What Is Neoliberalism? Definition and Examples

Scale with wealth and cash money on a plate and people world, environment on the other, balancing business profits.
Scale with wealth and cash money on a plate and people world, environment on the other, balancing business profits.

Mykyta Dolmatov / Getty Images

Neoliberalism is a political and economic policy model that emphasizes the value of free market capitalism while seeking to transfer control of economic factors from the government to the private sector. Also incorporating the policies of privatization, deregulation, globalization, and free trade, it is commonly—though perhaps incorrectly—associated with laissez-faire or “hands-off” economics. Neoliberalism is considered a 180-degree reversal of the Keynesian phase of capitalism prevalent from 1945 to 1980.

Key Takeaways: Neoliberalism

  • Neoliberalism is a model of free market capitalism that favors greatly reduced government spending, deregulation, globalization, free trade, and privatization.
  • Since the 1980s, neoliberalism has been associated with the “trickle-down” economic policies of President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in the United Kingdom.
  • Neoliberalism has been criticized for limiting social services, overly empowering corporations, and exacerbating economic inequality. 

Origins of Neoliberalism

The term neoliberalism was first coined in 1938 at a conference of noted economists in Paris. The group, which included Walter Lippmann, Friedrich Hayek, and Ludwig von Mises, defined neoliberalism as an emphasis on “the priority of the price mechanism, free enterprise, the system of competition, and a strong and impartial state.”

Having both been exiled from Nazi-controlled Austria, Ludwig von Mises and Friedrich Hayek viewed social democracy, as exemplified by U.S. President Franklin Roosevelt’s heavily government-regulated New Deal programs and the rise of Great Britain’s post World War II welfare state, as manifestations of collective ownership of production and wealth occupying the same socioeconomic spectrum as Nazism and communism.

The Mont Pelerin Society

Largely forgotten during World War II, neoliberalism enjoyed renewed support in 1947 with the founding of the Mont Pelerin Society (MPS). Made up of noted classical and neo liberal economists, philosophers, and historians including Friedrich Hayek Hayek, Ludwig von Mises, and Milton Friedman, the MPS dedicated itself to advancing the ideals of free markets, individual rights, and open society.

In its first mission statement, the society expressed its concern over the growing “dangers to civilization” posed by increasing power many of the world’s governments held over their people. The statement came as post-World War II economics and politics were being influenced by the spread of communism in the Eastern Bloc nations of Central and Eastern Europe and the growing dominance of Depression era socialism in democratic Western Bloc economies. In 1944—as First Lady Eleanor Roosevelt was praising Joseph Stalin, and Albert Einstein was advocating socialism—Friedrich Hayek published his essay, "The Road to Serfdom." In the often cited discourse, Hayek issued a passionate warning against the dangers of government control over the means of production through gradual repression of individual rights and the rule of law.

In the early 1980s, the administrations of U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher drew on the ideals of the Mont Pelerin Society in implementing several neoliberal economic reforms intended to reverse the chronic stagflation the United States and the United Kingdom had suffered throughout the 1970s. Of the 76 economic advisers on Ronald Reagan’s 1980 campaign staff, 22 were MPS members, including Milton Friedman, chairman of Reagan’s Council of Economic Advisers.

President Ronald Reagan with Margaret Thatcher, 1981.
President Ronald Reagan with Margaret Thatcher, 1981. Bettmann/Getty Images

Vowing never to support any political party or deal in propaganda, the Mont Pelerin Society continues to hold regular meetings at which its members work to “discover ways in which free enterprise can replace many functions currently provided by government entities.”

Fundamental Concepts

Neoliberal economic policies stress two fundamentals of capitalism: deregulation—the removal of government control over industry—and privatization—the transfer of ownership, property, or business from the government to the private sector. Historic examples of deregulated industries in the U.S. include the airline, telecommunication, and trucking industries. Examples of privatization include the correctional system in the form of for-profit private prisons, and interstate highway system construction.

More simply stated, neoliberalism seeks to transfer ownership and control of economic factors from the government to the private sector, and favors globalization and free market capitalism over the heavily regulated markets common in communist and socialist states. Additionally, neoliberals seek to increase the private sector’s influence on the economy by achieving deep reductions in government spending.

In practice, the goals of neoliberalism depend to a great degree on the government. In this manner, neoliberalism is really at odds with the “hands-off” laissez-faire economic policies of classical liberalism. Unlike classical liberalism, neoliberalism is highly constructivist and demands strong government intervention to implement its market-controlling reforms throughout society.

Since the teachings of Aristotle, political and social scientists have known that, especially in representative democracies, the values of neoliberal capitalism and socialism will intersect. Rich capitalists, while demanding that the government not limit their earning potential, will also demand that the government defend their wealth. At the same time, the poor will demand that the government implement policies to help them gain a larger share of that wealth.

