Unit Three: Neo-liberalism and Good Governance

It was interesting to look at the economics of development and its relationship to good governance. My reading for this unit mainly focuses on different perspectives on development economics and how it relates to development practice.  From WebCT discussion and further readings, I came across varied perspective from theorist such as Christopher Colclough, John Toye, Mick Moore, Hoogvelt, Adrian Leftwich, Grindle, alongside Greig, Hume and Turner perspectives on the subject matter.

“There is no excuse for any country, no matter how poor, to abuse its citizens, deny them equal protection of the law or leave them victims of corruption, mismanagement or economic irrationality“.  UN Millennium Project, 2005

Basically, Neoliberalism is a market-driven approach to development based on economic, social policy and neoclassical theories of economics that stresses the efficiency of private enterprise, liberalized trade and relatively open markets. Neoliberalism seeks to maximize the role of the private sector in determining the political and economic priorities of the country.Neoliberalism is based on the following principles; (1) Liberalization; enabling free competition(2) Privatization; sell off public sector(3) De-regulation; reducing the role of law and state(4)Lowering direct taxes; Increasing consumers choice(5)Market proxies in residual public sector(6) Internationalization; allowing inward and outward trade flows.

Since the 1970s, significant transformations has occurred in the global market for both developed and developing economies.  With the change in the global economic conditions through the oil crisis, emergency of the capitalist economy, increasing global competition, etc., the neoliberal ideology, which had been advocated since 1930s, became popular in the context of the late 1970s. This new order brought increasing foreign trade, interest rate liberalization, deregulation, privatization, decrease in state expenditures on social service and liberal foreign exchange regime instead of the state interventionism. Balkan and Sarvan (2002).

However, neoliberalism has certainly not only been dominant at the ideological level, but they were also applied as policies. Keynesianism, with its emphasis on state intervention and the social protections of the welfare state, was abandoned in the First World as a result of neoliberal policies.  In a very similar way, the development framework for developing countries which was dominant during 1950s and 1960s came to an end as a result of their inability to deliver on all their promises.  The emergence of development economic in poorer countries was based on an economic restructural adjustment programs which were imposed by IMF and the World Bank.  Bauer refers to it as creating rent-seeking society where poorer countries will forever be indebted to western economy. (Bauer, 1981: 12-13, 174). Hoogvelt coined it ‘debt peonage’ (Hoogvelt, 1997), while George (2004) was of the opinion that this sort of control over poorer economics required minimal effort as does not require physical administration but through invisible factors such as market policies and restrictions.

Neo-liberalism and Good Goverance

The term good governance is becoming increasingly popular in development studies.In context,  by nature of determing social and economic outlines of a country,  the scope and significance of neoliberalism has been transformed not merely into the political and ideological manifestation of economic structural change and public policy innovation at national level, but also into the political driving force behind governance. Supporters and critics of globalization alike either attribute neoliberalism with promoting economic growth and a more efficient form of transnationally open, free market capitalism, on the one hand, or attack it for justifying new forms of capitalist oppression, blinding elites and masses alike to the worsening inequalities and crisis tendencies engendered by globalization (Klein,  2007).

Neoliberalism has contributed a great deal to the intellectual and political debates in recent years as economic doctrine, public policy agenda, descriptive framework, analytical paradigm and social discourse. It has become deeply embedded in 21st century institutional behavior, political processes and understandings of socio economic “realities.”) Embedded neoliberalism has become the common sense of the 21st century governance.

The Evolution of a Hegemonic Paradigm from a relatively closed doctrine associated with particular individuals, governments, interest groups, political parties, international organizations and even academic  schools of thought like the Mont Pèlerin Society (Plehwe, Walpen and Neunhöffer, 2006), into a hegemonic concept that is seeping into and co-opting the whole spectrum of political framework.

Furthermore, global political process itself is opening up to a much wider range of political, economic and social actors (Cerny, 2000b). These include economic factors involved in transnationalizing firms, market structures and networks, along with business school academics concerned with developing global strategies; actors in transnational organizations; state actors in both traditional policymaking bureaucracies and “transgovernmental networks;” cross-border ethnic and religious groups; workers in high technology sectors; ordinary people linked through the internet who do not need to move physically to participate in transnational society; and consumers whose preferences are for transnationally-produced goods and assets.

All are co-opting neoliberal discourse in a variety of ways suited to their political resources, alliances, strategies and tactics – manipulating and transforming it to fit, justify and legitimate their own daily actions and Philip G. Cerny long-term goals (Harvey, 2005).  In effect, it is safe to say that neoliberalism is relative to “ bad or good governance”.

Objective Level: Neoliberalism has transformed global world’s economies in  different ways, critics argue that the extent to which the world has liberalized may often be overstated. Many economic liberals acknowledged on it own free access to the global market will not curb inequality within and across countries. Kuznets (1952). Modernization theorist Rostow, claimed inequality would diminish once the society were able to meet the basic needs of the people.

