What is ‘neoliberalism’, and how is it related to globalisation?

In the last three decades, the concept of neoliberalism has become increasingly familiar, but the term has been employed in a nuanced way. Interestingly, ‘there does not seem to be anyone who has written about neoliberalism from a sympathetic or even neutral point of view’, and ‘[p]ractically everyone who writes about neoliberalism does so as part of a critique of neoliberal ideology’ (Thorsen 2010, p.189). Additionally, because of the ambiguity of neoliberalism, the term ‘neoliberal’ and ‘globalisation’ tend to be used interchangeably, and then globalisation per se comes to have a pejorative connotation. However, as Mann (2012 p.3) points out, ‘[g]lobalization in itself cannot be praised or blamed for the state of human society, for it is merely the product of expansions of the sources of social power’. This essay endeavours to distinguish both terms by critically examining the definition of neoliberalism, and investigating the relationship between neoliberalism and globalisation. Firstly, we will examine the definition of neoliberalism provided by David Harvey. We shall draw two contentions from his definition. Concretely, the difference between neoliberalism and classical liberalism as ideologies have to be investigated, and we shall discuss whether neoliberalism has been as dominant in the world as Harvey demonstrated. Secondly, we will argue how neoliberalism is related to globalisation. After discussing some points about globalisation per se, it will be discussed whether neoliberalism has contributed to today’s globalisation in economic, financial, and sociological terms. Finally, this paper will provide a more reasonable conclusion than ones that suggest neoliberalism is the primary driver of globalisation.

Neoliberalism is generally considered as a political and economic ideology or a set of policies supported by such an ideology. From the ideological perspective, neoliberalism tends to be linked to the values of market fundamentalism, individual liberty, laissez-faire. Its origin can be traced to some pioneers; Ludwig von Mises and Friedrich von Hayek in Britain and Milton Friedman in America respectively are regarded as the fathers of neoliberalism. Additionally, the Mont Pelerin Society and the Chicago School, which was founded and influenced by these thinkers, played a significant role in the proliferation of neoliberalism (Davies 2014, Jones 2012, Mirowski & Plehwe 2009). Based on this ideology, neoliberal policies generally include privatisation of public sectors, deregulation of financial market, government spending cuts, or elimination of barriers to the flow of goods, services and capital across national borders. These neoliberal policies are generally supposed to have begun with the political leaders such as Margaret Thatcher and Ronald Reagan in the late 1970s and early 1980s (Davies 2014, Mann 2013). Furthermore, these policies, which are often called ‘Washington Consensus’, are defused from international organisations including the IMF, the WTO or the World Bank, to developing countries (Stiglitz 2002).

David Harvey provides one of the most influential explanations of neoliberalism. He argues that neoliberalism is a theory of political economic practices that aims to liberate individual entrepreneurial freedoms and skills as long as it does not limit private property rights, free markets, and free trade. Therefore, state interventions in markets must be kept to a minimum. He also asserts that since the 1970s neoliberal policies such as deregulation and privatization have been adopted everywhere, and now neoliberalism has become ‘hegemonic as a mode of discourse’ and ‘incorporated into the common-sense way many of us interpret, live in, and understand the world’ (Harvey 2005, pp.1-4).

Although Harvey’s argument can explain that neoliberalism has corrosive relationships among business, finance capital, and political power, it seems there are two problems. First, his definition cannot distinguish between neoliberalism and classical liberalism (Davies 2014 p.310; Jones 2012, p.14; Mann 2012 p.130). They not only have similarities but also differences, but he would fail to separate them, probably because both liberalisms are the targets of denunciation for Marxists. This is an ideological and philosophical question. Secondly, he argues that neoliberalism has become hegemonic theory and our common sense, but this claim might contain a lot of exaggeration. Although we cannot examine this claim in terms of ideology, we can delve into how far neoliberalism policies are spread across the world.

