Neoliberalism and Globalization

Neoliberalismand Globalization

Neoliberalismand Globalization

Thedefinition and the usage of the term neoliberalism have been changingover time. In 1938, Alexander Rustow, a German scholar, coined theterm neoliberalism to mean “priority of price mechanism, a systemof competition, a free enterprise, and a strong and impartial state.”In other words, to be a neoliberal is to advocate for a moderneconomic policy through state intervention (Kotzand McDonough, 2010).Since then the definition of neoliberalismhaschanged several times with different economists giving it differentmeaning. Generally, neoliberalism is an economic theory integratedwith the policy stance or a set of economic policies. Conversely,globalisation refers to the process of international integration andinteraction because of world interchange of views, ideas, products,and culture aspects. Modern information technology makes the processof globalisation easier, which is commonly driven by internationalinvestment and trade. For the last few decades, neoliberalism andglobalization have dominated economic policymaking in most nations inthe world. They both have strong advocates in Western Europeancountries, despite the efforts imposed by neoliberal policies. Sincethe third world war, the US has favourable dictated neoliberalpolicies in many countries through World Bank, IMF, or through directpressure. Its effects are experienced in most countries where therich continues to grow richer and, the poor continue to grow poorer(Mensahand Palgrave, 2008).On the other hand, liberalism refers to the economic, political, andreligious ideas. For instance, the US political liberalism aims atpreventing and reducing social conflicts. Neoliberalism andglobalisation have effects on culture, environment, politicalsystems, human well-being, prosperity, and economical of thedeveloping countries. In essence, neoliberalism and globalization hasbeen harmful for the long-run capitalist economic performance in thedeveloping countries.

Similarto the dominant theory, contemporary capitalism, and neoliberalismhas the same problems. The stability of the capitalist system dependson the vigorous capital accumulation economic expansion andtechnological progress. Neoliberalism promotes rapid accumulation forthe following reasons. Firstly, neoliberalism raises insufficientaggregate demand issues over time. Secondly, neoliberalism createsinstability at the macroeconomic level. According to Wade (n.d),neoliberalism renounces tax policies and counter-cyclical spending byloosening public regulation of the financial sector and shrinkingsocial welfare programs. Thirdly, the neoliberalism intensifies classconflict, as well as discourages capitalist investment. However,historical evidences doubt the ability of the neoliberalism topromote accumulation. For instance, if one compares labourproductivity and gross domestic products (GDP), it is evident thatneoliberalism does not promote capital accumulation. The labourproductivity gives an idea how capitalism develops production throughtechnological advances, direct labour, and improved labour skills. Onthe other hand, GDP provides an approximation of capital accumulationrate.

Neoliberalismadvocates for three elements of policies: liberalization,privatization, and stabilization. The first element, liberalization,is the process of freeing firms and market from the regulations ofstates. This includes removing all the barriers to movements acrossnational boundaries. The second element, privatization, is theprocess turning state enterprises into privately owned enterprises.In addition, the process involves contracting privately ownedcompanies rather than state-owned companies. The third policy,stabilization, refers to the process of shifting monetary policyprevent inflation. Unfortunately, the process does not emphasis oneconomic growth or unemployment rate. According to Rapley(2004),states should impose fiscal policies to reduce taxes, as well aseliminate social programs. Analysts characterise globalisation withcontemporary capitalism. The concept of globalisation andneoliberalism are one way or the other interconnected. Theneoliberalism policies of capital controls, free trade, and nationalstates policy can be fostered in the globalisation of trade, classrelations, and production. These policies facilitate movement freedomof capital, ideas, and products, among others.

Accordingto Kotz(2002),neoliberalism promotes profit making in globalisation in severalways. Firstly, deregulation of business offer them considerablefreedom of action in respect to the capital in profits pursuits.Therefore, the social costs of the profit can be pushed to thesociety. Specifically, the cost can be changed as the capital in theregime of business’s state regulation. Secondly, businesses canincrease their bargaining power of capital in relative to theirlabour. Therefore, this will slow down the wage growth, as well asavoid costs of providing good working conditions and good benefits.Correspondingly, there will be high control of capital over thelabour process. Thirdly, the social cost of maintaining capitalistsociety is a shift from capital to labour. Most of these social costsrequires government programs hence, they are payable through tax.Fourthly, neoliberalism opens new sectors to profit-making activitiesthrough the three elements of neoliberalism: liberalization,privatization, and stabilization (Kotzet. al., 2010).Fifthly, neoliberalism enhances an expansion of the geographicallevel of profit-making activities. This is because globalizationincreases free movements of capital, goods, and services. As aresult, the whole process leads to specialization and generation ofeconomies of scale. According to analyst, global neoliberalism hasfavourable most profit-making projects. For example, the rate ofprofit making in United States declined in the prior globalneoliberalism policies, starting from 1960s. However, in 1980s,profit rate began to increase hurriedly. A similar case was alsoexperienced in France, Germany, and UK with their profit rate risingto the paramount level in1990s.

Since1980s, global neoliberalism has shaped capital accumulation inseveral ways. It has formed some structure, and correspondingly,capital accumulation has reshaped them in other ways. For instance,global neoliberalism has interfered with the channels of obtainingfunds for capital accumulation. Klak(1998) argue that global neoliberalism has forced big corporationsand companies to pay out their shares of profits as stock buy-backsand as dividends. As a result, this cut down the internal funds thatwould be used for accumulation. Likewise, it increases the dependenceof borrowing for the purpose of finance accumulation. Neoliberalanalysts state that a financial market-bases allocation is muchbetter than reinvestment of retained earnings. Nevertheless, theyassume that the outside investors must acquire real economicsknowledge of the firm, which is not practical. The outside investorsare just unscrupulous burnishes and promoters of corporate accountsbooks. Therefore, their capital accumulation processes areapproximate and unstable. Although high rates of capital encouragecapital accumulation, it is still an issue how to sell the highgrowing output from accumulation. Global neoliberalism, by comparingthe state spending and growth of wages, increases the rate of outputdependency of debt-financed and luxury consumption that correspondsto high wages.

