Neo-Liberal World Order for the Developed World - Essay Example

Neo-Liberal World Order and Economy of the Developed World Is Neo-Liberal world order and economy of the developed world: a shift in the business model? Abstract The research aims at showing how neoliberal world is influencing the development of countries in the world. This study will explain why Neo-liberal world order and the economy of the developed countries is not for the benefit of all the nations of the world, but it is aimed at enriching the west even further. It will use models to explain how theories put forward in its support have failed to sufficiently explain how the countries will benefit from the new world order economically. Putting the theories into practice has proved being infeasible especially its application in the developing countries and the countries in Africa. The research will show why the statement that new world order is supportive of developing the world is not right. Introduction According to Foot, Gaddis & Hurrell (2003), Global Political Economy, New World Order and Globalization are only a few concepts which have been incorporated into the political rhetoric in the new millennium. In the last century, the macro as well as macroeconomic models differed drastically from the ones prevalent in the current scenario. With Industrialization and rapid economic growth in the developed countries, states started coming out of their isolated shells. With the outbreaks of war and enhanced communication paradigms, the world saw a shift in the economic models where states now started opening up doors for other states. This paved way for free competition where all countries were competing for their share of revenues in the market, the market being the entire globe. With the modernization prevailing in the developed world, these advanced states carved out a model to serve the developing countries as well. On the face of it, the model seems quite intriguing since it promises to act as a gateway to increased wealth in the global economy. However, the economic model is coupled with political sanctions and utilities as well that tend to complicate the scenario. The practical application of the model clearly reflects certain loopholes where the developing countries are facing issues with the dominant business models. The business models, especially in the developing states, tend to favor the large corporation since with added resources the operational costs are minimized and the break-even point as opposed to smaller firms is much favorable for these multinational ones. Therefore, while competing in a free market, the business model predicated on the new world order tends to reduce the aggregate economic outcomes for the developed countries, at the same time tends to affect the social pillars of the society. Body According to Yovanovich (2003), the neo-liberal economic order has left a damaging effect on the developing states due to the flawed policy objectives of the model. This neo-liberal order lobbied around a few policy lines to be implemented at microeconomic as well as macroeconomic level to be adopted by these developing states to help them achieve economic wellbeing as well. The main idea behind the propagation of the ideals of neo-liberal order were the free flow of capital across borders, including the free movement of services along with the goods, increasing market efficiency by monitoring and assistance via International Financial Institutions i.e. the IMF (International Monetary Fund). The core execution body of these policies were the IFI`s functioning with the agenda of maintaining the status quo of the developed world. This plan received massive critique from the intellectual community lobbying for the rights of the developing countries. These IFI`s designed policies to ensure liberalization and massive privatization amongst these states receiving loans as part of the model. These plans included reforms in the fiscal policies, restructuring subsidies, expanding tax base of economy, adopting market dictated interest rates, ensuring trade liberalization i.e. opening up markets for competitive imports and exports across the borders, Liberalization of rules for FDI (Foreign direct investments), deregulation reforms and also the rights for protection of property (Yovanovich 2003). Also, the idea behind implementation of these reforms was to ensure minimal state control over financial assets; in other words, minimal role of the government in the economic affairs. However, in the longer run, these policies failed to produce the desired results since they were not suited to the under-developed economic business models (Yovanovich 2003). Stubbs & Underhill (2006) say that the fundamental flaw in these policies are that they already presume that the market forces would be self-regulatory, i.e. government intervention would be unnecessary for smooth functioning of the economy of the state. However, with respect to the business models functional in developing countries, the market equilibrium for the middle-sized or smaller firms have different technicalities, usually ill prepared for neo-liberal order. Furthermore, the definition of market efficiency in the context of developing states is also debatable. Market efficiency implies that the supply and demand of the firms are at equilibrium that also means that there is the maximum output. They go to say that for the capitalist, this definition may be conclusive, but for a business investor in a developing state, the social factors may not be ignored. In other words, in developing countries the