Then, we shall begin with the first contention. Classical liberalism, which was established by thinkers like Adam Smith, John Locke, and others, advocates the separation of politics and economics and minimal government intervention in economic affairs and markets in order to secure individual liberty.^[1] Therefore, classical liberalism is based on the belief in laissez-faire.

On the other hand, there are several differences between classical liberalism and neoliberalism. Firstly, neoliberalism appears to promote laissez-faire as well, but it in fact requires strong state power so as to dismantle trade unions, eliminate economically inefficient regulations, or establish a market in a developing country without it (Centeno & Cohen 2012). As Karl Polanyi (1957) famously points out, there was nothing natural about laissez-faire, and it was artificially created and enforced by the state. In addition, as Foucault claims, ‘[n]eoliberalism should not be therefore identified with laissez-faire, but rather with permanent vigilance, activity, and intervention’ (Foucault 2008, p.132).

Neoliberalism ostensibly denies state interventions while it elicits powerful states, which can change or liberalise irrational regulations. This apparent contradiction can be resolved by reconsidering the definition of interventions. Neoliberals do not allow states to intervene directly in markets, but a modification of the definition of ‘intervention’ enable neoliberal states to interfere in markets in a different way. As Foucault, referring to Hayek’s interpretation of the Rule of laws, explains:

The economy is a game and the legal institution which frames the economy should be thought of as the rules of the game. The Rule of the law and l’Etat de droit formalize the action of government as a provider of rules for an economic game in which the only players, the only real agents, must be individuals, or let’s say, if you like, enterprises. The general form taken by the institutional framework guaranteed by the state. It is a rule of the economic game and not a purposeful economic-social control. (Foucault 2008, pp.173)

Neoliberal intervention is not ‘a purposeful economic-social control’ but legal interventions. In other words, while neoliberal states do not intervene in markets, they utilize legal power to change rules of the economics by which market is regarded as a game. Such a positive role of state is not provided only by Hayek. Friedman specified that the state must indeed play a positive role:

Neoliberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order … The state would police the system, establish conditions favourable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress (Mirowski & Plehwe 2009 p.217, cited in Friedman 1951, pp.91, 93)

From this incite, neoliberalism’s ultimate purpose is nether individual liberty nor laissez-faire. It is to establish ‘the competitive order’ as itself, and thus neoliberals accept legal interventions. These interventions are different from the intervention which classical liberalism assumes.

Secondly, neoliberalism seeks to introduce the principle of market into the outside of markets, such as universities, household, and public administrations (Davies 2014, p.310). Brown (2015), critically referring to Foucault’s thoughts, asserts that neoliberal governing rationality intrudes into democracy and notes that its rationality will undo our democracy. Therefore, she says that ‘[f]ar from Adam Smith’s creature propelled by the natural urge to “truck, barter, and exchange,” today’s homo oeconomicus is an intensely constructed and governed bit of human capital tasked with improving and leveraging its competitive positioning and with enhancing its (monetary and nonmonetary) portfolio value across all of its endeavors and values’ (Brown 2015, p.10). Mirowski (2008, p.114) also claims that ‘[t]he primary ambition of the neoliberal project is to redefine the shape and functions of the state’. In sum, neoliberalism does not aim to separate the political and the economic like classical liberalism but to replace the political with the economic. For this reason, privatizations, which intend to transfer business, industry, or service from public to private control, are facilitated by neoliberalism.

The third point is that neoliberalism tends to be optimistic about dominance by corporations. This is involved with the argument, as we have seen above, that neoliberalism places huge value on competition as itself. Mann (2012 p.147) contends that ‘neoliberals departs from classical liberals to argue that the bigger the cooperation, the greater its efficiency and the better the service offered to consumers’. Crouch (2011) explains neoliberals appear to problematize monopoly because it stifles competition, but they insist that competition would endure even if there were only three giant firms in any economic sector. Such an optimistic attitude might come from ‘the contemporary “economization” of subjects by neoliberal rationality’ (Brown 2014 p.33). According to Brown, neoliberalism not only alters the relation between the politic and the economic but also economise, or to be exact financialize human beings per se. Thus, neoliberal homo oeconomicus is considered as human capital struggling to enhance its competitive positioning and appreciate its value. Additionally, ‘[a]s neoliberal rationality remakes the human being as human capital, an earlier rendering of homo oeconomicus as an interest maximizer gives way to a formulation of the subject as both a member of a firm and as itself a firm, and in both cases as appropriated conducted by the governance practices appropriate to firms’ (Ibid, p.34). In other words, the principle of business, especially financial business, penetrates into human being.

