The Liberalism series, part of the Politics series

Development

History of liberal thought

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Neoliberalism

Ordoliberalism

Paleoliberalism

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Liberalism in Europe

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Neoliberalism refers to a political movement that espouses economic liberalism as a means of promoting economic development and securing political liberty. The movement is sometimes described as an effort to revert to the economic policies of the 18th and 19th centuries classical liberalism.^[1] Strictly in the context of English-language usage the term is an abbreviation of "neoclassical liberalism", since in other languages liberalism has more or less retained its classical meaning.

Overview

Neoliberalism refers to a historically-specific reemergence of economic liberalism's influence among economic scholars and policy-makers during the 1970s and through at least the late-1990s, and possibly into the present (its continuity is a matter of dispute). In many respects, the term is used to denote a group of neoclassical-influenced economic theories, right-wing libertarian political philosophies, and political rhetoric that portrayed government control over the economy as inefficient, corrupt or otherwise undesirable. Neoliberalism is not a unified economic theory or political philosophy — it is a label denoting an apparent shift in social-scientific and political sentiments that manifested themselves in theories and political platforms supporting a reform of largely centralized postwar economic institutions in favor of decentralized ones — and few supporters of neoliberal policies use the word itself. Neoliberal arguments gained a great deal of currency after the Stagflation Crisis of the 1970s, the Developing World Debt Crisis of the 1980s (which primarily affected Latin America but was felt elsewhere^[2]), and the Soviet Collapse of the early-1990s. Neoliberalism is known as compassionate liberalism in that it is to bring compassion to the people of a nation through social equality, and employment freedoms, and civil rights.

Policies Advanced by Neoliberalism

Broadly speaking, neoliberalism seeks to transfer control over the economic from the public to private sector^[3]. The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's^[4] "Washington Consensus" , a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the IMF and World Bank). Williamson's list included^[5]:

• Fiscal rectitude, meaning that governments would cut expenditures and/or raise taxes to maintain a budget surplus
• Competitive exchange rates, whereby governments would accept market-determined exchange rates, as opposed to implemented government-fixed exchange rates, as had prevailed under the Bretton Woods System
• Free trade, which means the removal of trade barriers, like tariffs, subsidies, and regulatory trade barriers
• Privatization, which means the transfer of previously-public-owned enterprises, goods, and services to the private sector.
• Undistorted market prices, meaning that governments would refrain from policies that would alter market prices.
• Limited intervention, with the exception of intervention designed to promote exports, some kinds of education or infrastructural development.^[6]

Other studies also cite the following policy changes associated with neoliberalism^[7]:

• Reduced capital controls, which involve removing governments laws that hinder or control the cross-border flow of finance
• Deregulation, the abolition or reduction of government-imposed restrictions on the conduct of business' decision-making
• Union busting policies, as unions are generally taken to be impediments to economic development by adherents of this worldview
• Export-led development, as opposed to a development strategy that emphasizes the protection of domestic industry

History

Before Neoliberalism

Arguments that stress the economic benefits of unfettered markets first began to appear with Adam Smith's (1776) Wealth of Nations and David Hume's writings on commerce. These writings were directed against the Mercantilist ideas that had been dominant during the previous centuries, and served to guide the policies of governments throughout much of the 19th century. Nevertheless, statist ideas slowly began to regain a following amongst the intellectuals that had rejected them during the early Enlightenment. While state interventionism increased towards the end of the 19th century, the Progressive Era saw an accelerated movement to re-institutionalize government controls over the economy.

With an intellectual and political foundation in place, the onset of the Great Depression and the rapid industrialization of the Soviet Union led to increased support for government economic control as a means of securing rapid industrialization.^[8] By the end of World War II, many countries decided to expand their governments dramatically.[1]

Across much of the world, the economics of John Maynard Keynes, which sought to formulate the means by which governments could stabilize and fine-tune free markets, became a highly-influential ideology. Within the developing world, several developments - among them decolonization, a desire for national independence and the destruction of the pre-war global economy^[9], and the view that countries could not effectively industrialize under free market systems (e.g., the Prebisch-Singer hypothesis) - encouraged economic policies that were influenced by communist, socialist and import substitution precepts.

An Economic Golden Age

The period of government interventionism in the 1950s and 1960s was characterized by exceptional economic prosperity, as economic growth was generally high, inflation was contained^[10], and economic distribution was comparatively equalized^[11]. This era is known as les Trente Glorieuses ("The Glorious Thirty [years]") or "Golden Age", a reference to many countries having experienced particularly high levels of prosperity between (roughly) WWII and 1973.

