Economic theories explained: neoliberalism

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Stock market tradersHow much do you know about neoliberalism? For most people, the answer is very little.

However, ex-president of the US Bill Clinton was an advocate of one form of this economic theory. So read on to find out the basics.


The definition of neoliberalism
According to the Oxford Dictionary, a neoliberal - or neo-liberal - is someone who believes in a modified form of liberalism tending to favour free-market capitalism.

How neoliberalism works
Neoliberalism is a theory that advocates economic liberalism, free trade and open markets, privatisation and deregulation.

The term neoliberal is now normally associated with laissez-faire economic policies, and is used mainly by those who are critical of legislative market reform.

The history of neoliberalism
German scholar Alexander Rüstow is thought to have been the first to use the term "neoliberalism" in 1938.

He and his fellow liberal thinkers felt that the lessons gained from failed economic liberalism experiments in the early 1930s and the fascism of National Socialism meant there was need of a new form of economic and political liberalism.

At this stage in its development, neoliberalism was also often referred to as the "third way" or the "middle way" between the extremes of unbridled capitalism and collectivist central planning.

In the next few decades, however, neoliberalists often promoted a market economy under the guidance and rules of a strong state, a model which came to be known as the social market economy, rather than the more laissez-faire doctrine of classical liberalism.

This lasted until the 1960s, after which advocates of the theory swung back to a more laissez-faire approach.

In the US, meanwhile, a more recent neoliberal movement - supported by Bill Clinton - began in the early 1980s.

The arguments for and against neoliberalism
Advocates of neoliberalism believe that transferring control of the economy from the public to the private sector will improve the economic health of a nation.

However, its opponents argue that neoliberalism would lead to excessive globalisation and create greater economic inequality.