Now we shall move to the second contention drawn from Harvey’s argument. As we have seen, Harvey argues that neoliberalism now has become hegemonic and consisted of our common sense. We should examine his claim because, as is often pointed out, most definitions of neoliberalism are provided by its critics and has pejorative connotations (Boas & Gans-Morse 2009; Jessop 2013; Davies 2014; Thorsen 2010). Of course, we cannot empirically examine whether neoliberalism as an ideology has had dominant power or not, so we shall investigate neoliberal policies ‘‘freeing up commodity markets and international capital flows, deregulating labor markets, balancing state budgets, and generally reducing state intervention in the economy’ (Mann 2012, p.130).

Mann (2012) doubts Harvey’s argument and contends that neoliberalism has been diffused less broadly than other scholars have expected. Mann deals with the advanced countries in terms of classification into three types, the Anglophone, Nordic, and continental Europe, basically following the Esping-Andersen’s distinction of welfare state. It is true, Mann says, that the Anglos readily adopted neoliberal policies including cutting back the labour unions, selling off nationalised industries, or reducing taxes, because the Anglos had liberal traditions of classical economics and moral individualism. However, in most other countries, neoliberalism made lesser progress. For instance, neoliberalism in continental Europe was muted by the post-war Christian Democrat or Social Democrat compromise. Thus, its mild neoliberalism, ‘ordo-liberalism’, or the social market was pragmatic and required state protection. The Nordics also accepted some neoliberal policies, but its influence was limited because of corporatist social democracy. Such a limited neoliberal influence can be seen from increasing economic inequality. Although some neoliberal policies like government spending cuts were adopted in some countries in both continental Euro and Nordic, these countries took these policies not because of neoliberalism but because of domestic financial pressure. From the 1970s, inequality widened most among the Anglos, particularly in the US. Although it increased even in some European countries, their collective Gini changed very little. Thus, Mann concludes that neoliberalism had risen almost everywhere but in only some Anglophone countries has it become dominant. Besides, regarding Harvey, Mann claims:

Though Harvey is correct that the period of greatest neoliberal power saw redistribution toward the highest social classes, this was not quite universal. Most Anglophone scholars (who dominate these debates) tend to think their local experience is typical of the world. It is not – at least not yet. (Mann 2012, p.163)

This criticism seems compelling, but as Mann notes, it seems that we should say the dominance of neoliberalism is ‘at least not yet’. In spite of his own caveat, Mann would underestimate the influence of neoliberalism. Streek points out as follows:

We tend to underestimate how long societal causes take to produce their effects. If we ask too soon whether or not a theory concerning the change or end of a social formation is accurate, we run the risk of seeing it refuted before it has had a chance to prove it. … [T]he solidly established, inert institutions such as European welfare states could not have been expected disappear, or to become something fundamentally different, after just a few years of economic internationalization. (Streek 2014, pp. xii-xiii)

Besides, Mann asserts that ‘[n]eoliberalism’s rise was not global outside the financial sector’ (Mann 2012 p.148). However, reforms in the financial sector are not a peripheral issue for neoliberals, rather central one. Therefore, even only in the financial sector, the impact of neoliberalism ‘could’ expand broadly. In other words, Mann’s argument would be too confined to welfare policies.

