The power of markets: Adam Smith and the Wealth of Nations
• “The invisible Hand” distributes goods and resources where they are most productive and demanded
The market revolution: background
• 1930s-1960s: heroic period of state intervention
• John Maynard Keynes and counter-cyclical state action
• state ownership--”national champions”, regulation
1970s--the party ending, views changing
• over-extended states, slow growth
• inefficiencies apparent in Communist world, and state enterprises everywhere
• Hayek and Milton Freidman win Nobel prizes, becomes mainstream
1980s--the revolution arrives: “British American Capitalism”
• Thatcher privatizes national industries--airlines, telecom, utilities, transport, etc.
• Reagan follows--tax cuts, deregulation
• airlines (‘78), banks, telecom, etc.
Chilean “miracle”
• 1973 After Allende coup, Pinochet imposes free market model
• Workers thrown out of work
• Then Chilean economy booms, still . . .
• 1990 Pinochet steps down
“Socialism with Chinese Characteristics”
• 1978 Deng Xiaoping reverses course• “glorious to be rich”--colored cats
• household responsibility system
• 1980 “Special Economic Zones” created, then expanded
India: no more “Hindu rate of growth” and “permit Raj”
• post-independence models: socialist England and USSR
• state-ownership and discouraging foreign investment
• Massive regulation
• Production for protected domestic market alone
• 1991 PM Rao, and successors implement reforms• investment, growth, trade increase
Russia—failed reform?
• 1985 Gorbachev’s perestroika
• then the sales of national assets—”crony capitalism”
The world follows the neoliberal “Washington Consensus”
• trend around the world to:• privatize govt owned industries• cut protective tariffs or subsidies• deregulate• lower taxes/benefits
• Some places less than others--Continental Europe still defending the “welfare state”
• tax-financed health care, education, retirement, transport, childcare, and more
Latin America today: rejecting the “Washington consensus”
• Venezuela—Hugo Chavez expanding the role of the state
• Bolivia—Evo Morales—nationalizes oil and gas
• Most of LA follows, more or less
good and bad of markets
• benefits of markets:• distributing products and resources efficiently--the invisible hand
• rewarding ingenuity and effort
• problems with markets:• can ignore claims of justice, need, and other ideals
• can boom and bust
• do not provide “public goods”
• often require governing rules to function
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