Though it is difficult to pin down a precise definition of "neoliberalism", it might reasonably be seen, broadly sketched, as an attempt, originating in the late 1960s and becoming prominent in the late 1970s and 1980s, to reconcile two modern strains of "liberal" governance, on one hand the classical liberalism
originating in the 19th century and finding its closest modern equivalent in libertarianism
, in which the government's role was seen as that of neutral referee, prohibiting fraud, theft, and violence but otherwise leaving its citizens to organize themselves in a context of free trade
and free contract
, and on the other hand the regulatory welfare state
liberalism common throughout the western world in the 20th century, which emphasized a government role in providing social services and in defending citizens against perceived excesses of corporate behavior, a paradigm which might be considered to be found in its purest form in the relatively benign socialism of the Scandinavian
Neoliberals proposed to trim back the social benefits apparatus, backing down from visions of "cradle-to-grave" state-funded services, but retaining some scaled-back programs as a "safety net" to guard citizens against complete destitution and supporting them in the case of periodic misfortune until they are once again able to support themselves. Nationalized industries were to be dissolved, privatized, and/or sold at auction, and the government was to avoid duplicating the functions of private industry, which due to the nature of competition and the profit motive was thought to operate at a level of efficiency unattainable by the state. Instead, governments were to contracting wherever possible and directly provide goods or services only in the case of true market failure. Regulation of industries to achieve health, environmental, or social benefits was acceptable, but should be done in such a way as to interfere as little as possible with the market and its attendant efficiencies, and regulation should be made subject to cost-benefit analysis to assure that the results were worth the costs. Neoliberal proponents promoted this "third way" as a means to both avoid the inefficiency and corruption characteristic of centrally planned economies and temper the dramatic swings and inequality of fortune common under laissez-faire capitalism. If viewed as a bipolar system, the rise of neoliberalism in the late 20th century did represent a step away from welfare state liberalism and towards classical liberalism, but falls short of the complete abandonment of the former for the later by which critics sometimes mischaracterize it - the scope of government was curtailed, but it was accepted as a fundamental assumption that it did in fact have some active role in the economy and lives of its citizens.
Neoliberalism is sometimes considered to be the dominant political philosophy of the modern First World as a whole, but it is often considered to be strongest, especially in domestic policy, in the United States and United Kingdom. In each country the doctrine is generally considered to have been first fully realized in the 1990s under a head of state drawn from a young, reformist faction of the traditionally "liberal" party (Bill Clinton and Tony Blair, respectively), building on the groundwork laid in the 1980s by a predecessor from the traditionally "conservative" party (Ronald Reagan and Margaret Thatcher, as the case may be). Though the parallels are not as close, nor the changes as dramatic, a trend of "new" leftist parties abandoning their socialist roots and ascending to power on a neoliberal platform could also be seen in Canada, Germany, and other parts of Europe through the 1990s.
So why did neoliberalism gain momentum in the fourth quarter of the twentieth century, no earlier, no later? Well, there are a variety of reasons, and I can guarantee you I won't be able to give them all a proper account. Obviously of major significance was the Cold War, which aligned Western nations with a capitalist ethos, often presented as tightly bound to freedom and liberty. The degeneration and ultimate collapse of the economies of the communist-aligned Eastern Bloc, which following the "glasnost and perestroika" lifting of the "Iron Curtain" and the flow of undoctored economic accounts out of the Soviet Union, were revealed to have been in a fairly sad state all along, was taken as indicative of the ultimate impossibility of successful governmental management of economic activity. Contrariwise, the ability of the Western nations to win a major arms race while simultaneously maintaining a high standard of living was taken as an affirmation of the strength and flexibility of a fundamentally capitalist economy.
Heavy government involvement in the economy was getting a bad rap at home, as well - inefficient, uncompetitive nationalized industries were proving to be a drain on the national economy in the UK, and the "nationalization by other means" of heavy regulation in sectors like the American air travel industry was likewise producing less than ideal results. Programs designed to alleviate poverty had not, a generation after their implementation, proved themselves by producing an appreciable decrease in the severity or scope of poverty, and many feared that they had instead created perverse incentives that supported the existence of a nonproductive "underclass", although this issue was muddied by the influence and politics of race, regionalism, and class identity. Health services had by this point come under considerable strain, and had begun to exhibit the characteristic planned economy traits of shortages, rationing, and waiting lists. Ominously, demographic shifts, principally an aging population and declining birthrates, seemed to prophesy the ultimate collapse of many social welfare programs in the early or middle 21st century, as the number of working producers "paying into" the system through taxes appeared to be insufficient to sustain benefit payouts, a somewhat amusing inversion of the classical Marxist critique of capitalism as unsustainably predicated on a continuously expanding population of consumers. These failures of government programs were contrasted in many citizens' minds with private-sector successes represented by the impressive output and innovation of the Western technology and consumer goods sectors, producing a variety of new products - some of which, as critics point out, did have their origins in government-funded research, but were ultimately put to consumer use, manufactured, and distributed by corporations. Stepping back a bit, it is also worthwhile to take into account the inflationary economic shocks of the 1970s, which caused the abandonment of Keynesian economic policy and fixed currency exchange rates in favor of monetarism and floating rates, an important development, though one somewhat removed from the average citizen's experience.
