Neoliberalism and New Geography, Essay Example

The theory of neoliberalism in international relations has brought forward the term of “neoliberalization” used by Peck and Tickell (381). Neoliberalism has spread around the international community; created free markets, the “Washington Consensus” and finally the reconstruction of local contexts as well (Peck and Tickell 380). According to the authors, “neoliberalism (for the Anglo-American world) represents a kind of self-imposed disciplinary code, calling for no less than monastic restraint”. While the study indicates that the beginning of the neoliberalist movement was started in the global West during the 80-s, they also indicate that by today, the neoliberalist approach of international relations is the  “norm”. Indeed, the authors claim that “neoliberalism is no longer the dream of Chicago economists or a nightmare in the imaginations of leftist conspiracy theorists; it has become a commonsense of the times”.

The below essay will examine how the norm of “commonsense neoliberalism” has impacted the market rules, geography of power and representation of individual states.

Neoliberalism: current issues

According to Peck and Tickell (382), neoliberalism was originated from North America and Western Europe. These geographic areas were the centers of institutional reconstruction and discursive production. However, the authors state that the process of neoliberalization is “neither monilothic nor universal in effect” (384). Indeed, the process that focused on the deregulation during the 1980-s was the trigger for developing neoliberalism. The process was started in the Thatcher-Reagan years, when antiregulation was the mainstream political initiative in the United States and the United Kingdom. Later, neoliberalism took an institutionalized form, completing the process of neoliberalizing the Western world.

Gries (1) states that “In the 1960s of the 20th century the world economy had only one clear center”: the United States. However, the unification of Europe on the political and economic level (European Union, collapse of the Eastern Bloc, expansion of the EC), another economic center was created: Europe, consisting of several medium or small size economies. However, in the end of the 20^th century, a third region became an emerging economic power: Far East. With Japan’s never before seen fast development followed by the increase of export in China and recently India, the U.S. hegemony of economic power has been challenged.

The impact of the global shift

The term “Global Shift” was first introduced by Dicken, who determined the process as one with various dimensions. Gries (1) simply defines the “Global Shift” as a “fundamental change in the world map of economic activities”. The author also summarizes the different aspects of the shift, and in order to understand the impacts, first we need to investigate the forces behind the “Global Shift”.

1. decreasing importance of the U.S. economy
2. unification and enlargement of the European Economic Community
3. GDP increase in Asia and Eastern Europe
4. emergence of India and China as a “fully integrated economic center”

Agnew describes the shift towards neoliberalism from neorealism (1945-1990, according to the time-line of the author) as a demand to adjust national economies to the trends of international economies. The author also states that “the new ‘neo-liberal state’ characteristic of this order sought ‘its security as a member of a stable alliance system and its economic growth as a participant in an open world economy.”. The increased competitiveness of the three major economic centers of the world; USA, Japan and Western Europe has created a new order and new economic geographies as well.

The term of economic geography

Coe, Kelly and Yeung state that economic geography allows us to understand the processes of rewriting maps not on territorial basis but based on power and production centers. The authors also conclude that poverty and uneven development of regions is a geopolitical issue that needs to be addressed. Investments seem to be oriented to economic centers, or more lately, economic networks, and there are some parts of the world that are completely neglected. As the example of Niger (3) shows, lack of productivity results in lack of support and investment, which, in turn, increases the gap between the affluence of economic hotspots on the map and places where production is low. That, according to the authors, is the reason for the existence of extreme poverty in Africa. As in Chapter 1 the Coe et al. summarize: “the root causes of poverty are ‘geographical’ (4).

There are three main concepts of economic geography: space, place and scale. The economic development of a region will depend on the location, environment, and the way they are able to deal with the problem. It is evident that Niger is unable to maintain its trade balance, as it is over-populated, has no exportable resources or a system that successfully deals with economic and social challenges. It is, on the other hand, unable to get involved in and maintain beneficial trade agreements. On the other hand, China has a high level of productivity, a government that can create a trade balance and maintain economic relationships in a way that they benefit the region and further increase demand for products created in the country. The society and government needs to adapt the same economic principles as the trading partners, to be on the map. Niger is unable to to this, however, through regional integration, the European Union could become a large producer and market, putting itself on the map of economic geography.

