The Impact of Liberalism

Topics: Economics, Free market, Capitalism Pages: 5 (1641 words) Published: July 14, 2013
Several scholars have come up with theories which try to guide countries on how to achieve development. One such theory is Liberalism. This essay aims to explain the theoretical assumptions of the liberal approach to development and to discuss its applicability to the development of modern day developing countries. It begins by defining the key concepts, thereafter, it will discuss the topic at hand and finally, a conclusion on the entire essay will be drawn. Todaro and Smith (2003:15), define development as a multi-dimensional process involving major changes in social structures like, popular attitudes and national institution as well as acceleration in economic growth, the reduction of inequality and eradication of poverty. Liberalism is the ideological belief in organising the economy on individualist lines, meaning that the greatest possible number of economic decisions is made by individuals and not by collective institutions or organisations. Liberalism also places an extremely important emphasis on individual freedom. It arose to eliminate the intervention of the state in the economy that resulted in poor economic performance in many countries, (Harrison, 2005). Liberalism has several core assumptions for development. And these assumptions are divided into two groups that are economical and philosophical. It includes a spectrum of different economic policies, such as competitive markets, economic interventionism, fiscal policy, free price system, free market, invisible hand, free trade, privatisation, but it is always based on strong support for a market economy and private property in the means of production. Although economic liberalism can also be supportive of government regulation to a certain degree, it tends to oppose government intervention in the free market when it inhibits free trade and open competition. However, economic liberalism may accept government intervention in order to remove private monopoly, as this is considered to limit the decision power of some individuals, most often the poor. While economic liberalism favours markets unfettered by the government, it maintains that the state has a legitimate role in providing public goods. Historically, economic liberalism arose in response to mercantilism and feudalism. Today, economic liberalism is also generally considered to be opposed to non-capitalist economic orders, such as socialism, market socialism, and planned economies, (Harvey, 2005). Theories in support of economic liberalism are believed to be first fully formulated by Adam Smith, who advocated minimal interference of government in a market economy, though it does not necessarily oppose the state’s provision of basic public goods, such as roads, canals, schools, bridges, because such services may not be efficiently implemented by private entities. Smith claimed that if everyone is left to their own economic devices instead of being controlled by the state, then the result would be a harmonious and more equal society of ever increasing prosperity. In addition, Smith advocated for retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation. The assumptions of Liberalism have both pros and cons on the development of developing nations, the positive aspects about Liberalism are that it makes people more innovative which can lead them into new, more productive fields and adapting technologies developed elsewhere to create new jobs and reduce poverty at home. Also privatisation of state owned companies promotes better efficiency as this entails better salaries and this serves as an incentive for employees to work harder. In addition it is believed that the free market approach will significantly contribute to economic growth, which in turn would help with poverty reduction and the increase of liberty. However, it is argued because of liberalism the distribution of income between rich and poor countries is still unequal and widens disparities between the...

Bibliography: Greig, A., Hulme D. and Turner, M (2007). Challenging global inequality; development theory and practice in the 21st century. Basingstoke: Palgrave Macmillan.
Harrison, G (2005). Economic faith, social project and a misleading of African society: The travails of Neoliberalism in Africa. Third World Quarterly, 26, (8): 1303-1320.
Harvey, D (2005). A brief history of liberalism. Oxford: Oxford University Press.
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