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.

Theory

As described by UC Berkeley economic historian and defender of neoliberalism Professor Brad DeLong, this "ism" has two main tenets:

Related Topics:
UC Berkeley - Brad DeLong

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:"The first is that close economic contact between the industrial core and the developing periphery is the best way to accelerate the transfer of technology which is the sine qua non for making poor economies rich (hence all barriers to international trade should be eliminated as fast as possible). The second is that governments in general lack the capacity to run large industrial and commercial enterprises. Hence, for core missions of income distribution, public-good infrastructure, administration of justice, and a few others, governments should shrink and privatize."

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To critics of neoliberalism, these two principles represent parts of the "trickle-down theory," i.e., that under free-market capitalism, economic growth and technological change benefit even the poorest countries and people, even if that process is dominated by multinational corporations, rich domestic elites, and organizations such as the IMF dominated by rich countries' financiers. To defenders, "Development is Freedom" (i.e., free-market capitalism). More economic growth, specialization and opportunity create chances for individuals to achieve more than rigid structures which provide only illusory protection.

Related Topics:
Trickle-down theory - Multinational corporations - Elites - Free-market - Capitalism

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The concept of neoliberalism became popular among economists not only as the balance of political power changed (as discussed above), but as many decided that post-World War II national development strategies for poor countries were not having the intended effects. In particular, funding for mega-projects left poor countries with high debts but little growth to show for it. It is also a reaction to the perceived failures of populist and modern liberal economic policies, such as import-substituting industrialization.

Related Topics:
World War II - Import-substituting industrialization

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Failures of the East-Asian (Taiwanese, South Korean) policies of state-guided export-led economic growth and of the centrally-planned or "communist" economies also were interpreted as requiring neoliberal medicine. With the exception of the Chinese 'success', most centrally-planned countries fell apart economically and politically in late 1980s and early 1990s. China's market socialism may eventually evolve into the crony capitalism that has plagued many export-led economies. But, at present, its economy represents a powerful foil to neoliberalism.

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Taiwan - South Korea - State-guided export-led economic growth - Centrally-planned - Communist - Market socialism - Crony capitalism

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As noted, the neoliberal doctrine is linked to the so-called "Washington consensus," a set of specific policy goals designed for Latin American countries. In addition to the tenets of neoliberalism noted by Professor DeLong, the Washington consensus stipulated that a country should have stable exchange rates and a government budget in balance.

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While some use the terms neoliberal and libertarian or classical liberalism interchangeably there is a difference between the two philosophies. While both share a belief in market economics and free trade, neoliberal economics theory shares with neoliberal international relations theory (and liberal internationalism) a belief in international regimes and a degree of global governance as a means of negotiating and administering international agreements. Neoliberals believe that greater economic and political interdependence will lead to progress and a reduction of international tensions or at least divert states from utilizing military means to resolve conflict. Libertarians reject the neoliberal belief that global governance bodies or state negotiated treaty regimes that bind the individual are desirable.

Related Topics:
Libertarian - Classical liberalism - Liberal internationalism

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Much of neoliberalism accepts macro-economic theory that assumes full employment and rational expectations, that is, it is a modern neoclassical and free-market economic theory. Others rely on the benevolence and technical expertise of the IMF and other international financial institutions to solve the world's economic problems.

Related Topics:
Full employment - Rational expectations

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