The Economy in a Global Age:

CAPITALISM AND NEOLIBERALISM

Capitalisms of the world:

1. Origins of Capitalism:
• Began in 17th-18th century Europe.
• Shift from feudalism (serfs working on large estates) to commercial
agriculture (selling products in markets).
• Workers started earning wages instead of being tied to land.
2. Industrial Revolution:
• Mid-18th century, started in UK, then spread to USA and Europe.
• Introduced factories and machine-based production.
• People moved from villages to cities to work.
• Made capitalism the main system globally by the 19th century.
3. Global Spread:
• Countries like Europe sent money and resources to North America,
South America, and Asia.
• Created a division between countries: some produced raw materials,
others manufactured goods.

4. Types of Capitalism:
• Enterprise Capitalism: Free markets with little government control
(USA).
• Social Capitalism: Free markets with strong social programs
(Germany).
• State Capitalism: Government controls key industries (China).

Notes on Enterprise Capitalism

• Definition:
Seen as ‘pure’ capitalism, based on free markets and minimal
government control.
o Main examples: USA and UK.
• Key Features:
 o Free-market principles: Influenced by Adam Smith (invisible
hand) and neoliberal thinkers like Friedrich von
Hayek and Milton Friedman.
o Market is seen as self-regulating.
o Minimal public ownership and limited welfare (only a safety net).
o Businesses focus on profit, high productivity, and labour
flexibility.
o Weak trade unions to prevent obstacles to profit maximization.
• Economic Power:
o Despite a decline in global manufacturing share, the
USA’s productivity remains high.
o Benefits from a large domestic market, natural resources, and a
culture of individualism.
• Disadvantages:
o Inequality: Tends to create wide gaps between the rich and poor.
o Poverty: Higher levels of absolute poverty in the USA compared
to Europe.
o Growth of an underclass with low education and social
dependence

Notes on Social Capitalism

• What it is:
o Social capitalism combines market competition with social
welfare to create a balanced system.
o • A form of capitalism found in Germany and parts of Europe (France, Austria,
Scandinavia).
.
• Main Ideas:
o Focuses on long-term investment, not just short-term profits.
o Businesses and trade unions work together, negotiating wages
and working conditions.
o Strong welfare programs help support workers and vulnerable
people.
o Emphasis on vocational training ensures a highly skilled
workforce, boosting productivity.
 • Strengths:
o Helped rebuild Germany after WWII, turning it into a strong
economy by the 1960s.
o High productivity due to a skilled workforce, thanks to good
education and vocational training.
• Weaknesses:
o Can make it harder for businesses to adapt to fast-changing
markets.
o High taxes are needed to pay for the welfare programs, which can
be a burden.
o Critics say it may be a contradiction to mix social goals with free
markets.

Notes on State Capitalism

• What is State Capitalism?
o A system where the state plays a significant role in directing the
economy.
o Often found in non-liberal capitalist societies, like China, Russia,
and early Japan.
o Different from liberal market economies where businesses are
more independent and rely on competition.
• Key Features:
o Long-term planning: Focuses on stable, long-term relationships
rather than short-term profits.
o Relational markets: Cooperation
between industry and finance (e.g., Japan) to guide investments.
o Firm loyalty: Workers are deeply connected to their companies,
often receiving lifetime employment and benefits.
o The state guides important sectors, such as investment,
research, and trade (e.g., Japan’s MITI).
• Examples:
o Japan after WWII: Known for its economic miracle, with
government steering the economy towards recovery.
o China: Since the 1980s, has achieved high growth through a blend
of capitalism and Stalinist political control.
o Russia: Under Putin, state power was reasserted, especially in
the energy sector, giving Russia influence over Europe.
 • Strengths:
o Pragmatism and flexibility: Strong states can pursue economic
goals more easily, with fewer constraints from market
fluctuations.
o Major projects and economic restructuring can be achieved
quickly.
o Economic stability: Reduced impact from global market
instabilities.
• Weaknesses:
o Contradiction between economic freedom and political control.
In countries like China, some argue that increased economic
freedom will eventually demand political reform.
o Worker demands: Heavy burdens on workers, such as long hours
and disciplined work environments.
o Japan’s slowdown in the 1990s and the Asian financial
crisis exposed the limits of state capitalism’s ability to adapt.

