Good Classical/Embedded Liberalism And Neoliberalism/Conservatism Essay Example
Public and private goods differ in the way the former is non-excludable and non-rivalrous, while the latter is excludable. In a bid to distribute resources equally and ensure citizens of a given country benefit fully from the government, the central authority uses various socio-political systems such as classical/embedded liberalism and neoliberalism/conservatism to regulate the economy. The two economic systems are almost the same, although they differ in principle. Apart from that, they were influenced by the political ideologies of a country or past economic experiences. With regard to this insightful overview, the paper seeks to compare the principles of the two socio-economic systems of governance, establish the system that is persuasive, and identify the system that has influenced higher education in California for the last 50 years.
Before the Second World War, most western economies were operating based on the classical school of thought, which advocate for a self-regulating economy. This economic system embraced the social aspect of class structure where the society was differentiated in groups based on socioeconomic perspective. Those who believed in this school of thought endorsed civil and political rights movements, which advocated for a harmonious society where people had freedom to engage in any meaningful social practices. Proponents of this school of thought believed that self-adjusting mechanisms are able to return the economy to its equilibrium as long as the government does not interfere. Additionally, they believed that the economy is able to achieve full employment of resources without government involvement.
Despite that, the classical theory did not work. In the wake of the great depression in 1930’s and the effects of the Second World War, most western economies adopted the embedded liberalism because the classical theory alone had proved unreliable in regulating the economy. The embedded liberalism started immediately after the Second World War, but gained importance in 1970 especially in America. It was almost the same time when slave trade started paving way for the bourgeois to amass wealth using the proletariat. Europe and North America were commonly known for this practice, which later moved to other countries. Most countries that embraced embedded liberalism synchronized economic ideologies with social values. For instance, free trade was allowed, but it was not allowed on illicit products such as drugs, which would erode social values.
It was started by Karl Polanyi, but later embraced by John Rugie. It was hard to abandon free trade or classical way of regulating an economy because most GDP’s of western countries were improved by the free trade as Adam Smith explained. Embedded liberalism stated that free trade was allowed, but the government would intervene to offer welfare programs to ensure that the economy maintains full employment of resources. Supported by the Bretton wood system, investors were allowed to secure funds from other countries and venture into profitable venture, which aimed at improving the economy locally. Investors were confident and certain as they made investment decisions because embedded liberalism allowed a mixed exchange rate regime where the economy operated on a floating exchange rate regime, but the government intervenes to maintain equilibrium (Hayek 19). In order to address the social plight of communities, civil rights movements took the center stage to fight for equal distribution of resources.
Neoclassical liberalism where there is respect for religious values, authorities, and concern for established tradition. It was propelled by President Regan and the British Prime Minister then Margret Thatcher who mostly privatized, embraced deregulation policies, and allows individuals to operate in free markets. The idea of privatization meant that a few people controlled the means of production and they are the same few people who benefitted from government services. Proponents of this theory had the opinion that economics is prior to politics and its impacts were felt on the sociological perspective. Notably, this economic system paves way for the resurgence of free trade under the conditions of a strong state. Although the economic system embraced free trade, it also supported capitalism in such a way that players in the market struggle to accumulate wealth in the free market. Class structure in this economic system widened the gap between the rich and the poor because the state supported a few people (the upper class) who contributed high taxes to the state.
In this system, the government operates in a conservative way such that it reduce spending, broaden the tax base, encourage private property and avoid interfering with commercial activities and market operations. Neoliberalism advocated for the elimination of the idea of public good. In this case, the aspect of excludability is introduced by making sure that the low class settles their own education problems, healthcare, and retirement benefits. As noted earlier, the government shifts the financial problem of the social amenities and other costs to citizens. This economic system encouraged social vices in the society because the society operated in a state of normlessness. The rationale behind it is that, the government was not involved in addressing social problems such as security, education, and healthcare among others.
The most persuasive system
Classical/embedded liberalism is more persuasive compared to neoclassical liberalism. In principle, the former has been supported by two theoretical perspectives: classical theory of market liberalization and the Keynesian theory employment, interest rates and money, while the latter adopt a political and an economic way of managing an economy (Keynes 11). Notably, the neocolonial liberalism is for the opinion that the state should allow free trade to operate in a stipulated political way. Unlike neocolonial liberalism, classical/embedded liberalism is realistic in the way it operates because the government should allow free trade, but then interfere when some of the macroeconomic variables such as interest rates, inflation, and exchange rates are not responding to market forces of demand and supply. For instance, in international trade, the state can allow floating exchange rate regime, but when the local currency depreciates to extreme levels, the state can come in and regulate by “re-pegging” it to a level that would sustain favorable terms of trade as well as a surplus balance of payment.
