Neo-Liberal Political Economy Approach - Theories on Access and Financing Education

Theoretical and Conceptual Framework

2.2 Theories on Access and Financing Education

2.2.2 Neo-Liberal Political Economy Approach

Neo-liberal political economy approach refers to the political economy of the neo-liberalism.

While political economy simpy refers to the relationship between politics and economy; there are various meanings of the term neo-liberalism. This study does not delve into those meanings of the term rather provide a definition suitable for the demands of the study. To start with, what is liberalism? Ryan (1993; 2012) defines liberalism as a set of political theories which emphasizes at least four major things;- (a) individuals ought to be free to choose between different meaningful options in life-defining decisions; (b) society ought to be subjected to the rule of law and to democratic governance; (c) state power ought to be exercised with caution and within constitutional limits, for instance within a system based on the separation of powers, as suggested by earlier liberals such as Locke and Montesqueiu; and (d) market ought to be an institution efficient to distribution of resources. Simons, et al.

(2008:2; 2011) define economic liberalism to mean policies that reduce government constraints on economic behavior and thereby promote economic exchange (marketization) and political liberalization to refer to policies that reduce government constraints on political behavior, promote free political exchange, and establish rights to political participation:

(democratization). Galston (1991) contends that liberalism is understood as a commitment to a distinctive conception of human good and social justice. According to these views, liberalism may simply refer to liberty, democracy and human rights, limited government and the power of market.

The four aspects of liberalism are viewed through the interrelationship between politics and economy (and consequently the society). Liberalism therefore focuses on how power and resources are distributed in the society for sustainable prosperity and well-being (Mosco, 2009; DFID, 2009; Gills, 2001). This interrelationship is traced back to the origins of state.

Different theories, such as ‘Natural Theory’, ‘Divine Theory’, and ‘Social Contract Theory’, explained the relationship between politics and economy in such a way that the state assumed prodigious powers over the market. These powers were conferred naturally, divinely, or contractually. At this point state was sovereign and had control over people and their properties. The emerging economic order in the 17^th century started to challenge the powers of the state (Pijl, 2009; Nurmi, 2006; Gide, 1902). The debate started by advocating freedom of an individual in opposition to state control. Thinkers of this particular time are classified as classical liberalism (Thorsen, 2011; Clarke, 2005). Notwithstanding, liberalism is split into two main groups, such as classical liberalism – e.g. Adam Smith, Alexis de Tocueville, and Friedrich von Hayek – and neo-(modern) liberalism – e.g. John Stuart Mill, L. T. Hobhouse, and John Rawls (Ryan, 1993: 362, 364). According to Vanberg (2013: 1) liberalism within the classical liberal tradition share common core;- (a) the emphasis on individual liberty as foundational principle of desirable social order; and (b) a prima facie preferences for markets as institutional arrangements within which voluntary contracts are the principal means by which individuals coordinate their activities. For example, Adam Smith (1776:651) in his famous book, “The Wealth of Nations”, expresses that ‘every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or in order of men’. This expression conveys three messages. One, human being has freedom to pursue his/her interests. To smith, private interests through competition and greater freedom have incentives to morally reproachable behavior in which the ultimately anticipated social outcome are produced.

Hegel (1896) in his book, “Philosophy of Right”, not only propagates for free markets as ethical⁷⁶ institutions of economic order but also incorporates the concept of morality as key in economic order. He says ‘morality is self-determination’. To expand this Ver Eecke (2008:46) explains that morality is a commitment by the individual himself, and thus it is a higher form of freedom than the freedom embodied in property rights because property rights require an external enforcement. Ver Eecke’s emphasis follows Hegel’s argument; economic order (free market) educates individuals on the principle of subjectivity so that individuals follow their

76 ‘Ethic’ refers to a theory of the good and bad, right and wrong. Ethics are generally understood in utilitarianism. Utilitarianism is a doctrine that in its standard nineteenth-century formulation, directs us to produce “greatest happiness”. In its most useful modern reformulation, it is “the moral theory that judges rhe goodness of outcomes – and therefore the rightness of actions insofar as they affect outcomes – by the degree to which they secure the greatest benefit to all concerned” (Goodin, 1995: 3). To Hegel, therefore, markets are capable of producing greatest happiness in terms of quality, quantity and efficient products.

