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
• A. Individual people & firms are (or should be…) the key actors in IPE
• B. Individual self-preservation, enrichment, and freedom are central goals
• C. Economic freedom is a crucial goal:
in its own right
as a means to individual & national wealth within the international sphere
as a potential means toward cooperation among states
• D. States that ignore the above do so at their own peril:
Government leaders should expand market relations in pursuit of individual & national
enrichment & freedom
• 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
• A. Classical Liberalism
emerged in the 1700s as a critique of mercantilist policies in France (the physiocrats) &
England (Adam Smith &, later, David Ricardo)
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
recommended policy goals:
• maximization of aggregate production & consumption
• maximization of efficiency in resource allocation & production
major policy: promotion of world free trade based on
• absolute advantage (A.Smith):
countries gravitate toward production of good(s) in which they are the world’s most
efficient producer
• comparative advantage (D.Ricardo):
countries gravitate toward production of good(s) in which they are most efficient
compared to other goods
theory asserts that all countries’ consumption can benefit from trade
II. (cont.)
• B. Keynesian Liberalism
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
saw uncertainty & ignorance as real-life problems that can prevent market mechanisms
from producing a recovery from serious economic downturns
recommended policy goals:
• maximization of aggregate production & consumption
• unwilling to risk prolonged recessions
• willing to accept the possibility of inflationary risk
major policies:
• activist, countercyclical fiscal & monetary policies
in recessions, government should stimulate economic activity to promote growth &
prevent deflationary spirals
in growth periods, government should consider braking economic activity slightly
to prevent inflationary spirals
• liberal international institutions to keep exchange open
IMF seen as helping hand to keep commerce moving around globe
• C. Contemporary Neoliberalism
emerged over 1940-1990 as a critique of rising government intervention & of the
stagflationary crisis of 1974-1982
• Friedrich von Hayek & Milton Friedman
saw government intervention as an enemy of freedom and as the cause of stagflation (esp.
of the inflation component)
recommended policy goals:
• maximization of aggregate production & consumption
• maximization of economic & political freedom
• willing to risk prolonged recessions
• unwilling to accept the possibility of inflationary risk
major policies:
• reduction of the size of government
in financial, personnel, & regulatory terms
• expand market activity around the world
via liberal international institutions and negotiations
III. Contemporary Arguments in Favor of Neoliberal Policies
• A. The Hecksher-Ohlin Theorem
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)
• Asserts that production gravitates usefully to the abundant factors
• B. Monetarism
Frequent recurrence to Keynesian demand management produces inflationary distortion –
especially over time
• C. The Washington Consensus
Liberal analysis of LDC patterns asserts that export-oriented countries expose themselves
to market competition to improve efficiency & national wealth
• Neomercantilists counter that successful late-industrializers used a heavy dose of protection & other
forms of intervention
IV. Contemporary Arguments Against Neoliberal Policies
• A. The Liberal Critique
Keynesians & neokeynesians reject a universal call for state-shrinking & fiscal austerity
• they worry that aggressive state-shrinking will harm the pursuit of equality of opportunity & that
procyclical austerity will deepen downturns
• B. The Neomercantilist Critique
For reasons noted earlier (particularly the desire to develop new comparative advantages),
government intervention in trade can be useful
• C. The Structuralist Critique
They argue that free trade worldwide worsens the situation for poorer countries
• More on this argument next time..
V. The Politics of Liberal IPE
• What members of society seem likely to support market-oriented IPE?
• What members of society seem likely to oppose market-oriented IPE?
VI. Examples of Successes & Failures
• What are some examples of successful & failed liberal efforts?