Neoliberalism

For the school of international relations, see Neoliberalism in international relations.

Neoliberalism is a political philosophy whose advocates support economic liberalization, free trade and open markets, privatization, deregulation, and decreasing the size of the public sector while increasing the role of the private sector in modern society.

The term was introduced in the late thirties by European liberal scholars to promote a new form of liberalism after interest in classical liberalism had declined in Europe. In the decades that followed, neoliberal theory tended to be at variance with the more laissez-faire doctrine of classical liberalism and promoted instead a market economy under the guidance and rules of a strong state, a model which came to be known as the social market economy. In the sixties, usage of the term "neoliberal" heavily declined. When the term was reintroduced in the following decades, the meaning had shifted. The term neoliberal is now normally associated with laissez-faire economic policies, and is used mainly by those who are critical of legislative market reform.

Terminology

The term "neoliberalism" was originally coined in 1938 by the German scholar Alexander Rüstow at the Colloque Walter Lippmann. The colloquium defined the concept of neoliberalism as “the priority of the price mechanism, the free enterprise, the system of competition and a strong and impartial state.” To be "neoliberal" meant that – in the name of liberalism – a modern economic policy is required. Neoliberalism was not a monolithic theory. At the outset it drew on different academic approaches such as the Freiburg school, the Austrian School, the Chicago school of economics, and Lippmann´s realism.

During the military rule under Augusto Pinochet (1973–1990) in Chile, opposition scholars took up the expression again without a specific reference to any theoretical revision of liberalism. Rather, it described a set of political and economic reforms being implemented in Chile and imbued the term with pejorative connotations.

In the last two decades, according to the Boas and Gans-Morse study of 148 journal articles, neoliberalism is almost never defined but used in several senses to describe ideology, economic theory, development theory, or economic reform policy. It has largely become a term of condemnation employed by critics of liberalizing economic tendencies. And it now suggests a market fundamentalism closer to the laissez-faire principles of the "paleoliberals" than to the ideas of the original neoliberals who attended the colloquium. This leaves some controversy as to the precise meaning of the term and its usefulness as a descriptor in the social sciences, especially as the number of different kinds of market economies have proliferated in recent years.

According to Boas and Gans-Morse nowadays the most common use of the term neoliberalism refers to economic reform policies such as “eliminating price controls, deregulating capital markets and lowering trade barriers”, and reducing state influence on the economy especially by privatization and fiscal austerity. The term is used in several senses: as a development model it refers to the rejection of structuralist economics in favor of the Washington Consensus; as an ideology the term is used to denote a conception of freedom as an overarching social value associated with reducing state functions to those of a minimal state; and finally as an academic paradigm the term is closely related to neoclassical economic theory.

Some people believe that the term is used as a pejorative for policies that deregulate the private sector and increase its role in the economy.

Early history

Colloque Walter Lippmann

In the 1930s, the mood was decidedly anti-liberal. To join forces a group of 25 liberals organised the Walter Lippman Colloquium, an international meeting that took place in Paris in August 1938. Among them were Louis Rougier, Walter Lippmann, Friedrich Hayek, Ludwig von Mises, Wilhelm Röpke and Alexander Rüstow. Following the core message of Lippmann's book The Good Society participants like Rüstow, Lippmann and Rougier agreed that the old liberalism of laissez faire had failed and that a new liberalism needed to take its place. While for them it was a farewell to classical liberalism, which they thought to have failed, other participants like Mises and Hayek were not convinced to condemn the old liberalism of laissez faire. But all participants were united in their call for a new liberal project. Following Rüstow's original recommendation they called this project neoliberalism. The neoliberalism that came out of the Colloque Walter Lippmann was generally in line with Rüstow's theories of turning away from conceptions of unrestricted liberty towards a market economy under the guidance and the rules of a strong state. It was an attempt to formulate an anti-capitalist, anti-communist Third Way. Neoliberalism was originally established as something quite different from the free market radicalism with which it is usually associated today.

At the Colloque Walter Lippmann, the differences between 'true neoliberals' around Rüstow and Lippmann on the one hand and old school liberals around Mises and Hayek on the other were already quite visible. There occurred fundamental differences. While ‘true neoliberals’ demanded state intervention to correct undesirable market structures, Mises had always insisted that the only legitimate role for the state was to abolish barriers to market entry. Similar differences of opinion also existed in other questions such as social policy and the scope for interventionism. After a few years the insurmountable differences between old liberals and the neoliberals become unbearable. Rüstow was bitter that Mises still adhered to a version of liberalism that Rüstow thought had failed spectacularly. In a letter Rüstow wrote that Hayek and his master Mises deserved to be put in spirits and placed in a museum as one of the last surviving specimen of the extinct species of liberals which caused the current catastrophe (the Great Depression). Ludwig von Mises became equally critical of the german neoliberals. He complained that Ordoliberalism really meant 'ordo-interventionism'.

Mont Pelerin Society

Friedrich Hayek.

The Mont Pelerin Society was founded in 1947 by Friedrich Hayek to bring together the widely scattered neoliberal thinkers and political figures. "Hayek and others believed that classical liberalism had failed because of crippling conceptual flaws and that the only way to diagnose and rectify them was to withdraw into an intensive discussion group of similarly minded intellectuals." With central planning in the ascendancy world-wide and with few avenues to influence policymakers, the society served to bring together isolated advocates of liberalism as a "rallying point" – as Milton Friedman phrased it. Meeting annually, it would soon be a "kind of international 'who's who' of the classical liberal and neo-liberal intellectuals." While the first conference in 1947 was almost half American, the Europeans concentration dominated by 1951. Europe would remain the "epicenter" of the community with Europeans dominating the leadership.

