Neoliberalism

Based on Wikipedia: Neoliberalism

The Word Everyone Uses But Nobody Defines

Here's a strange fact about one of the most influential ideas shaping your life: the people who created it don't use its name, the people who criticize it can't agree on what it means, and the people living under its influence often have no idea it exists.

That idea is neoliberalism.

If you've heard the term at all, it was probably as an insult. Someone on the political left hurling it at someone in the center. A protest sign. An academic paper title designed to signal disapproval. The British journalist Will Hutton has called it "an unthinking leftist insult" that shuts down conversation rather than opening it.

But here's the thing: neoliberalism isn't just a slur. It describes a real set of ideas that emerged in a specific time and place, spread across the globe, and fundamentally reorganized how governments, businesses, and individuals relate to one another. Whether you think those changes were good or catastrophic, understanding what neoliberalism actually means matters. Because it's almost certainly shaping the economy you work in, the services your government provides, and the assumptions you make about how society should function.

The Meeting That Started Everything

The Great Depression broke something in the liberal mind.

To understand why, you need to know what "liberalism" meant before the 1930s. It didn't mean what Americans now call liberal, which usually refers to center-left politics supporting social programs and government intervention. Classical liberalism was nearly the opposite: a belief that free markets, left mostly alone, would produce prosperity and freedom. The government's job was to get out of the way.

Then came the crash of 1929. Banks failed. Factories closed. Unemployment in some countries hit thirty percent. Bread lines stretched around city blocks. And the classical liberal prescription, essentially to wait it out and let the market correct itself, seemed not just inadequate but cruel.

Something had to change.

In August 1938, twenty-six liberal intellectuals gathered in Paris for what they called the Walter Lippmann Colloquium, named after the American journalist and author whose book An Inquiry into the Principles of the Good Society had just been translated into French. The attendees included some of the twentieth century's most influential economists and philosophers: Friedrich Hayek, Ludwig von Mises, Wilhelm Röpke, Alexander Rüstow, and the French philosopher Louis Rougier.

Their mission was to save liberalism from itself.

They agreed on the problem: pure laissez-faire economics had failed. The Depression proved that completely unregulated markets could spiral into catastrophe. But they violently disagreed on the solution.

One faction, led by Rüstow and Lippmann himself, argued that liberalism needed a new relationship with the state. Markets were powerful, yes, but they needed a strong referee. The government shouldn't run the economy, but it should actively create the conditions for fair competition, break up monopolies, and provide some baseline of social security.

The other faction, led by Mises and Hayek, thought this went too far. The state's only legitimate job, they insisted, was removing barriers to market entry. Anything more was the first step toward socialism.

The arguments grew heated. Rüstow accused Mises and Hayek of clinging to the very ideology that had caused the Depression. Mises shot back that the interventionists weren't really liberals at all, just socialists in disguise.

Despite the acrimony, they needed a name for their movement. Several were proposed. Someone suggested "neoliberalism," meaning new liberalism, a liberalism updated for the modern age. The name stuck, at least for a while.

What the Original Neoliberals Actually Believed

The definition hammered out at that Paris meeting might surprise anyone who only knows the term as an insult.

The original neoliberals believed in three things. First, the price mechanism: the idea that prices in a free market carry crucial information about supply, demand, and value that no central planner could ever replicate. Second, free enterprise and competition as the engines of prosperity. And third, crucially, a strong and impartial state.

That third point is what distinguishes the original neoliberalism from pure laissez-faire capitalism. The neoliberals of 1938 weren't anarchists. They believed government had essential work to do: enforcing contracts, preventing monopolies, maintaining stable money, and yes, providing some social safety net.

But they differed dramatically on how much the state should do.

The German-speaking neoliberals developed something called ordoliberalism, sometimes called the social market economy. Ordo is Latin for order, and ordoliberals believed the state should actively create and maintain the framework within which markets operate. Think of it as capitalism with guardrails: private ownership and free prices, but with strong anti-monopoly rules, worker protections, and social insurance.

After World War Two, ordoliberalism became the official economic philosophy of West Germany. Economists like Walter Eucken and politicians like Ludwig Erhard built what they called the Wirtschaftswunder, the economic miracle that transformed bombed-out Germany into Europe's largest economy. For decades, when most scholars used the word neoliberalism, this is what they meant.

But another strain of neoliberalism was developing, one that would eventually eclipse the German version entirely.

