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Neoliberalism is a label for economic liberalism or (in older terminology) "Laissez-faire". The term "Neoliberalism" came into use in the 1960s by Marxists. The term refers to economic policies based on neoclassical theories of economics that minimizes the role of the state and maximizes the private business sector. The term is most often used on the left to criticise the policies and ideologies of modern governments and leading international economic institutions.[1][2].

Contents

Policy implications

Broadly speaking, neoliberalism seeks to transfer part of the control of the economy from public to the private sector,[3] under the belief that it will produce a more efficient government and improve the economic health of the nation.[4] The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's[5] "Washington Consensus," a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the International Monetary Fund (IMF) and World Bank). Williamson's list included ten points:

  • Fiscal policy discipline; This neoliberal virtue helps diminish expectations for what the government can do to improve the lives of citizens. For example, NAIRU - the policy decision to maintain a reserve of unemployed as part of an inflation-fighting strategy combined with a public relations campaign that this unemployment is natural and cannot be defeated without huge deficits or inflation.
  • Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  • Tax reform– broadening the tax base by shifting the tax burden to the lower quintiles and adopting moderate marginal tax rates;
  • Interest rates that are market determined and positive (but moderate) in real terms;
  • Competitive exchange rates;
  • Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by law and relatively uniform tariffs;
  • Liberalization of inward foreign direct investment including commitment to unlimited extraction of earnings across foreign borders;
  • Privatization of state enterprises;This occurs not only in the sense of the transfer of companies from the public to the private sector, but also in the conversion of social rights into marketable objects. Health and education, traditionally considered to be citizens’ rights, become economic interests and, in many countries, are integrated into circuits of accumulation.[6]] In some cases, remaining public sector agencies and enterprises are encouraged to adopt commercial and corporate management and organizational structures (corporatization). With privatization of the public domain comes extractive fees for use of such resources and an increase in the overhead to the productive economy. The favouring of unearned income from rent and interest over earned income from labour and production, the favouring of the extractive over the productive, indicates a return to the values of feudalism.
  • Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
  • Legal security for property rights; and,
  • Financialization of capital.

History

Earlier systems

Arguments that stress the economic benefits of unfettered markets, in line with neoliberalism, first began to appear with Adam Smith's (1776) Wealth of Nations and David Hume's writings on commerce, leading to Classical liberal ideology based on Classical economics. These writings were directed quite directly against the Mercantilist ideas that had been dominant during most of the previous centuries, and served to guide the policies of governments throughout much of the 19th century. There were, however, several fundamental differences between classical liberalism/economics and neo-liberalism/neoclassical economics, such as the abandonment of the labour theory of value by neoclassical theory.

Nevertheless, statist ideas slowly began to regain a following amongst the intellectuals that had rejected them during the early Enlightenment. State interventionism increased towards the end of the 19th century; in the United States the Progressive Era saw an accelerated movement to re-institutionalize government controls over the economy.

With an intellectual and political foundation in place, the onset of the Great Depression and the rapid industrialization of the Soviet Union led to increased support for government economic control as a means of securing rapid industrialization.[7]

Embedded liberalism

The term embedded liberalism refers to the economic system which dominated worldwide from the end of World War II to the 1970s. David Harvey argues that at the end of World War II, the primary objective was to develop an economic plan that would not lead to a repeat of the Great Depression during the 1930s.[8] Harvey notes that under this new system free trade was regulated "under a system of fixed exchange rates anchored by the US dollar's convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital."[9] Harvey argues that embedded liberalism led to the surge of economic prosperity which came to define the 1950s and 1960s.

Across much of the world, the work of John Maynard Keynes, which sought to formulate the means by which governments could stabilize and fine-tune free markets, became a highly influential approach. Within the developing world, several developments – among them decolonization, a desire for national independence and the destruction of the pre-war global economy,[10] and the view that countries could not effectively industrialize under free market systems (e.g., the Prebisch-Singer hypothesis) – encouraged economic policies that were influenced by communist, socialist and import substitution precepts.

The period of government interventionism in the 1950s and 1960s was characterized by exceptional economic prosperity, as economic growth was generally high, was contained,[11] and economic distribution was comparatively equalized.[12] This era is known as les Trente Glorieuses ("The Glorious Thirty [years]") or "Golden Age", a reference to many countries having experienced particularly high levels of prosperity between (roughly) World War II and 1973.

Collapse of embedded liberalism

David Harvey notes that the system of embedded liberalism began to crack beginning towards the end of the 1960s.[13] The 1970s were defined by an increased accumulation of capital, unemployment, inflation (or stagflation as it was dubbed), and a variety of fiscal crises.[13] He notes that "the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working."[13] A number of theories concerning new systems began to develop, which led to extensive debate between those who advocated "social democracy and central planning on the one hand" and those "concerned with liberating corporate and business power and re-establishing market freedoms on the other.[14] Harvey notes that by 1980, the latter group had emerged as the leader, advocating and creating a global economic system that would become known as neoliberalism.[14]

Some argue that the strains which occurred were located in the international financial system,[15][16] and culminated in the dissolution of the Bretton Woods system, which some argue had set the stage for the Stagflation crisis that would, to some extent, discredit Keynesianism in the English-speaking world. In addition, some argue that the postwar economic system was premised on a society that excluded women and minorities from economic opportunities, and the political and economic integration given to these groups strained the postwar system.[17]

Farshad Araghi, professor of the Department of Sociology at Florida Atlantic University, argues that a very abandonment of Keynesianism for Neoclassical Economics has never occurred. In fact, he states that the magniloquence of anti-Keynesianism and deregulation concerned more the matter of demolishing national-developmentalism in the decolonized world, along with the wage contracts and welfare states in the industrialized countries.[18].

Post-1970s economic liberalism

Chicago School

The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago.

The school emphasizes non-intervention from government and rejects regulation in laissez-faire free markets as inefficient. It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. The school has impacted the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics"– that is, empirically based studies using statistics to prove theory.