Post-WWII neo-liberal currents

Chicago School

Milton Friedman, 2005.

The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago.

The school emphasizes non-intervention from government and generally rejects regulation in markets as inefficient with the exception of central bank regulation of the money supply (i.e., monetarism). It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. The school has impacted the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics"– that is, empirically based studies using statistics to prove theory.

Approximately 70% of the professors in the economics department have been considered part of the school of thought. The University of Chicago department, widely considered one of the world's foremost economics departments, has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university.

Those who attend to the Chicago School prefer some form of competition law, school vouchers, intellectual property and prefer Milton Friedman's negative income tax as a replacement to the existing system.

Germany

Ludwig Erhard.

In West Germany, neoliberal ideas were first implemented. The neoliberal economists around Ludwig Erhard could draw on the theories they had developed in the 1930s and 1940s and contribute to West Germany’s reconstruction after the Second World War. Erhard was a member of the Mont Pelerin Society and in constant contact with other neoliberals. He pointed out that he is commonly classified as neoliberal and that he accepts this classification.

The ordoliberal Freiburg School was rather moderate and pragmatic. The German neoliberals accepted the classical liberal notion that competition drives economic prosperity, but they argued that a laissez-faire state policy stifles competition as the strong devour the weak since monopolies and cartels could pose a threat to freedom of competition. They supported the creation of a well-developed legal system and capable regulatory apparatus. While still opposed to full-scale Keynesian employment policies or an extensive welfare state German neoliberals' theory was marked by their willingness to place humanistic and social values on par with economic efficiency. Alfred Müller-Armack coined the phrase "social market economy" to emphasize the egalitarian and humanistic bent of the idea. According to Taylor C. Boas and Jordan Gans-Morse Walter Eucken stated that "social security and social justice are the greatest concerns of our time".

Erhard had always emphasized that the market was inherently social and did not need to be made so. He had hoped that growing prosperity would enable the population to manage much of their social security by self-reliance and end the necessity for a widespread welfare state. By the name of Volkskapitalismus there were some efforts to foster private savings. But although average contributions to the public old age insurance were quite small, it remained by far the most important old age income source for a majority of the German population. Therefore, despite liberal rhetoric, the 1950s witnessed what has been called a ″reluctant expansion of the welfare state″. To end widespread poverty among the elderly the pension reform of 1957 brought a significant extension of the German welfare state which already had been established under Otto von Bismarck. Rüstow, who had coined the label "neoliberalism", criticized that development tendency and pressed for a more limited welfare programs.

Hayek did not like the expression "social market economy", but he noticed in 1976 that some of his friends in Germany had succeeded in implementing the sort of social order for which he was pleading while using that phrase. However in Hayek's view the social market economy's aiming for both a market economy and social justice was a muddle of inconsistent aims. Despite his controversies with the German neoliberals at the Mont Pelerin Society, Ludwig von Mises stated that Erhard and Müller-Armack accomplished a great act of liberalism to restore the German economy and called this "a lesson for the US". According to different research, however, Mises believed that the Ordoliberals were hardly better than socialists. As an answer to Hans Hellwigs complaints about the interventionist excesses of the Erhard ministry and the Ordoliberals, Mises wrote, "I have no illusions about the true character of the politics and politicians of the social market economy." According to Mises, Erhard´s teacher Franz Oppenheimer "taught more or less the New Frontier line of" President Kennedy's "Harvard consultants (Schlesinger, Galbraith, etc.)"

In Germany, neoliberalism at first was synonymous with both Ordoliberalism and Social Market Economy. But over time the original term neoliberalism gradually disappeared since Social Market Economy was a much more positive term and fitted better into the Wirtschaftswunder (economic miracle) mentality of the 1950s and 1960s.

Chile

Further information: Crisis of 1982 and Miracle of Chile

In the 1960s, Latin American intellectuals began to notice the ideas of ordoliberalism; these intellectuals often used the Spanish term neoliberalismo to refer to this school of thought. They were particularly impressed by the social market economy and the Wirtschaftswunder (“German miracle”) and speculated about the possibility of accomplishing similar policies in their own countries. Neoliberalism in 1960s meant essentially a philosophy that was more moderate than classical liberalism and favored using state policy to temper social inequality and counter a tendency toward monopoly.

In 1955, a select group of Chilean students (later known as the Chicago Boys) were invited to the University of Chicago to pursue postgraduate studies in economics. They worked directly under Friedman and his disciple Arnold Harberger, while also being exposed to Hayek. When they returned to Chile in the 1960s, the Chicago Boys began a concerted effort to spread the philosophy and policy recommendations of the Chicago and Austrian schools, setting up think tanks and publishing in ideologically sympathetic media. Under the military dictatorship headed by Pinochet and severe social repression, the Chicago boys implemented economic reform. The latter half of the 1970s witnessed rapid and extensive privatization, deregulation, and reductions in trade barriers. In 1978 policies that would reduce the role of the state and infuse competition and individualism into areas such as labor relations, pensions, health, and education were introduced. In 1990 the military dictatorship ended. Hayek argued that increased economic freedom had put pressure on the dictatorship over time and increased political freedom. Many years earlier, in The Road to Serfdom (1944), Hayek had argued that "economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."

