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Summary Article: Neoliberalism
From International Encyclopedia of Political Science

Neoliberalism, as the prefix neo suggests, is an old concept that reemerged as a policy response to the crisis of Keynesianism and was made popular by the political ascendancy of Margaret Thatcher in Great Britain and Ronald Reagan in the United States in the late 1970s and early 1980s. While neoliberalism has become a central concept in the social sciences describing the structural changes in the global economy since the 1970s, the concept is much contested. At the most fundamental level, neoliberalism builds on the classical liberal notion implying the triumph of market forces and individual autonomy over state power. But there is a considerable normative divergence between advocates of neoliberal ideas, who celebrate the ascendancy of the market, and those who suggest that the policies of neoliberalism are associated with global inequality, economic disparity, growth of unemployment, social exclusion, environmental destruction, and cultural homogeneity. Optimists stipulate that unfettered market forces will result in global prosperity, freedom, democracy, and peace. For pessimists, neoliberalism has become an ideological construct associated with radical market fundamentalism based on the universal imperatives of competitive deregulation, liberalization, and privatization. This latter interpretation is often used synonymously with the concept of an exploitative form of neoliberal economic globalization.

Defining neoliberalism is all the more difficult because the concept as it emerged first in the 1930s differs fundamentally from the form in which it reemerged in the 1970s. In fact, Andreas Renner, of the Walter Eucken Institute in Germany, suggests that there are two neoliberalisms. One is a continental European (i.e., German) version and the other an Anglo-Saxon interpretation. Historically, the European concept of neoliberalism originated in the 1930s in opposition to the Anglo-Saxon laissez-faire liberalism of self-regulating markets. The best account of such a laissez-faire economic system is found in Karl Polanyi's The Great Transformation, in which he argues that the collapse of the international economic system in the 1930s was a direct consequence of the attempt to organize the economy on the basis of laissez-faire ideas influenced by the British and Austrian schools of liberal (laissez-faire) economics. In today's social sciences, the terms laissez-faire and neoliberalism are used interchangeably, referring to the ascendancy of the market over state authority. The historical origin of neoliberalism tells a different story. The next section explores the origin of this concept and its relations to laissez-faire liberalism of the 19th century before turning to the reemergence of neoliberalism in the late 1970s and early 1980s.

Historical Origin of Continental European Neoliberalism and Anglo-Saxon Laissez-Faire Liberalism

According to the German economist Wilhelm Röpke, the term neoliberalism was coined in Paris in 1938 at a Colloque Walter Lippmann, a symposium held to discuss Walter Lippmann's recently released book, The Good Society. The participants at the Paris meeting chose the term neoliberalism to signal the creation of a new liberal movement against the laissez-faire liberalism of the 19th century. The historical importance of this neoliberal circle—consisting of members such as Wilhelm Röpke, Alfred Müller-Armack, Alexander Rüstow, Walter Eucken, and Franz Böhm—is that these ideas and norms became the basis for the continental social market economy of the 1950s. While not all members endorsed the term neoliberalism, it nevertheless became an umbrella designation for different trends of liberalism developed under its roof, of which the Freiburger school, also referred to as Ordoliberalism, is the most well-known group with Walter Eucken and Franz Böhm as its most renowned representatives.

The exponents of this neoliberal circle united in rejecting the economic reductionism they perceived as central to the ideas of 19th-century laissez-faire liberalism. Instead, they emphasized a normative-ethical foundation of economics, delineating an important role for governments to set the institutional parameters for economic competition in order to serve the larger interests of society. These intellectual proponents of neoliberalism combined economic efficiency with human decency to achieve a just and stable social order. As suggested by the term social market economy, which developed from the earlier neoliberal circle and is still used today to describe some of the continental European economic models, the belief in the self-regulatory capacity of the market was rejected.

In contrast to the continental European school of neoliberalism, Anglo-Saxon laissez-faire philosophers and economists—such as Jeremy Bentham, David Ricardo, Thomas Malthus, Edmund Burke, and, from the Austrian economic school, Ludwig von Mises and Friedrich August von Hayek—developed the theoretical foundation for claiming the superiority of economic freedom over public intervention. Characteristic of laissez-faire liberalism as practiced in the early 20th century was a market system based on competitive labor markets, the automatic gold standard, and free trade. Laissez-faire intellectuals postulated that unfettered economic competition was superior to any form of state guidance in coordinating human efforts. But precisely the very belief in the naturalness of the market and the self-regulating power of market forces was disputed in Karl Polanyi's narrative of the historical transformation from a traditional socially embedded economy to a laissez-faire system during the 19th century. The introduction of a market economy necessitated deliberate state action and, contrary to the theories of laissez-faire, did not result from natural market forces.

In summary, the continental European development of neoliberalism in the 1930s was an outright challenge to the 19th-century Anglo-Saxon belief in self-regulating markets. In rejecting the laissez-faire liberalism with its emphasis on creating the largest possible space for the self-determination of individuals, the proponents of neoliberalism questioned the fundamental separation between the political spheres and economic spheres. Seen from this historical perspective, the later reemergence of neoliberalism in the 1970s has more in common with the belief system of laissez-faire liberalism of the 19th century than with the original meaning of neoliberalism in the 1930s. In fact, when Anthony Giddens advocates a “third way” between a laissez-faire neoliberal orientation and a top-down bureaucratic state management, he in fact comes close to the norms, ideology, and practices championed by the original intellectuals of the 1930 continental European neoliberalism.