Approximately 70% of the professors in the economics department have been considered part of the school of thought.[citation needed] The University of Chicago department, widely considered one of the world’s foremost economics departments, has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university.[citation needed]

Those who attend to the Chicago School prefer[citation needed] some form of competition law, school vouchers, a central bank, intellectual property and prefer Milton Friedman's negative income tax as a replacement to the existing welfare system, arguing that it is simpler and has fewer of the perverse incentives of "government handouts".[citation needed]

United Kingdom

Margaret Thatcher and Ronald Reagan instituted economic liberal policies.

Margaret Thatcher became Prime Minister with a mandate to reverse Britain's economic decline. Thatcher's political and economic philosophy emphasised reduced state intervention more free markets, and more entrepreneurialism.[citation needed] She once slammed a copy of Friedrich Hayek's The Constitution of Liberty down on a table during a Shadow Cabinet meeting, saying, "This is what we believe."[19] Thinkers closely associated with Thatcherism include Keith Joseph, Enoch Powell, Friedrich Hayek and Milton Friedman.[20]

Thatcher's political and economic philosophy emphasised reduced state intervention as well as free markets and "entrepreneurialism".[20] She vowed to end excessive government interference in the economy and attempted to do this through privatizing nationally-owned enterprises. After the James Callaghan government had concluded that the Keynesian approach to demand-side management failed, Thatcher felt that the economy was not self-righting and that new fiscal judgements had to be made to concentrate on inflation.[21] She began her economic reforms by increasing interest rates to slow the growth of the money supply and thus lower inflation.[22] In accordance with her "less government intervention" views she introduced public spending cuts[23] particularly on social services such as health care, education, and housing. She also placed limits on the printing of money and legal restrictions on trade unions.

By January 1982 the inflation rate had fallen to 8.6% from earlier peaks of 18%. By 1983 overall economic growth was stronger, while inflation and mortgage rates were at their lowest levels since 1970.[24] The term "Thatcherism" came to refer to her policies as well as aspects of her ethical outlook and personal style, including moral absolutism, nationalism, interest in the individual and an uncompromising approach to achieving political goals.

After the 1983 election, the Conservative majority expanded, Thatcher continued to enact her economic policies.[23] The UK government sold most of the state's large utilities.[23] The policy of privatisation was a main component of Thatcherism. When Thatcher was forced to resign as British Prime Minister in 1990 British economic growth was on average higher than the other large EU economies (Germany, France and Italy). However this was accompanied by poor social conditions compared with the rest of the EU.

The price of these economic policies was high unemployment that embarrassed the Thatcher government so much that the definition of unemployment was changed 31 times in order to come up with lower figures. Despite this, the official rate of unemployment in the United Kingdom increased to 9.1% in the years 1979-89 after it had been 3.4% between 1973-79 and 1.9% between 1960-73.[3][25]

In 2001 Peter Mandelson, a Member of Parliament belonging to the British Labour Party and closely associated with Tony Blair, famously declared that "we are all Thatcherites now."[26] In reference to contemporary British political culture it could be said that a "post-Thatcherite consensus" exists with regard to economic policy. In the 1980s the now defunct Social Democratic Party adhered to a "tough and tender" approach in which Thatcherite reforms were coupled with extra welfare provision. Neil Kinnock, leader of the Labour Party from 1983–1992, initiated Labour's rightward shift across the political spectrum by concurring largely with the economic policies of the Thatcher governments. The New Labour governments of Tony Blair have been described as "neo-Thatcherite" by some since many of their economic policies mimic those of Thatcher.[27][28]

Most of the major British political parties[citation needed] today accept the trade union legislation, privatisations and general free-market approach that Thatcher's governments installed. By 2009 no major political party in Britain was committed to reversing the Thatcher governments' reforms of the economy.[28]

Scandinavia

Carl Bildt's government liberalized Sweden's capital flows and privatized public services.

Scandinavian countries have embraced many neoliberal policies.[8]

In Sweden, Carl Bildt's government program was one of liberalizing the Swedish economy, privatizing public services and making the country a member of the European Union. Carl Bildt signed the accession treaty at the European Union summit of Corfu, Greece on June 23, 1994. Economic changes were enacted, such as voucher schools, liberalized markets for telecommunications and energy as well as the privatization of publicly owned companies. The Bildt government made it possible for counties to privatizate health care (although few did this), contributing to liberalizing the Swedish economy. Privatization of state owned companies and deregulation of business were also carried out by the following social democratic governments.

Anders Fogh Rasmussen, former Prime Minister of Denmark.

Iceland began implementing neoliberal economic policies beginning in the late 1980s. As measured by the Economic Freedom of the World, it had the 53rd "freest economy" in 1975 and it was one of the poorest countries in Europe. In 2004, it had the 9th freest economy and it was one of the richest.[29] However, by 2009, the country was bankrupt, a consequence that a number of observers have attributed directly to Iceland's adoption of neoliberal economic policies.[30][31][32][33] [34]

Anders Fogh Rasmussen, former Prime Minister of Denmark and former leader of Venstre, has written books advocating minimal state. Denmark is a European leader on economic freedom indices. Denmark has ranked as the world's 11th "most free" economy, of 162 countries, in an index created by the Wall Street Journal and Heritage Foundation, the Index of Economic Freedom 2008.

United States

The Administration of Ronald Reagan governed from 1981 to 1989, and made a range of decisions that served to liberalize[expand] the American economy.[citation needed] These policies are often described as Reaganomics, and are often associated with supply-side economics (the notion that policies should appeal to producers, in order to lower prices, and therefore make products more affordable, rather than consumers, in order to cultivate economic prosperity).

