effects of Neoliberalism

Has Neoliberalism Affected Strategic Management for the Better or Worse?

Whether for the better or worse, has neoliberalism had an impact on strategic management?

A Company’s Approach and the Conditions for Growth

A company’s success is dependent on the approach it takes. It is vital for a corporation to recreate the conditions needed for growth in the middle of an unpredictable and rapidly changing global environment. For economics and business, complexity management and strategic transformation are essential. This essay aims to define strategic management while discussing how organizations react to external factors at a macro level. McCabe (2010) asserts that strategy-as-practice (s-a-p) portrays power as being in management’s ownership. The power of managers to influence others is highlighted by this. This is why the act of planning should involve both formulation and implementation of those strategies in order to bring forth renewal and change. Managers play a big role as agents of change. They are inclined to certain ideologies of which form the basis of their decision making process when faced with opportunities and threats.

The Influence of Neo-liberal Policies on Strategic Management

Neo-liberal policies have created a highly uncertain external environment forcing organizations to put emphasis on strategic management. Strategic management is a planning process that involves the formulation of strategies aimed at accomplishing the missions and objectives of a company. The planning process comprises of four elements: environmental scanning, strategy formulation, strategy implementation, and strategy evaluation. Concisely, the four steps require leaders to analyze the current situation of the company, prepare the strategies, implement them, and lastly, evaluate their effectiveness. In this vein, it is important to note that organizations do not exist in a vacuum but in a complex network of environmental forces. Styhre (2014) advocates for systematic scholarly attention on neo-liberalism literature in the business school setting. An extensive research agenda should address the various intersections, co-evolutions, and co-dependencies of neo-liberal political and economic policy writings and managerial practice. It is worth noting that the expertise needed to run managerial practices tends to mystify social action in the form of neo-liberal thinking. Styhre (2014) goes ahead to contend that the institutionalization of finance theory and financialization of industry as the guiding corporate governance model has led to concentration of capital in the finance industry. Other productive investments rank low in terms of priority. Business school research should give neo-liberalism the weight and attention it deserves considering the impact it has in political, social, and economic spheres (Styre, A. 2014).

The Macro Environment and Strategic Management

An organization’s environment encompasses the conditions, relationships, events, and forces over which the organization has limited control. Broadly, the organization’s environment can be categorized into the macro environment (general environment), the operating environment, and the internal environment. In order to develop effective strategies, the process of strategy formulation requires analysis of both internal and external conditions of the organization’s environment. Previous studies have indicated the need to align the organization’s strategic decisions to its environment. Therefore, it would be true to assert that an organization ignores the macro environment at its own peril. The macro environmental forces affecting organizations can be social, political, economic, legal, or technological. In order to understand the effect of neo-liberalism on strategic management, it is necessary to study the relationship between neo-liberalism and the macro environmental forces. Liberalism advocates for the abolition of government intervention in economic matters. Adam Smith, a Scottish economist, argued that free trade was the best way for a nation’s economy to develop. “Neo” is a new kind of liberalism that differed from Victorian liberalism concerning the scale of bureaucratic centralization in government and business. Over the last 25 years, capitalist crisis, with its shrinking profit rates, inspired the revival of economic liberalism. Duménil and Lévy (2015) advanced theories on neo-liberalism through the three social orders that presented hierarchies of dominations in managerial capitalism. In the early 20th century up until the Great Depression, capitalist classes’ domination was well established. After the Great Depression, the worker’s movement advanced worldwide leading to the formation of a social order based on an alliance between managerial and popular classes. The privileges of capitalist classes and upper management diminished dramatically. Due to this surging threat, the popular class imposed more progressive social configurations. A new alliance between the capitalist and the managerial classes succeeded into the advent of neo-liberalism characterized by the sharp rise of inequality.

Neo-liberalism’s Impact on the Business Environment

In modern times, powerful financial institutions like the World Bank, the International Monetary Fund, and the Inter-American Development Bank continue to impose neo-liberalism around the world. They exert pressure through their ability to shift funds instantaneously across the globe through financing of various activities and influencing policy in developed countries. They also use key multilateral and bilateral trade, financial, and development agencies to push their agenda. Neo-liberalism affects the organization’s macro environment through policies such as structural adjustment policies. Studies have shown that neo-liberal structural adjustment policies affect the social, political, economic, legal, or technological environments in which organizations operate. Companies and organizations have limited control over the external environment; therefore, they react by changing their internal environment to fit in the system through strategic management.

