NEOLIBERALISM

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.

Genesis

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).

Characteristics

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.

Originality

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:

1. 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).
2. 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.
3. 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.
4. 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:

1. 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).
2. 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:

1. 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).
2. 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,
3. 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.

GAVIN KITCHING

SEE ALSO Communitarianism;Liberalism.

BIBLIOGRAPHY

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.

INTERNET RESOURCES

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.