The concept of neoliberalism is an interesting one in that, first, it is a label commonly used by its opponents rather than by its adherents. As with all such labels, the tendency for caricature may at times overtake the need for faithful rendition of the underlying idea. As the term implies, neoliberalism refers to what some view as a new form of liberalism, and what others view as a mere reassertion and ascendancy, in intellectual and policy circles, of classical liberalism. Neoliberalism has its roots in classical liberalism, which on the one hand criticized the constraints inherent in the old and dying feudal and mercantilist orders, and on the other hand advocated for political and economic freedom underpinned by a market economy based on private property rights in the form of the newly emerging capitalist mode of production.
History and Meaning
The terms neoliberal and neoliberalism have been variously used to refer to leading political exponents of the ideology, such as former U.S. president Ronald Reagan (yielding the label "Reaganomics") and former prime minister of the United Kingdom Margaret Thatcher ("Thatcherism"); particular intellectual trends, such as supply-side economics and monetarism, associated with academics such as Milton Friedman (b. 1912); intellectual traditions associated with particular institutions, such as the Chicago School (after the University of Chicago, where most of the leading proponents originated); the policy stance of particular institutions that have been crucial in promoting its policy implications, such as the Bretton Woods Institutions (the World Bank and the International Monetary Fund, yielding the "Washington Consensus"); or more forthrightly "market fundamentalism" and "neoclassical orthodoxy." In the developing world, neoliberalism emerged in the form of stabilization and structural adjustment programs (SAPs) that entailed a standard package of the above policy measures regardless of the situation in a given country.
Neoliberalism arose as a major paradigm shift facilitated by the conjuncture of a number of eventualities: persistent and intractable recessions beginning in the 1970s for which standard economic policy tools, primarily based on Keynesianism, appeared ineffectual; the impasse in economic policy at national and global levels; and the unsustainability of some welfare regimes, including those of social democracy, in the developed world in the face of recessionary trends and fiscal constraints. In the context of these developments, proponents of neoliberalism saw the state as the major constraint on the efficient operation of the market and the resuscitation of growth at both national and global levels. Accordingly, neoliberalism directed its criticism against what was seen as an overextended role of the state in the economy consequent upon Keynesianism, socialism, and social democracy. Thus the main thrust of neoliberalism entails the need to roll back the state by restricting its role to the provision of pure public goods and the need to ensure that the state provides the appropriate environment for the market to operate by protecting property rights and associated contractual obligations, facilitating the free mobility of resources within and across nations, and ensuring safety and security.
As the term is applied in the early 2000s, neoliberalism refers to an all-embracing economic and political ideology that advocates the supremacy of the market over any alternative social arrangements, viewed from both a comparative and historical perspective, in ensuring the efficient allocation and utilization of scarce resources for the maximum satisfaction of relatively unlimited human wants. The market, based on freedom of choice and respect for private property and individual rights, and underpinned by competition among producers and consumers alike, is seen as the ideal and optimal vehicle for the realization of human ends. Thus neoliberalism leads to the conclusion that individuals, rather than collectives, are the best basis for decision making and that the role of the state (or any similar collective agencies) should be limited to creating and ensuring an environment conducive to individuals freely and competitively making decisions and choosing between alternatives, thereby facilitating and consolidating the expansion of the market and protecting private property rights, and to the provision of pure public goods, which, by definition, cannot be provided for efficiently by the market. This recalls the "invisible hand" notion of the market in enhancing economic welfare articulated by Adam Smith in the eighteenth century in his The Wealth of Nations (1776).
Policy Implications of Neoliberalism
The foregoing tenets of neoliberalism are based on certain assumptions. A philosophical assumption is made that human beings are driven by self-interest (as contended by Adam Smith) and that society is best advised to accommodate this drive since the welfare of society as a whole is best maximized by ensuring that individual self-interest is promoted and satisfied. Politically, neoliberalism accepts that individuals are formally equal and that they possess civil liberties that should be respected and protected, but it insists on the recognition that individuals have different capacities and potentialities which should be allowed to flourish, even if the result is income and wealth. Indeed, inequalities are seen as a major impetus to maximizing individual self-interest because inequalities require greater exertion and effort to acquire the most from the market. The philosophical assumptions about self-interest and freely arrived-at choices under conditions of competition have been relied upon to develop mathematically rigorous economic theories aimed at demonstrating the superiority of the unfettered market as a form of economic organization. In addition, neoliberalism has extended its terrain to the analysis of political and social behavior and arrangements to justify the superiority of the market as the major guarantor of both economic and social welfare, with minimum government involvement.