The Mont Pelerin Society and the Long Game

In 1947, Friedrich Hayek convened another gathering, this time at a resort near Montreux, Switzerland, on the slopes of Mont Pelerin. The Mont Pelerin Society, as the group called itself, would meet annually for decades, becoming the intellectual incubator for a more radical version of market liberalism.

Hayek had won the Nobel Prize in Economics in 1974, which gave his ideas enormous prestige. His most famous book, The Road to Serfdom, argued that government economic planning inevitably led to totalitarianism. The argument was simple and powerful: once the state started directing economic activity, it would need to control more and more of social life to make its plans work, until eventually you ended up with either chaos or dictatorship.

Milton Friedman, another Mont Pelerin member and Nobel laureate, became perhaps the most effective popularizer of free-market economics in history. His 1980 television series Free to Choose brought market economics into living rooms across America. His academic work argued that inflation was always and everywhere caused by too much money chasing too few goods, a view called monetarism that would reshape central banking around the world.

These thinkers didn't call themselves neoliberals. Friedman did use the term briefly in a 1951 essay called "Neo-Liberalism and its Prospects," but the label never caught on among advocates. They preferred terms like classical liberal, libertarian, or simply free-market economist.

The Mont Pelerin Society played a long game. They understood that changing policy required first changing ideas. So they funded think tanks, university chairs, and publications. They cultivated journalists and trained politicians. For decades, their views remained marginal, the postwar consensus favoring Keynesian economics and social democracy. But they were patient.

Their moment came in the 1970s.

The Stagflation Crisis and the Neoliberal Moment

The postwar economic model had a name: Keynesianism, after the British economist John Maynard Keynes. The basic idea was that governments should actively manage demand. When the economy slowed, the government should spend more to pick up the slack. When things got too hot, it should pull back. This demand management, combined with strong labor unions, generous social programs, and regulated financial markets, produced three decades of unprecedented prosperity in the Western world.

Then came the 1970s.

The immediate trigger was the oil crisis of 1973. The Organization of the Petroleum Exporting Countries, better known as OPEC, quadrupled oil prices in response to American support for Israel during the Yom Kippur War. Suddenly the cost of energy, and therefore the cost of everything, shot through the roof.

But the oil shock revealed deeper problems. Western economies developed a condition economists thought was impossible: stagflation, a portmanteau of stagnation and inflation. Keynesian theory said these couldn't happen together. If the economy was stagnating, prices should fall as demand dropped. If inflation was rising, that meant the economy was overheating. You shouldn't get both at once.

But there it was. Unemployment and inflation climbing in tandem. The standard Keynesian toolkit seemed useless. If you stimulated the economy to fight unemployment, you'd make inflation worse. If you tightened policy to fight inflation, you'd throw more people out of work.

The Mont Pelerin economists had an answer ready. The problem, they said, wasn't oil. It was decades of government intervention that had gummed up the economy with regulations, distorted prices with subsidies, and created inflation by printing too much money. The solution was to remove the gum. Deregulate. Privatize. Cut taxes. Reduce the money supply. Let markets work.

Thatcher and Reagan: Neoliberalism Goes Mainstream

In 1979, Margaret Thatcher became Prime Minister of the United Kingdom. In 1980, Ronald Reagan won the American presidency. Both had absorbed the lessons of the Mont Pelerin economists, and both were ready to implement them.

Thatcher's program was the more systematic. She privatized state-owned industries: British Telecom, British Gas, British Airways, water utilities, electricity providers. She broke the power of labor unions, most famously defeating the National Union of Mineworkers in a bitter yearlong strike. She deregulated financial markets in an event called the Big Bang, which transformed the City of London into a global financial center. She reduced income taxes, especially for high earners, while increasing indirect taxes like the Value Added Tax.

Reagan's approach was somewhat different. He too cut top income tax rates dramatically, from seventy percent to twenty-eight percent. He deregulated industries like banking and telecommunications. He fired striking air traffic controllers, signaling that his administration would side with management over labor. But Reagan also increased military spending massively, running huge budget deficits that contradicted the neoliberal emphasis on fiscal discipline.

Both leaders framed their programs in the language of freedom. Government was the problem, not the solution. Individuals and businesses, freed from bureaucratic meddling, would create prosperity for everyone. Wealth would trickle down.

The results were mixed in ways that remain fiercely contested to this day.

Inflation came down. Economic growth resumed. Financial markets boomed. In both countries, a new class of entrepreneurs and financiers grew spectacularly wealthy.

