College of Education

School of Continuing and Distance Education2014/2015 – 2016/2017

SOCI 423:

THEORIES OF SOCIAL DEVELOPMENT

Lecturer: Dr. James Dzisah

Email: jdzisah@ug.edu.gh

SESSION 10:

NEOLIBERALISM

SESSION OVERVIEW

• This session examines the ideology, assumptions andthe main elements of Neoliberalism.

• Goal/Objective: By the end of the session, studentswill able to:

• Distinguish the types of Liberalism• Provide the core principles underlying Liberalism and

Keynesianism• Define Neoliberalism and the logic of Neoliberalism• Identify the various elements of Neoliberalism• Explain some of the basic criticisms leveled against

Neoliberalism

SESSION OUTLINE

• Types of Liberalism• Principles of Liberalism • From Liberalism to Keynesianism• What is Neoliberalism• The logic of Neoliberalism• Neoliberal ideology• Assumptions of neoliberalism• The Return of neoLiberalism• Elements of Neoliberalism• Basic Criticisms of Neoliberalism• Activity• References

TYPES OF LIBERALISM

• It is easier to provide a “core statement” in Realism and Marxismthan in Liberalism, why?

• Because Realists and Marxists place more emphasis on developingtheories that rely on a small number of concepts and variables.

• Realists who focus on the rational unitary state

• Marxists view the world in terms of class relations

• Liberals deal with a wider range of actors and levels of analysis.

TYPES OF LIBERALISM

• There are three types of liberalism:

• Orthodox liberals promote “negative freedom,” or freedom of themarket to function with minimal interference from the state.

• Interventionist liberals support some government involvementbecause of the belief that negative freedom is not sufficient, thatmarket does not always produce widespread benefits

• Institutional liberals also view some outside involvement asnecessary to supplement the market, and they favour stronginternational institutions such as the WTO, IMF, and World Bank.

TYPES OF LIBERALISM

• Liberals see development in “bottom-up” or pluralistterms, in which individuals and groups seek to achievetheir goals.

• Liberals therefore give primacy of place to the individualconsumer, firm, or entrepreneur.

• They place more emphasis on individuals as havinginalienable rights that must be protected fromcollectivities such as labour unions, churches, and thestate.

THE PRINICPLES OF LIBERALISM

• Thus, the orthodox liberal Adam Smith (1723–1790) argued in hisdiscussion of the “invisible hand,” that the welfare of society dependson the individual’s ability to pursue his or her interests:

• Every individual is continually exerting himself to find out the mostadvantageous employment for whatever capital he can command. It ishis own advantage, indeed, and not that of the society, which he has inview. But the study of his own advantage naturally, or rathernecessarily, leads him to prefer that employment which is mostadvantageous to the society (Adam Smith, The Wealth of Nations, vol. 1(London: Dent, Everyman’s Library no. 412, 1910), bk. 4, p. 398).

• Because the “invisible hand” of the market performs so efficiently,society can regulate itself best with minimal interference from thestate.

THE PRINCIPLES OF LIBERLISM

• Adam Smith and David Ricardo considered that anyconstraint on free competition would interfere with naturalefficiency of market mechanisms, inevitably leading to socialstagnation, political corruption, and the creation ofunresponsive state bureaucracies

• They also advocated the elimination of tariffs on imports andother barriers to trade and capital flows between nations

• British sociologist Herbert Spencer (1820-1903) added tothis doctrine a twist of social Darwinism by arguing that freemarket economies constitute the most civilized form ofhuman competition in which the “fittest” would naturallyrise to the top.

FROM LIBERALISM TO KEYNESIANISM

• Despite the persistence of orthodox views, most Westernleaders followed interventionist liberal policies during theexpansive years of the 1950s and 1960s.

• In the decades following the WWII, even the mostconservative political parties in Europe and United Statesrejected those laissez-faire ideas

• They instead embraced a rather extensive version of stateinterventionism propagated by British economist JohnMaynard Keynes, the architect of Bretton Woods system.

FROM LIBERALISM TO KEYNESIANISM

• Keynes believed that free market decisions can lead toinefficiencies and poor distribution.

• As a result, government intervention in the economyis sometimes required.

• But the oil crisis, stagnation and inflation of the 1970sresulted in many economists questioning the value ofKeynesian economics.

