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Neoliberalism

Updated on February 22, 2024
Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

Neoliberalism Meaning

Neoliberalism refers to an ideology encouraging free-market capitalism and minimal government intervention. In simple terms, it believes in individual economic freedom and highlights the significance of privatization. This ideology came in the 20th century and is prominently associated with laissez-faire economics.

The ideology states that a framework promoting minimal government intervention in economic and social activities and removing regulations and restrictions in the labor and financial markets will enhance capitalismCapitalismCapitalism is an economic system consisting of businesses, resources, capital goods, and labour. Private entities own it, and the income is derived by the level of production of these factors. Because of the private hands, these entities can be operated efficiently and maximize their production activity also.read more and ultimately bring social well-being. Examples of countries incorporating the essence of this ideology are China, South Korea, and Australia. 

Key Takeaways

  • Neoliberalism in economics refers to an ideology encouraging free-market capitalism and minimal government intervention. It was first coined in a conference held in Paris in 1938, emphasizing economic freedom.
  • The major criticism revolves around inequality, corporate dominance, wage disruption, unemployment, private investments, and a lack of humane concern.
  • It is different from liberalism because liberalism is a moral and political philosophy focusing on citizens’ freedom and covering more aspects of life.
  • Neoliberalism is a philosophy, whereas capitalism is an economic system where rich and powerful entities dominate the system.

Neoliberalism Explained

Neoliberalism was first introduced in 1938 at a meeting held in Paris and attended by economists, academics, journalists, etc. The failure of economic liberalism exemplified by the Great DepressionGreat DepressionThe Great Depression refers to the long-standing financial crisis in the history of the modern world. It began in the United States on October 29, 1929, with the Wall Street Crash and lasted till 1939.read more in the 1930s triggered the argument for neoliberalism, reflecting a revival of liberalism. Furthermore, its proliferation and increased usage started in the 1980s, specifically in western circles.

It signifies the importance of freedom and economic growthEconomic GrowthEconomic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period.read more of private entities in the economy achieved mainly by eliminating government control over businesses, encouraging privatizationPrivatizationPrivatization refers to transferring ownership, operation, and control of a government or public entity to a non-government or private enterprise.read more, and promoting globalizationGlobalizationGlobalization is defined as the extension of trade, commerce and culture of an economy across different nations.read more. The government will not intervene by introducing policies primarily as protective measures. Hence, it motivates free-marketFree-marketA free market refers to an economic system free from government interventions and controlled by privately owned businesses.read more and open competition since they believe in free-market fundamentalism.

Business entities in the private sectorPrivate SectorThe private sector is a section of the national economy that the government does not own. The business conducted under this sector is carried out by companies or entrepreneurs who focus on profit maximization and customer satisfaction.read more demand that government should never put boundaries on their earning potential and should create reforms favoring wealth accumulation. If the government favors this, it can affect the poor people facing poverty, illiteracy, and unemployment and the sectors requiring governmental support to survive and grow.

Features of neoliberalism like the free-market mechanism, privatization, reduced government intervention, and decrease in government expenditure for public good have both positive and negative impacts. Proponents advocate that it leads to the efficient allocation of resources and market functions. However, its negative impacts often come from inequality in wealthWealthWealth refers to the overall value of assets, including tangible, intangible, and financial, accumulated by an individual, business, organization, or nation.read more and income, creating a favorable environment for monopolies, etc. Moreover, a nation incorporating this ideology will give more power to the elite class formed of successful entities than the democratic structure representing the majority. Hence certain areas or industries require government intervention to control unethical practices and unhealthy competition.

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Examples

A neoliberalism example emerges whenever a shift of ownership and control of industries, sectors, or companies from a government body to a private sector organization happens. It seeks ownership transfer and control of economic factorsEconomic FactorsEconomic factors are external, environmental factors that influence business performance, such as interest rates, inflation, unemployment, and economic growth, among others.read more to the private sector and favors globalization.

Neoliberalism vs. Liberalism

Neoliberalism vs. Liberalism
NeoliberalismLiberalism
It is an economic and political philosophy.Liberalism is a moral and political philosophy.
It was popularised in the 20th century.The term liberalization is popularized in the early 19th century.
Emphasize economic freedom and stresses the need for free trade, deregulation, and privatization.Focus on the citizens’ freedom and covers all aspects of life like religion, rights, views, and freedom of choice.
Its popularity is declining.It is still a popular ideology.

Neoliberalism vs. Capitalism

NeoliberalismCapitalism
It’s a philosophy and set of beliefs.It is an economic system where rich and powerful entities dominate the system. The elements of neoliberalism are seen in the capitalist economy.
The centric ideas are less government intervention, deregulations, free trade, and privatization.The main factors are capital, capitalist, and capitalist mode of production.
It was popularized in the 20th century.Its emergence and evolution started in the 16th century.

Frequently Asked Questions (FAQs)

Define neoliberalism meaning in economics?

It refers to the ideology advocating for free-market capitalism and minimal government intervention. It is closely associated with laissez-faire economics. The influence of the philosophy is traceable in the government initiatives promoting globalization, privatization, free trade, and deregulations. Examples of countries that applied this ideology include China and Chile.

Is neoliberalism an ideology?

It is an economic ideology, and it advocates for free trade and minimal government intervention in business and commercial activities, promoting free-market competition. It also encourages individuals to strive for self-actualization and happiness.

How does neoliberalism affect the economy?

It promotes privatization and personal economic growth. The proponents of this ideology believe in the power of an unregulated free market to solve economic and social problems. However, as an aftereffect of the ideology application, increased competitiveness while undermining people’s feeling of unity and social security may happen. These cause a slew of negative social implications for a nation’s economy. Furthermore, applying this ideology through policies can cause poverty, unemployment, and deterioration of income distribution.

This has been a Guide to What is Neoliberalism & its definition. We explain its meaning in economics, examples, vs. liberalism, and vs. capitalism. You can learn more from the following articles –

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