Proponents and Critics of Neoliberal View on Globalization 1

PROPONENTS AND CRITICS OF NEOLIBERAL VIEW ON GLOBALIZATION

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 Proponents and Critics of Neoliberal View on Globalization 2

Proponents and Critics of Neoliberal View on Globalization

Introduction

Research on economic neoliberalism including its definition, proliferation and effects has

been dominated by authors whose main critical concepts lie on the morality effects on society

(Boas and Gans-Morese 2009). Majority of these authors argue that there has been an emphatic

turn towards neoliberalism especially in political-economic practices since the 1970s and that

neoliberalism is the hegemonic mode of discourse in trying to understand the world. In addition,

these authors argue that neoliberalism is the main driver of globalization and that the latter itself

is the effect of and the movement towards neoliberalism (Litonjua 2010). But what is

neoliberalism and how is it related to globalization? According to critical authors of

neoliberalism, the concept is defined as “collection of economic policies supported by an

ideological commitment that argues for the reduction of state -intervention in the economy and

promotion of laissez faire capitalism to promote human well-being and economic efficiency”

(Kotz 2002) as well as personal freedom (Smith 2012). Policies which promote the idea of

neoliberalism include those that encourage reduction of trade barriers and capital controls.

Nonetheless, most of these authors are more concerned with the critiquing of the neoliberal

doctrine rather than provision of clear concepts surrounding the doctrine in this era of

globalization.

As a result, there has been an emergence of sceptical views on neoliberalism

globalization with alternative regionalisms being promoted by most of the social movements

(Mazzucato and Jacobs 2016). These social movements call for alternative to the increasingly

neo-liberal directions being taken by the world economies and advocate for regional trade and
 Proponents and Critics of Neoliberal View on Globalization 3

investment on liberalisation programs. Therefore, debate over globalization concept as well as its

interpretation has been based on neoliberal views and involves the idea that globalization leads to

adoption of free market policies. As a result, it is clear the supporters of neoliberal theory believe

globalization is inevitable and non-resistance on it is beneficial while the critics claim that global

economy of today and that of nineteenth century is similar hence there is no need for

neoliberalism.

Proponents of Neoliberalism

Proponents of the neoliberal theory argue that globalization cannot be avoided and that

there is no need for resistance since that is beneficial. According to Friedman’s metaphor of

Golden Straightjacket globalization constrains government options but offers prosperity to

countries which comply with its requirements (Germana 2016). Friedman comes up with several

golden rules which a country has to adopt to benefit from globalization including maintaining

low rate of inflation and price stability, eliminating and lowering of tariffs as well as getting rid

of domestic private monopolies. Other rules to adopt include reduction of the size of the

bureaucracy of state, maintenance of balanced budget, privatization of the economy, increasing

exports and allowing citizens to choose from several pension options.

Role of Technology

The supporters of the neoliberalism provide two different interpretations of the

globalization experience in the nineteenth century. First, the advocates of the technological

explanation argue that globalization in nineteenth century was largely irrelevant and focus on

technical complexity of today’s trade patterns. In their argument these theorists claim that

modern trade is characterized with patterns in which a product could have components from
 Proponents and Critics of Neoliberal View on Globalization 4

different countries unlike in the nineteenth century where raw materials were imported from the

colonies, manufactured into goods then re-exported. Basing their argument on Third Wave

Theory of Toffler and Toffler (1993) the supporters provide that the social-democratic

institutions have become obsolete due to technological change. The theory is particularly

appealing to the social democrats who claim that the neoliberalism takes the Third Wave form

which surpasses the dichotomy between social democracy and policies. The proponents provide

the Thatcher government in United Kingdom which returned economic institutions and values to

nineteenth century as an example of economy which tried the dichotomy between social

democracy and policies.

