Alex GoodmanNeoliberalism is a sophisticated political and economic theory that supports free business and encourages the transfer of economic power from the public to the private sectors.
It aims to maximize economic efficiency by restricting public spending, eliminating government regulation, and reducing public ownership, all of which are guided by the ideals of free market capitalism.
Ronald Reagan, the 40th President of the United States from 1981 to 1989, and Margaret Thatcher, the Prime Minister of the United Kingdom from 1979 to 1990, are two well known individuals who are frequently linked to this ideology. Austerity policies and initiatives to reduce public spending on social services are more recent examples of neoliberalism in action.
In a Nutshell
- Neoliberalism encourages fiscal austerity, deregulation, free trade, and reduced government spending.
- Neoliberalism is strongly related to the economic ideologies of Ronald Reagan and Margaret Thatcher.
- Neoliberalism is criticized for having the potential to threaten democracy, workers’ rights, and independent states’ sovereignty.
- Additionally, it is charged for escalating economic inequality and giving companies too much influence.
- Neoliberal ideas including free trade, industry deregulation, and a reduction in income and capital gains taxes have received support from both parties.
Understanding Neoliberalism
Neoliberalism is a political and economic philosophy that emphasizes free trade, deregulation, globalization and reduced government spending. It is related to laissez faire economics, a school of thought that prescribes minimal government interference in the economic affairs of individuals and society.
Neoliberalism is a form of economic imperialism that has been imposed on the developing world.
Vandana Shiva
Laissez faire economics proposes that continued economic growth will lead to technological innovation, expansion of the free market and limited state interference.In addition, neoliberalism is sometimes confused with libertarianism.
However, neoliberals often advocate greater government intervention in the economy and society than libertarianism. For example, while neoliberals often favor progressive taxation, libertarians often reject this position in favor of systems such as a flat tax rate for all taxpayers.
Serena ChenMoreover, neoliberals do not usually oppose measures such as bailouts of large industries, which are anathema to libertarians.While neoliberal policies may be considered conservative and contrary to the political beliefs of many, it should be noted that several U.S. neoliberal initiatives, such as free trade agreements, deregulation of the transportation, utility and banking sectors, and cuts in the top income tax rate and capital gains tax rate, enjoyed bipartisan support.
Characteristics of Neoliberalism
Neoliberalism involves the belief that greater economic freedom leads to greater economic and social progress for individuals. Supports:
- Free enterprise, competition, deregulation and the importance of individual responsibility
- Opposition to expansion of government power, state welfare, inflation
- Minimization of government control of industry and encouragement of private ownership of businesses and goods
- Free market capitalism and efficient allocation of resources
- Globalization rather than heavily regulated markets and protectionism
- Reduction of government spending and reduced taxes
- Lower government control over economic activity to improve the efficient functioning of the economy
- Increased impact of the private sector on the economy
- Reduction of union power and greater flexibility in employment
- Government intervention when needed to help implement, sustain and protect free market activities.
President Jimmy Carter’s deregulation of the airline industry in 1978 is an example of neoliberal policy in action. The Airline Deregulation Act eliminated government control over fares, routes and who could enter the market.
Liberalism vs. Neoliberalism
In essence, liberalism is a broad political philosophy. It defends freedom and defines all social, economic and political aspects of society, including the role of government. Neoliberalism is essentially an economic ideology. The policies of neoliberalism have a narrower focus and focus primarily on markets and the policies and measures that influence the economy.
Criticism of Neoliberalism
There are many criticisms of neoliberalism.
The Erroneous Free Market approach to Public Services
A common criticism of neoliberalism is that advocating a free market approach in areas such as healthcare and education is misguided because these services are public. Public services are not subject to the same profit motive as other industries.
More importantly, the adoption of a free market approach to health and education can lead to increased inequality and underfunding of resources (health and education) that are necessary for the long term health and viability of an economy.
Monopolies
The adoption of neoliberal policies in the Western world has coincided with an increase in both wealth and income inequality. While skilled workers may be able to command higher wages, low skilled workers are more likely to see their wages stagnate.
Policies associated with neoliberalism tend to foster the presence of monopolies, which increase corporate profits at the expense of consumer benefits.
Increased Financial Instability
Contrary to what proponents of neoliberalism often claim, the deregulation of capital has not necessarily contributed to economic development. Rather, capital deregulation has led to increased financial instability, including economic events that, at times, have shocked the entire world.
In fact, an International Monetary Fund (IMF) report on neoliberalism reveals that increased capital flows have been a factor that has increased the risk of adverse economic cycles.
Inequality
Neoliberal policies have been shown to increase inequality. This inequality can hinder an economy’s long term growth prospects. At one end of the spectrum, low income earners have limited purchasing power. At the same time, those who get richer have a greater propensity to save.
In the latter case, wealth does not trickle down as the defenders of neoliberalism claim.
Globalization
Finally, neoliberalism’s emphasis on economic efficiency has fostered globalization, which opponents believe deprives sovereign nations of the right to self determination.
Critics of neoliberalism also claim that its call to replace public enterprises with private ones may reduce efficiency. While privatization may increase productivity, they argue, the improvement may not be sustainable because of the world’s limited geographic space.
Moreover, opponents of neoliberalism add that it is undemocratic, can lead to exploitation and social injustice, and can criminalize poverty.
Wrap Up
Briefly put, neoliberalism is a political and economic theory that places a strong emphasis on the advantages of free trade, deregulatory reform, and little government involvement.
Despite being supported by a number of political systems and being associated with economic progress, it is also heavily criticized for escalating inequality and endangering public goods and services.
FAQs
Neoliberalism is an economic theory that supports lessening government spending, decreasing regulation, and exercising less strict economic control. While promoting free markets and private enterprise, it also permits some limited government intervention to keep these systems in place.
Through competitive prices and effective resource allocation, neoliberalism may promote freer markets, greater access to goods and services, higher incomes, and bigger profits. Its opponents, however, highlight some of the drawbacks, including economic injustice, the growth of monopolies, employment insecurity, outsourcing, and a disregard for the needs and welfare of others.
The North American Free Trade Agreement (NAFTA) is an illustration of neoliberalism in action. The goal of this agreement between the United States, Canada, and Mexico was to lower trade barriers and increase economic benefits for each nation.
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- Reason – The Neoliberal Revolution
- International Monetary Fund – Neoliberalism: Oversold?
- Stanford University – Neoliberalism