Economic integration and economic geography

Ascani, Crescenzi and Iammarino (2012) state that when two or more countries engage in economic integration, it results in changes in income levels within individual countries, as well as the distribution of income. The formation and expansion of the European Union and European Economic Community is a good example for this. The authors also state that in traditional liberal views, the integration and collaboration results in a greater market and higher level of consumption overall. One of the main theses of the study is that the geographical distribution of industries changes as a result of the integration, rewriting he geography of global economies. The New Economic Geography (NEG) is formed based on economic agglomeration or concentration within world trade geography. Further,  Ascani et al. (2012) examine “the effects of economic integration on spatial development” (2). The authors examine the fundamental elements of NEG and the impact of the EU’s expansion on Central Eastern European countries’ economic development.

The main building blocks of the NEG, according to Ascani et al., are increasing returns, monopolistic competition, transport costs, and external economies. All the above factors will determine the process of forming a new economic geography that intends to serve the interest of all countries taking part in the integration.

Agnew, however, concludes that the shift is not based on territories, more like economic influence zones. As the author states, “centrality… appears less important”. (56). Still, according to the review of original liberal literature, the author comes to the conclusion that the neo-liberal system appears to be vulnerable, in particular during times of economic recession or stagnation. Therefore, the reason why neoliberalism has, according to some authors (Palley) is no longer offering solutions to the problems of the globalized world. These ideas will be examined later within the current paper, however, it is important to note here that there are several vulnerabilities associated with neoliberalism that created the NEG.

The adaptation of neoliberalism in the world politics, according to Peck and Tickell (381) resulted in an approach to misuse power, reduce the authority of states. Still, the authors make a clear distinction between neoliberalism and globalization, while stating that both should be examined as a process, instead of an end state. Looking back into the past twenty years of world political movements and initiatives, integration and collaboration initiatives, the above statement proves itself to be true. Neoliberalism is a process, started in the 1980-s, gradually reducing integrity and power of states, and – as a result of the collapse of the Eastern Bloc and the expansion of European, Asian economies, started a process of integration. A clear example for the above process can be the rapid expansion of the European Union. While Europe historically only consisted of a few larg(er) economies and “the rest”, failing to challenge the hegemony of the U.S. economy, the expansion to the South, later the integration of Central, then Eastern European countries has redrawn the map of world economy. However, the increase of “influence markets” has not ended yet. Production has been moved around the map of the new geographic economy map, due to the unification of the market. Increased size of the EEC market did not only mean that more buyers were included, but also resulted in a greater competition; not necessarily between states, but production centers. Instead of production centers that could previously be marked on the map by dots, today, global production networks exist, further rewriting the economic geography.

Global production networks and geography

Coe, Dicken and Hess state that understanding global production networks (GPN-s) is essential to embrace the “complexities of the global economy” (2). The authors also argue that these production networks are dynamic, which is confirming the statement of Peck and Tickell (381). Coe at al. goes further than stating that these networks are dynamic, though: “they are always, by definition, in a process of flux – in the process of becoming – both organizationally and geographically”. (1) The above is one of the main characteristics of global production networks. However, the authors also state that they have both economic and political aspects. As economic relationships and agreements are determined by political, international relations decisions, rules and norms of interaction, collaboration, this statement also proves to be true. Further, Coe et al. determine two more aspects of GPN-s. They are both cultural and social phenomena, while they exist in a transnational space, constituted by ideologies, elites and institutions that are also transnational. As a conclusion, the authors define global production networks as follows:

“a production network is, at its core, the nexus of interconnected functions, operations   and transactions through which a specific product or service is produced, distributed and consumed. A global production network is one whose interconnected nodes and links     extend spatially across national boundaries and, in so doing, integrates parts of disparate national and sub-national territories” (6)

Global production networks involve several complex interdependencies, however, these do not exist on a national scale, but on the geographical one. That is the reason why the discussion of economic geography was so important before examining the current processes within the network itself. While in the two previous models described by the authors (global commodity chains and global value chains) governance had a great role, in the new model describing global production networks, relationships are much less dependent on governance of individual states and regions. While the above models embraced a hierarchical approach, GPN models are based on interdependencies instead.

