Neoliberalism

We explain what neoliberalism is, what its origin is and what its characteristics are. Also, its differences with liberalism.

What is neoliberalism?

Neoliberalism is a current of economic and political thought based on the free competitive market. It is characterized by proposing the reduction of state interventionism in the economy, promoting market liberalization and privatization, and promoting policies aimed at free trade and globalization.

The neoliberal model It emerged at the end of the 20th century as a response to the economic crises of the 1970s and 1980s which affected many developed countries. It is based on criticism of the Keynesian model, which establishes state intervention for the regulation of the economy. Among its main ideologues and defenders are Milton Friedman (1912-2006) and Friedrich Hayek (1899-1992), who preached confidence in market mechanisms to improve economic efficiency and resource allocation.

The ideas of Friedman and Hayek gained influence with the rise to power of leaders such as Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom. Both Reagan and Thatcher implemented neoliberal policies as part of a movement toward deregulation and global economic openness.

• See also: Capitalism

Characteristics of neoliberalism

Among the main characteristics of neoliberalism are:

• Origin. It has been developed as an economic theory since the 1950s, but gained significant influence in the 1980s with the ideas of Milton Friedman and Friedrich Hayek.
• Consolidation. It was mainly imposed in the 1980s and 1990s, under leaderships such as Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom.
• Premises. It is based on the promotion of free economic competition, the reduction of state intervention, the privatization of public companies, and the confidence that the free and deregulated market maximizes economic efficiency and social well-being.
• Adopting countries. It is adopted by Western countries and developing countries under structural adjustment programs that are promoted by international financial institutions.
• Beneficiaries. It mainly favors the business and financial sectors, because it eliminates taxes and restrictions on their actions.
• Injured. It harms the most vulnerable social sectors, because it reduces state investment in services, rights and public employment.

• See also: Economic dependence

Origin of the term “neoliberalism”

The term “neoliberalism” It was coined by the German sociologist and economist Alexander Rüstow (1885-1963) at the Walter Lipmann Colloquium in 1938.

Rüstow used this word to group the interventionist economic practices of the insurgent tendencies of the 20th century, such as fascism, communism, nationalism and socialism. These tendencies formed, in his opinion, a doctrine separate from classical liberalism, enemy of laissez-faire. However, in the 1960s, the term was no longer associated with the ideas of Rüstow and It was reinterpreted under the ideas of economists such as Milton Friedman, Ludwig von Mises and Friedrich Hayek. The neoliberal economics promoted by these economists emphasized the importance of the free market, economic deregulation, the privatization of state-owned enterprises, and the reduction of the state.

Fundamental ideas of neoliberalism

Neoliberalism is based on the belief that individual freedom and free markets are fundamental to economic development. It proposes a minimum State that guarantees security and compliance with contracts, but does not intervene in the development of the economy.

To this end, the neoliberal model proposes economic deregulation which is a policy aimed at eliminating legal and administrative barriers that may hinder private business activity. Also advocates privatization of state-owned companies arguing that private management is more efficient than public administration.

On the other hand, neoliberalism promotes economic globalization through free trade and foreign direct investment, arguing that this stimulates productive specialization and economic growth.

However, These policies have been criticized for increasing economic inequality and weakening social services especially in areas such as health and education, where privatization can reduce universal access.

• It may help you: Economic crisis

Criticism of neoliberalism

The application of neoliberal economic policies had different consequences worldwide. Among the main negative effects that its critics highlight are:

1. Economic inequality. Neoliberal policies contribute to a significant increase in economic inequality, both within and between countries. The deregulation of the economy benefits the richest sectors of society and the reduction in state investment especially affects the most vulnerable sectors.
2. Decline of social services. The privatization of areas such as health, education and social security fails to guarantee essential services in an equitable and efficient manner. In many cases, this results in a decrease in the quality and accessibility of these services for those who cannot pay for them in the market.
3. Environmental deterioration Neoliberal policies prioritize economic benefits over environmental sustainability. The deregulation of environmental laws and the promotion of extractive industries fuel problems such as deforestation, pollution and climate change. This has a serious long-term negative impact on the environment and public health.
4. Economic instability Financial liberalization promotes speculation and increases risk in global financial markets. This can lead to serious economic crises, such as the 2008 global financial crisis generated by deregulation and lack of supervision of the financial sector.
5. Impact on sovereignty Neoliberal policies liberalize trade and foreign investment, weakening the ability of governments to protect national interests. In many cases, this leads to the loss of economic sovereignty and greater influence of foreign corporate interests on domestic political decisions.
6. Wealth priority. The neoliberal approach focuses on wealth generation and economic growth as its main objectives. By prioritizing immediate benefits over general well-being, the State's ability to address social needs, promote sustainable development, and invest in areas that are fundamental to the country in the long term is weakened.