WHAT IS NEOLIBERALISM

• Scholars often use the term neoliberalism todifferentiate this new liberal orthodoxy from theliberalism of Adam Smith and David Ricardo.

• Neoliberalism is in the first instance a theory ofpolitical economic practices that proposes that humanwell-being can best be advanced by liberatingindividual entrepreneurial freedoms and skills withinan institutional framework characterized by strongprivate property rights, free markets and free trade(Harvey 2005: 2).

THE LOGIC OF NEOLIBERALISM

• Neoliberal economics, the logic of which is tendingtoday to win out throughout the world … owes acertain number of its allegedly universalcharacteristics to the fact that it is … rooted in asystem of beliefs and values, an ethos and a moralview of the world, in short, an economic commonsense’ , linked, as such, to the social and cognitivestructures of a particular social order (Bourdieu2005: 10).

NEOLIBERAL IDEOLOGY

• Neoliberal ideology attempts to improve the well-being ofthe earth’s population.

• How is well-being measured?

• Increased per capita GDP. Why is this metric problematic?

• Utility and increased consumption. Why is thisproblematic?

• Other forms of well-being that are not examined under thisideology. Human Development Index.

ASSUMPTIONS OF NEOLIBERALISM

• People have rational preferences about the outcomes they would like;

• Individuals maximize utility (satisfaction) and firms maximize profits

• People act on the basis of full information.

• The underlying argument is simple: • "let the market work"; • "Supply and demand"; • "Get the prices right"

• The "Washington Consensus": a package of reforms and conditionalities required for developing countries to access IMF and WB loans.

THE RETURN OF neoLIBERALISM

• The writings of Frederick Von Hayek and Milton Friedman had moreinfluence on government policies in the late 1970s and 1980s

• They argued that the government should play no significant role inthe economy as governments are inefficient, wasteful andbureaucratic.

• Milton Friedman (1912-2006):"If you put the federal government incharge of the Sahara Desert in five years there'd be a shortage ofsand.“

• Markets should be completely free and liberalized.

• Foremost among political leaders pushing for the revival of OrthodoxLiberalism were British Prime Minister Margaret Thatcher and U.S.president Ronald Reagan.

THE MAIN ELEMENTS OF NEOLIBERALISM

• Privatization of public enterprises• Deregulation of the economy• Liberalization of trade and industry• Massive tax cuts• “Monetarist” measures to keep inflation in check, even at

the risk of increasing unemployment• Strict control of organized labour• The reduction of public expenditures, particularly on social

services• The down-sizing of government• The expansion of international markets• The removal of controls on global financial flows

CRITICISMS OF NEOLIBERALISM

• The "Post-Washington Consensus": incorporates a greater role forthe state to address market imperfections evident in the failure ofpurely market based growth approaches.

• Poverty Reduction Strategy Papers (PRSPs): A World Bank and IMFstrategy that moves beyond the Structural Adjustment Programsof the 1980s and 1990s to include a greater role for localparticipation in planning for the use of WB and IMF loans.

• … to put it in old-fashioned Marxist terms, the main task of theruling ideology in the present crisis is to impose a narrative thatwill not put the blame for the meltdown on the global capitalistsystem as such, but on its deviations (overly lax legal regulations,the corruption of financial institutions, and so on) (Žižek, 2009:19).

ACTIVITY

• Examine the policies of Structural Adjustment,Poverty Reduction Strategy Papers I and II, HIPCinitiative, MGDs and SDGs and point out theinfluence of neoliberalism on those policies.

References

• Clarke, Simon. 2005. “The Neoliberal Theory of Society.” Pp. 50-59 in A. Saad-Filho and D. Johnston (eds), Neoliberalism: ACritical Reader. London: Pluto Press.

• Harvey, David. 2005. A Brief History of Neoliberalism. Oxford:Oxford University Press. (Read pages 1-86.)

• Harvey, David.2007. “Neoliberalism as Creative Destruction”. TheAnnals of the American Academy of Political and Social Sciencevol. 610:22-44.

• Peet, Richard. 2003. “Globalism and Neoliberalism.” Pp. 1-23 inUnholy Trinity: The IMF, World Bank and WTO. London and NewYork: Zed Books.