Neoliberalism- a lecture for a Global Studies theory class


Friedrich August von Hayek, 1899-1992

Keynes, economist

Margaret Thatcher (Prime Minister, 1979-1990)

Ronald Reagan (President, 81-88)

Washington Consensus

Adam Smith

DLP formula

Comparative advantage

New public management

Deng Xiaoping

Lecture Outline:

Introduction: What is Neoliberalism


Neoliberalism versus Neoconservatism

Key Tenents

New Public Management

Washington Consensus

Labor and the Left

Financial Deregulation: Savings and Loans; London

Decline of Neoliberalism

How Neoliberalism is viewed globally


  • Neoliberalism was the most powerful ideological current from the 1980s to the millennium
  • Was promoted by the U.S. government through the Bretton Woods architecture of the IMF, World Bank, and WTO
  • This led to a backlash in the developing world, particularly in Latin America
  • The idea became intimately associated with globalization, so much so that when people thought of globalization they thought of neoliberalism, they equated it with globalization
  • Neoliberalism currently greatly weakened by the global financial crisis that began in 2008
  • Less faith that free markets are always the best means to attain social and political goals
  • Still a powerful school of thought
  • Today’s lecture will introduce you to the idea’s history and key ideals
  • I want to talk about how critics have viewed this ideology
  • Then I want to talk about the reasons why neoliberalism has to some extent fallen out of favor
  • I will also talk about how it is viewed in different global areas, first of all in the West, where it is associated with Ronald Reagan and Margaret Thatcher
  • Then in the developing world, where I will discuss the differing views of Asia, Latin America and Africa


  • The term neoliberalism was first coined after World War One in Germany by a small group of economists
  • Not very widely known, nor were its ideas very attractive for most of the turbulent twentieth century
  • During the 1930s the idea that the free market was the best means to economic growth seemed questionable, as people struggled to survive the Great Depression
  • In the 1940s and 1950s many people witnessed the rapid industrialization of the Soviet Union and thought that Communism formed a viable alternative to free market approaches
  • Modern neoliberalism revived in Austria in the 1940s
  • Economists worried by what they saw as the rising tide of Communism
  • Key figure: Friederich August von Hayek
  • Gathered a group of similar minded thinkers to him
  • Argued that government intervention in the economy was the road to serfdom
  • Economic liberty not less important than political liberty
  • In fact, the two were intimately related
  • Not a powerful ideology
  • It remained confined to a relatively small group of thinkers in Europe
  • But it inspired economists at the University of Chicago, who became influential in the 1970s
  • Of these, the most important was Milton Friedman
  • After the military coup of 1973 in Chile, these economists collaborated with the dictator Augusto Pinochet in Chile to bring their ideas into action.
  • Immediately after the coup they presented the dictator with a 500 page document outlining what he out to do in Chile
  • He carried out a radical neoliberal reform agenda, based on this document
  • Their ideas were also being adopted elsewhere
  • In the 1980s U.S. President Ronald Reagan in the United States, and Margaret Thatcher in Britain adopted neoliberalism
  • Not only wanted to impose this ideology on their own nations, but also on others
  • These countries used their influence within global institutions to try to export this ideology to the developing world
  • This was the so-called “Washington Consensus” 
  • I will come back to this idea in a moment

Neoliberalism versus Neoconservatism

  • I also want to draw a contrast here, before I go much further
  • There is a difference between neoliberalism and neoconservatism, even though the two movements have much in common
  • The two ideologies are often equated, but there are important differences
  • Both groups hold to liberal principles in economics
  • That is, both groups believe in free markets, free trade, corporate power, property rights, and allowing big business to operate with a minimum of regulation
  • But the two groups part ways on how the government should treat individual citizens
  • Neoconservatives want to see an intrusive state not only in terms of security, but also in favor of traditional morality
  • Neoconservatives also call for the aggressive use of military power, in order to advance both freedom and free markets around the world
  • At times the two can go together, as was the case with Ronald Reagan
  • But very often neoliberals are unhappy with the intrusion of the state into the private sphere
  • Very unhappy with the level of debt and expense required to fund military actions
  • Tend to think that there is contradiction between a minimal state in economics, but an intrusive state in terms of morality and politics
  • Nonetheless, in the 1980s there was an alliance between the two groups
  • Wealthy neo-conservatives funded think tanks to advance neoliberal ideals