During Reagan's tenure, GDP grew at an annual rate of 3.4% per year.[35] Unemployment dropped and inflation significantly decreased.[36] Average real wages were stagnant, however, as inequality began to grow for the first time since the 1920s. Some, like William Niskanen, would point out two facts in response, the first being that average compensation for workers (that is wages+fringe benefits) went up through the 80s, and that every quintile of society performed better during the 80s. The policies were derided by some as "Trickle-down economics,"[37] due to the significant cuts in the upper tax brackets. There was a massive increase in Cold War related defense spending that caused large budget deficits,[38] the U.S. trade deficit expansion,[38] and contributed to the Savings and Loan crisis,[39] In order to cover new federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $700 billion to $3 trillion,[40] and the United States moved from being the world's largest international creditor to the world's largest debtor nation.[41]

Peter Gowan has argued that the United States has been the main force behind the adoption of neoliberal policies in the rest of the world. The basic argument is that since the dollar is the international reserve currency, American banks are at a competitive advantage with respect to non-American banks, which cannot directly lend in dollars, so that their operations involve more foreign exchange risk. (Since the dollar is the international exchange currency, most international reserves are held as dollars, and the price of commodities such as oil are set in dollars, it is in general less risky to hold dollars than to hold other currencies, in the short term, at least.) Thus, once the United States liberalized its financial markets and controls over its banking industry, other countries were forced to follow suit.[42]

Hong Kong

Hong Kong practices relatively laissez-faire policies.

Milton Friedman described Hong Kong as a laissez-faire state and he credits that policy for the rapid move from poverty to prosperity in 50 years.[43] Hong Kong's GDP grew under British colonial control between 1897 and 1997, while possessing central banking, school regulations, environmental regulations and government ownership of housing — all examples of economic intervention.[44]

A 1994 World Bank report stated that Hong Kong's GDP per capita grew in real terms at an annual rate of 6.5% from 1965 to 1989, a consistent growth percentage over a span of almost 25 years[45] By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom.[46]

Since 1995 Hong Kong has been ranked as having the world's most liberal capital markets by the Heritage Foundation and Wall Street Journal.[47] The Fraser Institute concurred in 2007.[48]

Chile

Milton Friedman uses the term "Miracle of Chile" in reference to Augusto Pinochet's support for liberal economic changes in Chile carried out by the "Chicago Boys." Their implemented economic model had three main objectives: economic liberalization, privatization of state owned companies, and stabilization of inflation. These market-oriented economic policies were continued and strengthened by successive governments after Pinochet stepped down.[49] At the time, Milton Friedman stated that the Chilean experiment was "comparable to the economic miracle of post-war Germany."[50]

Pinochet's neoliberal policies were continued after the termination of his 17-year-long dictatorship.[citation needed][51] According to the Heritage Foundation and the Wall Street Journal, in 2007 Chile was the world's 11th "most free" economy, and 3rd in the Americas.

According to the United Nations Development Report of 2009 Chile has high competitiveness, quality of life, political stability, globalization, economic freedom, low perception of corruption and comparatively low poverty rates.[52]

According to the International Monetary Fund Chile "ranks high regionally" in freedom of the press, human development and democratic development. Also according to the IMF Chile has the region's highest GDP to popular ratio (at market prices[53] and purchasing power parity)[54] and also has a high degree of income inequality, as measured by the Gini index.[55]

The experience of Chile in the 1970s and 1980s, and especially the export of the Chilean pension model by former Labor Minister José Piñera, has influenced the policies of the Communist Party of China and has been invoked as a model by economic reformers in other countries, such as Boris Yeltsin in Russia and almost all Eastern European post-Communist societies.[56]

Mining of copper in Chile is publicly owned (see Chilean nationalization of copper). Chile is the world's top producer of copper, which is by far the largest Chilean export good (accounting for over 40% of export revenue).

Canada

In Canada, these policies are often associated with Brian Mulroney, Mike Harris, Ralph Klein, Gordon Campbell and Stephen Harper.

Ralph Klein, who supports and has supported extraction of Alberta's vast oils and natural gas reserves, is credited with reinvesting large amounts of Provincial Government oil revenue gained through taxation back into the Provincial economy[expand] while reducing the Provincial Government's role in the direct development and sale of fossil fuels.[citation needed]

In Ontario during the 1990s, industry and social responsibilities were transferred to the cities. Toronto during this time was forced to amalgamate and enter a period of development.

Canadian politics were also affected. Trade tariffs were ended, allowing less restrictions on trade. Government sizes were decreased limiting their power towards industries.[57] The federal government rules during that time and municipalities had no power.

Australia

In Australia, neoliberal economic policies have been embraced by governments of both the Labor Party and the Liberal Party since the 1980s. The governments of Bob Hawke and Paul Keating from 1983 to 1996 pursued economic liberalisation and a program of micro-economic reform. These governments privatized government corporations , deregulated factor markets, floated the Australian dollar, and reduced trade protection.[58]

Keating, as federal treasurer, implemented a compulsory superannuation guarantee system in 1992 to increase national savings and reduce future government liability for old age pensions.[59] The financing of universities was deregulated, requiring students to contribute to university fees through a repayable loan system known as the Higher Education Contribution Scheme (HECS) and encouraging universities to increase income by admitting full-fee-paying students, including foreign students.[60] The admitting of domestic full fee paying students to public universities was stopped in 2009 by the Rudd Labor Government.[61]

When the Liberal Party returned to power in March 1996 under prime minister John Howard, the programme of economic liberalisation was continued with the privatisation of more government corporations, notably the sale of the telecommunications provider Telstra, and the Reserve Bank of Australia was made independent of the government in determing monetary policy. A 10% Goods and Services Tax GST (similar to European VAT) was introduced with the aim of combining and simplifying the previous duties and taxes to make the system more efficient. A series of reforms were enacted to deregulate the labour market.[62]

Japan

Junichiro Koizumi, a popular Japanese leader who fought for privatization.

The largest privatization in history was Japan Post. It was the nation's largest employer and one third of all Japanese government employees worked for Japan Post.

In September 2003, Koizumi's cabinet proposed splitting Japan Post into four separate companies: a bank, an insurance company, a postal service company, and a fourth company to handle the post offices as retail storefronts of the other three. After privatization was rejected by upper house, Koizumi scheduled nationwide elections to be held on September 11, 2005. He declared the election to be a referendum on postal privatization. Koizumi subsequently won this election, gaining the necessary supermajority and a mandate for reform, and in October 2005, the bill was passed to privatize Japan Post in 2007.[63]

New Zealand

The term Rogernomics was created by analogy with Reaganomics to describe the economic policies followed by New Zealand Finance Minister Roger Douglas from his appointment in 1984.

