# Neoliberalism Explained: Definition, Examples, Pros & Cons

## What Is Neoliberalism?

Neoliberalism refers to a policy model that emphasizes private enterprise and shifts economic control from government to the private sector. Influenced by leaders like [Margaret Thatcher](https://www.investopedia.com/margaret-thatcher-5223926) and Ronald Reagan, it advocates for lesser government intervention, focusing on free-market capitalism and fiscal austerity. Understanding neoliberalism involves looking at its policies, such as privatization and deregulation, which impact economies and societies worldwide.

### Key Takeaways

*   Neoliberalism is a policy model that promotes private enterprise, free trade, and the reduction of government intervention in economic activities.
*   Critics argue that neoliberalism can increase economic inequality and limit access to essential public services like health and education.
*   Neoliberal policies are often linked to the economic strategies of leaders like Margaret Thatcher and Ronald Reagan, emphasizing deregulation and fiscal austerity.
*   While neoliberalism aims for economic efficiency and growth, opponents highlight potential risks like financial instability and the growth of corporate monopolies.
*   Examples of neoliberalism in action include the deregulation of industries and trade agreements like NAFTA, which aim to foster economic benefits through reduced trade barriers.

![Neoliberalism](https://www.investopedia.com/thmb/Rr_dxBqIvofndODHHvL1rMwhiKk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/neoliberalism_termdefinition_0711-7e6044ba01c34ecd9ad1a0fb5fe259b7.jpg)

*— Investopedia / Sydney Saporito*

## Deep Dive Into Neoliberalism

Neoliberalism is a political and economic philosophy focused on free trade, deregulation, globalization, and cutting government spending. It is related to [laissez-faire economics](https://www.investopedia.com/terms/l/laissezfaire.asp), which advocates for minimal government interference in economic matters.

Laissez-faire economics is the belief that limited government role in the economy will boost growth and prosperity.

Neoliberalism is often confused with libertarianism, but neoliberals generally support more government involvement than libertarians. Neoliberals often favor low-rated progressive taxes, whereas libertarians support low flat taxes or eliminating income taxes. Philosophically, libertarians emphasize economic freedom, while neoliberals focus on the free market as a path to growth.

Neoliberals may support industry bailouts, which libertarians typically oppose.  

## Key Features of Neoliberalism

Neoliberalism holds that more economic freedom leads to greater progress for individuals:

*   It supports free enterprise, competition, deregulation, and individual responsibility
*   It opposes expanding government power, state welfare, and inflation
*   It minimizes government control of industries and promotes private business and property ownership
*   [Free market](https://www.investopedia.com/terms/f/freemarket.asp) capitalism and the efficient allocation of resources
*   Free trade rather than heavily regulated markets and protectionism
*   A reduction in government spending and lower taxes
*   Less government control over economic activity to enhance the efficient functioning of the economy
*   An increase in the impact of the private sector on the economy
*   A reduction in [union](https://www.investopedia.com/terms/l/labor-union.asp) power and greater flexibility in employment
*   Government intervention when it's needed to help implement, sustain, and protect free market activities

> **Fast Fact**
>
> President Jimmy Carter's deregulation of the airline industry in 1978 is an example of a neoliberal policy in action. The Airline Deregulation Act removed government control over fares, routes, and who could enter the market.

## Comparing Liberalism and Neoliberalism

At its core, liberalism is a broad political philosophy. It holds liberty to a high standard and defines all social, economic, and political aspects of society, including the role of government.

Neoliberalism is essentially an economic ideology. The policies of neoliberalism are more narrowly focused and are primarily concerned with markets and the policies and measures that influence the economy.

## Neoliberalism: Debates and Critiques

There are many criticisms of neoliberalism. Below are the most common ones.

### Misguided Free Market Approach to Public Services

One common criticism of neoliberalism is that advocating for a free market approach in areas such as health and education is misguided because these services are public services. Public services are not subject to the same profit motivation as other industries.

More importantly, adopting a free market approach in health and education can lead to an increase in inequality and the underfunding of resources necessary for the long-term well-being and viability of an economy.

### Monopolies

The adoption of neoliberal policies in the Western world has run concurrently with a rise in inequality in both wealth and income. While [skilled workers](https://www.investopedia.com/terms/s/skilled-labor.asp) may be in a position to command higher wages, low-skilled workers are more likely to see stagnant wages.