Thus, returning to Harvey’s argument, we cannot follow it because it seems be an exaggeration to say that neoliberalism ‘has’ become hegemonic or dominant in the world. As Mann points out, although neoliberalism has diffused, especially in the Anglophones, it is not to say that neoliberalism has been fully accepted even in other countries. Neoliberalism has varied according to each domestic affairs or institutions. However, at the same time, it does not mean the other countries have ‘rejected’ neoliberalism. Therefore, it might be possible that neoliberalism will have become hegemonic and our common sense in the future.

To summarise the discussion so far, neoliberalism can be defined an ideology which aims to establish the competitive order and includes both explicit economic laissez-faire and implicit legal interventions, the replacement of the political with the economic, and the economisation of subjects. This ideology supports various neoliberal policies: privatisation of public sectors, deregulation of financial sectors, government spending cuts, dismantlement of trade unions, and elimination of barriers to the flow of goods, services and capital across national borders. Moreover, the discourse that neoliberalism has become a dominant ideology should be taken with a grain of salt, because neoliberal policies have not been accepted for what they are in the U.K. or the U.S.

Before delving into how neoliberalism is related to globalisation, we should briefly discuss globalisation. Firstly, many economists identify globalisation as a global integration of markets and consider it as an economic and financial phenomenon in which flows of trade, capital, people, and information increase. This is partly true, but this paper does not deal with globalisation as only an economic phenomenon. Secondly, some scholars argue globalisation leads to a single world society (e.g. Albrow 1996). However, this argument is far from reality. Instead, from the sociological aspect, globalisation denotes the ‘tendencies to a world-wide reach, impact, or connectedness of social phenomena or to a world-encompassing awareness among social actors’ (Therborn 2000, p.154), or ‘the expanding scale, growing magnitude, speeding up and deepening impact of international flows and patterns of social interaction’ (Held & McGrew 2003, p.4). In other words, globalisation enhances interconnectedness between societies, but it does not mean to create a single society. Thirdly, concerning the political aspect, some argue that globalisation weaken the nation-state system (e.g. Ohmae 1995), but as Mann asserts (2012, pp.8-10), ‘the nation-state and globalization have not been rivals in a zero-sum game with one undermining the other’, and states have still significant roles even in the process of globalisation. Thus, this paper does not accept the argument that political globalisation, which could lead to a ‘cosmopolitan democracy’(Held 1995), is occurring. Finally, globalisation is neither a recent, unique, nor an irreversible phenomenon (Therborn 2000; O’Byrne & Hensby 2011, p.12; Osterhammel and Petersson 2005). Therefore, we should pluralise globalisation and deal with globalisations (Mann 2012, Therborn 2000). This argument indicates that globalisation does not necessarily elicit neoliberalism, because some globalisations emerged without neoliberalism. Accordingly, neoliberalism is not a necessary condition for globalisation.

Thus, in what follows, we shall confine globalisation to the one in the post-war period and examine how neoliberalism is related to globalisation in economic, financial, and sociological terms. Specifically, it will be argued whether neoliberalism contributed to an increase in the flows of trade and foreign investment and whether neoliberalism strengthened interconnectedness in the world.

After World War II, the Keynesian regime was established as an international regime. Regarding trades, the GATT reduced the trade barriers, especially tariffs, and the share of external trade, which had declined during the war, began to recover (Therborn 2000, p.162). This regime experienced the golden age and contributed to globalisation, but the establishment of the GATT and other policies formulated in this term was not based on neoliberalism. For this reason, neoliberalism is not the direct cause of economic globalisation. In the 1970s, facing stagflation and the oil shocks, the Keynesian regime collapsed, and neoliberalism opened the door. According to Cohen and Centeno (2006), although neoliberal policies decreased tariff levels (both export and import duties), trade intensity (the total value of imports and exports relative to GDP) in 96 countries did not demonstrate an evident change until 1993. The rise after the year was generally not dramatic, so it is difficult to say that neoliberalism directly and substantially propelled economic globalisation.

