As economics is one my major subjects, I would like this essay to be primarily focused on the economic aspect of a term “Neoliberalism”. It is an ideology and a model of policies which assumes the transfer of control of factors of production from the public sector to the private sector, emphasizing the role of free market competition. Despite the fact that I am looking at the phenomenon from an economist point of view, social effects have to be considered. Neoliberalism is often seen as a radical form of capitalism. However, it is difficult to judge this economic system without knowing precisely the view of neo-classicalists who have introduced the term and are actively supporting it.
On the one hand, the opposition of neoliberalism has enough proofs to criticize this economic model. The system is sometimes seen as a perfectly free market economy without any government intervention. Neoliberalism functions well in theory, assuming that all individuals are perfectly rational, however, this does not take into consideration, either cultural, economic, or social differences among the people. There are examples in history when the independent existence of market forces has led to collapses of the world economy, such as the global financial crisis of 2008 – 2009. The crisis was partly caused by the relaxation of government regulations and instability of markets, while it is hard to objectively evaluate the background of this event. One more instance of a relatively unsuccessful implementation of market-oriented policies is Latin America. Market-oriented policies were implemented in Latin America in 1980 – 1990s. The aim of this shift was to provide economic and social stability. The decrease in the role of the government was supposed to decrease corruption rates and the decrease in government expenditure would have increased the incentive for firms to produce and for investors to invest in the economy. This policy in Latin America was aimed not only at boosting the economic growth but also at improving the Gini coefficient, thus improving the income distribution. Market-orientation policies are the ones supported by economic liberalists, so they include privatization, trade liberalization, etc. According to the statistical data given in the article, the growth rates did not change significantly from 1980s to 1990s in most of the countries. The reason for that was the fact that there were different factors affecting the economics growth except for a particular set of policies, including educational attainment and infrastructure. These factors are usually controlled by the government. In Latin America during this period market-oriented policies on their own did not manage to promote expected growth, while in East Asia the results of combining neo-classicalist policies with government spending were sensational, GDP per capita in East Asia had been increasing exponentially from 1970s to 1990s.
On the other hand, neoliberalism does not necessarily deny any government intervention, as neo-classicalists never mention the absence of the government role in the economy, only the reduction of it. If the definition of the term is not misunderstood, then it should be clear that the government plays an essential role in providing public goods and controlling the monopoly power. Neo-classicalists do prefer relying on market forces and free market policies, however, they do not oppose government intervention as soon as it does not inhibit competition and free trade. In the 1970s, the shift in the policies began to occur due to the inability of Keynesian theory to satisfy the needs of the society and to provide an adequate efficiency of the markets. Government intervention could not prevent a simultaneous increase in inflation rates and unemployment, Keynesian philosophy failed during the period of economic stagnation. Therefore, the only way to escape from the recession was to shift to a new set of policies, in particular, neo-classical. In response to critics of neoliberalism, it can be argued that free market economy is the only one which can be applied nowadays. Most highly developed countries have achieved a big proportion of their economic growth through the use of neoclassical policies. In the previous paragraph, the implementation of such policies in Latin America was discussed. In spite of them being a complete failure in most countries of the continent, Chile is an exceptional instance of success. Chile is commonly known as the first developed country in Latin America. Even though ideas of neoliberalism were applied efficiently in most developed states, it did not happen in developing countries. However, in Chile unregulated free market competition caused a boom up to 1997, followed by a stagnation period. Chile’s success is often related to the reduction in the power of trade unions in 1970s, which were basically banned by dictatorship, while a flexible labour system was introduced. Augusto Pinochet used to lead the country during that period. Pinochet’s strategy was aimed at shifting from import substitution industrialization to the export sector. While the example of Chile is demonstrative, it would not be fair to give all the credit for the growth to the market forces only. Pinochet was the person who was responsible for most of the innovations and,therefore, the success. Despite all the positive consequences of neoliberalism, there are undoubtedly clear disadvantages. While the average GDP per capita almost doubled during the 1980s – 1990s, the gap between rich and poor has expanded enormously. According to The Independent, Chile was ranked #1 in the top ten most unequal developed countries in the world in 2015.
The conclusion whether the system of policies was successful or not cannot be made without a careful study of the institutional context, where those policies were implemented, including cultural and social dimensions. Even when other factors which could have affected the performance of the policies are carefully observed, it is almost impossible to get the necessary result with market-oriented reforms only. Neoliberalism has definitely improved lives of some social groups, however, it has not affected everyone in the same way. Some people are worse-off because active market competition could not only have affected their well-being but also their social life. Such negative consequences of neoliberalism include income inequality, as I have mentioned above in the example of Chile. Editors of the book Social Resilience in the Neoliberal Era have emphasized the individuality of each economy and the fact that it is impossible to find a unique solution for all social challenges caused by neoliberalism. In my opinion, it is impossible to achieve stable economic growth rates, low unemployment, healthy inflation rate and have equal society by sticking to a certain trend of policies. The choices have to be made and complex measures have to be taken. I cannot give an unambiguous answer to the initial question because neoliberalism is not the right model of policies for every country. However, what can be said for sure is that this ideology has changed the way the society lives and the world works. People’s mindsets, priorities, and values have changed. A free market competition requires fundamental shifts to occur not only in an economic sense but in political, social and cultural ones.