Neoliberalism

  • Posted on: 28 July 2017
  • By: benfell

This entry refers to neoliberalism as practiced and preached in the United States and, less radically, the United Kingdom. It does not discuss ordoliberalism, the German variant, which accepts a role for the state in providing a strong social safety net and protecting against monopolies.1

The term [neoliberalism] means different things to different people. Professor Dani Rodrik, of Harvard, says in the Boston Review the term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal (budgetary) austerity.

I've always though of it as a fundamentalist, oversimplified, dogmatic version of conventional economics, one from an elementary textbook, not a third-year text that adds the complications of market power, externalities​ (costs or benefits not captured in market prices), economies of scale, incomplete and asymmetric (lop-sided) information, and irrational behaviour.2

Neoliberalism is a discredited political and economic ideology3 derived from the capitalist libertarian economic (but not social) agenda. It valorizes the so-called free market and demonizes labor unions and state intervention. Neoliberals object to a government role for regulation, anti-trust, or in the provision of a social safety net. Neoliberalism accepts “social and economic inequality [as] necessary as a motor for social and economic progress.”4

The three ‘founding fathers’ of neoliberalism, all Austrian, were Karl Popper, Friedrich Hayek, and Ludwig von Mises, who formed their ideas in the 1930s, during the Great Depression, gaining support from, among others, anti-New Deal corporate executives,5 that is, those George Seldes referred to as “reactionaries” and “fascists.”6 Neoliberalism arose largely as an economic response to the totalitarianism of Nazism and authoritarian socialism, and coalesced as a political movement early during the Cold War, arguing in varying degrees that there is a slippery slope from central planning to totalitarianism,7 and that social and political freedom arises from the marketplace, in which “people make their most real choices, unencumbered by good intentions” [emphasis in original].8 As developed by Milton Friedman, neoliberalism can be seen as the falsely dichotomous opposite pole from the Soviet system.

The implication of [Adam] Smith’s invisible hand, in the neoliberal view, was that the state was unnecessary to the delivery of the “good life” because the market left alone would deliver it better. . . . Friedman suggests that the only efficient and practicable means of organizing information [and therefore people] in a noncoercive way was through the price mechanism.9

Where Hayek acknowledged the necessity of social goods that could not be provided for by the profit motive, and therefore should be provided by the state,10 von Mises applied a slippery slope argument to suggest, in Daniel Stedman Jones’s paraphrase, that this “can be used to justify a completely unlimited extension of government,”11 and it is von Mises’ view that appears to have prevailed, with “the people” seen in a dichotomy with the government.12 Friedman initially called for a system that

would use competition among producers to protect the consumer from exploitation, competition among employers to protect workers and owners of property and competition among consumers to protect the enterprises themselves. The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress. The citizens would be protected against the state by the existence of a private market; and against one another by the preservation of competition.13

Friedman subsequently abandoned his recognition of the role for the state and, with other neoliberals, argued for, as Jones puts it,

a philosophy that was built on a cold and abstract individualism and a theory as much based in the harsh principles of free market discipline as it might have been in any more positive notion of progress. And yet the vision was still very much a utopian one, centered on a fantasy of the perfect free market.14

The idea of a (so-called) free market was to be aggressively applied to “all manner of policy problems and compromised much less with mainstream New Deal or Great Society liberalism and social democracy.” It came to power with the apparent failure of so-called Keynesian demand management policies, supplanting those policies with money supply management policies15 beginning during the Carter administration. Neoliberals at least co-existed with neoconservatives during the Reagan administration, but it was the fall of the Berlin Wall during the George H. W. Bush administration that led policymakers in the U.S. to agree on the supposed superiority of the “free market” system.16 Neoliberal ideology developed further during the George W. Bush administration as that administration aggressively pursued policies designed to favor savings in order to promote investment.17 While neoliberal policy has always favored the rich in multiple ways,18 the George W. Bush administration explicitly endorsed a notion that the rich, who are more able to save money, drove economic progress.19