Mistaken Policies

Advocates of neoliberalism emphasize continuity of current globalization with the

nineteenth century by arguing that the breakdown of the economies then was due to mistaken

policies such as those being put forward by the critics of globalization today. In particular,

Hatton and Williamson (1998) stipulates that large scale migration large scale migration in

nineteenth century equalized the factor prices, raised wages and lowered rents in Europe but

raised them in America’s and Oceania due to the latter restrictions on immigration. Nonetheless

some critics of this argument dispute the claim since flows of labour and long-term capital in the

present- day globalization is smaller than in the nineteenth century. Others argue that

globalization failure in nineteenth century can best be explained by examining the events in

Europe especially the weaknesses of gold standard system and not the immigration policies

although the latter may have had some contributory effects.

 Proponents and Critics of Neoliberal View on Globalization 5

Critics of Neoliberalism

Majority of the critics of Neoliberalism have provides several sceptical views by

emphasizing the similarities between current globalization and that of the nineteenth century and

then goes on to point out some of the weaknesses of the earlier era (Baker et al 2005).

Particularly, the combination of free capital flows and the fixed exchange rates common during

the gold standard era is attributed to the economic instability and the main cause of Great

Depression.

Impossible Trinity

Sceptics of neoliberalism globalization extend the above argument to International

financial structure which has since broken down since the Bretton Woods system. Indeed, they

argue that globalization has led to unrestricted capital movement which has led to destabilization

and undesirable consequences. They cast doubt on reasoning of the power to punish countries

which do not adopt neoliberal policies as advocated by Friedman’s idea of irresistible Global

Herd (Yeung 2002). Using the macroeconomic policy explanation, the critics argue that

independent monetary policy cannot be sustained in an economy in which there is a combination

of free capital flows and fixed exchange rate. Thus, any government that wishes to adopt the

independent monetary policy must either constrain international capital flows as it the case of

Malaysia or allow exchange rate fluctuation as it was the case of Australia during the Asian

Economic crisis. The two countries performed better than other countries which had preferred

contractionary policies in reaction to exchange rate pressure.

 Proponents and Critics of Neoliberal View on Globalization 6

Welfare State

Similarly, theorists of neoliberal globalization posits that exposure of global competition

will force individual countries to reduce expenditure on community and welfare services.

Nonetheless, Mitchell (2010) shows that public expenditure is high comparative to national

incomes for nations whose ratio to trade to income is high resulting to complication of results of

most countries who are European Union (EU) members whose main trade partners are EU

members.

Time-series Evidence

More so, time-series evidence remains unfavourable to neoliberal theorists on

globalization with the ratio of public expenditure to the countries’ income rising steadily among

the first world countries during the Bretton Wood era. However, since the breakdown of the

Bretton Wood era this growth has been less rapid and sometimes it has been negative in this

neoliberal globalization era. This has been attributed to the inability of these governments to

raise additional revenue as experienced during the “tax revolts” (Braithwaite 2005). In fact, this

explains the reason behind the slowdown of public expenditure more than the international

competition as neoliberalists try to argue.

Social Security Systems

Until recently one of the arguments that favoured neoliberal view of globalization stated

that developed countries were capable of maintaining expensive social security systems and

publicly finance health and education in the face of competition from Asian economies using low

taxes and minimal welfare states. Nevertheless, during the 1997-1998 crisis this model was

proved wrong after it emerged the Asian societies could maintain social harmony with minimal
 Proponents and Critics of Neoliberal View on Globalization 7

public spending on welfare due two reasons. First, most of the Asian countries that were in early

stages of development would experience the urban workers migration to villages during the

periods of recession. Secondly, the virtuous circle common with prolonged prosperity meant that

as long as Asian economies continued growing rapidly social security systems were unnecessary

since the resultant low tax rates made the economies competitive and enhanced growth.

Researchers argue that countries in the Asian region have discovered that since inadequate and

underdeveloped social protection systems exposed their working populace to increased poverty

and threatened their human capital investment efforts there was need to adopt multi-pillar mixed

public-private system (Ortiz 2001).

