The Wealth Of Nations: Neoliberalism Analysis

Saad-Filho and Johnston (2005 cited in Thorsen and Lie) believed that neoliberalism has been dominating and shaping the world today. Thorsen and Lie, on the one hand, stated that it is a new paradigm for economic theory and policy-making. Many scholars have stated in their studies that the core foundation of this ideology goes back to Adam Smith and his work “The Wealth of Nations”. In support to this, Clarke (2005) stated in his paper that Smith’s main argument in laying the foundation of neoliberalism was that, “free exchange was a transaction from which both parties necessarily benefited, since nobody would voluntarily engage in an exchange from which they would emerge worse off.”, and added that as market expands which allows increasing

Lapavitas (cited in Johnston and Saad-Filho, 2005) stated the neoliberal predominance in the economic theory began during the second half of the 1970s, and that the optimal organizing mechanism for capitalist economies is the dominant characteristic provided by free markets. The concept of neoliberalism has been heavily attached with the Washington Consensus (WC) and the practices of several international organizations such as World Bank, IMF and WTO (Fine and Saad-Filho, 2014). In order to establish the connection between the policies associated with neoliberalism and the Washington Consensus, it is important to highlight the three aspects of modern neoclassical theory. First, neoclassical theory implies that in the microeconomic level, the market is efficient whilst the state is inefficient, and thus; the market should be the one to address economic problems of development (Johnston and Saad-Filho, 2005). On the other hand, the second aspect assumes that capital mobility and the relentless advance of globalization are the main characteristics of the world economy at the macroeconomic level (Johnston and Saad-Filho, 2005). Lastly, interest rate is the most important economic policy tool since it

As defined by Filipovic (2005) privatization is a process of reallocating public assets and functions to the private sector. According to Lopez-Calva and Sheshinski (2003), the number of privatization transactions, both in developed and developing countries has been increasing over the years. Privatization programs implemented in a country aim to: achieve higher allocative and productive efficiency; strengthen the role of the private sector in the economy; improve the public sector’s financial health; and to free resources for allocation in other areas of government activity (Lopez-Calva and Sheshinski, 2003). Selling of state-owned enterprises to private investors has been one of the most common methods of privatization (Filipovic, 2005). Several scholars argued that privatization caters the increase in government’s revenues and strengthens the incentives in maximizing the profits which can lead to productive and allocative efficiency (Guriev and Megginson, 2006). On the contrary, those who were in favor of public ownership argued that there can be market failures. Shleifer (1998) stated that one strong support of this, which was used by