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POL201Y1-Nov.22, 2012.docx

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Political Science
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Sophia Moreau

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POL201Y1: Nov. 22, 2010 The Washington Consensus The Difference between left, right liberalism and neo liberalism Liberalism: Is the belief in the importance of individual freedom, which could lead to different political thoughts  Mill and Locke and Hume: Understand Liberalism as the limiting of gov’t involvement in individuals lives (classic liberalism) What does securing freedom mean? Classic liberals: Freedom is a pre-existing conditions, birthright for each individual and securing this means non- interference Modern liberals: Freedom is not pre-existing it needs to be produced through equality (ex: equality between the rights of the rich and poor), this means that it requires government intervention, endorse government intervention in programs such as affirmative action, welfare, etc What about neo-liberalism?  Adam Smith: Citizens should be free to follow their own way, lazaire faire economics, theory of motivation human self-interest with unregulated social interests, belief in the market system, the government’s role was limited to enforce the rule of law and other public goods ( things that are necessary but are not provided by private sector)  Keynes: Derivative of Smith, advocates monetary actions by the bank and fiscal by the government Neo liberal was first coined in 1928, and the view that the market will regulate itself was in competition with Kenynesism view…in the time of Depression Kenyesism was used because it was felt that government intervention was required (neo-liberal hegemony) After 1980 Keynesism is discredited in favour of free market system, until 2008 (global financial crisis). This proves that with different economic cycles there is different liberal views of free market or government intervention Post 2008: In a place where Kenynesism is back (boost exports, limit exports, tax, monetary and fiscal policies) implemented in the last 2 years Neoliberal Economic Policies  Lower marginal tax rates  Pro-growth legal and regulatory policies (weaker environmental and labour laws)  Privatization  Elimination of subsidies  Encourage FDI  No capital controls POL201Y1: Nov. 22, 2010  Deregulation  Eliminate traffic, quotas, etc. Washington Policy Reform 1940-50s after WW2 there was a global economic boom ‘the green revolution’: Started in 1948 referring to research ad development in agricultural revolutionizing food production through technological change, positive: food can keep up with pop. Growth; negative: declining terms of trade between core and periphery countries because of the decrease in the price of agricultural goods, many countries can’t compete in world market. o 1943: Mexico imported ½ of the wheat it consumes, 1946 Mexico is self-sufficient no more import of wheat 1964 Mexico exporting wheat 1960s Many counties impalement an ISI 1970s OPEC cartel controlling oil prices is created and rising oil prices cause IMF loans for developing countries 1981: OPEC falls, and now oil producing countries have to turn to IMF for lowns 1982-1985: Most developing countries have now borrowed money and are now forced to take on structural adjustment programs 1970s-1980s: Many developing countries saw a dramatic decrease in the scope of their sovereignty and deciding their own economic policy What is the substance of theses Structural Adjustment Programs Conditionality: 1. Democracy 2. Free Market Governments have to go through political and economic reforms to qualify for internally loans, The components of the Washington Consensus 1. Fiscal Discipline: For other countries since they themselves have the greatest deficient, balances budget, short run deficit for macroeconomic stabilization (short loan to keep market afloat). Washington’s concern is that they produce inflation, payment deficits, capital flight. Second concern is with public expenditure priorities, these countries go to IMF because they already have debt and ways to decrees this is to: o increase revenue (raise taxes: Washington not in agreement since it moves money from private to public sector which is not putting it to its greatest use as it would be in the private sector) or POL201Y1: Nov. 22, 2010 o decrease expenditure (given priority and implemented in subsidized used by the poor, ex: Food and water should be private not public…lead to food crises) Productive expenditures: Investments in human capital (education and health and public goods investment such as infrastructure not provided by the market) Washington suggests that… Tax Reform: Rich people should not pay all the taxes since it means people would have less incentive for individual monetary worth and problems with capital flight and tax evasion Interest Rates: More incentive to save with higher interest rates and discourage capital flight. Find the right rate, enough to help people save more money yet not discourage loans Exchange Rates: Should be consistent with macroeconomic objective (ex: if the country’s macroeconomic objective is exports than exchange rate should be undervalued, but it makes imports expensive) Quantitative Easing (QE1 and QE2): Market is flooded with dollars to make it cheaper then there is a flood into the gold and precious metals market, this helps boosts exports to pull the US out of recession Trade Policy: Trade must be open! Reduce barriers to international trade at competi
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