Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with
classical liberalism
Classical liberalism is a political tradition
Political culture describes how culture impacts politics. Every political system is embedded in a particular political culture.
Definition
Gabriel Almond defines it as "the particular patt ...
and
neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
. Liberalization in short is "the removal of controls" to encourage
economic development
In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and o ...
.
Many countries have pursued and followed the path of economic liberalization in the 1980s, 1990s and in the 21st century, with the stated goal of maintaining or increasing their competitiveness as business environments. Liberalization policies may or often include the partial or complete
privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
of government institutions and
state-owned assets, greater
labour market flexibility
The degree of labour market flexibility is the speed with which labour markets adapt to fluctuations and changes in society, the economy or production. This entails enabling labour markets to reach a continuous equilibrium determined by the inter ...
, lower tax rates for businesses, less restrictions on both domestic and foreign capital,
open market
The term open market is used generally to refer to an economic situation close to free trade. In a more specific, technical sense, the term refers to interbank trade in securities.
In economic theory
Economists judge the "openness" of markets a ...
s, etc. In support of liberalization, former British prime minister
Tony Blair
Sir Anthony Charles Lynton Blair (born 6 May 1953) is a British former politician who served as Prime Minister of the United Kingdom from 1997 to 2007 and Leader of the Labour Party from 1994 to 2007. He previously served as Leader of th ...
wrote that: "Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge."
In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; Brazil, China, and India, have achieved rapid economic growth in the past several years or decades, in part, from having "liberalized" their economies to foreign capital.
Many countries nowadays, particularly those in the third world, arguably were given no choice but to "liberalize" their economies (privatise key industries to foreign ownership) to remain competitive in attracting and retaining both their domestic and foreign investments. This is referred to as the TINA factor, standing for "
there is no alternative
"There is no alternative" (TINA) is a slogan strongly associated with the policies and persona of the Conservative British prime minister Margaret Thatcher.
In a speech to the Conservative Women's Conference on 21 May 1980, Thatcher appealed ...
". For example, in
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
after
Cultural Revolution
The Cultural Revolution, formally known as the Great Proletarian Cultural Revolution, was a sociopolitical movement in the People's Republic of China (PRC) launched by Mao Zedong in 1966, and lasting until his death in 1976. Its stated goal ...
,
reforms
Reform ( lat, reformo) means the improvement or amendment of what is wrong, corrupt, unsatisfactory, etc. The use of the word in this way emerges in the late 18th century and is believed to originate from Christopher Wyvill's Association movement ...
were introduced and in 1991,
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
had little choice but to implement
economic reforms. Similarly, in the
Philippines
The Philippines (; fil, Pilipinas, links=no), officially the Republic of the Philippines ( fil, Republika ng Pilipinas, links=no),
* bik, Republika kan Filipinas
* ceb, Republika sa Pilipinas
* cbk, República de Filipinas
* hil, Republ ...
, the contentious proposals for
Charter Change
A constitutional amendment is a modification of the constitution of a polity, organization or other type of entity. Amendments are often interwoven into the relevant sections of an existing constitution, directly altering the text. Conversely, ...
include amending the economically restrictive provisions of their
1987 constitution
The Constitution of the Philippines (Filipino: ''Saligang Batas ng Pilipinas'' or ''Konstitusyon ng Pilipinas'', Spanish: ''Constitución de la República de Filipinas'') is the constitution or the supreme law of the Republic of the Philippines ...
.
By this measure, an opposite of a liberalized economy are economies such as
North Korea's economy with their "self-sufficient" economic system that is closed to foreign trade and investment (see
autarky
Autarky is the characteristic of self-sufficiency, usually applied to societies, communities, states, and their economic systems.
Autarky as an ideal or method has been embraced by a wide range of political ideologies and movements, especially ...
). However, North Korea is not completely separate from the global economy, since it actively trades with China, through
Dandong, a large border port and receives aid from other countries in exchange for peace and restrictions in their nuclear programme. Another example would be oil-rich countries such as
Saudi Arabia
Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the A ...
and the
United Arab Emirates
The United Arab Emirates (UAE; ar, اَلْإِمَارَات الْعَرَبِيَة الْمُتَحِدَة ), or simply the Emirates ( ar, الِْإمَارَات ), is a country in Western Asia (The Middle East). It is located at th ...
, which see no need to further open up their economies to foreign capital and investments since their oil reserves already provide them with huge export earnings.
