The term neoliberalism is used to characterize the dominant economic policies pursued in the United Kingdom, the United States, and some developing countries such as Chile since the late 1970s or early 1980s. It is noteworthy that during this same period governmental policies toward the support of science and technology were undergoing important critical assessments. On the one hand, the scientific community proclaimed its autonomy but, on the other, sought increased governmental support for its research. In the United States, however, the Federal Technology Transfer Act of 1986, requiring national laboratories to promote technology transfer and to promote partnerships, was part of the deregulation and privatization of government activities. During this same period, the disclosure of instances of misconduct in scientific research raised questions about the ability of an autonomous scientific community to govern itself.
Neoliberal policies, first identified with the Conservative government of Prime Minister Margaret Thatcher (1979–1990) in the United Kingdom and the Republican administration of President Ronald Reagan (1981–1989) in the United States, represented a sharp break with the so-called Keynesian consensus that had dominated both domestic and international economic policy-making from the end of World War II to the late 1970s. (The consensus was called Keynesian because it was based on the theories of the British economist John Maynard Keynes [1883–1946] and his followers.) At the heart of that consensus had been the view that, unless continually "guided" and "pump-primed" by governments, free market or capitalist economies were unable to provide either full employment or a stable pattern of economic growth. Generated as a reaction to the Great Depression of the 1930s, and reinforced by a successful experience of strong state management of economies in the war years, Keynesian theories and policies appeared unable to cope with the so-called stagflation that marked the early 1980s—the combination of high unemployment with high inflation that hit virtually all industrial economies at the end of the postwar "long boom" in the world economy.
Keynesian policies had come under criticism from a minority of economists even before the stagflation period. Such policies were seen as having encouraged strong structural inflexibilities and rigidities in market economies, rendering them both less technologically and commercially innovative than they would otherwise have been, and making them particularly vulnerable to problems of inflation as productivity increases failed to keep pace with increases in wages and other costs. Such critiques had not been very politically effective previously, but became more so when the chronic inability of all industrial economies to absorb the 1970s oil price increases—and the double-digit inflation and sharply reduced profit rates that arose as a result in most of them—seemed to confirm the very "rigidity" and "inflexibility" of which opponents of Keynesianism had warned (Armstrong, Glyn, and Harrison 1984).
Neoliberalism involves a crucial reversal of the fundamental policy premise of Keynesianism. For Keynesians the fundamental problem of free market or capitalist societies was the possibility and actuality of "market failure" and the need for state intervention to prevent or correct such failures; for neoliberals the fundamental problem is that state interventions in markets fail far more frequently than they succeed, or even when they do succeed in their particular policy goals (such as full employment) have unanticipated consequences in other areas of market functioning—consequences that ultimately undermine their supposed successes. Neoliberals therefore return to the fundamental premise of Adam Smith's Wealth of Nations (1776): that economic policy should, in general, err on the side of laissez-faire, of "letting alone," of allowing "market forces" to function unimpeded by state action—unless there is some very strong reason not to do so. Their fundamental policy premise therefore is that in capitalist or market economies "state failure" is a much greater problem and danger than "market failure." According to John Williamson (2002), the only "strong reasons" that neoliberal economists will usually countenance as justifications for state action are the enforcement of legal contracts (requiring a judicial system and a police force) and the requirements of state external defense (requiring a state-funded military apparatus).
Because of its reversal of Keynesian policy premises and of the "burden of proof" for state intervention, neoliberalism undoubtedly received an enormous political impulsion from both the collapse of communism in the USSR and Eastern Europe in the early 1990s and the failure—or perceived failure—of the state-led economic development (often referred to as import substitution industrialization) that dominated many parts of the Third World from the 1960s through the 1980s. Both phenomena could be seen as classic examples of "state failure"—of the failure of state-dominated economic policies to generate economic innovation and development and to raise mass living standards—relative to the performance of more "free market" economies (Stiglitz 2002). Neoliberal economists and policymakers are particularly given to seeing the success of economic development efforts in certain parts of the former Third World—in China and East Asia most notably—as examples of "free market" success. This neoliberal view of the so-called Asian Tiger economies, or newly industrializing economies, however, has been strongly contested by opponents of neoliberalism, as described further below.
