NEOLIBERALISM : OUTLINE DEFINITION OF NEOLIBERALISM HISTORY OF NEOLIBERALISM CRITICAL ANALYSIS NEOLIBERALISM IN THE PHILIPPINE CONTEXT
DEFINITION A. GLOBALIZATION B. NEOLIBERALISM
WHAT IS GLOBALIZATION? GLOBALIZATION a process of interaction and integration among people, companies, and governments of different nations.
WHAT IS GLOBALIZATION? GLOBALIZATION driven by international trade and investment and aided by information technology, which effects on every aspect of human life.
WHAT IS GLOBALIZATION? ECONOMY A defining feature of globalization, therefore, is an international industrial and financial business structure.
WHAT IS GLOBALIZATION? This current wave of globalization has been driven by policies that have opened economies domestically and internationally. Many governments have adopted free-market economic systems, vastly increasing their own productive potential and creating myriad new opportunities for international trade and investment.
WHAT IS GLOBALIZATION? TECHNOLOGY Advances in IT have affected economic life and created new tools for identifying and pursuing economic opportunities.
WHAT IS NEOLIBERALISM? NEOLIBERAL THEORY A largely unregulated capitalist system not only embodies the ideal of free individual choice but also achieves optimum economic performance with respect to efficiency, economic growth, technical progress, and distributional justice. “The state is assigned a very limited economic role: defining property rights, enforcing contracts, and regulating the money supply.” (Kotz, 2000)
WHAT IS NEOLIBERALISM? It is essentially about making trade between nations easier. It is about freer movement of goods, resources and enterprises to maximize profits and efficiency.
WHAT IS NEOLIBERALISM? Cardinal feature of neoliberal thinking: the assumption that individual freedoms are guaranteed by freedom of the market and of trade. The freedoms it embodies reflect the interests of private property. Thus requires the removal of various controls deemed as barriers to free trade, such as: tariffs, regulations, certain standards, laws, legislation and regulatory measures, and restriction on capital flows and investment.
HISTORY OF NEOLIBERALISM WHY THE NEOLIBERAL TURN? WHAT INSTITUTIONS WERE ESTABLISHED?
WHY THE NEOLIBERAL TURN? Case 1: 1939-1945 – World War II: Many countries were left devastated. This led to the restructuring of state forms and international relations designed to prevent a return to the catastrophic conditions that threatened the capitalist order The thinking at the time: Both Capitalism and Communism had failed in their raw forms The conclusion at the time: To construct the right blend of state, market, and democratic institutions to guarantee peace, inclusion, well-being, and stability. Theory: This paved the way for the introduction of Neoliberal Policies: Supposedly a tool in preventing the re-emergence of inter-state geopolitical rivalries that led to the war.
WHY THE NEOLIBERAL TURN? Case 2: After the two world wars, the US emerged dominant in the global economy. 1950s: One third of world exports came from the U.S. Theory: To ensure its dominance, the US restructured the world economy through neo-liberal policies such as deregulation and liberalization. Deregulation: put simply, deregulation means limiting government control over market forces. Liberalization: The trade liberalization program invariably consists of the elimination of import quotas and the reduction and unification of tariffs. Aim: To create new markets for its surplus products and excess capital.
INSTITUTIONS ESTABLISHED THE UNHOLY TRINITY INTERNATIONAL MONETARYFUND (IMF) WORLD BANK (WB) WORLD TRADE ORGANIZATION (WTO)
INSTITUTIONS ESTABLISHED BRETTON WOODS INSTITUTIONS INTERNATIONAL MONETARY FUND (IMF) WORLD BANK (WB) What are they?
INSTITUTIONS ESTABLISHED THE INTERNATIONAL MONETARY FUND (IMF) The IMF was to be a supra-national body that would regulate exchange rates of currencies among member-countries and ensure global financial “stability” by extending loans to members to help them address balance of payments crises.
INSTITUTIONS ESTABLISHED The World Bank (WB) It consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Both institutions make loans to governments for projects and programs related to "development," that is, loans designed to promote economic and social progress in member countries.