But inequality also soared. The income share going to the top one percent, which had been declining for decades, began climbing again and hasn't stopped since. Unions withered. Manufacturing employment collapsed as companies moved production to lower-wage countries or automated it away. Communities built around single industries, mining in Britain, auto manufacturing in the American Midwest, were devastated.

The Chicago Boys and the Laboratory of Chile

Before Thatcher and Reagan, there was Chile.

In 1973, a military coup led by General Augusto Pinochet overthrew Salvador Allende, the democratically elected socialist president of Chile. What followed was a brutal dictatorship in which thousands of political opponents were killed, tortured, or disappeared.

It was also, in the eyes of some economists, an opportunity.

A group of Chilean economists, most of whom had studied at the University of Chicago under Milton Friedman, were given control of economic policy. They became known as the Chicago Boys. Their reforms were radical: wholesale privatization of state enterprises, elimination of trade barriers, deregulation of labor markets, and severe cuts to social spending. Friedman himself visited Chile in 1975 and advised Pinochet to pursue what he called "shock therapy," implementing all reforms at once rather than gradually.

The initial results were devastating. Unemployment spiked. Real wages fell by half. A financial crisis in 1982 required massive government intervention to bail out the banking system. But the Chicago Boys stayed the course, and by the late 1980s, Chile's economy was growing rapidly.

For neoliberalism's critics, Chile became a cautionary tale: proof that free-market reforms could only be implemented through authoritarian means, that they benefited elites while impoverishing workers, that they required state violence to sustain themselves.

For neoliberalism's advocates, Chile became a success story: proof that market reforms could transform a middle-income country into a prosperous one, that short-term pain could yield long-term gain, that economic freedom would eventually produce political freedom. (Chile did transition to democracy in 1990, though how much credit market reforms deserve remains debated.)

What both sides agree on is that Chile was where the term neoliberalism acquired its modern meaning. Opposition scholars, watching the Chicago Boys' reforms from abroad, reached for a label to describe what they were seeing. They settled on neoliberalism. And from Spanish-speaking academia, the term spread into English-language scholarship, carrying its critical connotations with it.

The Washington Consensus and Global Spread

By the late 1980s, neoliberal policies were going global.

The phrase Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of policy recommendations that institutions based in Washington, particularly the International Monetary Fund and the World Bank, were pushing on developing countries. The list included fiscal discipline, tax reform, interest rate liberalization, competitive exchange rates, trade liberalization, openness to foreign direct investment, privatization, deregulation, and secure property rights.

Countries that wanted loans from these institutions typically had to agree to structural adjustment programs implementing these policies. The results varied enormously. Some countries, particularly in East Asia, combined market reforms with strong state direction and achieved rapid growth. Others, particularly in Latin America and sub-Saharan Africa, followed the prescriptions more faithfully and often experienced disappointing results, at least in the short to medium term.

The collapse of the Soviet Union in 1991 supercharged the neoliberal moment. With socialism discredited, capitalism seemed triumphant. The political scientist Francis Fukuyama famously declared "the end of history," arguing that liberal democracy and market economics had won the ideological competition for good.

Former communist countries were urged to liberalize rapidly. Russia's "shock therapy" privatization transferred state assets to a small group of oligarchs while the economy contracted by forty percent. Poland's reforms were more successful, though also painful. China pursued a distinctive path, maintaining Communist Party political control while gradually introducing market mechanisms, a hybrid that has produced the fastest sustained economic growth in human history.

The Third Way: Neoliberalism Goes Left

Here's something that confuses people: by the 1990s, parties of the left had embraced much of the neoliberal program.

In the United States, Bill Clinton's presidency accepted deficit reduction, free trade, and welfare reform. The North American Free Trade Agreement, which eliminated tariffs between the United States, Canada, and Mexico, passed with Democratic support. Clinton declared that "the era of big government is over."

In Britain, Tony Blair rebranded the Labour Party as New Labour and explicitly rejected the party's socialist heritage. His government maintained most of Thatcher's reforms while investing more in public services like health and education. The approach was called the Third Way: neither traditional socialism nor traditional conservatism, but a synthesis that accepted market economics while trying to humanize its effects.

Critics from the left saw this as capitulation. Defenders argued it was adaptation: accepting political reality while doing what good could be done within its constraints.

