Neoliberalism: A Podcast Primer

Friedrich Hayek

Neoliberalism as a Political Philosophy

Neoliberalism is more than a school of economics. It incorporates a broad political philosophy surrounding its ideas about economics. The neoliberal package of reforms is often presented as a toolkit for economic development, but its earliest theorists associated free markets and capitalism with human freedom and liberty. They saw themselves as the champions of liberal values even as they prioritized economic rights above civil liberties and political freedom. Indeed, neoliberals often abandoned civil liberties or political freedom when it came into conflict with what they describe as economic freedom. 

The Austrian school of economics is as good as any place to describe as the origin of neoliberalism. Ludwig Von Mises and other economists worked to revitalize liberalism as an alternative to socialism. Indeed, it’s important to recognize neither Mises nor his student Friedrich Hayek referred to themselves as neoliberals. Rather they both described themselves simply as liberals. They saw their work as a continuity from the classical liberalism of John Locke, Adam Smith, and David Ricardo. 

A few years after the publication of The Road to Serfdom, Hayek accepted a position at the University of Chicago. Over time the Chicago School of Economics became a hotbed for neoliberal ideas. Milton Friedman also taught at the University of Chicago where he revolutionized how economists thought about floating exchange rates, inflation, and monetary policy. Friedman’s ideas remain influential among central bankers today who continue to prioritize the control of inflation over the goal of full employment. 

The Diversity of Liberalism

Liberalism means different things to different people at different times. It is a diverse political tradition. In the United States, liberals advocate for a broader social safety net, while Europeans identify liberals as advocates of small, limited government. Despite its differences, liberals share a few commonalities. For example, they generally value individualism. They also typically advocate for human rights and freedom. When scholars refer to liberal democracy, they traditionally mean a form of democratic governance committed to human rights and the rule of law. Nonetheless, many do extend liberal democracy to include other forms of openness and cooperation in areas like trade, immigration, and international relations.

Neoliberalism and Classical Liberalism

Neoliberalism shares many similarities to classical liberalism. Most classical liberals believed in free trade and a limited role for government in economic policy. However, classical liberals like Adam Smith and David Ricardo saw themselves as opponents of mercantilism rather than socialism. They never imagined an expanded role for the state as a social safety net. They never envisioned the need for regulations to protect the environment, workers, or consumers. Neoliberals interpret this silence as opposition to these policies. But it’s unfair to make any assumptions about the thoughts of past generations on contemporary problems they never considered.

The key difference between neoliberalism and classical liberalism involves an important shift in perspective. Neoliberalism emerged from the study of economics, while classical liberalism has its roots in philosophy. Even Adam Smith, the father of modern economics, saw himself as a moral philosopher. John Stuart Mill wrote extensively about economics, but remains best known for his work on philosophy and political thought. Classical liberals saw property rights and free trade as an extension of civil liberties. In contrast, neoliberals view civil liberties as an extension of property rights. The difference is subtle, but it shifts the focus to economic policy where most policy debates took place after 1945. In this way, neoliberalism is a reaction to the politics of the postwar consensus or compromise.

The Rise of Neoliberalism

In May of 1979, Margaret Thatcher became the Prime Minister of the United Kingdom. Her government implemented a political agenda of deregulation, lower taxes, and reductions is social spending. A year later Ronald Reagan became President of the United States with a similar economic agenda and philosophy. The emergence of Thatcher and Reagan symbolize the incorporation of neoliberalism into public policy for many, but a paradigm shift had actually begun a few years earlier. Jimmy Carter’s administration had initiated a process of economic deregulation a few years before Reagan’s election. So, it’s unclear whether Thatcher and Reagan were the cause or simply a symptom of a shift in public sentiment.

Despite the popularity of Reagan and Thatcher, few scholars believed they represented a permanent shift away from welfare politics or social democracy. Labour in Britain and the Democrats in the United States continued to represent the economic interests of the working class. But the traditional parties of the left struggled to compete throughout the eighties. Bill Clinton in the U.S. and Tony Blair in Britain finally found success in what they described as the Third Way. They consolidated neoliberal ideas through the moderation of the policies of Reagan and Thatcher rather than pursuing an outright rejection. 

Other countries also adopted neoliberal policies around the same time. Line Rennwald has traced the decline of social democracy to transformations in the workforce. Others like Sheri Berman argue the left’s policy triangulation put short term electoral gains above long term political interests. The emergence of the European Union beyond a customs union into a political project also placed greater pressure on governments in Europe to adopt neoliberal policy prescriptions. 

The Expansion of Neoliberalism

The collapse of the Soviet Union symbolized the triumph of capitalism and democracy over communism and autocracy to many. New governments in Eastern Europe introduced a series of reforms or policy prescriptions known as the Washington Consensus. They involved neoliberal reforms such as privatization, trade liberalization, and floating exchange rates. Around this same time developing countries in Latin America, Asia, and Africa found themselves compelled to introduce neoliberal reforms either from international creditors or from political leaders. Some democracies elected leaders who adopted neoliberal policies. For example, Carlos Menem adopted a number of neoliberal reforms in Argentina during the 1990s. 

But the most extreme neoliberal policies relied on authoritarian regimes shielded from democratic accountability. Augusto Pinochet, the military dictator of Chile between 1974 and 1990, introduced a radical neoliberal agenda. His government actively sought advice from economists associated with the University of Chicago known as the “Chicago Boys.” Chile privatized many state enterprises including its old age pension system. Many of these policies became embedded in a political framework established under an authoritarian government. Its policies remain difficult to change after thirty years of democratic governance. Widespread protests in 2019 led to demands for a new constitution and the election of representatives to a constitutional convention in 2021. 

Final Thoughts

Today neoliberalism faces criticism from the right and the left. Many assumed the financial crisis between 2007 and 2008 might discredit neoliberal policies. But a new paradigm did not emerge to displace neoliberal orthodoxy. Instead, populism became the only realistic alternative to neoliberalism. However, the pandemic demanded a wholesale rejection of neoliberal fiscal austerity. Nonetheless, it still remains unclear what new political paradigm will replace neoliberalism, but it is likely the transition is already in motion. 

Listen to the Democracy Paradox’s episode featuring Aldo Madariaga, author of Neoliberal Resilience: Lessons in Democracy and Development from Latin America and Eastern Europe, for a more in-depth exploration into the politics of neoliberalism in developing countries.

A Few Sources

Binyamin Appelbaum (2019) The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society

Sheri Berman (2009), “Unheralded Battle Capitalism, the Left, Social Democracy, and Democratic Socialism,” Dissent

Milton Friedman (1962) Capitalism and Freedom

Jacob Hacker and Paul Pierson (2010) Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class

Friedrich Hayek (1944), The Road to Serfdom

Claudia Heiss (2021), “Latin America Erupts: Re-founding Chile,” Journal of Democracy

Aldo Madariaga (2020) Neoliberal Resilience: Lessons in Democracy and Development from Latin America and Eastern Europe

Chantal Mouffe (2018) For a Left Populism

Thomas Piketty, tr. Arthur Goldhammer (2020) Capital and Ideology

Line Rennwald (2020) Social Democratic Parties and the Working Class: New Voting Patterns

Democracy Paradox Podcast

Aldo Madariaga on Neoliberalism, Democratic Deficits, and Chile

Jacob Hacker and Paul Pierson on the Plutocratic Populism of the Republican Party

More Episodes from the Podcast

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