Questions arise about the originality of neoliberalism—and in particular about its relationship to classical nineteenth-century economic liberalism. Some analysts have denied that neoliberalism, as an economic doctrine, is in any way original, and have seen it simply as a return to the fundamental laissez-faire policy premises of both the classical and neoclassical economists of the nineteenth century. Others have denied this and sought to justify the prefix neo in a variety of ways: neoliberals are much more concerned with market exchanges, and in particular with legally guaranteed ("contractual") monetary exchanges of goods and services, than were their nineteenth-century predecessors who (so the argument goes) were much more concerned with "real," "material" production processes and with monetary exchanges only as a part or aspect of these real processes (Treanor Internet article). Neoliberals are "neo" precisely because they are in general more politically conservative, especially on social issues, than their nineteenth-century predecessors, who were politically as well as economically liberal (Shah Internet article). They are neoliberals because they are generally more nationalistic than classical nineteenth-century liberals. It has even been argued, that, in practice, neoliberals actually support disguised modern forms of "mercantilist" economic policy (the kind of nationalistic economic policy expressly attacked by Adam Smith). They do so because, so it is alleged, they use "free market" and (especially) "free trade" ideas to justify and reinforce the economic power and domination of the rich nations of the world—especially the United States (Shah Internet article).
None of these justifications of the neo prefix seem especially convincing for two reasons. First, all these characterizations come from neoliberalism's opponents. In fact, with very rare exceptions (DeLong Internet article), economists and politicians who are referred to by their opponents as neoliberals do not use this term themselves. Generally speaking, people who are tagged as neoliberals refer to themselves simply as "conventional economists" or "believers in free markets" or even "economic pragmatists." Second, all the above justifications are empirically doubtful, in the following ways:
- If modern neoliberals can be attacked as disguised economic nationalists or even as apologists for economic imperialism, then so can classical nineteenth-century liberals (and especially British liberals) (Kitching 2001).
- Although some neoliberals are undoubtedly very nationalistic (Thatcher comes immediately to mind), others seem just as "globalist" or "internationalist" in their outlook as any nineteenth-century liberal, and have indeed not infrequently been attacked for justifying or defending "free trade" policies that lead to job losses in the United States, Europe, or elsewhere.
- While it probably is true that modern economic theory in general is even more "abstract/mathematical" and "monetary-exchange" oriented than its nineteenth-century predecessors, this is probably much more a reflection of the changing structure of capitalist markets in the contemporary period than a mark of any major theoretical or ideological shift.
- While some neoliberals may be politically or socially conservative (Thatcher again comes to mind, along with her economic "guru" Friedrich Hayek and the American economist Milton Friedman), a number of others are almost anarchistic in their support for "free individual choice" in social issues. Others, still tagged "neoliberal" by their opponents, are in fact advocates of a rather wider range of state interventions (often on social or equity grounds) than the majority of market-oriented economists. Joseph Stiglitz (2002, 2003), former chief economist of the World Bank, frequently espouses such "modified Keynesian" views now, as does the neoliberal (or former neoliberal?) trade economist Paul Krugman.
On balance then it seems most accurate to ignore the neo prefix or to see it as simply a synonym for new or, perhaps better yet, for revived. Neoliberalism is in fact simply a revived form of nineteenth-century "free market" economic liberalism adapted in specific ways to the changed economic context of the late twentieth and early twenty-first centuries, but not theoretically or ideologically new in its fundamentals. Insofar as part of the changed economic context involves the increased importance of science and technology, the proper relation between science, technology, and economic liberalism is one neoliberalism issue.
Merits and Demerits
Neoliberalism's merits include:
- Its acute, and to a large degree empirically accurate, analysis of the severe shortcomings of state economic policymaking both in the former communist countries and in many parts of the Third World. In particular, neoliberals have revealed the very peculiar cultural assumptions about the values and actions of state power holders that were built into Keynesian economics and into the Keynesian-influenced "development economics" of the 1950s to 1970s. Working in a European context Keynes and his followers felt able to ignore classically Smithian questions about the corruptibility of state power holders. But there are many parts of the world where such questions cannot be ignored, or are ignored only at the peril of total policy failure. Neoliberalism seems most justified when arguing, in line with Adam Smith, that free markets should be preferred to state economic policy-making in many contexts not because the former are perfect, or even near perfect in their results, but because they are less radically imperfect (in social and political, as well as economic, terms) than the only alternative can offer (DeLong Internet article).
