NEOLIBERALISM

AND ITS LIMIT

Objectives:

Explain the meaning of neoliberalism;

Discuss the components of neoliberalist discourse; and

Present an economic map on how the cities actually played a role

in constituting such programs and policies as well as altering
them
WHAT IS NEOLIBERALISM?

A policy model that encompasses both politics

and economics that seeks to transfer the control
of economic factors from the public sector to the
private sector. Many neoliberalism policies
enhance the workings of free market capitalism
and attempt to place limits on government
spending, government regulation and public
ownership.
Understanding Neoliberalism

Neoliberalism is related to laissez-faire economics, a

school of thought that prescribes a minimal amount of
government interference into the economic issues of
individuals and society. Laissez-faire economics proposes
that continued economic growth will lead to technological
innovation, expansion of the free market and limited state
interference.
 LIBERALISM NEOLIBERALISM
 A political philosophy  An economic philosophy

Mainly focuses on Focuses on the free

individual freedom of trade and privatization
thought, religion, life, etc.
property ownership etc.
Usage is declined and
Popular even today in the term is now rarely
many nations used.
 Characteristics of Neoliberalism

ELIMINATION
OF THE PUBLIC DEREGULATION
GOOD

PRIVATIZATION

REDUCING PUBLIC FREE TRADE

EXPENDITURE
 Benefits of Neoliberalism

1. Economic
3. Lower Taxes
Efficiency

4. Higher Level
2. Cheaper Goods
of Investments
 The argument behind Neoliberalism is that government is
inherently inefficient. It is inefficient in the sense that it cannot go
out of business. Whilst a business that makes a consistent loss
would go bust – the government carries on. Most governments
maintain a budget deficit in the millions, spending more than it
receives, yet it is able to carry on. Companies that make a profit
are largely efficient, whilst those that make a loss are not and will
go out of business. By reducing the role of government, markets
are able to weed out the inefficient companies, whilst allowing
those that produce a good at a reasonable price to succeed.
ECONOMIC
EFFICIENCY
 Neoliberalism believes in free markets and free trade
between nations. By reducing trade barriers, the
consumer pays a lower amount than dictated by the
import tariff. At the same time, by allowing foreign goods
into the country, a greater level of competition is created.

CHEAPER GOODS
Reduces the need for such high levels of taxation. For
instance, if the size of government could be reduced in
half, then taxes could also follow suit. This would then give
the individual the freedom to choose where they would like
to spend their income. In doing so, we are able to achieve
a greater level of utility as our income is directed to areas
that maximize our happiness and enjoyment.

LOWER TAXES
 With lower levels of government regulation and taxation, it
incentivizes companies to invest – both from foreign as
well as domestic firms. This is because the benefits the
firm receives is much higher. therefore, creates an
incentive for businesses to improve on their efficiency and
invest in new and more productive equipment. At the same
time, the presence of foreign competition forces
companies to become more efficient else go out of
business. All of which require investment.

HIGHER LEVELS OF
INVESTMENT
Central claims of
Neoliberalism
 Neoliberalism aims to give universal
legitimacy to an idea of freedom based on

1 the individual and the private sector, an idea

which dates back to eighteenth century
liberal ideology
The basis for successful economic

2 growth and thus individual human

happiness lies in the free operation of
markets

3
Government intervention, it is believed
hinders the operation of markets thus
impedes economic growth.
 Former name:
International Bank
for Reconstruction
and Development
- Founded in 1944
- Primarily been concerned with providing
developing countries with loans predominantly for
development projects
- Such loans provide scope for the institution to
exert particular influences
 The International Monetary
fund was established in
1944 in the aftermath of the
great depression of the
1930s.
-An organization of 190 countries, working to foster
global monetary cooperation, secure financial stability,
facilitate international trade etc.
-Focuses on the short-term economic stabilization of
member countries, with the aim of ensuring that a
country’s economic management is in balance.
THE DEBT CRISIS (1980s)

The Latin America debt

crisis was a financial crisis
that originated in the early
1980s (and for some
countries starting in the
1970s), often known as La
Década Perdida (The Lost
Decade).
The standard explanation of why the debt crisis occurred in the 1980s
goes something like the following.

During the past two decades, many Latin American nations were
1 dubbed "emerging nations" and were given loans to enable them
to strengthen their economies.
In the past five years, several Latin American nations have
2 taken steps to achieve financial stability and reign in their
sovereign debt through bond swaps and restructuring.
At that time, the world’s oil came from a very few

3 nations, primarily in the Middle East, who

worked under the OPEC.
 The issue began in the mid 70 when oil prices increase more

4 than 300% and mostly countries in Latin America were oil

importers and had faced higher production cost.