Neoliberalismand globalisation have resulted in the establishment of internationalinstitutions of the global neoliberal social structure ofaccumulation. Since 1980s, there has numerous growth of aninternational movement of capital, goods, services, money, as well ascapitalise geographical extension in relation to production. Inaddition, it has enabled ease production of products across bordersand integrated it through trade. Accordingly, there has been anemergence of transnational governance such as the internationalfinancial institution. World Trade Organization (WTO) is a goodexample of an institution that is a result of neoliberalism andglobalisation. Currently, United States is the sole superpowercountry in the world. Harris (2000), states that these institutionalstructures promote profit-making strategies hence, offer a perfectplatform for capital accumulation. However, the process may be moremoderate or rapid. Robinson, an economist, states the theory of theemergence of neoliberalism and globalisation institutions astransnational. On the contrary, to the traditional institutions, thenew institutions do not focus on sovereignty. Typically, theinstitutions exist at multiple geographical scales. For instance, WTOwas created by signing treaties between state members hence, it canenforce trade rule and punish violators in a quasi-judicial way.Other examples of neoliberalism-related institutions are OECD, GreatEight (G8), World Economic Forum (WEF), Trilateral Commission (TC),and other Non-Governmental Organisation (NGO). These organisationsoffer influential policy prescription and give advices on how to dealwith neoliberalism (Mensahet. al., 2008).Similarly, the tradition nation-states institutions that are still inexistence play significant roles in enforcing competitiveness andneoliberal prescriptions. Nevertheless, capitalism still needspolitical entities to deal with any arising coercion.

Mostglobal neoliberalism institutions consider the nature of the capital.There is a significant difference between the nature of competitionbetween small and large corporations. As large corporations competefor the market share and avoid price competition, they minimize theprofits of the whole industry. Global neoliberalism witnesses suchbreakdown of co-respective behaviour where price competition turns tothe large corporation. In addition, large corporation have changedtheir processes of selecting top officials such as the CEO and themanaging directors (Kotz,2002).Previously, a CEO would be selected among the most prominentlong-serving directors within the same corporation. However, this haschanged with time and has been replaced by external labourdevelopment for CEOs. Currently, most CEO positions are given tooutsiders’ people, especially to a person with experience. Theprocess has fostered ramping issues regarding the salaries of theCEO, as well as affecting the behaviours of the firm. Instead ofmanagers working hard in the firm to compete for promotion, theyoperate with the mentality that soon they will move out to anotherfirm. As a result, the whole process shifts to the long-termproduction investment, which may turn to be fruitless. Furthermore,in the global neoliberalism, the relationship between industrial andfinancial capital has dramatically changed. In the late 19thcentury, in most of the capitalist countries, banks were dominantthan non-financial corporations. For instance, after the Second WorldWar, financial states in United States were regulated by the state.Therefore, they were expected to play a significant role in capitalaccumulation ((Kotzet. al, 2010).However, after the emergence of neoliberalism that whole thingentirely changed. The financial institution separated themselves fromnon-financial capital and shifting to profit making through financialactivities only. In the meantime, the non-financial corporation alsostarted to engage themselves in financial activities. This lead tocontemporary capitalism termed as &quotfinancialization.”

Rapley(2004) argues that neoliberalism and globalisation have produced aneconomic interdependence world, whereby most individual nation-statesdo not have power to regulate their capital. Although under normalcircumstances, global interdependence creates state regulationdifficulties, most analysts have exaggerated this phenomenon.Nevertheless, individual nation-states can retain its potential powerof capitalist firms as long as political arm provide exercise ofpower. For instance, in 1997, Malaysia proved its ability to imposecapital controls after the financial crisis in Asia. This is despiteMalaysia being a small country and facing opposition from the USgovernment and IMF. McDonoughet. al., (2010), states that a country that is politically stablehave control power over movements of capital, goods, and servicesacross its borders, and at the same time retain powers to regulatebusiness. Unfortunately, neoliberalism and globalisation does notfocus on technical feasibility, but political will on stateregulation. Accordingly, it has resulted in a competitive structureof capitalism. For a long time, globalisation has made capitalismmore competitive in one way or the other. Firstly, it has resulted inrapid growth of trade that has changed large corporations’situation. For instance, large corporations operated in oligopolisticdomestic markets some years back. Now, they are facing competitionfrom other large corporation in other parts of the world, both in theforeign and domestic markets.

Ultimately,neoliberalism and globalisation has produced a capitalism world. Ifthe two continues to reign as policy stance and dominant ideology,then, the capitalistic world is likely to face future of instability,stagnation, or even social breakdown. If this continues for severalyears, then there is a possibility of state-regulated capitalism. Inaddition, there would be a development of regulated competition andtight oligopoly at the world scale. Likely, the same phenomenon thatoccurred at the commencement of the 20thcentury can occur again. However, this time it will not only happenin US, but on the whole world. Nonetheless, this occurrence isunrealistic. The world is big and different countries have differentcultures, business practises, laws that may serve as an obstacle tosuch competitive tendency in the global market. Further, the processforming an industry structure where two or more companies producemany products is nearly impossible. It is also complex forinternational monopolies to practise effective regulation through thenational government.


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