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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.<ref name=ODI>Massimiliano Cali, Karen Ellis and Dirk Willem te Velde (2008) [http://www.odi.org.uk/resources/details.asp?id=2611&title=contribution-services-development-role-regulation-trade-liberalisation The contribution of services to development: The role of regulation and trade liberalisation] London: [[Overseas Development Institute]]</ref> 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 [[Foreign direct investment|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&nbsp;billion per annum.<ref name=ODI/>
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.<ref name=ODI>Massimiliano Cali, Karen Ellis and Dirk Willem te Velde (2008) [http://www.odi.org.uk/resources/details.asp?id=2611&title=contribution-services-development-role-regulation-trade-liberalisation The contribution of services to development: The role of regulation and trade liberalisation] London: [[Overseas Development Institute]]</ref> 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 [[Foreign direct investment|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&nbsp;billion per annum.<ref name=ODI/>


===Potential risks of trade liberalization===
=== 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".<ref name=ODI/> 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]] 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:
[[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".<ref name=ODI/> 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]] 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:


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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.<ref name=ODI/> 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.<ref name=ODI/>
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.<ref name=ODI/> 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.<ref name=ODI/>

Some argue that economic factors, such as [[Deindustrialization|deindustrialisation]], [[Economic liberalization|economic liberalisation]], and [[deregulation]], are causing the formation of a 'left-behind' precariat with low [[job security]], high [[Economic inequality|inequality]], and [[wage stagnation]], who then support populism.<ref name=":2">{{Cite book |last1=Norris |first1=Pippa |title=[[Cultural Backlash: Trump, Brexit, and Authoritarian Populism]] |last2=Inglehart |first2=Ronald |date=11 February 2019 |publisher=Cambridge University Press |isbn=978-1-108-59584-1 |pages=134–139 |doi=10.1017/9781108595841 |s2cid=242313055}}</ref><ref>{{Cite journal |last1=Broz |first1=J. Lawrence |last2=Frieden |first2=Jeffry |last3=Weymouth |first3=Stephen |date=2021 |title=Populism in Place: The Economic Geography of the Globalization Backlash |journal=International Organization |language=en |volume=75 |issue=2 |pages=464–494 |doi=10.1017/S0020818320000314 |issn=0020-8183 |doi-access=free}}</ref> Some theories only focus on the effect of [[Recession|economic crises]],<ref>{{Cite book |last=Mudde |first=Cas |title=Populist Radical Right Parties in Europe |date=2007 |publisher=Cambridge University Press |isbn=978-0-511-49203-7 |location=Cambridge |pages=205–206 |doi=10.1017/cbo9780511492037}}</ref> or inequality.<ref>{{Cite journal |last1=Flaherty |first1=Thomas M. |last2=Rogowski |first2=Ronald |date=2021 |title=Rising Inequality As a Threat to the Liberal International Order |journal=International Organization |language=en |volume=75 |issue=2 |pages=495–523 |doi=10.1017/S0020818321000163 |issn=0020-8183 |doi-access=free}}</ref> Another objection for economic reasons is due to the globalization that is taking place in the world today. In addition to criticism of the widening inequality caused by the elite, the widening inequality among the general public caused by the influx of immigrants and other factors due to globalization is also a target of populist criticism.