Two decades after it was first used by pro-market intellectuals in the 1960s, the meaning of neoliberalism changed. Those who regularly used the term neoliberalism in the 1980s typically applied it in its present-day, radical sense, denoting market fundamentalism. Neoliberalism had not only become a term with negative connotations employed principally by critics of market reform, but it also had shifted in meaning from a moderate form of liberalism to a more radical and economically libertarian set of ideas. Scholars during this period had also ceased to identify the Germans as neoliberalism’s intellectual progenitors, tending instead to associate neoliberalism with the theories of Friedrich Hayek and Milton Friedman. Indeed, Pinochet’s 1973 coup emerges as some kind of a watershed in the usage of neoliberalism. Neoliberalism gained a negative, radical sense just after this date. Once the new meaning of neoliberalism was established as a common usage among Spanish-speaking scholars, it diffused directly into the English-language study of political economy.

Australia

In Australia, neoliberal economic policies have been embraced by governments of both the Labor Party and the Liberal Party since the 1980s. The governments of Bob Hawke and Paul Keating from 1983 to 1996 pursued economic liberalisation and a program of micro-economic reform. These governments privatized government corporations, deregulated factor markets, floated the Australian dollar, and reduced trade protection.

Keating, as federal treasurer, implemented a compulsory superannuation guarantee system in 1992 to increase national savings and reduce future government liability for old age pensions. The financing of universities was deregulated, requiring students to contribute to university fees through a repayable loan system known as the Higher Education Contribution Scheme (HECS) and encouraging universities to increase income by admitting full-fee-paying students, including foreign students. The admitting of domestic full fee paying students to public universities was stopped in 2009 by the Rudd Labor Government.

Expanded definition

The meaning of neoliberalism has changed over time and come to mean different things to different groups. As a result, it is very hard to define. This is seen by the fact that authoritative sources on neoliberalism, such as Friedrich Hayek, Milton Friedman, David Harvey and Noam Chomsky do not agree about the meaning of neoliberalism. This lack of agreement creates major problems in creating an unbiased and unambiguous definition of neoliberalism. This section aims to define neoliberalism more accurately and to show how its evolution has influenced the different uses of the word.

One of the first problems with the meaning of neoliberalism is that liberalism, on which it is based, is also very hard to describe. The uncertainty over the meaning of liberalism is commonly reflected in neoliberalism itself, and is the first serious point of confusion.

The second major problem with the meaning of neoliberalism is that neoliberalism went from being a purely theoretical ideology to become a practical and applied one. The 1970s onwards saw a surge in the acceptability of neoliberalism, and neoliberal governments swept in across the world, promising neoliberal reforms. However, governments did not always carry out their promised reforms, either through design or circumstances. This leads to the second serious point of confusion; namely, that most neoliberalism after this point isn't always ideologically neoliberal.

Classical neoliberalism

The first form of neoliberalism, classical neoliberalism, stems from classical liberalism and was chiefly created in inter-War Austria by economists, including Friedrich Hayek and Ludwig von Mises. They were concerned about the erosion of liberty by both socialist and fascist governments in Europe at that time and tried to restate the case for liberty which became the basis for neoliberalism. Hayek's 1970s book, The Constitution of Liberty sums up this argument. In the introduction he states: If old truths are to retain their hold on men's minds, they must be restated in the language and concepts of successive generations.

Hayek's belief in liberty stemmed from an argument about information. He believed that no individual (or group, including the government) could ever understand everything about an economy or a society in order to rationally design the best system of governance. He argued this only got worse as scientific progress increased and the scope of human knowledge grew, leaving individuals increasingly more and more ignorant in their lifetimes. As a result, he believed it was impossible for any person or government to design the perfect systems under which people could be governed. The only solution to this, he believed, was to allow all possible systems to be tried in the real world and to allow the best systems to beat the worse systems through competition. In a liberal society, he believed, the few who used liberty to try out new things would come up with successful adaptations of existing systems or new ways of doing things. These discoveries, once shared and become mainstream, would benefit the whole of society, even those who did not directly partake of liberty.

Due to the ignorance of the individual, Hayek argued that an individual could not understand which of the various political, economic and social rules they had followed had made them successful. In his mind, this made the superstitions and traditions of a society in which an individual operated vitally important, since in probability they had, in some way, aided the success of the individual. This would be especially true in a successful society, where these superstitions and traditions would, in all probability be successful ones that had evolved over time to exploit new circumstances. However, this did not excuse any superstition or tradition being followed if it had outlived it usefulness: respect of tradition and superstition for the sake of tradition and superstition were not acceptable values to him. Therefore classical neoliberalism combined a respect for the old, drawn from conservatism, with the progressive striving towards the future, of liberalism.

In emphasising evolution and competition of ideas, Hayek highlighted the divide between practical liberalism that evolved in a haphazard way in England, championed by such people as David Hume and Adam Smith, versus the more theoretical approach of the French, in such people as Descartes and Rousseau. Hayek christened these the pragmatic and rationalist schools, the former evolving institutions with an eye towards liberty and the later creating a brave new world by sweeping all the old and therefore useless ideas away. Hayeks's ideas on information and the necessity of evolving evolutions placed neoliberalism firmly on the pragmatic side against both rationalist socialists (such as communists, fascism and social liberals) and rationalist capitalists (such as economic libertarians, laissez-faire capitalists) alike.