The adoption of economic reforms in the first place and then its reversal or sustenance is a function of certain factors, the presence or absence of which will determine the outcome. Sharma (2011) explains all such factors and puts forward a
discursive dominance
Discursive dominance or discursive power is the ultimate emergence of one discourse as dominant among competing ones in their struggle for dominance. Ultimately, one of the discourses emerges as dominant. The word ‘discursive’ is related to the ...
theory to illustrate the causal mechanism. The theory holds that economic reforms become sustainable when the discursive conditions prevailing in society tip against the existing paradigm under exceptional circumstances. Using the case of India, he demonstrates that economic reforms became sustainable after 1991 because of the discursive dominance of the pro-liberalization discourse after 1991. He shows that the eight factors, which are responsible for creating discursive conditions in the favour of economic reforms, prevailed in India in the post 1991 operating environment. The eight factors are: the dominant view of international intellectuals, illustrative country cases, executive orientation, political will, the degree and the perceived causes of economic crisis, attitudes on the part of donor agencies, and the perceived outcomes of economic reforms. In other words, the Discursive Dominance Theory of Economic Reform Sustainability holds that unless the pro-liberalization constituencies dominate the development discourse, economic reforms, initiated under the exigencies of crisis and conditionalities, or carried out by a convinced executive with or without the stimulus of a crisis, will be reversed. The author's theory is fairly generalizable and is applicable to the developing countries which have implemented economic reforms in the 1990s, e.g. Russia in the Yeltsin era.
Liberalization of services in the developing world
Potential benefits
The service sector is probably the most liberalized of the sectors. Liberalization offers the opportunity for the sector to compete internationally, contributing to GDP growth and generating foreign exchange. As such, service exports are an important part of many developing countries' growth strategies. India's IT services have become globally competitive as many companies have outsourced certain administrative functions to countries where costs (esp. wages) are lower. Furthermore, if service providers in some developing economies are not competitive enough to succeed on world markets, overseas companies will be attracted to invest, bringing with them international "best practices" and better skills and technologies.
[Massimiliano Cali, Karen Ellis and Dirk Willem te Velde (2008]
The contribution of services to development: The role of regulation and trade liberalisation
London: Overseas Development Institute
ODI (formerly the 'Overseas Development Institute') is a global affairs think tank, founded in 1960. Its mission is "to inspire people to act on injustice and inequality through collaborative research and ideas that matter for people and the p ...
The entry of foreign service providers can be a positive as well as negative development. For example, it can lead to better services for domestic consumers, improve the performance and competitiveness of domestic service providers, as well as simply attract
FDI/foreign capital into the country. In fact, some research suggest a 50% cut in service trade barriers over a five- to ten-year period would create global gains in economic welfare of around $250 billion per annum.
[
]
Potential risks of trade liberalization
Trade liberalisation carries substantial risks that necessitate careful economic management through appropriate regulation by governments. Some argue foreign providers crowd out domestic providers and instead of leading to investment and the transfer of skills, it allows foreign providers and shareholders "to capture the profits for themselves, taking the money out of the country".[ Thus, it is often argued that protection is needed to allow domestic companies the chance to develop before they are exposed to international competition. This is also supported by the anthropologist ]Trouillot Trouillot is a French surname. It may refer to:
*Ertha Pascal-Trouillot (born 1943), provisional President of Haiti in 1990–91.
* Evelyne Trouillot (born 1954), Haitian novelist
*Georges Trouillot (1851–1916), French politician
* Henock Trouill ...
who argues that the current market system is not a free market at all, but instead a privatized market (IE, markets can be 'bought'). Other potential risks resulting from liberalisation, include:
* Risks of financial sector instability resulting from global contagion[
* Risk of brain drain][
* Risk of ]environmental degradation
Environmental degradation is the deterioration of the environment (biophysical), environment through depletion of resources such as quality of air, water and soil; the destruction of ecosystems; habitat destruction; the extinction of wildlife; an ...
[
* Risk of a debt spiral due to decreased tax revenue among other economic problems (oftentimes linked to IMF restructuring though the state government in Kansas is currently encountering this issue).][https://news.yahoo.com/kansas-tax-collections-short-expectations-january-222746060.html ]
* Risk of increased inequality across race, ethnicity, or gender lines. For example, according to the anthropologist Lilu Abu-Lughod Lilu may refer to:
* Lilu, Anambra State Nigeria, a town in Ihiala L.G.A of Anambra State Nigeria
* Lilu (ancient China), a tribe or state in ancient China
*Lilu (mythology)
A lilu or lilû is a masculine Akkadian word for a spirit or demon.
