberal globalization may seem neutral to some extent, but it has negative impacts especially on the economies of third world countries. The General Agreement on Tariffs and Trade developed the World Trade Organization states that goods and services should move freely between trading countries, but should benefit all countries that are members of the World Trade Organization. However, there has been unfair trade as a result of neoliberal globalization. For example, in 1999 annual global trade had reached US$7 trillion and the total exports of developing nations were only 28% of this amount. North America and the European Union got the largest shares of the world trade in goods and services. Deregulation Another feature of neoliberal globalization is deregulation that limits a country’s role to regulate the economy in the interest of its citizens. Deregulation gives market forces the ability to control the economy placing the value on profits that in turn hinder consumer and labor rights. Deregulation scraps off price control systems in the economy which in turn has a negative impact on the developing nations. In the Philippines for instance, deregulation led to the overpricing of oil that, as a result, led to the increased prices of many other commodities. In the year 2000, oil prices in the Philippines were six times more the normal price. Privatization The International Monetary Fund (IMF)/ World Bank mainly use privatization to make changes to economic policies (Scholt). With the help of trade liberalization and market deregulation, privatization ensures that all production activities including social services are managed by the private sector. Privatization ensures that public subsidies on the provision of social services and amenities are eliminated as they are transferred to the private sector. In many developing nations, privatization is used to facilitate the penetration of foreign investment into economic sectors that have always been under the control of local management. Therefore, it enables foreigners to control the political economy to suit their economic needs. Thus, privatization opens new opportunities for investments but interferes with people’s access to basic social services and amenities (Kapoor, p.49). The privatization of health care in the Philippines was done to comply with conditions given by the International Monetary Fund. The reform agenda has withdrawn the role of the state in the provision of health care services. More public health facilities are continuing to be privatized not only in the Philippines but also in many developing nations. Privatization of health care denies the people affordable and accessible basic health services. Water is another sector that is increasingly being privatized especially in third world countries. The privatization of water has a negative impact for the poor communities because water is vital for human life. One of the loan conditions in the 1995-1997 structural adjustment policies of the IMF was the privatization of state-controlled water utilities. Water should be a communal or public commodity which is accessible to all. Instead, privatization of water aims at making profits out of the water utility without caring about the affordability and accessibility of water to the people (Kapoor, p.45). Finance capitalism Finance is the process by which funds are transferred from one entity to another for a period of time in exchange for a payment or interest (Köse, Şenses and Yeldan ,p.32). Finance capitalism is therefore making profit out of exchanging finance between nations. Advances of technology have resulted to over production by transitional corporations. Finance capitalism is used to deal with the issue of overproduction. Finance capitalism involves opening the financial and banking systems of other nations so as to gain control. It has led to the emergence of mergers and consolidations that have left many people unemployed in most developing nations. The increased rate of unemployment caused by finance capitalism continues to increase the poverty rate in these nations. Labor flexibility Labor flexibility involves the organizing work and employment schemes into designed that aim to maximize profit extraction. The schemes to maximize profit involve labor only contracts, subcontracting, hiring of casuals and the hiring of apprentices. It ensures that there is availability of cheap labor as required by neo-liberal globalization. In many developing nations mainly in Asia, labor flexibility is used with casualization of labor. Labor flexibility gains a lot of profits but at the same time leads to exploitation of workers. Labor flexibility has also led to the increase in the rate of unemployment and underemployment. Trends of labor contractualization are mostly found in foreign-owned firms that mainly focus on exports. These firms have a lot of contractual workers who are contracted for not more than three months. In Export Processing Zones, subcontracting and contractualization are the strategies used by transnational corporations to maximize profit. Conclusion Today many developing nations are burdened with high levels of foreign debts as a result of neoliberal globalization. These countries are dependent on foreign nations mainly from North America and the European Union for their development projects and rely on goods from these same nations. (Prempeh, p.78). Neoliberal globalization is not a neutral process because it has brought more negative impact in the third world than the expected mutual benefits. Neoliberal policies like trade liberalization, deregulation, privatization, finance capitalism and labor flexibility have affected the economies of these nations making the poverty rates continue to rise. Neoliberal policies have led to increased levels of employment and underemployment as well that also contribute to the rising poverty levels. Therefore, it should be recommended that neoliberal policies be revised by governments before entering into contract promoting neoliberal globalization. It will in turn ensure that the economies and welfare of the third world nations are protected hence reducing the poverty levels. Works Cited Kapoor, Dip. Critical perspectives on neoliberal globalization, development and education in Africa and Asia. Boston: Sense Publishers, 2011. Köse, Ahmet Haşim, Fikret Şenses and Erinç Yeldan. Neoliberal globalization as new imperialism : case studies on reconstruction of the periphery. New York: Nova Science Publishers, 2007. Mathers, Andy. Struggling for a social Europe : neoliberal globalization and the birth of a European social movement. Aldershot: Ashgate Publishers, 2007. Prempeh, E Osei Kwadwo. Against global capitalism : African social movements confront neoliberal globalization. Aldershot: Ashgate Publishers, 2006. Scholt, Jan Aart. The sources of neoliberal globalization by Jan Aart Scholte . Geneva: United Nations Research Institute for Social Development, 2005. Went, Robert. Globalization : neoliberal challenge, radical responses. London: Pluto Press, 2000. Read More