In recent years, the term ‘Neo-liberalism’ has become a catchphrase and is often used in political debates.
The meaning of the word itself has evolved over the years.
The basic tenet on which the idea of ‘neo-liberalism’ is based is free-market. Neo-liberals believe that free market with minimum Government intervention leads to optimum allocation of resources in the economy.
Neo-liberalism has its roots in classical liberalism. Classical-liberalism is characterised by a free-market economy and minimum barriers to the flow of goods, services and capital.
It is also associated with Laissez-Faire. It is an economic system in which economic transactions are free from Government interventions such as subsidies, regulations etc.
Neo-liberalism was coined in the 1930s as a positive label. ‘Neo’ means new. So, Neo-liberalism emerged as a new, updated and moderate form of classical liberalism. It was associated with a free market economy under a strong and impartial state, that is, it envisages the role of Government in the market.
The role of the Government is to ensure competition, protect property rights, prevent market failure etc.
Neo-liberalism includes economic liberalisation policies like:
- Privatisation
- Deregulation
- Austerity
- Free trade
- Reduction in Government spending.
WHO mentions that the neo-liberal ideas are based on four principles
Economic growth is paramount: corporations and their agents need to be free to pursue whatever gives them an economic advantage and, in consequence, internal and global markets must be free to operate with little government constraint or regulation.
Free trade benefits all nations – rich or poor – because every nation has a comparative advantage.
Government spending creates inefficiency and waste: although most neo-liberals agree that not all public expenditure is wasteful, many argue that it can be reduced.
In the distribution of economic goods, individual responsibility replaces the concepts of public goods and community.
There are four pillars to the neo-liberal approach all of which involve liberalization (the reduction of rules and restrictions): capital account liberalization, trade liberalization, domestic liberalization, and privatization.
By the 1980s, the term acquired a negative connotation. It shifted its meaning from a ‘moderate form of classical liberalism’ to a more ‘radical form of classical liberalism’. Neo-liberal is now used mostly as a pejorative term by the left-wing critics. It has been held responsible for almost all ills in the world.
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