Some of the key economic policy implications of neoliberalism are found in the following prescriptions, which are rigorously and uncompromisingly promoted by its proponents:
Sound macroeconomic policy: The need for what are referred to as "sound macroeconomic fundamentals" by ensuring stable and predictable prices and positive real interest rates. This requires tight fiscal and monetary policy by ensuring that budget deficits and money supply are assiduously controlled to minimally acceptable minimum levels in relation to gross domestic product. The aim here is to stabilize key indicators of the market such as overall price levels, interest rates, and the exchange rate in the belief that the ensuing stability and predictability of the indicators provide a basis for rational economic behavior and decision making for all economic agents, thereby enhancing overall efficiency.
Trade liberalization: The need for trade liberalization by reducing tariffs and non-tariff barriers and freeing the exchange rate in order to enhance competition internationally.
Labor market flexibility: The call for flexible labor markets, in particular the freedom of entrepreneurs to hire and fire workers at will and to reorganize work as needed; and, for some, the need for the free mobility of labor within and across countries.
Privatization: The need for the state to exit from productive activities that can be undertaken by the private sector by transferring ownership or management functions from the state to the private sector. Over time, neoliberals have been able to drastically circumscribe areas that are seen to be legitimate government activities, thereby expanding those areas that need to be privatized. Thus, for instance, areas such as health, education, provision of water and sanitation, security, and certain routine administrative functions such as the issuing of licenses, collection of fees and rates, issuing of fines, and so forth, have increasingly been identified as areas that need privatization.
Deregulation: The need to remove any regulations that may act as barriers or constraints to the mobility of goods and services, capital, and labor or that may interfere with the optimal functioning of firms. By the same token, it is demanded of the state that it provide an appropriate regulatory environment for the functioning of the market and the protection of property rights and contracts.
Export-oriented sectoral policies: A policy environment that is neutral in relation to export promotion or import substitution, or preferably biased through the use of narrowly targeted supply-side incentives, in favor of export promotion and integration into the global economy based on open trade and free movement of capital across nations.
The foregoing policies are also seen by neoliberals to be compatible with the increased globalization of economic activities, so that support for neoliberalism and support for increased globalization have become conjoined and indistinguishable.
Effects of Neoliberal Policies
Neoliberalism has also fostered a value chain that begins with theoretical activity in academia and various research institutions and feeds into various institutional vehicles that uphold and promote particular aspects of the neoliberal paradigm, right up to the production and reproduction of policy advisors and implementers who attempt to sustain and implement the policy implications of the paradigm at national and international levels. Neoliberalism has benefited from the support of key national and global-level corporations whose influence is exerted through their ability to shift funds instantaneously across the globe in response to changing environmental conditions, through financing various activities in the value chain and influencing policy in the government of developed countries, and through key multilateral and bilateral financial, trade, and development agencies.
The neoliberal agenda has had a tendency to effectively close out any competing ways of looking at economics and economic policy. At the political level, the promotion of neoliberalism approached tyrannical levels with some governments, such as the United States and the United Kingdom, seeing any challenge to neoliberalism as a challenge to a national way of life—and, indeed, to the protection of this way of life. This has been used as a justification to initiate campaigns for regime change in some countries. More generally, fairly effective sanctions and incentives are deployed throughout the value chain to ensure compliance with, or promotion of, the neoliberal agenda. However, neoliberalism has negatively affected large numbers of people though retrenchments, degradation of work, misuse of the environment, increased poverty, and marginalization of nationalities and households, particularly those in the non-formal sectors of the developing world, while the net social gains have been spurious and remain quite open to debate. It is clear, however, that some financiers and corporations (and some countries in the developed world) have benefited immensely.
Nevertheless, it appears that neoliberalism has peaked as its presumed benefits have become more questionable and as the ideology is challenged from a number of quarters. The empirical evidence supporting neoliberalism is mixed in the developed world and is particularly dismal in the developing world. In the developed countries, the social implications of neoliberal policies have undermined social safety nets with no viable substitutes emanating from the market. In developing economies, particularly those in Africa, the pursuit of structural adjustment and stabilization programs has not yielded the desired benefits in either inclusive or equitable growth, which should be the aim of development. In these countries neoliberalism has had the consequence of jettisoning any semblance of development or strategic planning that those countries had attempted prior to the adoption of the recent economic reforms, so that the economies are currently in dis-array. The early-twenty-first-century consensus on the creative manner in which the East Asian Tigers (Taiwan, South Korean, Singapore, and Hong Kong) combined the roles of the market and a proactive state have also done much to deflate the dogmatic opposition to the state advocated by neoliberals. At the theoretical level, the contributions arising from the new institutional economics, the economics of information, and the economics of risk and uncertainty are beginning to question neoliberal assumptions and prescriptions regarding the role of the state. And at the social and political level, global movements have arisen to challenge neoliberal policies.
