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Lecture 9

Lecture 9.docx

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Political Science
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Robert Brym

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Lecture 9 – The Washington Consensus Nov 5th [email protected] Modernization, ISI, EOI all strategies for (economic) development Neoliberalism a strategy of development Left right and neoliberalism Liberalism - Neoliberalism o Coined 1938 o Restatement of Smith theories o Market behaves rationally if left alone - Importance of individual freedom - Practically lead to different types of solutions - Classic liberalism o Freedom is pretexting condition o John Locke o John Stuart Mills - Modern liberalisms o Freedom needs to be produced o And unequally distributed o Wealthy more freedom than the poor o Freedom needed to be created (through government intervention o Pluralism and affirmative action support o Freedom not natural - Implying a limit on the sphere of - Limiting the extent to which government can interfere with lives of individuals o Limit the state - Negative freedom o Freedom from Neoliberalism - Adam Smith o Individuals can both structure moral and economic life without the state o State the strongest when individuals fee to follow own initiative o Lazier faire o Human beings acting in own self interest would create productive markets o Wealth of nations  Market would naturally regulate itself and produce more than restricted markets o Governments  Take on tasks that could not be driven by the profit motive  Rule of law - John Maynard Keynes o Private sector decisions sometimes lead to inefficient macroeconomic outcomes o Needed to be active polices responses on part of the government or public sector o Active monetary policy Lecture 9 – The Washington Consensus Nov 5 th o Market is not rational  Needs government intervention to stabilize market o Discredited for - Global financial crisis o 2008 o Massive deregulation because neoliberalism is hegemonic o 2008 Keynesism  What should governments do to avoid world economic catastrophe  Government needed to intervene (how fast and when)  Instituted to fix problems that were produced by the market - Post neoliberal world What Washington Means by Policy Reform – John Williamson - 40s and 50s global economic boom - The green revolution  1948  Refers to research and development in agricultural that revolutionized food production through technological change  Increase production so that food supplies could keep up with population growth  Negative: decrease in agricultural products  Because of over supply  Price drops  Lead to declining terms of trade between core and periphery  Agricultural producers forced out of the market because could not compete with larger producers  Now consuming food that have been genetically chemically and hormonally altered  Decolonization through 50s and 60s  Newly developing countries implement strategy of ISI development  70s created cartel OPEC  Cartel of oil producing countries  many countries go bankrupt and in debt  forced to IMF for bail out  81 OPEC falls apart and also go bankrupt o Also turn to IMF (international monetary fund) and world bank  Most development countries forced to turned to IMF and world bank for loans  Forced to accept and sign structural adjustment programs o Demised independence to develop own fiscal and economic policies o Countries go bankrupt in 70s and 80s  Forced to turn to IMF and world banks for loans  They impose structural adjustments (neoliberal programs) o Two conditions of programs  Forced to undertake political and economic reform to qualify for loans  Economic policies are called the Washington consensus Washington Consensus Lecture 9 – The Washington Consensus Nov 5 th - Set of policies that are agreed upon by US government and IMF and World Bank headed in Washington DC - Fiscal discipline o Other countries should normally have a balanced budget o Run short term deficit to generate investment in infrastructure that would jump start economy  Good returns o Run short term deficits to stimulate economic if heading into recession  Poor money into economy  A lot of public work  Idea is to get capital following  Inject capital o Limit expenditure and balance budget (in general) - Public expenditure priorities o Many developing countries turn to IMF because of their fiscal deficit  In debt (spend more than they make)  Reduce by  Increase taxed and reduce expenditure o Washington opposed to raising taxes  Moving money from private sector to public sector  Favor reducing expenditures o Cut subsidies  According to Neo liberals subsidies supports basic needs  Often generates food crisis  Pushes sector of population under poverty line  Acceptable: capital investments (health and education – productive, public goods) - IMF dictating o Tax reform  Tax base should be broad as country can make it  Shouldn’t have high marginal tax rates o Interest rates  Should be market determined and encourage investment and savings  Stimulate economy but avoid capital flight o Exchange rate  Determined by market forces or level that is consistent by macroeconomic objective o Trade policy; import liberalization  Trade liberalization  First thing have to do  Reduce barriers to international trade  Allow access to i
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