Liberalization and Its Impact Towards Globalization
By: H.B. Habibi Subandi
A. Introduction
The terms of Globalization has grown in popular use during the beginning of 1990s or after the end of the cold war. The basic message of this term has two parts. First, the erosion of political boundaries of the nation state.[1] Today, we can see money, goods, and services readily cross national boundaries. Instantaneous messages and enormous libraries of information flash across the Internet. Television, telephones, and wireless communications link people everywhere in the world. The role of the nation state in relating people across the national border has decreased gradually.
Second, the free market economy among the nation states.[2] To a significant extent, the globalization of world economy coincided with the rise of neoliberal economy during the late 1970s and 1980s.[3] It has changed the economic system from the state intervention economics, according to Keynesian formula, to the free play of ‘market forces’ and a minimal intervention of the state in the economic life. Since then, the world economic system has begun its step towards global economy. There are three key institutions that are popularly known as the pillars of the current era of globalization: the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO).
Meanwhile, the term liberalization in this essay refers to the political phenomena that were widely happened in the developing countries at the period time of 1980s and 1990s. During that time, many countries in the third world societies have experienced the political transformations majoring in the field of economy, it also popularly known as economic liberalization. The advocate of liberalization policies in the third world countries are IMF, World Bank, and World Trade organization.
This article is aimed to explore the relation between the two concepts, liberalization and globalization. Two major questions that will be answered are; 1) What is meant by Liberalization and globalization? 2) How is the relation between the two concepts?
B. Definition
· Liberalization
Most often, the term liberalization refers to economic liberalization. In the case of changing process from authoritarian regimes to democratic regimes, the scholars usually used the terms of democratization. Verily, there is a distinct concept between liberalization and democratization, which are often thought to be the same concept. But for sometimes, the process of democratization in a country also implicate on liberalization in their economic system.
Liberalization or Economic liberalization is a strategy of policy reform intended to take the economy from a state of ‘illiberalism’ to that of ‘liberalism’, or, in more hackneyed terms, towards laissez-faire.[4] The ‘illiberalism’ meant that a country set some policy of protectionism on their economic system. Protectionism is considered by liberal view as a threat to economic progress and trade barriers may reduce real incomes of consumers when increasing the prices of both imported goods and the domestically manufactured products with which they compete. Besides that, neoliberals believe that government does not have to take special measures to protect domestic producers against foreign competition, because they are sceptical that government intervention can effectively cure market failures.
The set of policies has taken by the state in developing countries to bring their economic system from protectionism to the free market based economics. The evidence on this is clear, no country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world. Such policies that were taken by the state in the third world during the process of liberalization are Structural Adjustment Policies (SAPs) and export-led industrialization.[5]
The nature of this concept arose from the birth of neoliberal economics during the late 1970s and 1980s. This reform of economic system, which is introduced by Margaret Thatcher in England and Ronald Reagan in US, has changed many aspect of international system. Since then, IMF and World Bank were begun to advocate the importance of laissez-faire economics around the world. Another critical analysis tend to call the move by IMF and World Bank as the washington concencus, which comprise a set of formulation on government policies for developing countries to improve their standard of livings.
· Globalization
Globalization is a huge concept. It comprised many aspect of human activity such as political aspect, economy, culture, ideology, environment, technology, and so forth. There are so many definition that have been explored by the scholars of social science concerning to this phenomena. In this article, I would like to put on the idea of Manfred B. Steger which is trying to conclude the definition of globalization:
“Globalization refers to a multidimensional set of social processes that create, multiply, stretch, and intensify worldwide social interdependencies and exchanges while at the same time fostering in people a growing awareness of deepening connections between the local and the distant..”[6]
From the above definitions, we should underline the notion of 'multidimensionality' appears as an important attribute of globalization.
In order to make focus, I would like to focus on one dimension of globalization. Here we will explore on the economic dimensions of globalization. Some scholars of social science also argue that economic processes is the core of globalization.[7] For this time, we define globalization as economic globalization.
Economic globalization refers to the intensification and stretching of economic interrelations across the nation state.[8] Everyday, we can see gigantic flows of capital in stock exchange. It has stimulated trade in goods and services in many countries. The market have extended their reach around the world, in the process creating new linkages among national economies. Globalization have produced transnational corporations, powerful international economic institutions, and large regional trading systems.
The emergence of economic globalization can be traced back to the gradual emergence of a new international economic order after World War II. As we know, that US and his alliance have emerge as one of the super power after World War II. With the cooperation with Great Brittain, they create a new economic system of Bretton Woods. The participants of Bretton Wood conference commited to expand international trade and establish role for international economic activities. Moreover, they resolved to create a more stable money exchange system in which the value of each country's currency was pegged to a fixed gold value of the US dollar.
