What is Liberalization?

In general, liberalization refers to a relaxation of previous government

restrictions, usually in such areas of social, political and economic policy. In
some contexts this process or concept is often, but not always, referred to as
deregulation. Liberalization of autocratic regimes may precede democratization
Economic liberalization is a very broad term that usually refers to fewer
government regulations and restrictions in the economy in exchange for greater
participation of private entities; the doctrine is associated with classical liberalism.
Thus, liberalization in short refers to "the removal of controls", to encourage
economic development.
Most first world countries have pursued the path of economic liberalization in
recent decades with the stated goal of maintaining or increasing their
competitiveness as business environments. Liberalization policies include partial
or full privatization of government institutions and assets, greater labour market
flexibility, lower tax rates for businesses, less restriction on both, domestic and
foreign capital, open markets, etc. In support of liberalization, British Prime
Minister Tony Blair wrote that: "Success will go to those companies and countries
which are swift to adapt, slow to complain, open and willing to change. The task
of modern governments is to ensure that our countries can rise to this challenge."
In developing countries, economic liberalization refers more to liberalization or
further "opening up" of their respective economies to foreign capital and
investments. Three of the fastest growing developing economies today; Brazil,
China, and India, have achieved rapid economic growth in the past several years
or decades after they have "liberalized" their economies to foreign capital.
Many countries nowadays, particularly those in the third world, arguably have no
choice but to also "liberalize" their economies in order to remain competitive in
attracting and retaining both their domestic and foreign investments. This is
referred to as the TINOA factor, standing for "there is no alternative".
For example, in 1991, India had no choice but to implement economic reforms.
Similarly, in the Philippines, the contentious proposals for Charter Change
include amending the economically restrictive provisions of their 1987
constitution.
The total opposite of a liberalized economy would be North Korea's economy
with their "self-sufficient" economic system that is closed to foreign trade and
investment. However, North Korea is not completely separate from the global
economy, since it receives aid from other countries in exchange for peace and
restrictions in their nuclear programme. Another example would be oil-rich
countries such as Saudi Arabia and the United Arab Emirates, which see no
need to further open up their economies to foreign capital and investments since
their oil reserves already provide them with huge export earnings.
The adoption of economic reforms in the first place and then its reversal or
sustenance is a function of certain factors, presence or absence of which will
determine the outcome. Sharma (2011) explains all such factors. The author's
theory is fairly generalizable and is applicable to the developing countries which
have implemented economic reforms in the 1990s.
Global Trade Liberalization and the Developing Countries
I. International Trade and the World Economy
II. The Benefits of Trade Liberalization
III. The Need for Further Liberalization of International Trade
IV. Reaping the Benefits
Recent decades have seen rapid growth of the world economy. This growth has
been driven in part by the even faster rise in international trade. The growth in
trade is in turn the result of both technological developments and concerted
efforts to reduce trade barriers. Some developing countries have opened their
own economies to take full advantage of the opportunities for economic
development through trade, but many have not. Remaining trade barriers in
industrial countries are concentrated in the agricultural products and labor-
intensive manufactures in which developing countries have a comparative
advantage. Further trade liberalization in these areas particularly, by both
industrial and developing countries, would help the poorest escape from extreme
poverty while also benefiting the industrial countries themselves.
I. International Trade and the World Economy
Integration into the world economy has proven a powerful means for countries to
promote economic growth, development, and poverty reduction. Over the past 20
years, the growth of world trade has averaged 6 percent per year, twice as fast
as world output. But trade has been an engine of growth for much longer. Since
1947, when the General Agreement on Tariffs and Trade (GATT) was created,
the world trading system has benefited from eight rounds of multilateral trade
liberalization, as well as from unilateral and regional liberalization. Indeed, the
last of these eight rounds (the so-called "Uruguay Round" completed in 1994) led
to the establishment of the World Trade Organization to help administer the
growing body of multilateral trade agreements.