The policies included cutting agricultural subsidies and trade barriers, privatising public assets and the control of inflation through measures rooted in monetarism, and were regarded in some quarters of Douglas's New Zealand Labour Party as a betrayal of traditional Labour ideals. The Labour Party subsequently retreated from pure Rogernomics, which became a core doctrine of ACT. The Labour Party leader planned to create a 15% flat tax in New Zealand, and to privatise schools, roads and hospitals, which was moderated by the Labour cabinet at the time,[64] although the resultant reforms were still generally considered radical in a global context. After Douglas left the Labour party, he went on to co-found ACT in 1993, which regards itself as the new liberal party of New Zealand.

Since 1984, government subsidies including those for agriculture have been eliminated; import regulations have been liberalised; exchange rates have been freely floated; controls on interest rates, wages, and prices have been removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The Deregulation of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt, but simultaneously massively increased the necessity for greater welfare spending and has led to considerably higher rates of unemployment than were standard in New Zealand in earlier decades. However, unemployment in New Zealand lowered again by 2006-2007, hovering around 3.5% to 4%.

Deregulation created a very business-friendly regulatory framework. A survey 2008 study ranked it 99.9% in "Business freedom", and 80% overall in "Economic freedom", noting amongst other things that it only takes 12 days to establish a business in New Zealand on average, compared with a worldwide average of 43 days. Other indicators measured were property rights, labour market conditions, government controls and corruption, the last being considered "next to non-existent" in the Heritage Foundation and Wall Street Journal study.[65]

In its Doing Business 2008 survey, the World Bank (which in that year rated New Zealand as the second-most business-friendly country worldwide), gave New Zealand rank 13 out of 178 in the business-friendliness of its hiring laws.[66]

New Zealanders have a high level of life satisfaction as measured by international surveys; this is despite lower GDP per-head levels than many other OECD countries. The country was ranked 20th on the 2006 Human Development Index, which also accounts for non-economic factors such as literacy and public health, and 15th in The Economist's 2005 worldwide quality-of-life index.[67] The country was further ranked 1st in life satisfaction and 5th in overall prosperity in the 2007 Legatum Institute prosperity index.[68][69] In addition, the 2007 Mercer Quality of Living Survey ranked Auckland 5th place and Wellington 12th place in the world on its list.[70]

South Africa

South Africa’s GDP has grown since the beginning of the new government system in 1994, which ended the rule of apartheid in South Africa. While some see the implementation of neoliberal policies inside South Africa as having spurred the country's growth rate, others cite policies such as maintaining high interests rates to quell inflation as actually hurting economic growth. Meanwhile, free market policies have caused a decline in employment that started after the new government in 1994, which caused an increase in South Africa's poverty level.[citation needed]

Mexico[71]

Mexico is presently the eighth largest trading nation. Mexico joined GATT, or General Agreement on Tariffs and Trade in 1986 and has been a part of the North America Free Trade Area (NAFTA) since 1990. Another trading partnership Mexico entered into was the Uruguay Round (UR).

The reforms brought about by NAFTA resulted in a huge opening of the Mexican economy and “ increased the political and economic costs of trade policy reversals and restrained trade policy with other countries to compatibility with (if not subservience to) NAFTA,” (Mena, 48). Tariffs were reduced across most sectors of the economy. They also opened the door for factories along the border of the US and Meixico. Maquiladoras account for most of the Mexican export market. A reform of the 1973 Foreign Investment Law, “Foreign Investment is not allowed in oil production or refining.” (Mena, p. 49).

Mexico benefited greatly from its relationship with the UR and the WTO. There were low tariffs on Mexican goods and Mexico was not bound to alter its tariffs for UR members. “Mexico’s preferences on non-agricultural subsidies were largely borne out in the URAs,” (Ortiz Mena, 60). Mexico continues to have restrictions on foreign ownership and has been criticized for not signing the WTO Government Procurement Agreement. NGOs are also critical of the reforms that had been made.

After joining NAFTA, Mexico entered into over thirty free trade agreements (FTA). Mexico also signed FTAs with the European Union (EU), European Free Trade Agreement (EFTA), and Japan. As a result of these agreements, exports increased, manufactured goods became more important, and Mexico became the US’s second largest trading partner.

The Mexican government feels that the benefits of liberalism have been slowed due to a lack of implementations of URA policies by developed countries. The government fears that environmental and labor issues might affect the trade agenda. They are looking to the developed nations to help with a clean transition to the post-Doha work program. There are eleven areas that Mexico will focus on in the future: agriculture, export subsidies, TRIM, Service, IPR, dispute settlements, FDI, competition policy, government procurement, industrial goods, and labor and environment. Also, Mexico seeks to improve access for its important exports buy complying fully with URAs.

Global spread

Chronic economic crisis throughout the 1980s, and the collapse of the Communist bloc at the end of the 1980s, helped foster political opposition to state interventionism, and in favor of free market reform policies. From the 1980s onward, a number of communist countries initiated various neoliberal market reforms, such as the Socialist Federal Republic of Yugoslavia under the direction of Ante Markovic (until the country's collapse in the early 1990s), and the People's Republic of China under the direction of Deng Xiaoping.

Changes occurred from the 1970s to the 1980s. Started off with most of the democratic world governments focused primarily on the primacy of individual rights, rules of law and roles of the governments in moderating relative free trade. It was almost considered national self determination at the time.

Stances of organized labour shifted when governments of Ronald Reagan and Margaret Thatcher took strong stances to break down trade barriers entirely to reduce government power; thus allowing the market to be more important. Therefore industries will increasingly shift globally with integrated knowledge boosting the economy.