Notes on the Triumph of Neoliberalism

• What is Neoliberalism?
o Neoliberalism is an economic ideology that emphasizes free
markets, limited government intervention, and the rolling
back of the state’s role in the economy.
o It gained global influence from the 1980s onward, particularly in
the USA (Reaganism) and the UK(Thatcherism).
• Origins and Key Figures:
o Key theorists: Friedrich Hayek and Milton Friedman.
o Neoliberalism was a counter-revolution against Keynesianism,
which advocated for state intervention in the economy.
o Reaction to the stagflation of the 1970s, which was marked
by rising unemployment and high inflation.
• Neoliberal Policies:
o Privatization: Transferring state-owned enterprises to private
ownership.
o Deregulation: Reducing government rules and restrictions on
businesses.
 o Tax cuts: Lowering taxes, especially on corporations and the
wealthy, to stimulate investment.
o Free trade and liberalization of capital markets, allowing global
competition and investment flows.
• Early Adopters:
o Chile was the first major experiment with neoliberalism after the
1973 coup, with reforms guided by the Chicago Boys (followers of
Friedman).
o Spread to Brazil, Argentina, and other parts of South America in
the 1970s and 1980s.
o Reaganism in the USA and Thatcherism in the UK in the 1980s.
• Global Spread:
o World Bank and IMF adopted neoliberal policies, often requiring
developing countries to follow these principles through structural
adjustment programs.
o After the Eastern European revolutions of 1989–91, neoliberal
ideas influenced the transition to free-market capitalism in
countries like Russia and Poland.
o Economic globalization pushed more countries to
embrace deregulation and tax cuts to stay competitive.
• Impact of Globalization:
o International competition encouraged governments to reduce
regulations and taxes to attract foreign investment.
o Control of inflation became more important than maintaining full
employment.
o Neoliberalism became the dominant global economic ideology
by the late 1990s, with China being a notable exception, limiting
its exposure to global competition.

INTERESTING TO KNOW :
Brief Notes on Milton Friedman
• Milton Friedman (1912–2006), US economist and Nobel Prize winner
(1976).
• Key advocate of monetarism and free-market economics.
• Strong critic of Keynesianism and government intervention in the
economy.
 • Influential in shaping neoliberal policies in the USA and UK during the
1970s and 1980s.
• Major works: Capitalism and Freedom (1962), Free to Choose (1980)

Implications of neoliberalism
1. What is Neoliberalism?
• An economic idea that focuses on free markets, limited government
control, and privatization (selling government-owned businesses).
• It became popular in the 1980s in the USA and UK, led
by Reagan and Thatcher.
• Key thinkers: Friedrich Hayek and Milton Friedman.

2. Key Features of Neoliberalism:

• Free markets are seen as the best way to grow the economy.
• Less government spending and fewer welfare programs.
• Promotes deregulation, meaning fewer rules for businesses.
• Privatization of public services like transportation and utilities.

3. Success of Neoliberalism:
• Brought economic growth in the USA and global economy in the 1980s
and 1990s.
• Led to financial growth through big banks and financial centers
like Wall Street.
• Spread globally, with many countries adopting free
trade and privatization.

4. Criticism of Neoliberalism:
• Increased inequality—rich people got richer, while the poor faced more
struggles.
• Encouraged a "greed is good" attitude, focusing on self-interest.
• Economic crises happened, like the 2007–09 financial crisis, showing
the risks of uncontrolled markets.
• Neoliberal policies didn’t work well in some countries,
like Russia and Chile, causing unemployment and social unrest.

5. Future of Neoliberalism:
 • Some countries have started to rethink neoliberal policies after
the 2007–09 crisis.
• Critics say it causes environmental damage, social inequality, and
weakens democracy.
• Despite the criticisms, neoliberal ideas are still strong in global
economic policies.

