What Is Neoliberalism? Theory in Simple Terms

Although there are many interpretations of the term, neoliberalism is a political ideology that emphasizes the importance of the free market. Like laissez-faire economics, neoliberalism seeks to reduce the amount of government regulation in the economic sector. Proponents of neoliberalism believe that an unregulated free market has the greatest possible effect on the largest number of people.

Many assume that the liberal part of neoliberal means that the ideology is left-wing or progressive. In fact, neoliberalism relates to classical liberalism in economics, which believes competition is the main driver of the free market (i.e. Adam Smith’s “invisible hand.”) Liberal, in this case, means “unrestricted.”

Modern liberalism has a social-political aspect regarding the government’s responsibility to remove impediments to individual liberty. Neoliberals prefer the government to stay out of individuals’ lives. Both are based on classical liberalism but have diverged in meaning.

People typically use the term neoliberalism as a political epithet. It’s used to describe both progressives who are economically liberal and those who are economically conservative. Those who identify with neoliberalism aren’t usually the ones using the term. However, neoliberalism is a real ideology with both economic and political tenets.

It’s tempting to lump neoliberalism with social progressivism or modern liberalism. While these ideologies have their roots in the same historical movements, they have diverged in modern usage. Keep reading for specific neoliberal tenets in the economic and political future of a society.

Neoliberalism mainly describes one’s desire for a free market that is largely untouched by the government. Words like deregulation and free trade are common in neoliberal arguments. Specific economic tenets include:

• No price control - preventing the government from establishing a maximum price for goods and service in the free market
• Reducing marginal tax rates - keeping federal and state taxes low as to keep the market flowing more efficiently
• Deregulating markets - reducing government influence in the free market by eliminating regulations that hamper economic growth
• Free trade - allowing international trade to continue without restrictions, such as tariffs
• Reducing government debt - reducing or eliminating government spending to keep government debt low

Despite the word liberal in its name, neoliberal political policies are most closely aligned with modern libertarian ideals. Libertarians extend the neoliberal desire to keep the market free from government control to social life and political freedom. They tend to believe that too much government control in a society can lead to totalitarianism.

Some political tenets shared by neoliberals include:

• Deregulating private industries - limiting the amount of control the government has on the way a private business or enterprise operates
• Reducing entitlement programs - limiting government spending on programs like social security, welfare, food stamps, Medicaid and Medicare, etc.
• Reducing or eliminating public ownership - preventing the government from having a claim on private enterprise or property
• Reducing labor union influence - maintaining a workforce and allowing employers to operate their business without the influence of organized labor unions

Classical liberalism began in the 18th and 19th centuries with a strong utilitarian focus. Classical liberals believed that the free market economy was the most effective way to improve as many lives as possible. The Great Depression changed many perspectives on the value of unregulated markets, as liberals blamed laissez-faire economics for the downturn.

The split between liberals and neoliberals occurred in the 1930s as one movement (early modern liberals) emphasized more government spending and aid programs. Neoliberal reforms reacted against this movement in the 1970s and 80s with more focus on the free market, lower taxes, removing barriers to trade, and welfare reform.

Our modern interpretation of neoliberalism depends on the people who founded, advocated, and implemented its policies. There are many political and economic leaders from the 20th century who contributed to the rise of neoliberalism – for better or for worse. Some of these leaders include:

• Charles Gide - French economist who first used the phrase néo-libéralisme in 1898 to describe the free-market economy advocated by Maffeo Pantaleoni. His 1904 book Consumers' Co-operative Societies describes his belief in cooperative economy and society.
• Friedrich von Hayek - German economist and one of the founders of the Mont Pelerin Society in Switzerland in 1947, along with Ludwig von Mises and Walter Lippman. His 1943 book The Road to Serfdom argues that centralized government spending inevitably leads to a totalitarian state. Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences for his “penetrating analysis of the interdependence of economic, social and institutional phenomena.”
• Ludwig Erhard - Chancellor of the Federal Republic of Germany who is credited with bringing West Germany into economic stability after World War II during his role as Minister of Economic Affairs. Erhard’s belief in the social market economy led to the revolutionary implementation of classical liberal philosophies which remains the basis of Germany’s economy today.
• Milton Friedman - American economist who also co-founded the Mont Pelerin Society. Friedman’s 1952 essay “Neoliberalism and Its Prospects” brought the term neoliberalism into 20th century economic conversation. Friedman received the Nobel Prize in 1976 for his work in consumption economics and stabilization theory.
• Augusto Pinochet - Chilean politician and general who forcefully instituted economic liberalization in late 20th-century Chile. Pinochet persecuted political adversaries and labor unions, privatized many government institutions, and removed tariff protections. These changes led to economic growth and, ultimately, Pinochet’s removal and prosecution for embezzlement, human rights violation, and tax evasion.
• Margaret Thatcher - Prime minister of Britain from 1979 - 1990, whose economic, social, and political policies formed the term “Thatcherism.” Thatcher cut taxes and reduced government spending as a response to the strongly regulated British economy in place before her election. Thatcherism influenced the policies of later prime ministers into the 21st century.
• Ronald Reagan - United States president in the 1980s whose political and economic policies incorporated elements of neoliberalism. Reagan emphasized the importance of the deregulated free market with his “Reaganomics” economic policy, which included cutting federal taxes and preventing inflation by reducing the money supply.

Neoliberalism is a nuanced economic perspective that ventures into political and social life, as well. It is one way to conduct an economy in a capitalist country. For more examples of capitalism around the world, take a look at an article that lists capitalist countries and different concepts of capitalism.