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Liberalization is the relaxation of restrictions, policies of a previous government. These restrictions can be in several areas including political, social and economic policies. Many times, the concept is used as deregulation. Economic Liberalization is the considered to be a crucial step in economic reform of any country. World has seen the potential of the economic liberalization in privatization. Many economies failed to stand up again after the economic recessions. Government started to privatize its properties and assets either fully or partially. Many sector such as were privatized. Low rates on corporate taxes, less foreign and domestic capital, labour market flexibility, open markets and trade restrictions etc are some of such areas.
According to the British Prime Minister Tony Blair, “Success will go to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge.”
Economic liberalization in emerging countries, such as China, India and Brazil, concentrates on opening the markets to foreign or national investors. This is the result of economic liberalization which has resulted a significant economic growth and economic stability. These countries have achieved rapid economic growth in past several years because they have liberalized their economies to the foreign capital. Today, these three countries are considered to be the fastest growing developing economies globally. While, these countries are soon going to be the key driver of global economy, many several underdeveloped countries are looking forward for such changes in their respective economies.
Government policies which promote the free trade, deregulation, elimination of subsidies, price controls and rationing systems and often the downsizing or privatization of public services are included in economic liberalization (Woodward, 1992). Economic liberalization is associated with classical liberalism. Many of the first world countries have opted for economic liberalization in past few years.
India got no other option rather than economic liberalization in 1991. The countries had to other options. The economic liberalization started in 1991. It started with economic reforms in country’s economic policies. The goal was to make a market oriented economy. It was opted to expand private and foreign investment. India had a fixed exchange rate system. Indian economy faced balance of payments problems during 1985. This resulted in a serious economic crisis by 1990. The central bank refused to new credit. This resulted in a panic situation where Indian economy could only survive for just three more weeks as the foreign exchange reserves was reduced to such an extent. As a part of a bailout deal with the IMF, India had to pledge 47 tons of gold to the Bank of England and 20 tons to the Union Bank of Switzerland.
China too passed through many such economic reforms before it could establish itself as a growing economy. The economic reforms in China started around 1978. These reforms were led in two phases. The first stage started during the 1970s. The post reform phase was around 1980s. This led to the decollectivization of the agriculture, higher rates of foreign investment and more new businesses. The second stage around 1980s and 1990s resulted in to privatization and contracting out of state owned industry. Further, it impacted the economy by making changes such as price controls, protectionist policies and regulations. The long term effect of these social reforms resulted in a 70% growth of China gross domestic product by the 2005.
Liberalization is seen as a factor of economic reform. It facilitates the economic growths by opening further ways to more flexible and responsiveness to the external markets. Many countries have taken liberalization as a key economic strategy. This is done to make their local markets open for more foreign market investments. It also forms a trade friendly environment in the markets. Trade liberalization gives relaxation in import – exports, legislation barriers. USA has the trade liberalization in its core economic policies. It is also known as external liberalization.
Examples of Economic Liberalizations
- Economic liberalization in India
- Economic Reform in China
- Soviet Union Perestroika
- Estonia, Latvia and Lithuania : Baltic Tiger
- Economic history of Brazil : 1980 and 1990
- Miracle of Chile
- Vietnam: Doi Moi
- Economy of Cuba : 1994
- Microeconomic Reforms in Australia
Many countries have suffered a huge loss to their economies due to economic recession or other such reasons. The main aim of economic liberalization includes free capital flow within the nations. The protectionist policies of the countries such as trading laws other many other trading barriers are reduced by economic liberalization.
Economic liberalization opens the door of foreign investments. As we are living in the age of economic globalization, every country invests in local markets of other countries. Doing investments in emerging markets is beneficial for both the countries. But if the countries have strict foreign investment policies, investment can be impossible. Several barriers to entry including tax laws, foreign investment restrictions, and legal issues and accounting regulations are such factors which can make the investment a difficult task to accomplish. Economic liberalization lowers down the rates of these barriers so that the way to investment opens and becomes flexible.
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