Economic liberalization
Encyclopedia
Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with classical liberalism
. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.Thus,liberalisation in short refers to "the removal of controls", to encourage economic development..
Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatisation of government institutions and assets, greater labour-market flexibility, lower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. British Prime Minister
Tony Blair
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 after they have "liberalized" their economies to foreign capital.
Many countries nowadays, particularly those in the third world, arguably have no choice but to also "liberalize" their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments. In the Philippines
for example, the contentious proposals for Charter Change include amending the economically restrictive provisions of their 1987 constitution.
The total opposite of a liberalized economy would be North Korea's economy with their closed and "self-sufficient" economic system. North Korea
receives hundreds of millions of dollars worth of 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
and United Arab Emirates
, 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.
/foreign capital into the country. In fact, some research suggest a 50% cut in service trade barriers over a five- to 10-year period would create global gains in economic welfare of around $250 billion per annum.
However, researchers at thinks tanks such as the Overseas Development Institute
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
). 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.
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.Thus,liberalisation in short refers to "the removal of controls", to encourage economic development..
Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatisation of government institutions and assets, greater labour-market flexibility, lower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. British Prime Minister
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
Tony Blair
Tony Blair
Anthony Charles Lynton Blair is a former British Labour Party politician who served as the Prime Minister of the United Kingdom from 2 May 1997 to 27 June 2007. He was the Member of Parliament for Sedgefield from 1983 to 2007 and Leader of the Labour Party from 1994 to 2007...
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
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
and India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital.
Many countries nowadays, particularly those in the third world, arguably have no choice but to also "liberalize" their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments. In the Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
for example, the contentious proposals for Charter Change include amending the economically restrictive provisions of their 1987 constitution.
The total opposite of a liberalized economy would be North Korea's economy with their closed and "self-sufficient" economic system. North Korea
North Korea
The Democratic People’s Republic of Korea , , is a country in East Asia, occupying the northern half of the Korean Peninsula. Its capital and largest city is Pyongyang. The Korean Demilitarized Zone serves as the buffer zone between North Korea and South Korea...
receives hundreds of millions of dollars worth of 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
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
and United Arab Emirates
United Arab Emirates
The United Arab Emirates, abbreviated as the UAE, or shortened to "the Emirates", is a state situated in the southeast of the Arabian Peninsula in Western Asia on the Persian Gulf, bordering Oman, and Saudi Arabia, and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar, and Iran.The UAE is a...
, 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.
Potential benefits of trade liberalisation
The service sector is probably the most liberalised of the sectors. Liberalisation 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 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. The entry of foreign service providers is not necessarily a negative development and can lead to better services for domestic consumers, improve the performance and competitiveness of domestic service providers, as well as simply attract FDIFDI
-Medical:* FDI World Dental Federation, Fédération dentaire internationale. The World Dental Federation also have an , also known as the FDI.* first dorsal interosseous, one of the four dorsal interossei muscles of the hand -Finance:* FDi magazine, a UK-based publication that covers foreign direct...
/foreign capital into the country. In fact, some research suggest a 50% cut in service trade barriers over a five- to 10-year period would create global gains in economic welfare of around $250 billion per annum.
Potential risks of trade liberalisation
Yet, trade liberalisation also 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 allow 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. Other potential risks resulting from liberalisation, include:- Risks of financial sector instability resulting from global contagionFinancial contagionFinancial contagion refers to a scenario in which small shocks, which initially affect only a few financial institutions or a particular region of an economy, spread to the rest of financial sectors and other countries whose economies were previously healthy, in a manner similar to the transmission...
- Risk of brain drainBrain drainHuman capital flight, more commonly referred to as "brain drain", is the large-scale emigration of a large group of individuals with technical skills or knowledge. The reasons usually include two aspects which respectively come from countries and individuals...
- Risk of environmental degradationEnvironmental degradationEnvironmental degradation is the deterioration of the environment through depletion of resources such as air, water and soil; the destruction of ecosystems and the extinction of wildlife...
However, researchers at thinks tanks such as the Overseas Development Institute
Overseas Development Institute
The Overseas Development Institute is one of the leading independent think tanks on international development and humanitarian issues. Based in London, its mission is "to inspire and inform policy and practice which lead to the reduction of poverty, the alleviation of suffering and the achievement...
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
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
). 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.
Historical examples
- Economic liberalisation in India
- Chinese economic reformChinese economic reformThe Chinese economic reform refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China that were started in December 1978 by reformists within the Communist Party of China led by Deng Xiaoping.China had one of the world's largest...
- PerestroikaPerestroikaPerestroika was a political movement within the Communist Party of the Soviet Union during 1980s, widely associated with the Soviet leader Mikhail Gorbachev...
(Soviet Union) - Baltic TigerBaltic TigerBaltic Tiger is a term used to refer to any of the three Baltic states of Estonia, Latvia, and Lithuania during their periods of economic boom, which started after the year 2000 and continued until 2006–2007...
(Estonia, Latvia, Lithuania, c. 2000–present) - Economic history of BrazilEconomic history of BrazilThe 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 Brazil, an imperial mercantile policy, which drove...
in the 1980s and 1990s - Miracle of ChileMiracle of ChileThe "Miracle of Chile" was a term used by free market Nobel Prize winning economist Milton Friedman to describe liberal and free market reorientation of the economy of Chile in the 1980s, 1990s and the purported benefits of his style of economic liberalism...
- Đổi Mới (Vietnam)
- Economy of CubaEconomy of CubaThe economy of Cuba is a largely centrally planned economy dominated by state-run enterprises overseen by the Cuban government, though there remains significant foreign investment and private enterprise in Cuba...
, starting in 1994 and accelerating under Raúl CastroRaúl CastroRaúl Modesto Castro Ruz is a Cuban politician and revolutionary who has been President of the Council of State of Cuba and the President of the Council of Ministers of Cuba since 2008; he previously exercised presidential powers in an acting capacity from 2006 to 2008...
See also
- CapitalismCapitalismCapitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
- Economic liberalismEconomic liberalismEconomic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...
- Free marketFree marketA free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
- GlobalizationGlobalizationGlobalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
- LiberalizationLiberalizationIn general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...
- NeoliberalismNeoliberalismNeoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
- PrivatizationPrivatizationPrivatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...