Liberalism I. Analytical Focus of Liberalism



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Liberalism

I. Analytical Focus of Liberalism

II. The Evolution of Liberalism

III. Contemporary Arguments in Favor of Neoliberal Policies

IV. Contemporary Arguments Against Neoliberal Policies

V. The Politics of Liberal IPE

VI. Examples of Successes & Failures

I. Analytical Focus of Liberalism

  1. A. Individual people & firms are (or should be…) the key actors in IPE

  2. B. Individual self-preservation, enrichment, and freedom are central goals

  3. C. Economic freedom is a crucial goal:

  4. in its own right

  5. as a means to individual & national wealth within the international sphere

  6. as a potential means toward cooperation among states

  7. D. States that ignore the above do so at their own peril:

  8. Government leaders should expand market relations in pursuit of individual & national enrichment & freedom

  9. If they do not, their societies will pay an economic price that may result in a political price for these leaders.

II. The Evolution of Liberalism

  1. A. Classical Liberalism

  2. emerged in the 1700s as a critique of mercantilist policies in France (the physiocrats) & England (Adam Smith &, later, David Ricardo)

  3. saw economic trade & competition as a positive-sum game in which free trade permits competing self-interests to maximize production & consumption for society as a whole

  4. recommended policy goals:

  5. maximization of aggregate production & consumption

  6. maximization of efficiency in resource allocation & production

  7. major policy: promotion of world free trade based on

  8. absolute advantage (A.Smith):

  9. countries gravitate toward production of good(s) in which they are the world’s most efficient producer
  10. comparative advantage (D.Ricardo):

  11. countries gravitate toward production of good(s) in which they are most efficient compared to other goods
  12. theory asserts that all countries’ consumption can benefit from trade

II. (cont.)

  1. B. Keynesian Liberalism

  2. emerged over 1910-1940 as a critique of mercantilist policies in WWI, of the Soviet revolution’s communism, and of the “do-nothing” liberal approach to the Depression of the 1930s

  3. saw uncertainty & ignorance as real-life problems that can prevent market mechanisms from producing a recovery from serious economic downturns

  4. recommended policy goals:

  5. maximization of aggregate production & consumption

  6. unwilling to risk prolonged recessions

  7. willing to accept the possibility of inflationary risk

  8. major policies:

  9. activist, countercyclical fiscal & monetary policies

  10. in recessions, government should stimulate economic activity to promote growth & prevent deflationary spirals
  11. in growth periods, government should consider braking economic activity slightly to prevent inflationary spirals
  12. liberal international institutions to keep exchange open

  13. IMF seen as helping hand to keep commerce moving around globe



  1. C. Contemporary Neoliberalism

  2. emerged over 1940-1990 as a critique of rising government intervention & of the stagflationary crisis of 1974-1982

  3. Friedrich von Hayek & Milton Friedman

  4. saw government intervention as an enemy of freedom and as the cause of stagflation (esp. of the inflation component)

  5. recommended policy goals:

  6. maximization of aggregate production & consumption

  7. maximization of economic & political freedom

  8. willing to risk prolonged recessions

  9. unwilling to accept the possibility of inflationary risk

  10. major policies:

  11. reduction of the size of government

  12. in financial, personnel, & regulatory terms
  13. expand market activity around the world

  14. via liberal international institutions and negotiations

III. Contemporary Arguments in Favor of Neoliberal Policies

  1. A. The Hecksher-Ohlin Theorem

  2. Expanded Ricardo’s two-product, two-country model based on labor costs by demonstrating gains from trade based on comparative advantage across 2 productive factors (labor & capital)

  3. Asserts that production gravitates usefully to the abundant factors

  4. B. Monetarism

  5. Frequent recurrence to Keynesian demand management produces inflationary distortion – especially over time

  6. C. The Washington Consensus

  7. Liberal analysis of LDC patterns asserts that export-oriented countries expose themselves to market competition to improve efficiency & national wealth

  8. Neomercantilists counter that successful late-industrializers used a heavy dose of protection & other forms of intervention

IV. Contemporary Arguments Against Neoliberal Policies

  1. A. The Liberal Critique

  2. Keynesians & neokeynesians reject a universal call for state-shrinking & fiscal austerity

  3. they worry that aggressive state-shrinking will harm the pursuit of equality of opportunity & that procyclical austerity will deepen downturns

  4. B. The Neomercantilist Critique

  5. For reasons noted earlier (particularly the desire to develop new comparative advantages), government intervention in trade can be useful

  6. C. The Structuralist Critique

  7. They argue that free trade worldwide worsens the situation for poorer countries

  8. More on this argument next time..

V. The Politics of Liberal IPE

  1. What members of society seem likely to support market-oriented IPE?



  2. What members of society seem likely to oppose market-oriented IPE?



VI. Examples of Successes & Failures

  1. What are some examples of successful & failed liberal efforts?




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