Responsible for most of the global economic problems
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Neo-liberalism is a political ideology that suggests that ‘human well-being can be advanced by the maximisation of entrepreneurial freedom, characterised by private property rights, individual liberty, free markets and free trade’ (Geografiskar, A 2006). In today’s modern society neo-liberalism is widespread around the globe with various stakeholders offering conflicting views.
Some advocates, namely the capitalistic portion of society argue that a liberal market is essential for economic growth whilst others hold neo-liberalism responsible for the global economic problems we are experiencing today. It is clear to many that the policies arising from this ideology have caused the poor to grow poorer and the rich to grow richer. Accordingly, this essay will argue that Neo-Liberalism greatly contributed greatly to today’s global economic problems and will shed light on the overriding reasons why a neo-liberalism is not ideal to foster a sustainable and healthy economic environment for all as the ideology proposes. One of the primary economic problems in the world is sub-standard living conditions and the major gap between the wealthy and the non-wealthy.
The first argument that encapsulates the problems associated with neo-liberalism is the tendency for the ideology to foster inequality in society. Navarro (1998) agrees and extends to say that neoliberalism has caused increasingly declining living conditions for most of the world’s population, whilst the minority continue to grow wealthier.
This is supported by the argument that the inequality arises from policies that exist in a neo-liberal society such as granting tax-cuts for the wealthy and decreasing minimum wages for the non-wealthy (George, 1999). Pro neo-liberals would combat these arguments and suggest that a free market will grow the prosperity of a society as a whole however, it has been argued that although wealth might be increased, it is supressed by the elite and the non-elite do not share in the economic growth making neoliberal ideologies on positive for one level of society (Beder, 2006).
A prominent example is in Brazil where in the early 1990’s the country liberalised the market considerably, as a result the inflation rate decreased and the economy was stimulated however the living conditions of the general society did not improve and inequality was greater than ever (Amann & Baer, 2002). Brazil still continues to grow poorer as neoliberal ideologies now control the vast majority of Latin America increasing the inequality amongst majority of society.
Therefore it can be concluded that neo-liberalism is a major contributor to global economic problems such as inequality and sub-standard living conditions. When governments implement neoliberal ideologies it causes regulatory agencies to be taken over by special interests and anti-government groups which reduces the level of protection for the general public. Deregulation is the “the reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry”. (investopedia, 2013).
From a neoliberal supporter’s standpoint, deregulation allows corporations to increase their bottom line and profit margins by reducing regulations that may restrict them from certain income-producing activities. However, by reducing regulation there are large risks involved that can lead to catastrophic events. The enormous ecological and economic damage in the Gulf of Mexico caused by the British Petroleum oil spill is just one of many examples of the breakdown of regulation caused by neoliberalism. It has also come to light around the globe that the reduction of government oversight of the financial sector was a leading cause of the mortgage loan crisis and the severe economic recession that it triggered.
The most prominent and possibly the most notable market crash is the ‘Global Financial Crisis’ which was a direct repercussion of the neo-liberal policies which were implemented at the time and for which many of today’s global economic problems has stem from. These policies predominately include the replacement of government functions and services with profit-seeking entities, or more commonly known as privatisation and most importantly the deregulation of the economic market (Beder, 2006). Due to the deregulation, financial institutions and other economic players were able to invest in more complex financial markets which were beyond their understanding and a result a market crash occurred and the detrimental effects were widespread.
If regulation had been put in place to monitor investment activity then it has been argued that the Global Financial Crisis would not have occurred and the associated global economic problems we are experiencing today would not have eventuated (Dag Einar Thorsen, 2013). As neoliberal policies where implemented around the world casing the global financial crisis the world disparities in wealth and income increased as well as poverty, contradicting neoliberal theories that by increasing the wealth at the top everyone becomes better off.
One of the largest areas of concern around the globe is the poverty levels. Over the last 40 years governments have been influenced by neoliberal ideologies and poverty has increased on a global scale. Neoliberalism has contributed to this increase by boycotting certain government regulations and cutting tax rates, providing private industries with more power to grow wealthier while the poor suffer the consequences.
A representative from the World Bank stated “Reducing government regulation with tax rates and deregulation across most of the planet has not brought anything close to an end of poverty”, (World Bank 2001). Neoliberal advocates believe that wealth generated by reducing regulation and allowing private enterprises such as banks and financial institutions to hold more power will be passed down to all levels of society. However, this is not the case, an example is the United states, under Neoliberal governments child poverty rose by a third and in the “united kingdom between 1980 and 1990 when the government was run by neoliberal policies poverty rose by half”.( Navarro, Vicente. 1998).
The high volume of capital movements caused by neoliberalism have led to much crisis, exposing developing countries to new risks. There are various reasons why neoliberal policies have failed to address the issues of poverty in society. One of these reasons being the stability policies neoliberalism has input into our governments, supported by tight fiscal and monetary controls which have provided neither growth nor stabilization within countries’ economies. (Geografiskar, A 2006).
The liberalisation of foreign trade was put in place to remove the barriers of developing countries but maintenance of these barriers has given birth to an unfair international market. Thoroughly linked with poverty, another major economic human problem that neoliberalism has failed to resolve is employment. Global markets have not generated anything close to enough waged work for the world’s labour force.
Hundreds of millions of people remain unemployed or underemployed. Neoliberalism ideologies are set through government to generate wealth in private industries, this wealth aims to grow business’s and by doing this aims to increase employment. However, owing to the neo-liberal economic reforms, the higher costs of utilities like power and water are caused by the government reducing expenditure, when services become privatized, such as transport, health and education which the leads to business’s enhancing their turnover. “As a result of the diminishment government owned industries and the economic agents cut back on output growth rates and downsize the number of employees, inevitably generating unemployment” (Daniela Zirra, 2012.).
Private industries continue to aim for increasing profits, this is achieved by lowering expenses and when their main expenses are wages the unemployment rate continues to rise.
Current debates concerning the effects of neoliberalism ideologies have frequently separated between advocates who see only benefits and opponents who see only problems. In practice the results have been more one sided. Alternatively many people have faith in in the Neoliberalism ideology’s and argue towards supporting it as the way of the future. The mixture of positives and negatives has varied between one situation and another; the negatives of a neoliberal society are far more detrimental to our economy than what the positives produce.
I argue that Neoliberals re responsible for most of the global economic problems we are currently experiencing today. It will be hard to stop governments enforcing Neoliberal policies and standards as ‘Neo-liberal theories have been embraced by big businesses because they provide legitimisation for their pursuit of self-interest and avenues for business expansion (Beder, 2006). However, we can look towards a more positive future for all levels of society, reducing the global economic problems we face today by standing together and fighting against Neo-liberal beliefs.
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