Key Tenets

  • But what were the core ideals of neoliberalism?
  • I’ve started to discuss the history
  • Now I need to define the concept
  • Neoliberalism refers to an economic model that rose to dominance in the 1980s
  • At the base, it is a wholesale adoption of the ideas of Adam Smith, an eighteenth century economist
  • A belief that the unregulated free market ensures maximum human freedom, as well as economic growth
  • People are defined as rational, self-interested actors who act to maximize their economic gain
  • The state is inherently dangerous, because it can interfere in the economy in irrational ways
  • another ideal: comparative advantage
  • Free trade is essential to economic growth, because all nations will benefit if they specialize in producing those products for which they are best suited
  • The Canadians should not produce bananas, and the Ghanians should not produce ice wine
  • This is a simplistic description
  • But trade is critical to growth
  • Government efforts to regulate trade –such as through tariffs- inevitably cause economic harm
  • Bad economic times are usually the result of some government failure
  • In other words, the government has intervened in the market in some way so as to undermine its efficiency
  • The same prescription can be applied to almost any economic difficulty
  • Remove the government from the marketplace and allow the market to resolve the issue
  • Reagan and Thatcher thought that this would allow them to address the economic ills that plagued the West in the 1970s
  • This policy package is sometimes called the DLP formula
  • D: deregulation of the economy
  • L: Liberalization of trade and industry
  • P: privatization of state owned industries

New Public Management

  • Neoliberalism also had a package of policy recommendations for how to govern, which Reagan and Thatcher adopted
  • It favors policies that promote decentralization, entrepreneurship, and competition
  • It celebrates the empowerment of individuals
  • It advocates that power be devolved to the lowest level possible, where decisions can be made as much as possible by those affected
  • It adopts ideas and approaches from the business world to government
  • It focuses less on the public good than minimizing government expenditure, cost-benefit analyses, efficiency, cutting bureaucracy, and ensuring accountability
  • Services were to be privatized to the maximum extent possible, because competition improves public service
  • This package came to be known as “new public management,” which was a neoliberal view of public administration
  • This was core to neoliberal’s view
  • There was one key area where neoliberals did not follow this policy of smaller government
  • neoliberals tended to believe in a strong government in the area of security
  • Favored large scale military spending, as well as expenditures on police and prisons
  • Always something of a contradiction within the philosophy
  • But this is the overall approach to public administration that neoliberals have favored

Washington Consensus

  • These economic and governance policies came to be known as the Washington consensus
  • A doctrine which the U.S. and Britain tried to export to the developing world through their influence over the Bretton Woods institutions
  • And what were developing countries told that they needed to do?
  • to minimize the role of the state in the economy
  • guarantee fiscal discipline and curb budget deficits
  • reduce public expenditure
  • Tax reform, aimed at the creation of a broad base, and with effective enforcement
  • This would be accompanied by a reduction in overall tax rates, to stimulate individual initiative
  • Financial liberalization, with interest rates determined by the market
  • Trade liberalization: tariffs should not be used to protect inefficient domestic manufacturers
  • Privatization of state enterprises
  • Promotion of foreign direct investment
  • Deregulation of the economy
  • Protection of property rights
  • These ideas were very popular in the 1980s and 1990s
  • But they were never uncontested
  • Neoliberalism always a polarizing ideology
  • So lets look at some of the critics of neoliberalism
  • First within the West, then more broadly

