Neoliberalism (sometimes called ‘neoclassical liberalism’) is widely seen as an updated version of classical liberalism, particularly classical political economy. Its central theme is that the economy works best when left alone by government, reflecting a belief in free-market economics and atomistic individualism. While unregulated market capitalism delivers efficiency, growth and widespread prosperity, the ‘dead hand’ of the state saps initiative and discourages enterprise. In short, the neoliberal philosophy is: ‘market: good; state: bad’. Key neoliberal policies include privatisation, spending cuts (especially in social welfare), tax cuts (particularly corporate and direct taxes) and deregulation. Neoliberalism is often equated with a belief in market fundamentalism; that is, an absolute faith in the capacity of the market mechanism to solve all economic and social problems.
The economic problems affecting the West in the 1970s appeared to discredit Keynesianism and helped create a more receptive environment for neoliberal thinking. Liberal New Right ideas
· a minimal state
· self-reliant individuals capable of making rational decisions in their own interests
· the rejection of collectivism and
· the elimination of government intervention.
Neoliberalism, promoted by the work of economists such as Milton Friedman and Frederick von Hayek, principally champions the free-market economy. It sees the free market as the only mechanism that can meet consumer demand for goods and services efficiently and widely, maximise the use of resources, and achieve the greatest overall prosperity. Neoliberals argue that government intervention cannot solve economic problems (such as rising unemployment and inflation in the 1970s) or properly allocate resources within a developed economy. Government involvement merely causes these economic problems or makes them worse.
The liberal New Right maintains that the operation of the free market has to be protected against three main threats: monopolies, inflation and government intervention. Industrial or business monopolies, in their view, reduce economic competition, leading to distorted prices and consumer choice. Neoliberals also contend that inflation is the 'great evil' in the market economy because any fall in the value of money discourages economic activity and investment, and breaks the relationship between price level and demand. Overcoming inflation, they argue, is the one vital role government can play in the economy.
Neoliberalism is anti-statist. The state is regarded as a realm of coercion and unfreedom: collectivism restricts individual initiative and saps self-respect. Government, however benignly disposed, invariably has a damaging effect on human affairs. Instead, faith is placed in the individual and the market. Individuals should be encouraged to be self-reliant and to make rational choices in their own interests. The market is respected as a mechanism through which the sum of individual choices will lead to progress and general benefit. As such, neoliberalism has attempted to establish the dominance of libertarian ideas over paternalistic ones within conservative ideology.
Friedman asserted that Keynesian policies to stimulate demand create inflation by encouraging governments to print too much money or provide too much credit. His solution, known as `monetarism, is for the government to reduce inflation by controlling the money supply through cuts in public spending. Both Thatcher and Reagan pursued monetarist policies to tackle inflation in the 1980s, convinced that the market would address the problem of mounting unemployment. The overall neoliberal approach to economic policy is known as 'supply side' economics, to distinguish it from the Keynesian focus on demand.
The liberal New Right regards government intervention in the economy as the most potent threat to the free market. State planning, nationalisation and high taxation are all rejected on the grounds that they distort the market and contribute to, rather than alleviate, economic problems. Margaret Thatcher embarked on an extensive privatisation policy in the 1980s that transferred state-owned industries to the private sector. Thatcher's justification was that nationalised industries were inefficient and lacked the dynamism associated with the private sector's need to generate profits. Similar neoliberal reservations apply to state welfare provision. In this view, welfare and social programmes expand, irrespective of demand, due to the vested interests of the professionals concerned (such as doctors, teachers and administrators) and politicians (who promise increased government spending on these services in order to secure votes at election time). The end result
is higher taxation, rising inflation, and increasingly inefficient and bloated state services artificially protected from free-market competition. Consequently, many neoliberals maintain that to improve
efficiency, public services and other government agencies should be exposed to the competitive forces of the market economy.
Finally, neoliberalism advocates atomistic individualism (the idea that individuals are rational, self-interested and self-sufficient) — which is clearly linked to the liberal New Right belief in free-market economics. According to the liberal New Right, the freedom of the market is the guarantee of individual freedom. Neoliberals view freedom in negative terms, stressing the need to remove external constraints or limitations on the individual. Individual freedom can only be preserved by opposing collectivism and 'rolling back' the state. In this context, neoliberals criticise state welfare policies for creating a dependency culture and infringing property rights by imposing high taxes on individuals to fund benefit payments. Such a system, in their view, actually institutionalises poverty and unemployment, and undermines atomistic individualism. If people no longer face government intervention and interference, they will be free to deal with each other without restrictions. These unhindered human interactions will create a 'natural' order vastly superior to any imposed model because it is based on everyone's consent.
The liberal New Right concludes that, although humans may be selfish, they are rational and entitled to pursue their own interests in their own way, as long as they accept others can do the same. This approach to individualism, claim neoliberals, releases human potential and creates natural harmony through free relations between people.