Key Principles of Neoliberalism

Outline the key principles of Neoliberalism and its actual and prospective contribution to wealth and welfare in developing societies. Counter-revolution was seen as a new vision of growth when it first comes out. In the mid 80s, the development if counter revolution was supported by the Western media and government aid agencies, also by some very influential international organisation, e. g. the World Bank Counter revolutionaries see themselves a better interpretation than the development economics.

The development economy identify the problem of the developing countries in various way, it imply dual economics, labour surplus, low level equilibrium trap, unbalance growth, vicious cycle of poverty, big push industrialisation, foreign exchange bottlenecks and unequal exchange rate. However, counter revolutionaries claim the orthodox economics was unrealistic because of it assumption on people behaviour and technology implication in the industry. Also, it’s said to be irrelevant, since it’s main concern is with the allocative efficiency of given resources.

These weakness means the development economics cannot address the problem of the growth aspect, neither it could deal with the problems of poverty and the distribution of income. Some counter revolutionaries believe that, the 3rd world exists only as a kind of collective psychological delusion. It’s important to see how the counter revolutionaries interpret their view to the 3rd world to understand its policy concept. And their views on 3rd world derive from its continuing political engagement with the struggle against socialism. They also stress that the 3rd world had a kind of 3rd worldism, which contains an anti-west attitude.

They seen the west as exploiters who exploits the benefits from the already poor 3rd world, and in some cases, they are right, and these attitude and facts alleged crypto socialist policies of 3rd world government. Counter-revolution was an abrasive now approach. When looking at the policy of the counter-revolution, we ought to see how it views the 3rd world problem, and what solutions do can the counter-revolution offers. According to the counter revolutionaries, the main problem of the 3dr world countries is their over-extended public sector, which cause the problems limitation through government intervention and central planning.

For an economics to be efficient, there needs to be the existence of the market and incentives. However, they are being filters through government policies and agencies. Also, counter revolutionaries seen physical investment is only one of the determinants for the growth in the development. Human development such as education and building of infrastructure are as important as physical investment, and it should not be place as a less important government objective than physical investment. The economics policies of government and the distortion they induce re now the major focus of the analysis of the development policy.

The clear induction we can see here is that, unnecessary government intervention will endanger the benefits of the market, and the relatively unimportance of human development policy, which will hinder the process of development. These are the main components of the counter-revolution’s new vision of growth. Why would be the public sector being the problem? We can see from an example. If there’s a public electricity corporation which is making a loss, the government decide to make up the loss by subsidise it using the tax revenue, the end result will be little incentives for the management to minimise cost.

Cost minimisation is essential for n efficient market and the process of cost minimising is difficult and time consuming, and it’s unlikely to take place without some pressure or incentives. If the government removes that pressure, public enterprise tends to become complacent and high cost. As a monopoly, the public sector is said to be fail to respond adequately to consumers preferences by insulate itself from the consumer demand. Also, many 3rd leaders may wish to strengthen their political power by influencing the economic performance, thus the country’s development prospect.

This means that when an economic decision was made, it’s on the benefit for the politicians, not to the economy. And these are the factor causes other problem in the 3rd world countries, such as problem on foreign trade and industry, distortion of key prices (e. g. exchange rate) in the economy, which in turns causes balance of payment problems. The other main issue arise for counter revolutionaries are the practice for trade and aid policy. There are a few anomalies highlighted by counter-revolution. Some counter revolutionaries’ claims that official aid has a regressive impact on world income distribution.

It’s theoretically possible according to Bauer, ‘many tax payer in the donor cities are far poorer then many people in the 3rd world countries where, moreover, aid often benefits the prosperous rather than the needy. ‘ Sometime, the aid is aimed to relief poverty in the recipient country, but the recipient country may resist it since they feel such attempts infringe its sovereignty. E. g. , local farmers will suffer income lost if food aid was given to people free of charge, no one will spend money on the domestic food products. Thus, the donor’s citizens could have been taxed for the benefits of an unfriendly state.

These are the major anomalies concern the counter revolutionaries on the ground of aid giving. Also, when aid is given to a 3rd world country which already had a over extended public sector, the government will tends to use the aid to support that public sector, which they can still claims that the aid had been used on the development of the economy. In this case, aid has help to boom the unproductive public sector beyond what it would have been in the absence of aid. The counter-revolution views conclude that, aid should therefore be given to the private sector.

One of the anomalies emphasized by the counter-revolution is that the giving of aid merely relief poverty in the 3rd world, it might even worsening it. In the opinion of the counter revolutionaries, aid should be abolished. However, for political reason, this is very unlikely will be the case. So counter revolutionaries advocates that, aid should be reduce in size, also, it should be use as reward for policy reforms. Policy reforms which shows development of the economy as well as living standard of the people and the moving towards socialism. The counter revolutionaries also have its view on trade.

Counter-revolution has always opposed controls over foreign trade. At international level, the counter-revolution’s opposition to ‘ management trade’ has been expressed through its critics to the International Commodity Agreements (ICA). ICAs are internationally negotiated schemes of intervention in the markets for exports of primary products. Counter revolutionaries oppose ICA because of its failure to alleviate the poverty in the 3rd world countries. Little suggests that ‘ The increase political management of trade is unlikely to help the poor or the poorest states’.

Counter revolutionaries suggest that the 3rd world countries are minimally involved with production for export because they tends to be remote, isolated and lacking the skills to forge the effective links with their surrounding society. However, in the reality, the arguments of the counter- revolutionaries do not entirely hold up. About the point of 3rd world countries lack of share in export, we can actually see that, in 1982, one third of the 3rd world countries had export that accounted for 20% or more of third domestic product.

Further more, on average, 60% of the export of the 3rd world countries was of fuels, minerals or other primary commodities. And for the counter- revolutionaries’ negative opinion on aids, in the case of India, Bangladesh and South Korea, aid merely creates what the counter- revolutionaries sees as dirigiste syndrome. When counter- revolution is implemented across Africa, it had failed in nearly all situations, per capita income down 10% over the period. They were not prepared for high-level market openness.

In Philippines and Sri Lanka, there were mix results, but certainly not successful, causing economic growth fell, increase in poverty and unemployment. The most successful case of the counter-revolution policy is in South Korea, where it achieve falling inflation rate, GNP growth and income distribution improved, current account deficit narrowed and social welfare improved. But the success can be achieve only because they were not only looking at the macroeconomic in nature, but also consider social welfare.

The unhelpfulness of the counter- revolution comes from its particularly strong preconception of the actions that need to be taken to promote development. That preconception is that development problems are problems of resources allocation. It has also been attacked for its simplistic accounts of the nature of ‘real’ markets in many developing countries and for their one – dimensional accounts of what motivates apparently isolated economic actors. Some policies and theories do have some merits, but they need to be accompanying by other policy to make it effective.