The evidence of increasing economic disparity and volatility of family incomes is clear, particularly in the United States, as shown by the work of [[Thomas Piketty]] and others.<ref name="Berman">{{cite journal |last1=Berman |first1=Sheri |date=11 May 2021 |title=The Causes of Populism in the West |journal=Annual Review of Political Science |volume=24 |issue=1 |pages=71–88 |doi=10.1146/annurev-polisci-041719-102503 |doi-access=free}}</ref><ref name="Piketty">{{cite book |last1=Piketty |first1=Thomas |title=Capital in the twenty-first century |date=2014 |publisher=Harvard University Press |isbn=978-0-674-43000-6 |location=Cambridge Massachusetts}}</ref><ref name="Hacker">{{cite book |last1=Hacker |first1=Jacob S. |title=The great risk shift: the new economic insecurity and the decline of the American dream |date=2019 |publisher=Oxford University Press |isbn=978-0-19-084414-1 |edition=Expanded & fully revised second |location=New York, NY}}</ref> Commentators such as [[Martin Wolf]] emphasize the importance of economics.<ref name="Wolf">{{cite journal |last1=Wolf |first1=M. |date=December 3, 2019 |title=How to reform today's rigged capitalism |url=https://www.ft.com/content/4cf2d6ee-14f5-11ea-8d73-6303645ac406 |journal=Financial Times |url-access=subscription |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/4cf2d6ee-14f5-11ea-8d73-6303645ac406 |archive-date=10 December 2022 |access-date=24 August 2021}}</ref> They warn that such trends increase resentment and make people susceptible to populist rhetoric. Evidence for this is mixed. At the macro level, political scientists report that xenophobia, anti-immigrant ideas, and resentment towards out-groups tend to be higher during difficult economic times.<ref name="Berman" /><ref name="Dancygier">{{cite book |last1=Dancygier |first1=RM. |title=Immigration and Conflict in Europe |date=2010 |publisher=Princeton University Press |location=Princeton, NJ |pages=}}</ref> Economic crises have been associated with gains by far-right political parties.<ref>{{cite journal |last1=Klapsis |first1=Antonis |date=December 2014 |title=Economic Crisis and Political Extremism in Europe: From the 1930s to the Present |journal=European View |volume=13 |issue=2 |pages=189–198 |doi=10.1007/s12290-014-0315-5 |doi-access=free}}</ref><ref>{{cite journal |last1=Funke |first1=Manuel |last2=Schularick |first2=Moritz |last3=Trebesch |first3=Christoph |date=September 2016 |title=Going to extremes: Politics after financial crises, 1870–2014 |url=https://www.cesifo.org/DocDL/cesifo1_wp5553.pdf |journal=European Economic Review |volume=88 |pages=227–260 |doi=10.1016/j.euroecorev.2016.03.006 |s2cid=154426984}}</ref> However, there is little evidence at the micro- or individual level to link individual economic grievances and populist support.<ref name="Berman" /><ref name=":2" /> Populist politicians tend to put pressure on [[Central bank#Independence|central bank independence]].<ref>{{cite journal |last1=Gavin |first1=Michael |last2=Manger |first2=Mark |year=2023 |title=Populism and de Facto Central Bank Independence |journal=Comparative Political Studies |volume=56 |issue=8 |pages=1189–1223 |doi=10.1177/00104140221139513 |pmc=10251451 |pmid=37305061}}</ref>


==Examples==
==Examples==

Revision as of 02:41, 27 November 2023

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 and neoliberalism. Liberalization in short is "the removal of controls" to encourage economic development.[1]

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 of government institutions and state-owned assets, greater labour market flexibility, lower tax rates for businesses, less restrictions on both domestic and foreign capital, open markets, etc. In support of liberalization, former British prime minister Tony Blair wrote: "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."[2]

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.[3]

Many countries nowadays, particularly those in the third world, arguably were given no choice but to "liberalize" their economies 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". For example, in China after Cultural Revolution, reforms were introduced,[4] and in 1991 India had little choice but to implement economic reforms.[5] Similarly, in the Philippines, the contentious proposals for Charter Change include amending the economically restrictive provisions of their 1987 constitution.[6]

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). 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.[7][8] Another example would be oil-rich countries such as Saudi Arabia and the United Arab Emirates[citation needed], 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 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.[9]

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.[10] 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.[10]

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".[10] 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 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[10]
  • Risk of brain drain[10]
  • Risk of environmental degradation[10]
  • 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).[11]
  • Risk of increased inequality across race, ethnicity, or gender lines. For example, according to the anthropologist Lilu Abu-Lughod 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 argue the risks are outweighed by the benefits and that what is needed is careful regulation.[10] 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.[10]

Examples

Historical examples

See also

References

  1. ^ Chaudhary, C. M. (2008). India's economic policies. sublime publications. p. 131. ISBN 978-81-8192-121-5.
  2. ^ Tony Blair (2005). "Europe is Falling Behind". Newsweek. Retrieved 4 December 2007.
  3. ^ Zuliu Hu, Mohsin S. Khan. "Why Is China Growing So Fast?". International Monetary Fund.
  4. ^ Gorbachev, Deng to meet on rough roads to reform
  5. ^ For detailed account of reforms before and after 1991 in India see Sharma, Chanchal Kumar, "A Discursive Dominance Theory of Economic Reform Sustainability: The Case of India", India Review, Vol. 10, No. 2, 2011.
  6. ^ "Philippines : Gov.Ph : About the Philippines". Archived from the original (ASP) on 3 October 2006.
  7. ^ "A photo journey through China's lesser known cities". www.nationalgeographic.com. National Geographic. 24 May 2018. Archived from the original on 24 May 2018. Retrieved 26 March 2019.
  8. ^ "China: Tyranny Tourism Thrives at North Korea's Border". Time. Retrieved 26 March 2019.
  9. ^ Kumar Sharma, Chanchal (2011). "A Discursive Dominance Theory of Economic Reform Sustainability: The Case of India". India Review. 10 (2): 126–184. CiteSeerX 10.1.1.627.2831. doi:10.1080/14736489.2011.574550. S2CID 154982877.
  10. ^ a b c d e f g h 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
  11. ^ https://news.yahoo.com/kansas-tax-collections-short-expectations-january-222746060.html [dead link]
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