In our globalized world, we are constantly bombarded with terms like globalization, free trade and even liberal economic policy. These phrases are thrown into different context and often seem to represent the same thing without having that intention. What are these phrases actually talking about? How do they influence people’s lives across the globe on a daily basis?
Meet the school of economic thought called Neoliberalism.
Lets break down this idea.
Neoliberalism is a form of capitalism that has dominated since the 1980s. President Ronald Regan and British Prime Minister Margaret Thatcher in their famous partnership, championed this approach to building the global economy. They believed that the global economy would do best when governments got out of its way. This idea stems Adam Smith’s revolutionary theory of the “Invisible Hand.”
Neoliberalism firmly believes that government interference in the economy is bad for everyone involved.
Neoliberalism is founded on the belief in the idea of open markets, which basically means that any country can trade with any country without any sort of taxation or regulation. It emphasizes that foreign direct investments are the best way to build infrastructure and business in developing countries. Finally, and possibly most importantly, it advocates for the privatization of government run industries, because in theory, competition inside an industry would promote better quality for the people that industry serves. This policy worked miracles and skyrocketed economic growth in developed countries and at the time was thought to be a way for all countries to eventually become economic equals. It sounds wonderful doesn’t it? People making money, investing and saving the world from inequality all at once!
Nothing could be better, and nothing could be farther from the truth.
As Neoliberal policies have taken over, the global economy there has been a huge increase in the gap between the rich and the poor within developed and developing countries as well as a monumental gap between the rich countries and poor countries themselves. These economic policies have affected all of us, in all corners of the globe. No one is immune because whether we like it or not, the global economy has become integrated into nearly every society on the planet.
This is where globalization, or the increasing flows of information, capital, culture and politics comes into play. By intensifying the ties countries have to one another, the idea that free trade, i.e. the open markets we talked about earlier, is best for everyone. This works in theory, but in reality the countries that benefit in these relationships are the already developed countries.
Take a look at this data from the World Bank to see a sneak peek into next week’s article discussing how Neoliberalism is causing a rise in global inequality.