As it has already been determined by the current study in the chapter related to new geographic economies, the complexity is the key to understanding both the NEG and GPN. Both of them are dependent on logistics costs, circulating processes and other transnational influences.  Instead of focusing on lead firms’ influence, the GPN model examines the context of the industry, production, and social actors, bargaining and negotiation processes. Further, the analysis of GPN-s should involve the examination of non-economic actors’ influence on the performance of the network. Consumers, states, civil society, and labor forces have a strong influence on networks, while networks’ processes also impact the region’s non-economic actors.

There is one interesting statement that the authors make, which goes against the principle assumptions of neoliberalism. Coe et al. assume that nation states are still key actors of the global production network, as they influence political and international agreements, create regulations that influence production, trade, as well as economic agreements and collaborations. Indeed, the influence of nation-states should not be forgotten when trying to understand global production networks. While it is true that Europe’s integration has resulted in a certain level of unification related to international trade, the states are still attempting to represent their own interest. Some countries, indeed, believe that their interest are not adequately represented by the EEC, therefore, a movement has been created in the European Union that has almost ended the integrated market’s existence during the economic crisis.

Impact on the united states and great Britain

Expansion of the U.S. economy in the 1990-s, according to Kotz, was a result of embracing neoliberal approaches to international relations and economic development. The author states that after World War II, both Great Britain and the United States embraced the idea of creating neoliberal reconstruction centers. Free market has involved loosening the regulation of corporations and privatizing the vast majority of government-owned entities. A cutback in social programs also indicated the nation state’s intention to reduce its involvement in social and economic processes in the country. While temporarily (until about the 1970-s), according to Kotz, the states embraced the idea of regulating the state and social security, these initiatives of Great Britain and the U.S. were replaced with the neoliberal approach. The two countries have rediscovered the benefits of free market economies. This change of direction was a result of the stagnation of the two economies, starting in the 1970-s. Poor performance of the economy has made the countries realize that significant changes would need to be made. Looking at the neoliberal approach of Japan and South Korea, resulting in a fast growth, the countries decided to follow the path of neoliberalism. Free trade did not only increase the size of the U. S. market in the last decades of the 20^th century, but the growth of international demand resulted in GDP growth and increased consumer spending, supporting domestic companies’ profit increase. From the above review of Great Britain’s and the U.S.’ shift towards neoliberalism, it is evident that the threat of stagnation and the emergence of the “Asian Tigers” has impacted the decision of mainstream economists to embrace the “new capitalism”. While neoliberalism, as a process, is still present in these countries, defining the economic geography of the global world, the question is whether this approach, in the light of the last recession, is sustainable in the future for the two oldest capitalist centers of the world. The two main bubbles created by “deregulation” approach, founded in neoliberalism, noted by Kotz, have occurred in a context of reduced state involvement. The main driving forces: investment and consumer spending seemed to let down economists, and the lack of control made state governments (and intranational organizations) believe that spending had correlation with consumer affordability. Both the investment boom and consumption boom resulted in a recession. The question Kotz is asking, after reviewing the processes of neoliberal shift in the United States and the United Kingdom is whether the two countries can claim that neoliberalism created a “success story” or a “failure”. The author’s answer is that “neoliberal restructuring did contribute to an expansion that lasted relatively long and yielded relatively low unemployment without much inflation” (16).

The shift in eastern Europe

Coe, Dicken and Hess (20) state that “The transitional states of Eastern Europe overwhelmingly adopted neo-liberal market policies, which considerably reduced their individual bargaining power”. This statement indicates that neoliberalism has reduced the influence of power-states on economic decisions. Indeed, Eastern Bloc countries did not have much choice after the collapse of the Soviet Union: they were in debt, their resources were used and had to rebuild the countries through building relationships with countries that would be able to buy the produce in order to generate state income. These countries became dependent on the global west and had to embrace the idea of neoliberalism in order to survive.