ECONOMIC GLOBALIZATION
Causes of economic globalization
Definition of Economic Globalization:
• Economic globalization refers to how all the world's national economies
have become part of a global, interconnected economy.
• It's marked by international trade, investment flows, and
the movement of goods and services across borders.

Causes of Economic Globalization:

1. Historical Roots:
o Globalization isn't new; it has its roots in imperialism (late 19th
century) when European countries expanded their control over
other regions for resources.
o Modern globalization differs because now the economy is more
interconnected and borderless.
2. Post-WWII Changes:
o Bretton Woods System (fixed exchange rates) was established
after WWII to stabilize the global economy.
o The Marshall Plan and Keynesian policies helped reconstruct
Europe and create economic growth.
3. Collapse of Bretton Woods:
o In the 1970s, the collapse of Bretton Woods led to floating
exchange rates, creating more competition between countries
and exposing them to global market pressures.
4. Technology:
o Technological advances like the Internet, personal computers,
and mobile phones have increased globalization by making it
easier to trade and communicate across borders.
 o The development of global financial markets has been crucial in
connecting economies.
5. Political and Ideological Factors:
o State policies also played a role. Powerful states like
the USA pushed for free trade, and institutions like the World
Bank, IMF, and WTO supported this.
o Neoliberalism: The spread of free-market ideas made
globalization more acceptable worldwide, promoting trade
liberalization and market-oriented reforms.

Key Theories on Globalization:

1. Marxist Perspective:
o Marxists argue that globalization is a natural result of capitalism.
Capitalism needs to expand into new markets and find cheaper
resources.
o Globalization is driven by the desire for profit accumulation.
2. Liberal Perspective:
o Liberals believe globalization reflects human nature’s desire for
economic progress and higher living standards.
o Free markets and competition help increase wealth and
security.
3. Realist/Mercantilist View:
o Realists emphasize that globalization is shaped by state policies.
They argue that powerful states, especially the USA, have used
globalization to maintain economic dominance.
4. Critical View:
o Critics argue globalization benefits are unequally shared, and the
process is driven by consumerism, materialism, and neoliberal
ideology, which serves wealthy nations and corporations.

Modern Impacts of Globalization:

• Increased Interconnectedness: Economies are more linked than ever,
meaning crises in one region (like the 2008 financial crisis) can affect
the entire global economy.
• Rise of TNCs: Transnational corporations (TNCs) have become major
players in the global economy, influencing policies and economic
decisions across countries
How globalized is economic life?

Is Economic Globalization Real or Not?

• There is debate if the world economy is truly global or just connected
national economies.
1. Hyperglobalists:
o They believe we live in a borderless economy where trade and
finance go beyond countries due to technology like the internet
and fast communication.
2. Globalization Skeptics:
o They think globalization is exaggerated to promote free markets
and national economies are still very important.
3. Balanced View:
o Economic globalization is a process where economies are
becoming more connected, but it’s not fully global yet.
o The impact of globalization varies in different industries and
regions.

Key Signs of Economic Globalization

1. International Trade:
o Trade has grown a lot since 1945, often faster than production.
o A lot of trade now happens within companies (intra-firm trade),
showing strong globalization.
o Criticism: 80% of trade happens between developed countries,
mostly in North America, Europe, and East Asia.
2. Transnational Production:
o Transnational Corporations (TNCs) lead global production and
trade.
o These companies move production to countries with cheaper
labor or lower taxes.
o However, most production still happens in developed countries.
3. Global Division of Labor:
o More workers from poorer countries are now part of the global
economy, especially in agriculture and raw materials.
o Only about 15% of workers are globally mobile (can work in other
countries).
 o Criticism: Globalization has made rich countries richer and left
poor countries behind.
4. Global Financial System:
o The global financial system grew in the 1970s and 1980s with
the deregulation of markets.
o Technology allows fast financial transactions all over the world,
and about $5 trillion is traded every day in global currency
markets.

Other Views on Economic Globalization

1. Feminist Critique:
o Many unpaid jobs (like housework or farming) done by women are
part of an invisible economy.
o This invisible economy is important in developing countries,
where it helps provide food and support families.