Author and Page information
- This page: http://www.globalissues.org/article/39/a-primer-on-neoliberalism.
- To print all information e.g. expanded side notes, shows alternative links, use the print version:
Neoliberalism is promoted as the mechanism for global trade and investment supposedly for all nations to prosper and develop fairly and equitably. Margaret Thatcher’s TINA acronym suggested that There Is No Alternative to this. But what is neoliberalism, anyway?
This section attempts to provide an overview. First, a distinction is made between political and economic liberalism. Then, neoliberalism as an ideology for how to best structure economies is explained. Lastly, for important context, there is a quick historical overview as to how this ideology developed.
This web page has the following sub-sections:
- Political versus Economic Liberalism
- Neoliberalism is...
- Brief overview of Neoliberalism’s History: How did it develop?
- Going bust? The Global Financial Crisis Shakes Confidence
- More Information
Political versus Economic Liberalism
There is an important difference between liberal politics and liberal economics. But this distinction is usually not articulated in the mainstream.
As summarized here by Elizabeth Martinez and Arnoldo Garcia:
“Liberalism” can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right wing. Economic liberalism is different. Conservative politicians who say they hate “liberals” — meaning the political type — have no real problem with economic liberalism, including neoliberalism.
— Elizabeth Martinez and Arnoldo Garcia, What is “Neo-Liberalism”?, National Network for Immigrant and Refugee Rights, January 1, 1997 (posted at CorpWatch.org)
Neoliberalism, in theory, is essentially about making trade between nations easier. It is about freer movement of goods, resources and enterprises in a bid to always find cheaper resources, to maximize profits and efficiency.
To help accomplish this, neoliberalism requires the removal of various controls deemed as barriers to free trade, such as:
- Certain standards, laws, legislation and regulatory measures
- Restrictions on capital flows and investment
The goal is to be able to to allow the free market to naturally balance itself via the pressures of market demands; a key to successful market-based economies.
As summarized from What is “Neo-Liberalism”? A brief definition for activists by Elizabeth Martinez and Arnoldo Garcia from Corporate Watch, the main points of neoliberalism includes:
- The rule of the market — freedom for capital, goods and services, where the market is self-regulating allowing the “trickle down” notion of wealth distribution. It also includes the deunionizing of labor forces and removals of any impediments to capital mobility, such as regulations. The freedom is from the state, or government.
- Reducing public expenditure for social services, such as health and education, by the government
- Deregulation, to allow market forces to act as a self-regulating mechanism
- Privatization of public enterprise (things from water to even the internet)
- Changing perceptions of public and community good to individualism and individual responsibility.
Overlapping the above is also what Richard Robbins, in his book, Global Problems and the Culture of Capitalism (Allyn and Bacon, 1999), summarizes (p.100) about some of the guiding principles behind this ideology of neoliberalism:
- Sustained economic growth is the way to human progress
- Free markets without government “interference” would be the most efficient and socially optimal allocation of resources
- Economic globalization would be beneficial to everyone
- Privatization removes inefficiencies of public sector
- Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.
At the international level then we see that this additionally translates to:
- Freedom of trade in goods and services
- Freer circulation of capital
- Freer ability to invest
The underlying assumption then is that the free markets are a good thing. They may well be, but unfortunately, reality seems different from theory. For many economists who believe in it strongly the ideology almost takes on the form of a theology. However, less discussed is the the issue of power and how that can seriously affect, influence and manipulate trade for certain interests. One would then need to ask if free trade is really possible.
From a power perspective, “free” trade in reality is seen by many around the world as a continuation of those old policies of plunder, whether it is intended to be or not. However, we do not usually hear such discussions in the mainstream media, even though thousands have protested around the world for decades.
Today then, neoliberal policies are seeing positives and negatives. Under free enterprise, there have been many innovative products. Growth and development for some have been immense. Unfortunately, for most people in the world there has been an increase in poverty and the innovation and growth has not been designed to meet immediate needs for many of the world’s people. Global inequalities on various indicators are sharp. For example,
- Some 3 billion people — or half of humanity — live on under 2 dollars a day
- 86 percent of the world’s resources are consumed by the world’s wealthiest 20 percent
- (See this site’s page on poverty facts for many more examples.)
And as J.W. Smith has argued:
One cannot separate economics, political science, and history. Politics is the control of the economy. History, when accurately and fully recorded, is that story. In most textbooks and classrooms, not only are these three fields of study separated, but they are further compartmentalized into separate subfields, obscuring the close interconnections between them.