The System Collapses

By the late-1960s, however, the statist systems that had been instituted during the 1930s showed strains. Some of these strains can be located in the international financial system.^[12][13], and culminated in the dissolution of the Bretton Woods system, which some argue had set the stage for the Stagflation crisis that would discredit Keynesianism in the English-speaking world. In addition, some argue that the postwar economic system was premised on a society that excluded women and minorities from economic opportunities, and the political and economic integration given to these groups strained the postwar system.^[14]

Early Developments

Monetarism & the Chicago School

The policies that would be enacted by those like Pinochet, Thatcher and Reagan would in part rest on the intellectual victories of Chicago School theorists under the leadership of Milton Friedman.

Early Implementation of Neoliberal Policies by Policy-Makers

Within the context of these economic crises, political movements championing the deinstitutionalization of state economic controls gained traction. Three examples include the Chilean regime of Augusto Pinochet, the British government of Margaret Thatcher and the US administration of Ronald Reagan.

Pinochet's Chile

An often-cited early implementation of neoliberal policies followed in the Chilean dictator Augusto Pinochet's coup d'état. Pinochet's coup took place in the context of economic crisis under the government of Socialist Salvador Allende, and proposals for free market reforms are often argued to have been championed by the so-called Chicago Boys, members of the Pontifical Catholic University of Chile who had strong ties to Chicago School economists^[15]. Supporters of neoliberalism often cite to so-called Chilean miracle as an example of the positive economic benefits of free market policies.. Detractors of these changes have argued that the human costs of these changes were large.

Thatcher's Britain

Margaret Thatcher was Britain's Conservative Prime Minister between 1979 and 1990. Thatcher was elected to the Prime Minister's office while the British economy stagnated. She, along with follow Conservative Keith Joseph, sought to resolve these problems through the dismantling of Britain's elaborate government economic controls, taking a tough stance against Britain's then-striking unions (during the so-called 1978-1979 Winter of Discontent), and by the prioritization of inflation control (even at the expense of unemployment and growth).

Reagan's America

The Administration of Ronald Reagan governend from 1981 to 1989, and made a range of decisions that served to liberalize the American economy. In 1981, he fired over 11,345 striking air traffic control workers and banned them from future civil service, resulting in the de-certification of the Air Traffic Controllers union later that year. These firings heralded a period of long decline for American unions, which served as a strong political counterweight to business and other interests that traditionally support liberalization. He is also credited with policies that cut taxes for the wealthy (which was claimed to help the economy via trickle-down effects) and deregulated much of the American economy. These policies are often described as Reaganomics, and are often associated with supply-side economics (the notion that policies should appeal to producers, rather than consumers, in order to cultivate economic prosperity). The Reagan administration presided over the greatest rise in economic inequality in twentieth century American history^[16] and oversaw an enormous increase in US Debt, but his supporters credit him with overseeing a recovery from the Stagflation crisis of the 1970s and America's victory in the Cold War.

Other English-Speaking Countries

The neoliberal policies saw an early adoption in the English-speaking world. In Canada, these policies are often associated with Mulroney government. In New Zealand, these policy changes are often attributed to Roger Douglas, and called Rogernomics.

Assessments of the Reach and Effects of Neoliberalism

Neoliberalism's Reach

Neoliberal movements ultimately changed the world's economies in many ways, but some analysts argue that the extent to which the world has liberalized may often be overstated. Some of the past thirty years' changes are clear and unambiguous, like^[17]:

• Growth in international trade and cross-border capital flows
• Elimination of trade barriers
• Cutbacks in defense spending, although it is unclear whether these reductions are associated with neoliberalism or the peace dividend that was supposed to accrue at the end of the Cold War
• Cutbacks in public sector employment
• The privatization of previously public-owned enterprises

Other changes are not so apparent, and are debated in the literature^[18]:

• Reduction in the size of governments. Governments do not appear to have shrunk wholesale. With the exception of exceptionally high-spending government, the distribution of government expenditures (as a percentage of GDP) appear to have stayed the same since 1980. Most of the cuts to government spending appear to have been a temporary phenomenon that took place during the 1990s
• Social welfare spending. Governments have generally spent more on health, education, social security, welfare and housing

Criticisms of Neoliberalism

"The standard neoliberal policy package includes cutting back on taxes and government social spending; eliminating tariffs and other barriers to free trade; reducing regulations of labor markets, financial markets, and the environment; and focusing macroeconomic policies on controlling inflation rather than stimulating the growth of jobs," reports economist Robert Pollin (2003).^[19] Arising out of a rejection of the class compromises embedded in previous liberal political-economic policies, including Keynesian and Active Labour Market Policies (ALMPs), neoliberal theory, institutions, policies, and practices are not regarded as politically neutral by their opponents.

