Neoliberalism

Neoliberalism refers to a political-economic philosophy that has had major implications for government policies beginning in the 1970s – and increasingly prominent since 1980 – that de-emphasizes or rejects government intervention in the economy (that complements private initiative), focusing instead on achieving progress and even social justice by encouraging free-market methods and fewer restrictions on business operations and economic development. Supporters argue that by implementing business-friendly policies, a society can assure that its businesses grow, creating jobs and other economic benefits which improve the welfare of the entire economy. This is commonly referred to as 'trickle down economics' or 'Reaganomics.' Detractors tend to think that government intervention is necessary to create an equitable society.

Brief history

Just as classical liberal philosophy justified and encouraged the "first era of globalization" which came to an end with the shocks of the First World War, the collapse of the Gold Standard, and the Great Depression, neoliberalism is associated with the contemporary "second era of globalization," the seeds of which were planted after the Second World War. In between, during the period from 1915 until the 1960s or so, different versions of more statist liberalism and economic nationalism guided the economic and social policies of many nations. In mid-1950s, a book about the theory and practice of neoliberalism, recent German liberalism and the Federal Republic of Germany was published in the German Democratic Republic.

Related Topics:
Classical liberal - First World War - Gold Standard - Great Depression - Second World War - Liberalism - Federal Republic of Germany - German Democratic Republic

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Neoliberalism's economic roots begin with the re-establishment of international monetary stability with the Bretton Woods Agreement, which fixed currencies to the U.S. Dollar and the U.S. Dollar to gold. As an ideological movement, it became increasingly prevalent based on the work of Robert Mundell and Arthur Flemming. The Mont Pelerin Society, founded at about the same time by thinkers such as Friedrich Hayek, Milton Friedman, and Michael Polanyi created free-market think tanks and advocacy groups in the United Kingdom and the United States during the 1960s and 1970s. They drew upon the theories of the Austrian School of economics and monetarism. Neoliberalism argued that protectionism and government programs produced economic inefficiencies, and that developing nations should open their markets to the outside, and focus on exporting. Also emphasized was the liquidation of state-owned corporations, and the reduction in rules designed to hinder business. Neoliberal ideas found expression in a series of trade talks to form the General Agreement on Tariffs and Trade as well as regional free trade agreements such as the European Union and the North American Free Trade Agreement.

Related Topics:
Bretton Woods Agreement - U.S. Dollar - Robert Mundell - Arthur Flemming - Mont Pelerin Society - Friedrich Hayek - Milton Friedman - Michael Polanyi - Think tank - 1960s - Austrian School - Monetarism - Protectionism - General Agreement on Tariffs and Trade - European Union - North American Free Trade Agreement

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The slow and quantitative development of neoliberalism after World War II became more rapid in the 1970s, and not always by peaceful means. One of the often-touted neoliberal success stories is General Augusto Pinochet's Chile – which began with the violent ousting of the democratically-elected government of Salvador Allende. The Allende government had pursued radical left wing policies, and has been labeled "socialist" or "Marxist." "Free market" policies, including privatization of state assets, were imposed by "los Chicago Boys," Chicago school economists inspired by Milton Friedman. These policies were later imitated by the Bretton Woods institutions operating in many other poor countries, particularly in Latin America.

Related Topics:
General Augusto Pinochet - Salvador Allende - Left wing - Socialist - Marxist - Los Chicago Boys - Chicago school - Milton Friedman

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The rise of this wave of neoliberalism culminated with the Reagan government in the United States and that of Margaret Thatcher in Britain. The Reagan and Thatcher governments not only shifted their own countries' policies toward laissez-faire but used their control of the major Bretton Woods institutions to impose their policies on the rest of the world. For this reason, some regard neoliberalism as synonymous with the "Washington Consensus," the dominant policy view at the International Monetary Fund (IMF), the World Bank, and the U.S. Treasury at the end of the 20th century and the start of the 21st. A major axiom of the neoliberal school is that (to quote Thatcher) "There Is No Alternative" to globalized capitalism. This slogan is often abbreviated as "TINA."

Related Topics:
Reagan - Margaret Thatcher - Laissez-faire - Bretton Woods - Washington Consensus - International Monetary Fund - World Bank - There Is No Alternative

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In the late 1980s and early 1990s neoliberal policies had been embraced by the conventionally-defined center-left, as Bill Clinton of the United States backed the North American Free Trade Agreement. Free trade was seen as essential to his economic program, which promoted the creation of technology and intellectual property rights as the means by which America would be able to reduce or manage its persistent balance of trade deficit. Some center-left neoliberal economists argued that protectionism is not a left or right issue, but an issue of asymmetry, and therefore a general cause for concern.

Related Topics:
Bill Clinton - Economic program - Intellectual property rights

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Critics of neoliberalism in both theory and practice are numerous. This is particularly true in developing nations whose assets have been sold off to foreigners and whose domestic political and economic institutions had been undermined by the effects of being exposed to trade and rapid flows of capital. Even within the neoliberal movement there is intense criticism of how many developed nations have demanded that others liberalize their markets for manufactured goods, while protecting their own domestic agricultural markets.

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Anti-globalization advocates are the most vociferous opponents of neoliberalism, particularly its implementation as "free capital flows" but not free labor flows. They argue that neoliberal policies encourage a "race to the bottom" as capital flows to the lowest environmental and labor standards, and is merely updated "beggar thy neighbor" imperialism, dating back 200 years. In this they are in fundamental agreement with many of neoliberalism's supporters who argue that neoliberalism represents an updated version of classical liberalism.

Related Topics:
Globalization - Classical liberalism

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Some economists argue that neoliberal policies can create "moral hazard": governments and international financial institutitions must bail out developing nations and their creditors because they are "too big to fail." This simply encourages further risk-taking and crises. They point to the string of currency melt-downs in the – Mexico, Russia, Eastern Europe, East Asia and Argentina – as proof that there is a danger to allowing risk-taking without sufficient penalty or regulation.

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