Review on Neoliberalism

Neoliberalism rose to prominence in the 1980s, during the Thatcherism and Reaganomics era. This era of economic shift shows a significant move away from Keynesian economics which had been prominent since the 1944 Bretton Woods Conference and established the post-war international economic order. In this essay, I will be looking at the rise of neoliberal economics and the consequences this move towards monetarist economics had on states in the Global South.

Founded by Friedrich August von Hayek, neoliberalism is an idealist construct that emerged from neoclassical economics and classical liberal politics. In what was considered the ‘golden age’ of controlled capitalism following the second world war, egalitarian liberalism delivered high economic growth. However, this period came to a halt with the 1970s-economic crisis causing a severe rise in oil price. Neoliberal succeeded Keynesian economics in the 1980s with the agenda of solving the world’s economic crisis. It manifests itself in terms of public policy: the deregulation of the market, liberalization of trade and industry and the privatization of state-owned enterprises. Under these policies, the state is no longer seen as a means for social good but rather an organization ran by self-interested politics. This system of economics protects the rich through “massive tax cuts (especially for businesses and high-income earners); reduction of social services and welfare programs; replacing welfare with ‘workfare’” (Steger, 2010, pp. 14) and other policies that could cause harm to the finances of the lower classes.

During the 1970s, the US hit a period of economic stagnation with inflation, high unemployment, and low economic growth, allowing for Japan and Germany to overtake the US in productivity and living standards. Under Nixon’s presidency, the Bretton Wood system of fixed exchange rates was abandoned, as the dollar became devalued against gold, allowing for floating exchange rates in the global economy. The consequence of floating exchange rates in the global south was that it caused a dramatic decrease in the price of commodities such as oil, which in turn led to the OPEC crisis of 1974-1978 where the Arab oil union restricted oil supplies to nations in favor of Arab-Israel War. In wall street banks, petro-dollars rose and were then used as loans to countries in the global south so that they could meet foreign exchange demands.

The rise of neoliberalism is most associated with the election of Margaret Thatcher and inauguration of Ronald Reagan. Thatcherism saw a clear link between the growth of government and public spending increase, she famous coined the slogan ‘There Is No Alternative’ to her neoliberal agenda and market solutions. Fervently opposed to Keynesian economics, Thatcher’s set of neoliberal reforms sort to diminish the union power, inefficient state spending and deficit she argues were the cause of inflation. The solution being the privatization of industries. Once in office, Reagan began his supply-side-oriented Program proclaiming to combat stagflation and high unemployment. His tax cuts are considered “a full-blown assault on state-led redistribution of private wealth” (Steger, 2010, pp. 27) and contributed to widening income gaps between the richest and the middle classes. Both Thatcher and Reagan shared a desire to establish a single global free trade. This first wave of neoliberalism was interlaced with the preventing the spread of communism in the third world and proxy wars in the global south were used to prove free-market economics as superior to the rest of the world.