own interests. Two, markets should be left free to operate in a competitive way. The suggestion is that markets can do better in achieving efficiency, effectiveness, and quality when not interfered, especially by state controls. Caplan (2006: 185) puts that “free market is ever optimal. It is optimal from a standpoint of free, voluntary actions of all participants and in satisfying the freely expressed needs of the consumer. The government interference will necessarily and always move away from such optimum”. In other words, Hegel (1896) explains that free market is more capable, than a command economy. Generally, classical liberalism fully supports free market/trade and competition. Munck (2005: 65) recounts the economic order created by the market is deemed superior in terms of efficiency and equity compared to any deliberate or engineered form of societal organization.

Three, there must be laws of justice to observe any violations by individuals and/or private firms/corporate. It concerns the role of government. Classical liberalism limits the role of government to security purposes. For instance, Wayland (1837: 391) admits, security of persons, property, and reputation is absolutely essential both to individual happiness and individual accumulation. Classical liberalism presupposes a separation between state and market in functioning. It opposes vehemently control of state in all aspects of life including economy. Friedman (1962: 55) make it clear, “the role of the state was no longer to restrict and to tax trade, but to use all its powers to extend the freedom of trade within and beyond its national boundaries”. In addition, Wayland (1837: 391-392) expounds limitation of state power. He was against government regulation of money and belived that government has no right to prevent the exportation or importation of specie, to alter the value of money, or to fix the relative value between the precious metals. He went further saying legislature has no authority to protect business (banks) against the consequencies of their own misconduct.

Banks should be obliged to redeem their bills in specie, but otherwise not to be subjected to legislative interference. Therefore, the role of state in a free-market economy includes national defense, an impartial system of laws, and a set of public works and institutions (Bellinger, 2007: 118). Generally, classical liberalism differs from neo-liberalism in some aspects but they share fundamental assumptions on supremacy of free market. In other words, classical liberalism is a foundation of neo-liberalism. For example, Clarke (2005: 56) says the fundamental assumptions underpinning neo-liberalism remain those proposed by Adam Smith.

Thorsen (2011) defines neo-liberalism as a new ‘paradigm’ for economic theory and policy making. In that sense, it is a political program or ideology whose goals include most prominently the diffusion, deepening and preservation of constitutional democracy, limited government, individual liberty, and those basic human and civil rights which are instrumental to any decent human existance. This definition highlights two fundamentals similar to classical liberalism. These include;- (a) individual liberty; and (b) competitive markets. On individual liberty, neo-liberalism proponents are in agreement with classical liberalism. For example, Mill (1848) in his main article, “Principles of Political Economy” stands firmly for individual liberty against powers of state. His theory of liberty advocates a number of human rights such as freedom of speech, right to own property, and others. Liberty as social justice, John Rawls (1921 - 2002) in his work, “Theory of Justice” puts an emphasis on morality and fairness. Justice to him is fairness; two principles of justice are derived. First, the principle of equality establishes equal basic liberties (such as freedoms and fundamental rights) for all citizens. Second, the principle of distributive justice guarantees liberties (to all citizens) through a fair distribution of opportunities. On the other hand, a competitive market is the general argument among liberalism frameworks. Friedman (1962: 55) states that neo-liberalism rests on the elementary proposition that both parties to an economic transaction benefit from it, provided the transaction is bilaterally voluntary and informed. His argument points at free markets both national and international levels. This proposition leads to involve states around the globe. It therefore suggests free markets lead to competition hence efficiency.

