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 dvocated 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 rich and poor, (Greig et al. , 2007). Liberalism further promotes globalisation which can lead to more integration of developing countries with the global economy and this creates more opportunities of foreign investment and trade for all countries.
Some of the downsides of liberalism are that it concentrates on achieving free trade at the expense of other important factors of development, such as labour rights, environmental protection and human rights. For example, Jamaica has increased the production of cement in the framework of a structure adjustment program that harshly harmed the environment, so it could be said that free trade and other liberal reforms focus on achieving high economic growth and increase competition with disregard for the impact s of such activities on the environment.
Debt repayments and unfair trade deals are also two major issues that undermine poor countries ability to develop their societies and to focus their development efforts on the needs of their people. The trade system is heavily weighted against developing countries, preventing them from increasing their income from exports and so financing social programmes.
Some of these barriers are Dumping; rich countries subsidise their agriculture by $1billion a day while poor countries can’t afford to subsidise theirs, and leading to higher prices for their produce and increased poverty for farmers, Zambia for example is one poor country which recently removed subsidy privileges to its people. Market access; rich countries charge high taxes on imported manufactured and processed goods, preventing them from earning more income and restricting them to exporting only raw materials. Also commodity pricing; these are set in developed countries and usually at very low prices.
Much of so-called underdevelopment is in fact a direct result of exploitative policies by rich countries, such as the extraction of primary resources for low prices and unfair trading practices that if Africa, East Asia, South Asia and Latin America each increased their share of world exports by just one per cent, they could lift 128 million people out of poverty. Furthermore, for every dollar given to poor countries in aid, they lose two dollars to rich countries because of unfair trade barriers against their exports. Debt and unfair trade place a burden on developing countries which perpetuates their poverty and prevents their development.
Liberalism promotes individual or private pursuit of wealth and property. That is the people are to be left alone to carry out their economic activities and to amass as much wealth as they can. This had negative effects in the past as this led to fierce competition and small industries where kicked out of business because of monopolies. This led to vast majorities being excluded and the poor got poorer and the economies plunged, unemployment levels skyrocketed which led to civil unrests during the economic depression of the 1930s in Central Europe.
The same thing happens today in developing nations where there is no state led development plans. The rich set up strong business entities which monopolize the market and kick the smaller businesses out of work. This automatically leads to poverty for the vast majority, which can lead to civil war like in Sierra Leone which lasted for eleven years. As the government of the then Sierra Leone collapsed as it did not have a state led development agenda, and all the rich and powerful people wanted to get their hands on diamonds and get richer.
Despite liberalism strongly advocating non-intervention of States in the market, liberalism requires state involvement in creating a suitable climate for establishing business. For instance, the market approach around the world, and especially in Latin America, is applied through state intervention to facilitate applying liberal policies and supporting them against the opposition Thus, modern day developing nations need state led development agendas contrary to Liberalisms notion of the state staying out of the economic activities and leaving them in private hands and individuals.
The idea that government should not regulate economic activities has come under severe criticism within liberal circles ever since the great depression of the 1930s. That economic crisis demonstrated that the government needed to play a prominent role in the economy in order to prevent the worst consequences of the business cycle. Governments in the developed industrial world have been trying to find the optimum balance between private enterprise and government involvement ever since. Furthermore, it is a moving target because the circumstances continue to change.
For example, as population growth and related environmental crises occur, there is an increasing need for governmental involvement. In conclusion, this paper has defined what development is, what liberalism is, as well as giving the historical emergence and evolution of liberalism and it has explained the core assumptions of Liberalism. It was shown that these assumptions fall in two groups that is economical and philosophical, for example laissez faire is under economical and emphasis on individual freedom is under philosophical assumptions.
This essay went further to explain these assumptions and discuss their applicability to modern day developing nations. It was shown that not all the assumptions of liberalism can benefit a developing nation, for example Liberalism advocates for the state not to be included in economic activities that it should leave development in the hands of private individuals. This has proved disastrous as these private individuals have not brought any development but have instead amassed wealth for themselves and the nation has not developed.
Despite liberalism’s contribution to economic growth in many countries around the world, it harshly affects the poor. It increases the disparity between rich and poor due to full reliance on the free market and ignorance of welfare state concepts. Nevertheless, liberal approaches could be effective if they are introduced to developing countries in separate reforms that comprehensively address both economic and social aspects, so it could be applied according to each country’s circumstances and needs rather than being adopted as a package model.