concept of distributional justice also concerns the economic policy. Thus, states are having a small social index are at a high risks since chaos may prevail in the social order of the state if government control over a few economic pretexts is not ensured. If the wealth is saturated amongst the already wealthy class, the model does not seem to be of any advantage to these states. Though, during the 1990`s, trends indicated that strict government intervention was a factor in the collapse of states, yet that does not justify uniform policy interventions in all countries alike. The firm bias against the policy of the government performing economic functions, irrespective of national preferences must be removed to bring real progress in the world economy (Stubbs & Underhill 2006). Hill (2014), says that the developing countries do not have a stable business environment, which is a pre-requisite if the neo-liberal economic order has to work. The much lobbied capitalistic economic model implies that there is an invisible hand which will automatically achieve market efficiency. However, without government controlling a few perspectives, the model does not work well with states in not equipped enough to deal with these market forces on its own. The economic model which is imposed by the west ignores the proposition that in the issues of externalities or the role of various market turbulences which the markets may have to face. Also, the model is best suited for those states that have trained labor at their disposal, also where there is industrial capital to produce goods that are competitive in the market. Therefore, in the real sense, the multinational firms set up industries in these developing states and the smaller companies in the country find it very hard to compete, which is a recipe for disaster for the aggregate economy of the state. To further add insult to injury, these IFI`s often impose barriers in these developing countries in producing certain processed products which negate the fundamental principle of equity. As a result, the capital inflow continues to be in favor of the Global North. Due to these injustices, there is a heated debate on this new world order where there is an urgency to develop a new model which suits the business models of these developing states as well (Hill 2014). Foot, Gaddis & Harrell (2003), continue to say that the enhanced debt along with the weak accountability measures further reduces the positive impact of the model being discussed. For instance, Africa is a living example of how the entire capital collapsed after trade liberalization model was implemented there. Other developing states have also faced similar fate as a consequence to liberalization model. Contrary to what was expected, the increased debts further deteriorated the economic position of these developing states with little prospects of recovery. They go on to say that Latin American states suffered drastically as a result of Washington Consensus (Liberalization model), which is why most of the intellectual oppositions towards the model originated from Latin America. Countries like Bolivia are also one of the countries who were quick in adopting the model, yet they have been found suffering immensely. States like Mexico are the one who demonstrated extreme caution while adopting this model, as they were already dealing with the inflation rate and strict fiscal policies, yet their economy collapsed. Therefore, these cases are indeed a wake-up call for advocates all around the world. As a counter-attack the defenders of liberalization model still attribute corruption as the sole reason why the model collapsed, which is not true since even the most cautious states were badly bruised as a result (Foot, Gaddis & Harrell, 2003). Conclusion In conclusion, the business model functional in the developing states tends to favor the large corporations which have abundant resources at their disposal, and thus the operational costs are minimized. Thus, the break-even point of these big multinational firms as opposed to smaller companies creates an environment much favorable for these multinational ones. Consequently, while competing in a free market, the business model predicated on the new world order tends to reduce the aggregate economic outcomes for the developed countries, at the same time tends to affect the social pillars of the society. There are various reasons behind the failure of this model in different developing states of the world. Firstly, the policy measures advocated by the IFI`s are not suitable for the social environment prevalent in the developing part of the world. Secondly, without government intervention, these developing states fail to maintain the system whereby distributional justice is maintained, and equity is ensured, which creates chaos in the society. Lastly, the model leaves these states indebted which further deters any chances of progress that these states may have. Thus, the global political economy must find a new paradigm to suit the needs of a changing world, especially the needs of the poorer states of the world. Reference List page Foot, R., Gaddis, J. L., & Hurrell, A. (2003). Order and justice in international relations. Oxford: Oxford University Press. Hill, C. W. L. (2014). International business: Competing in the global marketplace. Stubbs, R., & Underhill, G. R. D. (2006). Political economy and the changing world order. Don Mills, Ontario: Oxford University Press. Yovanovich, G. (2003). The new world order: Corporate agenda and parallel reality. Montréal: McGill-Queens University Press. Read More