Criticisms of Neoliberalism 

Large STAY HOME sign above closed Museum of Neoliberalism in Lewsiham, London, England.
Large STAY HOME sign above closed Museum of Neoliberalism in Lewsiham, London, England. Getty Images

Especially since the global financial crisis of 2008–2009, neoliberalism has drawn criticism from left and right-wing politicians and economists alike. Some of the primary criticisms of neoliberalism include:

Market Fundamentalism

Critics argue that neoliberalism’s advocacy for the application of free market policies in certain areas, such as education and healthcare, is inappropriate since, as public services, they are not driven by profit potential, as are the traditional commercial and industrial markets. Neoliberalism’s across-the-board free market approach, say its critics, can increase inequality in the provision of essential social services, resulting in long term damage to the overall economy.

Corporate Dominance

Neoliberalism has been criticized for promoting economic and political policies that bless large corporations with nearly monopolistic powers while shifting a disproportionate share of the benefits of production to the upper class. Economists Jamie Peck and Adam Tickell, for example, have argued that this effect allows overly empowered corporations, rather than the people themselves to dictate the basic conditions of daily life. 

Dangers of Globalization

In their book "Moral Rhetoric and the Criminalisation of Squatting," economists Lorna Fox and David O'Mahony blame neoliberalism’s promotion of globalization for the emergence of a “precariat,” a new world social class of people forced to live precariously without any predictability or security, to the detriment of their material or psychological welfare. Political scientist Daniel Kinderman of Cornell University contends that the desperation of the precariat’s “life on the edge” existence could be the cause of as many as 120,000 excess deaths per year in the U.S. alone.

Inequality

Perhaps the most common criticism of neoliberalism is that its policies lead to class-based economic inequality, while allowing—if not exacerbating—global poverty. While persons with low income lose spending power, the rich grow richer and develop a greater propensity to save, thus preventing the wealth from “trickling down” to the lower classes as neoliberals suggest.

For example, economists David Howell and Mamadou Diallo have argued that neoliberal policies have resulted in a significantly unequal distribution of wealth in the United States. At any given time, the top 1% of the U.S. population controls approximately 40% of the nation’s wealth, including 50% of all investments, such as stocks, bonds, and mutual funds. At the same time, the bottom 80% of the population controls just 7% of all wealth, with the bottom 40% controlling less than 1% of the wealth. In fact, say Howell and Diallo, neoliberal policies implemented since the late 1980s have resulted in the greatest disparity in wealth distribution in U.S. history, leaving the modern middle class barely distinguishable from the poor.

Lack of Concern for Human Wellbeing

On May 4, 2020, President López Obrador of Mexico stated that the global coronavirus pandemic had “exposed the failure of the neoliberal model in the world.”

In a six-page dispatch, Obrador charges that the pandemic had proven that the neoliberal model is concerned only with economic success “without caring about the wellbeing of the people” or the environmental damages related to neoliberalism’s inherent pursuit of endless growth.

López Obrador also stated that widespread difficulties in buying pandemic related medical equipment had revealed the “scant solidarity” between nations caused by neoliberal policies. “A ventilator that cost on average US $10,000 before Covid-19 is now sold for up to $100,000” he wrote. “The worst thing is that, due to the shortage, there is stockpiling [of ventilators] both by governments and the companies that produce them.”

López Obrador concluded that the pandemic “has come to demonstrate that the neoliberal model is in its terminal phase.”

Sources and Further Reference

  • Pearse, William. “A Critique of Neoliberalism.” INOMICS, April 2019, https://inomics.com/insight/a-critique-of-neoliberalism-1379580.
  • Rodrik, Dani. “The fatal flaw of neoliberalism: it's bad economics.” The Guardian, Nov. 24, 2017, https://www.theguardian.com/news/2017/nov/14/the-fatal-flaw-of-neoliberalism-its-bad-economics.
  • Ostry, Jonathan D. “Neoliberalism: Oversold?” International Monetary Fund, June 2016, https://www.imf.org/external/pubs/ft/fandd/2016/06/pdf/ostry.pdf.
  • Peck, Jamie and Tickell, Adam. “Neoliberalizing Space.” Antipode, Dec. 6, 2002, DOI-10.1111/1467-8330.00247, EISSN 1467-8330.
  • Arthur, Mark. “Struggle and the Prospects for World Government.” Trafford Publishing, August 15, 2003, ISBN-10: 1553697197.
  • O'Mahony, Lorna Fox and O'Mahony, David. “Moral Rhetoric and the Criminalisation of Squatting: Vulnerable Demons?” Routledge, October 28, 2014, ISBN 9780415740616.
  • Dewey, Clara. “How neoliberalism has caused income inequality.” Medium, June 21, 2017, https://medium.com/of-course-global/how-neoliberalism-has-caused-income-inequality-9ec1fcaacb.
  • “Coronavirus pandemic proves that ‘neoliberal’ model has failed.” Mexico News Daily, May 4, 2020, https://mexiconewsdaily.com/news/pandemic-proves-that-neoliberal-model-has-failed/.