In the early 1970’s, however, the prices of oil rose sharply

5
as a result of the OAPEC’s imposition of an embargo in
response to the decision of the US and other countries to
resupply the Israeli military with the needed arms during
the Yom Kippur War.

6
Arab countries also used the
embargo to stabilize their economies
and growth.
7
The oil embargos placed by OAPEC quadrupled
the price from 290 to 1165 per barrel.

This was done due to political and military reasons –

8
- a response to the West siding with Israel against Arab
countries during the Yom Kippur War in 1973, and
- Iranian revolution that disrupted the oil imports in
1979.

9
The "oil embargo" affected the
Western economies that were
reliant on oil.
 Many countries – such as the leading capitalists

10
countries like USA, Japan and Europe – experienced
this crisis, which is called stagflation.
 THE DEBT CRISIS
The Borrowers? The Lenders?

• Excessive Borrowing • Excessive lending

• Corruption • Poor oversight

Debt crisis threatens US economy

- 7 of 10 largest US banks threatened with bankruptcy
 Debt Crisis Management
Period Name of Plan Description
Rescheduling,
1982 - 1984 IMF Austerity
New lending
New lending,
1985 - 1989 Baker Plan
Pro-growth
1989 - Brady Plan Debt - reduction

1996 - HIPC Debt - reduction

 CITIES OF NEOLIBERALISM
Movement to the dominant rhythm established by
the key institutions of neo-liberalism is thus almost
unavoidable. Cities, too, are unable to escape the
influence of this environment, where private-sector
finance plays a growing role in processes of
urbanization, such as in infrastructure provision—
the provision of urban transport, waste disposal,
power, airports, water supply and so on.
 CITIES OF NEOLIBERALISM
There is a close relationship between the growth of large cities
and national economic development. According to World Bank,
- one third of Thailand’s gross domestic product (GDP)
originates in Bangkok
- more than 60 percent of the manufacturing firms in the
Philippines are located in Manila
- nearly 50 percent of Sri Lanka’s employment in commercial,
financial and transport services is accounted for by Colombo

World Bank claimed that over half of all GDP in the greater
majority of developing countries could be traced to urban areas.
 CITIES OF NEOLIBERALISM
 The World Bank, the United Nations Centre for Human
Settlements (UNCHS) (HABITAT), and the United Nations
Development Programme (UNDP) joined forces and
founded the (New) Urban Management Programme (NUMP).
This was a two-phase programme.
 The purpose of the NUMP Phase one supposedly was to
help to ‘improve’ approaches to land management, municipal
finance, infrastructure and, since the early 1990s, health and
poverty. But through the establishment of NUMP institutional
structure, certain urban issues are fostered.
 Conclusion

The main lesson from this is not that an

institutional architecture is not required, but rather
that there is a need to develop an international
debt workout mechanism. Furthermore, and most
important, it is 31 essential that international
financial institutions should never be used to
support the interests of the creditor countries.
Components
of
Neoliberalism
Political Policy Aspects
Neoliberal policies center around economic
liberalization, including reductions to trade barriers and
other policies meant to increase free trade, deregulation
of industry, privatization of state-owned enterprises,
reductions in government spending, and monetarism.
Neoliberal theory contends that free markets encourage
economic efficiency, economic growth, and
technological innovation.
Economic and Political freedom

Economic and political

freedom are inextricably
linked with each other. There
cannot be any question of
liberty and religious and
intellectual tolerance where
there is no economic freedom.

—Ludwig von Mises

Political freedom often lays the foundation upon which
economic freedom and therefore prosperity can be
built. It has often been pointed out that increasing
economic freedoms tends to raise expectations on
political freedoms, eventually leading to democracy.
For example, a rule of law that respects property
rights, enforces contracts, and punishes corruption is
essential for the operation of business enterprise.
Free trade
A central feature of neoliberalism is the
support of free trade, and policies that enable
free trade, like the North American Free
Trade Agreement, are often associated with
neoliberalism. Neoliberals argue that free
trade promotes economic growth, reduces
poverty, produces gains of trade like lower
prices as a result of comparative advantage,
maximizes consumer choice, and is essential
to freedom, as they believe voluntary trade
between two parties should not be prohibited
by government.
Monetarism
Formulated by Milton Friedman, it focuses on the
macroeconomic aspects of the supply of money, paying
particular attention to the effects of central banking. It
argues that excessive expansion of the money supply is
inherently inflationary and that monetary authorities should
focus primarily on maintaining price stability, even at the
cost of other macroeconomic factors like economic growth.
Monetarism is often associated with the policies of the
US Federal Reserve under the Chairmanship of
economist Paul Volcker which centered around high
interest rates that are widely credited with ending the
high levels of inflation seen in the United States during
the 1970s and early 1980s as well as contributing to
the 1980–1982 recession.