Accordingly, Munck (2005: 66) states that market symbolizes rationality in terms of an efficient distribution of resources; and government intervention, on the other hand is deemed desirable because it transgresses that rationality and conspires against both efficiency and liberty. Munck provides one crucial aspect which differentiates neo-liberalism from classical liberalism. This is the aspect of government intervention in market operations. Neo-liberalism believes government intervention is necessary in the functioning of the market in order to achieve efficiency. It raises two important questions;- (a) why neo-liberalism belives government intervention is desirable; something which classical liberalism denied vehemently? (b) in what ways should government intervene market operations? The response to the first question rests on the concept of market failure. UNIDO (2008: 7) puts that “the market is a powerful mechanism of coordination and social assignment. But there are some

situations where it cannot operate well causing social inefficiencies leading to market failure and externalities.” For example, market failure appears if any of the following occurs. They include;- time-inconsistent preferences, information asymmetries, non-competitive markets, principal-agent problem and public goods. However, Stiglitz (2004: 20) once remarked, information asymmetry has impact to the government in regulation and taxation. In such circumstances, the intervention of state is required. Again, Fisk (2000: 45) in his chapter,

“The Battle for Public Goods” argues that the theory and practice of neo-liberalism has been to attack public goods, notwithstanding the fact that justice is realized by establishing and maintaining public goods.

How the government intervenes is the second question to be responded to. The most effective way of intervention is through government policies. Therefore, the government’s intervention is viewed through taxes, subsidies, wage and price controls, and regulations. For example, Mill accepts state intervention based on two grounds. One, based on utilitarian⁷⁷ grounds, the government is allowed to impose taxation. Two, legislative interventions are necessary for the purpose of animal welfare. Generally, Palley (2005: 24) concludes that contemporary neo-liberalism emphasizes the efficiency of market competition, the role of individuals in determining economic outcomes, and distortions associated with government intervention and regulation⁷⁸. The acceptance of government intervention to facilitate smooth operation of free markets has gained impetus in the contemporary world. Nevertheless, for neo-liberalism, the market is not only the most efficient way to allocate resources but also the optimum context to achieve human freedom (Friedman, 1962).

The emphasis on free markets and human freedom (liberty) has always been intact. Munck (2005: 64) says the notion of self-regulating market was at the core of classical liberalism and still is today reflected on the discourse of global neo-liberalism which is now referred to globalisation. He went further to explain that the fount and matrix of globalisation has

77 Utilitarian grounds connote ethical considerations towards political consequences. Goodin (1995: 4) explain these political consequences to be most centrally pronounced in the conduct of public life. They provide a complete political theory, a complete normative guide for conduct of public affairs. Utilitarianism recommends that people’s conduct be guided by more indirectly utilitarian mechanisms such as obeying rules of conduct or developing traits of character, themselves chosen on utilitarian bases, rather than trying to apply the utilitarian calculus directly in each instance. Arguably, self-interest inner-felt behavior of individuals is most likely a hindrance towards contributing for public goods depositing impediment to accessing the goods by the majority.

78 According to Chicago School of Economics – key figures are;- Milton Friedman, George Stigler, Ronald Coase, and Garry Becker.

undoubtedly been the global market – with emphasis on competitiveness at all levels of society and at various scales of human activity. According to Guess (2001: 76) neo-liberalism at global level is concerned with the public/private distinction primarily because of an interest in defending what it calls ‘the public sphere’ or the ‘private realm’⁷⁹ not from religious inquisition but from all kinds of intrusion. It is an ideology entrenched to protect private property in the name of liberty. Harpur (2010: 12) attributes to defining globalisation as:

“a theory of political economic practices that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by a strong private property rights, free markets, and free trade. The role of state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defense, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture.”

Adduced to, neo-liberalism is inseparable from globalisation (Saad-Filho and Johnston, 2005:

1). At a glance, the market has growned bigger at the expense of the minimal state. Goods and services have been privatized and thus financed privately. As a result, neo-liberalism converts the citizen into a consumer; the complex and empowering vision of citizenship in its classical presentation was reduced; and political notion of citizenship become banalised (Munck, 2005:

65). The query is how can market ensure equity of access to goods and services? With a particular focus on higher education, it is argued, the role it is supposed to play in the society is highly obscured. Commentators argue that free markets in higher education have greater repacursion on equity of access and consequently societal development. Massy (2004: 13, 24) in his chapter titled, “Markets in Higher Education: Do They Promote Internal Efficiency?”