Economists remind us that free markets are theoretically efficient, not fair,^[20] and this distinction is a foundation of the critique of neoliberalism. Opponents critique neoliberalism's effects on wages, working class institutions, inequality, social mobility, working class well-being, health, the environment, and democracy. Notable opponents to neoliberalism in theory or practice include economists Joseph Stiglitz, Amartya Sen, and Robert Pollin,^[21] linguist Noam Chomsky,^[22] geographer David Harvey,^[23] the anti-globalization movement in general, including groups such as ATTAC. The economists and policy analysts at the Canadian Centre for Policy Alternatives (CCPA) offer progressive policy alternatives to neoliberal policies. In addition, a significant opposition to neoliberalism has grown in Latin America, a region that has been a target of neoliberal policies. Prominent Latin American opponents include the Zapatista Army of National Liberation rebellion, and the governments of Venezuela, and Cuba.

Critics of neoliberalism view neoliberalism as both an economic and political project aimed at reconfiguring class relations in societies. Not only have many core countries' labor aristocracy families been forced to have more than one income-earner, but workers have been so heavily disciplined by capital and the capitalist state that, as Alan Greenspan said, they are "traumatized". ^[24] Daniel Brook's "The Trap: Selling Out to Stay Afloat in Winner-Take-All America" (2007) describes the anti-democratic political effect of decreased middle class welfare.^[25] The massive U.S. military-industrial complex adds an extra layer of repression to working class "traumatization," according to David Harvey (2005), making resistance seem unfeasible to most workers. A "traumatized" working class allows the capitalist class absolute reign, which Harvey claims--citing the economic crises of 1873 and the 1920s--to be disastrous for economies around the globe, states, and working class people; though, he points out, on average capitalists were not negatively impacted by these crises.^[26]

Critics of neoliberalism sometimes refer to it as the "American Model", which they find promotes low wages and high inequality.^[27] According to the economists Howell and Diallo (2007), neoliberal policies have contributed to a U.S. economy in which 30% of workers earn "low wages" (less than two-thirds the median wage for full-time workers), and 35% of the labor force is "underemployed"; only 40% of the working age population in the U.S. is considered adequately employed. The Center for Economic Policy Research's (CEPR) Dean Baker (2006) has shown that the driving force behind rising inequality in the United States has been a series of deliberate, neoliberal policy choices including anti-inflationary bias, anti-unionism, and profiteering in the health industry.^[28] However, countries have applied neoliberal policies at varying levels of intensity; for example, the OECD has calculated that only 6% of Swedish workers are beset with low wages.^[29] John Schmitt and Ben Zipperer (2006) of the CEPR have analyzed the effects of intensive Anglo-American neoliberal policies in comparison to continental European neoliberalism, concluding "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes. Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility" than all the continental European countries for which data is available.^[30]

Critics of neoliberalism examine the political foundations of the neoliberal project as well as its economic foundations. One of the most famous moments in neoliberal political history occurred when then-U.S. President Ronald Reagan's advisors had him deregulate the thrift industry. This was promoted with the claim that a gigantic bonanza of growth and investment was sure to follow. Reagan signed the deregulation bill in 1982, saying, "All in all, I think we've hit the jackpot." Columnist Joe Conason has argued that "The best reckoning of the costs of his benign intentions is a trillion dollars." ^[31] While Reagan and the United Kingdom's Margaret Thatcher laid the groundwork for what Alan Greenspan called working class "traumatization", through eliminating collective assets by sales to the private sector, enacting policies to diminish labor unions, and promoting militarization, other politicians have steadily continued the neoliberal tradition.

According to Pollin (2003), neoliberalism under the U.S. Bill Clinton administration--steered by Alan Greenspan and Robert Rubin-- was the temporary and unstable policy inducement of economic growth via government-supported financial and housing market speculation, with low unemployment, but also with low inflation. This unusual coincidence was made possible by the disorganization and dispossession of the American working class.^[32] Berkeley sociologist Angela Davis has argued and Princeton sociologist Bruce Western has shown that the astonishingly high rate of incarceration in the U.S. (1 out of every 37 American adults is in the prison system), heavily promoted by the Clinton administration, is the neoliberal U.S. policy tool for keeping unemployment statistics low, and stimulating economic growth through maintaining a contemporary slave population within the U.S. and promoting prison construction and militarized policing.^[33]

Harvey (2005) sums up neoliberalism as a global capitalist class power restoration project. Neoliberalism, he explains, is a theory of political-economic practices that dedicates the state to championing private property rights, free markets, and free trade, while deregulating business and privatizing collective assets. Ideologically, neoliberals promote entrepreneurialism as the normative source of human happiness. Harvey also considers neoliberalization a form of capitalist "creative destruction", a Schumpeterian concept.^[34] This indicates that while neoliberalism is a critical concept with a critique of capitalist class relations, it is not strictly a Marxist concept; the Marxist term for neoliberalism is "primitive accumulation."

