KEY ARGUMENTS MADE BY NEOCLASSICAL AND RADICAL ECONOMISTS
In this essay, I will compare neoclassical and radical economic theories discussing differences and similarities between the two. Neoclassical theory is a study of individuals’ economic decisions and choices in the market, in the business, and in the family. Presumption of neoclassical economy is that individual economic behavior in the family or firm would be similar to this in the market. Neoclassical theory focuses its analysis on individuals: society is a large group of individuals where social outcome are the results of these individuals’ decisions (Yates, 2003, p.120). On the opposite side, radical economics believes that capitalism created a new class – wage laborers. They have to sell their labor to gain access to the means of production to be able to support themselves and their families. They create the world’s wealth. By organizing they have potential of gaining universal power, liberating themselves, and putting an end to capitalism and exploitation (Yates, 2003, pp.166-167). Karl Marx’s view is that profit maximization and growth, as well as accumulation of profit drive capitalist economy forward (Yates, 2003, p.170). Both theories agree that capitalism contribute to the economic growth and development. Based on neoclassical theory “all economic outcomes are determined by the forces of supply and demand” (Yates, 2003, p.122), because they result from individual goals to maximize profit or utility. If society was willing to allow minimum government interference in individual decision making related to economy, economic results would be optimal to the society. Since each player in the economy acts out of self-interest, the society benefits from that. Firms
address customer demand; they get paid for it by consumers willing to receive the needed product or service. On the opposite side, if the demand is low, businesses will stop offering that product or service. However, since consumers are looking to self-benefit as well, they’ll be interested in paying less for the product/service forcing businesses to look for cheaper alternatives. These alternatives could include the use of cheaper materials, cheaper manpower, more efficient processes and technologies. The result could be either or all: lowering prices, requiring less qualified workers with lower pay and potentially outsourcing the production. These actions undoubtedly benefit the development of technology, but harm local jobs. Radicalism believes that production and distribution are market-centered. Workers and employers face the market and market serves as a veil to cover capitalists’ exploitation of the working class. Moreover, Marx suggests that capitalists constantly reorganize work and labor process in order to keep control over work and how the work is done. New machinery and technology are being implemented to eliminate costly workers and replace them with unqualified and low-paid machine operators leaving workers struggling for income. In addition, globalization and global mobility allow to utilize chipper labor in the third world economies. These events lead to the savings for capitalists, to the creation of reserve labor that is hungry to work at any cost, allowing capitalists to keep exploiting at a low price and continue gaining capital. While neoclassical theory suggests that government involvement and planning are not required and the markets would regulate themselves for all participants’ mutual benefit, rapidly developing globalization demonstrates that economic interests of local communities are at risk (Yates, 2003, pp.122-123). Radicalisms suggests that capitalists re-invest their profits supporting
new development and economic growth; in its view this is possible only by exploitation of wage labor. This means that in order to develop economy, capitalism has to continue exploiting, there is no feasibility that it will help enrich or free the labor (Yates, 2003, pp.167-168). Neoclassical theory recognizes the possibility of market failures. Crises result from external shocks and events. These are situations when individual pursuit of self-interest does not lead to socially desirable outcomes. In these situations, neoclassical economists suggest that government should come to the rescue and address the issue in order to serve public interests (Yates, 2003, pp.124-126). Radicalisms has different view of crises, suggesting that they are internal and come from the process of capital accumulation. When there is less labor to exploit, profit rates would go down and vice versa. Shrinkage of labor force also makes workers more aggressive demanding for their rights, as well as less productive (Yates, 2003, p.183). Neoliberal economists suggest that poor countries open their markets to richer countries offering cheaper labor, unique agricultural products and commodities. They build better infrastructure, effective production, and implement new technologies as a result of investments. However, wouldn’t rich countries’ economies suffer as a result? Neoclassical theory is idealistic even though it provides some solutions to such issues as market failures and improvement of economy. In reality, global economy experience problems that are not limited to unemployment, underemployment, inequality, low wages, overwork, and exploitation (Yates, 2003, pp.142-145). Financial inequality exists not only between nations but also within nations. Based on neoliberal view poverty, unemployment, and inequality exist because of the ability of workers
to be productive or provide their labor for lower price. Neoclassics suggest that these issues within nations are voluntary, that people chose to be poor and unemployed. Neoclassical solution is government involvement in the form of policies to raise productivity, promotion of education and training (Yates, 2003, pp.147-148). Neoclassical theory believes that capitalism leads to freedom and democracy. Radical theory, on the other hand suggests that governments accommodate the interests of capitalists. Workers organize to gain rights and freedoms. All what they achieve is due to their own efforts, it’s not the achievement of capitalism (Yates, 2003, p.181). Neoclassical economists were enthusiasts and businessmen. Therefore, neoclassical theory is not based on facts, figures, and proper analysis. It is a powerful ideology that’s too idealistic and applies generic rules to most situations. Radical theory is based on historical analysis and says that classes (not individuals) are the building blocks of the theory, and that inequality is a basis of capitalism. Radical theory rightfully predicts that capitalism will develop all over the world. It exploits workers and is rooted into inequality. Exploitation is the only way for capitalists to enrich themselves. If workers’ movement won’t develop, inequality in income and exploitation will increase. In the support of neoliberal point on inequality, radical theory says that fullemployment economy is impossible as surplus labor and periodic crises are necessary. Workers have to fight for their rights and freedoms. Capitalism is an engine to grow economy, but the distribution of the results is never equal. The two theories ae similar in their views that capitalists’ only goal is to self-enrichment. This is done by exploiting labor or utilizing it a lowest possible cost. Theories have different
views on the crisis, the role of government and the role of labor in the economy and the society. Overall, neoliberal theory seems to be more idealistic and less factual, while radical theory is based on historic facts and deeper analysis.
Resources Yates, M. (2003). Naming the system: inequality and work in the global economy. New York: Monthly Review Press.