The Impact of Neo-liberalism on Inequality and Poverty

The alliance between capitalists and managers directs the running of companies through the shared neo-liberal ideology. Neo-liberalism has negatively affected the majority through retrenchments, increased poverty, degradation of work, misuse of the environment, marginalization of households and nationalities while capitalists and top managers continue to expand their wealth. In this sense, Sewpaul (2013) contends that neo-liberalism has worked for the minority capitalists at the expense of the poor majority. In effect, this has deepened the gap between the rich and the poor because economic growth does not necessarily translate to a better life for the majority of people. On the contrary, the trickle-down notion of capitalism is a myth if the current statistics are something to go by. Between the years 2000-2008, for example, corporate profits rose by 70% while household incomes declined by 1%. Moreover, Duménil and Lévy (2015) argue that neo-liberalism is not meant to improve the economy but instead it is designated to redistribute wealth upward. In African countries, the IMF and World Bank have imposed pressure on governments to retrench workers as they impose what they term as structural adjustments.

The Role of International Financial Institutions

Word Bank and the IMF have applied neo-liberal economic ideology as a precondition for advancing financial assistance to countries (Shrivastava 1986). For instance, as part of their structural adjustment, they prescribe cutbacks on resource extraction/export-oriented open markets and “liberalization” of the economy. Sewpaul (2013) points out the importance of exercising caution when entering into partnerships with other economies. In South Africa, for example, there has been an “unsustainable” partnership between South Africa and China. The consequences of neo-liberal discourses and policies are evident in the social work practice. The social workers have to deal with various manifestations of inequality and poverty. The adverse effects of austerity measures are evident as China continues to trade with African countries. Secondly, the role of the state is minimized. In addition, they encourage reduced protection of domestic industries as well as privatization that further exposes local industries to unfair competition.

Neo-liberalism and Strategic Management in the Business Environment

Proponents of structural adjustment underscore the aim to promote production and resource mobilization by promoting commodity exports, public sector reform, institutional reform, and market liberalization. The program seeks to promote private sector operations, limit the role of government in the economy, and remove restrictions in the economy. The impact of this program has, however, registered dismal results. Both the internal and external business environments have reacted to the introduction of neo-liberal policies. External environmental forces can be categorized into national, regional, or international levels. The effect of these forces presents opportunities and threats to the business community. In this respect, the business community strives to grasp the opportunities as they face the emerging threats. The business community can do little to change the external environment except to react. In this regard, the reaction entails a change in their internal environment (internal business component) aimed at facing a threat or grasping an opportunity by formulating strategies. It then falls that the decision-makers must analyze the business environment if they are to formulate effective business strategy.

The Effect of Neo-liberalism on the Internal Business Environment

Neo-liberalism should be seen as a double-edged sword when it comes to its effect on the internal business environment. Firstly, neo-liberalism policies have been accused of sacrificing social and political rights in the interests of economic competitiveness. For example, studies have indicated a negative relationship between neo-liberalism and labor rights. In addition, the distribution of resources in free economies is inequitable. In the case of Australia, wage inequality was characterized by stagnation of wages at the bottom low-income persons but on the other side an expansion at the top earners. Watson (2014) asserts that the hallmark of neo-liberalism was characterized by deregulation of the labor market, the emphasis on managerial flexibility, and the decline in trade union influence. These characteristics of neo-liberalism explain the stagnation of the growth of real earnings. The dispersion of wages began in earnest once the labor government shifted from a centralized wages system to enterprise-based bargaining. Watson (2014) goes ahead to assert that political and institutional changes contributed to the growth of wage inequality. He argues that wage inequality in Austria was catalyzed by the flows of capital experienced because of deregulation of the financial sector.

