Neoliberalism is the idea that less government interference in the free market is the central goal of politics.
Neoliberals believe in a ‘small government’ which limits itself to enhancing the economic freedoms of businesses and entrepreneurs. The state should limit itself to the protection of private property and basic law enforcement.
Neoliberalism is most closely associated with Thomas Hayek and Milton Friedman, and the policies of Ronald Reagan and Margaret Thatcher.
Neoliberals advocate three main policies to increase the role of the private sector in the economy and society: privatization, deregulation and low taxation.
Some examples of Neoliberal Policies include:
- Lowering taxes on income, especially high income earners. When Thatcher came to power in 1997 she reduced income tax on the very highest earners from 83% to 60%.
- Lowering Corporation tax – The government reduced the main corporation tax from 28% in 2010 to just 21% in 2014.
- Privatising public services – Privatisation began under the Thatcher government of 1979 and continues today (2017). Britain’s rail, energy and water industries all used to be run by the state, but now they are run by private companies. Education and Health services are also being ‘privatised by stealth’, as more and more aspects of these services are contracted out to and run by private sector companies.
- Reducing the number of rules and regulations which constrain businesses: This involves national and local governments monitoring private businesses less: by reducing the number of ‘health and safety standards’ businesses need to conform to and doing fewer health and safety and environmental health inspections for example.
Further Background on Neoliberal Thought
Neoliberalism emerged in the 1950s as a reaction against ‘Keynesianism’ – the idea that nation states should play a significant role in managing free market capitalism through high taxation in order to provide public services such as unemployment benefit, free health care and education (‘the welfare state’).
Keynsianism itself was a development of the earlier doctrine of ‘Liberalism’ which believed that individual freedom was the central goal of politics. Obviously the question of what kind of society allows for the most or best freedom is open to debate, but by the 1950s a consensus had emerged that ‘liberty’ was best guaranteed if the state provided a high degree of regulation of the economy and investment in social welfare.
Neoliberals such as Friedman believed that this ‘Keynesian’ model of organising the economy was inefficient, one of the reasons being that it restricts the freedoms of successful economic actors to reinvest their money as they see fit, because the state takes it away from them through taxes and gives it to the less successful, which in turn can create a perverse situation in which society punishes success and rewards laziness.
Evaluations of Neoliberalism
Arguments for neoliberalism
- What right does the state have to tax money earnt through individual effort, innovation and risk?
- Neoliberals argue that the private sector run services more efficiently than the state sector.
- The argument for deregulation is that red-tape stifles business.
There are many critical voices of neoliberalism, mainly from the left and from within the green movement. Some of the main criticisms can be summarised as follows:
- Cutting taxes on the rich has resulted in greater inequality and a lower standard of public services, especially for the poor.
- Privatisation of public services has resulted in a massive transfer of wealth from the majority to the rich –
- Deregulation has made society less safe and stable – critics blame deregulation of the finance sector for the 2007 financial crash and the deregulation of health and safety legislation as being linked to the Grenfell Tower disaster.
It can be difficult to evaluate the impact of neoliberalism because the term is so broad, and there is actually quite a lot of disagreement over what it actually means.
Even if we just focus on the policy aspect of neoliberalism – and try to evaluate the impact of lowering taxation, privatisation and deregulation, you would almost certainly need to break these down and look evaluate the impact of each aspect separately, and maybe even subdivide each aspect further to evaluate properly.
Selected Sources used to write this post…