The Reemergence of Neoliberalism in the 1970s

In contrast to the intellectuals of the 1930s who united under the umbrella of neoliberalism and identified themselves as part of a new neoliberal movement, the reemergence of neoliberalism in the latter part of the 20th century lacks any group affiliation or identity with a larger neoliberal movement. Intellectuals most closely identified with the new norms of market fundamentalism are Friedrich August von Hayek and his student Milton Friedman. However, Hayek's teachings are much closer to the laissez-faire ideas of his teacher and mentor, Ludwig von Mises, than to the original meaning of neoliberalism and later the ordoliberalism of the Freiburg school in Germany. It is thus not surprising that Friedrich von Hayek and Milton Friedman do not use the term neoliberalism in their writings, preferring instead the concept of laissez-faire liberalism.

Today the term neoliberalism is used to describe global economic processes of governance systems that fundamentally reconfigure contemporary economic and social systems around the globe. Neoliberal economic ideas emerged as a result of the economic stagflation of the 1970s. This in turn led to a rejection of the postwar consensus of Keynesian demand management. Most prominently, Margaret Thatcher and subsequently Ronald Reagan popularized a radical market-oriented system based on supply side economics and rejecting state intervention in the economy. The closest approximation today of a neoliberal socioeconomic model in the real world is the United States.

Twenty-five years later, there is still no shared consensus on the meanings of neoliberalism and neoliberal globalization. At the most fundamental level, these terms convey a rebalancing of state and market, tilting to the privatization of cross-border governance. But these processes are enormously contested. Proponents suggest that measures such as liberalization, deregulation, and privatization remove barriers to trade and financial cross-border transactions and thereby unleash the productive forces of capitalism. In this context, liberalization is to allow the unfettered cross-border movements of capital, labor, services, and goods, while deregulation is geared to remove unwanted government control that interferes with market processes, and privatization transfers previously publicly provided services to the private sector. Critics of neoliberal discourse and practice, on the other hand, argue that the rise and power of global finance and mobile capital as the dominant force in this governance framework have a negative impact on state-societal relations. The diminished capacity of the state to sustain public policies has increased the progressive detachment of individuals from social networks. Since public authorities are faced with dwindling resources to fulfill their traditional mandates, welfare is increasingly provided through market mechanisms. The result is an increase in the individualization of risks.

One of the most contentious intellectual debates concerns the role of the state in neoliberalism. Earlier proponents of neoliberalism envisaged the retreat of the state since they assumed that the market was the most efficient allocator of resources. However, scholars from the Left pointed out that the state was a central actor in creating the emerging transnational governance system. In the process of acting as a supposed midwife to a new neoliberal order, the state also changed from a distributive to a more internationally competitive actor. Other key players who are identified with the norms and practices of market fundamentalism are the World Trade Organization, the World Bank, the International Monetary Fund, and the Organisation for Economic Co-operation and Development. These organizations were maligned for imposing the Washington Consensus in developing countries facing liquidity problems. The policy doctrine of structural adjustment involves macroeconomic stabilization through fiscal austerity programs, trade liberalization, and removing barriers to capital movements. More than any other policy, the Structural Adjustment Programs of the International Monetary Fund and the World Bank came to represent all that is wrong with neoliberal market fundamentalism. Critics from developing countries point to the damaging effects of neoliberal transformation, including the depletion and destruction of the local ecological and biological systems that sustain life and nature. Studies have pointed out that many poor and low-skilled women in developing countries have borne the brunt of the negative effects of neoliberal global transformation.

Stephen Gill has gone the farthest to theorize the neoliberal transformation with its commitment to liberal governmental and market reforms as a shift from embedded liberalism to disciplinary neoliberalism. The change toward disciplinary neoliberalism points to the disciplinary social mechanism used to lock in the market-based commitments to prevent future governments from undoing the reforms. The result is a new constitutionalism as a means to consolidate the market-based governance framework. Whether the 2008 financial and economic crisis, the worst since the Great Depression of the 1930s, spells the demise of the neoliberal norms, ideas, and practices dominant since the 1970s is an open question. It is true that even erstwhile proponents of neoliberal private governance have voted to “bring the state back in” in order to stabilize the global financial and banking systems. But whether this signals a shift from neoliberalism to postneoliberalism cannot be determined at this time.

See also

Globalization, Liberalism, Liberty, Political Philosophy

Further Readings
  • Becker, H. P.1965 Die Soziale Frage im Neoliberalismus: Analyse and Kritik [The social question in neoliberalism: Analysis and criticism]. Heidelberg, Germany: F. H. Kerle.
  • Giddens, A.1998 The third way: Renewal of social democracy. Cambridge, UK: Polity Press.
  • Gill, S.2003 Power and resistance in the new world order. Basingstoke, UK: Palgrave Macmillan.
  • Polanyi, K.2001 The great transformation: The political and economic origins of our time. Boston: Beacon Press. (Original work published 1944).
  • von Hayek, F. A.1994 The road to serfdom. Chicago: University of Chicago Press. (Original work published 1944).
  • Young, Brigitte
    University of Münster Münster, Germany University of Münster Münster, Germany
    SAGE Publications, Inc.

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