The resulting integration of the world economy has raised living standards
around the world. Most developing countries have shared in this prosperity; in
some, incomes have risen dramatically. As a group, developing countries have
become much more important in world tradethey now account for one-third of
world trade, up from about a quarter in the early 1970s. Many developing
countries have substantially increased their exports of manufactures and
services relative to traditional commodity exports: manufactures have risen to 80
percent of developing country exports. Moreover, trade between developing
countries has grown rapidly, with 40 percent of their exports now going to other
developing countries.
However, the progress of integration has been uneven in recent decades.
Progress has been very impressive for a number of developing countries in Asia
and, to a lesser extent, in Latin America. These countries have become
successful because they chose to participate in global trade, helping them to
attract the bulk of foreign direct investment in developing countries. This is true of
China and India since they embraced trade liberalization and other market-
oriented reforms, and also of higher-income countries in Asialike Korea and
Singaporethat were themselves poor up to the 1970s.
But progress has been less rapid for many other countries, particularly in Africa
and the Middle East. The poorest countries have seen their share of world trade
decline substantially, and without lowering their own barriers to trade, they risk
further marginalization. About 75 developing and transition economies, including
virtually all of the least developed countries, fit this description. In contrast to the
successful integrators, they depend disproportionately on production and exports
of traditional commodities. The reasons for their marginalization are complex,
including deep-seated structural problems, weak policy frameworks and
institutions, and protection at home and abroad.
II. The Benefits of Trade Liberalization
Policies that make an economy open to trade and investment with the rest of the
world are needed for sustained economic growth. The evidence on this is clear.
No country in recent decades has achieved economic success, in terms of
substantial increases in living standards for its people, without being open to the
rest of the world. In contrast, trade opening (along with opening to foreign direct
investment) has been an important element in the economic success of East
Asia, where the average import tariff has fallen from 30 percent to 10 percent
over the past 20 years.
Opening up their economies to the global economy has been essential in
enabling many developing countries to develop competitive advantages in the
manufacture of certain products. In these countries, defined by the World Bank
as the "new globalizers," the number of people in absolute poverty declined by
over 120 million (14 percent) between 1993 and 1998.1
There is considerable evidence that more outward-oriented countries tend
consistently to grow faster than ones that are inward-looking.2 Indeed, one
finding is that the benefits of trade liberalization can exceed the costs by more
than a factor of 10.3 Countries that have opened their economies in recent years,
including India, Vietnam, and Uganda, have experienced faster growth and more
poverty reduction.4 On average, those developing countries that lowered tariffs
sharply in the 1980s grew more quickly in the 1990s than those that did not.5
Freeing trade frequently benefits the poor especially. Developing countries can
ill-afford the large implicit subsidies, often channeled to narrow privileged
interests, that trade protection provides. Moreover, the increased growth that
results from freer trade itself tends to increase the incomes of the poor in roughly
the same proportion as those of the population as a whole.6 New jobs are
created for unskilled workers, raising them into the middle class. Overall,
inequality among countries has been on the decline since 1990, reflecting more
rapid economic growth in developing countries, in part the result of trade
liberalization.7
The potential gains from eliminating remaining trade barriers are considerable.
Estimates of the gains from eliminating all barriers to merchandise trade range
from US$250 billion to US$680 billion per year. About two-thirds of these gains
would accrue to industrial countries. But the amount accruing to developing
countries would still be more than twice the level of aid they currently receive.
Moreover, developing countries would gain more from global trade liberalization
as a percentage of their GDP than industrial countries, because their economies
are more highly protected and because they face higher barriers.
Although there are benefits from improved access to other countries' markets,
countries benefit most from liberalizing their own markets. The main benefits for
industrial countries would come from the liberalization of their agricultural
markets. Developing countries would gain about equally from liberalization of
manufacturing and agriculture. The group of low-income countries, however,
would gain most from agricultural liberalization in industrial countries because of
the greater relative importance of agriculture in their economies.
