Neo-liberalism

Ideologies can shake the entire world, changing world economies and shaping political structures. Throughout the 20th Century, the influence of Neoliberalism has snowballed and today represents a dominant political ideology which influences the day-to-day lives of countless people all across the globe. Sounds pretty important right? 

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    Join us as we take a deep dive into the meaning of neoliberalism, the emergence of this political ideology and explore far-reaching impacts.

    Meaning of neoliberalism

    Throughout the 20th Century, neoliberalism has emerged as a dominant political ideology which today is applied to, and influences, the day-to-day running of many political systems globally. It's very likely that as you sit reading this article, you may become aware of the ways that neoliberalism directly influences the political world around you.

    Neoliberalism is a conservative political ideology which advocates for free-market capitalism, limited state intervention and economic deregulation.

    Neoliberalism as a political ideology champions the phenomenon of 'freedom'. Additionally, Neoliberalism can be defined by a number of key characteristics:

    • support for laissez-faire economics

    • minimal state intervention

    • promotes free-market capitalism and economic competition

    • the importance of the individual as an economic and political actor

    • In support of the view that economic growth is a progressive force

    Laissez-faire economics

    An economic philosophy which opposes government intervention in the economy.

    Free-market capitalism

    Capitalism describes an economic system in which private individuals control the mean of producing essential goods and services. In addition, free-market capitalism describes a system which follows trends of supply and demand rather than economic patterns created through state intervention.

    Despite a strong focus on economic practices, it is important to remember that when applied, neoliberalism is an ideology that creates far-reaching economic, political and social impacts.

    For instance, neoliberalism calls for implementing measures to lower trade barriers, encourage the free flow of trade, deregulation of markets, and introduce measures to promote austerity and privatisation.

    Neoliberalism theory

    Throughout the 20th Century, neoliberalism is a political ideology which has been shaped by a number of key economic and political thinkers such as F. A Hayek and Milton Friedman.

    As a theory, neoliberalism supports the philosophy of globalisation and encourages deregulation of the private sector. Further, neoliberalism champions free trade with proper checks and balances on state functions and by casting restrictions on taxation and introducing austerity measures.

    Key neoliberal figures

    F. A Hayek

    An Austrian-British economist, legal theorist and philosopher, F. A Hayek is often referred to as the "grandfather of neoliberalism".1

    Neo-liberalism Photograph of F. A Hayek StudySmarterF.A. Hayek, DickClarkMises, CC-BY-SA-3.0, Wikimedia Commons

    Hayek conceptualised the idea of a "price system". A concept which strives to organise economic activity, through identifying a market value for all tangible and intangible products or property. Hayek proposed that the majority of actions taken by an individual could be considered an economic calculation and were directly influenced by the price signals.

    Hayek's concept of a "price system" gave rise to neoliberalism, as for this system to be applied effectively Hayek acknowledged that economic markets must be competitive and free from state-imposed regulations.

    Throughout the 20th and 21st centuries, Hayek's work has been credited for its influence on neoliberalist thought. Former US Secretary of the Treasury, Lawrence Summers, described Hayek's work as:

    The single most important thing to learn from an economics course today"

    - Summers, 1998

    Milton Friedman

    Friedman, an American economist, is often cited as an influential neoliberal thinker owing to the publication of his landmark 1951 essay, Neo-liberalism and Its Prospects.

    Neo-liberalism Photograph of Milton Friedman StudySmarterMilton Friedman, Wikimedia Commons

    In this article, Friedman emphasises the importance of the individual as an economic actor and opposes any state intervention in the economy. Such an approach can be described as "market liberalisation" and reduces state intervention on a range of issues such as public spending on social and welfare, establishing a stable monetary framework, and preventing monopolies.

    Neoliberal politics

    So we've examined some of the key concepts and theorists behind neoliberalism, now let's see what this ideology looks like in action! Neoliberalism can be applied to shape political, economic and social policies, meaning that it has far-reaching impacts on those living in neoliberal nation-states.

    We will examine two key policy areas to get a greater picture of how neoliberalism is applied in politics:

    1. Economic

    2. Social/welfare

    Neoliberal economic policies

    When applied to state economies, neoliberalist economic policies centre on promoting free-market capitalism and placing checks and balances on a government's ability to intervene and influence the economy. Neoliberal economic policies are justified via political arguments such as:

    • Economic growth is progressive and beneficial
    • Neoliberalists support the view that free, unregulated markets provide the most efficient allocation of resources and materials using the principle of supply and demand
    • Government interventions could result in distortions that can lead to market crashes.

    Below are a few examples of what neoliberal economic policies look like in action.