- Its insistence that mass standards of living can rise substantially only in countries and societies that have a dynamic involvement in world trade. Neither attempted economic autarchy nor attempts at minimization of involvement in the world trade system can or will lead to anything other than economic stagnation and impoverishment. Moreover, this is true even when the pattern of world trade is "biased" or "distorted" in various ways in the interests of strong or dominant nations and economic interest groups (Mandle 2003).
Neoliberalism's principle weaknesses are:
- A chronic inability to grasp that human activities and interactivities that in one intellectual framework may be termed "economic" can equally well (and equally accurately) in another intellectual framework be conceived as "social" and/or "political." This is a weakness built not into neoliberalism specifically but into economics as such, as an intellectual discipline. The most common confusion in which it results is the supposition that because there are processes in the real world that are "simply" or "purely" economic (and not "social" or "political"), governments and states can then also make and implement policies that are "purely" economic (and not "social" or "political"). But this is a delusion. All economic processes are simultaneously social and/or political, and all economic policies have social or political dimensions or aspects. Significantly it is those economists who, for one reason or another, transcend their training enough to grasp this, and grasp it firmly, who usually move to become "modified" or "critical" neoliberals (Stiglitz, Krugman, and J. Bradford DeLong, for example, all fall into this category).
- A tendency for neoliberal economists in particular to ignore the less than optimal political context in which current capitalist markets operate in the developed as well as the underdeveloped world. These include: protection or subsidization of special-interest groups for domestic electoral reasons (Stiglitz 2003); global economic regulatory bodies whose functioning is hamstrung by the insistence of powerful states that such interests be protected (Stiglitz 2002); the political "muscle" of large international firms and the way this effects their competitive behavior; and above all the socially polarizing and politically destabilizing effects of market-produced inequalities. Neoliberals most frequently justify their ignoring of such issues by claiming that these are "social" or "political" issues (and not "economic" ones) and therefore beyond their compass. Such weaknesses lead to allegations that neoliberalism is simply a justifying ideology of "capitalist imperialism" and in particular of the rich capitalistic elites of the Western world (Martínez and García Internet article). Though such allegations are an oversimplification, they are perfectly understandable given the obtuse or "head-in-the-sand" behavior described above. In addition,
- If one accepts the "anti-neoliberal" account of the success of the Asian Tigers, viz. that these economies developed through carefully and cleverly state-guided forms of industrialization and trade policy (Wade 1990, Amsden 1989), then it follows that the powerful "minimalist" argument for the market over the state, though it may hold in many cases, does not hold in all. This opens up the possibility that the difference between countries that successfully develop economically and those that do not is not a simple difference between those that are market oriented and those that are state oriented in their economic philosophies and policies. Rather it is simply a difference between those that make appropriate and effective state economic policies and those that do not.
Finally, the degree to which successful economic development can be explained solely as a free market phenomenon, questions arise about the productive importance of science and technology. It would be interesting to known whether different levels of public and private investments in science and technology among countries with similar liberal economic policies can be associated with different rates of economic growth.
Amsden, Alice H. (1989). Asia's Next Giant: South Korea and Late Industrialization. New York: Oxford University Press. Excellent empirical and theoretical account of South Korea's industrial "miracle," emphasizing both the domestic and international political background to this success.
Armstrong, Philip; Andrew Glyn; and John Harrison. (1984). Capitalism since World War II. London: Fontana. Compendious account of post-war capitalism utilizing a mass of statistical material and an extremely original theoretical framework.
Kitching, Gavin. (2001). Seeking Social Justice through Globalization: Escaping a Nationalist Perspective. University Park: Pennsylvania State University Press. An account of globalization sympathetic to the economics of the neoliberal view but highly critical of its social and political perspectives.
Krugman, P. (1997). Pop Internationalism. Cambridge, MA: MIT Press. A very good defense of neo-liberal free trade doctrines written to be readily comprehensible to the non-economist.
Mandle, Jay R. (2003). Globalization and the Poor. New York, Cambridge, UK: Cambridge University Press. Takes a rather similar theoretical view of globalization to Kitching but focuses much more tightly and empirically on the issue of poverty.
Stiglitz, Joseph E. (2002). Globalization and Its Discontents. New York: Norton. Excellent critical account of the workings of the World Bank and the International Monetary Fund in the current global economy, by a former "insider."
