MBA summary Essay

Submitted By Luli2524
Words: 678
Pages: 3

Chapter 1 The economic policy consensus

1. Introduction
Economic policies have changed around three basic principles:
Emphasis is on using market mechanisms to achieve objectives (governments intervene selectively and targeted)
Macroeconomic policy focuses on stability rather than targets or growth
National policies have become more outward looking – relaxing capital mobility and global investment

2. Economic policy consensus
2.1 Competition and the market system
Government spend as a % of GDP was high and they started questioning whether they were efficient. Answer was no, they need to become more effective and efficient:
Privatisation – sell of business that can be done better by industry
Deregulation – less direct government intervention and market mechanisms are used
Public sector changes – tendering creating market-type disciplines and outsourcing
Pro-competition policies – improves efficiency
Labour market flexibility – to try and solve unemployment
Enterprise-friendly environment – fewer regulations and lower tax in order to promote growth 2.2 Macro-stability
Is an effective means of achieving sustained growth. How?
Price stability – independent central banks is responsible for this
Budget balance – low budget deficit and reduced debt relative to national output = fiscal balance
Control of government spending – will stimulate private investment and reduce unemployment. Reduced public spending, reduce tax, private sector will employ more people.
2.3 Globalisation of business
Liberalisation of capital
Foreign investments
Free trade
Labour mobility

3. Why policy change?
Deterioration in the industrial countries economic performance – as a result of oil price increases which resulted in slowdown of growth
Socialist model lost credibility – due to apparent poor achievement
Economic success in East Asia vs economic decline in Africa and Latin America – Asia adoption of liberal economic policy
Developments in economic theory showed that even the best-intentioned government intervention tended to create distortions in the system, which could be more damaging than the faults in the private sector market it was designed to correct – therefore countries with market incentives, macro-stability and freer trade performed better
Advances in technology, reduced the cost of communication and travel, making government restrictions on movement harder to enforce and making it easier to evade regulation and higher taxes

4. Implications for the future
What are the implications and how do we deal with them?
Massive opportunities for local firms but also increased competition
Greater competition means less job security as companies seek the lowest-cost location
The more flexible labour market will mean less demarcation, less rigid pay scales, weaker unions and different forms of employment
It will be easier to find work but it will also be easier to be dismissed

5. Criticisms of the new consensus
Two biggest criticisms is that the consensus policy is incomplete and sometimes misguided –
Incomplete
Only focuses on liberalisation, deregulation and privatisation but not enough attention is given to ongoing needed government intervention in areas such as…