It is apparent that differences in social conditions, cultural values and historical

development are likely to have different results in different countries up to an extent that

convergence of policies is more due to similar responses to common pressures and global spread

of popular ideas than it is due to globalization and global capital competition. As a result,

majority of the European social democracies that are facing public expenditure constraints are

now adopting three-pillar model in the retirement schemes. Yet, this move has not been

motivated by the competition from Asian economies since they have continued with this process

even after the “threat” from Asia has reduced.

Growth in Trade

Lastly, another important criticism is based on growth in trade whereby although

proponents of neoliberal globalization talk of the international trade patterns complexities, critics

focus on regional trade agreements growth especially in European Union. Researcher argue that

trade output in the last thirty years has grown rapidly due to European Union trade hence such
 Proponents and Critics of Neoliberal View on Globalization 8

trade is unlikely to produce effects which are associated with neoliberal globalization effects. For

instance, the view that globalization encourages nations to pursue global competitiveness

through reduction of environmental standards creates more questions than answers. In fact,

critics of neoliberalism argue that no such effects can be traced back in European Union Trade

since although there were pressures to constrain independent countries to pursue domestic

policies, these pressures have declined in Europe. In particular, the decline has been experienced

in policies which required EU members to adopt common legislations and achieve minimum set

standards by EU as whole (Quiggin 2005).

Conclusion

To sum it up, although most of supporters of neoliberalism argue that globalization

necessitates free market policies adoption, critics have always seen globalization as a threat to

national identity and hence advocate for policies which enhance individual country control and

restriction of immigration. Clearly supporters of neoliberal theory claim that globalization cannot

be avoided hence there is no need for its resistance while critics argue that global economy of

today and that of nineteenth century is similar hence there is no need for neoliberalism.

Supporters of neoliberalism view of globalization state that globalization constrains government

options but offers prosperity to countries which comply with its requirements. Additionally, they

claim that with the growing levels of technology globalization is inevitable as explained through

the Third Wave theory while also advocating those mistaken policies were to blame for the

breakdown of economies in nineteenth century. They argue that countries that failed to allow

immigration such as America’s and Oceania were doomed since they faced competition from

Europe which had allowed the movements resulting to equalization of factor prices, raising
 Proponents and Critics of Neoliberal View on Globalization 9

wages and lowering rents in Europe. On their part, critics of neoliberalism view of globalization

have provided several reasons as to why it is a conspiracy against growth of national identity and

western culture. They claim that first globalization has led to movement of capital freely leading

to destabilization and non-beneficial results, while others dispute the argument that exposure to

global competition reduces expenditure on welfare services. Also, critics using time series

evidence have shown that governments have slowed down in public expenditure due to tax

revolts rather than international competition. Others have shown that social security systems

exposes citizens to increased poverty hence the need for multi-pillar mixed public-private system

against what the neoliberalists support social security systems. Clearly, anti-globalism movement

is justified on its view, while neoliberalism have arguments are factual, but how beneficial is

globalization in either point of view depends on number of factors.

 Proponents and Critics of Neoliberal View on Globalization 10

Reference List

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International political economy and multi-level governance. Routledge.

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Boas, T.C. and Gans-Morse, J., 2009. Neoliberalism: From new liberal philosophy to anti-liberal

slogan. Studies in comparative international development, 44(2), pp.137-161.

Germana, L., 2016. The Golden Straightjacket is out of Style. Best Integrated Writing, 3(1),

p.10.

Hatton, T.J. and Williamson, J.G., 1998. The age of mass migration: Causes and economic

impact. Oxford University Press on Demand.

Litonjua, M.D., 2010. International free trade, the WTO, and the third world/global

south. Journal of Third World Studies, 27(2), pp.45-70

Kotz, D.M., 2002. Globalization and neoliberalism. Rethinking Marxism, 14(2), pp.64-79.

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