The rule of law

At the centre of neoliberalism was the rule of law. Hayek believed that liberty was maximised when coercion was minimised. Hayek did not believe that a complete lack of coercion was possible, or even desirable, for a liberal society, and he argued that a set of traditions was absolutely necessary which allowed individuals to judge whether they would or would not be coerced. This body of tradition he notes as law and the use of this tradition and the Rule of Law. In designing a liberal system of law, Hayek believed that two things were vitally important: the protection and delineation of the personal sphere and the prevention of fraud and deception, which could be maintained only by threat of coercion from the state. In delineating a personal sphere, individuals could know under what circumstances they would or would not be coerced under, and could make plans for the use of their resources in achieving their aims.

In designing such a system, Hayek believed that it could maintain a protected sphere by protecting against abuses by the ruling power, be it a monarch (e.g., Bill of Rights 1689), the will of the majority in a democracy (e.g., the US Constitution) or the administration (e.g. the Rechtsstaat). He believed that the most important features of such protections were equality before the law, and generality of the law. Equality meant that all should be equal before the law and therefore subject to it, even those decisions of a legislature or government administration. Generality meant that the law should be general and abstract, focusing not on ends or means, as a command would, but on general rules which, by their lack of specificity, could not be said to grant privileges, discriminate or compel any specific individual to an end. General laws could also be used to transmit knowledge and encourage spontaneous order in human societies (much like the use of Adam Smith's invisible hand in economics). He also stressed the importance of individuals being responsible for their actions in order to encourage others to respect the law.

Policy

Important practical tools for making these things work included separation of powers, the idea that those enforcing the law and those making it should be separate, to prevent the lawmakers from pursuing short-term ends and constitutionalism, the idea that lawmakers should be legally bound about the laws they could pass, thereby preventing absolute rule by the majority.

In the 1980s, a practical statement of neoliberal aims was codified in the Washington Consensus.

Conservatism

Classical neoliberalism's respect for tradition, combined with its pragmatic approach to progress, endeared it to conservative movements around the world looking for a way to adapt to the changing nature of the modern world. This saw it adopted by conservative movements, most famously in Chile under Pinochet, the United Kingdom under Margaret Thatcher and in the United States of America under Ronald Reagan.

Economic neoliberalism

The next important form of neoliberalism is economic neoliberalism. Economic neoliberalism stems out of the historical rift between classical liberalism and economic liberalism, and developed when the economically liberal minded co-opted the language and ideas of classical neoliberalism to place economic freedom at its heart, making it a right-wing ideology. Essentially, economic neoliberalism can be derived by taking the classical neoliberal definition above and taking the protected personal sphere to solely refer to property rights and contract. The liberal opposite of economic neoliberalism is modern liberalism, the corresponding left-wing ideology. The best known proponent of economic neoliberalism is Milton Friedman.

Economic neoliberalism is the most common form of neoliberalism, and is what is usually meant when a system is described as neoliberal.

Economic neoliberalism is distinct from classical neoliberalism for many reasons. Hayek believed that certain elements that now make up modern economic neoliberal thought are too rationalist, relying on preconceived notions of human behaviour, such as the idea of homo economicus. Paul Treanor points out that it is too utopian, and therefore illiberal. David Harvey points out that economic neoliberalism is "theory of economic political practices", rather than a complete ideology, and therefore, no correlation or connection needs to exist between a favourable assessment of neoliberal economic practises and a commitment to liberalism proper. Likewise Anna-Maria Blomgren views neoliberalism as a continuum ranging from classical to economic liberalism. A broad and, it is hoped, clearer restatement of the above is to point out that classic liberals must be economic liberals, but economic liberals do not have to be classically liberal, and it is the latter group that makes up the "new liberalism" of economic neoliberalism.

Neoliberal economics

Friedman's chief argument about neoliberalism can be described as a consequentialist libertarian one: that the reason for adopting minimal government interference in the economy is for its beneficial consequences, and not any ideological reason. At the heart of economic neoliberalism are various theories that prove the economic neoliberal ideology.

Neoliberal economics in the 1920s took the ideas of the great liberal economists, such as Adam Smith, and updated them for the modern world. Friedrich Hayek's ideas on information flow, present in classical neoliberalism, were codified in economic form under the Austrian School as the economic calculation problem. This problem of information flow implied that a decentralised system, in which information travelled freely and was freely determined at each localised point (Hayek called this catallaxy), would be much better than a central authority trying to do the same, even if it was completely efficient and was motivated to act in the public good. In this view, the free market is a perfect example of such a system in which the market determined prices act as the information signals flowing through the economy. Actors in the economy could make decent decisions for their own businesses factoring in all the complex factors that led to market prices without having to understand or be completely aware of all of those complex factors.

In accepting the ideas of the Austrian School regarding information flow, economic neoliberals were forced to accept that free markets were artificial, and therefore would not arise spontaneously, but would have to be enforced, usually through the state and the rule of law. In this way, economic neoliberalism enshrines the role of the state and becomes distinct from libertarian thought. However, in accepting the ideas of self-regulating markets, neoliberals drastically restrict the role of the government to managing those forms of market failure that the neoliberal economics allowed: property rights and information asymmetry. This restricted the government to maintaining property rights by providing law and order through the police, maintaining an independent judiciary and maintaining the national defence, and basic regulation to guard against fraud. This made neoliberal economics distinct from Keynesian economics of the preceding decades.

