1 global studies essay

Encyclopedia of Global Studies

Liberalism, Neoliberalism

Contributors: Randall Adams

Edited by: Helmut K. Anheier & Mark Juergensmeyer

Book Title: Encyclopedia of Global Studies

Chapter Title: "Liberalism, Neoliberalism"

Pub. Date: 2012

Access Date: June 29, 2019

Publishing Company: SAGE Publications, Inc.

City: Thousand Oaks

Print ISBN: 9781412964296

Online ISBN: 9781452218557

DOI: http://dx.doi.org/10.4135/9781452218557.n334

Print pages: 1073-1076

© 2012 SAGE Publications, Inc. All Rights Reserved.

This PDF has been generated from SAGE Knowledge. Please note that the pagination of the online

version will vary from the pagination of the print book.

Liberalism can be said to be one of the most pervasive of 20th- and 21st-century global ideologies, and neolib- eralism is the driving ideology of economic globalization, although the term defies a limited definition because of its application to a number of social, economic, and political phenomena. The basic definition of liberalism is the protection of human rights without regard to time and circumstances. Liberalism rests heavily on the philosophies of the Enlightenment thinkers and especially on the work of moral philosopher Adam Smith.

Many of the Enlightenment philosophers stress individuality and autonomy as men pursue happiness, prop- erty, or both, in the name of progress. Being free from interference allows the rise of the entrepreneur or the self-made man, thus enhancing freedom or liberty. The absence of interference includes limited interference by government powers, especially in the realm of the economy. Proponents of laissez-faire government often cite Smith as the founder of economic liberalism. In the globalization framework of the late 20th century, the absence of interference and, particularly, the absence of interference in the economic realm by the govern- ment will serve as a foundation for capitalist expansion and transform liberal philosophy into neoliberalism. Smith served as a professor of moral philosophy, a discipline covering natural theology (the search for de- sign in a chaotic universe), ethics, jurisprudence, and political economy. In 1759, he published The Theory of Moral Sentiments, in which he questioned why self-interested creatures possessed an ability to make moral judgments in which self-interest could be set aside. The answer, he believed, lay in our ability to place our- selves in a position of a third party, thus allowing for a sympathetic and objective view of the merits of any case.

Smith's The Wealth of Nations, published in 1776, serves as a broad and encompassing work that accurately describes England in the 1770s and provided a blueprint for the modern society that was developing, the Society of Natural Liberty. Smith had no interest in any class but promoted the wealth of the nation, which consisted of the goods that all people in the society consumed. Smith focused on two problems and their so- lutions: self-interest and social cohesion.

In a society driven by self-interest and seemingly no central control mechanism, why does the society not explode? Smith's answer lay in the laws of the market or “the invisible hand.” Smith viewed society as an organism (a common approach in functionalism) with its own life history. The laws of the market are a part of the larger set of laws that allow a society to prosper or decline. Smith's laws indicate that certain behaviors within the context of a certain society will bring about predictable results.

Smith suggested a least two laws of the market, which stated that (1) self-interest is the power guiding individ- uals toward the work that society will pay for, and (2) competition keeps self-interest in check. The balance of these laws creates interaction in the society that leads to social harmony. If self-interest becomes imbalanced, then individuals will allow competitors to enter and steal away their trade. Smith uses various examples to explain the workings of self-interest and competition as well as price control and production demands. As an example, if the demand for boots increases while the demand for coats decreases, boot prices will rise while coat prices drop. To maintain profit, coat manufacturers will have to dismiss workers, who will then be free to seek employment in the boot industry. As more boots are produced, boot prices drop while fewer coats will drive the prices upward, thus, creating a balance in prices and demand.

The results of Smith's theory are as follows:

• He explains how prices do not arbitrarily range away from production cost. • He explains how the consumer forces production of desired goods. • He explains how prices are self-regulating. • He explains income similarity.

With no outside interference, the market has self-regulated. In the 20th century, a similar idea will be ex- pressed in terms of the “free market,” or Milton Friedman's neoliberal approach to economics. However, even in Smith's 18th century, certain outside influences operated on the market, and Smith still needed to address progress or the law of motion.

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The 18th-century attitude toward the poor was less than positive, but this was not the view of Smith. He be- lieved that no society could flourish with a large population of poor and miserable citizens and that unseen forces were moving society toward a positive outcome. Even the newly forming working class (factory work- ers) was better off than their predecessors of an earlier century and far better off than any inhabitant or ruler of an “uncivilized” kingdom. This ascension of progress was driven by production and consumption and the cooperation of all society members participating in the “division of labor.” Not only were the laws of the market influential, but two other laws of behavior provided momentum: the law of accumulation and the law of popu- lation.

The law of accumulation could be a double-edged sword that required a balance between personal greed and the well-being of the society. Accumulation would extend the market, whose only boundary was geogra- phy. Years later, Karl Marx would suggest that accumulation would drive into every corner of the globe, thus creating the phenomenon of globalization. However, if this is true, then more machinery would be required, machinery would require more workers, and wages would continually grow until profit, the source of accumu- lation, could no longer be realized. The remedy for Smith lay in the law of population.

To Smith, workers were a commodity like any other commodity that answered to supply and demand. When wages rose, people would multiply, but when wages were low, people would decrease. Infant mortality in 18th-century England was extremely high. Accumulation would raise wages for the laborer, and, in turn, the ability to better provide for a child's welfare would increase the chance of survival, thus driving the population upward. Higher wages, however, would be lowered by the increased number of workers available, and lower wages would increase infant mortality. This cycle could not be maintained indefinitely, and an end must be reached, according to Smith, when unused resources ran out and division of labor was as fine as could be (probably 200 years). The final results would be workers with subsistence wages and capitalists with modest profits from a stable market. Only landlords would enjoy a higher income as food prices rose for a larger but stable population.

Smith, unlike the capitalist class who used his theory to espouse the doctrine of laissez-faire, did not suggest the removal of the government from promotion of the welfare of the society. Smith believed that the govern- ment should do the following:

• Protect the society from harm by other societies • Provide justice for all citizens • Build and direct the institutions necessary for a great society

Smith's argument was against the government interfering with the market mechanism, and it must be remem- bered that there was little welfare legislation and no working-class voice during his lifetime. However, his the- ory of liberty and the unregulated market has often provided justification for the expansion of capitalism. The doctrine of liberalism became the foundation for the economic approach known as neoliberalism in the late 20th century.

Neoliberalism

The United States and Britain faced economic challenges during the 1970s that led to changes in economic policy. Through deliberate and planned activity, economic leaders hoped to revitalize a stagnant economy by limiting the power of labor, by deregulating industry, and by liberating the power of finance in both local and global settings. Neoliberalism became a dominant economic model that suggested a political economic practice in which human beings can best be advanced by liberating entrepreneurial freedoms practiced by individuals. Neoliberalism also suggests a framework characterized by strong private property rights accom- panied by free market trade. Neoliberalism marked a significant departure from the previous economic model in use.

The dominant economic model for the first half of the 20th century was supplied by John Maynard Keynes.

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