INSTITUTIONS ESTABLISHED HOW WERE THEY FORMED? 1944: Bretton Woods Conference: The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), also known as the Bretton Woods Institutions (BWIs), were formed in Bretton Woods, New Hampshire in 1944 on the eve of the end of World War II. The conference intended to "formulate definite proposals for an International Monetary Fund, and possibly a Bank for Reconstruction and Development." They were precursors to the United Nations and other multilateral institutions formed after World War II and reflected the new spirit of cooperation between nations, especially in economic matters.
Early Staff of the World Bank
WHAT FUNCTIONS DO THEY SERVE? Oversees the international monetary system. Provides short- to medium-term credits to member countries who find themselves in temporary balance of payments difficulties. Supplements the currency reserves of its members through the allocation of SDRs (special drawing rights) Provides training and technical assistance in the areas of finance management system, tax system, banking system development to its member countries Helps to draw a systematic process for foreign transactions to take place. Assists developing countries through long-term financing of development projects and programs INTERNATIONAL MONETARY FUND WORLD BANK (WB)
ESTABLISHED INSTITUTIONS 1947: GENERAL AGREEMENT ON TARIFF AND TRADE (GATT)
ESTABLISHED INSTITUTIONS WHAT IS IT? It is a multilateral agreement among countries that provides a framework for the conduct of international trade. It contains disciplines on matters related to import and export of goods. Through this, countries committed to reduce tariffs on certain imported products.
ESTABLISHED INSTITUTIONS HOW WAS IT FORMED? The US drafted a charter for a proposed International Organization (ITO), but it was heavily amended in the UN—evoking opposition from the US. Eventually, because of such heavy opposition from the US, the ITO was “dead”. Negotiations on trade liberalization, however, continued. Trade rules and tariff concessions were negotiated during the 1947 Geneva conference and signed in November that year.
ESTABLISHED INSTITUTIONS WHAT IS ITS FUNCTION? The General Agreement on Tariff and Trade (GATT) aimed at the abolition of quotas and the reduction of tariff duties among the Contracting nations.
ESTABLISHED INSTITUTIONS 1995: WORLD TRADE ORGANIZATION(WTO)
ESTABLISHED INSTITUTIONS WHAT IS IT? The WTO is a freestanding organization with legal personality and with self-executing enforcement, meaning that it contains binding dispute mechanisms to enforce trade rules. It was established to supervise and liberalize world trade. It is the successor to the GATT.
ESTABLISHED INSTITUTIONS HOW WAS IT FORMED? 1980s: There were calls for a stronger multilateral organization to monitor trade and resolve trade disputes. The WTO began operations on January 1, 1995. Following the completion of the Uruguay round (1986-1984) of multilateral trade organizations.
ESTABLISHED INSTITUTIONS WHAT IS ITS FUNCTION? To set and enforce rules for international trade. To provide a forum for negotiating and monitoring further trade liberalization. To resolve trade disputes. To help developing countries benefit fully from the global trading system.
CRITICAL ANALYSIS NEOLIBERALISM
CRITICAL ANALYSIS CREATION OF THE IMF AND GATT These financial institutions supposedly aimed to assist in global economic post-war recovery. Upon closer inspection, however, it is clear they are actually avenues for spreading and enforcing neoliberal policies. For the IMF, loans were given under the condition that the borrower country must adopt a package of economic policies that were neoliberal in nature and promoted US dominance. For the GATT, it was easily manipulated by powerful countries because of its provisional and overall tenuous nature.
CRITICAL ANALYSIS GATT: AN AGREEMENT TO REDUCE TARIFFS Meant to promote “free trade” principles like liberalization, equal market access, reciprocity, non-discrimination and transparency on a global scale. The commitment to reduce tariffs is inherently imbalanced. Generally, tariffs serve 3 functions: they protect local industries from foreign products, provide an additional source of revenue for the government and allocate foreign exchange among different competing imports.. Moreover, powerful countries like the US would simply circumvent the GATT and intervene directly whenever its economic interests were being threatened.
