What is Neoliberalism?
Neoliberalism is a term for a set of economic ideas and policies that became influential from the 1970s onward. It emphasizes free market competition, private enterprise, open trade and capital flows, low inflation and a smaller role for the state in running the economy. Few people describe themselves as neoliberal. The word is used mostly by scholars and critics to describe a broad shift in policy, so its exact meaning is debated. In general, it refers to a revived form of economic liberalism adapted to modern states and global markets.
Core beliefs
- Markets usually allocate resources more efficiently than governments.
- State owned companies should often be privatized.
- Regulations that limit competition should be reduced.
- Free trade and free movement of capital promote growth.
- Governments should control inflation and keep budgets sustainable.
- The state should create rules for markets rather than plan the economy.
History
The word neoliberalism was used at the Walter Lippmann Colloquium in Paris in 1938, where economists and intellectuals discussed how to renew liberalism. In 1947 Friedrich Hayek founded the Mont Pelerin Society, which brought together economists who opposed central planning. Hayek, Ludwig von Mises and Milton Friedman argued that markets coordinate knowledge better than planners, and that economic freedom supports political freedom. James M. Buchanan developed public choice theory, which studies how governments can fail. After the economic crises of the 1970s, which combined high inflation and unemployment, many governments moved away from Keynesian demand management. In the 1980s British and American governments led by Margaret Thatcher and Ronald Reagan cut taxes, privatized industries and reduced regulation. In 1989 the economist John Williamson summarized a set of reforms promoted for developing countries, later called the Washington Consensus.
Variants
The Chicago school, linked to Milton Friedman, focused on monetary policy and deregulation. The Austrian school, linked to Mises and Hayek, stressed the limits of economic knowledge. German ordoliberalism, sometimes grouped with neoliberalism, favored a strong legal framework for competition. Some scholars also describe a later progressive or Third Way neoliberalism, which kept market reforms but added social spending and socially liberal policies.
Criticisms
Critics on the left argue that neoliberal policies increased inequality, weakened unions, reduced public services and gave financial markets too much power, and some link them to the 2008 financial crisis. Critics on the national conservative and populist right argue that free trade and open capital flows moved industrial jobs abroad and weakened national communities and sovereignty. Some economists from different schools also argue that rapid privatization in some countries in the 1990s produced poor results. Defenders reply that market reforms helped reduce inflation and supported growth in many economies.
In practice
Policies associated with neoliberalism include privatization of utilities and state industries in Britain and elsewhere, independent central banks focused on price stability, trade agreements such as those creating the World Trade Organization in 1995, and market reforms in Chile from the 1970s. Structural adjustment programs of the International Monetary Fund and World Bank in the 1980s and 1990s often followed similar principles. Many governments of both center left and center right adopted parts of this approach.