In the wake of these challenges, shifts have begun to occur in the neoliberal camp in the early twenty-first century, and new syntheses of approaches have been proposed. The neoliberal agenda has begun to include welfare issues by supporting the promotion of sustainable livelihoods, social safety nets, and poverty reduction. In addition, given that neoliberal policies have tended to be unilaterally imposed, particularly in developing economies, there has been a shift to accommodating popular participation and good governance, as in the development of Poverty Reduction Strategy Papers (PRSP) associated with the Highly Indebted Poor Countries (HIPC) debt initiative of the Bretton Woods Institutions. More generally, there is less of a dogmatic stance on the nature and content of policy packages comprising economic reform initiatives, yielding what has been labeled the "post-Washington Consensus." At another level, some have worked toward synthesizing lessons from neoliberalism with those from social democracy, resulting in the proposal for a "third way." Finally, from a philosophical point of view, the assumptions underlying the neoliberal model have also been challenged, particularly as to whether methodological individualism assumed in the model, to the exclusion of other plausible assumptions that could be made, is necessarily the most appropriate or adequate assumption to guide formulation of social theories; and, if it can be contended that a particular proclivity of human beings is natural and inevitable, such a proclivity must necessarily be pandered to as a normative ideal. Thus, while as deductive theory and approach neoliberalism may appear unchallengeable and highly persuasive, its benefits are increasingly viewed as unsustainable on intellectual, philosophical, social, and political grounds.
See also Conservatism ; Economics ; Globalization ; Liberalism .
Bond, Patrick, and George Dor. "Neo-Liberalism and Poverty Reduction Strategies in Africa." Discussion paper, Regional Network for Equity in Health in Southern Africa (EQUINET), 2003.
Chomsky, Noam. Profit over People: Neoliberalism and Global Order. New York: Seven Stories Press, 1999.
Giddens, Anthony. The Third Way: The Renewal of Social Democracy. Cambridge, Mass.: Polity, 1998.
Stiglitz, Joseph. Globalization and Its Discontents. London: Allen Lane, 2002.
Guy C. Z. Mhone
"Neoliberalism." New Dictionary of the History of Ideas. . Encyclopedia.com. (October 19, 2017). http://www.encyclopedia.com/history/dictionaries-thesauruses-pictures-and-press-releases/neoliberalism
"Neoliberalism." New Dictionary of the History of Ideas. . Retrieved October 19, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/dictionaries-thesauruses-pictures-and-press-releases/neoliberalism
The term neoliberalism is used to describe a political and economic doctrine as well as a set of economic policies that have become hegemonic in the last quarter of the twentieth century. Originally coined by its proponents, the term today is usually employed by neoliberalism’s critics to refer to a set of policy prescriptions that includes an emphasis on free markets, deregulation, conservative monetary policies, the lowering of tariffs, and the privatization of state assets and services.
The term neoliberalism was first used in the 1930s and 1940s in a context in which the crisis of laissez-faire economics as well as the rise of socialism and fascism had marginalized earlier liberal projects. At a 1938 Paris meeting of concerned liberal intellectuals including figures such as Friedrich August von Hayek, Ludwig von Mises, and Wilhelm Röpke, it was argued that the rise of statism and planned economies needed to be counterpoised by a new liberal project that would reassert the values of individual and economic freedom perceived to be under siege. Following on from this meeting and inspired by Hayek’s influential anticollectivist treatise The Road to Serfdom (1944), in 1947 an international liberal think tank, the Mont Pelerin Society, was founded to further the production and dissemination of neoliberal thought. However, the neoliberal program remained marginal and overshadowed by the dominance of Keynesian economics for decades, and it was not until the 1970s, in a context of global economic crisis, that neoliberal thought gained a wider currency.
Neoliberalism is defined by a diversity of positions, including most prominently the Austrian school of economics associated with the economists Hayek and von Mises, the Chicago school strongly influenced by Milton Friedman’s 1962 doctrine of monetarism, and the German Ordoliberals, who were central in the construction of Germany’s postwar social market economy. Despite the variety of traditions, most neoliberals share key basic assumptions such as a methodological individualism, a skepticism of centralized state planning, and a belief in the greater efficiency of the market. Neoliberal thought draws on the classical liberal tradition associated with the Scottish Enlightenment and in particular on Adam Smith’s 1776 critique of mercantilism (An Inquiry into the Nature and Causes of the Wealth of Nations ) to provide a critique of twentieth-century Keynesian interventionist economic paradigms. Key to neoliberal theories is a skepticism towards the state’s ability to know, and hence to intervene in and direct, economic life. One of the most influential neoliberal thinkers, Friedrich August von Hayek, grounds his critique of state intervention in the limits and fallibility of human reason, and hence of knowledge of society as a whole. For Hayek, this necessitates a noninterventionist state and a reliance instead on a “spontaneous order” based on disaggregated and practical forms of knowledge (Hayek 1952, 1973). The market in Hayek’s framework becomes both the test and the corrective for the evolutionary development of order in society. However, unlike the classical liberal tradition, which regarded the market as a natural entity guided by an “invisible hand,” neoliberal thinkers suggest that the role of the state should be the establishment of conditions favorable to the development of a free-market economy and the avoidance of monopolies.