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 22.
Issues such as the criticisms of “free” trade, of protests around the world, and many others angles are discussed on this section’s subsequent pages.
The history of neoliberalism and how it has come about is worth looking at first, however, to get some crucial context, and to understand why so many people around the world criticize it.
Brief overview of Neoliberalism’s History: How did it develop?
Free Markets Were Not Natural. They Were Enforced
The modern system of free trade, free enterprise and market-based economies, actually emerged around 200 years ago, as one of the main engines of development for the Industrial Revolution.
In 1776, British economist Adam Smith published his book, The Wealth of Nations. Adam Smith, who some regard as the father of modern free market capitalism and this very influential book, suggested that for maximum efficiency, all forms of government interventions in economic issues should be removed and that there should be no restrictions or tariffs on manufacturing and commerce within a nation for it to develop.
Rooted in Mercantilism
This mercantilism had its roots in the Middle and Dark Ages of Europe, many hundreds of years earlier and also parallels various methods used by empires throughout history (including today) to control their peripheries and appropriate wealth accordingly.
Colonialism and Imperialism Needed To Succeed
Free trade formed the basis of free enterprise for capitalists and up until the Great Depression of the 1930s was the primary economic theory followed in the United States and Britain. But from a global perspective, this free trade was accompanied by geopolitics making it look more like mercantilism. For both these nations (as well as others) to succeeded and remain competitive in the international arena, they had a strong foundation of imperialism, colonialism and subjugation of others in order to have access to the resources required to produce such vast wealth. As J.W. Smith notes above, this was hardly the free trade that Adam Smith suggested and it seemed like a continuation of mercantilist policies.
However, even during its prevalent times before the Second World War, neoliberalism had already started to show signs of increasing disparities between rich and poor.
Because of the Great Depression in the 1930s, an economist, John Maynard Keynes, suggested that regulation and government intervention was actually needed in order to provide more equity in development. This led to the “Keynesian” model of development and after World War II formed the foundation for the rebuilding of the U.S-European-centered international economic system. The Marshall Plan for Europe helped reconstruct it and the European nations saw the benefits of social provisions such as health, education and so on, as did the U.S. under President Roosevelt’s New Deal.
In fact, the Bretton Woods Institutions (the International Monetary Fund (IMF) and World Bank) were actually designed with Keynesian policies in mind; to help provide international regulation and control of capital. As Susan George notes, “when these institutions were created at Bretton Woods in 1944, their mandate was to help prevent future conflicts by lending for reconstruction and development and by smoothing out temporary balance of payments problems. They had no control over individual government’s economic decisions nor did their mandate include a license to intervene in national policy.” This is very different from what they are doing today.
In 1945 or 1950, if you had seriously proposed any of the ideas and policies in today’s standard neo-liberal toolkit, you would have been laughed off the stage at or sent off to the insane asylum. At least in the Western countries, at that time, everyone was a Keynesian, a social democrat or a social-Christian democrat or some shade of Marxist. The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection — such ideas were utterly foreign to the spirit of the time. Even if someone actually agreed with these ideas, he or she would have hesitated to take such a position in public and would have had a hard time finding an audience.
— Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
However, as elites and corporations saw their profits diminish with this equalizing effect, economic liberalism was revived, hence the term “neoliberalism”. Except, that this new form was not just limited to national boundaries, but instead was to apply to international economics as well. Starting from the University of Chicago with the philosopher-economist Friedrich von Hayek and his students such as Milton Friedman, the ideology of neoliberalism was pushed very thoroughly around the world.
Even before this though, there were indications that the world economic order was headed this way: the majority of wars throughout history have had economics, trade and resources at their core. The want for access to cheap resources to continue creating vast wealth and power allowed the imperial empires to justify military action, imperialism and colonialism in the name of “national interests”, “national security”, “humanitarian” intervention and so on. In fact, as J.W. Smith notes:
The wealth of the ancient city-states of Venice and Genoa was based on their powerful navies, and treaties with other great powers to control trade. This evolved into nations designing their trade policies to intercept the wealth of others (mercantilism). Occasionally one powerful country would overwhelm another through interception of its wealth though a trade war, covert war, or hot war; but the weaker, less developed countries usually lose in these exchanges. It is the military power of the more developed countries that permits them to dictate the terms of trade and maintain unequal relationships.
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 120.