Policies associated with neoliberalism are thought by some to encourage the presence of [monopolies](https://www.investopedia.com/terms/m/monopoly.asp), which increase the profits of corporations at the expense of benefits to consumers.

### Increased Financial Instability

Contrary to what proponents of neoliberalism typically claim, capital deregulation has not necessarily helped economic development. Rather, capital deregulation has led to an increase in financial instability including economic events that, at times, have sent shockwaves around the world.

In fact, an [International Monetary Fund](https://www.investopedia.com/terms/i/imf.asp) (IMF) report on neoliberalism reveals that an increase in capital flows has been a factor in the increased risk of adverse economic cycles.

### Inequality

Studies suggest that neoliberal policies increase inequality. This inequality can hinder the long-term growth prospects of an economy. On one end of the spectrum, those who earn a low income have limited spending power. At the same time, those who become richer have a higher propensity to save.

In the latter scenario, wealth doesn't trickle down in the way that proponents of neoliberalism claim that it will.

### Globalization

Neoliberalism's emphasis on economic efficiency has encouraged [globalization](https://www.investopedia.com/terms/g/globalization.asp), which opponents say causes factories to be closed and jobs to be moved overseas.

Critics of neoliberalism claim that its call to replace government-owned corporations with private ones can cause various forms of societal harm such as reducing access to essential services and harming workers' rights.

In addition, those opposed to neoliberalism claim that it is anti-democratic and can lead to exploitation and social injustice. They also claim it can lead to corporations using their power and resources to subvert the will of the majority of people. Others assert that it leads to support for undemocratic regimes that implement neoliberal economics.

## What Is Neoliberalism in Simple Terms?

Neoliberalism is an economic model or philosophy that emphasizes that, in a free society, greater economic and social progress can be made when government regulation is minimized, government spending and taxes are reduced, and the government doesn't have strict control over the economy. Neoliberalism does not oppose all government intervention. However, it does wish to see it limited to only when it's necessary to support free markets and free enterprise.

## What Are the Effects of Neoliberalism?

Some effects might include access to more products and services to meet consumer demand, greater revenue, and higher profits. Price reductions due to greater competition can also be an effect. Savings can result from a more efficient allocation of resources. The better organization of workforces and the ability to hire needed talent for specific jobs can result from neoliberal policies, as well. Others might point out some of the adverse effects believed to be associated with neoliberalism. These could include economic inequality, the growth of monopolies, a lack of job security, the loss of jobs due to outsourcing, and an increasing indifference to the needs and well-being of individuals.

## What Is an Example of Neoliberalism?

The North American Free Trade Agreement (NAFTA) is one example. By this agreement, Canada, Mexico, and the U.S. agreed to remove many trade restrictions between their countries to increase economic benefits to each.

## Neoliberalism: Advantages and Drawbacks

Neoliberalism promotes minimizing government intervention in economies, favoring privatization and free-market approaches. Key benefits include increased economic freedoms, heightened competition, and potentially reduced prices. However, critiques highlight its potential to exacerbate inequalities, encourage monopolies, and threaten public services. Neoliberalism's implementation can significantly impact societies, thus requiring careful consideration of its broader socioeconomic outcomes.  

> **Article Sources**
>
> 1.  Gov.UK. "[Baroness Thatcher](https://www.gov.uk/government/history/past-prime-ministers/margaret-thatcher)."
>     
> 2.  The White House. "[Ronald Reagan](https://www.whitehouse.gov/about-the-white-house/presidents/ronald-reagan/)."
>     
> 3.  National Air and Space Museum. "[Airline Deregulation: When Everything Changed](https://airandspace.si.edu/stories/editorial/airline-deregulation-when-everything-changed)."
>     
> 4.  The Roosevelt Institute. "[The Empirical Failures of Neoliberalism](https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI_The-Empirical-Failures-of-Neoliberalism_brief-202001.pdf)," Page 12.
>     
> 5.  International Monetary Fund. "[Neoliberalism: Oversold?](https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm)"
>     
> 6.  Goudarzi, Shahrazd, et. al. "[Neoliberalism and the Ideological Construction of Equity Beliefs](https://journals.sagepub.com/doi/epub/10.1177/17456916211053311)," _Perspectives on Psychological Science_, vol. 17, no. 5. September 2022, pp. 1431-1451.