These ideas were then developed further. Milton Friedman introduced the idea of adaptive expectations during the stagflation of the 1970s, which described why government interference (in the form of printing money) resulted in increasing inflation, as shop owners started to predict the rate of increase in the money supply, rendering the government action useless. This developed into the idea of rational expectations, which showed that all government interference useless and disruptive because the free market would predict and undermine the government's proposed action. At the same time, the efficient market hypothesis assumed that, because of catallaxy, the market could not be informationally wrong. Or, to paraphrase the famous quote of Warren Buffett, "the market is there to inform you, not serve you". Combined with rational expectations, this showed that markets would be self-regulating, and that regulation was unnecessary and disruptive.

Additionally, many theories were developed which showed that the free market would produce the socially optimum equilibrium with regard to production of goods and services, such as the fundamental theorems of welfare economics and general equilibrium theory, which helped prove further that government intervention could only result in making society worse off (see Pareto efficient).

Philosophical neoliberalism

The definition of economic neoliberalism which has been presented focuses heavily on economic policies and has little to say about non-economic policy (other than that they should not be allowed to interfere with the running of the free market). A more extreme form of economic neoliberalism advocates the use of free market techniques outside of commerce and business, by the creation of new markets in health, education, energy and so on. David Harvey sums up this definition in a very clear and concise way:

Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit.

This point of view takes the belief, that the only important freedoms are market freedoms, to its logical conclusion. In doing so, however, this took neoliberalism into a more philosophical direction where it came to resemble more of a religion or culture than an economic theory. As Paul Treanor explains:

"As you would expect from a complete philosophy, neoliberalism has answers to stereotypical philosophical questions such as "Why are we here" and "What should I do?". We are here for the market, and you should compete. Neo-liberals tend to believe that humans exist for the market, and not the other way around: certainly in the sense that it is good to participate in the market, and that those who do not participate have failed in some way. In personal ethics, the general neoliberal vision is that every human being is an entrepreneur managing their [sic] own life, and should act as such. Moral philosophers call this is a virtue ethic, where human beings compare their actions to the way an ideal type would act – in this case the ideal entrepreneur. Individuals who choose their friends, hobbies, sports, and partners, to maximise their status with future employers, are ethically neoliberal. This attitude – not unusual among ambitious students – is unknown in any pre-existing moral philosophy, and is absent from early liberalism. Such social actions are not necessarily monetarised, but they represent an extension of the market principle into non-economic area of life – again typical for neoliberalism"

Corrupted neoliberalism

The rise of neoliberalism in the 1970s as a practical system of government saw it implemented in various forms across the world. In some cases, the result was not anything that could be identified as neoliberalism, often with catastrophic results for the poor. This has resulted in many on the left claiming that this is a deliberate goal of neoliberalism, while those on the right defend the original goals of neoliberalism and insist otherwise, an argument that rages to this day, rendering this section highly controversial. This section attempts to provide an unbiased overview of this discussion, focusing on all the forms of neoliberalism that are not in any way neoliberal, but which have come to be associated with it, as well as the reasons for why this has happened.

One of the best and least controversial examples of "neoliberal" reform is in Russia, whose reforms in 1989 were justified under neoliberal economic policy but which lacked any of the basic features of a neoliberal state (e.g. the rule of law, free press) which could have justified the reforms.

General liberal failure

The least controversial aspect of neoliberalism has often been presented by modern economists critical of neoliberalism's role in the world economic system. Among these economists, the chief voices of dissent are Joseph Stiglitz and Paul Krugman, who base their ideas chiefly on actual economic theory. Their ideas also handily correlate with Friedrich Hayek's assumptions behind classical neoliberalism outlined earlier.

Both use arguments about market failure to justify their views on neoliberalism. They argue that when markets are imperfect (which is to say all markets everywhere to some degree), then they can fail and may not work as neoliberals predict, resulting in some form of crony capitalism. The two chief modes of failure are usually due to imperfect property rights and due to imperfect information and correspond directly to Friedrich Hayek's assertion that classical liberalism will not work without protection of the private sphere and the prevention of fraud and deception.

The failure of property rights means that individuals can't protect ownership of their resources and control what happens to them, or prevent other taking them away. This usually stifles free enterprise and results in preferential treatment for those who can. The failure of information is very important since free information flow is responsible for the self-regulating nature of neoliberal markets and justifies putting them beyond government regulation. Control of information also, as Hayek notes, allows control of the actions of an individual, rendering any liberal system illiberal.

Crony capitalism

The most blatant form of crony capitalism is the creation of a liberal economic system in which only some people ("cronies") are permitted property rights by the government in return for support for the regime, allowing supporters of the regime to expropriate any capital held by opponents. This is a useful method of control which is usually seen in its purest form in countries with dictatorships, where the regime can create a liberal system of markets and government without ceding any control of either. Such reforms can also be used to add a sprinkling of liberal legitimacy for the regime and open the country to external capital.

This form is useful to explain neoliberal reforms in countries where either the will or ability to enforce property rights is lacking, such as the problems of post Soviet Russia, in which reformist politicians colluded with politically connected business people. In return for backing democratic free market reforms, these business figures could expropriate resources in a country where ownership was not clear and sporadically enforced, leading to the rise of the Russian oligarchs.

Corporatocracy

Some claim that neoliberalism is a form of corporatocracy, the rule of a country by and for the benefit of large corporations. Since large corporations tend to fulfil all the conditions of a wealthy entity, they accrue many of the same benefits over smaller businesses. In addition, multinational corporations enjoy the benefits of neoimperialism on the international stage and can also move their base of operations from a country if that country pursues policies that it deems to be unfriendly to business, a threat which they provoke governments to enact upon.

