Effect on Reducing Deficits and Stabilizing Prices
In a recent opinion editorial, American literary theorist, legal scholar, and public intellectual Stanley Fish decided to use a definition for neoliberalism provided by political thinker and writer Paul Treanor (2009). Fish stated that Treanor holds that neoliberalism is a philosophy where the existence and operation the market are valued separate from the production of goods and services, to the point of deliberately not justifying the market by its goods and services production. This creates an ethic based on the operation the market alone, and this resulting ethic is asserted as being capable of acting as a guide for all human action, substituting for previously existing ethical beliefs (Fish, 2009). Although criticism is inherent in the extreme nature of this definition, it is not overblown in its focus on the market. In fact, some have gone so far as to define neoliberalism as “capitalism on steroids” (Hartman, 2010).
The use of the market as the guiding light by neoliberalism results in support for various foundational concepts such as deregulation, privatization, and reduced governmental role in societal funding (Centeno and Cohen, 2012). Another important aspect of the philosophy of neoliberalism is the role of globalization. It has been argued that without globalization of the economy, the rise of neoliberalism as a dominant economic and political philosophy in the past twenty-five years would not have occurred (Kotz, 2002). Thus, when considering this economic and political philosophy as a whole, it is important to keep a global outlook, as opposed to one focused on any one particular country.
In contrast, socialism is a philosophy based the idea that “from each according to his ability, to each according to his needs.“ (Marx, 1875). In practice, this emphasis is placed on profit being distributed among society in addition to receiving a wage. Socialism can be also seen political terminology for an economic system where property is not individually, but in common and a political hierarchy controls the economic relationships. It is important to understand, however, that common ownership does not drive collective decisions. Instead in the name of the collective, persons in positions of authority make the decisions (Newman, 2005).
Socialism disconnects investment from the expectation of a financial return, just for the greater good. In this way there is the hope of slow, but peaceful, progress. However, socialism originally attempted replacing private property with a market exchange but that proved ineffective. When socialism is spoken of today is means collectively planned individual markets exchanges, a system known as "market socialism" (Newman, 2005).
One core idea where socialism and neoliberalism are at completely different poles is the role of government in economic process. Neoliberalism has taken on and expanded an extreme “laissez-faire” or “let it be” stance and is opposed to any governmental intervention in the economy because of the inefficiencies such intervention build into the system (Peck, 2008). In an effort to avoid the government picking economic winners and losers, the government is kept out of the equation all together. Instead, it is the market that selects who profits and who loses (Peck, 2008).
Socialism believes that government regulation is a necessity in order to create the most efficient market, as a free market suffers from issues such as the tragedy of the commons. The tragedy of the commons happens when individuals hold personal gain above what is best for society or the group. For example, if neighboring farmers each increase the number of animals living in a common area, eventually all will lose when the land will becomes depleted and unable to support anyone’s animals. Socialism can be seen as a potential solution to this recognized economic issue (Mirovitskaya and Soroos, 1995).
Neoliberalism and socialism also differ in what is believed to be the primary motivation behind production of goods. Neoliberalism ascribes to the general capitalist theory of production for profit, which is achieved using free-market methods (Fish, 2009). Socialism, on the other hand, promotes production for use. The goal of this system is to meet human needs and economic demands based on use and usefulness. Things that are not useful are not produced, even if they could make a profit. Reflective of this approach, two examples of waste according to socialism are advertisement and planned obsolescence (Kotz, 2006).
As emphasized by Treanor in his definition, the principal economic driver in the neoliberalism philosophy is the market. It is used to determine production, distribution and investment decisions based on the potential profit to be obtained from those decisions (Fish, 2009). Socialism relies on a planning approach to make those decisions, which can occur either in a decentralized or centralized manner, but always by someone in power, as opposed to a social decision. In the market socialism hybrid, markets determine the distribution of capital to various enterprises, but each enterprise is socially owned (Newman, 2005).
The ownership structure of the two economic and political approaches is also diametrically opposed. In neoliberalism the means of production are privately owned and operated, again, with the ultimate driving force of making a profit. This force is the underlying incentive for the market and this in turn drives all production, making it the basis for all economic activity. In sum, it is a free-market economy (Centeno and Cohen, 2012). Socialism uses means of production that are socially owned. If there is any surplus, rather than investing back into the business, it goes to either all of society or to the employee-members of the enterprise. This second system is known as a cooperative-ownership model and has been seen as a natural outgrowth of the market socialism model (Arnold, 1994, p. 254).
