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Lecture

POL201- THE WASHINGTON CONSENSUS NOV 6 .doc

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Department
Political Science
Course Code
POL201Y1
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C Jung

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POL201- THE WASHINGTON CONSENSUS- NOV 6 Movie will likely be on the midterm, and the final exam • The neo- liberal global order • Neo- liberalism as a strategy of development • The difference between left liberalism, right liberalism and neo-liberalism LIBERALISM: • the belief in the importance of individual freedom • john locke, john stuart mill • liberalism implies a limit on the extent of government, what it can do • individual freedom depends on limiting the extent to which government could interfere in the lives in individuals • freedom from interference rather than freedom to • freedom of religion, speech = negative freedoms, they require that the government not interfere in what you’re doing, you don’t need government permission to do what you do - freedom just involves avoiding interfering in the lives of human beings HOW TO SECURE FREEDOM: - classical liberals: believe that freedom is a pre-existing condition, people are naturally free the danger in government interference - modern liberals: freedom is not pre-existing, it is something that needs to be produced. Freedom is unequally distributed. Wealthy have more freedom than poor, the poor have no freedom at all - the commitment of liberalism to freedom requires government intervention to produce freedom or at the very least to equalize access to freedom - both are primarily concerned with freedom, but they believe that there are completely opposite ways of going about doing this - completely opposite types of commitments between classic and modern liberals - modern liberals support racial, ethnic, tolerance- they endorse the idea that the obligation of the state is to produce freedom - classical liberal = right liberalism the limiting of the state - modern liberalism= left liberalism- the state has to be bigger because it has a job to produce freedom through equality - modern liberals do not believe that freedom is the natural way of life, it has to be facilitate by the government ECONOMIC LIBERALS: - Adam Smith – 1723-1790 - He advances the theory that individuals could structure moral and economic life without direction of the state - Nations would be the strongest when ppl would be able to follow their own intitiative - End to state granted monopolies, patents, mercantilism, protectionism - Regulated laissez- faire - He develops a theory of motivation that tries to reconcile human self interest in an unregulated social order - The market is the natural extension of the human beings natural proclivaties - The market will naturally regulate itself, it is capable of producing more when it is less restricted - He assigns to governments only the role of taking on tasks which could not be entrusted to the profit motive- - The role of government was limited to securing the rule of law and other public goods - The term “ neo-liberalism “ was first coined in _____ - this was primarily in competition with Keynesism KEYNESISM: - market decisions sometimes lead to inefficien macroeconomic outcomes - the government has to play an active role in economics - there has to be an active government economic policy - monetary, fiscal policy - government has to intervene in order to stabilize output over the business cycle - smithian and keynesiasm - the market cannot sustain itself, it needs monetary and fiscal policy, gov intervention in order to produce best outcomes 1980- 2008- KEYNESISM disappears for free market economics - all of this changes in 2008 when countries are faced with economic meltdown - all of a suden government intervention was the primary issue being discussed - how should we intervene in the market in order to save it - the problem that lead to 2008 was deregulation - massive neo-liberal economic policies ruined the system, completely gutting regulatory frameworks - one of the reasons that Canada survived was because the cdn regulatory framework had not been completely undermined as the reg. frameworks in the US and Europe - efficacy of neo-liberalism is more open to debate - people thought we were seeing the end of neo-liberalism in 2009 - Canada is becoming much more neo-liberal now Liberalism: primarily a political doctrine Neo-liberlism = economic rendition of the political doctrine of liberalism GREEN REVOLUTION: - begins in 1948 - refers to research and development in agriculture that revolutionizes food production - increase food production so that food supplies can keep up with population growth - implications: the decrease in theprice of agri products that lead to declining terms of trade between core and periphery - green revolution = increase in production, the world is flooded with food, and the price of agri commodities mainly the exports of poor countries go down - many agricultural producers in poor parts of the world are forced out of the market because they are unable to compete with large agri business - all feel the benefits of the revolution - huge businesses and the developed world saw most of the benefits - the price of food goes down, poor countries less able to compete on the international market - negative impact: the sideline issue, the fact that we’re all now consuming food that has been chemically, genetically and hormonally altered - 1943- mexico imports half of the wheat it consumes - 1956- mexico had become self sufficient in the production of weath - 1964 mexico exporting half a million tonnes of wheat a year - over the course of 21 years that’s how much its wheat production goes up - 1950s, 60s we have many countries experiencing decolonization, ISI strategy - 1970’s- creation of the cartel OPEC, price of oil goes up and forces many oil importing countries - many countries go backrupt, forced to turn to IMF and WB - OPEC= THE PRECIPATING FACTOR - There is a particular moment when the price of oil goes sky high, a lot of countries go bankrupt - OPEC falls apart, oil producing countries are also forced to turn to the IMF an WB - 1982: Most of the developing world has been forced to turn to the IMF and the WB to get bailed out CONDITIONALITY AGREEMENTS, STRUCTURAL ADJUSTMENT PROGRAMS: - 70, 80’s: many countries saw room and scope of determing their fiscal and monetary policies diminish - conditionality agreements determines their economic policies - their sovereignty is diminished - the primary mechanism through which free market economic policies have been exported across the globe is through the IMF and WB conditonality packages - it specifically moves through the world through IMF and WB IMF CONDITIONALITY- THE WASHINTON CONSENSUS: FREE MARKET 1. fiscal discipline ( for other countries ironic: US does not have a balanced budget. 1.1 trillion deficit –down 200 000 billion dollars - this element makes, so clear , the hypocrisy of the Washington consensus - the U.S government does practice protectionism, subsidizes its own farmers and does NOT have a balanced budget - what can contribute to macroeconomic stabilization? You can run a short term deficit to allow for a stiumulus to the economy. Spend money in order to stimulate the economy. 2. public expenditures: - you need to prioritize your public expenditure. - Increase revenue or reduce expenditure - Washington believes that money should be kept in the private sector where it can be productive. - The IMF says: you need to have fiscal discipline - Increase taxes or decrease spending - But they’re opposed to increasing taxes - In essence you have to cut spendings - Cut spending on subsidies - Often, developing countries subsidize water, rice, electricity, basic staple goods. - Subsidies can control different sectors of the population, maintain support. People in their countries are desperately poor, when ¼ of the population is in poverty you must subsidize basic foodstuffs so that they can live - Governments are not required to reduce military spending because this is a sphere of government policy that Washington believes it should leave to countries to decide - Washington would support cuts to food and water subsidies WASHINGTON CONSENSUS: TAX RATES: • Tax base should be broad- you should tax widely • Interest rates should be market determined and positive ( above 0) you want to prevent capital flight and encourage savings • If interests rates are low enough people will send their money overseas in order to save money and profit • They have to be low to encourage spending but not so low that you see the flie ght of money • Exchange rate: should be determined by market forces. Th
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