Do you know what Neoliberalism is?

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Dr. Periklis Gogas, Associate Professor, Department of International Economics, Democritus University of Thrace, Greece.

Ms. Anna Agrapetidou, PhD
candidate, Economics, Democritus University of Thrace, Greece

Neoliberalism is a term that can be traced back to the 1930’s. It was introduced then by the people who were looking for the middle way between the classical liberalism of the laissez-faire doctrine and the emerging –at that period- socialism. The usage of the term declined in the 1960’s and it was reintroduced in the 1980’s. This time, it was mainly used to describe the classical liberalism by its critics, thus adding negative connotations as its meaning was shifted to the laissez-faire principles.

As a result, the term neoliberalism, is not a clearly defined concept. Through the years, Neoliberalism has been used pejoratively to describe the political, social and economic phenomenon of the modern word system and it has acquired a negative sentiment. Many people confuse the concept of neoliberalism with that of liberalism but the truth is that they are two vastly different concepts. Liberalism is believed to be first formulated by Adam Smith, who advocated the minimal interference of the government in the market economy. He laid the intellectual framework that explained the free market and introduced the expression “invisible hand” which he used to demonstrate how self-interest guides the most efficient use of resources in a nation’s economy, with public welfare coming as a by-product. Moreover, he argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces. In contrast to the liberalism which was developed in the 19th century and promoted free trade and the elimination government intervention in the market economy, Neoliberalism, actually, does not imply the lack of government intervention. It promotes a free operating market economy where market failures that relate to public goods, externalities and market power are eliminated or at least minimized by the government. Neoliberalism re-established the ideas of free market and a strong government that intervenes in two ways: to promote perfect competition in a market with no failures and provide a strong pillar of support and social welfare to the people that are not successful in this setting. As e result we can say that Neoliberalism:

–      It is not the unaccountability of markets, it is the opposite

–      It is not the abolishment of the government, it is the opposite.

–      It is not the demolition of the proactive welfare state, it is the opposite.

Thus, the economic philosophy of Neoliberalism is set between the conflicting ideas of classical liberalism and socialism. Neoliberalism is a mechanism that gives priority to the market and at the same time presupposes the existence of a strong and social state. Market economy, provides the best conditions for consumer goods, but with regard to the public goods and services (such as water, energy, health and education) the intervention of a strong and impartial state with rigorous regulatory role is necessary.

Neoliberalism is the structure of an economic and social system with emphasis on the free market that is state-controlled to avoid undesirable functioning of market forces, within a strong social state governed by the rule of law, education and welfare. Another designation of Neoliberalism is the notion of a “social market economy”. Social market economies aim to combine free initiative and social welfare on the basis of a competitive economy. The state plays an active role for the free market to function and ensures that policies or private actions that could pose a threat to freedom of competition will be eliminated (thorough the intervention of the state). Therefore, the social market economy is opposed to the “invisible hand” economic system proposed by Adam Smith and to the socialist economic systems. It combines the private enterprise with regulation and state intervention to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare, and public services.

Current examples of Neoliberalism would be Canada, Denmark, Norway etc. Bearing in mind what Neoliberalism really is, one can easily see that the policies followed (either intentionally or unintentionally) in the crises stricken countries of Europe and mostly Greece, are in contrast to the policies of the Keynesian school of thought as well as the classical economists and of course the principles of Neoliberalism. At a time of a significant and persistent economic recession both schools of economic thought suggest increasing public spending in combination with tax cuts. These policies are exactly the opposite of what is happening in Greece in the last 5 years. It is, thus, not a surprise that the country faces a recession for over 6 consecutive years.

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