Problems with Neoliberalism Introduction Neoliberalism’s “success stories” Neoliberalism’s prescription  Fiscal austerity  Privatization  Trade liberalization  Domestic market liberalization  Currency devaluation  Abolition of marketing boards  Retrenchment and deregulation

SAPs in Africa overall growth slowed agricultural output did not keep up with population growth manufacturing did not increase its share of output investment and consumption dropped incomes declined unemployment increased

African states producing more primary goods for export not increasing amount of processing by local industries governments spend less on education, human-capital formation, creation and expansion of skilled laborers, managers, and engineers likelihood of future industrial development severely curtailed

“Declining terms of trade” successful development occurs when countries not only increase exports, but alter composition of exports develop and build export industries future revenues need to come from new industries neoliberalism does not promote industrial capacity  impossible for states to transcend “declining terms of trade”  improving living standards of first-world at the expense of the third

Fiscal austerity reductions in government spending does not necessarily lead to economic growth neoliberals put too much faith in market government spending can often complement private spending neoliberal belief “openness” is enough to attract foreign investors is wrong demand compression can have significant negative consequences

Privatization selling-off of formerly public, state-owned firms state only institution that can address market failures or deficiencies public firms provide benefits unlikely to be taken up by private interests (e.g., human-capital formation) little evidence private firms necessarily more efficient than public ones sectoral reform rather than strict privatization reducing public sector does not necessarily improve development

Trade liberalization eliminating or reducing restrictions on imports world economy dominated by highly protected and subsidized economies of first world poor economies do not fare well  do not have developed industries to take advantage of improved access to foreign markets  cheap imported goods discourages local entrepreneurs from moving into industry impact depends on stage of economic growth most effective in relatively industrialized economies

Domestic market liberalization eliminating price controls and marketing boards farmers will not respond to price increases unless they have access to good transportation infrastructure and inputs (affordable credit, cheap land and labor, subsidized seed and fertilizer) state assists in transition; government-sponsored research and development needed governments assist in development of markets and capital responses to price are greater in more-developed than less- developed economies in least developed economies, states have to intervene to make domestic market liberalization beneficial

Currency devaluation hurts urban industry shifts society’s revenue; profit-earners and export- crop farmers better off may reduce overall consumption and cause economy to shrink little to stimulate exports positive in economies with strong industrial bases undercuts prices on goods sold by competitors in other third-world countries chief beneficiaries are consumers in first world

Abolition of marketing boards increasing prices for primary good exports, increasing production doesn’t necessarily liberalize domestic markets markets tend to be distorted position of farmers can be relatively weak re-regulation may be more beneficial than deregulation marketing goods avoided by private traders market integration through uniform national standards even out differences in highly segmented markets price stabilization encourages farmers to grow export crops that earn foreign exchange

Retrenchment and deregulation “crowding out” vs. “crowding in” financial deregulation labor market deregulation corruption

“crowding out” vs. “crowding in” not all government spending “crowds out” private investment, some “crowds it in” public investment sometimes key determinant of growth in agriculture reducing education spending -- future growth in world trade may favor goods with higher human-capital content than past, slow country’s development

Financial deregulation can raise credit costs yields few gains if institutional framework to mobilize domestic savings inadequate effective re-regulation preferable to blanket deregulation state interventions promote local credit institutions and competition deregulation worsens income and wealth distribution state banks provide credit to small and medium-sized entrepreneurs who suffer from lack of access to credit

Labor market deregulation expected to depress wage rates by reducing controls lower wages attract new investment and increase employment if wages drop too low, local demand drops, reduces demand for local firms’ output and erases gains finding optimum level -- firms preserve their advantages on local and international markets -- may require wage regulation

Corruption assume rent-seeking is economic and top-down may emerge from society rather than state bottom-up and political, competition for power and resources controlled by state rolling back state does not reduce rent-seeking but drives up prices of resources or positions of power reducing size of state may make competition for resources sharper and potentially more violent