There has been widespread praise and critique of neo-liberal policies and their effect on the international economy, particularly with respect to widening inequality, suppression of developing economies and contribution to financial crisis due to destabilizing capital flows. This paper will contrast the implied positive effects of neo-liberalism from a Keynesian perspective against a Marxist analysis which suggests such economic liberalism merely changes the time intervals and severity of inevitable boom and bust cycles of capitalism and as such makes no permanent progression in the global economy.
Displacement of the Keynesian welfare state policy approach was embedded in end of the long boom. Rising worker militancy and diminishing
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This is despite the fact OECD countries real wages have grown at only 1-2% since 1980 compared with 3-5% 30 years prior. The critical flaw with Dollar and Kraay’s assessment is that they focus on rapidly industrializing economies, which are drawing the majority of their growth from unused factors of production. Neo-liberal policies have indeed led to global segmentation, in which regional trading blocs have formed and inhibit developing economies ability to grow through heavy subsidization and commodity dumping.
The main instrument in which the neo-liberal state has been created is through wage repression. In Australia this was achieved by the incomes accord and partial indexation. Dismantling of trade unions and off-shoring were introduced and whilst this reduced costs of inputs, they had the consequence of reducing effective demand which could only be propped up by the creation of the credit economy. This itself created a new problem, one in which over-accumulation undermines the stability of the global economy through speculative bubbles. The problems of over-investment and its instability are compounded by deregulation of financial markets, in which ‘hot money’ is free to flow across borders rapidly such as exemplified in the Asian financial crisis in 1997. During the crisis, the International Monetary Fund advised those countries to increase interest