Emergence of Asia

Gries talks about the geographic shift of world economy in the 1970-s, 1980-s. The author states that “starting with Japan in the 70s and 80s, followed by the emergence of China, Asia has become a significant part of the world economy” (1). The article also talks about influences of population and markets, bargaining and state powers, impacting economic development in the region.  The author illustrates the statement with statistical data of the world population; in 2003 only 5 percent of people lived in the United States of America, 12 percent in Europe, while 60 percent in Asia and Oceania. The article also confirms that as economies start to function, “population size rapidly transforms into economic size” (4). Economic success can only be created if the country is able to transform its potentials into related economic activities, according to Gries. This statement confirms that countries like Niger, in the example of Coe et al. cannot become a part of the economic geographies or the global production networks, as they are not able to transfer their capabilities into actionable production. Without infrastructure that supports production, it is impossible to create a successful economy. Further, in order to increase production and become a role player of GPN-s, countries need to achieve high productivity and innovative power. The author illustrates on a graph summarizing the number of patents developed in the EU, Japan and China between 1985 and 2001 the innovative power of the above countries. Lack of productivity, on the other hand, results in countries with large population living in poverty. For China and India (both with existing production capabilities and a large population) the breakthrough only arrived when they embraced innovation and the utilization of talent.

The Asian region, however, had to open up its economies to the world as well. As Gries concludes: “integration in the global economy is another precondition for being a center of importance to the world”. (8). Japan opened up its markets earlier, therefore, its integration process started in the 1980-s. When China introduced the “open door policy”, integration process started. The reason why this process was delayed for China, however, lies in factors outside of the scope of economics. While Japan was a capitalist and neoliberal country to start with, China’s state-nation and military regime, communist approach towards the economy created a distrust in the international community.

Gries, however, highlights the point when Asia started becoming an integral part of international trade, and later the GPN. The creation of Special Economic Zones marked a clear turning point in the future of Asia’s economy. It was an integration process that represented the common economic and trade interests of Asian countries. The role of the World Trade Organization in the integration process and “zoning” of the global economy should not be neglected. The broad liberalization of export and import policies has resulted in Asia’s “rapid penetration of world markets” (9). Today, according to the graph created by the author (Appendix A), “Asia has a huge trade surplus towards both the US and the EU” (10).

Uneven development

Harris examined the reasons why uneven development in GPN-s exist. Indeed, some of contributing factors have been revealed before, but it is important to look at the problem from the neoliberal aspect of the current global economy and international relations. The author states that there is a complex interdependence between economies, sectors and regions. He also states that the previous approaches of uneven development based on realist theories are not valid any more. Interdependencies indeed are present in current economies, and – as it has been revealed before -, economic, social, political, national, and geographical forces determine the rate of development. One of the methods which countries use to increase their competitiveness within the global production network is to create an integration and enter agreements that benefit their development. Those countries (and regions) where this is not possible because of the lack of capabilities, potential, resources or bargaining power, will be left behind.

The above analysis of current uneven development indicates that the influence, market power and competitiveness depend on various factors, interactions and influences within the global production network. If the author of the current study had to come up with an example and a proof that integration does support development and lack of integration reduces the region’s impact on the GPN, the example of Portugal. After 1959, the country liberalized trade and started an integration process. This was mostly manifested in trade and international agreements with the United Kingdom; the popularity of the region among British tourists has created a new market. As a result, Portugal’s GDP per head increased to 71.7 by 2000, from 39.4 in 1960. Barry 899). Nonetheless, this integration has also resulted in the increased impact of the economic crisis on Portugal’s economy in 2007. This is the reason why Palley states that there is no future of neoliberalism in global production networks any more. The above statement will be examined closely in the next part of the paper.

