The Ebb and Flow of Economic Liberalism Since the Second World War Chap 6 Part 2 – p

 In what ways have economies reflected the principles of liberalism since World War 2?

 Refers to British politics from the end of WW1 to the 1970’s  Characterized by the growth and maintenance of social safety net programs – EI, child care, social security, etc.  Supported by collectivist and individualist politicians in Britain  These ideals are promoted internationally through contracts related to international cooperation, foreign aid, etc.  Many other Western Democracies followed suit by providing their own versions of the social safety net

 Most Canadian gov’ts – created or strengthened social programs in the 3 decades following WW2  Examples: ◦ Universal Health Care , 1966 ◦ Canada Pension Plan – 1966

 U.S. withdrew from the Bretton Wood’s Agreement – gold no longer the standard used to set exchange rates ◦ Other countries would follow – world currencies were allowed to float freely on world markets – inflation resulted slowing economic activities  Arab-Israeli War – 1973 – Oil monopoly OPEC imposed an embargo on oil exports to the US and its allies for supporting Israel  Resulted in the “Energy Crisis” – high energy costs, high inflation, slower economy in the West  When a recession and higher inflation occur together – known as “STAGFLATION”

 Stagflation caused countries to reconsider their social safety expenditures ◦ Difficult to maintain social program spending with higher inflation and a slower economy – less taxes collected

 Monetarism – Milton Friedman, Friedrich Hayek  Shift back towards classical liberal laissez faire capitalism  Theory holds that the control of a country’s money supply is the best way to encourage economic growth and limit unemployment and inflation – to be controlled through regulation of interest rates.

 Argued that when the money supply was up, consumer spending would go up causing demand to rise and inflation to increase  Felt that the amount of money issued by the Central Bank should be linked to economic indicators such as the rate of inflation and not be influenced by gov’t manipulation  Was a supporter of Adam Smith’s ideals of minimal gov’t involvement in the economy – that gov’t spending and regulation had gone too far

 Felt that excessive gov’t control of an economy would eventually lead to too much control over peoples’ lives – result loss of freedom  Cited Nazi Germany and the USSR as examples  Felt that centrally controlled economies were to out of touch to make good decisions in the public’s interests  His ideas were esp. influential on Britain’s PM Thatcher

 Both Friedman and Hayek believed that the Price System (Free Market) was the only way to balance supply and demand in the economy while maintaining individual liberty  Gradual acceptance of monetarism and Friedman’s/Hayek’s ideas was in part a reaction to the inability of gov’ts to deal with the stagflation of the early 1970’s  Supporters of monetarism argued that gov’ts did not follow Keynes’ advice to cut back on spending when times were good because these cuts would be unpopular with voters  Result – out of control debt compounded by the problem of stagflation

 Ronald Reagan became president of the US in 1981 – was a time of high unemployment and high inflation  Supporter of Friedman’s ideas  Wanted less gov’t involvement in the economy  Response was to: ◦ Lower income and business taxes ◦ Reduce regulations and controls on business ◦ Increase military spending of offset the “Soviet Threat”  “Supply-side approach”- increased private investment and gov’t defense spending would “trickle-down” through the economy to the working class

 PM Margaret Thatcher ( ) tried to reduce gov’t involvement in the economy  Favoured increase economic freedom and entrepreneurship  Had the gov’t sell off much of its social housing, and privatized many utility companies  Took a hard line with labour unions – would not give into their demands

 PM during the late 1990’s and into the 21 st Century  Policy was a shift towards a more moderate program that would adopt some elements of Thatcherism and free market policies while maintaining some social programs  Increased gov’t spending for health care and education  Setting up of a national minimal wage  Attempt to balance individualist principles with the collectivist values of social justice

 Netherlands – Polder Model – involves employers, unions and gov’t reps working together to make decisions – helps to avoid strikes  Kenya – “Harambee” (let us all pull together) – any product should benefit the public rather than the individual ◦ Projects should minimize the use of local resources that would otherwise be unused or too expensive  Chad – has major oil reserves – World Bank and ExxonMobil agreed to help Chad develop its oil resources on the condition that the gov’t pass laws guaranteeing that 80% of oil revenue be spent on health, education and rural infrastructure

 US and Sweden/Canada both follow the principles of economic liberalism, however ◦ US supports limited gov’t intervention and minimal social support ◦ Sweden/Canada – favour more gov’t intervention in the economy and in the lives of citizens.

 The ebb and flow of economic liberalism seems at present to be flowing towards the left – towards a greater role of gov’t in their economies and towards a more cooperative internationalism  Reasons – turmoil in the global economy that began with the credit and mortgage crisis in the US in 2008 and questions over putting faith in the unregulated free market