Economic liberalization

Economic liberalization, or economic liberalisation, is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liberalism and neoliberalism. Liberalization in short is "the removal of controls" to encourage economic development.[1]

Many countries have pursued and followed the path of economic liberalization in the 1980s, 1990s and in the 21st century, with the stated goal of maintaining or increasing their competitiveness as business environments. Liberalization policies may or often include the partial or complete privatization of government institutions and state-owned assets, greater labour market flexibility, lower tax rates for businesses, less restrictions on both domestic and foreign capital, open markets, etc. In support of liberalization, former British prime minister Tony Blair wrote: "Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge."[2]

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; Brazil, China, and India, have achieved rapid economic growth in the past several years or decades, in part, from having liberalized their economies to foreign capital.[3]

Many countries nowadays, particularly those in the third world, arguably were given no choice but to "liberalize" their economies to remain competitive in attracting and retaining both their domestic and foreign investments. This is referred to as the TINA factor, standing for "there is no alternative". For example, in China after Cultural Revolution, reforms were introduced,[4] and in 1991 India had little choice but to implement economic reforms.[5] Similarly, in the Philippines, the contentious proposals for Charter Change include amending the economically restrictive provisions of their 1987 constitution.[6]

By this measure, an opposite of a liberalized economy are economies such as North Korea's economy with their "self-sufficient" economic system that is closed to foreign trade and investment (see autarky). However, North Korea is not completely separate from the global economy, since it actively trades with China, through Dandong, a large border port and receives aid from other countries in exchange for peace and restrictions in their nuclear programme.[7][8] Another example would be oil-rich countries such as Saudi Arabia and the United Arab Emirates, which see no need to further open up their economies to foreign capital and investments since their oil reserves already provide them with huge export earnings.

The adoption of economic reforms in the first place and then its reversal or sustenance is a function of certain factors, the presence or absence of which will determine the outcome. Sharma (2011) explains all such factors and puts forward a discursive dominance theory to illustrate the causal mechanism. The theory holds that economic reforms become sustainable when the discursive conditions prevailing in society tip against the existing paradigm under exceptional circumstances. Using the case of India, he demonstrates that economic reforms became sustainable after 1991 because of the discursive dominance of the pro-liberalization discourse after 1991. He shows that the eight factors, which are responsible for creating discursive conditions in the favour of economic reforms, prevailed in India in the post 1991 operating environment. The eight factors are: the dominant view of international intellectuals, illustrative country cases, executive orientation, political will, the degree and the perceived causes of economic crisis, attitudes on the part of donor agencies, and the perceived outcomes of economic reforms. In other words, the Discursive Dominance Theory of Economic Reform Sustainability holds that unless the pro-liberalization constituencies dominate the development discourse, economic reforms, initiated under the exigencies of crisis and conditionalities, or carried out by a convinced executive with or without the stimulus of a crisis, will be reversed. The author's theory is fairly generalizable and is applicable to the developing countries which have implemented economic reforms in the 1990s, e.g. Russia in the Yeltsin era.[9]