The political commentator David Brooks called figures like Clinton, Gore, and the journalists around magazines like The New Republic and Washington Monthly the real neoliberals, distinguishing them from the Reagan-Thatcher conservatives. The journalist Charles Peters wrote something called "A Neoliberal's Manifesto" in 1983, arguing that traditional liberalism had become ossified and that progressives needed to embrace market mechanisms and fiscal responsibility.

This produced one of the term's confusions. In academic and activist circles, neoliberalism usually refers to right-wing free-market ideology. But in some American political contexts, it refers to centrist Democrats who combined market economics with social liberalism on issues like civil rights and abortion.

What Neoliberalism Actually Does

Strip away the ideological debates, and neoliberalism in practice involves a recognizable set of policies.

Privatization transfers ownership of enterprises or services from the public sector to the private sector. This can mean selling off state-owned companies, like Britain's telecommunications or railroads. It can also mean contracting out government services to private providers, like private prisons or privatized military functions.

Deregulation removes or reduces rules governing economic activity. Financial deregulation in the 1980s and 1990s allowed banks to engage in new kinds of trading, to expand across state and national boundaries, and to take on more risk. Labor market deregulation weakens unions and makes it easier to hire and fire workers.

Austerity reduces government spending, particularly on social programs. The logic is that government borrowing crowds out private investment and that deficits today mean taxes tomorrow, which distort economic decisions.

Free trade eliminates barriers like tariffs and quotas that restrict the flow of goods between countries. The theory is that countries should specialize in what they produce most efficiently and trade for everything else, maximizing total output.

Monetarism focuses central bank policy on controlling inflation, often by limiting growth in the money supply, rather than on maintaining full employment. Independent central banks, insulated from political pressure, became a neoliberal ideal.

Labor market flexibilization is a euphemism for making it easier for employers to adjust their workforce. This can mean weakening job protections, reducing benefits, or shifting from permanent employment to temporary contracts and gig work.

Underlying all these specific policies is a broader idea: that markets are the best way to organize most of social life. Not just the economy, but education, healthcare, even personal relationships. The market is seen as an information-processing system more powerful than any human intelligence, revealing through prices what people truly value and allocating resources accordingly.

The Critics' Case

The case against neoliberalism is extensive and comes from multiple directions.

The most common criticism is inequality. Since the neoliberal turn of the 1970s and 1980s, income and wealth inequality have increased dramatically in most countries that adopted these policies. The share of income going to the top one percent has roughly doubled in the United States. Wages for working-class men have stagnated in real terms for forty years. The gains from economic growth have flowed overwhelmingly to those at the top.

Defenders respond that global inequality has actually decreased, as billions of people in China, India, and elsewhere have been lifted out of poverty. This is true, but it's not obvious that neoliberal policies in the West deserve credit for growth in countries that followed different models.

A second criticism concerns democracy. The anthropologist Jason Hickel argues that neoliberalism has hollowed out democratic control over economic life. When major decisions are made by unelected central bankers, by international institutions like the International Monetary Fund, or by multinational corporations that can shift production anywhere, what does voting actually decide?

The writer Adam Kotsko describes neoliberalism as a kind of political theology, a complete worldview that aspires to shape not just policy but morality. Success becomes proof of virtue. Failure becomes personal responsibility. Social problems are reframed as individual choices.

Environmental critics point out that market logic struggles with problems like climate change. Carbon emissions are what economists call an externality, a cost imposed on others that doesn't show up in prices. Markets on their own have no mechanism to address such costs. And the emphasis on growth may be fundamentally incompatible with ecological limits.

The journalist Naomi Klein has argued that neoliberal policies can only be implemented in moments of crisis, whether natural disasters, wars, or economic collapses. In her book The Shock Doctrine, she contends that neoliberal reformers have deliberately exploited crises to push through unpopular policies when populations are too disoriented to resist.

The Defenders' Case

Those who support policies labeled neoliberal rarely accept the term. But they do make substantive arguments.

The strongest is growth. The period of market-oriented reform coincided with the most dramatic reduction in global poverty in human history. In 1980, more than forty percent of the world's population lived in extreme poverty. Today, less than ten percent does. Correlation isn't causation, but defenders argue that freer trade, open investment, and market reforms created the conditions for this transformation.

A second argument concerns freedom. Markets, on this view, are about voluntary exchange. Nobody forces you to buy a product or take a job. State control, by contrast, involves coercion: bureaucrats deciding what you can produce, sell, or buy. Even if markets produce unequal outcomes, they respect individual choice in a way that central planning cannot.

