Neoliberal Meaning
Neoliberalism
A policy model that surrounds both politics and economics is called neoliberalism. It helps private enterprises and searches for ways to transfer the control of economic factors from the government to the private sector. Many neoliberal policies are distressed about the effective functioning of free market capitalism and target reducing government spending, public ownership, and government rules and regulations.
Neoliberalism is associated with Margaret Thatcher, who was the prime minister of the United Kingdom from 1979 until 1990, and Ronald Reagan, who was the 40th president of the United States from 1981 until 1989. In recent days, neoliberalism has been associated with policies of frugality and used to invest government spending on social welfare programmes.
Example
The main example of neoliberalism is the North American Free Trade Agreement (NAFTA). In this agreement, U.S., Canada, and Mexico agreed to remove all restrictions on trade between each other’s countries to open up trade and enhance their economic advantage.
Explanation
A political and economic philosophy, neoliberalism, emphasises free trade, globalisation, deregulation, and limiting government spending. Neoliberalism is connected with laissez-faire economics. This is also a school of thought in economics that dictates minimal government interference in the economic problems of society and individuals. Laissez-faire economics is a philosophy that limits state interference and participation in the economy, which enhances economic growth and profitability.
Sometimes, neoliberal ideology messes up with libertarianism. Neoliberals are the ones who prescribe more government intervention in both the economy and society than libertarianism.
For example, neoliberals promote progressive taxation at low rates, while libertarians prefer low flat taxes or totally eliminated income taxes. These two concepts are also different philosophically. Libertarians focus on economic rights and freedom, while neoliberals focus on a free market economy, which stimulates economic growth.
Effects of Neoliberalism
There are some positive effects of neoliberalism, including access to more products or services to increase consumer demand, free markets, increased revenue, and high profit margins. Another effect of neoliberalism is a reduction in prices due to greater competition. Savings can be triggered by the efficient allocation of resources. Neoliberal policies can be helpful in better organising the workforce and hiring needed talent for specific jobs.
Neoliberalism also has some negative effects, which include the growth of monopolies, economic inequality, lack of job security, loss of jobs due to outsourcing, and indifference in the well-being of individuals and society.
Historical Background of Neoliberalism
The term neoliberalism came into being in 1938 at a conference of noted economists in Paris. There was a group of famous economists, including Walter Lippmann, Friedrich Hayek, and Ludwig von Mises, who explained the term neoliberalism as the priority of free enterprise, price mechanisms, a system of competition, and an impartial and strong state.
Being exhausted from Nazi-controlled Australia, Friedrich Hayek and Ludwig von Mises noticed that social democracy was exemplified by the United States' President Franklin D. Roosevelt’s new deal government-regulated programmes and the rise of Great Britain's post World War II welfare state as the manifestation of collective ownership of manufacturing and wealth lying in the same socioeconomic spectrum as Nazism and communism.
Fundamentals of Capitalism
Neoliberal economic policies consist of two fundamentals of capitalism:
Deregulation
The reduction of government control over industries is deregulation. Examples of deregulation can be found in deregulated industries in the United States, including the airline industry, trucking industry, and telecommunication industry.
Privatisation
The transfer of ownership, business, property, or rights from the government to the private sector is called privatisation. Examples of privatisation include correlation systems in the form of for-profit private prisons and the construction of interstate highway systems.
Goals of Neoliberalism
The goal of neoliberalism is the transfer of ownership and control of economic factors or activities from the hands of the government to the private sectors, which supports globalization and free market capitalism over highly regulated markets, especially in communist and socialist states.
Neoliberals’ goal is to increase the influence of the private sector on the economy by achieving high reduction in government spending.
Differences between Neoliberalism and Liberalism
The following table contains the main points of difference between neoliberalism and liberalism.
Characteristics of Neoliberalism
Neoliberalism has strong faith that high economic freedom will lead to enhanced economic and social progress for individuals in that specific country. Neoliberalism has the following characteristics:
- Neoliberalism supports competition, deregulation, free enterprise, and the importance of individual responsibility.
- Neoliberalism opposes the expansion of government power, inflation, and state welfare.
- It helps minimise the government’s hold on industries and encourage private sector ownership of businesses and properties.
- Neoliberalism supports efficient allocation of resources and free market capitalism.
- It also supports free trade between countries instead of heavily regulated markets.
- It helps in reducing government spending and decreasing tax rates.
- It also favours less government control over economic activities to regulate the effective functioning of the economy.
- It supports increasing the impact of the private sector on economic growth.
- Neoliberalism helps reduce union power and enhance flexibility in employment.
- It supports government intervention when it is necessary to implement, protect, and sustain free market activities.
Criticism of Neoliberalism
The following points explain the criticism of neoliberalism:
Misguided Free Markets
Economists have criticised neoliberalism for advocating a free market approach in areas like education and health, which is fully misguided because these are merit goods beneficial for society. The merit goods will be underprovided by the free markets due to information failure. It is also argued that there is a rise in inequality and underfunding of country resources if the health and education industries use a free market approach.
Monopolies
Those policies that are associated with neoliberalism encourage the presence of monopolies, which ultimately increase the profits of corporations at the cost of benefits to consumers.
Financial Instability
Economists also criticised the idea that capital deregulation is not important or useful for economic development. Instead, capital deregulation can cause an increase in financial instability and include economic events that sent shockwaves around the world at that time. An International Monetary Fund (IMF) report revealed that an increase in capital flow can increase the risk of adverse financial cycles in an economy.
Inequality
Critics also argued that neoliberal policies can increase inequality. This inequality can restrict the long-term growth of an economy. Due to inequality, people who earn low income have limited spending power, while people who earn high income have a high propensity to save. For example, the implementation of neoliberal policies in Western countries causes an increase in inequality in wealth and income. Due to this, skilled workers demand high wages, while low-skilled workers remain at constant wage levels.
Globalisation
Critics argued that neoliberalism’s emphasis on economic efficiency can encourage globalisation, which causes factories to shut down and jobs to shift overseas. They also argue that government-owned corporations should be replaced by private corporations that can cause societal harms, like lack of access to necessary services and affecting workers’ rights. Critics also claim that neoliberalism is anti-democratic and can lead to social injustice and exploitation. It can also lead corporations to use their power and resources to suppress the will of the majority of people. Other critics said that it supports undemocratic regimes that impose neoliberal economics.
Conclusion
In conclusion, neoliberalism is an economic policy stance. According to this, governments should take a limited role in the economies of multiple countries and privatise all functions held under their supervision. Just like other models and theories, neoliberalism also has some benefits and drawbacks. Many economists brutally criticised this theory.