Bretton Woods conference also set the institutional foundations for the establishment of three new international economic organizations.[9] First, The International Monetary Fund was created to administer the international monetary system. Second, The International Bank for Reconstruction and Development, later known as the World Bank, was initially designed to provide loans for Europe's postwar reconstruction. Third, GATT (General Agreement on Trade and Tariffs) as the foundation of institution for world trade which is in the present time knowed as WTO (World Trade Organization).
The evolution of globalization or economic globalization was not stop till the rise of Bretton Wood system. After the next two decades, certainly in 1970s, the ongoing system were suffering a crisis. The decade of 1970s was characterized by global economic instability in the form of high inflation, low economic growth, high unemployment, public sector deficits, and two unprecedented energy crises due to OPEC's ability to control a large part of the world's oil supply. Scholars of economic field identified that the main problem of the crisis is the uses of Keynesian model economic as the basic of economic system of the state. This evidence give birth to the new model of economy that later popularly known as neoliberalism.
C. The relevance of Liberalization towards Globalization
As it describe before, neoliberalism can be called as the next evolution of the globalization or economic globalization. This economic formula were introduced in the begining of 1980s by the British Prime Minister Margaret Thatcher and US President Ronald Reagan. Since then, the world economic system has begun to another change towards a new economic formula which is based on free market. This new economic order were still facing another agenda, how it will be operate in developing countries?
The transition to free trade or neoliberal economic in developing world has its costs. It must be note that the states remain the central actors in shaping the international economic order because of their control over the linkages between the international and domestic economies. So, the advocate of this model of economics should give any solution and methods of how to escape from economic crisis.
And the show must go on, US and his alliance have to pay the cost of advocating neoliberal economic in the third world societies. Here we should note that IMF and World Bank plays an important role as the international organizations on economic field. They offer a set of aid and assistance to the developing world to rescue their economic life from such crisis. As the consequence, the developing world have to go along the guidance of IMF and World Bank. The basic message of the guidance of IMF and World Bank is: Liberalize your economy!
Liberalization means that countries that do not enjoy a comparative advantage have to move resources to more productive sectors or activities. As we described before, the form of liberalization is Structural Adjustment Policies (SAPs). Through SAPs, the state have to make a correction on the structure and role of their economic system. It means that the current form of their economic system had to be set to neoliberal one. To give some more details, here are the concrete neoliberal formula for developing countries to liberalize their economy:
1. Privatization of public enterprises
2. Deregulation of the economy
3. Liberalization of trade and industry
4. Massive tax cuts
5. 'Monetarist' measures to keep inflation in check, even at the risk of increasing unemployment
6. Strict control on organized labour
7. The reduction of public expenditures, particularly social spending
8. The down-sizing of government
9. The expansion of international markets
10. The removal of controls on global financial flows.[10]
This new neoliberal economic order received further legitimation with the 1989-91 collapse of communism in the Soviet Union and Eastern Europe. The world political map automatically change from bipolar system to unipolar system. United states remains as the only super power that control the world system. It means that there is no more challenge to the internalization of economy into one system of liberalism or neoliberalism. Since then, the three most significant developments related to economic globalization have been arose in the international system. Such developments are the internationalization of trade and finance, the increasing power of transnational corporations, and the enhanced role of international economic institutions like the IMF, the World Bank, and the WTO.[11]
We can conclude here that liberalization and globalization has a very close relation. The process of Liberalization in some countries have build the foundation of globalization or economic globalization. Liberalization has decrease a protectionism on countries policies to their economy and bringing the system of market based oriented. We can see the process of liberalization in Indonesia during the late 1980s, Vietnam at the beginning of 1990s, Brazil in 1990s, Bolivia in 1985, and so forth.
Alex E. Fernandez Jilberto and Andre Mommen. Liberalization In The Developing World: Institutional Economic Changes in Latin America, Africa, and Asia. New York, Routledge, 1996.
Glenn Hastedt, Encyclopedia of American Foreign Policy, New York, 2004.
Manfred B. Steger, Globalization: A Very Short Introductions, Oxford University Press: 2003.
Scott Burchill and Andrew Linklater, Theories of International Relations, New York, Martin Press, 1996.
Tariq Banuri, Economic Liberalization: No Panacea; The Experiences of Latin America and Asia, Oxford university press: 1981.
[1] Scott Burchill and Andrew Linklater, Theories of International Relations, New York, Martin Press, 1996, p. 22.
[2] Ibid.
[3] Ibid., p. 54.
[4] Tariq Banuri, Economic Liberalization: No Panacea; The Experiences of Latin America and Asia, Oxford university press: 1981, p. 10.
[5] Alex E. Fernandez Jilberto and Andre Mommen. Liberalization In The Developing World: Institutional Economic Changes in
[6] Manfred B. Steger, Globalization: A Very Short Introductions, Oxford University Press: 2003, p. 13.
[7] Ibid., p.14.
[8] Ibid., p. 37.
[9] Glenn Hastedt, Encyclopedia of American Foreign Policy, New York, 2004, p. 48.
[10] Manfred B. Steger (2003)., p. 41
[11] Ibid, p. 42