A third argument is about information. Hayek's key insight was that economic knowledge is dispersed across millions of individuals and constantly changing. No central planner can possibly gather and process all that information. Prices in a market do it automatically, coordinating the actions of countless people who will never meet. The system has an intelligence that no human intelligence can match.

Defenders also point to the failures of the alternatives. The Soviet Union collapsed. Western social democracies struggled with stagflation in the 1970s. Many state-owned enterprises were corrupt and inefficient. Whatever the flaws of market reforms, the status quo ante had flaws too.

The 2008 Financial Crisis: A Turning Point?

On September 15, 2008, Lehman Brothers, one of the largest investment banks in the United States, filed for bankruptcy. Within weeks, the global financial system came closer to collapse than at any time since 1929. Governments that had spent decades preaching fiscal discipline and minimal intervention poured trillions of dollars into rescuing banks.

For critics of neoliberalism, this was vindication. Deregulation of financial markets had allowed the buildup of catastrophic risks. The ideology of market efficiency had blinded regulators to the dangers. And when the crisis came, it was the public that paid, both through bailouts and through the recession that followed.

The phrase "socialism for the rich, capitalism for the poor" captured a widespread sentiment: gains were privatized, but losses were socialized.

In 2016, the International Monetary Fund, long considered a bastion of neoliberal orthodoxy, published a paper with a remarkable title: "Neoliberalism: Oversold?" The authors concluded that certain neoliberal policies, particularly capital account liberalization and fiscal austerity, had increased inequality without clearly boosting growth. The paper was not a wholesale rejection, but it was a significant self-critique from inside the establishment.

The political consequences of the financial crisis continue to unfold. The populist revolts of the 2010s, Brexit in Britain, the election of Donald Trump in America, the rise of nationalist parties across Europe, have all been attributed in part to the economic insecurity and inequality that neoliberal policies are blamed for producing.

What Comes Next?

Is neoliberalism dying?

Some scholars argue that we're witnessing a paradigm shift comparable to the end of the postwar Keynesian consensus. Industrial policy is back in fashion. The United States is spending hundreds of billions on infrastructure, semiconductor manufacturing, and clean energy, all things the neoliberal playbook said governments shouldn't do. Free trade is in retreat, with tariffs and export controls being used as tools of geopolitical competition. Central banks are reconsidering their single-minded focus on inflation.

Others argue that neoliberalism is remarkably resilient. Its assumptions are built into international trade agreements, into the structure of institutions like the International Monetary Fund and World Bank, into economics curricula around the world. Changing a few policies is easy. Changing the underlying worldview is hard.

Radhika Desai, a political economist at the University of Manitoba, argues that neoliberalism was always an attempt to restore capitalism to the dominance it enjoyed before World War One, before the two great wars, before the Keynesian reforms, before the rise of social democracy. On her view, that project has failed, producing not prosperity but "a slowly unfolding economic disaster" marked by inequality, division, and misery.

Perhaps the most honest assessment is that we're in a period of transition, with the old consensus discredited but no clear replacement yet emerged. The arguments about markets and states, freedom and equality, growth and distribution, that animated the original neoliberals in 1938 remain unresolved. They may be unresolvable.

Why This Matters for Climate

If you're reading this essay because of its connection to climate change, here's the link.

Climate change is, in economic terms, the largest market failure in human history. Carbon emissions impose costs, rising seas, extreme weather, crop failures, on people who had no say in the decisions that produced them. Standard neoliberal tools struggle with this. You can create carbon markets and put a price on emissions, which many economists across the political spectrum support. But markets alone can't solve problems of coordination, of long time horizons, of protecting future generations who can't participate in today's markets.

The climate crisis therefore poses a fundamental challenge to the neoliberal worldview. If markets can't handle the most important problem facing humanity, perhaps the scope of what markets should handle needs to shrink. Perhaps the state needs to play a larger role, not just correcting market failures but actively directing investment and transforming production.

Or perhaps, as some argue, the solution lies in extending market logic: get the prices right, let entrepreneurs innovate, and the market will find solutions more efficiently than any government planner could design.

This debate is not abstract. It will shape the policies we adopt, the technologies we develop, and the world we leave to our children. Understanding neoliberalism, what it actually means, where it came from, what it gets right and wrong, is essential to navigating it.

The Paris meeting in 1938 was a response to crisis. The neoliberals saw the Depression as proof that something had gone deeply wrong and gathered to figure out what should replace it. Today, facing crises of inequality and climate, we find ourselves in a similar moment. The question is what we'll build next.