His ...
we see increased gender inequality in new markets as women lose labor opportunities that existed prior to market liberalization.
However, researchers at thinks tanks such as the Overseas Development Institute
ODI (formerly the 'Overseas Development Institute') is a global affairs think tank, founded in 1960. Its mission is "to inspire people to act on injustice and inequality through collaborative research and ideas that matter for people and the p ...
argue the risks are outweighed by the benefits and that what is needed is careful regulation.[ For instance, there is a risk that private providers will 'skim off' the most profitable clients and cease to serve certain unprofitable groups of consumers or geographical areas. Yet such concerns could be addressed through regulation and by a universal service obligations in contracts, or in the licensing, to prevent such a situation from occurring. Of course, this bears the risk that this barrier to entry will dissuade international competitors from entering the market (see ]Deregulation
Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
). Examples of such an approach include South Africa's Financial Sector Charter or Indian nurses who promoted the nursing profession within India itself, which has resulted in a rapid growth in demand for nursing education and a related supply response.[
]
Examples
* Economic liberalization by region
**Economic liberalisation in India
The economic liberalisation in India refers to the opening of the country's economy to the world with the goal of making the economy more market and service-oriented, thus expanding the role of private and foreign investment. Indian economi ...
** Economic liberalisation in Myanmar
**Economic liberalisation in Pakistan
Pakistan began a period of economic liberalisation in the 1990s to promote and accelerate economic independence, development, and GDP growth.
This policy programme was first conceived in early 1980s and thoroughly studied by the ministry of fi ...
** Effects of Economic Liberalisation on Education in Tajikistan
** Baltic Tiger (Estonia, Latvia, Lithuania, c. 2000–present)
**Economy of Cuba
The economy of Cuba is a mixed command economy dominated by state-run enterprises. Most of the labor force is employed by the state. In the 1990s, the ruling Communist Party of Cuba encouraged the formation of worker co-operatives and self-empl ...
, starting in 1994 and accelerating under Raúl Castro
Raúl Modesto Castro Ruz (; ; born 3 June 1931) is a retired Cuban politician and general who served as the first secretary of the Communist Party of Cuba, the most senior position in the one-party communist state, from 2011 to 2021, succeedi ...
** Indonesian economic boom, Starting after the Secession of East Timor
East Timor (), also known as Timor-Leste (), officially the Democratic Republic of Timor-Leste, is an island country in Southeast Asia. It comprises the eastern half of the island of Timor, the exclave of Oecusse on the island's north-weste ...
in 1999 with the beginnings of the 21st Century.
Historical examples
* Economic liberalization in the post–World War II era
After World War II, many countries adopted policies of economic liberalization in order to stimulate their economies.
The period directly after the war did not see many, the most notable exception being" West Germany's reforms of 1948, which set t ...
* Chinese economic reform
The Chinese economic reform or reform and opening-up (), known in the West as the opening of China, is the program of economic reforms termed " Socialism with Chinese characteristics" and "socialist market economy" in the People's Republic of C ...
* Perestroika
''Perestroika'' (; russian: links=no, перестройка, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg) was a political movement for reform within the Communist Party of the Soviet Union (CPSU) during the late 1980s widely associated wit ...
(Soviet Union)
* Economic history of Brazil
The economic history of Brazil covers various economic events and traces the changes in the Brazilian economy over the course of the history of Brazil. Portugal, which first colonized the area in the 16th century, enforced a colonial pact with ...
in the 1980s and 1990s
* Miracle of Chile
The "Miracle of Chile" was a term used by economist Milton Friedman to describe the reorientation of the Chilean economy in the 1980s and the effects of the economic policies applied by a large group of Chilean economists who collectively came ...
* Đổi Mới
(, ; ) is the name given to the economic reforms initiated in Vietnam in 1986 with the goal of creating a " socialist-oriented market economy". The term itself is a general term with wide use in the Vietnamese language meaning "innovate" or ...
(Vietnam)
See also
*Multilateral development bank
An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence is subject to international law. Its owners or shareholders are generally national governments, al ...
** International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
(IMF)
**World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
(WB)
**Asian Development Bank
The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966, which is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines. The bank also maintains 31 field office ...
(ADB)
**New Development Bank
The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS Sovereign state, states (Brazil, Russia, India, China and South Africa). According to the Agreemen ...
* Capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
* Economic liberalism
Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism ...
* Free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...
* Globalization
Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
* Liberalization
Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...
* Neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
* Privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
References
{{DEFAULTSORT:Economic Liberalization
Economic reforms