Triumph of neoliberalism in economics

Abstract

Broadly speaking, neoliberal policies tend to encourage free trade and to reduce the role of government which is why they are often referred to as freemarket policies. Among the consequences of such policies one can mention the following effects.

Privatization may lead to control by foreign companies; this point is discussed later on in connection with Latin America and Eastern Europe.

Because free-trade is also interpreted as free circulation of manpower, huge amounts of cheap labor become available in industrialized economies which in turn depresses wages and reduces the incentives for technical innovation in production processes. A side-effect of cheap labor imports is to erode the role of unions. For instance in the US private sector the unionization rate decreased from 30% in the 1950s to about 8% in 2008.

Because taxes are seen as an hindrance to free-market mechanisms the neoliberal agenda requires sharp cuts in tax rates for both households and companies and light tax rates for financial revenue. Needless to say, such policies mainly benefit to the wealthiest people. This reduction in income redistribution led to an erosion of social solidarity. A subsequent chapter will discuss this point in greater detail.

In industrialized countries down-sizing of the role of the government leads to under-investment in basic infrastructures such as roads, bridges, dams, dikes, public transportation facilities.