Liberalization (or liberalisation) is any process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed.
The term "liberalization" is most often used in discussing economic liberalization, which refers to the reduction of state involvement in the economy, but it can be used in other contexts as well.
In social policy, liberalization may refer to a relaxation of laws restricting, for example, divorce, abortion, or psychoactive drugs. Regarding civil rights, it may refer to the elimination of laws prohibiting homosexuality, private ownership of firearms or other items, same-sex marriage, inter-racial marriage, or inter-faith marriage.
In economy and trade
Economic liberalization refers to the reduction or elimination of government regulations or restrictions on private business and trade. It is usually promoted by advocates of free markets and free trade, whose ideology is also called economic liberalism. Economic liberalization also often involves reductions of taxes, social security, and unemployment benefits.
Economic liberalization is often associated with privatization, which is the process of transferring ownership or outsourcing of a business, enterprise, agency, public service or public property from the public sector to the private sector. For example, the European Union has liberalized gas and electricity markets, instituting a competitive system. Some leading European energy companies such as France's EDF and Sweden's Vattenfall remain partially or completely in government ownership. Liberalized and privatized public services may be dominated by big companies, particularly in sectors with high capital, water, gas, or electricity costs. In some cases they may remain legal monopolies, at least for some segments of the market like consumers. Liberalization, privatization and stabilization are the Washington Consensus's trinity strategy for economies in transition.
There is also a concept of hybrid liberalization as, for instance, in Ghana, cocoa crops can be sold to competing private companies, but there is a minimum price for which it can be sold and all exports are controlled by the state.
Shift from State to Market During 1970’s societies faced economic problems due to the high taxation, employment policies, public sector, great state intervention. Politicians were not in favour of welfare state and socialism. These problems led the high wage demand, encourage patriotism etc. In 1980’s there was shift from state to market in the field of the allocation of resources in large parts of the world. This shift resulted the reduction in taxes and reduction in government expenditure. The multilateral agencies IMF and World Bank pressurise the state to apply the policy of liberalisation.
Facets of Liberalisation Liberation in Europe carried on by reducing the public expenditure, social security, welfare programmes, taxation etc. It did not affect the highly agricultural production. In 1970’s liberalisation at its early phase in developing countries maintained stabilisation of the economy–public expenditure was control, increase in tax return, currency devaluation, reforms in industrial policy, state expenditure was controlled, reforms in market financial etc.
Comparison with democratization
There is a distinct difference between liberalization and democratization. Liberalization can take place without democratization, and deals with a combination of policy and social change specialized to a certain issue, such as the liberalization of government-held property for private purchase. Democratization is politically highly specialized; it can arise from a liberalization but works on a broader level of governmental liberalization.
- O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. New Jersey: Pearson Prentice Hall. p. 175. ISBN 0-13-063085-3.
- Marcella Vigneri and Paulo Santos (2007) "Ghana and the cocoa marketing dilemma: What has liberalization without price competition achieved?", Overseas Development Institute
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