Week 3, Jan 18, 2022

From Liberalism to Neoliberalism

Source 1: Simone Clarke, THE NEOLIBERAL THEORY OF SOCIETY

“Neoliberalism represents a reassertion of the fundamental beliefs of the liberal political

economy that was the dominant political ideology of the nineteenth century, above all in
Britain and the United States. The arguments of political economy were based on intuition and
assertion rather than on rigorous analysis, but their strength rested on their ideological appeal
rather than on their analytical rigour. The ideological appeal of liberalism waned towards the
end of the nineteenth century with the growing demands for ‘social reform’ precipitated by the
rise of the organised working class and a growing awareness of the ‘social problems’ that
the development of capitalism had thrown up in its wake.”

“The liberal model of society remained the ideal, but it was recognised that this ideal could not
be attained by the power of the market alone, which would have to be supplemented by the
guiding hand of the state.”

“Keynesian welfare state’, which was based on the systematic application of fiscal policy as a
means of redistribution and macroeconomic regulation to remedy the deficiencies of the market.

Neoliberalism emerged as an ideological response to the crisis of the ‘Keynesian welfare state’,”

Neoliberalism owes its strength to its ideological appeal, but neoliberalism is not merely
an ideology, it purports to rest on the scientific foundations of modern liberal economics.
Modern neoliberal economics is no less dogmatic than its nineteenth century predecessor in
resting on a set of simplistic assertions about the character of the market and the behaviour of
market actors. The economist critics of neoliberalism have repeatedly exposed how
restrictive and unrealistic are the assumptions on which the neoliberal model is based

neoliberal model describes how the world should be, not how the world is now.

“The point for neoliberalism is not to make a model that is more adequate to the real world, but
to make the real world more adequate to its model. This is not merely an intellectual fantasy,
it is a very real political project”

Source 2: Irfan Nooruddin and Nita Rudra, 2014, Are Developing Countries
reAlly Defying the embeDDeD liberAlism CompACt?

in the short run, governments might be able to ignore the actual needs of the poor by
manipulating their perceptions of risk alongside reforms promoting economic openness. in the
long run, however, it is doubtful that the poor will remain complacent as trade liberalization
deepens and exacerbates risks and uncertainty across sectors. perceptions of growing inequality
and dissatisfaction of the poor are bound to evolve in tandem. to continue with the current el
compact, then, and maintain support for openness, governments will have to expand the more
coveted public sector jobs to include the poor and/or ensure that public works programs are well
designed. yet there is a limit to the size of the government, and the economic disadvantages of a
public sector that is overly large and inefficient are obvious. the long-term costs and challenges
of the current el compact might thus outweigh its immediate benefits.

The Great Depression (1929-1939):

o marked the end of self-regulating mkts and of liberalism

o contributed to the end of the gold standard:
- The end of the gold standard:
 1931 in the UK
 1933 in the US
o there was a rise in protectionism due to the ongoing conflict between free international
trade and domestic stability

Keynes believed that the role of the government is to use government spending with the purpose
of creating job and increasing demand.

Regulating the mkt can help avoid another great depression.

Offering social benefits to citizens in need:

o Advantages:
- hey help to provide basic needs (for example: food, shelter, education, and
healthcare)
- Welfare can increase overall life expectancy
- could help prevent old-age poverty
o Disadvantages:
- the causes of poverty are not cured (it only helps ameliorate the symptoms of
poverty)
- some have a lower motivation to work after receiving benefits

Objectives set after WW2 ended:

o Construct and world that is more integrated and stable

 o Objectives: allow governments to provide welfare and intervene in the economy:
Establish a global trading system
o try to avoid the rise of far right and far left movements

Bretton Woods Monetary Conference:

o have stable currencies that can be converted

o governments have to collaborate
o IMF was created
o World Bank was created
o the value of the currency was now controlled

Embedded liberalism:

o social welfare must dictate international economic plans

o Internationalism based on a sense of shared purpose: “political power represents a fusion
of power with social purpose”

Fall of the Bretton Woods System:

o increased capital outflows put the US economy under pressure

o stop to sell gold for US dollars to foreign banks

In the 1980s, there was a rise in Neoliberal Economics:

o Precipitated by the generalized crisis associated with the end of the postwar
reconstruction boom
o This emphasized laissez-faire leaves economic forces to do what they will or the
economy will be damaged
o still an ongoing debate on the role of the government
o in developing countries: privatization of public assets, structural adjustments, and
decrease in public sector