CRITICAL ANALYSIS WORLD TRADE ORGANIZATION Created to continue the fundamental principle of the GATT that exported goods should generally be free to enter into the importing country. The objectives of free trade—objectives the WTO forwards, such as opening agriculture, industry and services as well as liberalizing investments—serve the interest of developed countries thus are inherently unbalanced. It is an organization that prides itself on its democratic processes and decisions made by consensus. But even Former director-general Michael Moore acknowledges the inequalities present in the organization, saying, “Some members are more equal to others when it comes to influence.” There is much behind-the-scenes maneuvering to the detriment of the interests of developing countries. Ex: the WTO’s infamous “Green Room” meetings Ex: The WTO’s dispute settlements processes
CRITICAL ANALYSIS WORLD TRADE ORGANIZATION Transnational corporations (TNCs) play a huge role in the WTO—which solidifies the bias of the organization towards larger rather than smaller companies. Right from the start, TNCs stood to gain from the liberalization measures of the WTO. TNCs have access to the highest decision-makers and staff of the WTO. Powerful countries, again, find various ways to circumvent the rules while developing countries follow them and suffer the consequences. For instance, many developing countries have made huge reductions in their tariffs and bound them. India’s trade-weighted average tariff has been reduced from 71.4% to 32.4% while the tariff in developed countries has only been reduced from 6.3% to 3.8%.
CRITICAL ANALYSIS WORLD TRADE ORGANIZATION “The WTO is inherently unjust since it pits powerful countries against poor and weak ones in the arena of “free trade”, perpetuates the subjugation of nations through the intensification of neocolonial trade, and promotes the interests of corporations to the detriment of peoples across the globe. It is thus anti-development and anti-people as it undermines the capacity for genuine national progress, destroys economic sectors and people’s livelihood and intensifies poverty.”
CRITICAL ANALYSIS DISPARITY BETWEEN THE THEORY OF NEOLIBERALISM AND THE PRAGMATICS OF NEOLIBERALISM Principles of neoclassical economics vs political commitment to individual freedom Distrust of state power vs the need for an authority to defend rights of private property, individual liberties and entrepreneurial freedom.
CRITICAL ANALYSIS RESTORATION OF POWER Gerard Dumenil and Dominique Levy have concluded that neoliberalization was, from the very beginning, a project to achieve the restoration of class power. 1970’s capital accumulation crisis: There were clear political and economic threats to elites and ruling classes everywhere. They had to move decisively to protect themselves from political and economic annihilation. After the implementation of neoliberal policies in the late 1970’s, extraordinary surges in income inequalities and wealth occurred in the US, Britain, Russia, China and Mexico.
CRITICAL ANALYSIS RESTORATION OF POWER The rich and powerful of the world have formed somewhat of an informal alliance with one another in order to protect their mutual interests and maintain their dominance. They “posses a certain accordance of interests that generally recognizes the advantages to be derived from neoliberalization.” We can even go as far as to say that a political consensus has been reached; that governments throughout the world have fully embraced the neoliberal policy agenda.
CRITICAL ANALYSIS POVERTY, OVERPRODUCTION AND LOCAL DISINTEGRATION Harsh economic measures have resulted in the gradual disintegration of the Welfare State. Because of the large accumulation of public debts in western countries, the financial elites have been given the power to dictate government economic and social policy.
CRITICAL ANALYSIS POVERTY, OVERPRODUCTION AND LOCAL DISINTEGRATION This economic restructuring has made the divide between different social and ethnic groups even deeper. Moreover, it has increased the potential capacity of the economic system and expanded levels of production without reducing poverty significantly. Micro-Efficiency = Macro-Insufficiency: Global oversupply of commodities: a result of the unlimited capacity to produce and the limited capacity to consume. In developing countries, entire branches of industry producing for the internal market are driven into bankruptcy on the orders of the WB and IMF
CRITICAL ANALYSIS DIARMING THE NEW ORDER “The New World Order is based on the ‘false consensus’ of Washington and Wall Street, which ordains the ‘free market system’ as the only possible choice on the fated road to a ‘global prosperity’.” In order to disarm this world order, we must democratize the economic system and its management and ownership structures. We must redistribute income and wealth, restore the rights of direct producers and rebuild the Welfare State.