remarks, in today’s environment at least; market forces themselves do not produce satisfactory results. Infact, a close look at the specifics of higher education leads one to conclude that pure market solutions do not fully serve the public interest. For example, Bergan (2005: 16) emphasizes that public authorities have some kind of responsibility in

79 Pitkin and Shumer in Pasque (2010: 15) understands public realm to mean freedom, the opportunity for action, individuality, the pursuit of glory, and relations of mutuality among peers. The private, household realm was only a means to public life. It meant necessary, production to satisfy bodily needs, shame, and absence of individuation, and relations of hierarchical domination.

higher education which should be at the very minimum extend to the make-up of the education system. Minimizing the responsibility of government in higher education affects equity of access to the education and thus creates the society of the haves and have-nots.

Generally, Stiglitz (2004: 22) once observes, “… perhaps the most noted were the controversies concerning development strategies, where the Washington Consensus policies, based on market fundamentalism with perfect information inappropriate for developed, but particularly inappropriate for developing countries – had prevailed since the early 1980s”.

Stigliz suggests that privatization policies introduced in 1980s were inappropriate in the developing countries particularly. Because, market fundamentals with perfect information are almost absent in Africa, for instance. This is shown in his earlier article tittled, “Information and the Change in Paradigm in Economics” published in year 2002. He says;-

“models of perfect markets, as badly flawed as they might seen for Europe and America, seemed truly inappropriate for developing countries like Kenya. While many of key assumptions that went into the competition equilibrium model seemed not to fit these countries. However, there are imperfections of information, the absence of markets, and pervasiveness and persistence of seemingly dysfunctional institutions such as sharecropping.

Massive unemployment characterize African cities; unemployment that cannot be explained either by unions or minimum wage laws (which, even when they exist, are regularly circumvented) p. 460.”

Deducing from Stiglitz’s observation, in Africa only a few will have access to goods and services under market models due to imperfections of information. For example, Massy (2004: 14) says “higher education markets decentralize decision making on both demand and supply side of the provider – consumer. Each participant in the market place responds to signals from other participants about the price, quality and availability of goods demanded and on offer”. Because of imperfections of information, decision making on both demand and supply side, i.e. provider – consumer become unsound. As a result, there may be underproduction or overproduction of goods (on provision) and poor quality or absence of goods (for consumption).

Marketization⁸⁰, commercialization⁸¹, commoditization⁸² or privatization⁸³ of higher education came (20^thC) as a response to development in innovation and technology. To be precise, the General Agreement on Trade and Services (GATS) included education in services to be traded in January 2000 (Tilak, 2011: 31)⁸⁴. Commoditization traditionally refers to changes in market conditions and competition leading to previously distinct brands becoming undifferentiated products⁸⁵. The greatest concern is quality, efficiency and effectiveness of services. Competition, arguably, facilitates quality of products. Consumers, as they demand for quality, are a catalyst towards efficiency and effectiveness of goods and services. This leads to consumerism tendencies. In economics, consumerism refers to economic policies placing emphasis on consumption whereas free choice of consumers should dictate the economic structures of society. In other words, consumption of goods and services is through access to the market. Undoubtedly, students become customers and universities suppliers.

Within a nation state, to take a citizen as a mere customer takes away his/her political

80 Duczmal (2006: 63) defines marketization (or liberalization) as the opening up of a market to competitive forces. Marketization may also be referred to private higher education. Private higher education connotes generally privately funded and the institutions are privately owned. In that case, public ownership does not translate automatically to state monopoly or lack of competition; nor private initiative does automatically encompass competition. This means marketization can happen in both public and private institutions. The good pattern of this is the introduction of tuition fee and competitive course programs in both public and private higher education institutions. Jongbloed (2003) defines marketization as policies that are aimed at strengthening student choice and liberalizing markets in oreder to increase quality and variety of services offered by the providers of higher education. Conclusively, marketization is broad to include privatization. Other terms commonly used to refer to marketization are commercialization and commoditification; and to some extent

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