What is Neoliberalism?

Neoliberalism is like putting 10 people in a room with five pieces of candy and making them compete for the candy…

The amount of candy in the room is limited, so there must be winners and losers in this scenario. The people providing the candy might set a few ground rules. For example, only letting each person get one piece of candy maximum, or promising those without candy that they’ll get a granola bar instead. Still, they don’t set rules for how the people in the room compete. Participants must arrange their own norms for how they’ll portion out the candy.

Neoliberalism is a political and economic philosophy that promotes free markets and competition between individuals and businesses.

Neoliberalism has its origins in the writings of Adam Smith, the 18th-century economist who wrote The Wealth of Nations. In his book, Smith argued that “an invisible hand” guides the economy and businesses and that governments should intervene in the marketplace as little as possible. Too much intervention damages the balance created by market forces and could harm the economy.

Over time, Smith’s philosophy evolved into multiple, competing ideologies. Modern liberalism evolved from a socially liberal philosophy that focused on issues that affected personal liberties and freedoms. Inequality, poverty, and discrimination are among the things that impede these freedoms, so modern liberal philosophers encouraged government intervention to solve these problems.

Liberalism’s popularity in the 19th century led to things such as public schooling and hospitals, regulations regarding working hours and conditions, and welfare systems like Social Security.

By the 1970s, some economists argued for a return to liberalism’s laissez-faire roots. Economist Friedrich von Hayek argued that government intervention in the economy would eventually result in totalitarianism. American economist Milton Friedman argued that government intervention couldn’t influence natural business cycles.

Conservative political parties tended to embrace neoliberal concepts with President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in the United Kingdom, implementing many neoliberal policies.

Neoliberalism’s influence over politics continued to grow. By 1995, the UK’s Labour Party gave up its commitment to the “common ownership of the means of production,” and Democrats in the United States accepted more free-market policies.

Groups like the North American Free Trade Association and other associations that encourage trade and movement of capital show how neoliberalism has impacted politics and economic thinking.

Neoliberalism also helped to give rise to more libertarianism. You can see this in the form of a more active Libertarian Party and the formation of many libertarian think tanks.

In the wake of the 2008 banking crisis, some critics have named neoliberalism’s emphasis on free markets as the cause of the recession. This has led some governments to increase government regulation and intervention in the economy.

One real-world example of neoliberalism is the North American Free Trade Agreement (NAFTA).

NAFTA removed many of the barriers to trade between the United States, Canada, and Mexico, promoting freer trade on the continent.

The agreement eliminated many tariffs between the nations and encouraged the respect of intellectual property rights. It also created the Canamex Corridor, a series of highways and other infrastructure improvements that facilitate the transportation of goods between Canada and Mexico.

The reduction in trade barriers, like quotas and tariffs, and efforts to facilitate trade make NAFTA a prime example of neoliberal ideas.

Tax cuts are another example of neoliberal policy. President Donald Trump’s Tax Cuts and Jobs Act reduced taxes on businesses and citizens, to encourage economic growth and increased spending. Reliance on the market and increased spending power, rather than additional funding for government spending and intervention, is a neoliberal idea.

Treating healthcare and insurance as a private industry, rather than having a government-sponsored system is another example of neoliberalism.

Governments allow for private healthcare and health insurance because they believe that competition and a motive for profit create the best potential for innovation and high-quality healthcare.

Transitioning to a single-payer system where the government insures all residents and pays for their care using taxes is the opposite of neoliberal policy. Many countries, including the United States, Chile, and Greece, have privately run healthcare systems.

The 1978 Airline Deregulation Act is another real-world example of neoliberalism. Before the Act passed, the FAA held tight control over prices, the routes that different airlines could fly, and the formation of new airlines.

On a local level, privatization of public transport is another example of real-world neoliberalism. The Massachusetts Bay Transportation Authority privatized its commuter rail systems and explored privatizing its bus systems, letting for-profit businesses run them. The idea behind this privatization, which other cities have explored or already implemented, is to save taxpayer money and improve service.

An ideology is, according to Merriam-Webster, either “the integrated assertions, theories and aims that constitute a sociopolitical program” or “a systematic body of concepts, especially about human life or culture.”

Neoliberalism is both a set of concepts about human life and culture and a theory that influences sociopolitical discussions. That makes it an ideology.

Like other ideologies, people who believe in neoliberalism’s ideas feel that it explains how society does and should work. Individualists believe that people should be free and self-sufficient.

