NEOLIBERALISM

Neoliberalism has been spread around the world, which made the virtues of free
markets, trade, private enterprise, and consumer choice. At the first,
neoliberalism was for fostering the economic growth. However, it turns out that
neoliberalism is the opposite of the main purpose; it brings many problems even
crises to the world. Neoliberalism is blamed as the cause of global financial crisis
happened in 2008. Moreover, IMF has just realised that neoliberalism has failed
to increase the economic growth. IMF said that neoliberalism have led to
inequality, instead of increasing the economic growth, neoliberalism has
decreased the economic growth. Actually, neoliberalism has a feature of
deregulation and liberalisation of financial market, both domestically and
internationally, it is called as free market to achieve free mobility of capital. In
addition, neoliberalism also has a feature of privatization of public services.
Hence, this regulation brought crisis in 2008 and showed that neoliberalism has
failed.

Firstly, due to the deregulation and liberalisation of financial market, which is

called as capital account liberalisation, allowing financial sectors provided a
greater amount of loans. Financial deregulation freed banks and other financial
institutions to pursue whatever financial activity would bring the highest profits.
Starting from the year of 2000, the deregulated financial sector created new
mortgage lending practices that driven a large and growing volume of borrowed
funds into the purchase of housing. So, they provide loans with lower interest
rate in order to increase the demand for housing. Banks also gave low interest
loans to home buyers who borrowed money. What is more, financial institution
such as Lehman Brother, gave high loans to unqualified individuals, people who
did not have creditworthiness.

However, these lower interest rates increased market speculations, thus, in

2006, Fed raised the interest rates to prevent inflation. The raising of the interest
rates was followed by the raising of housing prices. It had risen by 70% since
1995. In addition, the raising of interest rates made the default on their
mortgage payments. Then, banks started to foreclose the mortgage defaulted
homes but no one bought those mortgage defaulted house since the price was
high. Because of that, the price of houses fall drastically as the number of unsold
houses in the market rose sharply and most foreclosed houses were worth less
than loans meaning that banks sold houses for less than the actual amount of
loans and banks took the losses. Hence, it made banks to lose money and
become insolvent. All those sequence events made US financial market crisis in
August 2007. The defaults on subprime mortgage caused stocks of financial
institutions fall and followed by sharp decline of house building stocks.
Eventually, it brought domino effect to the entire worlds stock markets.
Secondly, the turnaround of neoliberalisms purpose is located on Greece crisis
which is the allocation of austerity measure. Due to the domino effect of Lehman
Brothers collapse, Greece has faced a tremendous economic hardship. Greece
suffered from a debt crisis. In 2010, in return for large loans, the Troika which
consists of the European Commission, the European Central Bank and the
International Monetary Fund has demanded that Greece impose harsh austerity
measures in exchange of bailout money. The main purpose of austerity measures
is reducing government budget deficit by cutting the public spending of health,
education, subsidies and public investment; increasing tax and VAT; cutting
public sector wages by 20%; cutting pension by 20%. Greeces has dramatically
decreased, but it has been a disaster in terms of healing the economy. The policy
which is cutting spending, leading to lower aggregate demand. Moreover, in
2012, those austerity measures has increasing the unemployment rate by 25%.
Studies show that, when government deficits and debts are reduced with a fiscal
consolidation of 1 percent of a countrys GDP, the long-term unemployment rate
often increases by 0.6 percentage point and income inequality grows by 1.5
percent within five years. The policy of increasing tax and cut wages could lead
to the decreasing of consumption, affecting GDP and economic growth creating a
widen inequality. Thus, austerity has become as a backfire.
Jordan Weissman argued that IMF had done a good job on realizing that
neoliberalism was failed even though it was a little bit late but it was better than
never. In my opinion, I could both agree and disagree to his argument. It should
be seen from how late is late. However, regarding to this economic condition of
all around the world, I could not strongly agree to his argument. I thought that
better never late is very appropriate for economic system. It is due to the fact
that economic system is a tool determining the success of countries in
performing economic growth. Economic system is not a game that can be tried
as long as people love, instead, economic system is the most key to drive
economic growth of around the world. As globalization in the rapid pace, both big
and small crisis in a country could affect other countries who become the trading
partners.

What they need to do is evaluating the current economic system, what are the
weaknesses and how the current economic system could be improved. They
need to improve and innovate the current economic system since the world
keeps changing due to the globalization. They need to predict the probability of
crisis that might be happened in the near future. They need to compare which
economic system is better and bringing less risk.

In addition, the turnaround that should be made is shifting neoliberalism to

Keynesian model. Keynesian model encourages government intervention to help
overcome the lack of aggregate demand to reduce unemployment and increase
growth. In here, the role of monetary policy and fiscal policy are the most
important thing to control the aggregate demand. In terms of expansionary
monetary policy, central bank has an obligation to reduce the interest rate to
stimulate economic activity. By reducing the interest rate, Keynes believed that
the consumption will increase. In addition, in terms of expansionary fiscal policy,
government has obligations to decrease tax, and increase spending in order to
raise the investment and create more job opportunity. By more control from
government, the pace of globalization could be slowdown and the capital flows
would not be so fast as before.

In brief, the lesson to learn from failure of neoliberalism should be more analysed
and examined further whether neoliberalisms purposes have paved the same
way with the actual condition happened. In order to implement a new economic
model, IMF should put more focus on analysing the real impact that might be
happened in the near future. Even, IMF was late to realize it, just hope that there
will be no more late because better never late is better.
 THE BEST CORPORATE GOVERNANCE

Building a corporation indeed needs a good corporate governance in order to

keep its existence in the market. OECD Principles describe corporate governance
as the relationship between management, shareholders, boards, and other
stakeholders involved in a corporation. Although, many people are aware about
the corporate governance, but a few understand the concept of Good Corporate
Governance. Every corporation has various stakeholders such as directors,
employees, shareholders, customers, supplier and others. These stakeholders
are important for the productivity and efficiency of a corporation. Therefore, they
deserve proper attention from a corporation, yet, there is lack of major
stakeholders involvement and contribution. However, the problem arises whether
stakeholder theory could balance the company responsibility (ethic) and the
company growth (sustainability).

The World Business Council for Sustainable Development defines CSR as the
continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and
their families as well as of the local community and society. According to this
definition, business societies have responsibilities to contribute to the
development of their employees, their families, the local community and wider
society to improve their quality of life and thus to try to ensure sustainable
economic development. The phrase continuing commitment indicates that CSR
is not a temporary issue that a company considers only in certain situations.
Rather, it is a permanent issue that should be placed strategically within the
policies and programs of companies. Thus, CSR relates to the idea of recognising
and responding to stakeholder interests, while shareholder value relates to the
idea of recognizing to shareholder interests only.
In addition, both ethics and sustainability should be integrated by understanding
the five golden rule, the most important one is the importance of business ethics.
This first golden rule could create a long-term growth for all stakeholders by
responsible for stakeholder needs. Since stakeholders hold important roles in
company, the focus on stakeholder interests could create a good brand image.
Moreover, this first golden rule could bring cost and risk reduction, both internal
and external risks. Increasing the employees knowledge by giving training will
increase the company growth since the employees have more abilities to tackle
challenges.

Therefore, stakeholder theory holds responsibility of a corporation should not

solely maximize shareholder wealth; instead, stakeholders deserve protection in
which their interests should be taken into account by managers in order to create
sustainable growth and create good impact on people and planet.