Key Words: Neoliberal economics

In the first in a series on ‘neoliberalism’, Gregk Foley traces the birth of an economic ideology

June 10, 2022 · 5 min read
Thatcher and Reagan in 1984, via Wikimedia Commons

Neoliberal economic theory emerged after World War II, spearheaded by Austrian economists Ludwig von Mises and Friedrich Hayek, and later by America’s Milton Friedman.

Hayek was staunchly opposed to state intervention, whether a Soviet-style command economy or the social democratic welfare states of post-war western Europe. For him, the foundation of knowledge, whether scientific, economic, or otherwise, was the individual; the actions of self-managing entrepreneurs could not, and should not, be second-guessed by the state. Early 20th-century state intervention (nationalised industries, social welfare, strong labour unions and planning as a central task of government) had caused western nations to depart from the founding principles of liberal philosophy: individual liberties, the right to private property and a free market governed by the ‘natural laws’ of classical economics.

As a remedy, these economists proposed a political restructuring, centred on reforms that would disentangle the state from the market, finding the natural balance in every exchange without cumbersome government interventions. In post-Soviet eastern Europe, this ideology held an unarguable appeal to young and economically precarious dissidents, as well as to kleptocratic oligarchs with self-interest in imposing a ‘western-style’ free market.

In practice, this entailed many now-familiar measures: privatisation of national utilities, including water, gas and railways; aggressive attempts to dismantle trade unions and submit workforces (and by extension, their wages) to the ‘natural forces’ of supply and demand; and the removal of barriers to trade between countries and establishment of international trading blocs such as the North American Free Trade Agreement (NAFTA) to facilitate the flow of capital, goods, commodities and services.

The objective was to create a market that was truly free, global, and limitless – for capital, if not for human beings. The principles of individual liberty, rights to private property and a free market were radically reasserted, and it is this aspect that underscores the ‘neo’ [new] in neoliberalism.

Neoliberalism’s translation from theory to practice is associated with three figures. Firstly, in 1973, Chile’s democratically-elected leader Salvador Allende was overthrown by a CIA-backed coup and replaced with Augusto Pinochet, a military dictator who allowed a group of Friedman-educated economists known as the ‘Chicago Boys’ to turn Chile into a laboratory for neoliberal policy.

Later, Ronald Reagan and Margaret Thatcher translated neoliberalism’s hostility to the state into a rallying-cry against ‘big government’ interfering in people’s lives. Thatcher railed against the ‘nanny state’ as she dismantled social welfare and housing, disempowered unions and privatised national industries. Reagan bolstered the assault with rhetorical attacks: ‘The nine most terrifying words in the English language are: “I’m from the Government, and I’m here to help.”’

The ‘neoliberal turn’ profoundly affected the ability of national governments to, well, govern. By accepting its principle of laissez-faire (‘let do’) and allowing ever more aspects of the state and society to be subjected to the laws of the market, governments gradually surrendered their ability to intervene meaningfully in political issues. If the laws of the market call for lower wages; if they call for a bailout of the banks and a decade of austerity after a crash; if waiving the patent protections on vaccines for a global pandemic would interfere with the profits of pharmaceutical companies, who can say any different?

That, in a nutshell, is neoliberal economics: the ruthless submission of political and social life to the free market.

Further reading

  • Arguments for A New Left: Answering the Free-Market Right, Hilary Wainwright, 1994
  • Undoing the Demos: Neoliberalism’s Stealth Revolution, Wendy Brown, 2005
  • A Brief History of Neoliberalism, David Harvey, 2005
  • Globalists: The End of Empire and the Birth of Neoliberalism, Quinn Slobodian, 2018

Gregk Foley is an independent researcher based in the UK. Red Pepper’s new ‘Key words’ regular, inspired by the work and legacy of Raymond Williams, explores the meaning of current political terms and the history and politics behind their use. Subscribe to read our latest instalment!

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