Harvey (2000) observes that neoliberalism has become hegemonic world-wide, sometimes by coercion. Opponents of neoliberalism argue that neoliberalism is the implementation of global capitalism through government/military interventionism to protect the interests of multinational corporations. Even neoliberal proponent Thomas Friedman has argued approvingly, “The hidden hand of the market will never work without a hidden fist."^[35] In its commitment to belligerent capitalism, neoliberalism is linked to neoconservatism. In fact other critics argue that not only is neoliberalism's critique of socialism wrong but that it cannot deliver the liberty that is supposed to be one of its strong points.^[36].

The State-centric Approach to Neoliberalism

The state-centric approach to neoliberalism concurs with the critical approach that neoliberal ideas are really just laissez-faire liberal prescriptions that overthrew Keynesianism. State-centric theorists hold that neoliberalism is "the attempt to reduce the role of the state in the market through tax cuts, decreases in social spending, deregulation, and privatization."^[37] However, the state-centric approach argues that state actors were the political entrepreneurs who formulated neoliberalism--rather than, as critics of neoliberalism would claim, capitalist political organizations, and economists and economic departments, think tanks, and politicians all supported by class-conscious capitalists. State-centric theorists argue that neoliberalism spread because it fit the voters' preferences best; they disagree in this with the critical approach, which maintains that neoliberal framing and policies were propagated by well-heeled, highly organized political machines that insisted to the public, "There is no alternative". State-centric sociologist Monica Prasad (2006) further argues that neoliberalism became dominant where labor institutions were too strong and confrontative; she claims that labor organizations and the welfare state were the strongest in the U.S. and England. In this way Neoliberalism has brought compassion to the people of the free world.

Response to Criticisms

Proponents of neoliberalism criticize the protectionist policies that were supported by advocates of mixed economies for the difficulties that these workers are enduring, as they theorize that artificially higher wages attract workers that would otherwise have been employed in other, more competitive sectors of the economy, unless Active Labor Market Policies ALMPs were in place to intervene.

Proponents of neoliberalism argue that the greatest cause of wealth disparity and class immobility is a powerful centralized State that concentrates wealth to those closest to the inner circles of political power:

Washington is all about the money, [Robert B. Reich] writes. In 2005, the Census Bureau listed seven suburban counties around the capital as among the 20 richest in the country. And it’s not just Republicans cashing in on their service. “Upon leaving office,” he notes, “more than half of the senior officials in the Clinton administration became corporate lobbyists.” ^[38]

They also point out that large corporations and individuals well-entrenched in the business world have an advantage over small startup businesses and individuals with less capital and business experience in navigating a highly regulated economy that requires high legal/accounting compliance costs to operate in.

Comparison to Other Ideologies

Neoliberalism and social liberalism are both forms of liberalism but with different purposes. Social liberalism is defined with individual and social liberty while neoliberalism is primarily based on economic liberty. There is also a difference between neoliberalism and paleoliberalism. The term paleoliberalism has been used to define those in the US Democratic Party who are strongly against free trade.

Many neoliberals have been defined as neoconservatives and vice versa. The main difference between the two groups has mainly to do with defence and foreign policy. Neoconservatives favor huge defence budgets and foreign interventions. Neoliberals are opposed to this since it leads to large deficits and debt.

The term libertarian has also been used to define neoliberals, but there are key differences between the two groups. Libertarians believe in eliminating government completely. Neoliberals believe in less government since government does need to play some role in areas such as healthcare, education, infrastructure and border security. There is also a difference on social issues. Libertarians are generally very liberal on social issues since they all support individual liberties. Many neoliberals are socially conservative.

See also

• Capitalism
• Economic liberalism
• Free market
• Globalization
• Liberalisation
• Liberism
• Libertarianism
• Market fundamentalism
• Neoconservatism
• Neosocialism
• Ordoliberalism
• Privatization

References

• Bowles, Samuel, David M. Gordon, and Thomas E. Weisskopf. 1989. "Business Ascendancy and economic Impasse: A Structural Retrospective on Conservative Economics, 1979-87." Journal of Economic Perspectives 3(1):107-134.

External links

• What is Neoliberalism? by Dag Einar Thorsen and Amund Lie of the University of Oslo
• Neoliberalism: origins, theory, definition by Paul Treanor
• A Skeptic's Guide to the Cross-national Evidence by D Rodrik, F Rodriguez. NBER Macroeconomics Annual, 2000.
• The Last Development Crusade
• http://www.richards-realm.com
• ATTAC
• "Monetarism" at The New School's Economics Department's History of Economic Thought website.
• Adam Curtis' The Trap (television documentary series) (2007) provides a critical anti-managerial view on the genesis, rise, and impact of neoliberalism. It uses a history of ideas approach to the subject.
• 'Rescuing the Middle Ground: Neoliberalism and Associational Socialism', debate between neoliberal and socialist
• IDENTITIES: How Governed, Who Pays?

Online Lectures

• The Neoliberal City, David Harvey at the University Channel