III. The Need for Further Liberalization of International Trade
These considerations point to the need to liberalize trade further. Although
protection has declined substantially over the past three decades, it remains
significant in both industrial and developing countries, particularly in areas such
as agriculture products or labor-intensive manufactures and services (e.g.,
construction) where developing countries have comparative advantage.
Industrial countries maintain high protection in agriculture through an array of
very high tariffs, including tariff peaks (tariffs above 15 percent), tariff escalation
(tariffs that increase with the level of processing), and restrictive tariff quotas
(limits on the amount that can be imported at a lower tariff rate). Average tariff
protection in agriculture is about nine times higher than in manufacturing. In
addition, agricultural subsidies in industrial countries, which are equivalent to 2/3
of Africa's total GDP, undermine developing countries' agricultural sectors and
exports by depressing world prices and pre-empting markets. For example, the
European Commission is spending 2.7 billion euro per year making sugar
profitable for European farmers at the same time that it is shutting out low-cost
imports of tropical sugar.
In industrial countries, protection of manufacturing is generally low, but it remains
high on many labor-intensive products produced by developing countries. For
example, the United States, which has an average import tariff of only 5 percent,
has tariff peaks on almost 300 individual products. These are largely on textiles
and clothing, which account for 90 percent of the $1 billion annually in U.S.
imports from the poorest countriesa figure that is held down by import quotas
as well as tariffs. Other labor-intensive manufactures are also disproportionately
subject to tariff peaks and tariff escalation, which inhibit the diversification of
exports toward higher value-added products.
Many developing countries themselves have high tariffs. On average, their tariffs
on the industrial products they import are three to four times as high as those of
industrial countries, and they exhibit the same characteristics of tariff peaks and
escalation. Tariffs on agriculture are even higher (18 percent) than those on
industrial products.8
Nontraditional measures to impede trade are harder to quantify and assess, but
they are becoming more significant as traditional tariff protection and such
barriers as import quotas decline. Antidumping measures are on the rise in both
industrial and developing countries, but are faced disproportionately by
developing countries. Regulations requiring imports to conform to technical and
sanitary standards comprise another important hurdle. They impose costs on
exporters that can exceed the benefits to consumers. European Union
regulations on aflotoxins, for example, are costing Africa $1.3 billion in exports of
cereals, dried fruits, and nuts per European life saved.9 Is this an appropriate
balance of costs and benefits?
For a variety of reasons, preferential access schemes for poorer countries have
not proven very effective at increasing market access for these countries. Such
schemes often exclude, or provide less generous benefits for, the highly
protected products of most interest to exporters in the poorest countries. They
are often complex, nontransparent, and subject to various exemptions and
conditions (including noneconomic ones) that limit benefits or terminate them
once significant market access is achieved.
Further liberalizationby both industrial and developing countrieswill be
needed to realize trade's potential as a driving force for economic growth and
development. Greater efforts by industrial countries, and the international
community more broadly, are called for to remove the trade barriers facing
developing countries, particularly the poorest countries. Although quotas under
the so-called Multifiber Agreement are due to be phased out by 2005, speedier
liberalization of textiles and clothing and of agriculture is particularly important.
Similarly, the elimination of tariff peaks and escalation in agriculture and
manufacturing also needs to be pursued. In turn, developing countries would
strengthen their own economies (and their trading partners') if they made a
sustained effort to reduce their own trade barriers further.
Enhanced market access for the poorest developing countries would provide
them with the means to harness trade for development and poverty reduction.
Offering the poorest countries duty- and quota-free access to world markets
would greatly benefit these countries at little cost to the rest of the world. The
recent market-opening initiatives of the EU and some other countries are
important steps in this regard.10 To be completely effective, such access should
be made permanent, extended to all goods, and accompanied by simple,
transparent rules of origin. This would give the poorest countries the confidence
to persist with difficult domestic reforms and ensure effective use of debt relief
and aid flows.