Stiglitz, Joseph E. (2003). The Roaring Nineties: A New History of the World's Most Prosperous Decade. New York: Norton. Stiglitz's most forthright condemnation of the application of neoliberalism to U.S. domestic policy-making.
Wade, Robert. (1990). Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press. Probably the most well-known text arguing that the success of the Asian tigers is not a vindication of free market economic doctrines.
DeLong, J. Bradford. "'Globalization' and 'Neoliberalism.'" Available from http://www.j-bradford-delong.net/Econ_Articles/Reviews/alexkafka.html.
Martínez, Elizabeth, and Arnoldo García. "What Is Neoliberalism?" CorpWatch. Available from http://corpwatch.radicaldesigns.org/article.php?id=376.
Shah, Anup. "A Primer on Neoliberalism." Available from http://globalissues.org/TradeRelated/FreeTrade/Neoliberalism.asp.
Treanor, Paul. "Neoliberalism: Origins, Theory, Definition." Available from http://web.inter.nl.net/users/Paul.Treanor/neoliberalism.html.
Williamson, John. "The Washington Consensus as Policy Prescription for Development." World Bank, 2002. Available from http://www.worldbank.org/etools/bspan/PresentationView.asp?PID=1003&EID=328. All the above are relatively brief, readily accessible but moderately sophisticated Internet discussions of neoliberalism. Only DeLong's piece, however, is totally free from any kind of axe grinding.
NEOLIBERALISM.GLOBAL STRUCTURAL TRANSFORMATION SINCE THE 1970S
CONSEQUENCES OF NEOLIBERAL CONSOLIDATION
Neoliberalism is a set of economic policies that have become widespread since the last quarter of the twentieth century. However neoliberalism is not just about economics; it is a social and moral philosophy too. It is, in brief, the desire to intensify and expand the market mechanism to all areas of life. The emergence of neoliberalism is associated with the way in which a new social formation has arisen out of the liberal international order established by the Bretton Woods Conference near the end of World War II. This will be done here, first, by establishing the key features of global structural transformation as they have taken shape since the late 1970s, and second, by identifying the political consequences of this transformation. For many, neoliberalism is often seen as the driving force behind, if not directly synonymous with, the effects of contemporary globalization. Thus contemporary globalization is characterized by two interlinked processes: the material transnationalization of finance and production; and the ideological movement toward neoliberalism. Changes in material factors have been mirrored by a transformation in ideas and thinking with neoliberalism replacing Keynesianism as the dominant paradigm of economic policy. This is driving, and driven by, what Stephen Gill has termed disciplinary neoliberalism, illustrated through the interplay among the international and domestic structures and institutions of the global political economy. This interaction among ideas, institutions, and material capabilities is crucial in attempting to understand the changes that have occurred since the 1970s as a distinct constellation of neoliberal practices, techniques, and modes of organization in the global economy.
To begin to make sense of the emergence of neoliberalism, we must go back at least to the 1970s. The crises of Fordism, the Keynesian welfare state, and the oil price rises of the 1970s, in tandem with new transport, communication, and information technologies, were the catalysts for the rapid internationalization of financial and production capital. Successive state-led liberalizations and deregulations have subordinated national economies to the discipline of the market and the global economy. The process that emerged in response to the crisis resulted in the triumph of neoliberalism. The key feature of the postwar order was the compromise between economic liberalism and national intervention that John G. Ruggie terms embedded liberalism. Embedded liberalism consisted of two main characteristics: first, broad agreement on multilateralism and tariff reduction that, through the General Agreement on Tariffs and Trade (GATT) negotiations, encouraged free trade; and second, national governments maintaining capital controls and the right to intervene to ensure domestic stability. Embedded liberal hegemony was based on a Fordist regime of accumulation that rested on the organization of social relations of production at a national level, characterized by mass production of consumer goods and mass consumption. The architects of this system were critical of money capital and sought articles in the International Monetary Fund (IMF) agreements to reduce the role of cross-border capital flows to lubricants of international trade and the movement of factors of production. Speculative movements of capital were considered to be profoundly destabilizing. Finance was, according to the U.S. Treasury, to be the servant rather than the master of production. However, the original intentions for imposing state control on international finance were diluted by financial interests associated with Wall Street and their counterparts in Europe.
