There has been widespread praise and critique of neo-liberal policies and their effect on the international economy, particularly with respect to widening inequality, suppression of developing economies and contribution to financial crisis due to destabilizing capital flows. This paper will contrast the implied positive effects of neo-liberalism from a Keynesian perspective against a Marxist analysis which suggests such economic liberalism merely changes the time intervals and severity of inevitable boom and bust cycles of capitalism and as such makes no permanent progression in the global economy.
Displacement of the Keynesian welfare state policy approach was embedded in end of the long boom. Rising worker militancy and diminishing productivity gave way to severe cost-push inflation, compounded by oil price spikes leading to criticism of aggregate demand management as policy makers sought a structural solution. Neo-liberal policies, with theoretical origins in individual utility maximization (Mill and Bentham) and Adam Smith’s Laissez-Faire optimality imply a reduced role of government in reliance on the free market to provide the most efficient outcome. Development of a neo-liberal state would then encompass privatization of Government owned enterprises, deregulation of financial markets and redistribution of income from the poor to the rich in attempt to boost private investment and job creation through the trickle-down effect.
A Marxist view of neo-liberalism would hold that it is merely a justification for increasing profits and a class struggle between workers and capitalists will always exist. Kalecki holds that the long boom ended due to the profit squeeze created by improved bargaining positions of workers as a result of Keynesian high growth policies.
Dollar and Kraay argue that “the current wave of globalization has actually promoted economic