Neoliberal thought found its practical application in the early 1970s when an economic crisis in the form of “stagflation” increasingly cast doubt on the basic premises of the Keynesian paradigm, leading to a rethinking of received ideas regarding the relationship between the state and the economy. Starting with the neoliberal experiments in Chile in the mid-1970s by the “Chicago Boys,” a group of economists educated at the University of Chicago, and the elections of U.K. Prime Minister Margaret Thatcher and U.S. President Ronald Reagan in the late 1970s and early 1980s, neoliberal thought gained hegemony and often direct influence in policy circles. Policies associated with the welfare state and Fordist emphasis on domestic mass production and consumption were increasingly replaced by monetarist approaches, the restructuring of state services, and severe measures against trade unions. In the postcolonial world, state-led development paradigms were increasingly succeeded by “structural adjustment” policies often introduced through loan conditionalities imposed by the World Bank and the International Monetary Fund (IMF). Policies such as fiscal austerity, trade liberalization, the privatization of state functions, and deregulation became staple ingredients of policy advice from international donor agencies and the increasingly influential supranational trade and financial institutions such as the World Trade Organization (WTO), the World Bank, and the IMF. With the end of the cold war, this convergence of neoliberal policy agendas of Washington-based financial institutions became known as the “Washington Consensus.” Since the late 1990s, the hegemony of the Washington Consensus has been challenged by severe financial crises, the rise of social movements, and the elections of a number of governments with explicitly antineoliberal stances in Latin America.
Scholarly as well as nonscholarly critics argue that neoliberal policies produce increasing inequality and lead to a reduction in democratic accountability. In one of the earliest and most influential critiques, Karl Polanyi argued that economic liberalism is a utopian project that seeks to dis-embed and superimpose the economy in relation to society, which is henceforth seen as merely an “adjunct to the market” (Polanyi 1944). Most contemporary critiques of neoliberalism similarly take as their target the social consequences of neoliberal policies. Pierre Bourdieu argued that neoliberalism destroys the social solidarities associated with the welfare state and thus leads to permanent state of existential insecurity (Bourdieu 1998). One of the most influential critiques from a Marxist perspective has been provided by David Harvey, for whom neoliberalism is a project of the reorganization of capitalist accumulation in a context of economic crisis (Harvey 2005). Neoliberal policies of privatization, Harvey suggests, turn ever increasing spheres of life into new loci of capital accumulation that are ultimately in the service of the restoration of the power of economic elites. Foucauldian analyses of neoliberalism have pointed to the ways in which neoliberal projects are not simply defined by the removal of state intervention, but rather inaugurate new indirect forms of power that seek to extend the enterprise form to all spheres of life and encourage the production of self-governing individuals (Foucault 2004; Barry et al. 1996).
Neoliberalism also has been subject to critique and protest outside the realm of the academy. Movements against “neoliberal globalization,” organized in groups such as the World Social Forum, gained in strength since the 1990s. These critics argue that the globalization of neoliberalism through organs such as the WTO is undemocratic and increases global inequality through the institution and promotion of unfair trading regimes.
SEE ALSO Conservatism; Empire; Globalization, Social and Economic Aspects of; Liberalism; Liberalization, Trade; Neoconservatism; Privatization; Washington Consensus
Barry, Andrew, Thomas Osborne, and Nicholas Rose. 1996. Foucault and Political Reason: Liberalism, Neo-Liberalism, and Rationalities of Government. Chicago: University of Chicago Press.
Bourdieu, Pierre. 1998. Acts of Resistance: Against the Tyranny of the Market. New York: New Press.
Foucault, Michel. 2004. Naissance de la biopolitique [The Birth of Biopolitics]. Paris: Éditions Gallimard.
Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of Chicago Press.
Harvey, David. 2005. A Brief History of Neoliberalism. New York: Oxford University Press.
Hayek, Friedrich August von.  1962. The Road To Serfdom. London: Routledge.
Hayek, Friedrich August von. 1952. The Sensory Order: An Enquiry into the Foundations of Theoretical Psychology. Chicago: University of Chicago Press.
Hayek, Friedrich August von. 1973. Law, Legislation, and Liberty, vol. 1.: Rules and Order. Chicago: University of Chicago Press.
Polanyi, Karl. 1944. The Great Transformation: The Political and Economic Origins of Our Time. New York: Rinehart.
Smith, Adam.  2000. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: Modern Library.
Antina von Schnitzler
"Neoliberalism." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (October 19, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/neoliberalism
"Neoliberalism." International Encyclopedia of the Social Sciences. . Retrieved October 19, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/neoliberalism