In a conversation among Harvey, Friedman, and Sachs, a heated debate arises as the three economic philosophers attempt to explain the causes of the problems the modern global economy is facing and the most effective strategies the world should apply to solve these problems (Harvey 67). In this essay, an analysis of the conversation is developed, while highlighting the major arguments of each of the three individuals.
In this conversation, David Harvey’s arguments are based on his recent book “A Brief History of Neoliberalism,” in which he criticizes neoliberalism for its attempt to reconstitute class power and provide economic, social and political powers to a small group of global elites, giving them the powers to control the world.
Harvey informs Sachs and Friedman that neoliberalism is not a state of utopia or a utopian project to develop a global economic theory for reorganizing capitalism, but rather, it is a political project whose aim is to restore the international economic power of elites. To support his point of view in the debate, Harvey tells Sachs and Friedman that the current economic problems such as the recent global and European economic recessions are good examples of the problems brought forward by neoliberalism (Harvey 74).
He argues that every time there is a conflict between the elite power and neoliberalism, the elite power takes precedence because the individuals and institutions involved are the beneficiaries of the world economic problems. Harvey cites the 2007-2010 economic recession that affected the US economy.
Citing the arguments developed by proponents of neoliberalism, Harvey informs Sachs and Friedman that the proponents of neoliberals provide that the affected companies and industries should be allowed to run bankrupt and fail as a punishment for their market inefficiency (Sachs 341).
Instead, Harvey argues that the American government, despite being one of the most neoliberal institutions in the modern world, carried out extensive efforts to bail out the affected companies because they are owned and controlled by the elites who benefit from neoliberalism (Harvey 251). According to Harvey, the Bush administration should have backed off and allowed the free market to take its course if the neoliberal principles have been applied.
He also argues that the European Union should not have bailed out nations like Greece during the recent European economic crisis because the EU member states, and the EU itself, are some of the most neoliberal institutions in the modern world. However, the effort by both the American government and the EU to bail out companies and countries respectively is a sign of the power of the elite, which controls the world economic, social and political affairs at the international level.
Harvey further claims that the current economic trends are the efforts of the global economic elite to increase their wealth through redistribution, an idea that the proponents of neoliberalism have blindly supported. He informs other authors that the GDP growth rates in various capitalistic nations have been declining during the neoliberal era. However, the economic elites in these nations are still accumulating massive wealth.
The philosopher argues that the massive increase in shareholder equity and salaries for corporate leaders, a decline in the wage rate and wage level for the powerless workers, as well as increasing globalization of corporate world are given as examples of the latter. Harvey continues to say that the increased economic growth in nations that were initially communistic, like China, is an indication that the capitalism and neoliberalism models of socioeconomic systems cannot sustain growth in a long term.
Also, he says that the decline in the capitalistic world is an indication of their inability to prevail in a globalizing world. He supports Sachs’s theory of globalization, saying that American and Europe have reached a position that requires 21st-century interventions on the global level.
At this point, Milton Friedman intervenes, seeking to elaborate on his theory and express his point of view regarding the current economic crisis the EU and the US are facing. According to him, the major problem of the modern world is the poor implementation of economic freedoms (Friedman 34). Friedman’s argument in this debate is heavily borrowed from his book “Capitalism and Freedom.” He tells Sacks and Harvey that for people to be free from the current economic problems, they must achieve economic freedom.
According to his argument, the current means of production are under the patronages of the government; the ability to achieve real dissent and exchange of ideas is likely to be a difficult or almost impossible task. Both parties to any economic transaction must benefit from the activities involved. Friedman moves to explain the role that the government should play in developing and promoting a free society.
In this case, Freidman convinces Harvey that the government in a liberal society should not take an active role in controlling the market. Friedman tells Harvey that the role of the government should be to build a free society (Friedman 161). In building a free society, the government should not be involved in direct control of the forces of demand and supply. Instead, the government should enforce laws and orders and protect property rights.
Moreover, Friedman criticizes Harvey for saying that the government in a free and liberal society is involved in creating elite power. Friedman tells Harvey that the government in a proper liberal and free society should be involved in creating laws that aim to reduce the existence of monopolies in all sectors of the economy (Friedman 239).
In this way, Friedman says that the problems of elite powers cited by Harvey can be controlled, which is likely to decrease the likelihood of occurrence of negative neighborhood effects. He says that if the American government as well as the European Union and the governments of Greece, Italy, and Spain had adopted this model, it would have been impossible for their economies to experience massive economic depression in the recent past.
Thirdly, Friedman tells Sacks and Harvey that the control of the national monetary system is necessary and should be one of the most important tasks for any government in a liberal and free society. He criticizes Harvey for saying that a liberal society should have a completely free economy devoid of any government control. He says that economic freedom can only be achieved if the government develops a system for control of money (Friedman 447).
He argues that failure to control the monetary system will allow certain cartels to take this opportunity and interfere with economic and political freedom. Also, Friedman cites the case of the FRB and the FR Act of 1913. He says that the 1930s American recession as well as the 2007-2010 recession were products of failure by the Federal Reserve Bank to have adequate measures to control the monetary system.