As for where domestic neoliberalism is to develop from here, it is unclear. Though semantically unintuitive, neoconservativism does not appear to constitute a direct challenge or response to neoliberalism - in its more visible incarnations it generally accepts the neoliberal peace on restrained but extant regulatory and welfare systems, focusing itself on foreign diplomatic and military policy, although it would be an understatement to say that war can have a distorting effect on the economy. In any case it remains a minority, if influential, position even in its native America, and one whose star, as of writing, may have already hit its apex and begun its fall. It still remains to be seen if even the minimal welfare state of neoliberal societies will prove ultimately sustainable - America's "Social Security" retirement benefits program and the UK's National Health Service have both proved politically resistant to major change or privatization and are both still forecast for ultimate collapse in the next several decades, and should this come to pass it remains to be seen whether this will lead to a reassertion of the welfare state or, as some are hoping, its complete abandonment altogether.
Setting aside neoliberalism as domestic political policy, it is worth noting that as a term it is also applied to an approach to international economics and "third world" economic development which shares many of the philosophical underpinnings of its domestic counterpart. This form of neoliberalism is sometimes considered synonymous with "globalization", although properly understood I would describe it as more of a reaction to and means of carrying out the process of economic globalization. This form of neoliberalism is treated at more length in writeups above, though I hesitate to proclaim myself in complete agreement with their characterizations of or conclusions about the practice. In summary, neoliberalism in international economics refers to a line of thought which encourages governments of relatively undeveloped nations to restrain government spending, privatize state-owned industries, remove tariffs, quotas, and impediments to capital flow and foreign corporate ownership, promote the cultivation of export-ready cash crops and import food crops (a classical application of comparative advantage), and attempt to create a positive environment for foreign investment, matching up overseas capital with the native resource of a broad, underemployed labor base.
This investment, it is thought, would prove more effective than earlier direct aid efforts which all too often funded mismanagement, political pandering, and endemic corruption, and would instead help build infrastructure and an industrial base, provide employment and training for citizen workers, and encourage the growth of a native middle class which would exercise a power independent from and untainted by the "elites" who previously maintained control over the government and economy, often running them for their benefit alone. This middle class, in turn, would be expected to support stability, government transparency and political reform, fiscal accountability, and not incidentally, a sustained capitalist system. In addition to the predicted inherent benefits of such an approach, developing countries would in return for implementing this plan be given loans and aid to fund development and infrastructure projects, and be exempted from major consumer nations' import tariffs and quotas, making their exports attractive to a readily available market. It is important to note that these goals are often carried out in the context of multilateral negotiation and supranational organizations like the International Monetary Fund, World Trade Organization, and World Bank and such regional trade agreements such as NAFTA and the European Union.
Critics of this form of neoliberalism are many and varied, and while it does them injustice to be lumped together, most of their arguments assert that these policies are in fact meant to benefit large, "advanced" western economies at the real expense of developing nations, and prevent developing nations from enacting the civil welfare programs, domestic spending, and labor, environmental, and economic regulations common (though less so, as above) among the major world powers. Wealthy nations are also often critiqued for maintaining, despite rhetoric to the contrary, their own high tariffs on agricultural products and basic manufactures like textiles, though these are probably less part of a sinister plot than a response to domestic political pressure originating in uncertainty resultant of the recent shifts from agricultural to industrial, and then industrial to service or "information" economies in leading nations. Hopefully, increased media attention in western nations and the united front presented on the issue by the Cairns Group and aligned developing countries at the recent 2003 WTO conference in Cancún will help address this shortcoming.
Pulling further back, some see neoliberalism as an even broader system, greater than any countries, either singly or in combination under any alignment, by which the growing speed of communications, transportation, and computation will render geographic distinctions increasingly irrelevant, and the nation-state will be superseded as the basic unit of global organization by a single integrated market, much as earlier historical situations had caused the nation-state to render obsolete the empire, which in its time had replaced the kingdom and tribe. In this light, the recent devolution of control from both first- and third-world governments is a first step on the road to their eventual collapse into impotence and irrelevance, though the inherent dynamism of market systems makes it difficult to predict the exact form the successor structures will take. Even those who agree that cross-border investment and commercial activity is inevitably increasing, however, may disagree on this point, and many predict that globalization will ultimately prove to be compatible with, or even possibly reliant upon nationalism. Even should the post-nationalists be on the right track, it is predicted that this process will have to face and overcome obstacles before achieving eventual dominance; conventional wisdom says that the greatest current challenge is that of integrating primarily Islamic cultures into the world market, somewhat ironic given Muhammad's background as a relatively cosmopolitan traveling merchant.
At the extreme, some go so far as to interpret neoliberalism the broadest terms, as nothing less than a comprehensive philosophy and worldview which takes markets as a paradigm with which to interpret life, analyzing natural and human behaviors in terms of individual competitive transactions and the complex emergent systems which they produce - the political movements that claim the term for themselves might be seen as simply one sign of this overarching philosophy's pervasiveness, alongside others such as the recent prominence of game and meme theory in academia and popular culture.