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Economic development through Neo-Liberalism - Coggle Diagram
Economic development through Neo-Liberalism
Replaced the dependency theory as the dominant world economic policy in the 1980's
Key characteristics:
Assumes that a free market/ unregulated economy is the most fair and efficient way to foster economic growth and development
Assumes that government interference always results in negative long term consequences in the economy. This is because economic growth is usually then corrupted by officials
Government control of the economy should be reduced significantly, free enterprise should be encouraged by government interfering as little as possible.
Unregulated economy ensures healthy competition where only the strongest businesses can survive. This leads to stable, long term economic growth.
Development can be supported by investments from FOREIGN DIRECT INVESTMENTS.
Governments should reduce spending on public services like healthcare and pensions to encourage people to contribute to the economy.
Result: Privatisation of public services
Critique: Removed the state's role in development process. AN EXAMPLE WOULD BE THE 1970s DEBT CRISES
The social cost of reducing government services became the responsibility of private groups such as NGO's, charities.
The social cost of reduced government spending was lessened (supported) by paying private companies for services once provided by the government.
Neo-Liberalists argued that the privatisation of social welfare providers led to less corruption and more efficient use of resources. This is because the survival of that welfare provider depended on their ability to provide services to citizens.
Trickle-down effect:
neo-liberalists believe that newly created wealth from deregulated economies would eventually be accessible for people of all economic classes. It would cycle through the economy and bring benefits to everyone
RICH USE MONEY TO PAY FOR GOODS AND SERVICES ==> GOODS AND SERVICE PROVIDERS HIRE MORE PEOPLE TO SUPPORT DEMAND ==> UNEMPLOYMENT DECREASES AS MORE PEOPLE BENEFIT FROM THE GROWING ECONOMY.
Consequences:
Structural Adjustment Programs (SAPs). Economic reform policies negotiated between international finance institutions and indebted nations.
In order to receive aid from international finance institutions, indebted nations had to agree to adopt SAP's and reform their economic policies. This would mean: the reduction and eventual removal of trade barriers, cutting of public spending, the partial privatisation of public services.
Some countries saw improvements and some became trapped in cycle of stagnation and inflation that crippled national development efforts.