What Is Neoliberalism?
Neoliberalism is a policy model that encompasses both political and economic dimensions. It favors private enterprise and aims to shift the control of economic elements from the government to the private sector.
Many neoliberal policies focus on the efficient functioning of free-market capitalism and aim to limit government spending, regulation, and public ownership.
Noteworthy historical figures often associated with neoliberalism include Margaret Thatcher, the prime minister of the U.K. from 1979 to 1990, and Ronald Reagan, the 40th president of the U.S. from 1981 to 1989. More recently, neoliberal policies have been connected with austerity measures and significant reductions in government spending on social programs.
Key Takeaways
- Fiscal Austerity and Deregulation: Neoliberal policies typically advocate for fiscal austerity, deregulation, free trade, privatization, and reduced government spending.
- Historical Figures: The economic policies of Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States are iconic examples of neoliberalism.
- Criticism and Debate: Critics argue that neoliberalism can undermine democracy, violate workers’ rights, and place excessive emphasis on market mechanisms which may not always be rational. It has also been accused of amplifying corporate power and exacerbating economic inequality.
Understanding Neoliberalism
Neoliberalism is a political and economic philosophy that prioritizes free trade, deregulation, globalization, and reduced government spending. It is closely related to laissez-faire economics, which advocates for minimal government interference in the economy.
Laissez-faire economics posits that minimal state interference maximizes economic growth and societal prosperity.
Neoliberalism is often confused with libertarianism, yet the two have distinct approaches. Libertarians typically eschew most forms of government intervention altogether, while neoliberals may support certain interventions that aid the functioning of the free market, such as progressive taxation at low rates as opposed to flat taxes or eliminating income taxes entirely.
Neoliberals also tend to see value in government activities like bailouts of major industries, something libertarians fundamentally oppose.
Characteristics of Neoliberalism
Neoliberalism revolves around the belief that greater economic freedom leads to substantial social and economic progress. Key traits include:
- Free Enterprise and Competition: Advocate for free enterprise, competition, and the importance of personal responsibility.
- Minimizing Government Power: Focus on reducing government control over industries, promoting private sector ownership and business.
- Free Market Principles: Uphold free market capitalism, efficient resource allocation, and opposition to state welfare and inflation.
- Free Trade: Favor free trade over heavily regulated markets and protectionism.
- Reduced Government Spending: Emphasis on curtailing government spending and implementing lower taxes.
- Private Sector Impact: Higher reliance on the private sector for economic activities.
- Employment Flexibility: Reduction in union power and increased employment flexibility.
- Government Interventions: Limited, but targeted interventions to support and protect free market activities.
An example is President Jimmy Carter’s deregulation of the airline industry in 1978 via the Airline Deregulation Act, which removed government control over fares, routes, and market entry.
Neoliberalism vs. Liberalism
While liberalism is a broad political philosophy valuing liberty across all societal dimensions—including the economy and government—neoliberalism narrows its focus primarily to economic principles predominantly influencing market policies.
Criticism of Neoliberalism
Misguided Free Market Approach to Public Services
Critics argue that applying a free market approach to public services like health and education is misguided, as these sectors are not driven by profit motives and risk underfunding, thereby increasing inequality.
Monopolies
Neoliberal policies have been linked with rising inequality in wealth and income, where skilled workers benefit while low-skilled workers face wage stagnation. Additionally, such policies may encourage monopolies that prioritize corporate profits over consumer benefits.
Increased Financial Instability
Capital deregulation has led to increased financial instability, contradicting neoliberal claims of fostering economic development. Indeed, increased capital flows have heightened risks of adverse economic cycles, as noted by reports from agencies like the International Monetary Fund (IMF).
Inequality
Studies indicate neoliberal policies contribute to economic inequality, which can hinder long-term economic growth. Inequality places constraints on the spending power of low-income earners while allowing the wealthy to save more, worsening the disparity.
Globalization
Neoliberalism’s emphasis on economic efficiency has propelled globalization, which critics believe causes job losses and factory closures as operations move overseas. Furthermore, privatization of public enterprises under neoliberalism can impair access to essential services and workers’ rights.
Opponents also assert that neoliberalism is anti-democratic, fostering exploitation and social injustice by enabling corporations to subvert democratic processes.
Neoliberalism Simplified
In simple terms, neoliberalism is an economic model or philosophy prioritizing minimal government regulation, decreased spending, and limited control over the economy, believing that such an environment fosters greater economic and societal progress.
Effects of Neoliberalism
Positive effects include freer markets, access to a wider array of products, increased revenue, higher profits, and lower prices due to competition. Efficient resource allocation can result in savings, improved workforce organization, and better talent acquisition. Adverse effects may include economic inequality, monopolies, job insecurity, outsourcing-related job losses, and indifference to individual needs.
Example of Neoliberalism
One prominent example is the North American Free Trade Agreement (NAFTA), which eliminated trade restrictions between the U.S., Canada, and Mexico, promoting economic benefits for all three countries.
Conclusion
Broadly, neoliberalism champions minimal government involvement in the economy and privatizes functions wherever feasible. Like all economic policies, neoliberalism carries both advantages and disadvantages.
Related Terms: free market, deregulation, laissez-faire economics, privatization, fiscal austerity
References
- Gov.Uk. “Baroness Thatcher”.
- The White House. “Ronald Reagan”.
- National Air and Space Museum. “Airline Deregulation: When Everything Changed”.
- Mike Konczal, Katy Milani, Ariel Evans. “The Empirical Failures of Neoliberalism”, Page 12. The Roosevelt Institute, January 2020.
- International Monetary Fund. “Neoliberalism: Oversold?”
- Shahrazd Goudarzi, et. al. “Neoliberalism and the Ideological Construction of Equity Beliefs”, Perspectives on Psychological Science, Volume 17, Issue 5. Sep, 2022.
