Neoliberalism

Describe the origins and characteristics of Neoliberalism. Examine the argument for and against this “economic and social order”

It could be said that neo-liberalism was founded on 19th century liberalism, which was created by Adam Smith. He and other like-minded economists believed in the centrality of an individual in the market place, making choices. These ideas about freedom and choice reflect Enlightenments thinking about the rights of an individual and importance of rationality. The leading advocate of this was John Locke. This idea of reasonableness or rationality underpin both the logic of liberalism and neo-liberalism.

Neoliberalism was a reaction to Keynesianism, the state interfering in the market.  What has been considered to mark the ‘failure’ of state intervention in the economy was the Oil Crisis in the 1970s, when a cartel of oil produces raised oil prices.  The consequences in the developed world was catastrophic for interventionist governments: economic contraction, unemployment; and, in many countries two figure inflation and increased state dept.  Clearly, it would appear there was a case for neoliberalism.  Just as the economic liberalism of Adam Smith was a reaction to mercantilism, the state directing the economy, Smith like Hayek and Friedman argued that markets should be allowed to self-regulate.  Individuals/companies should be free to fix prices, according to what markets would tolerate.  For a market to self-regulate means state involvement in the economy has to be minimised, as people are likely to act responsibly if given the choice, and responsible people is important for market regulation. Thatcher and Reagan took up these core neo-liberal ideas in the 1980s; through a series of initiatives they rolled back market regulations. In the UK’s economy, financial markets were deregulated.  As this process of deregulation deepened and was extended across the economy there was a boost in economic activity and wealth production.

The neo-liberalism model was able to exploit new technologies, particularly digitalisation of communication which was allowing the internet to ‘stretch’ markets globally, for real time trading: organisation, exchanges of commodities and transaction settlements allowed a fast turn-around of capital for investments or buying.  One key effect of this digital reach put neo-liberalism into extending globalisation.  Globalisation itself was opening up markets on a world scale for trade, investment and economic development.  In turn, there was considerable peaceful ‘growth’ and cooperation from country to country. Across the world, countries began to deregulate government involvement in economies, so it seems that neo-liberalism and globalisation worked well together.  This was especially the case with the rise of transnational corporations.

TNCs across all sectors of the economy benefited from the opening up of the markets and the de-regularisation.  It was particularly the case with manufacturing, countries like Indonesia in the 90s and across Asia were keen to attract inward investment.  Many TNCs transferred production from first world countries because of the offer of cheap labour.  Host countries benefited especially regarding the money brought to the country and their citizens.  A product produced in a country did not have to be bought in from abroad, this product was sold abroad, this reduced the pressure on national debt.  In addition to that, money funds were made available for infrastructures, education and welfare support such as primary healthcare and preventative medicine. The world bank in 2012 reported that the index of extreme poverty had fallen in every developing country. This improvement in living standards matches the increase involvement in the TNCs in these third world countries, this is especially the case in India recently. Adjustment of the market as a self-regulating mechanism was also helped by the retreat of communism, not only where it collapsed in Europe, but also in states like Vietnam and China where communist ideology accommodated the capitalist concept of a free market. Wherever markets were deregulated they brought more consumer choice, increase productivity and ‘greater’ wealth.  However, this wealth was not always equally distributed.

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