At this point, Jeffrey Sacks intervenes. He surprises-both Harvey and Friedman when he says that their perceptions and understanding of the current situation in the US and Europe do not conform to the need for globalization. He accuses both economists of dwelling much on the past theories of capitalism, Marxism, and liberalism. He amuses everyone by saying that he is “a clinical economist” who is seeking to provide an economic prescription to the American economic illness.
First, he argues that the main problem in the US and the EU is their inability to respond to the needs and demands of globalization and globalized economies. He says that the American and EU governments have been applying early 20th century tactics to solve deep-seated problems.
For instance, he says that the governments have been attempting to use such shortsighted solutions as tax cuts and stimuli spending to solve complex economic problems that have been brought by globalization, yet these strategies, designed in the early and mid-20th century are irrelevant. However, he agrees with Harvey that most of the problems the US is facing today are based on the creation of a group of elites, which is a product of the ideas of neoliberalism.
Based on these arguments, it is important to note that the three economic philosophers developed an in-depth analysis of the problems the US, the EU and other nations in the modern world are facing, especially in terms of frequent and unpredictable economic recessions (Sachs 87). However, the argument by Harvey is good in providing a solution to America’s current economic problems, because he says that there should be a governmental control over the economic system to eliminate economic elites.
However, I also find the argument by Sacks very important and the best solution to the current situation (Sachs 93). The idea of globalization as the major cause of the current problems is relatively new to the debate.
Most of America’s current economic problems are caused by the increasing tendency towards globalization of the world economic systems. Thus, it is evident that the problems cannot be solved through the application of tactics and strategies that were applied by Roosevelt’s government in the 1930s because the causes of the current problems are deep, globalized and complicated.
In his book “the great transformation,” Karl Polanyi argues that “Laissez-Faire was panned, but planning was not” (Polanyi 58). He uses this and other phrases in his work to attack the market liberalism, as well as the orthodox Marxism that became popular in the 20th century. He attempts to argue that market liberalism is wrong for stating that society has only two actual choices- market capitalism or socialism (Polanyi 58). He also criticizes Marxism for supporting the same claim.
Noteworthy, Laissez-Faire is a form of leadership style that supports the minimum government intervention in the business and public affairs, which makes the government act as an observer rather than a controller of the economic system. Polanyi argues that the movement towards Laissez-faire form of the economic system should only be supported if there are adequate attempts to create stability (Polanyi 129). He cited the case of the United States in the 1920s when the movement towards laissez-faire economy was powerful.
He argues that the powerful movement always creates excessive and rapidly growing inequality that is likely to destroy the foundations of the country’s prosperity. He also claims that the system can create a dangerous political or social stalemate (Polanyi 164). Since the belief was that there was no possible alternative, fascism occurred and took advantage of the situation to seize power, eventually breaking away from the ideas of both laissez-faire and democracy.
Thus, with this information in mind, it is possible to examine the worthiness of Polanyi’s argument that “Laissez-faire was planned, but there was no planning” (Polanyi 166). To examine this assertion, it is worth analyzing the events of the 20th and the early 21st centuries. First, it is worth looking at the situation in Europe and America after the two world wars. Initially, the long-term effect of the First World War was devastating, especially to the European economies.
While some nations like Germany, Russia, and Italy continued with their non-democratic approach to the economic system, Britain and France were the main proponents of market democratization under the ideas of capitalism. Between 1920 and 1940s, Germany became wealthier than Britain, with its industrial and population growth rates doubling.
On the other hand, Britain and France experienced reduced growth rates, with cases of corruption becoming evident. Also, the US experienced some of the worst moments of its economic history. Since it was using an economic approach that provided evidence of an increased movement towards laissez-faire, the government increasingly lost its direct control of the economy.
The results were not only devastating due to the economic recession of the 1930s, but they also called for increased government intervention in the market system. For instance, the New Deal proposed and implemented by President Franklin D. Roosevelt was the main solution to the problem. Rather than taking a neutral position in the marketplace, the new deal ensured that the government was actively involved in the market place by controlling the prices of some important products.
Also, it sought to control the forces of demand and supply by providing incentives to workers to ensure that the labor force was more productive. This means that the New Deal was a movement against the increased tendency of the government to use Laissez-faire in the market place. The policies of the New Deal were believed to enhance the process of economic healing.
Also, it is worth noting that the situation in the United States in 1970s provides evidence of the government’s use of policies against laissez-faire to solve economic recessions. For instance, Reaganomics, the economic policies proposed and used by President Ronald Reagan in 1970s, were advocating for increased government involvement in monitoring and controlling the free market.
The situations in most western nations in the early 21st century provide evidence of the need to reduce the movement towards laissez-faire. In the US and the EU, the reduction of government involvement in the control of the forces of demand and supply was witnessed in the 1990s. The Clinton and Bush administrations in the US and the Labor governments in the UK where some of the most significant examples of the regimes that attempted to reduce government control and role in the market place.
However, the results were negative. The economic recessions of 2007-2012 are good examples of the results of removing government role in the marketplace. The 2007-2010 economic recessions in the US, which caused the world economic system to experience an increased crisis, were finally solved through government policies that were aimed at bailing out the affected companies and industries. Also, the European Union was forced to bail out the affected members as well as companies in specific countries to save the region’s economy.