Three key objectives for monetary policy in the

Federal Reserve Act:
•maximizing employment
•stabilizing prices
•moderating long-term interest rates.
 The progress of the last 40 years has been mostly cultural,
culminating, the last couple of years, in the broad legalization
of same-sex marriage. But by many other measures,
especially economic, things have gotten worse, thanks to the
establishment of neo-liberal principles — anti-unionism,
deregulation, market fundamentalism and intensified,
unconscionable greed — that began with Richard Nixon and
picked up steam under Ronald Reagan. Too many are
suffering now because too few were fighting then.
—Mark Bittman
The impact of the Great Recession in 2008 has given rise to a surge in new
scholarship that criticizes neoliberalism and seeks policy alternatives.

Market fundamentalism 1

Inequality 2
Globalization 3

Imperialism 4
Global Health 5
Environmental Impact 6
Market fundamentalism
Economists argue that neoliberalism is a system that socializes costs
and privatizes profits.
Inequality
The Center for Economic and Policy Research’s (CEPR) Dean Baker
argued in 2006 that the driving force behind rising inequality in the
United States has been a series of deliberate neoliberal policy
choices, including anti-inflationary bias, anti-unionism and
profiteering in the healthcare industry. The globalization of
neoliberalism has been blamed for the emergence of a “precariat”, a
new social class facing acute socio-economic insecurity and
alienation.
Globalization
Neoliberalism is commonly viewed by scholars as encouraging of
globalization, which is the subject of much criticism. Globalization
can subvert nations’ ability for self-determination.
Imperialism
Geographer David Harvey argues neoliberalism encourages an
indirect form of imperialism that focuses on the extraction of
resources from developing countries via financial mechanisms. This
is practiced through international institutions like the International
Monetary Fund (IMF) and World Bank who negotiate debt relief
with developing nations.
Global Health
Rick Rowden, a Senior Economist at Global Financial Integrity, has
criticized the IMF’s monetarist approach of prioritizing price stability
and fiscal restraint, which he alleges was unnecessarily restrictive
and prevented developing countries from scaling up long-term
investment in public health infrastructure.
Environmental Impact
It has been argued that trade-led, unregulated economic activity and
lax state regulation of pollution have led to environmental
degradation.
 Cities and the
Economic change
 How Neoliberalism Contributed to
the Reduction of Society's Capacity
to Respond to Epidemics
The first observation that needs to be made is that expansion of
neoliberalism (with its commercialization of medicine alongside
other dimensions) has contributed to the fact that since the
1980s, the world has witnessed no fewer than 4 large
epidemics (Ebola, SARS, MERS, and now COVID19).
The application of policies such as the deregulation of
globalization of capital and labor, alongside policies of social
austerity, is one of the factors that has most contributed to the
expansion of such diseases on both sides of the North Atlantic.
Two of these policies have been particularly
important.

• The deregulation of the movement of capital

and labor.
• Detrimental to the quality of life of
populations.
Higher Education: The Next Frontier
Neoliberalism as exception also
appears to be growing stronger at
academic venues
Japan and South Korea were educational laggards in
the 1950s (when less than 10 percent of their
respective populations had access to higher
education), but have spectacularly implemented an
ambitious plan with a view to make their nationals
enroll in higher education courses.
In the Philippines, neoliberalism first came in the form of the
structural adjustment program imposed by the World Bank in the
early 1980's, in the latter's effort to strengthen the economy's
capacity to service its massive external debt.
A neoliberal approach to development, as advocated by the World
Bank and the IMF, has only benefited the global capitalist political-
economic networks (including certain Filipino partners), and the
Philippine state; and these benefits all come at the direct cost of
the large majority of Filipinos. This program has failed on its own
terms and been a social disaster as well.
 Affect of Cities to the Economy

Cities plays an important role in economic

development

Cities provides:
1. Economies of Scale
2. Agglomeration
3. Localization
 Cities should consider the
following three policy solutions
to improve the economy
1. Attract more low-skilled jobs and
high skilled jobs in exporting sectors
2. Improving access to jobs by improving
transport links
3. Improving access to jobs by building
more homes
END
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