Neoliberalism Explained: Definition, Examples, Pros & Cons

What Is Neoliberalism?

Neoliberalism refers to a policy model that emphasizes private enterprise and shifts economic control from government to the private sector. Influenced by leaders like Margaret Thatcher and Ronald Reagan, it advocates for lesser government intervention, focusing on free-market capitalism and fiscal austerity. Understanding neoliberalism involves looking at its policies, such as privatization and deregulation, which impact economies and societies worldwide.

Deep Dive Into Neoliberalism

Neoliberalism is a political and economic philosophy focused on free trade, deregulation, globalization, and cutting government spending. It is related to laissez-faire economics, which advocates for minimal government interference in economic matters.

Laissez-faire economics is the belief that limited government role in the economy will boost growth and prosperity.

Neoliberalism is often confused with libertarianism, but neoliberals generally support more government involvement than libertarians. Neoliberals often favor low-rated progressive taxes, whereas libertarians support low flat taxes or eliminating income taxes. Philosophically, libertarians emphasize economic freedom, while neoliberals focus on the free market as a path to growth.

Neoliberals may support industry bailouts, which libertarians typically oppose.

Key Features of Neoliberalism

Neoliberalism holds that more economic freedom leads to greater progress for individuals:

• It supports free enterprise, competition, deregulation, and individual responsibility
• It opposes expanding government power, state welfare, and inflation
• It minimizes government control of industries and promotes private business and property ownership
• Free market capitalism and the efficient allocation of resources
• Free trade rather than heavily regulated markets and protectionism
• A reduction in government spending and lower taxes
• Less government control over economic activity to enhance the efficient functioning of the economy
• An increase in the impact of the private sector on the economy
• A reduction in union power and greater flexibility in employment
• Government intervention when it's needed to help implement, sustain, and protect free market activities

Comparing Liberalism and Neoliberalism

At its core, liberalism is a broad political philosophy. It holds liberty to a high standard and defines all social, economic, and political aspects of society, including the role of government.

Neoliberalism is essentially an economic ideology. The policies of neoliberalism are more narrowly focused and are primarily concerned with markets and the policies and measures that influence the economy.

Neoliberalism: Debates and Critiques

There are many criticisms of neoliberalism. Below are the most common ones.

Misguided Free Market Approach to Public Services

One common criticism of neoliberalism is that advocating for a free market approach in areas such as health and education is misguided because these services are public services. Public services are not subject to the same profit motivation as other industries.

More importantly, adopting a free market approach in health and education can lead to an increase in inequality and the underfunding of resources necessary for the long-term well-being and viability of an economy.

Monopolies

The adoption of neoliberal policies in the Western world has run concurrently with a rise in inequality in both wealth and income. While skilled workers may be in a position to command higher wages, low-skilled workers are more likely to see stagnant wages.

Policies associated with neoliberalism are thought by some to encourage the presence of monopolies, which increase the profits of corporations at the expense of benefits to consumers.

Increased Financial Instability

Contrary to what proponents of neoliberalism typically claim, capital deregulation has not necessarily helped economic development. Rather, capital deregulation has led to an increase in financial instability including economic events that, at times, have sent shockwaves around the world.

In fact, an International Monetary Fund (IMF) report on neoliberalism reveals that an increase in capital flows has been a factor in the increased risk of adverse economic cycles.

Inequality

Studies suggest that neoliberal policies increase inequality. This inequality can hinder the long-term growth prospects of an economy. On one end of the spectrum, those who earn a low income have limited spending power. At the same time, those who become richer have a higher propensity to save.

In the latter scenario, wealth doesn't trickle down in the way that proponents of neoliberalism claim that it will.

Globalization

Neoliberalism's emphasis on economic efficiency has encouraged globalization, which opponents say causes factories to be closed and jobs to be moved overseas.

Critics of neoliberalism claim that its call to replace government-owned corporations with private ones can cause various forms of societal harm such as reducing access to essential services and harming workers' rights.

In addition, those opposed to neoliberalism claim that it is anti-democratic and can lead to exploitation and social injustice. They also claim it can lead to corporations using their power and resources to subvert the will of the majority of people. Others assert that it leads to support for undemocratic regimes that implement neoliberal economics.

Neoliberalism: Advantages and Drawbacks

Neoliberalism promotes minimizing government intervention in economies, favoring privatization and free-market approaches. Key benefits include increased economic freedoms, heightened competition, and potentially reduced prices. However, critiques highlight its potential to exacerbate inequalities, encourage monopolies, and threaten public services. Neoliberalism's implementation can significantly impact societies, thus requiring careful consideration of its broader socioeconomic outcomes.