Neoliberalism (ancient Greek νέος neos, German ‘new’ and Latin liberalis ‘liberal’) refers to a 20th-century recasting of economic liberal ideas. Like classical liberalism, neoliberalism seeks a free-market economic order with recognition of private property, freedom of contract, and free trade. Unlike classical liberalism, however, it assigns the state an active regulatory role in competition policy as creator and guardian of the competitive order. The term neoliberalism was coined at a conference in Paris in 1938 (Colloque Walter Lippmann) and is today associated with two variants: (1) German neoliberalism, which additionally advocates certain state interventions in social and economic policy (ordoliberalism); (2) Anglo-Saxon variant, which rejects such interventions (Chicago School, Austrian School).
In the 1990s, however, the term neoliberalism also developed into a political buzzword denoting an economic policy with the following characteristics: Intensification of competition through deregulation, enforcement of free trade and financial globalization, limitation of deficit spending, and reduction of the role of the state through privatization and reduction of bureaucracy. Critics see this as a weakening of social justice and democratic policy-making as a result of the dominance of an understanding of economic rationality.
The background for the change in meaning and for the development into an essentially contested concept are developments since the 1970s, when the term neoliberalism was taken up by oppositional scholars in Chile. At that time, the Chicago Boys were implementing radical economic reforms in Chile. The reforms were influenced by ideas from the Chicago School and Friedrich August von Hayek. From here, the new meaning of the word spread to the Anglo-Saxon world.
Neoliberalism is a conceptual neologism (from ancient Greek νέος neos, German ‘new’ and Latin liberalis ‘concerning freedom’), which was used as early as 1933 by the French politician Pierre-Étienne Flandin as néo-libéralisme and defined a few years later as a technical term in German at the Colloque Walter Lippmann in Paris at the suggestion of Alexander Rüstow. By this term was meant a liberalism that demanded economic freedom under the guidance and rule-making of a strong state. At the time, this neoliberalism was far from propagating a market radicalism; rather, it was conceived as an anti-communist and anti-capitalist Third Way.
According to Boas/Gans-Morse, the original meaning of the word neoliberalism refers to the Freiburg School (ordoliberalism), which saw itself as a moderate alternative to classical liberalism. While rejecting Keynesianism and an extensive welfare state, they emphasized the importance of social policy and rejected market fundamentalism. In doing so, they distinguished themselves from other liberal thinkers whose ideas fundamentally contradicted ordoliberalism. In 1960, for example, Rüstow complained that representatives of paleoliberalism called themselves neoliberal, even though the term neoliberalism was created by ordoliberals precisely to distinguish themselves from paleoliberalism. While today’s scholars often consider Friedrich von Hayek and Milton Friedman to be the fathers of neoliberalism, in the 1950s and 1960s scholarly articles specifically associated the term neoliberalism with the Freiburg School and economists such as Eucken, Röpke, Rüstow, and Müller-Armack. By contrast, because of his more fundamentalist positions, Hayek was rarely associated with neoliberalism at the time, and Friedman never was. The term was also used synonymously with the social market economy in Germany. From the late 1960s onward, however, the term neoliberalism was largely forgotten. The German economic order was generally referred to as the social market economy, which was understood as a more positive term and also fit better with the economic miracle mentality. The term was hardly used anymore. No economic school has since called itself neoliberal.
Background of the change of meaning: Chile
Based on the model of neoliberalism of the Freiburg School, the German model of the social market economy and the economic miracle, which was perceived as positive, the word neoliberalismo was used in Latin America in the 1960s from both a market-friendly and a market-critical perspective, without deviating from its neutral to positive meaning. A first shift in meaning began when critics of the reforms under Pinochet began to use the term sporadically-without direct reference to the Freiburg School or any other theoretical edifice-in 1973. Augusto Pinochet’s coup d’état in Chile on September 11, 1973, is seen as the central moment for this shift: Pinochet filled the central economic policy positions with Chileans who had studied with Friedman in Chicago since 1955; they became known as the Chicago Boys. The economic policy implemented under Pinochet was inspired by the more fundamentalist theories of Friedman and Hayek. There was thus a far-reaching withdrawal of the state from the economy within the authoritarian regime, the consequences of which are highly controversial. By 1980, a shift in meaning had thus occurred: instead of denoting the ordoliberalism of the Freiburg School, the prefix neo- was also used in academic contexts to mean radical and to devalue the edifices of thought of Friedrich von Hayek and Milton Friedman, although Hayek and Friedman themselves never described themselves as neoliberal. One possible explanation is that the military government used the term social market economy, which was associated with neoliberalismo, for propaganda purposes for its economic policies.
During this military dictatorship, neoliberalismo fully detached itself from its original reference and was meant to denote the transformation of the economy, which was perceived as radical, in the face of political repression. Neoliberalism was used to denote what critics saw as a reductionist position that sacrificed social security in the name of economic primacy. From here, the new meaning of the word spread to the Anglo-Saxon world, where it could now denote almost anything, as long as it concerned – normatively negative – phenomena associated with the free market.
According to Andreas Renner, Anthony Giddens “helped shape the concept of neoliberalism in its current sense.” Giddens equated neoliberalism with Thatcherism or the New Right, by which he understood economic-liberal-conservative political concepts. According to Ralf Dahrendorf, neoliberalism understood in this way belongs to the “new economic orthodoxy,” whose most influential representative is Milton Friedman. According to Renner, however, the catchwords “minimal state” and “market fundamentalism” could be more aptly assigned to the “market-radical,” “libertarian” minimal state concepts of Murray Rothbard, Israel M. Kirzner and others, who continue the tradition of the Austrian School today in the USA. Today, the word neoliberalism is used by scholars primarily to refer to market fundamentalism, not infrequently in connection with the economic policies of Ronald Reagan (Reaganomics) and Margaret Thatcher (Thatcherism). Claus Leggewie speaks in this context of “authoritarian neoliberalism” and a “market idolatry that blinded people to the social explosive forces of forced denationalization.”
More recent uses of the term
According to economist Andreas Renner, neoliberalism in modern usage as a political buzzword stands for economistically narrowed policy concepts that do not solve social and ecological problems, but rather exacerbate them. These economically narrowed policy concepts, however, have no basis in the ordoliberal theory of Eucken, Röpke and Rüstow, who during their lifetimes themselves resolutely opposed economically narrowed views and in particular drafted the counter-concept of “vital policy.” Renner calls on German regulatory economics to dispense with the woolly term neoliberalism, since with ordoliberalism a distinctive term already exists. After the end of the controversy about market economy versus planned economy, a more differentiated view of different types of market economy is becoming increasingly important. In this context, it is important to differentiate from the libertarian “free-market liberalism” that is also advocated.