Neoliberalism, as its name suggests, is a version of liberalism.
Liberalism is a political and moral philosophy based on the principles of equality and freedom. Liberalism covers a wide range of views, but most include the concepts of civil rights, democracy, gender and race equality, freedom of speech etc., as well as free markets and globalization.
Liberalism started to emerge as a movement in the late 18th century when it became popular under western philosophers and economists such as Adam Smith, David Ricardo and Thomas Malthus, as well as John Locke who is considered the father of modern liberalism.
Liberalism was the counter to the existing system of hereditary privilege, state religion, the divine right of kings, and state conservatism. And it manifested itself in the French revolution and the American Revolution.
By the late 19th century neoclassical economics had replaced classical economics as the dominant theory. The classical school had emphasized the production of goods and services as the key focus of economic analysis. Neoclassical economics focuses on how individuals operate within an economy. As such, the neoclassical school emphasizes the exchange of goods and services as the key focus of economic analysis.
By the early 20th century, economists were falling into 2 main camps, those who followed John Maynard Keynes – a champion of the liberalism, who believed that governments should intervene during recessions to avoid economic collapse, and those who followed Joseph Schumpeter, Friedrich von Hayek and the Austrian School who believed in the freest of free markets.
Keynes’s approach won out for most of the 20th Century as most western governments adopted his policy prescriptions. Interestingly, the welfare state was not a socialist creation, but a liberal one, designed to enable individuals to be free to achieve their full potential.
In the late 1940s, von Hayek brought together intellectuals with free market sympathies to form the Mont Pelerin Society which had the explicit intention to displace Keynesianism. They were mostly economists and included among their members Karl Popper, Ludwig von Mises and a young Milton Friedman. It took a while for the Mont Pelerin society to have an impact, but eventually it played a central role within a network of over 100 pro-free market think tanks located all over the world. The think tanks received most of their money from commercial interests and gradually their free market thinking was adopted by academia and politicians and its story was accepted by public opinion.
By the middle of the 1970s Keynesianism had run its course. It had no answer for stagflation i.e. rampant Inflationand high unemployment, and the OPEC oil embargo caused global chaos. The neoliberal story was ready and waiting to replace the Keynesian story.
It was not only conservative parties that adopted extreme liberal economic philosophies over the last 40 years. Even many left leaning parties have implemented neoliberal prescriptions. During the 90s Bill Clinton in the US, Tony Blair the UK Prime Minister, the federal Liberals and even our own NDP, especially under Glen Clark all followed . Obama and now Biden essentially followed the neoliberal line.
The terminology is confusing and it is very difficult to directly align political parties and economic paradigms. At the federal level, the Conservatives are really extreme liberals i.e. neoliberals, and the federal Liberals seem to be moving back to their more traditional positions and may even be somewhat small “c” conservative. Obviously, there are a lot of grey areas, and pragmatic governments and parties are going to take whatever tool from the tool kit that suits their needs at that moment.
A lot of people do not realise just how ingrained, how pervasive neoliberalism is. Just about every major economy around the world, including China has adopted neoliberal prescriptions in whole or in part. Right now, we are in a bit of a default position. In the absence of a credible alternative paradigm, the left are defaulting to their socialist base and the right to a populist base.