The future of neoliberalism

According to Palley (1), “the euro zone crisis is the product of a toxic neoliberal economic policy cocktail”. No matter how harsh and discriminative this statement looks, the fact that the European Union got close to the “edge” during the recession seems to confirm it. Palley starts his argument with the analysis of the Euro. He states that its neoliberal design has created a perfect environment for failure. He explains the sequence of the euro crisis as a four-step process. At stage one (1980-s and 1990-s), main influential European economies turned to neoliberalism. Stage two built the foundation of what the author calls “the bubble economy” through the “Great Moderation”. Stage three compromised of financial crash and private debt crisis, and today we are at Stage 4: the public debt crisis, which is likely to last for more than a few years. The U-turn towards neoliberalism resulted in a decline of wage share in GDP. While this decline was less significant in the United Kingdom and the United States, it hit Italy and Spain the most. The lack of state intervention in labor markets and economies also resulted in a higher unemployment rate. Spain’s unemployment between 1960 and 1970 stood at 2.4 percent and reached 20 percent in 2010.

The above are only examples of rationales the author discusses when he states that it is the end of the “Golden Age of Neoliberalism”. Indeed, when looking at two of the global production networks’ performance: U.S. and the European Union, unemployment rose and wage share of GDP shrunk. It is, therefore, valid to ask: does neoliberalism adequately serve the interest of states or global production network players? While the purpose of the current study is not to answer the question, it is important to reflect on the performance of the global economy during the neoliberal process of integration and the “Global Shift”

Conclusion

As Gries concludes, before global production networks and economic geographies emerged, as a result of the expansion of neoliberalism on a global scale, “the economic world was mono-centric with a periphery” (15). With the integration of the European Economic Community, a second center was created that was able to compete with the monopoly of the United States. The third shift occurred when the Far East appeared on the map of the global economic geography, due to its own integration into production and trade networks, innovation and successful utilization of potentials, turning country-based (or region-based) capabilities into production. The shift has also resulted in the Great Shift. As Gries puts it: “The emergence of a second (EU) and even a potentially third center of economic activities placed in Asia has challenged the notion of a clear hub of the world economy located in US. Global Shift stands for this fundamental change in the world map of economic activities” (16). Whether or not the model has a future and whether or not the ongoing “neoliberalization” process of the global economy can create positive results, however, remains a question.

Works Cited

Agnew. D. ‘The territorial trap: the geographical assumptions of international relations theory’, Review of International Political Economy, Vol. 1, No. 1, p53-80 1994. Print.

Ascani, A., Crescenzi, R., Iammarino, S. “New Economic Geography and Economic Integration: A Review” Search Working Paper. 2012. Print.

Barry, F. “Economic Integration and Convergence Processes in the EU Cohesion Countries” JCMS 2003 Volume 41. Number 5. pp. 897–921

Beaverstock, J. “Global Shift: 1986. Peter Dicken. In: Hubbard, P., Kitchin, R., Valentine, G. Key Texts In Human Geography. 119-125 2008. Print.

Coe, N., Dicken and M. Hess, ‘Global Production Networks. Realising the Potential’, Journal of Economic Geography, Vol. 8, p271-95 2008. Print.

Coe, N., P. Kelly and H. Yeung “Economic Geography. A Contemporary Introduction” Chs. 1-6 2006. Print.

Gries, T. “Global Shift – The European Union, the United States, and the Emergence of China”. 50 Years of EU Economic Dynamics.  p.25-45 2007. Print.

Harris, D. “Uneven Development” In: The New Palgrave Dictionary of Economics, 2 nd edition, 2007. Print.

Kotz, D. “Neoliberalism and the US Economic Expansion of the 1990s”  Monthly Review, Volume 54, Number 11, April 2003, p15-33. 2003. Print

Little, J. & Triest, R. “The impact of demographic change on U. S. labor markets” Conference Series 46 June 2001. Print.

Palley, T. “Europe’s crisis without end: The consequences of neoliberalism run amok” Macroeconomic Policy Institute Working Paper 111. 2013. Print.

Appendix A

Global Trade Flows. Adapted from: Gries, 2007, p. 10