The US has been leading the world economy with its model of free-market capitalism for last three decades. We have been told that, if left alone, markets will produce the most efficient and effective outcome. Because individuals know what the best way is and they are the ones who will be rewarded according to their productivity. Therefore, maximized freedom and minimized state intervention have been regarded as the most beautiful contribution to economic development.
However, not all neo-liberal countries have achieved the expected outcome, in fact, most of them resulted in big failures. The growth rates of Latin America and Africa, which had been higher than other developing nations, dropped by over 60 percent after they embraced IMF-sponsored neo-liberalism in the 1980's . Especially in Latin America, neo-liberal policies were applied in the time. The result was that Latin America's per capita GDP fell by an average 0.5 percent a year for 10 years.
Meanwhile, the growth rate of countries that state deeply intervenes its economy such as Northern Europe countries, China, Brazil and Singapore have enormously increased. Especially China's historic success along with the strong recent economic performance of Russia and several Persian Gulf states has renewed interest in the hybrid economic model. Those phenomena can’t be explained by free-market capitalism ideology.
RESEARCH QUESTION: Is the neo-liberal economy model the best for the national economy as a whole?
HYPOTHESIS: Unlike it has been believed, neo-liberal economic model is efficient in a very few cases and also can be injurious to national economy. Moreover, government interventions are not always harmful, but can be highly beneficial to the national economy.
METHODOLOGY: The main question that I have tried to answer in this paper is whether free-market capitalism is the best economic model as it is known. To examine the efficiency of free-market capitalism, I analyzed the process of economic development in several countries for last few decades including the United States, China, and Singapore and compared those countries to examine the practical influence of privatization, deregulation, and state intervention. The ideas and data have drawn from books and articles written over last ten years that are related to the topic that I try to address.
NEO-LIBERALISM AND FREE-MARKET CAPITALISM
Neo-liberalism is a set of economic policies that have become widespread over last three decades or so. It basically refers to the political movement that goes back to classical liberalism, coined by a Scottish economist Adam Smith. Adam Smith published a book in 1776, called The Wealth of Nations that argues for the elimination of state intervention in economic matters. He said, “Free trade was the best way for a nation's economy to develop.” Such ideas were liberal in the sense of no control .
Free market, privatization, deregulation, and less expenditure for social services are...