Labor and the Left

  • Within the West, these ideas were opposed by labor and unions during the 1990s
  • Neoliberals believed that unions distorted the labor market in destructive ways
  • Unions also favored social benefits that neoliberals wanted to cut
  • Classic example of the resulting conflicts: Margaret Thatcher and the coal unions in England
  • Coal cost more to dig out of the ground than it could be sold for
  • The British government subsidized coal production because it was essential to employment in areas that had few economic options
  • Thatcher decided to cut the subsidies and close the mines
  • Led to a showdown between Margaret Thatcher and the coal unions, as they went on strike
  • Dramatic images of conflicts between the police and striking workers
  • Thatcher won
  • A moment that showed the rising power of neoliberalism
  • But the labor movement has a deep seated hatred of neoliberalism, which it views as a tool for the wealthy to advocate their financial interests
  • The labor movement values employment
  • For neoliberals, fighting inflation is more important than maintaining full employment
  • Monetary policy should not have the goal of ensuring full employment
  • They believe that inflation is the main danger to individual wealth
  • Similarly, the focus on free trade means that industries that cannot compete globally should be allowed to fail
  • The government should not prop them up to keep jobs
  • This infuriated labor leaders
  • The labor movement also critiqued Reagan and other neoliberals
  • Justified their policies by arguing that government spending needed to be cut
  • But Reagan’s administration was characterized by a rapid expansion in government debt, which undermined his ideology’s legitimacy
  • If you look at discussions of neoliberalism, Reagan and Thatcher’s name come up frequently
  • The two key proponents of neoliberalism for the period, and how you view neoliberalism is often defined by how you view these two key figures
  • Both these leaders led a process of financial deregulation
  • Both proponents and opponents of neoliberalism point to the results

Savings and Loans

  • In the U.S., financial deregulation was not successful, according to critics.
  • In particular, the Reagan administration also has been criticized for the Savings and Loan crisis
  • Reagan wanted to deregulate the financial system
  • Allowed the rise of loosely regulated Savings and Loans institutions, which operated much like banks
  • In the past, S&L’s had been heavily regulated
  • Reagan argued that if the industry was deregulated that these institutions could compete with banks
  • There followed a wave of mergers and acquisitions
  • A lot of innovative financing relying on “junk bonds”
  • Junk bonds were a key term from another generation
  • In 1991 the bottom fell out of the stock market 
  • It lost a third of its value in one day
  • The S&L’s collapsed, because of shaky financing
  • Many institutions over-leveraged during the go-go eighties
  • In other cases, there was widespread fraud
  • Millions of Americans were threatened with losing their life-savings
  • The U.S. government spent over 100 billion dollars fixing this
  • This was a time when a $100 billion was a much larger number than today
  • Widespread wrong doing led to the collapse of many institutions
  • Critics said that it showed the need to regulate capitalism
  • If people criticize neoliberalism, they often refer to the S&L crisis as an example of why this does not work
  • But it is worth noting that this was only one of two cases of financial deregulation

Financial Deregulation in England

  • In 1986 Margaret Thatcher deregulated London’s financial system
  • This event was known as the Big Bang
  • Turned London into a revitalized financial center
  • The City courted international investors
  • Now one of the largest financial markets in the world
  • No parallel crisis to S&L in the United States
  • Supporters of neoliberalism point to the number of jobs that this created in finance in England
  • Critics of neoliberalism argue that it makes Britain overly vulnerable to financial crises
  • Both sides can find evidence for their arguments regarding the pros and cons of financial deregulation
  • Critics also point to the success of heavily regulated Canadian banks during the current financial crisis

Great Depression

  • I also want to return to history for just a moment
  • Critics of neoliberalism always point to the Great Depression
  • The idea of neoliberalism emerged after World War One, and then largely disappeared until the 1970s
  • The reason for this was the Great Depression
  • The economic downturn convinced many thinkers that the government could not play a passive role in the economy
  • Markets could behave irrationally
  • Human greed could undermine markets
  • These could only operate well if they were regulated by the government
  • In the event of a crisis, recovery was only possible with government action
  • This was the key insight of an economist named Keynes, whose thought dominated government policy for forty years, and whose thinking still remains influential today
  • Keynes argued that during an financial crisis the state had to intervene to ensure demand
  • This would create jobs, elevate spending, and lead to recovery
  • Keynes’ ideas led to what is sometimes called the golden age of capitalism from 1945 to 1975
  • A period of rapid economic growth in the West
  • It was only when this growth slowed after the oil shocks of 1973 that people began to rethink Keynes’ arguments
  • This was a period of runaway inflation, high unemployment and slow growth
  • Called stagflation
  • People began to think that the government was the problem and not the solution
  • The generation that had survived the Great Depression was passing away, and leaving academia
  • Laid the groundwork for a new approach to economic thought
  • Still, the Great Depression remains a challenge for neoliberal thinkers
  • Throughout the early depression, U.S. President Herbert Hoover tried to address the financial crisis through austerity measures, the opposite of what Keynes’ recommended
  • It was only with more aggressive government spending under U.S. President Franklin Roosevelt –and the economic demands of World War Two- that recovery occurred
  • You can see echoes of these debates in modern discussions of how to respond to the global financial crisis
  • Part of what gives these debates both their relevance and their heat
  • The reason that I come back to the Great Depression is that one could argue that there is something cyclical to the ideas of neoliberalism
  • It tends to have difficulty after financial crises, when people question the ability of markets to provide prosperity
  • For this reason, there is a sense of déjà vu regarding many of the debates surrounding neoliberalism
  • Perhaps not a coincidence that neoliberalism had its period of greatest influence in the 1990s, which was generally a prosperous time, and why it is perhaps less popular now, in the aftermath of the financial crisis