The embedded liberal world order, based on compromise, corporatism, and Keynesian macroeconomic management, was hegemonic at its core, with left- and right-wing extremism marginalized and the political center consolidated. The balance between these forces began to break up during the 1970s in response to the recessions of the late 1970s and early 1980s that provoked a mercantilist reaction throughout the capitalist world. The recessions helped to activate a reappraisal of the role of the public sector and of the correct mix of intervention and market in the economy. The relationship between developed and developing states was recast, and with accelerating declines in real commodity prices and high interest rates, indebted nations were forced to turn to the IMF. The IMF prescription was to press for liberalization and the curtailment of the public sector. In the short term, the recessions had a purgative effect associated with a downswing in the business cycle, promoting a general restructuring of capital and capital-labor relations. The recession and the links between different aspects of global restructuring facilitated the material and ideological reemergence of U.S. hegemony with the boom of 1982 under President Ronald Reagan. The combination of financial stimulus through expanded military expenditure and supply-side tax cuts stimulated investment and improved productivity and competitiveness in certain sectors of the U.S. economy. Reagan's stress on a "strong America" complemented the deregulation of industry and banking, tax cuts, attacks on union power, and the speculative short-term mentality in the United States. By the late 1980s the United States appeared to have succeeded in restructuring the major sectors of its economy more successfully than elsewhere, especially Western Europe.
Key to the neoliberal triumph was the propagation of monetarism in policy circles. (Largely unpopular since the 1920s, monetarism continued to attract the support of some economists, journalists, and government officials, particularly in the United States and Britain, reemerging after 1945 in a number of private international groups such as the Mont Pelerin Society inspired by Friedrich Hayek and Milton Friedman.) By making money scarce, the monetarists argued, inflation could be combated and sound microeconomic reasoning could be forced upon state and society as a whole. As the 1970s crisis deepened, monetarist arguments grew more convincing, winning over more and more influential bodies. Crucial neoliberal victories were scored in Chile (with the rise to prominence in 1975 of General Pinochet's regine) and Britain (with Prime Minister Margaret Thatcher's emergence in 1979). A significant turning point came in 1979 when Paul Volcker was appointed chairman of the U.S. Federal Reserve Board and initiated a strict monetarist regime that drove up real interest rates in the United States and in the world economy. This rapid shift toward monetarist policies resulted in moves away from the preceding corporate-liberal pattern to an individualist one in which the interests of mobile capital were predominant. Stock ownership was popularized through privatization, and bank profits increased relative to those of industry. Investment banking and financial services became the leading sectors. In reaction to the Keynesian corporate-liberal consensus of the post-1945 years, neoliberalism ushered in an era extolling the virtues of the free market and the withdrawal of the state from the management of the economy. The core neoliberal values of liberalization, privatization, deregulation, and internationalization and the new individualist ethic, so memorably captured in Thatcher's 1987 statement that "there is no such thing as society," eclipsed traditional forms of social democracy. Since then agents such as the World Economic Forum and others have carried forward the neoliberal agenda.
The rise to hegemony of neoliberalism during the 1970s and 1980s occurred primarily in the developed capitalist parts of the world if not globally. However, since the crisis of the 1970s, a range of other states have subscribed to the neoliberal project. These neoliberal projects have taken a number of different forms—salinismo in Mexico, "shock therapy" in Poland, Reaganomics in the United States, or Thatcherism in Britain—but they have all been characterized by the state's attempt to engender processes of depoliticization, liberalization, and deregulation, forcing adaptation in areas including labor relations, competitiveness, welfare, and corporate governance. While these policies might not eliminate differences in the face of local or national "embeddedness" and "path-dependency," there are progressively more common global and regional neoliberal forces at work and a common direction of change. In an abstract sense neoliberalism is the outcome of liberal internationalist representations of cosmopolitan money and industry capital that has outgrown its national confines. The paradigmatic scale of operation of industrial capital in the early twenty-first century is global in tendency. Simultaneously there is the relative disintegration of national state frameworks into a multiplicity of local and regional frameworks. However, these projects or programs are never simply put into practice: they are shaped and continuously reshaped in a process of struggle, compromise, and readjustment. The ultimate goal is, therefore, to decompose labor within national spaces, facilitating to the fullest degree possible the capability of capital to perform in a vision of a truly competitive world market in which capital has complete access to the global population and is able to compete in the labor market for its means of reproduction on a global scale. Despite the toll such a strategy exacts upon the populations of states, whether in the form of increased job insecurity or the ratcheting down of welfare regimes, neoliberal state policies are increasingly presented as "common sense" and necessary because "there is no alternative."
