Neoliberalism (Economics) - Explained
What is Neoliberalism?
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Table of ContentsWhat is Neoliberalism?How does Neoliberalism Work?Academic Research on Neo-liberalism
What is Neoliberalism?
Neoliberalism is an ideology and policy model that advocates for the free market economy and argues in favor of transferring the power of controlling the economy from public sector to private sector. The ideology is based on the basic principles of neoclassical economics that recommends limiting the government subsidies, reforming tax regulations to increase the tax base, decreasing deficit spending, opening up market and capital, and limiting protectionism.
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How does Neoliberalism Work?
Neoliberalism promotes privatization, austerity, deregulation, free trade and reduced government spending. It aims at limiting the state inference in the economy and increasing the control of the private sector over it. The proponents of the neoliberalism believe a sustained economic growth will result in achieving human progress. They argue that the free market is the most efficient way of resource allocation.
The History of the Term "Neoliberalism"
The term neoliberalism has been used by different scholars since the beginning of the 20th century explaining different situations. The current meaning of the term gained popularity during the 1970s and 1980s as different scholars and critics started using this to describe the free market economic policy. Although, today the advocates of the free market policy restrain themselves from using the term.
The term was first used during the 1930s by the European liberal scholars describing a middle way between the two conflicting ideas of the classical liberalism and socialist planning. In the following decades, the term lost its popularity among the scholars and policymakers. Especially, during the 1960s the term was seldom used.
In the 1980s the Chilean economic reform introduced by Augusto Pinochet brought back the term in public and academic discourse. During that time the term was being used negatively by the critics to argue against the free market policy. The scholars associated it with laissez-faire economic capitalism.
The names of Friedrich Hayek and Milton Friedman got associated with the term neoliberalism. The term was most popular among the Spanish scholars and later received by English speaking scholars, entering the global vernacular in 1994.
The Differences Between Neoliberalism and Liberalism
The policy of neoliberalism has been debated by scholars, policymakers and politicians all over the world. The term was most extensively used for describing the economic policies introduced by Margaret Thatcher in the United Kingdom and by Ronald Reagan in the United States. Many critics argue the implementation of the neoliberal economic policies led to the economic crisis of 2008.
Liberalism and neoliberalism are two distinct ideas although they share some similarities. Both of these philosophies have their roots in 19th century's classical liberalism which argued for the laissez-faire economics.
While liberalism is more of a political and philosophical theory advocating for the liberty of the people, neoliberalism is an economic policy focused on free market theory.
Criticism of Neoliberalism
The neoliberalism has attracted vehement criticism from many quarters. Many see it as anti-democratic leading to exploitation and social injustice. They argue that neoliberalism limits the power of trade union as the worker's unions are perceived as the hindrance to the performance by the proponents of this policy.
People that are against neoliberalism believe that labor rights are in danger in a neoliberal economy and neoliberal policies would break the public enterprises, sell the state-owned asset and create the dominance of the market. Many critics are of the view that under this system, the poor become poorer and the rich become richer. They say this policy may lead to criminalizing the poverty.