"After World War II, the age of imperialism ended and developing countries in Asia and Africa started acquiring independence (the Latin American countries became independent in the early 19th century, although they were all bound by unequal treaties until the 1870s or the 1880s). Until the 1970s, a mixture of post-colonial guilt and the competition with the Soviet bloc meant that the developed countries were willing to allow quite a lot of policy freedom to the developing countries. For example, relatively few conditions were attached to their bilateral aids and to the loans from the multilateral financial organisations (like the World Bank and the IMF) that the rich countries control. All this, however, changed from the 1980s. With the rise of neo-liberalism in the developed countries (especially the US and the UK), the fading of the post-colonial guilt conscience, and the decline of the Soviet bloc, the rich countries have increased pressure on the developing countries to adopt what they see as ‘good’ policies, namely free-market policies, comprised of liberalisation of international trade and investment, de-regulation of domestic industries, privatisation of state-owned enterprises, and (very often, although not always) opening of capital market. These policies were forced upon the developing countries through the conditions attached to the loans by the World Bank and the IMF. Conditions attached to bilateral foreign aid were also used to strengthen free-market policies in developing countries. In 1995, the World Trade Organisation (WTO) was launched and was used to push for further trade liberalisation in developing countries. There was a mixture of motives behind the push for free-market policies by the developed countries. Some actors pursued it out of self-interest – corporations seeking to gain entry into new markets, for example. But others did it for more ideological reasons. Many people in the developed countries genuinely believed that their own countries developed on the basis of free-market policies and wanted the poorer countries to benefit from the same policies. Still others advocated free-market policies mainly because they were ‘going with the flow’, rather than because they had self-interest or ideological conviction in promoting it. In the process, some people have definitely benefited in the short run – such as corporations that were able to export more, private equity funds that have been able to snap up a former state-owned enterprise at a bargain price, hedge funds which made a killing by betting against a developing country’s currency, etc.. However, I would say that, in the long run, even many of those people would have been better off if they let the developing countries use policies that are more suitable for their conditions because that would have enabled the developing countries grow faster than they have, thereby expanding export and investment opportunities." .. ... "It has been difficult enough for the developing countries to protect and nurture their infant industries under the current world system, perfected in 1995 with the launch of the WTO. However, even after that, the developed countries have pushed for more and more liberalisation and opening-up on the part of the developing countries. For example, in the Doha Round of the WTO negotiations, they have pushed for a dramatic reduction in industrial tariffs in the developing countries. For another example, the US and the EU have been promoting bilateral ‘free-trade’ agreements with developing countries, which are ‘WTO-plus’ in their liberalisation requirements. Fortunately, things are changing – albeit slowly. Some of this was already coming – for example, the Doha Round negotiations have been stalled for several years because the rich countries have demanded far too much from the developing countries. However, the 2008 financial crisis has done a lot to change the international mood. While it has not persuaded all – or even the majority – of the believers in the free international movement of capital, the crisis has somewhat deflated the enthusiasm for free-market policies and, importantly, changed the IMF’s position on this issue (from total support for capital market opening to the encouragement of the partial use of capital control)." .. ... "The common belief is that this ability of capitalism is maximised when we maximise the degree of freedom in the market, but this is not true. In the long run, the ability of capitalism to maximise wealth is enhanced by appropriate regulations – for example, restrictions of activities that maximise short-term profits at the costs of long-term growth and stability, as we have seen in the 2008 global financial crisis." .. "In creating the free-market ideology (or rather updating the 19th-century free-market ideology), the dominant neo-classical economic theory has played a key role. By starting from the premises that human beings are fully rational and fully selfish, the theory leads to the conclusion that leaving things to the market is the best policy, as the market participants know what they are doing. The fundamental premises of this theory need to change and other schools of economics that have more nuanced understanding of human motivation and economic behaviour – such as the post-Keynesian school, the Behaviouralist school, and the Institutionalist school – need to be taken more seriously." worldfinancialreview/?p=566
Posted on: Wed, 03 Jul 2013 05:25:20 +0000
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