    Deregulation

    Deregulation describes the process of removing government legislation which affects specific parts of an economy. Price deregulation relates to the removal of government protections, for example, controls which make prices for specific goods lower for consumers.

    An example of price deregulation occurred in December 1991, following the break up of the communist Soviet Union. Post-communist Russia saw prices, previously influenced by government policy, deregulated and the introduction of a free capitalist market.

    Private ownership

    Neoliberalism also calls for government-owned businesses to be handed to the private sector. Such an economic approach intends to boost efficiency and lower costs through free-market competition between goods and service providers.

    An example of this occurred in 2015 when the final UK government-owned shares of Royal Mail were sold. By October 2015, Royal Mail was owned by private stakeholders. The UK government states that the privatised Royal Mail was designed to "give the company access to private capital and improve its competitiveness".2

    Economic competition

    Neoliberalism strives to foster economic competition to encourage innovation, entrepreneurialism and efficiency within economies.

    In action, international global financial institutions such as IMF (International Monetary Fund), World Bank, and Asian Development Bank are examples of neoliberalism. The aim of these institutions is to assist impoverished states in formulating an economic approach which ensures economic competitiveness to state-level bankruptcy.

    Neoliberalism and Conservatism

    Throughout history, there have been a number of impactful neoliberal politicians who illustrate the connection between neoliberalism and conservatism. Below we will explore two key examples, Ronald Reagan and Margaret Thatcher.

    Neoliberalism A photograph of Thatcher and Reagan talking StudySmarterMargret Thatcher and Ronald Reagan, Wikimedia Commons

    Reaganomics (1981-1989)

    Through his choice in economic policies, US President Ronald Regan became an important neoliberal figurehead. Reagan's economic policies were so significant, that they left a lasting legacy in US politics often referred to as "Reaganomics".

    Ronald Reagan was the 40th President of the United States from 1981 to 1989. Reagan's economic policies were deeply influenced by neoliberal policies, as he sought to privatise state-owned industry, reduce income taxes and minimise government interference in the US economy.

    For example, prior to Reagan's presidency in the 1970s, the highest tax rate for US earners was 70% but by the end of Reagan's presidency, the highest tax rate for US earners was just 28%.

    Thatcherism (1979-1990)

    Another famous neoliberal figurehead includes former UK Prime Minister, Margaret Thatcher. Conservative Prime Minister between 1979-1990, Thatcher's approach also left a lasting legacy often referred to as "Thatcherism".

    Thatcher sought to reduce government intervention in the UK economy. Consequently, Thatcher followed neoliberal economic policies which resulted in the privatisation of state-owned industries. This included the UK energy and telecommunications sectors, a decision Thatcher argued would increase efficiency and lower prices for consumers.

    Thatcher proposed that her economic politics would create a far-reaching cultural change in the UK. Thatcher advocated for smaller state intervention in the daily lives of British citizens to encourage greater self-reliance and economic stability.

    I came to office with one deliberate intent: to change Britain from a dependent to a self-reliant society"

    - Thatcher, 1984

    Neoliberal social and welfare policies

    When applied to a state's social and welfare structures, neoliberalist policies promote minimal state intervention and a reduction in public spending. In practice, neoliberal social and welfare policies support austerity-driven measures and favour the privatisation of essential services, such as areas of public health and care services.

    The political logic for such an approach is largely justified by the arguments made by Hayek and Friedman which propose that neoliberal policies provide the most effective allocation of essential resources and competitive, efficient services.

    Austerity describes a reduction in government spending. Such an approach is typically taken to benefit a state, by reducing the national debt of the state.

    An example of this neoliberal policy in action can be found in the UK, following the 2008 financial crash and subsequent global recession. Between 2010 to 2019, more than £30 billion in government spending was cut, reducing the money and resources available to social welfare services in the UK. Austerity within the UK resulted in the cancellation of educational programmes, cuts in welfare spending and reductions in local government funding.

    The notion of 'economy’ in the understanding of identity politics plays a pivotal role in defining a person’s identity. The element of economy is embedded and contributes to a lot of the spheres of an individual life. So in identity politics, people of specific groups of culture, religion, ethnicity, and race try to promote and present their concerning interests/issues, parallel to the interests of a larger political group. These individual interests are often previewed as being misaligned with the interests of the larger political groups.

    Identity Politics is a constructive movement against the state to serve the phenomenal interests of neoliberalism at the cost of disregarding and negating the interests of its citizens''.

    Difference between Keynesianism and Neoliberalism

    While studying you may be asked to compare and contrast neoliberalism to other political ideologies. Such an approach reveals the similarities and differences between the two ideological approaches. Below, as an example, we will compare neoliberalism with Keynesianism to highlight how to two ideologies differ.

