The difference between liberalism and neoliberalism

What's 'neo' about neoliberalism?

What’s neoliberalism….?

First off, I should say that I see neo-liberalism primarily as a theoretical development in the academic and administrative discipline of political economy. At its start, political economy was defined as the science of and for the economic management of populations. The neo-liberal development started in the mid 1800s with the Physiocrat movement and was revitalize in the mid 1900s by a group of individuals who started to actually self-identify as neo-liberal.

What is actually “neo” about neoliberalism? The purpose of this post is to answer that question. There are at least 5 overlapping characteristics worth noting:

1. Classical liberalism still held on to two modes of freedom in need of guaranteeing (in a way that balances/offsets each other): economic freedom and political freedom. In neoliberalism, the emphasis is much greater on economic freedom, with the belief that political freedom is either secondary or something that can only emerge out of, or be thought of as synonymous with, economic freedom. Freedom as such comes to be understood through an economic lens: The interaction of self-interested individuals through free market activity becomes both the mark of freedom and the path to individual prosperity (as opposed to democratic representation or equality).

2. Economic rationality has always been a touchstone of classical economic liberalism (calculation and precision in decision-making, weighing of means and ends, weighing of benefits and risks, reducing costs to a minimum and maximizing output), but with neoliberalism’s greater emphasis on economic liberalism above political liberalism (as outlined above), so too is there a greater application of an economically rational mindset into spheres beyond the traditionally understood economy. Economic thinking, and more specifically, thinking like an enterprise or business, becomes a kind of guiding principle for all sorts of management and government protocol, in realms like how states govern themselves, how non-profit organizations govern themselves, and how individuals govern themselves. If liberalism-as-such can be understood as “a principle and method of the rationalization of the exercise of government, a rationalization which obeys…the internal rule of maximum economy” (Foucault, Birth of Biopolitics, 318), then neoliberalism is in part about really extending this to the maximum degree.

But what does that really mean—liberalism as the rationalization of the exercise of government, or in other words, liberalism as being economically rational in one’s governance? For one, it entails a degree of limiting oneself or one’s particular behaviors when it seems rational. It follows the economic idea that all inputs should be used in the most productive/efficient way, or moreover, that maximizing productivity or output sometimes means discarding of unnecessary costs or inputs. Liberalism has had its root a suspicion that one risks governing too much — limiting government, and a critique of excess government, is at the foundation of liberal thought, which makes sense when you connect that liberalism emerged in the 17-19th century as a direct response to obnoxiously overreaching monarchical-feudal governments.

So in one sense, neoliberalism is a return to the original critical focus on limiting government as a means of securing freedom—but as I said before, their understanding of freedom is strictly market/economic-oriented. That means that the neoliberal task of state government is to limit its own role in controlling/regulating the market, thereby freeing said market. But this doesn’t mean the state doesn’t have a role to play beyond limiting their own economic intervention. Which brings us to point 3.

3. Perhaps most importantly in terms of distinction between classical liberal economists and neoliberal economists: Markets are not natural. Classical liberal economists believed markets were natural. This was a massive argument they used to justify capitalism (‘humans as naturally competitive and greedy,’ etc..). However, neoliberal economic theory argues that markets have always had to be constructed and guaranteed through particular institutional mechanisms. Yet, once they are constructed, it is thought that they have 'natural' logics or laws to them that are very efficient for the management of civilization and the accumulation of wealth. The market “expresses truth,” the neoliberals say. For instance, if inequality or precarity is produced by markets, this isn’t to be understood as a problem, it is instead to be understood as a kind of natural law which society must accept. The market alone becomes sufficient to manage social life, because whatever happens is supposedly natural to the self-governing logics of market economies, seen as the superior and necessary mode of economy for wealth accumulation.

4. Relatedly, with markets seen as not natural but in need of constructing and guaranteeing, this becomes the primary role of the state. Through the 19th and 20th century, the liberal state tried to balance the supposedly ‘necessary but cold, harsh mechanisms’ of markets and capital accumulation with a certain paternalistic management of the population (establishing various welfare institutions and labor rights, for instance). This was largely for the purpose of having a healthy population that can be productive and provide consistent labor for capital accumulation. Under neoliberal theory, though, the management of the welfare of the population is considered best achieved when such managing power is dispersed across society, to individuals themselves, to communities, to local municipalities, whom are all thought to be able to govern and manage themselves better than any central agency could. Why? The answer is in the next characteristic of neoliberalism.

5. Neoliberal economic theory argues the state, or any central agency and authority, lacks perfect or even good knowledge of the complexity of the market economy, society, and mass population dynamics. For this reason, neoliberals argue that even if the state has the sovereign right to intervene in in the economy or in the welfare of the population, its best they don’t because its simply irrational to try to manage such a totality, especially because the supply and demand needs of a population are always changing. Its better, they argue, for the state to just focus on ensuring that markets and competition are able to handle this unknowable totality: “Economics is a discipline without totality; economics is a discipline that begins to demonstrate not only the pointlessness, but also the impossibility of a sovereign point of view over the totality of the state that he has to govern.” (Foucault, BoP, 282)

---——————————————————-

This is obviously a theoretical piece, so I barely mention what neoliberalism actually looks like in practice. The at one time massively embraced and now slowly diminishing ‘Washington Consensus’ is a good example of the main policy initiatives undergirded by the neoliberal economic theory I have tried to lay out.