The Impact of Neo-liberalism on Poor Countries

The effects of neo-liberalism on poor countries have been devastating as it has increased dependency on developed countries leading to misery. The Washington consensus and the structural adjustment policies are imposed to ensure debt repayment and economic restructuring. The impact is a big allocation of budgets on debt repayment while a low budget allocation on basic items like health, education, and development. To achieve this, poor nations are forced to export more for them to afford to pay off their debts. Having many countries facing this predicament, the global marketplace is flooded with commodities such as cash crops resulting in a large-scale price war. The resources of the poorer nations become cheaper to the advantage of the consumers in the West. In this vein, governments have to increase exports to maintain stability of their currencies and earn foreign currencies to help pay off debt. In a bid to survive, the government spends less, reduces or decreases regulations, and reduces consumption. Over time, this results in a reduction of the value of labor and increased volatility in capital flows. These nations are advised to peg their currency to the dollar which is, however, costly considering the increased interest rates. In effect, the investors’ concern about their assets and interests drives them to pull out as things get tough. For example, global financial crises of 1997/1998/1999 or in Brazil and Mexico were caused by capital flight leading to an economic collapse.

Neo-liberalism and the Global Financial Crisis

Davies (2014) observes that the global financial crisis appeared to have strengthened neo-liberalism and the experts that propagate it. State borrowing creates a crisis that leads to the dismantling of social protections and public sector institutions. Over two decades, the IMF has prescribed similar solutions to troubled third world countries. In the global financial crisis of 2007-2009 and the subsequent Great Recession, the neo-liberal policy of privatization was implemented through banking bailouts of 2008. This came at a time when there was a heightened notion that the financial sector accounted for a greater share of overall profitability. Davies (2014) asserts that there exists a neo-liberal symbiosis between the state and the corporations. Neo-liberalism extends economic techniques to areas of life that are not organized as markets. He asserts that political and economic realms should be seen to exist virtually independent of one another in order to realize laissez-faire. A person may be impoverished in the economic sense but a full citizen in the political sense. The state should therefore not interfere with market relations between private actors. It is, however, plausible for the state to regulate something like labor flows from a neo-liberal perspective.

Emphasizing Strategic Evolution in the Face of Neo-liberal Policies

In conclusion, with the advancement of technology, there is a need to put emphasis on strategic evolution considering the effects of neo-liberal policies on strategic management. The success of companies is based on how fast they can learn new rules and change with the dynamic environment. The environment created by the neo-liberal policies has put managers and companies in peculiar positions of unencumbered development, undisciplined strategy, and unconstrained growth. As discussed above, neo-liberal policies have a negative impact on strategic management based on the complex network, intersections, co-evolutions, and co-dependencies of neo-liberal political and economic policy writings and managerial practice. Knights, and Morgan (1991), propose a new approach to corporate strategy study. The concept contends that strategy has distinctive power effects on organizations and should, therefore, be addressed beyond the markets and environment content. According to the duo, “strategy as a discourse is intimately involved in constituting the intentions and actions from which it is thought to be derived. Strategy, then, is an integral part, and not independent, of the actions or practices that it is frequently drawn upon to explain or justify”.

References

Davies, W., 2014. Neoliberalism: A bibliographic review. Theory, Culture & Society.

Duménil, G. and Lévy, D., 2015. Neoliberal managerial capitalism: Another reading of the Piketty, Saez, and Zucman data. International Journal of Political Economy, 44(2), pp.71-89.

Knights, D. and Morgan, G., 1991. Corporate strategy, organizations, and subjectivity: A critique. Organization studies, 12(2), pp.251-273.

McCabe, D., 2010. Strategy-as-power: Ambiguity, contradiction and the exercise of power in a UK building society.Organization, 17(2), pp.151-175.

Sewpaul, V., 2013. Neoliberalism and social work in South Africa.Critical and Radical Social Work, 1(1), pp.15-30.

Shrivastava, P., 1986. Is strategic management ideological?.Journal of management, 12(3), pp.363-377.

Styhre, A., 2014. The influence of neoliberalism and its absence from management research. International Journal of Organizational Analysis, 22(3), pp.278-300.

Watson, I., 2014. Wage inequality and neoliberalism: insights from quantile regression. Unpublished Paper, April.