As European and American economies grew, they needed to continue expansion to maintain the high standards of living that some elites were attaining in those days. This required holding on to, and expanding colonial territories in order to gain further access to the raw materials and resources, as well exploiting cheap labor. Those who resisted were often met with brutal repression or military interventions. This is not a controversial perception. Even U.S. President Woodrow Wilson recognized this in the early part of the 20th century:
Since trade ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed against him must be battered down. Concessions obtained by financiers must be safeguarded by ministers of state, even if the sovereignty of unwilling nations be outraged in the process. Colonies must be obtained or planted, in order that no useful corner of the world may be overlooked or left unused.
— Woodrow Wilson, President of the United States, 1919, Quoted by Noam Chomsky, On Power and Ideology, (South End Press, 1990), p.14.
Richard Robbins, Professor of Anthropology and author of Global Problems and the Culture of Capitalism is also worth quoting at length:
The Great Global Depression of 1873 that lasted essentially until 1895 was the first great manifestation of the capitalist business crisis. The depression was not the first economic crisis [as there had been many for thousands of years] but the financial collapse of 1873 revealed the degree of global economic integration, and how economic events in one part of the globe could reverberate in others.…
The Depression of 1873 revealed another big problem with capitalist expansion and perpetual growth: it can continue only as long as there is a ready supply of raw materials and an increasing demand for goods, along with ways to invest profits and capital. Given this situation, if you were an American or European investor in 1873, where would you look for economic expansion?
The obvious answer was to expand European and American power overseas, particularly into areas that remained relatively untouched by capitalist expansion — Africa, Asia, and the Pacific. Colonialism had become, in fact, a recognized solution to the need to expand markets, increase opportunities for investors, and ensure the supply of raw material. Cecil Rhodes, one of the great figures of England’s colonization of Africa, recognized the importance of overseas expansion for maintaining peace at home. In 1895 Rhodes said:
I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for “bread”, “bread,” and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism.… My cherished idea is a solution for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialist.
As a result of this cry for imperialist expansion, people all over the world were converted into producers of export crops as millions of subsistence farmers were forced to become wage laborers producing for the market and required to purchase from European and American merchants and industrialists, rather than supply for themselves, their basic needs.
— Richard H. Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon), pp. 93-94
World War I was, in effect, a resource war as Imperial centers battled over themselves for control of the rest of the world. World War II was another such battle, perhaps the ultimate one. However, the former imperial nations realized that to fight like this is not the way, and became more cooperative instead.
Unfortunately, that cooperation was not for all the world’s interests primarily, but their own. The Soviet attempt of an independent path to development (flawed that it was, because of its centralized, paranoid and totalitarian perspectives), was a threat to these centers of capital because their own colonies might “get the wrong idea” and also try for an independent path to their development.
Because World War II left the empires weak, the colonized countries started to break free. In some places, where countries had the potential to bring more democratic processes into place and maybe even provide an example for their neighbors to follow it threatened multinational corporations and their imperial (or former imperial) states (for example, by reducing access to cheap resources). As a result, their influence, power and control was also threatened. Often then, military actions were sanctioned. To the home populations, the fear of communism was touted, even if it was not the case, in order to gain support.
… you have to sell [intervention or other military actions] in such a way as to create the misimpression that it is the Soviet Union the you are fighting…
— Professor Samuel Huntingdon, Harvard University, Quoted by Noam Chomsky in Latin America: From Colonization to Globalization, (Ocean Press, 1999), p.18)
The net effect was that everyone fell into line, as if it were, allowing a form of globalization that suited the big businesses and elite classes mainly of the former imperial powers. (Hence, there is no surprise that some of the main World War II rivals, USA, Germany and Japan as well as other European nations are so prosperous, while the former colonial countries are still so poor; the economic booms of those wealthy nations have been at the expense of most people around the world.) Thus, to ensure this unequal success, power, and advantage globalization was backed up with military might (and still is).
Hence, even with what seemed like the end of imperialism and colonialism at the end of World War II, and the promotion of Adam Smith free trade and free markets, mercantilist policies still continued. (Adam Smith exposed the previous system as mercantilist and unjust. He then proposed free market capitalism as the alternative. Yet, a reading of Adam Smith’s Wealth of Nations would reveal that today is a far cry from the free market capitalism he suggested, and instead could still be considered monopoly capitalism, or the age-old mercantilism that he had exposed! More about this in the next section on this site.) And so, a belief system had to accompany the political objectives:
When the blatant injustices of mercantilist imperialism became too embarrassing, a belief system was imposed that mercantilism had been abandoned and true free trade was in place. In reality the same wealth confiscation went on, deeply buried within complex systems of monopolies and unequal trade hiding under the cover of free trade. Many explanations were given for wars between the imperial nations when there was really one common thread: “Who will control resources and trade and the wealth produced through inequalities in trade?” All this is proven by the inequalities of trade siphoning the world’s wealth to imperial centers of capital today just as they did when the secret of plunder by trade was learned centuries ago. The battles over the world’s wealth have only kept hiding behind different belief systems each time the secrets of laying claim to the wealth of others’ have been exposed.