The outcome of this common sense has been the global consolidation of neoliberalism, and not just in the advanced industrial states. Any notion of an alternative to the rule of footloose global capital has become unrealistic and discredited as neoliberal changes have been locked in and normalized. Since the collapse in 1989–1990 of existing state socialism as the only alternative economic and social system, any incentive for capitalists in the West to accommodate workers has disappeared, and instead, the opportunity for carving out ever greater political space for the radical overhaul of the structures of postwar corporate liberalism has materialized. The strategy that has emerged is, as noted above, centrally concerned with the depoliticization of the economy and society by the weakening and, where possible, removal of historically accumulated forms of social protection. Existing forms of non-market coordination and state regulation have been abandoned as enterprises have been encouraged or, indeed, compelled to look to their own devices rather than to the state. Collective organizations such as unions have been weakened, and ever-increasing amounts of discipline have been enforced through the direct dependence on profit as the sole means of accounting for or evaluating successful employment or economic development. Demands on public services are resisted on the grounds of the need to reduce state spending to increase competitiveness.
These main characteristics of what has become a global consensus regarding the requirements and necessities of the world economy within a common ideological framework have been translated into a general interest. The implications are far-reaching. To theoretically grasp the new structure of the global political economy and the nature of neoliberalism, a convenient point of departure is Robert Cox's concept of the internationalization of the state. Cox analyzes the mechanisms for maintaining hegemony in the era of Pax Americana and argues that the internationalization of the state is associated with the expansion of international production and the process through which "the nation state becomes part of a larger and more complex political structure that is the counterpart to international production" (p. 253). In this process of change the internal structures of states are adjusted so that each can best transform the neoliberal global consensus into national policy and practice. At the apex of this emerging global structure is the transnational managerial class situated in the higher echelons of the Trilateral Commission, the World Bank and IMF, and the Organisation for Economic Co-operation and Development (OECD). The members develop a common framework of thought and guidelines for policies that are disseminated through the process of the internationalization of the state. In peripheral areas the financial power exercised by the IMF and the World Bank, which was intensified after the debt crisis of the 1980s, serves to impose or restore the discipline of the market where it is lacking or weakening. The collapse of the Soviet Union and the subsequent transformation of the global state system have eliminated many obstacles to the further expansion of markets through the enhanced global reach of transnational capital.
The priorities of economic and social policies worldwide have been recast to reflect the new dominance of investors. International institutions (such as OECD, IMF, World Bank, and World Trade Organization, or WTO) and groupings of dominant states (G7) are engaged in the legal and political reproduction of this disciplinary neoliberalism and ensure through a variety of regulatory, surveillance, and policing mechanisms that neoliberal reforms are locked in (Gill). In the core areas of the world economy this discipline appears in the shape of "voluntary" programs of competitiveness, deregulation, and austerity that are codified in such arrangements as the Economic and Monetary Union (EMU) stability pact or the WTO liberalization regime. Gill refers to the erosion of democratic control implied in this process as "New Constitutionalism," the move toward construction of legal or constitutional devices to remove or insulate substantially the new economic institutions from popular scrutiny or democratic accountability (Gill, 1995). Despite an increasingly homogeneous formal governance framework, indicated by membership of intergovernmental bodies and adherence to their rules and norms, and despite the almost universal national presence of electoral democracy and market-regulated consumption, the unequal distribution of wealth and power both within and among nations is staggering and arguably increasing (Cammack).
Cammack, Paul. "Making the Poor Work for Globalisation?" New Political Economy 6, no. 3 (2001): 397–408.
Cox, Robert W. Production, Power, and World Order: Social Forces in the Making of History. New York, 1987.
Gill, Stephen. "Globalisation, Market Civilisation, and Disciplinary Neoliberalism." Millennium: Journal of International Studies 24, no. 3 (1995): 399–423.
Polanyi, Karl. "Evolution of the Market Pattern." In his The Great Transformation: The Political and Economic Origins of Our Time, 56–67. Boston, 1944.