Milton Friedman  argued that economic freedom, while itself an extremely important component of total freedom, is also a necessary condition for political freedom. Friedman noted also that state intervention beyond educational services offered by the market “is not necessary” and that it leads to a system much worse than that which would have developed if the market had played an increasing role. He also suggested that centralized control of economic activities was always accompanied with political repression. Milton Friedman (1962). In his view, the voluntary character of all transactions in a free market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Friedman feels that competitive capitalism is especially important to minority groups, since impersonal market forces protect people from discrimination in their economic activities for reasons unrelated to their productivity.

Emotional Level: I believe neoliberalism is not a development model; it is the strategy put into practice by world super powers to exploit developing countries; world poorer countries are suffering immensely from heavy debt repayments, capital flight, and the repatriation of profits on foreign investments.  In spite of its failures in all fields (and by implication, the failure of its legions of experts), it continues to be imposed unilaterally and undemocratically. Meanwhile, intra- and international inequalities are thriving. Even the regulating mechanisms of global capitalism are in crisis. Presently, the fundamental feature of the power of global finance under U.S. hegemony is its militarization. This is measured less by the rise in the “military burden” indicator—military spending as a percentage of GDP—than by the aggressive expansion of U.S. military bases worldwide, as well as by the growing presence of transnational corporations within the military-industrial complex. Finance is at war against whoever tries to carry out or affirm autonomous development, and such development is the basic cause of the imperialist wars supporting finance. In Iraq, for example, there is the obvious desire of capital to control the oil. However, decisive reality is still lurking around, the appropriate reason for this is;  what is at stake and what makes this and other wars necessary for high finance is the reproduction of the conditions that allow capital’s power to be maintained and to grow. The capitalist class can no longer retain its power except by war. It is interesting to note that neoclassical economists have begun in earnest to develop a defense economics, but so far they have been unsuccessful. One reason for this failure is the inability of neoclassical economics to deal with conflict, a real problem in an analysis of war!

Interpretive Level: Although neoliberal policies have transformed global economy and was effective in managing the capitalist crisis, its failure to consider factors such as working conditions, environmental concerns, human rights consumer safety and public health has extracted from the world’s workers, peasants, and peoples, neoliberal policies have aimed to widen such outlets and avoid any devalorization of capital. Singer (2002) and Sen (1999). WTO rules prohibits trade restriction on the basis of how a product was produced. this process distinction tends to turn global regulation into an amoral realm. Tabb, (2001). Thus goods manufactured by exploited child labour cannot be banned in favor of goods manufactured under conditions where workers receive reasonable wages. In effect, I believe these polices have been harmful to most of humanity rather than developing it.

Decision Level: Cololough’s  notion that the lack of development is mainly caused by excessive economic intervention by governments (Cololough, 1991) is difficult to comprehend. Cases in sub-sahara Africa proves otherwise, as the state despite economic growth still seeks new avenues to exploit its poor citizens; much of it is a case  of the rich getting richer on the poor’s account and government aiding the process. In retrospects  can neoliberalism aid good governance? the answer is obviously no.

In a poverty stricken economy the only way to avoid mass toils of hunger related death is government intervention through financial subsidization in order to maintain political and social order and stability in the society, the recent spread of militancy and terrorism across Nigeria is  a good case to draw from in this regard. Also, the recent attempt by the Nigerian government to enforce the removal of fuel subsidy has been greatly frown upon as the living conditions of the people does not allow such ideas of generating income for the state run smoothly, should this ever take effect, more militancy groups will be formed, terrorism will increase and armed robbery will become the order of the day. I am not implying that government should give handouts to its citizens forever but rather, government should create enabling environment that allows citizens to enjoy the basic needs of life and further empower them to contribute positively to their society. I feel, deficits should only be used in cases where inequality and extreme poverty exist and also for occasional economic stabilization purposes.

I have always felt uneasy with the term equality and economic development as I feel the definition of the former is misleading and unrealistic in today’s world while the notion of the latter has failed to contributed much to achieving change in development patterns it also hasn’t been able to solving inequalities in developing countries. I believe development framework should focus more on human development rather than the economic growth as the former if honed properly can bring about the latter.

In conclusion,  the appropriate question in development economic remains; how can we move beyond the failures of the past to construct an effective development project in a post-capitalist alternative, one that is socialist in nature.


Key References

The challenges of restoring governance in crisis and post-conflict countries (2007) United Nations Department of Economic and Social Affairs. United Nations Development Programme: A United Nations Journal.

Milton Friedman, Capitalism and Freedom (1962), Chicago, University of Chicago Press.
Gregg et al, 2007, Challenging Global Inequality; Development Theory & Practice in the 21st Century, London, Pelgrave Macmillan.

Colclough, C. (1991), “Structuralism versus neo-liberalism; an introduction, in States or markets: Neo-Liberalism and the Development Policy Debate, Colclough, C., Man. J. (eds). Clarendon Press, Oxford.

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About rebeccaidd

Fun, passionate, inquisitive exploring development
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