IN THE PHILIPPINE CONTEXT NEOLIBERALISM
PHILIPPINE CONTEXT Payne-Aldrich Act of 1909 Allowed unlimited quantities of all kinds of U.S. Goods to enter the Philippines freely Importing U.S. goods became an obligation for the Philippines Philippine exports to the U.S. were given particular quota restrictions
PHILIPPINE CONTEXT 1946 Bell Trade Act 1954 Laurel-Langley Agreement Provisions of this act tied the Philippine economy to the economy of the United States. Despite the nominal independence of the Philippines at that time, these established free trade with the U.S., so neocolonial patterns were sustained.
PHILIPPINE CONTEXT THE MARCOS DICTATORSHIP Authorized a series of investment incentives laws which maintained the neocolonial preferential treatment for foreign investors and allowed the neocolonial trade patterns to continue
In general, foreign investors benefitted.
PHILIPPINE CONEXT AGRICULTURE Background Information
1/3 of the land area of the Philippines is fertile and can be used for agriculture
The Philippine economy is predominantly agrarian Agriculture, fishery, and forestry contributed to almost 20% to the GDP[Gross Domestic Product]
PHILIPPINE CONTEXT HOW TRADE LIBERALIZATION UNDER THE WTO HAS AFFECTED IT Although the government attributes the weak growth of agriculture to factors such as seasonal weather conditions, the fact that there is no sustained growth points to the conclusion that the crisis besetting the agricultural sector is structural in nature: low level of technology, small economies of scale, rampant landlessness, and concentration of land ownership among a relatively small elite. Thus, the local agriculture industry is extremely weak and uncompetitive and puts small producers at a disadvantage in the trade liberalization implemented by the government as dictated by the WTO. The Ramos, Estrada and Arroyo administrations all embraced WTO policies (trade liberalization), implementing privatization and deregulation in the local agriculture industry. This devastated the farmers’ livelihood and the rural economy, because the domestic market was flooded with imports while local farmers’ produce were still unable to penetrate the markets of developed countries.
PHILIPPINE CONTEXT INDUSTRY Background Information: In 2004, 33% of the Philippines’ GDP came from the industry sector How Trade Liberalization under the WTO has affected it The government’s policy of attracting foreign investments increased foreign dominance in Philippine industries. Footwear, apparel, rubber, textile, glass, tires, paper, wood, cement, and steel manufacturers in the country all suffered from imports and low tariffs. Many local companies were forced to downsize/close because of the foreign competition. Many workers were laid off or force to go on rotation 45.1% of workers in January to March 2004 were displaced because of reorganization, downsizing, and change in management (merger). 8 establishments reduced their number of workers or closed down every day, and 196 workers were displaced daily. In July 2004, approximately 2,688 Filipinos left the country everyday.
PHILIPPINE CONTEXT SERVICES Background Information: Roughly 44% of the Philippines’ GDP is from the Service Sector How Trade Liberalization under the WTO has affected it The Philippines has committed under the GATS to bind all restrictions on market access and has applied national treatment on foreign investors and suppliers in financial services The Privatization and Commercialization of social services is a burden to average Filipinos. Rates for vital utilities increase, making them less accessible. Many families could not pay for healthcare in Public Hospitals. Education became so costly because of the privatization of state colleges and universities. Local service providers are marginalized because of the liberalization under GATS. Capital has become concentrated on foreigners, through TNC’s.
REFERENCES GROUP 2 SOTTO SORIANO TENSUAN TABORA Sources:
IBON Data Bank and Research Center. 2005. WTO: The Supreme Instrument of Neoliberal Globalization. Manila: IBON Foundation. David Harvey. 2005. A Brief History of Neoliberalism, Oxford: Oxford University Press Michel Chussodovsky. 2003. The Globalization of Poverty. Ibon Books, pp. 1-64. Shah, A. (2010). A Primer on Neoliberalism. Retrieved February 13, 2011 from: http://www.globalissues.org/article/39/a-primer-on-neoliberalism Kotz, D.M. (2000). Globalization and Liberalization. Retrieved February 13, 2011 from: http://people.umass.edu/dmkotz/Glob_and_NL_02.pdf Globalization101.com (nd). What is Globalization? Retrieved February 13, 2011 from: http://www.globalization101.org/What_is_Globalization.html Shah, A. (2010). Poverty Facts and Stats. Retrived February 13, 2011 from: http://www.globalissues.org/article/26/poverty-facts-and-stats