Although classical neoliberalism rests on the free flow of information, the neoliberal era has been marked by an unprecedented expansion of intellectual property and copyright, an expansion of libel laws to silence criticism (e.g. libel tourism) and expanding corporate secrecy (e.g. in the UK corporations used contract law to forbid discussion of salaries, thereby controlling labour costs), all of which came to be seen as a normal part of neoliberalism, but are wholly against its spirit.

Finally, the fact that many media outlets are themselves part of large corporations leads to a conflict of interest between those corporations and the public good.

Class project

Not all members of a society may have equal access to the law or to information, even when everyone is theoretically equal under the law, as in a liberal democracy. This is because access to the law and information is not free as liberals (such as Hayek) assume, but have associated costs. Therefore, in this context, it is sound to say that the wealthy have greater rights than the poor.

In some cases, the poor may have practically no rights at all if their income falls below the levels necessary to access the law and unbiased sources of information, while the very wealthy may have the ability to choose which rights and responsibilities they bear if they can move themselves and their property internationally, resulting in social stratification, also known as class. This tendency to create and strengthen class has resulted in some (most famously David Harvey) claiming that neoliberalism is a class project, designed to impose class on society through liberalism.

Globalization

In practise, less developing nations have less developed rights and institutions, resulting in greater risk for international lenders and businesses. This means that developing countries usually have less privileged access to international markets than developed countries. Because of this effect, international lenders are also more likely to invest in foreign companies (i.e. multinational corporations) inside a country, rather than in local businesses, giving international firms an unfair competitive advantage. Also, speculative flows of capital may enter the country during a boom and leave during a recession, deepening economic crises and destabilizing the economy.

Both of these problems imply that developing countries should have greater protections against international markets than developed ones and greater barriers to trade. Despite such problems, IMF policy in response to crises, which is supposed to be guided by neoliberal ideas such as the Washington Consensus, is to increase liberalization of the economy and decrease barriers, allowing bigger capital flight and the chance for foreign firms to shore up their monopolies. Additionally, the IMF acts to increase moral hazard, since international involvement will usually result in an international bailout with foreign creditors being treated preferentially, leading international firms to discount the risks of doing business in less developed countries and forcing the government to pay for them instead.

The fact that international involvement and the imposition of "neoliberal" policies usually serves to make things worse and acts against the interests of the country being "saved", has led some to argue that the policies have nothing to do with any form of liberalism, but hide some other purpose. The most common assertion given by opponents is that they are a form of neocolonialism, where the more developed countries can exploit the less developed countries. However, even opponents do not agree. For example, Stiglitz assumes that there is no neoimperial plot, but that the system is driven by a mixture of ideology and special interests, in which neoliberal fundamentalists, who do not believe that neoliberalism can fail, work with financial and other multinational corporations, who have the most to benefit from opening up foreign markets. David Harvey, on the other hand, argues that local elites exploit neoliberal reforms in order to impose reforms that benefit them at the cost of the poor, while transferring the blame onto the "evil imperialist" developed countries, citing the example of Argentina in 2001.

Policy implications

Neoliberalism seeks to transfer control of the economy from public to the private sector, under the belief that it will produce a more efficient government and improve the economic health of the nation. The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's "Washington Consensus", a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the International Monetary Fund (IMF) and World Bank). Williamson's list included ten points:

• Fiscal policy Governments should not run large deficits that have to be paid back by future citizens, and such deficits can have only a short term effect on the level of employment in the economy. Constant deficits will lead to higher inflation and lower productivity, and should be avoided. Deficits should only be used for occasional stabilization purposes.
• Redirection of public spending from subsidies (especially what neoliberals call "indiscriminate subsidies") and other spending neoliberals deem wasteful toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment
• Tax reform– broadening the tax base and adopting moderate marginal tax rates to encourage innovation and efficiency;
• Interest rates that are market determined and positive (but moderate) in real terms;
• Floating exchange rates;
• Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs; thus encouraging competition and long term growth
• Liberalization of the "capital account" of the balance of payments, that is, allowing people the opportunity to invest funds overseas and allowing foreign funds to be invested in the home country
• Privatization of state enterprises; Promoting market provision of goods and services which the government cannot provide as effectively or efficiently, such as telecommunications, where having many service providers promotes choice and competition.
• Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
• Legal security for property rights;

Reach and effects

Effects in Latin American urbanization

Between the 1930s and the late 1970s most countries in Latin America used the import substitution industrialization model (ISI) to build industry and reduce the dependency on imports from foreign countries. The result of ISI in these countries included rapid urbanization of one or two major cities, a growing urban population of the working class, and frequent protests by trade unions and left-wing parties. In response to the economic crisis, the leaders of these countries quickly adopted and implemented new neoliberal policies due to prospect theory.

A study based on the transformations of urban life and systems as a result of neoliberalism in six countries of Latin America was published by Alejandro Portes and Bryan Roberts. This comparative study included census data analysis, surveying, and fieldwork focused in Argentina, Brazil, Chile, Mexico, Peru, and Uruguay. Predictions of the neoliberalism were extended to these six countries in four areas: urban systems and primacy, urban unemployment and informal employment, urban inequality and poverty, and urban crime and victimization. Data collected support a relationship between the economic policies of neoliberalism and the resulting patterns of urbanization.

