Campus Sustainability Office

What Is Neoliberalism?

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By Brian Kermath, 2004, updated 2014

Neoliberalism is defined as a political-economic philosophy and set of policies that establishes development priorities along austere capitalist paths. Its guiding principles espouse a strict adherence to free trade, market expansion, privatization, and individual responsibility. Neoliberal proponents reject governmental intervention, regulation, taxation, and the concept of the "public good". Although its antecedents stem from 18th and 19th Century Neoclassical economic arguments favoring market liberalization over protectionist mercantilism, neoliberalism is much more than free trade and laissez faire economics. It evolved into an ethos that its proponents believe to be superior as a guide to all forms of human organization and social behavior from setting prices and wages, allocating resources, distributing goods and services, managing environmental impacts, and cultivating human potentials.

Emanating largely from institutions based in the United States (e.g., the International Monetary Fund, U.S. Government agencies, and the World Bank), neoliberalism — or the "Washington Consensus" (WC) as it became known — has been the dominant ideology among the world’s power brokers since the 1980s. Accordingly, the WC set the course on international lending and related foreign policy, rewarding countries that made appropriate structural adjustments to their societies and penalizing those that did not. Although neoliberal advocates in recent years have acknowledged that some of their prescriptions have resulted in a few unintended negative consequences, the doctrine continues with only limited modification and compromise in driving world affairs and globalization as related to economic policies and foreign relations, especially since the economic crisis that hit hard in late 2008.

Running counter to this dogmatic adherence to "market fundamentalism", advocates of "associative economics" (e.g., Karp 2007), "fair trade" (e.g., Bacon 2013), "mindful markets" (Korten 2000), and others argue that history has demonstrated the free market's limited capacity to deal with externalities and produce quality lives and the need, therefore, for some kind of state governance (Burton 2001) including policies and regulations. These strategies may involve fiscal and other policies on debt, discount rates, exchange rates, interest rates, intellectual property, lending terms, monopolies, social programs, subsidies, tariffs, trade, taxation, and environmental regulations.

Transferring the burden of dealing with externalities and other market failures to individuals and firms through ethical behavior essentially is a function of neoliberal policies. Alternative economic paradigms would internalize such costs through full-cost accounting mechanisms, thereby reducing the need to turn the "responsibilities" of voluntarily "doing good" over to consumers and companies, which results in a system with a minority of elite conscious consumers, primitivists, and responsible firms. With little action on a larger societal scale, however, the result is often lip service, posturing, tokenism, and greenwashing in a much distorted economy that rewards unsustainable behavior and makes responsible action difficult especially for businesses.

Even if markets were capable of accounting for externalized costs under ideal conditions, the response and adjustment time to reach such a point would be too great for the practical purposes of present generations; in the meantime, with continued neoliberal policies that favor large firms and produce market failures, maladies like corruption, power concentration, destabilization, accentuated relative poverty, income inequality and environmental degradation would continue to mount. I would add that with a full generation having been indoctrinated with neoliberal thinking, the cultural challenge is tremendous. The faith in market forces is often blind and unchallenged. Such a scenario further strengthens the arguments for some form of regulation.

Beyond the policy arguments, many authorities also insist that not all human behavior and forms of organization should be measured, judged, or guided solely, if at all, by market forces. Given the free market's limited capacity to deal with externalities and the negative consequences that may ensue (NRC 2009, Steier 2011, Wise 2010), neoliberalism effectively obstructs some of the necessary processes for sustainability to take root.

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