A reader recently wrote: “I’ve come across the word ‘neoliberalism’ a few times. I’ve never really understood what it means. Could you give me a brief explanation?”
The word neoliberalism tends to get used in a couple of different ways.
It’s a set of capitalist economic ideas and policies, but it’s also sometimes used to define the period from the 1970s until now when those policies have been dominant. Neoliberalism is most commonly associated with privatisation, free trade and deregulation.
‘Neo’ means new, while ‘liberal’ means free or without controls. Big business tries to put a positive spin on it by saying that it’s about freedom for individuals to invest or compete, but really it means freedom for capitalists to profit regardless of the consequences.
Neoliberalism is basically a new type of liberalism. The original type was developed by economists like Adam Smith in the late 1700s. He argued that governments shouldn’t intervene in economic matters and advocated removing restrictions on trade, price controls and lowering corporate tax.
The idea was that if trade was ‘free’ it would allow the economy to expand and the capitalists to make more profits.
Economic liberalism was dominant throughout the 1800s and early 1900s, but it reached its limits around World War One. The onset of the 1930s depression put capitalism in a rut and there were calls for more state control over economic affairs.
This led economists like John Maynard Keynes to develop a different capitalist economic theory. While maintaining the dominance of production for private profit, Keynes sought to find a way to reinvigorate capitalism.
Keynes said that full employment provided the best basis to grow the economy and to lift profits. He encouraged governments and central banks to intervene to create jobs and stimulate economic activity.
These policies served capitalism well for a while, but by the end of the post-World War Two economic boom in the 1970s, the capitalists were once again suffering from shrinking profits. This saw them turn back to the ideas of economic liberalism.
Neoliberalism refers to this shift and the policies that governments have since adopted to reduce state control over the economy. These policies have allowed big business to profit immensely and are the reason we have such extreme levels of wealth inequality today.
Neoliberalism has seen the profit motive extended into new parts of the economy via privatisation. Governments have sold off previously state-owned enterprises like banks, airlines, telecommunications infrastructure, hospitals and electricity suppliers.
They told us privatisation was supposed to lead to greater efficiency and lower prices, but the exact opposite has happened.
The removal of trade barriers like tariffs was also supposed to mean lower prices and access to more goods, but the biggest impact has been the gutting of industries like manufacturing, and the loss of thousands of jobs.
Neoliberalism has complemented free trade and privatisation with deregulation. This has seen the diminishing of government regulation over anything that hinders profit making. This includes workers’ wages and conditions, as well as environmental protection and public health standards.
While neoliberalism has been a disaster for ordinary people economically, there has also been an ideological impact. The diminishing of the welfare state and the promotion of the idea that people should take ‘individual responsibility’ for their existence has undermined the concept of community.
By promoting an individualistic dog-eat-dog world, the capitalists have managed to make us feel more atomised and less secure. This is a benefit to them as it cuts across the ability of workers to organise collectively and fight for a bigger share of the wealth they create.
In a nutshell neoliberalism is a vicious form of profit-driven capitalism – a system based on the exploitation of working class people.
Neoliberal capitalism is once again coming up against its limits – this started with the global financial crisis a decade ago. Governments are now being forced to intervene in the economy to an extent in order to keep the profits flowing. But no amount of tweaking will overcome capitalism’s deep rooted problems.
Socialists strive to replace all forms of capitalism with an economic system that is based on public ownership of the key sectors, and a democratic plan of production. The wealth created could then be used to cater for the needs of the many, rather than the profits of a few.
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