Neoliberalism , or neo-classical liberalism , is a product of classical economic liberalism. The term was coined in 1938 at the Colloque Walter Lippmann by the German sociologist and economist Alexander Rüstow, one of the fathers of Social market economy. The label is referring to a redefinition of classical liberalism, influenced by the neoclassical theories of economics. Today, the term "neoliberalism" is mostly used as a pejorative by opponents.
Policy implications
Broadly speaking, neoliberalism seeks to transfer part of the control of the economy from public to the private sector, under the belief that it will produce a more efficient government and improve the economic indicators of the nation. The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's "Washington Consensus," a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the International Monetary Fund (IMF) and World Bank). Williamson's list included ten points:
- Fiscal policy discipline;
- Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
- Tax reform– broadening the tax base and adopting moderate marginal tax rates;
- Interest rates that are market determined and positive (but moderate) in real terms;
- Competitive exchange rates;
- Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by law and relatively uniform tariffs;
- Liberalization of inward foreign direct investment;
- Privatization of state enterprises;This occurs not only in the sense of the transfer of companies from the public to the private sector, but also in the conversion of social rights into marketable objects. Health and education, traditionally considered to be citizens’ rights, become economic interests and, in many countries, are integrated into circuits of accumulation. ]
- Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
- Legal security for property rights; and,
- Financialization of capital.
History
Earlier systems
Arguments that stress the economic benefits of unfettered markets, in line with neoliberalism, first began to appear with Adam Smith's (1776) Wealth of Nations and David Hume's writings on commerce, leading to Classical liberal ideology based on Classical economics. These writings were directed against the Mercantilist ideas that had been dominant during the previous centuries, and served to guide the policies of governments throughout much of the 19th century. There were, however, several fundamental differences between classical liberalism/economics and neo-liberalism/neoclassical economics, such as the abandonment of the labor-theory of value by neoclassical theory.
Nevertheless, statist ideas slowly began to regain a following amongst the intellectuals that had rejected them during the early Enlightenment. State interventionism increased towards the end of the 19th century; in the United States the Progressive Era saw an accelerated movement to re-institutionalize government controls over the economy.
With an intellectual and political foundation in place, the onset of the Great Depression and the rapid industrialization of the Soviet Union led to increased support for government economic control as a means of securing rapid industrialization.
Embedded liberalism
The term embedded liberalism refers to the economic system which dominated worldwide from the end of World War II to the 1970s. David Harvey argues that at the end of World War II, the primary objective was to develop an economic plan that would not lead to a repeat of the Great Depression during the 1930s. Harvey notes that under this new system free trade was regulated "under a system of fixed exchange rates anchored by the US dollar's convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital." Harvey argues that embedded liberalism led to the surge of economic prosperity which came to define the 1950s and 1960s.
Across much of the world, the work of John Maynard Keynes, which sought to formulate the means by which governments could stabilize and fine-tune free markets, became a highly influential approach. Within the developing world, several developments – among them decolonization, a desire for national independence and the destruction of the pre-war global economy, and the view that countries could not effectively industrialize under free market systems (e.g., the Prebisch-Singer hypothesis) – encouraged economic policies that were influenced by communist, socialist and import substitution precepts.
The period of government interventionism in the 1950s and 1960s was characterized by exceptional economic prosperity, as economic growth was generally high, was contained, and economic distribution was comparatively equalized. This era is known as les Trente Glorieuses ("The Glorious Thirty ") or "Golden Age", a reference to many countries having experienced particularly high levels of prosperity between (roughly) World War II and 1973.
Collapse of embedded liberalism
David Harvey notes that the system of embedded liberalism began to crack beginning towards the end of the 1960s. The 1970s were defined by an increased accumulation of capital, unemployment, inflation (or stagflation as it was dubbed), and a variety of fiscal crises. He notes that "the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working." A number of theories concerning new systems began to develop, which led to extensive debate between those who advocated "social democracy and central planning on the one hand" and those "concerned with liberating corporate and business power and re-establishing market freedoms on the other. Harvey notes that by 1980, the latter group had emerged as the leader, advocating and creating a global economic system that would become known as neoliberalism.
Some argue that the strains which occurred were located in the international financial system, and culminated in the dissolution of the Bretton Woods system, which some argue had set the stage for the Stagflation crisis that would, to some extent, discredit Keynesianism in the English-speaking world. In addition, some argue that the postwar economic system was premised on a society that excluded women and minorities from economic opportunities, and the political and economic integration given to these groups strained the postwar system.
Post-1970s economic liberalism
Chicago School
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago.
The school emphasizes non-intervention from government and rejects regulation in laissez-faire free markets as inefficient. It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. The school has impacted the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics"– that is, empirically based studies using statistics to prove theory.
Approximately 70% of the professors in the economics department have been considered part of the school of thought. The University of Chicago department, widely considered one of the world’s foremost economics departments, has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university.
Those who attend to the Chicago School prefer some form of competition law, school vouchers, a central bank, intellectual property and prefer Milton Friedman's negative income tax as a replacement to the existing welfare system, arguing that it is simpler and has fewer of the perverse incentives of "government handouts".
United Kingdom
Margaret Thatcher became Prime Minister with a mandate to reverse the UK's economic decline. Thatcher's political and economic philosophy emphasised reduced state intervention more free markets, and more entrepreneurialism. She once slammed a copy of Friedrich Hayek's The Constitution of Liberty down on a table during a Shadow Cabinet meeting, saying, "This is what we believe." Thinkers closely associated with Thatcherism include Keith Joseph, Enoch Powell, Friedrich Hayek and Milton Friedman. She was the UK's first female Prime Minister and was in power from 1979 to 1990.
Thatcher's political and economic philosophy emphasised reduced state intervention as well as free markets and "entrepreneurialism". She vowed to end excessive government interference in the economy and attempted to do this through privatiz
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