IV. Reaping the Benefits
The failure to start a new round of multilateral trade negotiations at the WTO
conference in Seattle in 1999 was a setback for the international trading system.
Such broad-based multilateral negotiations are particularly important because
they provide an opportunity for countries to gain visible benefits for their
exporters from market opening by others. This prospect provides an added
incentive for countries to open their own markets, and to overcome opposition
from the entrenched interests benefiting from protection. In this way, the
packages of trade liberalization measures that result for these negotiations are
assured of benefiting all of the participating countries.
A new round of negotiations would raise global growth prospects and strengthen
the international trading system. The IMF considers a successful trade round to
be an important step toward meeting the goal of making globalization work for
the benefit of all.

Liberalization in Nepal: Two decade long experience
In Nepal, liberalization began in the year 2041-42 BS. It took rather full shape
after the political change of 2046 BS. The fiscal year 2048-2049 was the year
when the main foundation of liberalization was laid. Acts related to industrial
entrepreneurship, foreign investment and technology transfer were promulgated.
These laws created an environment conductive for internal and external
investment. The government prioritized privatization.
But, in hindsight, what was expected to be achieved when liberalization was
implemented as an economic policy of the country is yet to be achieved
completely. What have been achieved since the adoption of this policy forms only
a small portion of what was expected to be achieved. So far, we have witnessed
both positive and negative effects of two-decade long liberalization.
Now 21 bills and policies related to economy are waiting for being endorsed by
the parliament. Private sector claims that these laws will solve problems related
to energy, banking, investment, labor and international trade.
Dr. Ram Sharan Mahat, who was a vice-chairman of the National Planning
Commission when liberalization began and who has already become a Minister
for Finance five times is again a Minister for Finance. Initially, Dr. Mahat was of
the opinion that everything should be left to the market forces. But now he no
longer cleaves to this opinion. Now he presents himself as the proponent of the
liberalization with social justice rather than that of pure liberalization.
Now 21 out of 37 government corporations are under loss. Now it is time to
engage in serious discourse on our two decade-long liberalization experience to
ascertain the appropriate economic policy of the country which will manumit us
from the current economic malaise.


PRESENTATION ON LIBRELIZTION PRIVATIZATION
AND GLOBALIZATION
INTRODUCTION
A relaxation of previous government restrictions, usually in areas of social or
economic policy
The incidence or process of transferring ownership of business from the
public sector (government) to the private sector (business).
Globalization is often used to refer to economic globalization, that is,
integration of national economies into the international economy through
trade, foreign direct investment, capital flows, migration, and the spread of
technology
Reasons for implementing of LPG
Excess of consumption and expenditure over revenue
Growing inefficiency
Over protection
Mismanagement of firms and the economy
Mounting losses of public sector enterprises
Various distortions
Low foreign exchange reserve
Burden of national debt
Inflation

1. LIBERALIZTION:
Liberalization refers to relaxation of previous government restrictions usually in
areas and economic policies. Thus, when government liberalizes trade it is called
trade liberalization.
What made India to liberalize?
A balance of payments crisis in 1991 which put country to near bankruptcy
The rupee devalued and economic reforms were forced upon India
India central bank had refused new credit and foreign exchange reserves
had reduced to the point that India could barely finance three weeks worth
of imports
What made Nepal to liberalize?
An isolated, agrarian society until the mid-20th century, Nepal entered the
modern era in 1951 without schools, hospitals, roads, telecommunications,
electric power, industry, or civil service.
The country has, however, made progress toward sustainable economic
growth since the 1950s and is committed to a program of economic
liberalization.