— J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, (M.E. Sharpe, 2000) p.126
The Reagan and Thatcher era in particular, saw neoliberalism pushed to most parts of the globe, almost demonizing anything that was publicly owned, encouraging the privatization of anything it could, using military interventions if needed. Structural Adjustment policies were used to open up economies of poorer countries so that big businesses from the rich countries could own or access many resources cheaply.
The belief in free markets (or the version being promoted) was very ideological:
So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth. Oskar Lafontaine, the ex-German Finance Minister who the Financial Times called an “unreconstructed Keynesian” has just been consigned to that hell because he dared to propose higher taxes on corporations and tax cuts for ordinary and less well-off families.
1979, the year Margaret Thatcher came to power and undertook the neo-liberal revolution in Britain. The Iron Lady was herself a disciple of Friedrich von Hayek, she was a social Darwinist and had no qualms about expressing her convictions. She was well known for justifying her program with the single word TINA, short for There Is No Alternative. The central value of Thatcher’s doctrine and of neo-liberalism itself is the notion of competition — competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.
In sharp contrast, the great Chinese philosopher Lao Tzu ended his Tao-te Ching with these words: “Above all, do not compete”. The only actors in the neo-liberal world who seem to have taken his advice are the largest actors of all, the Transnational Corporations. The principle of competition scarcely applies to them; they prefer to practice what we could call Alliance Capitalism.
— Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
Since the Cold War has ended, it is almost no surprise that today’s globalization has come in the form we see it — that is where it would have been had the Cold War not got “in the way”. The World Wars were about rival powers fighting amongst themselves to the spoils of the rest of the world; maintaining their empires and influence over the terms of world trade, commerce and, ultimately, power.
Throughout the Cold War, we contained a global threat to market democracies: now we should seek to enlarge their reach.
— Anthony Lake, National Security adviser, 1990, quoted from Noam Chomsky, World Orders Old and New, (Columbia University Press, 1996), p.71.
Going bust? The Global Financial Crisis Shakes Confidence
The above may seem long, but many volumes could be written to expand on the above themes. Until I can get to do something like that, the following are links to some useful resources to help understand neoliberalism and its historical and current context:
- A Short History of Neo-Liberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change by Susan George, from a conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
- What is “Neo-Liberalism”? A brief definition for activists by Elizabeth Martinez and Arnoldo Garcia, National Network for Immigrant and Refugee Rights, January 1, 1997 (posted at CorpWatch.org)
- Has Globalisation Really Made Nations Redundant? The States We are Still In, by Noelle Burgi and Philip S. Golub, Le Monde Diplomatique, April 2000.
- The Essence of Neoliberalism by Pierre Bordieu, Le Monde Diplomatique, December 1998
- The Institute for Economic Democracy has a wealth of information.
- Program on Corporations Law & Democracy looks at the creation and development of English commercial corporations and the abolition of democratic control over their behavior. From UK-based Corporate Watch (not related to the above-mentioned US-based organization of the same name!)
- This web site’s look at projecting power introduces the link between geopolitics and economics; of the use of military to back up trade objectives.
- The Citizens’ Guide to Trade, Environment and Sustainability from Friends of the Earth gives an overview of the world trade system, the ideology, the impact on society, environment, etc.
- Neoliberalism: origins, theory, definition is a detailed look by Paul Treanor, a political thinker and writer.
- The Luckiest Nut In The World is an 8 minute video (sorry, no transcript available, as far as I know), produced by Emily James. It is a useful and light way of explaining some of the issues around free trade (in its current form) and its impact on poorer countries. Under their license, it has been reposted here. (Please note the license of this video is not covered by this site’s own license).
- Global Financial Crisis
- A Primer on Neoliberalism
- Criticisms of Current Forms of Free Trade
- The WTO and Free Trade
- WTO Doha “Development” Trade Round Collapse, 2006
- Deregulation or Protectionism?
- Some Regional Free Trade Agreements
- The Mainstream Media and Free Trade
- Public Protests Around The World
- WTO Protests in Seattle, 1999