In the area of urban systems and primacy two tendencies were revealed in the data. The first was continuing growth in total size of urban populations while the second tendency was the decline in size of the principal city with decreased migration flows to these cities. Therefore, when calculating the urban growth rate each of these countries all showed minimal or a significant decline in growth. Portes and Roberts theorize that the changes are due to the “loss of attraction of major cities ... due to a complex set of factors, but is undoubtedly a related to the end of the ISI era”. Although the relationship between the open-market and the transformation of urban systems has not been proven to be a perfect one-to-one relationship, the evidence supports the acceleration or initiation of these two tendencies following neoliberal changes.

There was also a variation in the inequality and poverty in the six countries. While the majority of the population within these countries suffered from poverty, the "upper classes" received the benefits of the neoliberal system. According to Portes and Roberts, “the ‘privileged decile’ received average incomes equivalent to fourteen times the average Latin American poverty-line income”. According to the authors, a direct result of the income inequality is that each country struggled with increased crime and victimization in both urban and suburban settings. However, due to corruption within the police force it is not possible to accurately extrapolate a trend in the data of crime and victimization.

Effects on global health

The effect of neoliberalism on global health, particularly the aspect of international aid involves key players such as Non-governmental organizations (NGOs), the International Monetary Fund (IMF), and the World Bank. Neoliberal emphasis has been placed on free markets and privatization which has been tied to the "new policy agenda", an agenda in which NGOs are viewed to provide better social welfare than that of a nation's government. International NGO's have been promoted to fill holes in public services created by the World Bank and IMF through their promotion of Structural Adjustment Programs (SAP's) which slash government health spending and are an unsustainable source of foreign aid. The reduced health spending and the gain of the public health sector by NGOs causes the local health system to become fragmented, undermines local control of health programs and contributes to local social inequality between NGO workers and local individuals.

Support

Political freedom

In Capitalism and Freedom (1962), Friedman developed the argument that economic freedom, while itself an extremely important component of total freedom, is also a necessary condition for political freedom. He commented that centralized control of economic activities was always accompanied with political repression.

In his view, the voluntary character of all transactions in an unregulated market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Friedman feels that competitive capitalism is especially important to minority groups, since impersonal market forces protect people from discrimination in their economic activities for reasons unrelated to their productivity.

It is important to take into account, however, that an early neoliberal regime was attempted in Chile under what some would consider a military dictatorship and severe social repression. Chile now enjoys the highest rate of GDP per capita in Latin America; this lends strong credence to the assertion that economic freedom is more important to prosperity than are democratic institutions. Also, increased economic freedom put pressure on the dictatorship over time and increased political freedom. In The Road to Serfdom, Hayek argued that "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."

Opposition

Opponents of neoliberalism commonly argue these following points:

• Globalization can subvert nations' ability for self-determination.
• Accountability to the stakeholders, who depend upon the service provided by the privatised entity, is lost as a consequence of business secrecy, a practice that is normally adopted by private investors.
• The replacement of a government-owned monopoly with private companies, each supposedly trying to provide the consumer with better value service than all of its private competitors, removes the efficiency that can be gained from the economy of scale.
• Even if it could be shown that neoliberal capitalism increases productivity, it erodes the conditions in which production occurs long term, i.e., resources/nature, requiring expansion into new areas. It is therefore not sustainable within the world's limited geographical space.
• The fact that in neoliberal economies, such as Australia, sovereign communities, including federal, state and local governments, are legislatively prevented from owning entities which produce wealth or provide services, even when public opinion is overwhelmingly in favour, shows that the term 'free market', often used to describe the neoliberal economy, is misleading.
• Exploitation: critics consider neo-liberal economics to promote exploitation.
• Negative economic consequences: Critics argue that neo-liberal policies produce inequality.
• Increase in corporate power: some organizations believe neoliberalism, unlike liberalism, changes economic and government policies to increase the power of corporations, and a shift to benefit the upper classes.
• There are terrains of struggles for neoliberalism locally and socially. Urban citizens are increasingly deprived of the power to shape the basic conditions of daily life.
• Trade-led, unregulated economic activity and lax state regulation of pollution lead to environmental impacts or degradation.
• Deregulation of the labor market produces flexibilization and casualization of labor, greater informal employment, and a considerable increase in industrial accidents and occupational diseases.

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

Notable critics of neoliberalism in theory or practice include economists Joseph Stiglitz, Amartya Sen, and Robert Pollin, linguist Noam Chomsky, geographer David Harvey, and the alter-globalization movement in general, including groups such as ATTAC. Critics of neoliberalism argue that not only is neoliberalism's critique of socialism (as unfreedom) wrong, but neoliberalism cannot deliver the liberty that is supposed to be one of its strong points. Daniel Brook's "The Trap" (2007), Robert Frank's "Falling Behind" (2007), Robert Chernomas and Ian Hudson's "Social Murder" (2007), and Richard G. Wilkinson's "The Impact of Inequality" (2005) all claim high inequality is spurred by neoliberal policies and produces profound political, social, economic, health, and environmental constraints and problems. The economists and policy analysts at the Canadian Centre for Policy Alternatives (CCPA) offer inequality-reducing social democratic policy alternatives to neoliberal policies.

Santa Cruz History of Consciousness professor Angela Davis and Princeton sociologist Bruce Western have claimed that the high rate (compared to Europe) of incarceration in the U.S. – specifically 1 in 37 American adults is in the prison system – heavily promoted by the Clinton administration, is the neoliberal U.S. policy tool for keeping unemployment statistics low, while stimulating economic growth through the maintenance of a contemporary slave population and the promotion of prison construction and "militarized policing." The Clinton Administration also embraced neoliberalism by pursuing international trade agreements that would benefit the corporate sector globally (normalization of trade with China for example). Domestically, Clinton fostered such neoliberal reforms as the corporate takeover of health care in the form of the HMO, the reduction of welfare subsidies, and the implementation of "Workfare".