Liberalization of services in the developing world
Potential benefits of trade liberalization
Opportunity for the sector to compete internationally, contributing to GDP
growth and generating foreign exchange probably the most liberalized of the
sectors
Service exports are an important part of many developing countries' growth
strategies
India's IT services have become globally competitive
Overseas companies will be attracted to invest
Improve the performance and competitiveness of domestic service providers
Economic effects of trade liberalization
Deregulation and trade liberalization began in the mid seventies
On the breakdown of the Breton Woods system of fixed exchange rates and
the turn oil associated
Post-war move in the direction of trade liberalization was the25 per cent tariff
cut of 1973.
The cut was to reduce the pressure for an upward revaluation of the dollar
Between 1981-82 and 2001-02 the average rate of protection for
manufacturing fell from 25 per cent to less than 5 per cent

2. PRIVATIZATION

Transfer of government services or assets to the private sector.
State-owned assets may be sold to private owners. The objective is often to
increase government efficiency; implementation may affect government
revenue either positively or negatively.
Privatization is the opposite of nationalization, a policy resorted to by
governments that want to keep the revenues from major industries,
especially those that might otherwise be controlled by foreign interests.
It emerges from the counter movement against the growth of government in
the West and represents the most serious conservative effort of our time to
formulate a positive alternative.
Privatization generally is believed to improve the output, profits and efficiency
of the organizations that are privatized.
Privatization is a tool of globalization
Government pursue privatization in order to promote increased efficiency,
introduce competition, expose public enterprises to market discipline,
encourage foreign investment, foster wider share ownership and raise
revenue for the state.
Advantages and Disadvantages of Privatization
Advantages:
Privatization is accurateness and commitment towards the service as the
private organizations are very much concerned about the profits they make
ultimately which depend on the quality of service being provided by them and
the public response to it.
Competition in privatization increases differentiation.
Private enterprise is more responsive to customer complaints and innovation.
Privatization generates more revenue compared to government enterprises,
thus govt can indirectly earn a bit more by leasing out enterprises to private
organizations.
Disadvantages:
The biggest threat is reliability. There is nothing that backs up the private
organizations, whereas government can back up its enterprises easily in
terms of funds. There are more chances of bankruptcy in private orgs.
Though the quality of service may be little compromised, its reliable.
Some departments need social responsibility which can be done only by
government like police department, traffic management.
Impacts of Privatization
Impacts of privatization on prices:
If privatization leads to higher efficiency and lower unit costs of production,
then an enterprise may choose to reduce consumer price.
If state-owned enterprises were being subsidized by the government, a
reduction in subsidies after privatization might result in higher consumer
prices
The privatized businesses have sold off or closed down unprofitable parts of
the business (as businesses normally do) and so services e.g. transport in
rural areas have got worse.

3. GLOBALIZATION
Process of integrating of national economies into one global economy
followed by integration of national businesses into global business.
Free Flow of factors of production like capital, labor, technology and
management across the national boarders.
A process of freeing economies
Just about free trade and investment
Intimation of economies in the world
Growing interdependence of the work people
A process of integrating culture, technology and governance
Facilitating factors for Globalization
Mulitinational Companies
Information Technology
Decreasing Logistical Costs
International and Regional Institutions
Impact of Nepalese Economy
Foreign Employment Opportunity
Foreign Direct Investment
Foreign direct Globalization
Privatization and Industrial Growth
Trade Competitiveness and Transfer of Technology
Impact on Tourism Sectors
Information Technology
Nepal Economy Cope with Globalization
Creating legal safeguards to protect thr =e domestic industry
Promoting exporting which have sustainable competitive advantage
Permitting appropriate technology & FDI
Strengthening the regional economic bloc
Developing national market &industrial capacity
CONCLUSION
Liberalization
Opportunity for the sector to compete internationally
higher efficiency and lower unit costs of production
Service exports are an important part
Overseas companies will be attracted
Privatization
Accurateness and commitment towards the service
Competition in privatization
Private enterprise is more responsive to customer complaints
Generates more revenue compared to government enterprises,
Globalization
Foreign Employment Opportunity
A process of integrating culture, technology and governance
Information Technology
Free trade and investment