Socially, neoliberalism is marked by the return of class; rules and the blurring of social and market values[72]

Reach and effects

Neoliberal movements ultimately changed the world's economies in many ways, but some analysts argue that the extent to which the world has liberalized may often be overstated. Some of the past thirty years' changes are clear and unambiguous, like:[73]

  • Growth in international trade and cross-border capital flows
  • Elimination of trade barriers
  • Cutbacks in defense spending, although it is unclear whether these reductions are associated with neoliberalism or the peace dividend that was supposed to accrue at the end of the Cold War
  • Cutbacks in public sector employment
  • The privatization of previously public-owned enterprises
  • The transfer of the share of countries' economic wealth to the top economic percentiles of the population.[74]

Other changes are not so apparent, and are debated in the literature[73]:

  • Reduction in the size of governments. Governments do not appear to have shrunk wholesale. With the exception of exceptionally high-spending governments, government expenditures (as a percentage of GDP) appears to have stayed the same since 1980. Most of the cuts to government spending appear to have been a temporary phenomenon that took place during the 1990s.
  • Social welfare spending. Many governments have generally spent more on health, education, social security, welfare and/or housing. However, populations have increased and populations have aged in affluent countries. As well, some of these services (such as health care and education in the U.S.) are also inefficiently organized.

Effects of Neoliberal Policies in Latin American Urbanization

Between the 1930s and the late 1970s most countries in Latin America used the import substitution industrialization model (ISI) to build industry and reduce the dependency on imports from foreign countries. The result of ISI in these countries included rapid urbanization of one or two major cities, a growing urban population of the working class, and frequent protests by trade unions and left-wing parties.[75] In response to the economic crisis, the leaders of these countries quickly adopted and implemented new neoliberal policies due to prospect theory.

A study based on the transformations of urban life and systems as a result of neoliberalism in six countries of Latin America was published by Alejandro Portes and Bryan Roberts and titled “The Free-Market City: Latin American Urbanization in the Years of the Neoliberal Experiment”. This comparative study included census data analysis, surveying, and fieldwork focused in Argentina, Brazil, Chile, Mexico, Peru, and Uruguay. Predictions of the neoliberalism were extended to these six countries in four areas: urban systems and primacy, urban unemployment and informal employment, urban inequality and poverty, and urban crime and victimization. Data collected support a relationship between the economic policies of neoliberalism and the resulting patterns of urbanization.

In the area of urban systems and primacy two tendencies were revealed in the data. The first was continuing growth in total size of urban populations while the second tendency was the decline in size of the primate city with decreased migration flows to these cities. Therefore, when calculating the urban growth rate each of these countries all showed minimal or a significant decline in growth. Portes and Roberts theorize that the changes are due to the “loss of attraction of major cities…due to a complex set of factors, but is undoubtedly a related to the end of the ISI era”.[75] Although the relationship between the open-market and the transformation of urban systems has not been proven to be a perfect one-to-one relationship, the evidence supports the acceleration or initiation of these two tendencies following neoliberal changes.[75]

While every country showed that rates of urban unemployment and informal employment remained stagnant or increased, slight variations were discovered between the six countries. For example, in Argentina the deteriorating labor-market and working conditions coincided perfectly with the application of strict economic neoliberal policies.[75] Strict neoliberal policies were considered a success, however, in Chile. Interestingly, this study critiques that while Chile avoided unemployment by creating jobs, these jobs were often lacking necessary social services and labor protection.[75] Portes and Roberts use these various countries to demonstrate that though neoliberal policies are predicted to increase employment, the actual variant effects range from stagnant or increased unemployment to unreliable or unsafe employment.

With the variation of urban employment and informal employment there was also a variation in the inequality and poverty in the six countries. While the majority of the population within these countries suffered from poverty, the upper classes received the benefits of the neoliberal system. According to Portes and Roberts, “the ‘privileged decile’ received average incomes equivalent to fourteen times the average Latin American poverty-line income”.[75] In the six countries, it cannot be accurately concluded that poverty increased in response to neoliberal policies, in part, because of a disproportionate share of wages in the upper classes. The neoliberal policies in some countries did increase wealth though the distribution was not equally spread. While it cannot be concluded that the policies created poverty, the disproportionate distribution of wealth increased the inequality within all six countries.[75]

As a direct result of visible growing inequality, each country struggled with increased crime and victimization in both urban and suburban settings. However, due to corruption within the police force it is not possible to accurately extrapolate a trend in the data of crime and victimization.[75] The location of crime is not limited to the urban areas and has spread throughout the suburban communities, though according to Portes and Roberts, most criminals reside within the impoverished urban communities. The combination of origins and location of crime supports the hypothesis of forced entrepreneurialship within these six countries. Even though crime and victimization increases with an increase in inequality, it cannot be definitively correlated to neoliberal policies.[75]

This study published by Portes and Roberts demonstrates that though the ISI model was ineffective in maintaining economic stability, the neoliberal policies implemented were drastic and detrimental to social stability. Therefore, while neoliberalism is often theorized as an effective economic strategy, the social realities are often understated and traumatic.

Support

Living standards

Proponents of neoliberalism argue that:

  • Higher economic freedom has a strong correlation with higher living standards.[citation needed]
  • Higher economic freedom leads to increased investment, technology transfer, innovation and a responsiveness to consumer demand;[citation needed]
  • Many developing countries' governments had mismanaged or exploited their economic dominance during over the mid-century[citation needed]
  • Many government attempts to micro-manage their economies using things like tariffs, public investment, etc. were often misdirected, poorly timed, poorly implemented and bore undesirable, unanticipated consequences; the claim by many neoliberals is that a government is incapable of managing a social system as huge as a national economy;[citation needed]
  • Government-owned enterprises and public entitlements were losing a lot of citizens' money.[citation needed]
  • During the 1970s, state-controlled economies proved unresponsive to economic shocks, and much of the world endured a sustained, high-inflation recession until markets were liberalized (though proponents still note that liberalization itself is only one of several factors in the recent return to prosperity; other factors include technological developments and the end of the Cold War).[citation needed]

Economic freedom occurring must have prices rise in a sustained way.[76] It is sustained if firms' costs rose, which in return could only happen if workers were in a good position to demand for higher wage. For example, if the unemployment rate was low then it would be an advantage for workers.

