SS 30-1

1. SS 30-1 The Ebb and Flow of Economic Liberalism Since the Second World War Chap 6 Part 2 – p. 214-230

2. At Issue: • In what ways have economies reflected the principles of liberalism since World War 2?

3. Postwar Consensus • Refers to British politics from the end of WW1 to the 1970’s • Characterized by the growth and maintenance of social safety net programs – EI, child care, social security, etc. • Supported by collectivist and individualist politicians in Britain • These ideals are promoted internationally through contracts related to international cooperation, foreign aid, etc. • Many other Western Democracies followed suit by providing their own versions of the social safety net

4. Postwar Economy - Canada • Most Canadian gov’ts – created or strengthened social programs in the 3 decades following WW2 • Examples: • Universal Health Care - 1957, 1966 • Canada Pension Plan – 1966

5. Economic Crisis – 1970’s • U.S. withdrew from the Bretton Wood’s Agreement – gold no longer the standard used to set exchange rates • Other countries would follow – world currencies were allowed to float freely on world markets – inflation resulted slowing economic activities • Arab-Israeli War – 1973 – Oil monopoly OPEC imposed an embargo on oil exports to the US and its allies for supporting Israel • Resulted in the “Energy Crisis” – high energy costs, high inflation, slower economy in the West • When a recession and higher inflation occur together – known as “STAGFLATION”

6. Stagflation caused countries to reconsider their social safety expenditures • Difficult to maintain social program spending with higher inflation and a slower economy – less taxes collected

7. Shift in Economic Thinking – 1970’s-1980’s • Monetarism – Milton Friedman, Friedrich Hayek • Shift back towards classical liberal laissez faire capitalism • Theory holds that the control of a country’s money supply is the best way to encourage economic growth and limit unemployment and inflation – to be controlled through regulation of interest rates.

8. Friedman’s Ideas • Argued that when the money supply was up, consumer spending would go up causing demand to rise and inflation to increase • Felt that the amount of money issued by the Central Bank should be linked to economic indicators such as the rate of inflation and not be influenced by gov’t manipulation • Was a supporter of Adam Smith’s ideals of minimal gov’t involvement in the economy – that gov’t spending and regulation had gone too far

9. Hayek’s Ideas • Felt that excessive gov’t control of an economy would eventually lead to too much control over peoples’ lives – result loss of freedom • Cited Nazi Germany and the USSR as examples • Felt that centrally controlled economies were to out of touch to make good decisions in the public’s interests • His ideas were esp. influential on Britain’s PM Thatcher

10. Monetarism vs. Keynesian Economics • Both Friedman and Hayek believed that the Price System (Free Market) was the only way to balance supply and demand in the economy while maintaining individual liberty • Gradual acceptance of monetarism and Friedman’s/Hayek’s ideas was in part a reaction to the inability of gov’ts to deal with the stagflation of the early 1970’s • Supporters of monetarism argued that gov’ts did not follow Keynes’ advice to cut back on spending when times were good because these cuts would be unpopular with voters • Result – out of control debt compounded by the problem of stagflation

11. Reagonomics • Ronald Reagan became president of the US in 1981 – was a time of high unemployment and high inflation • Supporter of Friedman’s ideas • Wanted less gov’t involvement in the economy • Response was to: • Lower income and business taxes • Reduce regulations and controls on business • Increase military spending of offset the “Soviet Threat” • “Supply-side approach”- increased private investment and gov’t defense spending would “trickle-down” through the economy to the working class

12. Thatcherism • PM Margaret Thatcher (1979-1990) tried to reduce gov’t involvement in the economy • Favoured increase economic freedom and entrepreneurship • Had the gov’t sell off much of its social housing, and privatized many utility companies • Took a hard line with labour unions – would not give into their demands

13. Blair’s “Third Way” • PM during the late 1990’s and into the 21st Century • Policy was a shift towards a more moderate program that would adopt some elements of Thatcherism and free market policies while maintaining some social programs • Increased gov’t spending for health care and education • Setting up of a national minimal wage • Attempt to balance individualist principles with the collectivist values of social justice

14. The Netherlands, Kenya and Chad • Netherlands – Polder Model – involves employers, unions and gov’t reps working together to make decisions – helps to avoid strikes • Kenya – “Harambee” (let us all pull together) – any product should benefit the public rather than the individual • Projects should minimize the use of local resources that would otherwise be unused or too expensive • Chad – has major oil reserves – World Bank and ExxonMobil agreed to help Chad develop its oil resources on the condition that the gov’t pass laws guaranteeing that 80% of oil revenue be spent on health, education and rural infrastructure

15. Different Interpretations • US and Sweden/Canada both follow the principles of economic liberalism, however • US supports limited gov’t intervention and minimal social support • Sweden/Canada – favour more gov’t intervention in the economy and in the lives of citizens.

17. Economic Liberalism and the Global Economy • The ebb and flow of economic liberalism seems at present to be flowing towards the left – towards a greater role of gov’t in their economies and towards a more cooperative internationalism • Reasons – turmoil in the global economy that began with the credit and mortgage crisis in the US in 2008 and questions over putting faith in the unregulated free market