Another manner in which these two political and economic philosophies differ is the manner in which change is to be affected within the system. In what cannot be consider a surprise, neoliberalism supports fast change through a changing relationship between the buyer and the seller, or in other words, through changes driven by the market. It is imperative that this fast change not be upset by governmental interventions through regulations. Importantly, neoliberalism has a goal of unfettering the market from regulation; so even correction of market failures is viewed as untoward. Indeed, the state is given a minimal economic role, merely: “defining property rights, enforcing contracts, and regulating the money supply” (Kotz, 2002).
Socialists see the worker, rather than the market or perhaps more specifically acquisition desire as reflected in the market, as the agent of change (Newman, 2005). Workers are to have control over this change and thus speed is not a particular issue under the socialist philosophy. Instead, the rate of change is determined by what is perceived as best by the workers themselves. Therefore, a slower change in society is not considered a flaw of the system, but instead reflects the workers’ power that is inherent in the philosophy (Leibowitz, 2006).
With this enumeration of the many differences between the two philosophical, political, and economic systems of neoliberalism and socialism, this paper now turns to the question of which of these two systems is therefore best for reducing budget deficits and stabilizing prices. This analysis will begin with examination of the budget deficit issue. Although the above analysis is a good overview of neoliberalism in a general sense, there is a need for a further focus on this approach in order to effectively address an issue like budget deficits.
The best descriptions of neoliberalism at this level is a group of philosophies known as the Washington Consensus, that has been expressed by John Williamson of the Institute for International Economics (Symoniak, 2011). The very first tenet of this consensus is the need for fiscal discipline. However, it has been noted by commentators that despite this call within the economic approach, there has been a shift toward using governmental spending and deficit production as a means of economy stimulation (Symoniak, 2011). In this way, although neoliberalism is as an economic approach very strongly counsels against deficits, it appears that this aspect of the approach is ignored when faced with an economic crisis in order to boost domestic consumption and create jobs. Thus, although fiscal discipline or lack of a budget deficit appears steadfastly part of the neoliberalism philosophy in general, it does appear to be ignored, or at least over-ridden, in practice.
The most informative view of the effect on budget deficits and socialism can be seen in what is currently occurring in France. At the time of the election, socialist leaders vowed to close the budget gap by 2017 (Sanati, 2012). However, this has not proven to be the case, as recently reported France will be missing its goals by a wide margin in both 2012 and 2013. A huge contributor to the issue appears to be the generous social benefits provided by the system (Willsher, 2013). Certainly, these social benefits would not be a concern if a neoliberalism philosophy were followed, suggesting that that the neoliberalism approach is the best in an abstract sense to follow in order to reduce a budget deficit. This, of course, assumes that economies purporting to follow the neoliberalism philosophy do not conveniently ignore primary tenants when faced with economic crises.
The second question asked within this paper is which of the two economic approaches, neoliberalism or socialism would be best to follow in order to stabilize prices. Past experience with socialist countries has shown that relaxation of price controls has been a consistent part of their policies. Unfortunately, this relaxation has almost universally been accompanied by rapid inflation and destabilization of the economies. Therefore, it would appear that as socialism determines that price controls are beyond what should be regulated by the government. This is not a necessary position, given the general philosophy of the economic approach, but it is one that has been adopted in practice, with rather disastrous results (Commander and Coricelli, 1990).
Looking again to the Washington Consensus, there are several aspects of this approach that would be expected to provide good price stabilization. These aspects include making markets work better through stabilization, controlling inflation, and getting prices set at the right level (Stiglitz, 1998). Overall, this has played out relatively well in practice, although commentators would argue that the economic crisis of 2008 was a reflection of the misguided application of at least some of these approaches within the United States and global economy.
In summary, this paper provides an overview of both neoliberalism and socialism along the lines of many basic characteristics of the two philosophical, political, and economic approaches. These two approaches were found to different in most aspects, including the primary motivation for production, the role of government in all aspects of the economy, ownership structure, and how change is effected within the system. These differences all reflect back to the central role of the market in neoliberalism and the central role of the worker and the needs of society in socialism.
Ultimately, these differences play into the potential benefit or harm provided by these philosophies when looking at two contemporary economic issues: budget deficits and stabilizing prices. This paper takes the position that the neoliberalism philosophy is best to deal with budget deficits, primarily because of the reduced spending by the government that is afforded by the reliance on the market to provide for social needs. This position is held despite the relative failure of this aspect of the neoliberalism approach in the most recent past. Finally, this paper asserts that stabilization of prices is also best achieved by the neoliberalism philosophy. Although this is perhaps less clear now than it would have been pre-2008, the ability at least to control inflation has been a success of the neoliberalism approach and that has been consistently unsuccessfully in socialist counties.
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