Radice, Hugo. "Globalisation and National Capitalisms: Theorising Convergence and Differentiation." Review of International Political Economy 7, no. 4 (2000): 719–742.
Ruggie, John G. "International Regimes, Transactions, and Change: Embedded Liberalism in the Post-war Order." International Organization 36, no. 2 (1982): 379–415.
Rupert, Mark. "The Hegemonic Project of Liberal Globalization." In his Ideologies of Globalization, 42–64. London, 2000.
Weiss, Linda. "Globalization and the Myth of the Powerless State." New Left Review 225 (1997): 3–27.
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.
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
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
In the centuries-old debate on how to organize an economy, neoliberalism is the ideology that advocates giving preference to market forces over state intervention in most areas of economic activity. Neoliberals believe that Adam Smith's classic, liberal economic dictum—that supply and demand forces are better left unencumbered—can be fruitfully adapted to contemporary realities. More than having just a blind faith in markets and private property, neoliberals in the early twenty-first century share a profound distrust of economic intervention by the state, which they regard as neither omniscient nor free of political bias and thus ill-suited to decide on its own the proper allocation of resources in a society. For neoliberals, the most serious economic problems of the present time—inflation and unsustainable macroeconomic environments, lack of competitiveness, clientelistic and inefficient public spending, poverty, and corruption—result from misguided state interventions that distort market incentives.
Neoliberalism in economics should not be confused with "liberalism" in U.S. politics, which is an ideology in favor of using state regulation to advance socially progressive agendas and lessen inequalities. In economics, neoliberalism stands instead for reducing government influence especially in the areas of price controls, trade restrictions, and productive activities. For neoliberals, government cannot be trusted as a truly public-minded regulator because it is too easily captured by self-serving political forces, such as biased ruling parties, trade unions, rent-seeking lobbyists, and unaccountable bureaucrats. Neoliberals do accept some state intervention (e.g., to stabilize the monetary supply, fund social programs and infrastructure, enforce property rights), but they prefer to leave most economic decisions to producers and consumers.
Between the 1930s and 1970s, neoliberals were considered extreme, and their influence in policy circles was secondary to that of rival ideologies such as Keynesianism, protectionism, populism, socialism, and even Marxism. But as countries that embraced these rival ideologies began to experience crippling economic crises in the 1970s and 1980s, neoliberals began to gain ascendancy, first in Chile (under Augusto Pinochet) and then in the United Kingdom (under Margaret Thatcher), and the United States (under Ronald Reagan). In 1974 and 1976, respectively, two leading proponents of neoliberalism, Friedrich von Hayek and Milton Friedman, won Nobel prizes in economics, further boosting the renaissance of these ideas. In the 1980s former socialists leaders in advanced democracies began to embrace neoliberal policies (Felipe González in Spain, Bob Hawke in Australia). By the early 1990s, neoliberals dominated policy circles in most Latin American, former Soviet, and Asian nations, as well as in leading international financial institutions such as the International Monetary Fund and the World Bank.
Neoliberals advocate confronting economic malaises with a package of reforms that includes, among other policies, tight fiscal discipline (through expenditure and debt reduction) and tax simplification, avoidance of currency overvaluation, privatization, trade and capital account liberalization, and deregulation. This set of reforms came to be known in the early 1990s as the Washington Consensus.
In the first decade of the twenty-first century, neoliberal policies again became a matter of acrimonious debate. Critics contend that neoliberalism has deprived vulnerable economic sectors and social groups of protection against the negative impacts of globalization and failed to deliver economic growth robust enough to alleviate poverty and inequality. Neoliberals retort that economic growth under neo-liberal guidelines is qualitatively better than other forms of growth because it is more sustainable and has fewer distortions (e.g., inflation, nebulous regulations) that disproportionately harm the poor. Adherents insist that most observed shortcomings are due to spotty policy implementation, rather than to flaws in neoliberal policy prescriptions themselves.
Kuczynski, Pedro-Pablo, and John Williamson. After the Washington Consensus: Restarting Growth and Reform in Latin America. Washington, DC: Peterson Institute for International Economics, 2003.
Von Hayek, Friedrich. The Road to Serfdom. Chicago: Chicago University Press, 1994.
Yergin, Daniel, and Joseph Sanislaw. The Commanding Heights: The Battle for the World Economy. New York: Free Press, 2001.