Neoliberal policies advanced by supranational organizations have come under criticism, from both socialist and libertarian writers, for advancing a corporatist agenda. Rajesh Makwana, on the left, writes that "the World Bank and IMF, are major exponents of the neoliberal agenda" advancing corporate interests. Sheldon Richman, editor of the libertarian journal The Freeman, also sees the IMF imposing "corporatist-flavored 'neoliberalism' on the troubled countries of the world." The policies of spending cuts coupled with tax increases give "real market reform a bad name and set back the cause of genuine liberalism." Paternalistic supranational bureaucrats foster "long-term dependency, perpetual indebtedness, moral hazard, and politicization, while discrediting market reform and forestalling revolutionary liberal change." Free market economist Richard M. Salsman goes further and argues the IMF “is a destructive, crisis-generating global welfare agency that should be abolished." "In return for bailouts, countries must enact such measures as new taxes, high interest rates, nationalizations, deportations, and price controls." Writing in Forbes, E. D. Kain sees the IMF as "paving the way for international corporations entrance into various developing nations" and creating dependency. He quotes Donald J. Boudreaux on the need to abolish the IMF.

See also

• Anarcho-capitalism
• Austrian School
• Capitalism
• Classical liberalism
• Deregulation
• Economic liberalism
• Free market
• Free trade
• Globalization
• History of macroeconomic thought
• Ordoliberalism
• Private sector

Further reading

• Ankerl, Guy. Beyond Monopoly Capitalism and Monopoly Socialism. Schenkman, Cambridge, 1978, ISBN 0-87073-938-7
• Bowles, Samuel, David M. Gordon, and Thomas E. Weisskopf. 1989. "Business Ascendancy and economic Impasse: A Structural Retrospective on Conservative Economics, 1979–87." Journal of Economic Perspectives 3(1):107–134.
• Brady, David. 2008. Rich Democracies, Poor People: How Politics Explain Poverty. New York: Oxford University Press. Abstract
• Brown, Wendy. "Neoloberalism and the End of Liberal Democracy" in Edgework: critical essays on knowledge and politics Princeton University Press, 2005, ch 3.
• Campbell, John L., and Ove K. Pedersen, eds. The Rise of Neoliberalism and Institutional Analysis Princeton University Press, 2001. 288 pp.
• Crouch, Colin. The Strange Non-death of Neo-liberalism, Polity Press, 2011. ISBN 0-7456-5221-2 (Reviewed in The Montreal Review)
• Diaz Molaro, Lucas. "End Neoliberalism, Tax & Regulate The One Percent". 2012. End Neoliberalism Inc. Ebook.
• Ferris, Timothy. The Science of Liberty (2010) HarperCollins 384 pages
• Foucault, Michel. The Birth of Biopolitics Lectures at the College de France, 1978–1979. London: Palgrave, 2008.
• Gowan, Peter (1999). The Global Gamble: Washington's Faustian Bid for World Dominance. London: Verso. ISBN 1-85984-271-2. {{cite book}}: Invalid |ref=harv (help)
• Griffiths, Simon, and Kevin Hickson, eds. British Party Politics and Ideology after New Labour (2009) Palgrave Macmillan 256 pages
• Hayek, Friedrich August Von. The Constitution of Liberty (1960)
• Harvey, David (2005). A Brief History of Neoliberalism. Oxford University Press. ISBN 0-19-928326-5. {{cite book}}: Invalid |ref=harv (help)
• Larner, Wendy. "Neo-liberalism: policy, ideology, governmentality," Studies in political economy 63 (2000) online
• Plant, Raymond (2009). The Neo-liberal State. Oxford University Press. ISBN 0-19-928175-0. {{cite book}}: Invalid |ref=harv (help)
• Pollin, Robert (2003). Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity. New York: Verso. ISBN 1-84467-534-3. {{cite book}}: Invalid |ref=harv (help)
• Mirowski, Philip, and Plehwe, Dieter, eds. The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective. Harvard University Press. 2009. 480 pages.
• Prasad, Monica. The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany and the United States. University of Chicago Press. 2006. 328 pages
• Stedman Jones, Daniel (2012). Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics. Princeton University Press. ISBN 0691151571. {{cite book}}: Invalid |ref=harv (help)
• Steger, Manfred B., and Ravi K. Roy, Neoliberalism: A Very Short Introduction (2010)
• Wang, Hui, and Karl, Rebecca E. "1989 and the Historical Roots of Neoliberalism in China," positions: east Asia cultures critique, Volume 12, Number 1, Spring 2004, pp. 7–70

External links

• Theorising Neoliberalism by Chris Harman in International Socialism journal
• What is Neoliberalism? by Dag Einar Thorsen of the University of Oslo
• The Last Development Crusade
• "Monetarism" at The New School's Economics Department's History of Economic Thought website.
• IDENTITIES: How Governed, Who Pays?
• Neoliberalism and the State with John Shields and Bryan Evans, Ryerson University, Toronto.
• The Essence of Neoliberalism Pierre Bourdieu
• A Look at Argentina’s 2001 Economic Rebellion – video report by Democracy Now!
• The Scorecard on Development, 1960–2010: Closing the Gap? – Center for Economic and Policy Research report, April 2011

Online lectures

• The Neoliberal City, David Harvey at the University Channel