What Is Neoliberalism? Meaning, History and Debate

Neoliberalism in plain terms

Neoliberalism is a word for an approach to economic policy that gives markets a larger role and the state a smaller, more rule-setting one. In practice the label is attached to policies such as:

• Privatization of state-owned companies, such as utilities, airlines and telecoms
• Deregulation of industries and finance
• Free trade and fewer barriers to foreign investment
• Fiscal discipline, meaning lower deficits and often lower public spending
• Tax cuts, especially on top incomes and corporations
• Independent central banks focused on low inflation
• Weaker union power and more flexible labor markets

The "neo" signals a new version of the old classical liberalism of the eighteenth and nineteenth centuries. Unlike pure laissez-faire, though, most neoliberal thinkers wanted a strong state to set and enforce market rules, protect competition and maintain sound money.

See the neoliberalism ideology page and classical liberalism vs neoliberalism.

A word with two lives

The political scientists Taylor Boas and Jordan Gans-Morse studied how the word is used in academic writing. Their 2009 article in Studies in Comparative International Development found that "neoliberalism" is used mostly by critics, rarely by supporters, and often without a definition. They traced how the meaning shifted.

The original neoliberals

In 1938, liberal economists and intellectuals gathered in Paris at the Walter Lippmann Colloquium, where the term neoliberalism was adopted for a renewed liberalism. They rejected both the planned economies of the era and what they saw as the failures of nineteenth century laissez-faire. German members of this movement developed ordoliberalism, which stressed a strong legal framework for competition. Ludwig Erhard, West Germany's economics minister after 1949, used these ideas in building what became known as the social market economy.

The Mont Pelerin Society

In 1947, Hayek gathered economists and philosophers, including Ludwig von Mises and Friedman, in Mont Pelerin, Switzerland. The society's Statement of Aims warned that "the central values of civilization are in danger" and expressed concern about the decline of belief in private property and the competitive market. The group became a hub of free-market thought for decades.

Hayek's essay "The Use of Knowledge in Society" (1945) gave one of the movement's central arguments: knowledge in an economy is dispersed among millions of people, and market prices coordinate it better than any central planner could.

From ideas to policy

The 1970s crisis

After 1945, most Western economies followed a Keynesian consensus, associated with John Maynard Keynes, combining markets with active demand management, welfare states and, in many countries, nationalized industries. In the 1970s, high inflation combined with rising unemployment, called stagflation, undermined confidence in that model. Friedman's monetarism and the wider free-market critique gained ground.

Thatcher and Reagan

Thatcher, elected in the UK in 1979, privatized state companies such as British Telecom and British Gas, curbed union power and tightened monetary policy. Reagan, elected in the US in 1980, cut top income tax rates, deregulated several industries and backed the Federal Reserve's fight against inflation. Supporters credit both with reviving their economies. Critics argue that they deepened inequality and hurt industrial regions.

Chile adopted free-market reforms under the Pinochet dictatorship from the mid-1970s, advised by economists trained at the University of Chicago, which remains one of the most controversial chapters in the history of the term.

The Washington Consensus

In 1989, the economist John Williamson listed ten policy reforms that institutions in Washington, such as the IMF, the World Bank and the US Treasury, were urging on Latin American countries. His list included fiscal discipline, tax reform, trade liberalization, openness to foreign investment, privatization, deregulation and secure property rights. The phrase "Washington Consensus" became shorthand for neoliberal policy in developing countries, though Williamson himself said it was often used to mean more than he intended.

The center-left adopts it

In the 1990s, center-left leaders such as Bill Clinton in the United States, Tony Blair in the United Kingdom and Gerhard Schröder in Germany kept many market reforms while adding social investment in education and training. This Third Way approach is why critics on the left often describe the era from about 1980 to 2008 as a neoliberal consensus shared by both main parties. See social democracy vs Third Way.

Is neoliberalism the same as libertarianism or conservatism?

Not quite, though they overlap.

• Libertarians want a minimal state, or none at all, across both the economy and personal life. Neoliberals usually accept a sizable state that sets market rules, funds some public services and manages money. See libertarianism.
• Conservatives focus on tradition, order and gradual change. Many conservatives embraced neoliberal economics in the 1980s, and fiscal conservatism shares its focus on budgets and taxes, but social conservatives and national conservatives often criticize free trade and market culture.
• Center-left Third Way politicians combined neoliberal economics with social liberalism and investment in education and training.

That flexibility is one reason the term is hard to pin down. It describes a set of economic policies more than a full worldview, and people with very different social values have supported it.

Neoliberalism compared

The debate

The case for

Supporters argue that market reforms ended stagflation, raised productivity and helped lift hundreds of millions of people out of poverty as countries such as China and India opened to trade and investment. They point to the failures of planned economies and of heavily nationalized industries in the 1970s. Independent central banks, they argue, brought decades of low and stable inflation. Many supporters reject the label itself and simply describe themselves as liberal, pro-market or pragmatic.

The case against

Critics argue that neoliberal policies increased inequality, weakened unions and public services, and shifted power to corporations and finance. They point to the 2008 financial crisis as a result of deregulation, and to painful austerity programs. A 2016 article by three economists at the International Monetary Fund, titled "Neoliberalism: Oversold?", looked at two policies, opening up to capital flows and austerity, and concluded that their growth benefits were hard to establish while their costs in inequality were significant. The authors also acknowledged that the expansion of global trade had rescued millions from poverty.

Criticism also comes from the right. National conservatives and populists argue that free trade and open capital markets hollowed out manufacturing communities and weakened national sovereignty.

A label in flux

Since 2008, and more since 2016, both major US parties and many European parties have moved away from parts of the old consensus, embracing industrial policy, tariffs or larger public investment. Whether that marks the end of neoliberalism or a temporary adjustment is still debated.

Find where you fit

You may lean toward neoliberal ideas if you think free markets, open trade and a limited but effective state produce the best results. You may lean toward social democracy or democratic socialism if you think markets need strong public counterweights, or toward national conservatism if you favor protection of national industries.

The Political Compass Test separates your economic views from your views on authority. The Political Values Test gives four separate scores, and the Left or Right Quiz is a fast first check. Related reading: what is classical liberalism and capitalism vs socialism.