Political freedom

In Capitalism and Freedom (1962), Friedman developed the argument that economic freedom, while itself an extremely important component of total freedom, is also a necessary condition for political freedom. He commented that centralized control of economic activities was always accompanied with political repression. Making sure that the labour market is flexible. To do so, capitalism must be restructured so that both human and technology development are the priorities in the investment system.[76]

In his view, the voluntary character of all transactions in a free market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Friedman feels that competitive capitalism is especially important to minority groups, since impersonal market forces protect people from discrimination in their economic activities for reasons unrelated to their productivity.[77]

It is important to take into account, however, that Friedman's first neoliberal experiment was carried out in Chile under what some would consider a military dictatorship and severe social repression. However, despite what most would consider a highly objectionable context for implementation of economic liberty, Chile now enjoys the highest rate of GDP per capita in Latin America; this lends strong credence to the assertion that economic freedom is more important to prosperity than are democratic institutions.

In The Road to Serfdom, Hayek argued that "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."[78]

A Statist position would theorize that a less influential government, weakened by the over-empowerment of the economy, would result in the formation of coercive market elements that could not be easily controlled even as they cause harm to the economy, citizens and the environment. Rationalized by the idea of the corporation as a individual with all the rights normally associated to the average citizen, in essence the corporation is allowed to become an above average equal to the citizens of the nation (as it has great power in the economic sphere as well as equal civil rights in jurisprudence reality), within the scope of this rationalization the state is seen as infringing on the rights of the entity in the same way personal rights can be recognized as having been violated by state limitations to the freedoms given to every person.

State-centric approach

The state-centric approach to neoliberalism is not critical, but it concurs with the critical approach that neoliberal ideas are really just laissez-faire liberal prescriptions that overthrew Keynesianism. State-centric theorists hold that neoliberalism is "the attempt to reduce the role of the state in the market through tax cuts, decreases in social spending, deregulation, and privatization."[79] However, the state-centric approach argues that state actors were the political entrepreneurs who formulated neoliberalism – rather than, as critics of neoliberalism would claim, capitalist political organizations, and economists and economic departments, think tanks, and politicians all supported by class-conscious capitalists. State-centric theorists argue that neoliberalism spread because it fit the voters' preferences best; they disagree in this with the critical approach, which maintains that neoliberal framing and policies were propagated by well-heeled, highly organized political machines that insisted to the public, "There is no alternative". State-centric sociologist Monica Prasad (2006) further argues that neoliberalism became dominant where the (federal) tax structure was progressive, where industrial policy was "adversarial" to business, and where welfare was associated with the poor. She asserts this was the case in the U.S. and UK, relative to France and Germany. However, in France and Germany, taxation by the national government was regressive, industrial policy favored business, and the welfare state was widely recognized to benefit the middle class; consequently neoliberalism was not as favored by either business or the middle classes in these two countries as it was in the U.S. and the UK in particular. Prasad's analysis suggests that neoliberalism has been a corrective to policies that favored the working class over capitalist interests, and it was championed by autonomous state actors. However, most political sociologists would agree that only strained methodological choices would allow U.S. policy especially to be portrayed as favoring the working class over capitalist interests, even in the New Deal; state autonomy theses are generally very vulnerable to more class-sensitive historical research, especially in the case of the U.S.; and methodological choices, such as the omission of social democratic countries from her analysis, contribute heavily to Prasad's conclusions.

One of the differences between classical liberalism and neoliberalism is that while the former called for reducing the role of the state to a minimum and replace it by private capital the latter seeks to expand the role of private capital through the state, making it authoritarian and a dedicated facilitator of its interests.[80]

Opposition

Opponents of neoliberalism argue the following points:

  • Globalization and liberalization subvert nations' ability for self-determination; countries subject to neoliberal regimes are in turn subject to a "virtual parliament" of currency speculators whose attacks or threats of attack are used to limit policy options. Thomas Friedman calls it "The Golden Straitjacket".[4]
  • Exploitation: critics consider capitalist economics to be exploitive;[citation needed]
  • Environmental costs: critics argue that neoliberalism leads to more transportation, and unregulated markets lead to more industrial production;[citation needed]
  • Negative economic consequences: Critics argue that neo-liberal policies produce inequality and deterioration in living standards without the improvements in efficiency which are predicted.
  • Increase in corporate power: some anti-corporate organizations believe neoliberalism, unlike liberalism, changes economic and government policies to increase the power of corporations and large business, and a shift to benefit the upper classes over the lower classes.[81]
  • Economic neoliberalism, as it is usually implemented, lacks free flow of labor, and therefore cannot be classified as "free trade" as was defined in Adam Smith's Wealth of Nations.
  • There are terrains of struggles for neoliberalism locally and socially. Urban citizens are increasingly deprived of the power to shape the basic conditions of daily life.[57]
  • Trade Led, unregulated economic growth and state regulation of pollution and other environmental impacts economic growth[82]
  • Deregulation of the labor market produces unemployment, flexibilization and casualization of labor, greater informal employment, and a considerable increase in industrial accidents and occupational diseases.[83]
  • Unearned income is favoured over earned income from production leading to a new feudalism as the rentier class and the extractive FIRE sector's power increases. The overhead they impose stifles the productive economy. This puts the neoclassical economists at odds with classical economists who were looking to limit the power of these sectors and to favour earned income. This point of view is advocated by economist Michael Hudson.[5]

Anglo-American

"The standard neoliberal policy package includes cutting back on taxes and government social spending; eliminating tariffs and other barriers to free trade; reducing regulations of labor markets, financial markets, and the environment; and focusing macroeconomic policies on controlling inflation rather than stimulating the growth of jobs," reports economist Robert Pollin (2003).[84] Arising out of a rejection of the class compromises embedded in previous liberal political-economic policies, including Keynesian and Active Labour Market Policies (ALMPs), neoliberal theory, institutions, policies, and practices are not regarded as politically neutral by their opponents.[citation needed]Template:Pov-statemtent Economic noliberalism usually brings about strong economic inequality.