Feminists argue that society should treat women as equal to men. Socialists encourage joint ownership of the means of production and government intervention in the economy. Neoliberals argue for minimal government interference in life and economics and view much of human interaction as competition.

Neoliberal policies tend to reduce the amount of government interference in the economy, promote free trade, and use the free market to resolve personal, social, and economic issues.

One example of neoliberal policy is free-trade. That means the reduction or complete removal of tariffs and quotas on trade. This can come in the form of free-trade agreements with specific nations or the removal of barriers to trade with all other countries.

Another neoliberal policy is tax reduction. Neoliberals believe that reducing taxes for all people will help spur economic growth. That growth, in turn, assists the less economically fortunate more effectively than a government program can. By making it easier for people to start businesses or existing businesses to expand, those businesses can hire more workers and increase their employees’ wages.

The privatization of public businesses and industry is another example of neoliberal policies. For example, encouraging the creation of private or charter schools, privatizing public transportation services, or condoning private health insurance and healthcare industries all count as neoliberal policies.

Capitalism is an economic system that describes how society can organize the way it assigns and uses resources. Liberalism and neoliberalism are socioeconomic ideologies that define how a government and society should operate, typically using capitalist ideas as the base for their economic systems.

Capitalism is an economic system that distributes resources and income using different markets. These markets include the markets for goods and labor. Under capitalism, people trade products, services, and labor at the prices that the market sets.

You can sell your work to another person at a price you both deem reasonable. You can use those wages to purchase goods on the market, including essentials that you need to survive.

Classical liberalism is a philosophy with roots in the writing of 18th-century economist Adam Smith. Smith argued that the most efficient way to manage markets is by letting them control themselves. The “Invisible Hand” of market forces governs the market and helps them operate without government interference. A government that intervenes in the market, doing things like setting minimum wages or restricting trade damages the market and makes it less efficient.

Neoliberalism has its roots in classical liberalism, encouraging minimal government interference in markets, the opening of borders to trade, and the reduction of business regulation.

Modern liberalism also has its roots in liberalism. Proponents of contemporary liberalism argue that humans are rational and capable of negotiation and compromise. Liberalism also encourages some level of government influence over the economy, particularly to resolve issues of inequality. This can include evening the distribution of wealth, policies that improve opportunity for the disadvantaged, and regulation over businesses and trade.

Modern liberalism also encourages collective action, such as unions, to help even the distribution of resources between the ownership class and the working class. Other examples of modern liberal philosophies include unemployment insurance, public healthcare, minimum wage laws, and progressive tax systems.

Neoliberalism is the defining political and economic philosophy of the past several decades, ranging back to the Presidency of Ronal Reagan. Neoliberalism’s popularity influenced even the left-leaning political parties in the United States and the United Kingdom, causing those parties to adopt some neoliberal ideas.

One significant effect of neoliberalism is the reduction in barriers to international trade. In the United States, NAFTA is a prime example of this. The agreement reduced tariffs and quota between the United States, Mexico, and Canada, encouraging increased trade between the countries. The European Union, with its shared customs zone and freedom of movement for workers, is another significant example of the effects of neoliberalism.

Another effect of neoliberalism is the globalization of the economy. As countries removed barriers to international trade, it became economically viable to offshore specific business processes. Companies had more incentive to move production to countries where labor is cheap because reduced tariffs meant they could increase their profit by doing so.

In the United States, neoliberalism led to a reduction in tax rates for businesses and citizens.

During the Great Depression, the tax rate for top earners jumped from 25% to 63%. During World War II, it increased to 94%. The government reduced the rate after the war, but the top rate remained above 70% through the 1970s. As neoliberal ideas gained influence in the 1980s, the government cut rates, dropping the highest rate to 50%, then 28%.

By the 1990s, the top rate began increasing again, and it increased further in the wake of the 2008 housing crisis that damaged many people’s beliefs in neoliberalism.

Some critics argue that the term neoliberalism is a buzzword or that people use the term inaccurately or as a scapegoat for modern problems with the economy.

A primary criticism of the term is that there are very few people who claim to be neoliberals or to believe in neoliberal ideas. Instead, those who support neoliberalism’s ideologies often have other terms that they use to describe themselves.

Despite the lack of self-described neoliberals, many people blame neoliberals for problems in society. People on both sides of the political spectrum have used the term to attack people from other parties.