What is Neoliberalism?
Neoliberalism is a word for a bundle of economic ideas that rose to power from the 1970s. They stress competition, private firms, open borders for goods and money, steady prices and a state that steps back from running the economy. Hardly anyone calls themselves a neoliberal. The word is mostly used by scholars and critics to describe a broad change in policy, so it is hard to pin down. At its simplest, it means an older faith in markets, updated for modern governments and global business.
Core beliefs
- Competitive markets usually use resources better than public planners.
- Many state-owned firms should be sold to private owners.
- Rules that protect firms from competition should be cut.
- Free trade and the free flow of capital drive growth.
- Governments should keep inflation low and budgets in check.
- The state should set the rules of the game, not play in it.
History
The term first appeared at a meeting in Paris in 1938, the Walter Lippmann Colloquium, where thinkers asked how to renew liberalism after the Depression. In 1947 Friedrich Hayek gathered like-minded economists at Mont Pelerin in Switzerland to defend free societies against central planning. Hayek and Ludwig von Mises argued that no planner can know what prices tell millions of buyers and sellers. Milton Friedman stressed money and choice, and James Buchanan studied how governments fail. After the high inflation and unemployment of the 1970s, many leaders turned away from Keynesian policy. Chile adopted market reforms under military rule in the 1970s. In the 1980s Margaret Thatcher and Ronald Reagan cut taxes, sold state firms and loosened rules. In 1989 John Williamson listed ten reforms favored by Washington institutions for developing countries, which became known as the Washington Consensus.
Variants
The Chicago school, tied to Friedman, focused on money and deregulation. The Austrian school of Mises and Hayek stressed how little any planner can know. German ordoliberals, such as those of the Freiburg school, wanted a strong legal order to guarantee competition. Some scholars also speak of a Third Way kind, found in center-left governments of the 1990s, which kept market reforms but added social spending and liberal social policy.
Criticisms
Critics on the left say these policies widened inequality, weakened unions, shrank public services and gave finance too much sway, and some tie them to the 2008 crash. Populist and national conservative critics say free trade and open capital moved factories abroad and weakened national communities. Some economists in many camps argue that quick privatizations in the 1990s, for example in parts of the former Soviet bloc, went badly. Defenders answer that market reform tamed inflation and helped many economies grow.
In practice
Policies tied to the label include the sale of utilities and state industries in Britain, independent central banks aimed at stable prices, and trade deals such as the creation of the World Trade Organization in 1995. The loan conditions of the IMF and World Bank in the 1980s and 1990s often followed the same ideas. Governments of both center-left and center-right took parts of the package. On the 12 axes it scores strongly toward Private on Ownership, Free on Markets, and Global on Trade.