On the social perspective, the most persuasive still remain the classical/embedded liberalism because it allowed civil and political rights movements, which kept the government on check regarding equal distribution of resources. Despite social differentiation of the society, the degree of class structure in the classical/embedded liberalism cannot be compared to neoclassical liberalism; it is low in the former than in the latter.
Currently, many economies continue adopting the classical/embedded liberalism economic system to regulate and manage their economies. Neoclassical liberalism still applies in a few institutions such as the IMF and communist countries although most investors and/or citizens might not prefer political interests to influence their economy; thereby making it to face market failure regularly or is unpredictable. For instance, in the classical/embedded liberalism, wages are sticky downwards and that a large supply of labor encourages investment opportunities because of the utilization of idle labor.
On the other hand, in the neoclassical liberalism, the government does not intervene in setting up wage ceilings and floors, investors do this. For instance, in Mexico, in the 20th century, wages were reduced by 50% during the recessionary period and the government did nothing to correct the problem. In such an economy, the rate of growth is not stable because of capitalism, which seeks to reduce utilization of resources to attain full employment.
A comparison and contrast between classical/embedded liberalism and neoclassical liberalism and how each affect higher education in California
The classical/embedded liberalism, which has it foundation on Adam Smith theory of free trade postulates that individuals or countries involved in trade have to emphasis on the use of value and the exchange value, while Neoclassical liberalism focus on exchange value alone. In this case, in California, the state has deregulated and in some point privatized some institutions of higher learning making it hard for learning to utilize the value of education, but benefit owners by giving them the “exchange value,” money for fees. Considering that the cost of higher education was too high and legislators sought to “outsource” higher education in public colleges to online “for profit” colleges because they were cheaper. In this system, strikes are forbidden and civil rights activist groups or students have no right to present their grievances because the state “does not care”; instead, private investors run the economy.
Recent studies conducted to establish the state of higher education of California revealed that the state collects high revenues from the education sector, but stopped subsidizing it; thereby, making it expensive because students were left with the burden of paying foe everything through tuition fees. According to a study conducted in University of California, UC and California state university, CSU the total spending on every student had has been declining since the last 20years with the government increasing indirect taxes payable to the government. In 1960’s when the “master plan” policy was signed into law, close to 12% of top students from every district in California joined UC or CSU because the government regulated the sector and subsidized it (Harvey 7). Currently, Classical/embedded liberalism does not affect Californian higher education that much; however, on the legislative arm of government, it is seeking to reduce the taxes levied on higher education, advise the central authority to subsidize education and regulate the sector in such a way that private investors do not benefit from the public or students.
In public finance, one can distinguish between a public and a private good by the principle of exclusion. In the former, one cannot exclude the other from using, while in latter, there is exclusion because of the benefits derived from it. In understanding these two concepts, two approaches have been used: classical/embedded liberalism and the neoclassical liberalism. In the former economic system, two theories classical theory and the Keynesian theory form the basis, while in the latter politics and the theory of free trade contribute greatly to its tenets. The classical/embedded liberalism is more persuasive than neoclassical system because classical/embedded liberalism is real in the way it is managed unlike neoclassical system. On the social realm, social problems were many in the neoclassical liberalism as opposed to classical/embedded liberalism. However, neoclassical system has affected higher education in California in such a way that it has increased costs and lowered education standards. In the last 50 years, classical/embedded liberalism shaped the state of higher education in such a way that many people envied Californian colleges and universities.
Keynes, John. The General Theory of Employment, Interest and Money. New York: Macmillan Cambridge UP, 1936. Print.
Save the University: Wendy Brown, Part 6. University of California, 2009. Film.
Harvey, David. A Brief History of Neocolonialism. 1st ed. New York: Oxford UP, 2007. Print.
Hayden, Tom. "Port Huron Statement of the Students for a Democratic Society, 1962." Port Huron Statement of the Students for a Democratic Society, 1962. Office of Sen. Tom Hayden, 15 Jan. 1962. Web. 9 Mar. 2015. <http://coursesa.matrix.msu.edu/~hst306/documents/huron.html>.
Hayek, Friedrich August Von, and Bruce Caldwell. The Road to Serfdom: Text and Documents ; the Definitive Edition. Chicago, Ill.: U of Chicago [u.a.], 2007. Print
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