Neoliberalism key terms Flashcards
Neo-Liberalism/The New Right
A theory that takes the view that the free market is the best way of organising and developing societies; against government intervention in society.
- This perspective has been the dominant perspective on international development since the 1980’s. This approach is also known as ‘the new right’.
- It is particularly associated with the economists such as Milton Freidman, Peter Bauer and William Easterly but it has its roots in The Wealth Of Nations published in 1776 by Adam Smith.
- Like Modernisation theory, Neoliberalism’s central idea is that developing countries should follow the rich world’s path to development, but it disagrees on the nature of the path. Most notably it rejects aid as a central process and questions how countries such as Britain were able to develop without a rich nation to provide cash. Instead, Neoliberalism sees trade as the crucial process in development and global inequalities.
- It advocates hold that growth can only occur in an environment where trade is encouraged by limiting barriers and increasing incentives for wealth creation and entrepreneurialism. In practice Neoliberals argue that this should be achieved by creating a free market in which governments minimise their interference in the economy and reduce ‘red tape’ and taxation wherever possible. (trade liberalisation)
In a nutshell- the state that does least is best.
Free Trade
Free trade allows traders to trade across national boundaries without interference from the respective governments. It is the opposite of economic protectionism.
Free market
An economic system in which government interference is minimised and all activity is governed only by the laws of supply and demand.
The laws of supply and demand
A market is any place where buyers and sellers meet to trade products. The market price is the amount customers are charged for the items and depends on demand and supply.
- Demand is the amount of a product customers are prepared to buy at different prices. Supply is the amount of a product businesses are prepared to sell at different prices. some products are in such high demand that customers are prepared to queue for them.
- There are many different types of market. The goods market is where everyday products such as DVD’s are traded. The commodities market is where raw materials such as wheat are traded.
- Market prices change when supply and demand patterns change. An increase in demand following a successful advertising campaign usually causes an increase in price. An increase in supply when a new business opens usually causes a fall in price.
The ‘invisible hand’
A metaphor used by Adam Smith to describe unintended social benefits resulting from individual actions. This has come to capture his notion that individuals’ efforts to pursue their own interest may frequently benefit society more than if their actions were directly intending to benefit society.
‘Trickle down economics’
The neoliberal idea that economic benefits provided to businesses and upper income levels will indirectly benefit poorer members of a society when the resources inevitably trickle down to them.
Economic protectionism
A term used to describe economic policies such as tariffs, quotas and subsidies which aim to protect domestic companies from foreign competition. It is the opposite of free trade
Tariffs
Taxes on imports to protect a country’s own industries
Quotas
Where the government puts strict limits on the number of foreign goods it allows to be imported into the country.
Subsidies
Payments given by governments to companies in their own country to make them more competitive in the global market.
Trade liberalisation
The neoliberal process of removing barriers to free trade such as tariffs, quotas and subsidies.
‘Red tape’
This refers to state regulations on businesses. Neo-liberals argue that de-regulation (cutting red tape) can stimulate the economic growth.
Structural Adjustment Plans (SAPs)
A set of conditions imposing neo-liberal policies on governments used by the IMF and attached the world bank loans. The conditions usually focus on these core ideas:
- Trade liberalisation- an agreement not to subsidise producers and to reduce import tariffs.
- Privatisation of public services.
- De regulation to reduce labour and environemtnal laws and business taxes.
The aim is to create conditions which attract outside investment from the TNC’s that will create new businesses inside the country and export in the global market. Critics argue that SAP’s have not worked and can be deeply harmful to people in poor countries who may lose their job as a result of trade liberalisation, or see their working conditions undermined as a result of de-regulation.
Privatisation may also make public services more expensive.
SAP’s acquired such a bad reputation that they were re-branded by the world bank and are now called ‘poverty reduction strategy papers’.
The ‘Washington Consensus’
This is a phrase used to describe the influence of Neo-liberalism on the World Bank and IMF (both of these institutions have their headquarters in Washington DC)/
Infant Industry Argument
Ha Joon Chang argues that the governments of economically less developed nations need to protect and nurture ‘industries in their infancy’ against superior foreign competitors until they grow up; this is known as the infant industry argument. This is a key argument in favour of economic protectionism.
