Neoliberalism

1. Neoliberalism

2. Today 1. Define neoliberalism and analyze its origins and key elements; 2. Analyze how neoliberalism has been applied in policy and practice; 3. Examine the limitations of neoliberalism; 4. Examine the evolution in recent neoliberal thought and policy; 5. Assess whether neoliberalism has anything to offer Bhutan’s development.

3. Definition of Neoliberalism An approach to economics and society where control of economic factors is shifted from the public sector to the private sector; it is the prioritization of the market and the definition of all human activity in terms of economic criteria. (adapted from Kendall 2003)

4. Origins of Neoliberalism 1. A 1980s response to Keynesian economics > The ideas of John Maynard Keynes dominated economic policy from World War II until the 1970s. > Keynes believed that free market decisions can lead to inefficiencies and poor distribution. As a result, government intervention in the economy is sometimes required. > The oil crisis, stagnation and inflation of the 1970s resulted in many economists questioning the value of Keynesian economics.

5. Origins of Neoliberalism 2. Neoclassical Economics > Dates back to the late 1800s (Carl Meger, Leon Walras). > 3 assumptions: i) People have rational preferences about the outcomes they would like; ii) Individuals maximize utility (satisfaction) and firms maximize profits iii) People act on the basis of full information. > “Let the market work”; “Supply and demand”; “Get the prices right”

6. Origins of Neoliberalism 3. The Chicago School > A group of influential economists at the University of Chicago who rejected Keynes and embraced neoclassical economics. > Argued that the government should play no significant role in the economy as governments are inefficient, wasteful and bureaucratic. Markets should be completely free and liberalized. • > Milton Friedman (1912-2006): • “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

7. Origins of Neoliberalism 3. The Chicago School (continued) “Hell hath no fury like a bureaucrat scorned.” “So that the record of history is absolutely completely crystal clear. That there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.” Milton Friedman (1912-2006)

8. Neoliberalism • New orthodoxy was for market-oriented development • Neoliberal principles included • Self-interest • Market fundamentalism • Minimal state • Low taxation • State re-oriented to underpin and support market-friendly policies

9. Main Elements of Neoliberalism • Trade liberalization • Deregulation • Privatization • Decreased public expenditure • - streamline civil service • - reduce government spending • Floating interest rates • Tax reform

10. Washington Consensus • Controlling inflation through wage controls • Privatization of publicly owned enterprises • Balancing state budgets through reducing government expenditure • Eliminating or reducing government expenditure • Eliminating or reducing state subsidies on basic goods • Generation of foreign exchange through export-oriented industries • Elimination of controls on foreign capital

11. Neoliberalism • According to Fukuyama liberalism’s triumph over communism marked • ‘the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government’ • Huntington disagreed and said the 21st century would be characterized by ‘civilization politics’

12. Clash of civilizations • Huntington’s 4 periods of modernity distinguished by the nature of conflict: • Pre-1789: wars between princes and principalities • 1789-1918: wars between nation-states in the age of nationalism and colonialism • 1918-late 1980s: communism v liberalism with 3rd world as territory of dispute • 1990s-: cultural divisions leading to conflicts between nations and groups of different civilizations

13. Application of Neoliberalism 1. Ronald Reagan and Margaret Thatcher 2. The fall of communism in Eastern Europe - “The end of history.” 3. World Bank and IMF: Structural Adjustment and the “Washington Consensus”

14. Application of Neoliberalism • The “Washington Consensus”: a package of reforms required for developing countries to access IMF and WB loans. • Reduce government deficits • Reduce government expenditures (esp. social spending) • Tax reform • Liberalize trade • Promote exports • Privatize state owned industries • Market determined interest rates • (Williamson 1990)

15. Application of Neoliberalism • Case Studies: Chile and Nigeria

16. Toning down Neoliberalism • Over the past decade Neoliberalism has come under attack • Debt relief • Rise of good governance • Greater emphasis on poverty alleviation and social goals • Idea of development as rights • Millennium Development Goals

17. Impacts & Limitations of Neoliberalism • Often successful in creating macro-economic stability • Generated economic growth in some cases, decline in others. • Poor distribution of the benefits of economic growth • The required decreases in government social spending often resulted in declining population health and education. • Increased poverty • The reduced role of the state led to an increase in the role of NGOs/CSOs to fill the gap • Often accompanied by political repression e.g. Chile • Misinterprets the important role the state can play in development e.g. Taiwan, Japan, South Korea, Bhutan

18. Evolution of Neoliberalism? • The “Post-Washington Consensus”: incorporates a greater role for the state to address market imperfections evident in the failure of purely market based growth approaches. • Poverty Reduction Strategy Papers (PRSPs): A World Bank and IMF strategy that moves beyond the Structural Adjustment Programs of the 1980s and 90s to include a greater role for local participation in planning for the use of WB and IMF loans. • 2008/09 global economic crisis – A return to Keynesian economics or continued neoliberalism? • - Economic stimulus programs • - USA debate over the “debt ceiling”

19. “Establishment of private schools is being encouraged to develop a more sustainable education system as well as to diversify choices for education to the public.” 10th FYP, Volume 2: page 89 “Outsource select diagnostic services and support private sector participation in providing private tertiary health care services…” 10th FYP, Volume 2: page 182 “Overall, citizens expect higher standards and a greater range of services from the Government, delivered by a small and compact public service and with less intrusions into corporate and private enterprises.” Good Governance Plus 2005: page 1

20. Assessing Neoliberalism Does the experience of Neoliberalism, both positive and negative, offer anything useful for Bhutan and its GNH development strategy?