Criticism and Failings

Critics of neoliberalism sometimes refer to it as the "American Model," which they claim promotes low wages and high inequality.[85] According to the economists Howell and Diallo (2007), neoliberal policies have contributed to a U.S. economy in which 30% of workers earn "low wages" (less than two-thirds the median wage for full-time workers), and 35% of the labor force is "underemployed"; only 40% of the working-age population in the U.S. is considered adequately employed. The Center for Economic Policy Research's (CEPR) Dean Baker (2006) has argued that the driving force behind rising inequality in the U.S. has been a series of deliberate, neoliberal policy choices including anti-inflationary bias, anti-unionism, and profiteering in the health industry.[86] However, countries have applied neoliberal policies at varying levels of intensity; for example, the OECD has calculated that only 6% of Swedish workers are beset with wages it considers low.[87] John Schmitt and Ben Zipperer (2006) of the CEPR have analyzed the effects of intensive Anglo-American neoliberal policies in comparison to continental European neoliberalism, concluding "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes. Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility than all the continental European countries for which data is available."[88]

Notable critics of neoliberalism in theory or practice include economists Joseph Stiglitz, Amartya Sen, and Robert Pollin,[89] linguist Noam Chomsky,[90] geographer David Harvey,[8] and the alter-globalization in general, including groups such as ATTAC. Critics of neoliberalism and its inequality-enhancing policies argue that not only is neoliberalism's critique of socialism (as unfreedom) wrong, but neoliberalism cannot deliver the liberty that is supposed to be one of its strong points. Daniel Brook's "The Trap" (2007), Robert Frank's "Falling Behind" (2007), Robert Chernomas and Ian Hudson's "Social Murder" (2007), and Richard G. Wilkinson's "The Impact of Inequality" (2005) all claim high inequality is spurred by neoliberal policies and produces profound political, social, economic, health, and environmental constraints and problems. The economists and policy analysts at the Canadian Centre for Policy Alternatives (CCPA) offer inequality-reducing social democratic policy alternatives to neoliberal policies. In addition, a significant opposition to neoliberalism has grown in Latin America, a region that has been seen only limited implementation of neoliberal policies. Prominent Latin American opponents include the Zapatista Army of National Liberation rebellion, and the governments of Venezuela, Bolivia and Cuba.

According to (Pollin 2003), neoliberalism under the U.S. Bill Clinton administration– steered by Alan Greenspan and Robert Rubin– was the temporary and unstable policy inducement of economic growth via government-supported financial and housing market speculation, featuring both low unemployment and low inflation. This unusual coincidence was made possible by the disorganization and dispossession of the American working class. Santa Cruz history of consciousness professor Angela Davis and Princeton sociologist Bruce Western have supported the position that the high rate (compared to Europe) of incarceration in the U.S. – specifically 1 in 37 American adults is in the prison system – heavily promoted by the Clinton administration, is the neoliberal U.S. policy tool for keeping unemployment statistics low, while stimulating economic growth through the maintenance of a contemporary slave population and the promotion of prison construction and "militarized policing."[91] The Clinton Administration also embraced neoliberalism by pursuing international trade agreements that would benefit the corporate sector globally (normalization of trade with China for example). Domestically, Clinton fostered such neoliberal reforms as the corporate takeover of health care in the form of the HMO, the reduction of welfare handouts, and the implementation of "Workfare."[92]

(Harvey 2005) claims that neoliberalism is a global capitalist class power restoration project. Neoliberalism, he argues, is a theory of political-economic practices that dedicates the state to championing private property rights, free markets, and free trade, while deregulating business and privatizing collective assets. Ideologically, he suggests that neoliberals promote entrepreneurialism as the normative source of human happiness. Harvey also considers neoliberalization a form of capitalist "creative destruction," a Schumpeterian concept.[93] This indicates that while neoliberalism is a critical concept with a critique of capitalist class relations, it is not strictly a Marxist concept; the Marxist term for neoliberalism is "primitive accumulation."

Harvey (2000)[citation needed] claims that neoliberalism has become hegemonic worldwide, sometimes by coercion. Neoliberalism has had the support of large debt restructuring organizations such as the World Bank and the International Monetary Fund (IMF), which were encouraged to promote neoliberalism in order to revitalize capital accumulation. Opponents of neoliberalism argue that neoliberalism is the implementation of global capitalism through government/military interventionism to protect the interests of multinational corporations.

President Barack Obama economic policies have been firmly in the theoretical scope of Neoliberalism and many of Rubin's deciples are currently working in his administration.[94][95]

Argentina: An example of failed neoliberal development

Decades of poor governance, a spend thrift military dictatorship, labour market reforms, and neoliberal structural adjustment programs eventually led to the 1999-2002 Argentine economic crisis. This case study exemplifies how neoliberal policies directed with a top-down approach are inefficient when used within developing economies. During the Menem administration, Argentina was under the guidance of the International Monetary Fund (IMF), the World Bank (WB), and U.S. Treasury. These financial institutions implemented neoliberal guidelines for reforming Argentina’s economy along the lines of what is colloquially known as the Washington Consensus. Their unofficial mantra was "stabilize, privatize, and liberalize".[96] A number of labour market reforms were enacted, including the establishment of new regulations for public employment, the decentralization of social services, the deregulation of the private economy along with weakened labor laws, the partial privatizarion of the social security system, and the flexibilization of the labor market.[97] Argentina’s foreign debt grew from US $57.6 billion in 1990 to US $144.5 billion in 2001.[98] This debt accumulation, coupled with the immediate devaluation of the Argentine peso, led to hyperinflation, high unemployment, a large informal labour sector, an increase in poverty levels, and basic educational and health service cuts. A reduction in public salaries and numerous lay-offs stemming from privatization resulted in the loss of income of masses of workers, effectively creating a "new poor" among lower- to middle-class Argentines.[97] Argentina's economy became increasingly uncompetitive due to convertibility, while international debt continued to rise and government corruption became rampant, resulting in the flight of capital and heightened levels of anxiety among the public.[97]