Decline of Neoliberalism

  • But the ideology was losing power even before the modern financial crisis
  • During the 1990s the ideology was dominant
  • Ironically, it attracted the Chinese government
  • Influenced thinkers in the former Soviet block
  • Immense power
  • But even then political leaders did not want to associate themselves with this ideology
  • Had acquired a negative connotation in the West
  • Tony Blair, Bill Clinton and others said that they were looking for another path for development, which would be more concerned with social justice
  • Tony Blair referred to his approach as the Third Way
  • Interestingly, both men had in fact carried out policies that were largely neoliberal
  • Clinton and Blair are sometimes called the “second-wave” of neo-liberalism
  • Period when the term had a negative connotation.
  • After the collapse of the Soviet Union, the West had sent advisors to the former Soviet Union
  • These advisors had advocated something called “shock therapy”
  • The government should not keep inefficient state enterprises in existence purely because they provided a social benefit
  • Allow these industries to collapse
  • This would provide the basis for a new and more effective use of resources
  • Somewhat similar to the arguments used against the auto bailout in the United States in 2008
  • These policies were generally followed in Russia and Eastern Europe
  • Led to a social crisis so severe that life expectancy in Russia dropped by years
  • A dramatic decline in GDP
  • Neoliberalism seen negatively now in Russia and Eastern Europe
  • Neoliberalism has long had important critics: Noam Chomsky, the linguist; Amarty Sen and Paul Krugman the economists; Joseph Stiglitz, of the World Bank
  • Still, it has been the 2008 financial crisis which accelerated neoliberalism’s decline
  • most recently, the Republican party in the United States -under the leadership of Donald Trump- seems to have largely abandoned neoliberal ideals, as can be seen most clearly with trade issues.

Current Claims of Neoliberalism

  • Despite these setbacks there are still proponents of neoliberalism
  • They argue that globalization makes neoliberalism inevitable
  • No-one is in charge of globalization
  • It is a process that is driven by technological change and markets
  • These changes demand liberalization and the opening of new markets
  • In the long run these changes benefit everyone, by bringing both economic prosperity and democracy
  • From this perspective, globalization is intimately associated with neoliberalism
  • Globalization is about economic liberalization and opening of markets
  • This argument is now less persuasive to many political leaders
  • But the neoliberals believe that this linkage between neoliberalism and globalization is the best argument for why this is not only an ideology, but also a process
  • I have some problems with this argument myself
  • This vision of globalization focuses on economic globalization
  • Says very little about either political globalization or cultural globalization
  • Does not examine the structures that permit economic globalization
  • But these are the arguments that neoliberals make now
  • So how well are these arguments accepted globally, particularly outside the West?

