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Neoliberalism is a political philosophy
and a political-economic movement beginning in the 1960s -- and increasingly prominent
since 1980 -- that de-emphasizes or rejects modern, New Deal, or statist doctrines,
focusing instead on achieving progress and social justice by more
free-market methods, especially an emphasis on economic growth, as measured by changes in real gross domestic product. Because of close association between
this philosophy and neoclassical economics, and
confusion with the overloaded term "liberal", the term neoclassical philosophy is advocated by some.
The term neoliberalism does not mean a new version of the "liberalism" of the modern period -- that is John Dewey, Woodrow Wilson,
Franklin Roosevelt or the Liberal Party of Great Britain, but of classical "liberalism" as it
was understood in the 19th century -- the establishment of a stable medium of exchange, and the reduction of localized rules,
regulations and barriers to commerce. This philosophy justified and encouraged the "first era of globalization" which came to an
end with the shocks of the First World War and the collapse of the Gold Standard (just as neoliberalism is associated with the
"second era of globalization" after World War II). "Liberalism" in the classical sense is still the meaning of the word in many
nations, including most of Europe and Latin America.
The neoliberal "policy revolution" may have started with the violent ouster of the socialist government of Salvador Allende in Chile
by General Augusto Pinochet and the U.S. government. But it
culminated with the Reagan government in the United States and that of
Margaret Thatcher in Britain, along with the fall of the Soviet Union and the fading of social democracy as alternatives to unbridled capitalism. These governments not only shifted their own
countries' policies toward laissez-faire (with the major
exception of Reagan's deficit-spending policies) but used their
control of the major Bretton Woods institutions to impose their policies
on the rest of the world. So nowadays, neoliberalism is generally seen as synonymous with the "Washington Consensus," the dominant policy view at the International Monetary Fund (IMF), the World Bank, and the U.S. Treasury Department at the end of the 20th century and the
start of the 21st.
Theory vs. Practice
The term is primarily used by critics of neoliberalism rather than proponents, so that most discussion and description of
neoliberalism is written from a critical point of view. Supporters of concepts central to neoliberalism, such as free trade and capitalism, view many
of the descriptions of neoliberalism as straw man arguments.
theory
As described by Berkeley
economic historian and defender of neoliberalism Professor Bradford DeLong , this "ism" has two main tenets:
- "The first is that close economic contact between the industrial core [of the capitalist world economy] 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, [except] for core missions of income
distribution, public-good infrastructure, administration of justice, and a few others, governments should shrink and
privatize)."
These two principles represent versions 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. In the tradition of laissez faire theory, the
state is seen as normally incompetent and/or corrupt, though it may play a positive role with technocratic "expert" guidance.
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 populist and modern liberal
economic policies, such as import-subsituting
industrialization. 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. The export-led economies were criticized as involving "crony capitalism," while most of the centrally-plane countries fell apart
economically and politically in late 1980s and early 1990s.
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.
practice
However, in practice, the neo-liberalism IMF, World Bank, and the U.S. Treasury has gone further in the laissez-faire direction than Professor deLong's summary would suggest. In
many cases, the IMF applied exactly the same policies in each country, ignoring any specificities. Trade was opened, the flow of
capital was encouraged (going both into and out of a country), while tight monetary policy and balanced government budgets were dogma. Austerity was imposed on the population, while
the wealth of the countries' creditors was saved. Privatization of public resouces was the rule, even when it made no sense from
an economic perspective. For example, water supplies were privatized in Bolivia and
other countries, encouraging popular protests. Infrastructural investment was slighted or slashed, while efforts to avoid extreme
inequality of income distribution were avoided.
In practice, neoliberalism differed from much of pure free-market policy
in that it emphasized the imposition of intellectual property rights (patents, copyrights, and trademarks),
encouraging monopoly rather than free market competition. Often, neoliberal reforms put blue-collar workers in rich countries in competition with
those in poor countries, but privileged professionals such as medical doctors are protected from such competition.
There were also catastrophic failures. In particular, Nobel prize winner and former World Bank chief economist Joseph Stiglitz argues that the IMF is guilty of forcing neoliberal and
Washington consensus policy goals on countries at times when it was not appropriate (i.e., the Asian Economic Crisis), with devastating results. The "cookie
cutter" approach of applying the same policy no matter what the specificities were can be seen in this crisis, as the I.M.F. pushed for government budget cuts even
though they had nothing to do with the crisis. Neoliberalism has also been criticised by populists, social democrats, and
anti-capitalists, who argue that unbridled market forces inevitably increase inequality in wealth and hence power.
In a recent book, Professor Robert Pollin summarizes the neoliberal record. Excluding the
People's Republic of China, which did not
follow the neoliberal lead, the era of the "developmental state" (1961-80) saw a per capita growth rate of real gross domestic product that averaged 3.2 percent per year. On
the other hand, during he neoliberal era (1981-99) this growth rate fell to 0.7 percent per year, slowing both absolutely and
relative to the wealthier countries of the OECD. China, which shifted from pure state
planning to state-guided export promotion, saw its per capita growth rate rise from 2.5 to 8.4 percent between these
periods. (See Robert Pollin, Contours of Descent, Verso Press, p. 131.) Thus, according to the neoliberals' own
standards, their policies can be seen as a failure. Pollin also shows the rapid increase in income inequality between these
periods, especially when China is excluded from the sample.
This short entry cannot end the debate. One question is whether it is better to define neoliberalism in terms of its
self-image (as Professor deLong does) or in terms of its actual practice. Either way, these critiques do not automatically
indicate that neoliberalism should be dumped. It is possible, as the more militant advocates of laissez faire say, that neoliberal policies were not applied in a pure enough form. Further, it is
possible that neoliberalism could be reformed.
Neoliberal theory
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.
Neoliberalism accepts macro-economic theory that assumes full
employment and rational expectations, that is, it is
a modern laissez-faire economic theory. The central question is
the cost burden imposed by regulations in a the Mundell-Fleming Model. In the Mundell-Fleming Model of open exchange trade, nations may have
policy autonomy -- that is regulation of internal markets -- monetary policy freedom and fiscal freedom only as trade-offs. That
is, having monetary policy freedom reduces the ability to regulate the economy. The central argument is then how effective each
of these mechanisms are for producing economic growth. It is generally recognized that monetary policy is better than fiscal
policy which is better than regulation, but how much, and under what conditions is a matter of intense debate. During the peak
popularity of the monetarist school, it was asserted that monetary policy was
so much better than the other mechanisms, that it was therefore worthwhile to sacrifice, or drastically reduce, the other two
components of government action, in return for greater effectiveness of monetary policy.
With the 1990's and the productivity surge, and the events where the correlation between money demand and money supply
weakened, this assertion was called into question, serving as the theoretical basis for "The Third Way" and a neo-liberal
economics which was not so explicitly associated with conservative policies.
Neo-Liberalism's theoretical basis, however, has been called into question with the failure of its implementation, however
imperfectly, to produce the expected result of capital flowing from the industrialized core nations and out to the peripheral
nations. This failure, noted by Stiglitz, Delong and Krugman, is not explained easily in theory. Instead, capital has pooled in
the industrial core, as seen by the increasing investment deficit of the United States.
Prominent exponents of neo-liberal policies include former US Treasury Secretary Robert Rubin, as well as economists such as
Robert Solow, Gregory
Mankiw, and Robert Mundell.
See also: anti-capitalism, privatization, Keynesian economics,
globalisation, Neoconservatism
External Critical Resources
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