    As an additional activity, you may wish to make your own comparisons between neoliberalism and other political ideologies such as conservatism.

    Before we begin, let's have a quick recap on Keynesianism.

    Keynesianism is an economic theory, developed by British economist John Maynard Keynes. This theory promotes state spending and argues it is necessary to help boost the economy, increase consumer demand and improve employment levels.

    Keynesianism is a theory of macroeconomics, developed by John Maynard Keynes in response to the US "Great Depression" of the 1920s. According to Keynes, in times of recession, global institutions and nation-states should have the instruments to exercise control over the economy.

    One of Keynes’ key concepts, was the idea of a business cycle. Keynes argued that the economic market is not self-regulating and therefore state intervention was necessary.

    A business cycle is an economic trend which describes the upswings and downturns in national and international economic systems.

    Keynesianism

    Neoliberalism

    • Keynes, the champion of modern macroeconomic studies, conceptualising the term ‘business cycle’.

    • Neoliberals, Friedman and Hayek supported the economic theory of ‘laissez-faire economics’.

    • Keynes’ work proposed that state intervention is necessary for successful national economies. For instance, Keynesian economics advocates for governments to take direct economic activity during periods of economic downturn, encouraging public spending to support citizens and improve long-term economic stability.

    • Hayek and Friedman shared the view that states must minimise their intervention in the economy to ensure economic progress. For instance, enabling the private sector through privatization, fiscal austerity measures, deregulation of markets, enhancing free trade, and cutting down government public spending.

    • Keynes’ economic approach has been highly influential throughout the 20th and 21st centuries. For example, Keynesianism shaped US President, Roosevelts’ New Deal. This ‘New Deal’ directly intervened in the US economy, providing safeguards on the US banking sector to prevent a sharp downturn in prices.

    • The work of incredible economists, Hayek and Friedman, became the basis for the economic strategies of politicians like Margaret Thatcher and Ronald Regan.

    Neoliberalism - Key takeaways

    • Neoliberalism as a political ideology champions the phenomenon of 'freedom'.

    • Neoliberalism can be defined by a number of key characteristics:

      • support for laissez-faire economics
      • minimal state intervention
      • promotes free-market capitalism and economic competition
      • the importance of the individual as an economic and political actor
      • In support of the view that economic growth is a progressive force
    • Despite a strong focus on economic practices, it is important to remember that when applied, neoliberalism is an ideology that creates far-reaching economic, political and social impacts.

    • Neoliberalism calls for implementing measures to control pricing, lowering trade barriers, encouraging the free flow of trade, deregulation of markets, and introducing measures to promote austerity and privatisation.

    • Economic competition, deregulation and privatisation are three examples of neoliberal economic policies

    References

    1. S. Metcalf, Neoliberalism: the idea that swallowed the world
    2. C.R Why is the Royal Mail being privatised?
    Frequently Asked Questions about Neo-liberalism

    What are neoliberal values?

    Neo-liberalism as a political ideology champions the phenomenon of 'freedom'. Additionally, Neo-liberalism can be defined by a number of key characteristics:

    • support for laissez-faire economics
    • minimal state intervention
    • promotes free-market capitalism and economic competition
    • the importance of the individual as an economic and political actor
    • In support of the view that economic growth is a progressive force

    How does neoliberalism influence politics?

    Despite a strong focus on economic practices, it is important to remember that when applied, neo-liberalism is an ideology that creates far-reaching economic, political and social impacts. For instance, neo-liberalism calls for implementing measures to control pricing, lowering trade barriers, encouraging the free flow of trade, deregulation of markets, and introducing measures to promote austerity and privatisation. 

    Is neoliberalism a political ideology?

    Neo-liberalism is a political ideology, which today is applied and influences the day-to-day running of many political systems globally. Neo-liberalism supports the philosophy of globalisation and encourages deregulation of the private sector.

    What is the basic concept of neoliberalism?

    Neo-liberalism is a conservative political ideology which advocates for free-market capitalism, limited state intervention and economic deregulation. 

    How does neoliberalism affect social work?

    When applied to a state's social and welfare structures, neoliberalist policies promote minimal state intervention and a reduction in public spending. In practice, neo-liberal social and welfare policies support austerity-driven measures and favour the privatisation of essential services, such as areas of public health and care services. 

    Test your knowledge with multiple choice flashcards

    Which of the following are neo-liberal international financial institutions?

    Which of the following is NOT an example of a neoliberal economic policy?

    Neoliberalism promotes which economic system?

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