Developing Countries: Asia

  • So far this discussion has focused very much on the West
  • But neoliberalism has been a global ideology
  • Different visions of this ideology in Asia, Latin America and Africa
  • I want to begin by talking about Asia
  • In Asia, there has long been a state role in economic development
  • Neoliberalism not a powerful idea in Japan, which long advocated a powerful role for the state in development
  • After WWII underwent a period of dramatic growth
  • Then suffered a terrible financial bubble that burst around 1990
  • Japan has now suffered from 20 years of low growth, despite central government efforts to promote growth through government deficit spending
  • In other words, Japan has spent heavily on its infrastructure to try and build itself out of a long recession
  • Neoliberals argue that Japan’s failure illustrates the limits of Keynesianism
  • If Japan’s efforts to spend its way out of stagnation didn’t work, even after debt reached nearly 200% of GDP, what would have taken to get growth?
  • In China, people debate whether the country’s policy has been neoliberal
  • On the one hand, there was a massive economic liberalization after 1978
  • This effort was begun by the Chinese leader Deng Xiaoping
  • Power devolved to local level, special economic zones created, many state owned enterprises were privatized, etc.
  • Many neoliberal measures adopted
  • On the other hand, the state retained a massive role in the economy
  • Large state owned industries still employed large numbers of employees, even though they were inefficient
  • These were funded by state-owned banks
  • The state still played an important role in setting wages
  • It also defines the worth of the yuan, the national currency, which does not fluctuate on a purely free market basis
  • So is China an example of neoliberalism’s success?
  • India has thought so, and recently sought to implement a number of neoliberal reforms, after which its growth increased
  • Since 1991 India has removed most state license requirements for industry, cut the tariff rate on imports, carried out exchange rate liberalization, and courted foreign investment
  • All classic neoliberal policies
  • India has seen a dramatic increase in growth in the aftermath of these policies
  • Critics say that yes, there has been growth, but at the price of social inequality
  • Neoliberalism fading as a political ideology in many parts of the world
  • still has limited influence in Asia
  • One region where the term perhaps does not have the negative political reaction that you see elsewhere, which perhaps reflects the region’s experience with the ideology

Neoliberalism in Latin America and Africa

  • On the other, Latin America and Africa seem to be taking a less favorable view of neoliberalism
  • these ideas had initially proved attractive in Latin America
  • Hernando de Soto: Peruvian author
  • Worked to show how poverty was a result of government policies
  • We will discuss his work further in the section of the course that deals with development
  • Neoliberalism very popular in the 1990s
  • Hard to be a political leader without following these policies
  • Argentine President Menem: changing image
  • Came to power in 1989
  • Relied on a number of the so-called “Chicago Boys”
  • Then came the Argentine financial disaster of 2002, when it was forced to default on its debt
  • Midst of a terrible social crisis (Wide Angle)
  • Argentine had followed many classic neoliberal policies
  • After the defaulting on the debt, Argentina’s new president Kirchner abandoned neoliberal policies
  • for most of the time since then populist leaders have either led the country, or had great influence
  • Mexico also embraced neoliberalism in the 1990s, most clearly with NAFTA
  • Experienced a period of relative economic decline compared to countries, such as Brazil, which did not follow neoliberal policies
  • Most of Latin America took this as a warning
  • around the millennium, or shortly after, a whole series of left-wing leaders rose to power in Latin America
  • All very critical of neoliberalism
  • They argued that it is a form of neocolonialism
  • That neoliberalism imposes destructive policies upon developing economies by means of economic power
  • Powerful backlash
  • only recently has neoliberalism begun to have somewhat more influence
  • The one country that has continued to follow a neoliberal path is Chile
  • Also has had consistent growth
  • Even there, many Chileans feel that the government has not done enough to address social inequality
  • Still, Chile is often held up as a model of neoliberalism by its supporters
  • Other Latin American countries sometimes get tired of hearing that they need to be more like Chile
  • I won’t discuss the perception of neoliberalism in Africa in detail
  • Except to say that a very similar process took place there, with a period of enthusiasm for neoliberalism in the 1990s in countries such as Ghana
  • There was a perception in Africa that earlier state-led development had failed
  • But this was followed by a return to a more skeptical vision of neoliberalism
  • At base, Latin Americans and Africans tend to be much more skeptical of neoliberalism than their peers in Asia
  • Less convinced that policies within their countries inhibit development, than that structural issues globally tend to hold back their growth


  • Neoliberalism remains a controversial ideology
  • In Africa and Latin America, it is sometimes perceived as a policy package advanced by Western institutions through their economic and structural power
  • In Asia, it is believed to have contributed to the “Asian Miracle,” in particular, China’s dramatic growth and India’s rapid rise
  • In the West, it is associated with Ronald Reagan and Margaret Thatcher
  • Important to note that neoliberalism is diverse and evolving
  • But the situation is very different from a decade ago
  • Then when I would give a lecture on development models in my intro class, neoliberalism was the only model which seemed to maintain much credibility
  • Generally not popular, but there wasn’t any obvious alternative
  • Now, neoliberalism is much less powerful
  • But what has stayed the same is that people still have difficulty articulating an alternative model

Break into groups of 3 to 5. What are the strengths and weaknesses of neoliberalism as an ideology?

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