Does Neoliberalism make economic inequality worse?

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Neoliberalism, when combined with proper regulations, can have a positive outcome.

Chile’s pioneering experience received high praise from Nobel laureates, Friedman and Stiglitz. Indeed, it grew from a GDP of -11% in 1982 to +11.1% in 1992; at the same time, the unemployment rate shrank from +10% in 1982 to -15% in 1992.

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Forty years of neoliberalism jeopardized the world economy.

A paper published in June 2016 by the IMF warns that neoliberalism is jeopardising the future of the economy. For example, austerity - one of the pillars of the neoliberal agenda - has been increasing the rate of UK recessions since the 1970s.

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Increased inequality affects economic growth.

Osborne-style austerity increases inequality, thus undermining growth. In Britain, his policies were meant to cut the budget deficit to zero and generate healthy economic growth, but resulted into a double-dip recession.

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Policies that are an important part of the neoliberal agenda – such as austerity – have been overplayed.

According to the IMF, austerity affects employment. On average, a consolidation of 1 percent of GDP increases the long-term unemployment rate by 0.6% and raises by 1.5% within five years the Gini measure of income inequality.

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Neoliberalism offers some useful ideas.

In China, market-based incentives were tailored to the local context and mixed forms of ownership (state and private) were adopted. The GDP annual growth rate grew from 5.3% (from 1960-1978, before the reforms) to 10.4% in 2010.

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Some aspects of the neoliberal agenda have not delivered as expected.

Austerity and the freedom of capital to move across borders were examples of how neoliberal policies misfired.

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Neoliberal policies affect the weaker categories of society, with cuts to the welfare state and public services.

In Venezuela, the economy contracted 13% in 2017, as people suffered through shortages of medicine and food; this affected the weaker categories of society, those people who cannot afford to pay more for services or goods.

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Neoliberalism has reduced poverty in some countries.

In Chile, the so-called “economic miracle” took place, and this later applied to other countries around the world. The liberalisation of trade has also lifted people out of poverty in South Korea, Taiwan, Japan and Mauritius.

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Neoliberalism led to political instability.

The term ‘neoliberalism’ is associated with financial deregulation - culminating in the 2008 financial crash and in the Euro debacle - and fiscal austerity, which created political and social instability, fostering the current populist wave.

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