European and Latin American Opposition

Neoliberalism and globalization are considered related to one another. While generally theorists describe neoliberalism as the contemporary version of capitalist expansionism, linked to shifting global power and restoring profit rates, some theorists argue that the terms "globalization" and "neoliberalism" must be rigorously separated and that culture should be the primary lens through which the concepts are understood. “Free markets and global free trade are not new, and this use of the word (neoliberalism) ignores developments in the advanced economies…Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism.”[99]

One Euro-Latin American perspective critical of neoliberalism focuses upon the way in which neoliberalism becomes habitually embedded in the economic system itself. For example, German author Paul Treanor argues that the ideas derived from neoliberalism (and neoliberalism itself) are a philosophy and not just an “economic structure.” For example, a neoliberal perceives the world in a “term of market metaphors” and when members of a society commonly refer to countries as companies, that civilization would then be deemed a neoliberal instead of a liberal culture. Yet Treanor also recognizes continuity between historical liberal and contemporary neoliberal cultures. “When this is a view of nation states, it is as much a form of neo-nationalism as neoliberalism. It also looks back to the pre-liberal economic theory - mercantilism - which saw the countries of Europe as competing units. The mercantilists treated those kingdoms as large-scale versions of a private household, rather than as firms. Nevertheless, their view of world trade as a competition between nation-sized units would be acceptable to modern neoliberals.”[99]

Two of Treanor's collaborators, Elizabeth Martínez and Arnoldo García, find that neoliberalism is a collection of economic policies that has spread its ideals from country to country over the last 25 years. They claim that neoliberalism clearly treats its poorest citizens badly, by allowing for the increased disparity of the distribution of wealth ("the rich get richer, while the poor get poorer"). Highlighting ideology, Martínez and García explain the difference between neoliberalism and liberalism by pointing to liberalism's association with class compromising ideology, stating that “"Liberalism" can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right-wing.”[100] However, they further argue that this liberal social contract was broken by the elite political movement which included neoliberalism in the U.S.[101]

Impact on Health Systems in Latin America:

A health system can be defined as a “set of institutional responses, programs, and activities that a society constructs to satisfy the health needs of its population”.[102] Oscar Feo analyses the impact neoliberalism has on Latin American countries and he uses Venezuela to contrast health systems. Where Venezuela sees health as a right, many other countries that abide to neoliberalism treat health as a commodity, provided from working. Neoliberalism negatively affects the health systems as well as the health of people in Latin America. It makes health accessible for those who can afford it and does not benefit the majority of these developing countries. This creates a vicious cycle in which only the elite and the rich benefit.

See also

Further reading

  • [Ankerl, Guy]. Beyond Monopoly Capitalism and Monopoly Socialism. Schenkman, Cambridge, 1978, ISBN 0-87073-938-7
  • Bowles, Samuel, David M. Gordon, and Thomas E. Weisskopf. 1989. "Business Ascendancy and economic Impasse: A Structural Retrospective on Conservative Economics, 1979-87." Journal of Economic Perspectives 3(1):107-134.
  • Brown, Wendy. "Neoloberalism and the End of Liberal Democracy" in Edgework: critical essays on knowledge and politics Princeton University Press, 2005, ch 3.
  • Campbell, John L., and Ove K. Pedersen, eds. The Rise of Neoliberalism and Institutional Analysis Princeton University Press, 2001. 288 pp.
  • Ferris, Timothy. The Science of Liberty (2010) HarperCollins 384 pages
  • Foucault, Michel. The Birth of Biopolitics Lectures at the College de France, 1978-1979. London: Palgrave, 2008.
  • Gowan, Peter (1999), The Global Gamble: Washington's Faustian Bid for World Dominance, London: Verso, ISBN 1859842712, http://www.versobooks.com/books/ghij/g-titles/gowan_global.shtml 
  • Griffiths, Simon, and Kevin Hickson, eds. British Party Politics and Ideology after New Labour (2009) Palgrave Macmillan 256 pages
  • Hayek, Friedrich August Von. The Constitution of Liberty (1960)
  • Harvey, David (2005), A Brief History of Neoliberalism, Oxford University Press, ISBN 0199283265 
  • Larner, Wendy. "Neo-liberalism: policy, ideology, governmentality," Studies in political economy 63 (2000) online
  • Plant, Raymond. The Neo-liberal State (2009) OUP 312 pages
  • Pollin, Robert (2003), Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity, New York: Verso, ISBN 1844675343 
  • Prasad, Monica. The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany and the United States. University of Chicago Press. 2006. 328 pages
  • Wang, Hui, and Karl, Rebecca E. "1989 and the Historical Roots of Neoliberalism in China," positions: east Asia cultures critique, Volume 12, Number 1, Spring 2004, pp. 7–70

Notes

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External links

Online lectures


Simple English

Neoliberalism is a term for different social and economic ideas. Originally the term was used by a group of liberals who helped shape social market economy in the mid 20th century. Today, it is mostly people who are critical of the ideas of globalisation as well as trade unionists who use the term.

The ideas were developed by the economists Friedrich Hayek, Wilhelm Röpke, Walter Eucken, as well as other less prominent thinkers. They were first presented at a conference in 1938.

What do Neoliberals want?

Neoliberals want a free market economy, with everything it stands for (private property of the means of production, the freedom for the market price to establish itself, the freedom of everyone to do what they want, etc). They see however, that in some cases the freedom of the market fails or it does not yield the results wanted. In such cases, the state should intervene. The main focus of the state should therefore be measures to regulate the following:

  • Monopolies and Cartels.
  • Social fairness
  • Equal opportunities for everyone
  • Internalising external effects
  • Decreasing the effects of fluctuating business cycles.

Neoliberals are openly against lobbying of groups, state interventions that aim to protect national interests, like import duties or subsidies. Neoliberalism is also against a centrally governed economy. What is more it frowns upon the Laissez-faire of classical Liberalism.

Examples of Neoliberal froms of Government








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