Also, the emergence of China, Russia, India and several other nations as global markets in the recent past has betrayed the idea of the free market system as the best method for economic development. In particular, the emergence of China indicates that communist nations with direct control of the market system have the potential to outdo their capitalist counterparts.
These are clear indications that Polanyi’s argument that laissez-faire was planned without proper planning is supported by empirical facts and events in the world economic history.
In its simplest definition, the term ‘political economy’ refers to the study of how economic theories, approaches, and methods influence the political ideology of a given society, country or organization (Rousseau 67). It provides a link between the disciplines of law, political science, and economics. Also, it seeks to show how organizations in a socioeconomic system develop. In particular, this includes the theories of communism, capitalism, and liberalism.
However, since the first definition of the political economy was proposed in the 19th century, several definitions and explanations of the idea have emerged. Rousseau and John Kenneth Galbraith developed some of the most common and effective explanations of the political economy. Jean Jacques Rousseau attempted to explain his model of political economy in his work “a discourse on political economy” (Rousseau 67).
Although the term ‘unregulated’ seems to be less fair, Rousseau uses it to explain that the male parent has the role of making decisions that should be regarded more than those made by the female parent. He argues that several natural reasons make the father the head of the family (Rousseau 83). The father ought to give commands in his family. In giving authority, the mother and the father should not share equal authorities.
Similarly, a country should have a single government. Rousseau further claims that even if there are disparities in opinions, a country must have one predominant opinion or voice that gives the last and final command or decision. Secondly, a straw is enough to turn the scale of a perfectly even balance.
Therefore, women should be excluded from the supreme authority in the family. Thirdly, Rousseau argues that the children should be obedient to the father as the first authority and then to their mother as the second in command (Rousseau141). They should seek satisfaction of their wants from the father before asking for the help of the mother.
This analogy is used to explain how a government should look like. It is a study of the political economy based on the family analogy. Rousseau intended to say that every country must have a single authority that governs the other factions, sectors and the people. He tends to argue that the other section of the government should be subject to the control and commands of the national government (Rousseau 231).
By saying that the mother is important in a family, but should be excluded from the decision-making process, Rousseau wanted to say that the single government or decision making the body in a country should not take orders or be helped to govern the country. This model attempts to explain that the role of a government is to make the right decisions for the welfare of the state and its economic, social, political, and cultural sectors.
Also, the theory attempts to say that the government in a given country has the right to control the economy and ensure that every citizen obeys by the laws and regulations imposed by the government (Rousseau 173). The children in this model are used to explain the obligations and rights of the citizens. Rousseau argues that the citizens should ask the government to satisfy their needs and wants before turning to any other party.
Also, citizens should be highly obedient by the rules, laws, and regulations the government has set forth. They must recognize their rights to seek solutions to their problems from the government (Rousseau 211). Thus, Rousseau argues that it is the role of the government to ensure that every citizen’s rights are addressed. It is also worth noting that Rousseau’s ideas advocate for the existence of a direct channel of communication between the citizens and the government.
For instance, by stating that the children should ask their father to satisfy their needs, Rousseau wanted to mean that the citizens should have the right to communicate their concerns and problems directly to the government.
In his book “The Affluent Society,” John Kenneth Galbraith, a Canadian-born American economist, attempts to contrast the affluence of the private sector of every economy as the squalor of the public sector.
He supported the ideas of Thorstein Veblen by attacking the capitalistic way of production because he believed that it was aimed at developing conspicuous consumption (Galbraith 117). However, his main argument was that all consumer demands could not be satisfied. If the process of production creates consumer needs, then the production itself cannot be defended as satisfying human needs (Galbraith 124).
Secondly, Galbraith explores the power and its relation to the economy. He also attempts to examine the actual workings as well as the evolution of the economic systems and economies. In this case, he argues that a good understanding of the power is critical for the understanding of the company because a company is an illusion whose main aim is to supersede the market to achieve a great expansion of its bureaucratic profile.
Galbraith says that a good and proper understanding of an organization is a crucial aspect of developing a comprehensive understanding of the process of excising power in society in general.
It is also an important step towards developing a good understanding of the economic consequences that arise or are likely to result from the power created and exercised in this manner (Galbraith 136). Also, Galbraith attempts to examine and analyze the factors that cause poverty in a social, economic system. He argues that people without power are subject to poverty.
Works Cited
Friedman, Milton. On capitalism and freedom. Chicago, IL: University of Chicago Press, 2005. Print
Galbraith, Kenneth. The Affluent Society. Boston, MA: Houghton Mifflin, 2000. Print.
Harvey, David. A Brief History of Neoliberalism. Oxford, OUP, 2007. Print.
Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our Time. Washington, DC: Beacon Press, 2011. Print.
Rousseau,Jacques. A discourse on political economy. New York: Waking Lion Press, 2006. Print
Sachs, Jeffrey. The Price of Civilization: Reawakening American Virtue and Prosperity. New York: Random House, 2012. Print.