Neoliberalism It is fair to say that since the 1980s, neoliberalism has increasingly gained ascendancy around the world

to become the dominant policy regime This has happened because of specific developments since the 1970s: Oil Crisis Higher wages and declining productivity Bloated state expenditures High Budget deficits Growth slowdown Dominant policy regime - All key political actors across the left-right ideological spectrum subscribe to neoliberal ideas or to a greater role for the marketthey do not blindly adhere to textbook neoliberalism but agree broadly with neoliberal ideas Are we all neoliberals now? Depends on how we define neoliberalism The global spread of neoliberalism - the so-called neoliberal revolution - began in Chile with Reagan and Thatcher, it spread across the world - Mexico from 1982 on - Argentina, initially for a brief while in the late 1970s but more surely from the mid-1980s - even Peru under Alberto Fujimori during the 1990s - and Bolivia where Jeffrey Sachs advised shock therapy to stabilize the economy The Chilean Case In 1973, the Chilean military seized power - economic policy dominated by Chicago boys first and only ever instance where textbook neoliberals were able to implement their policies in a controlled political and social environment - no labour unions, no political parties, no real opposition - initially, a famous Chilean miracle announced to the world on the basis of average growth rates of 10 per cent, low inflation etc - BUT THEN came the crash in 1981 - textbook neoliberals replaced by pragmatic neoliberals who did not

follow textbook rules of dos and donts even before the transition to democracy, pragmatic neoliberalism became a success story of sorts - even Left parties in Chile adhere to this form of neoliberalism The Chilean neoliberal model 1. 2. 3. 4. export-led growth; macroeconomic stability; tax reforms; and responsible social spending

However, the social costs of the neoliberal turn in Chile, as elsewhere remains a blot Globally, the spread of neoliberalism has led to adaptation within Left parties worldwide - Britains Labour Party became New Labour - the Spanish Socialists under Gonzalez became unrecognizable from real socialists - even down under, in Australia, the Labour Party moved closer to accepting neoliberal ideas - Chinas market revolution has borrowed upon neoliberal ideas - Brazil was slow off the mark but has gradually turned neoliberal even under President Lula of the left-wing Workers Party - India, a reluctant reformer, has opened up to neoliberal ideas In a sense, therefore, it is correct to say that we are all neoliberals now HOWEVER In the real world, we typically have pragmatic neoliberalism where select neoliberal ideas are picked up and applied to the extent that is politically feasible - it is one thing to determine what the right kind of policy is and another to actually implement the right policies in the real world eg. The Reagan and Thatcher administrations, both enormously successful in electoral terms, could not go far enough in dismantling the social policies that they inherited The ideas put forward by John Williamson and his collaborators - labeled the Washington Consensus is a good example of pragmatic neoliberalism According to Williamson, there are commonalities between the proposals made by him

and the neoliberals but the overlap is far from complete The Washington Consensus is/was distinct from neoliberalism because it did not promote the notion of a hands off state - it advocated an active social agenda - better social outcomes are possible only with a combination of high growth (trickle-down) and redistributive policies - without redistribution, neoliberal reforms prove unsustainable Policy innovation Universal social programmes often wasteful and disproportionately beneficial to upper and middle classes were reduced - targeted assistance programmes devised to reach the neediest sectors SAPs (structural adjustment programmes) in essence, market-state relationship should weigh in favour of the former; SAPs aimed to remove structural obstacles in the way of the proper functioning of markets through:

1. Fiscal austerity; 2. Privatization; 3. Trade liberalization 4. Retrenchment and deregulation.

Fiscal austerity belt tightening or government should reduce spending retrenchment is the key Why? a) Much of government spending is inefficient; b) Governments borrow to spend they go in debt; c) Government borrowings raise interest rates, making it difficult for individuals and firms to borrow and invest more productively; d) Government spending leads to inflation salaries go up, demand as well, prices of scarce commodities too; e) Inflation and high interest rates create disincentives for private investment;

f) Fiscal austerity leads to demand compression, which makes goods available for export whereby they were previously consumed domestically

Undertaking these measures would restore economic growth but it did not Why? a) Individuals and firms did not rush in to borrow and invest; b) When they did borrow and invest, it was not in desired sectors; c) Retrenchment from social sectors had negative consequences for human development and economic growth

Privatization Public sector enterprises should be sold Why? a) Public sector is inefficient does not produce goods at competitive prices + goods are of poor quality whereas the private sector is efficient and produces goods at competitive prices; b) The state earns revenues through the sale of public companies.

However, private is better and more efficient is an assumption privatization created its own set of problems both for consumers and for economic growth broadly

Trade liberalization, both foreign and domestic trade trade is the motor of prosperity How? a) Reduce tariffs eliminate price distortions; b) Remove qualitative and quantitative restrictions what can be traded and in what quantities; b) Devalue currency makes exports cheaper; c) Abolish marketing boards these distort prices, keeping them higher or lower when the prices should be just right which only the market can do