• See also: Developed and underdeveloped countries

Differences between liberalism and neoliberalism

Liberalism (also called classical liberalism) is an 18th-century economic model that emphasized individual freedom and the limited role of the state. Neoliberalism is based on the ideas of liberalism, but emphasizes free economic competition, deregulation and business privatization as means to achieve a more efficient and dynamic market.

Among the main differences between liberalism and neoliberalism are:

classical liberalism	Neoliberalism
It emerged in the 17th and 18th centuries as a reaction to monarchical absolutism and in favor of individual and economic freedoms.	It emerged as a response to state interventionism in the 20th century, consolidating in the 1980s with an approach focused on the free market.
He defended individual liberty, property rights, and free enterprise as engines of economic progress.	Promotes free competition, deregulation and privatization to improve economic efficiency.
He considered that the role of the State should be limited, focused on protecting individual rights and promoting economic enterprises.	Considers that the role of the State should be minimal, focused mainly on security, justice and limited regulation to promote a competitive market.
It emphasized individual freedom to pursue one's own economic interest and personal well-being.	It conceives the individual as a rational economic agent who must operate in a free and competitive market.
He defended the idea that the free market could regulate itself and benefit society. He acted against the privileges of the aristocratic classes.	It maintains that the free and competitive market is the best mechanism for allocating resources and promoting innovation and efficiency.

• Liberalism

Differences between Keynesianism and neoliberalism

Keynesianism and neoliberalism represent two fundamental economic approaches with opposing views on the role of the State and the market. These approaches have generated significant debates about how to manage the economy and promote social well-being in different historical and political contexts.

Among its main differences are:

Keynesianism	Neoliberalism
It was developed by John Maynard Keynes in response to the Great Depression of the 1930s and the need for state intervention to stimulate aggregate demand.	It emerged as a critical response to Keynesianism in the 1980s, promoting a more market-oriented and less interventionist approach.
It arose against laissez-faire and classical economic thought, which defended the self-regulation of the market without state intervention.	It emerged as a criticism of the state interventionism of Keynesianism, which he considered a limitation to economic efficiency and innovation.
It advocates state intervention through fiscal and monetary policies, to stimulate demand and maintain economic stability.	It defends free competition, deregulation and privatization as means to improve efficiency and economic competitiveness.
Its main exponents are John Maynard Keynes, Joan Robinson and Paul Samuelson, among others.	Its main exponents are Ludwig von Mises, Friedrich von Hayek and Milton Friedman, among others.
It promotes an active role for the State, intervening to regulate the economy, promote full employment and stabilize the economic cycle.	It promotes a minimal role for the State, limited to basic functions such as security, justice and regulation to promote a competitive market.
Considers that the individual can be negatively affected by economic fluctuations and needs state protection.	It focuses on the individual's ability to operate efficiently in a free and competitive market, seeking his or her own economic interest.
He believes that the market can experience failures and that it needs state intervention to correct them and promote social well-being.	Considers that the free and competitive market is the best mechanism to allocate resources and promote innovation and economic efficiency.

• It may help you: Mixed economy

Mexican neoliberalism

In Mexico, neoliberalism emerged as a response to the economic crisis of the 1980s marked by high levels of inflation, monetary devaluation and growing labor informality.

During the presidency of Miguel de la Madrid (1982-1988), the country adopted economic policies that sought to reduce the size of the State and promote economic openness to the global market. This included the privatization of numerous state-owned companies and the implementation of structural reforms aimed at liberalizing key sectors, such as banking and telecommunications.

In the same presidential period, the State went from having participation in 45 economic branches to only 22, and from 1,155 public companies to 412. This economic philosophy was inherited by the following presidents, Carlos Salinas Gortari (from 1988 to 1994) and Ernesto Zedillo. (from 1994 to 2000), who deepened neoliberal measures.

Also constitutional reforms were carried out that allowed the reprivatization of banking and reforms to the electoral law and the cult law. Furthermore, a new profile of agricultural property encouraged the entry of national and international private capital into rural areas and agricultural production.

On the other hand, in 1994, The North American Free Trade Agreement (NAFTA) was signed which integrated Mexico into a regional economy along with the United States and Canada. This trade agreement facilitated access to the North American market, but also exposed the Mexican economy to international competition, with mixed repercussions on the national industry and employment.

During the subsequent administrations of Vicente Fox (2000-2006) and Felipe Calderón Hinojosa (2006-2012), neoliberalism in Mexico continued to expand the opening towards foreign investment and the privatization of strategic sectors such as energy and education. Although they sought to improve economic efficiency, these policies also sparked criticism for increasing social inequality and decreasing labor and social protections for large sectors of the Mexican population.

References

• Ackermann, M. (2008). Latin American politics. Encyclopedia of World Historyvol. VI: The Contemporary World. 1950 to the Present. Facts on File.
• Francis, J and Leonard, T. (Eds.). (2006). Latin American debt crisis of the 1980s; Mexico. Encyclopedia of Latin Americavol IV: The Age of Globalization. Facts on File.
• Smith, N. (2024). Neoliberalism. Encyclopedia Britannica. https://www.britannica.com