Financial globalisation is one of the most conspicuous features in today’s globalisation. The Bretton Woods system of fixed exchange rates was shifted to the floating rate system, and this shift arranged the environment where capital easily flowed beyond national borders. While some neoliberal domestic policies in the 1980s such as privatisation or dismantlement of trade unions might not have a direct relationship to globalisation, financial liberalisation is supposed to promote globalisation. In both the U.K. and the U.S., neoliberal governments swept away many financial restrictions and increased capital mobility. For instance, Thatcher initiated the Big Bang, a radical deregulation of the stock market, allowing the merging of commercial and investment banks, and opening it up to foreign capital flow (Mann 2012, p.143). Besides, according to Stiglitz (2002), the foundation of the World Bank and IMF was based on a Keynesian recognition, but by the beginning of the 1980s, both organisations began to follow the neoliberal turn of Reagan and Thatcher, shifting their rationale away from urging global economic stability towards that capital market liberalisation. Consequently, we can find the empirical data demonstrating that the amount of foreign direct investment gradually increased until the middle of the 1980s and rapidly accelerated during the 1990s, especially in the OECD (Cohen and Centeno 2006, p.52). Thus, neoliberalism has stimulated financial globalisation.

Some claim that neoliberalism is the central element that drives present globalisation.[2] For example, Litonjua (2008) argues ‘that globalisation is the global spread of the economic system of capitalism. Promoted by the ideology of neoliberalism, the goal is a wholly deregulated global market’. This view could conclude that neoliberalism drove globalisation to a great extent. As we have argued, however, globalisation cannot be confined to economic and financial factors. For this reason, we have to look at the sociological aspect of globalisation.

What kind of factors does cause and facilitate the globalisation in a sociological sense? Economic elements can also enhance a world-encompassing awareness or patterns of social interaction but telecommunication technology and transportation infrastructure play more crucial roles in globalisation. For example, satellite broadcasting produced in the 1980s has globally diffused information (Therborn 2000, pp.163-4). The development of naval travel and jet travel has been crucial in developing means of transport of both people and goods, and the advent of the Internet has enabled people to fetch information in the world (Martell 2010, pp.67-84). These developments have been shrinking time and geographical space and have fostered the awareness of growing interconnectedness. However, no empirical data is indicating that neoliberalism causes or encourages these developments. Thus, we cannot claim that neoliberalism has a relationship to the globalisation in a sociological sense.

In conclusion, neoliberalism is partly related to globalisation. It is difficult to say that the neoliberal economic policies, which eliminate tariff barriers, promote economic globalisation. Moreover, because the increase in trades can be seen before the 1970s, we cannot say that neoliberalism is the direct cause of current globalisation. On the other hand, we can discover that financial liberalisation underpinned by neoliberalism has increased the volatility of capital flows beyond national borders and encouraged financial globalisation. Additionally, considering history, since globalisations can occur without neoliberalism, neoliberalism is not a necessary condition for globalisations. Globalisations are complicated and polymorphic phenomena. The first half part of this essay discussed neoliberalism per se. Harvey’s argument might emphasise too much the impact of neoliberalism. Importantly, through examining the differences between neoliberalism and classical liberalism, we have defined neoliberalism is a political and economic ideology which aims to establish the competitive order and includes both explicit economic laissez-faire and implicit legal interventions, the replacement of the political with the economic, and the economisation of subjects. Neoliberal policies are derived from this ideology. Many scholars have shed light on only the economic aspects of neoliberalism, but this definition’s focus moves toward political aspects. Additionally, we have to re-emphasise that neoliberalism ultimately aims to foster competition as itself and that it, consciously or unconsciously, allows legal interventions. This definition might be too abstract, but it could provide an instructive perspective when examining the current tension between democracy and capitalism.

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[1] Some distinguish classical liberalism between political meaning and economic one, but this paper does not do so because neoliberalism also includes both political and economic aspects.

[2] By contrast, Wikan (2015) argues that there is no relationship between neoliberalism and globalisation. She contends, after distinguishing between neoliberalism, economic liberalism, and neoliberal institutionalism, that many policies which are generally assumed to be based on neoliberalism are supported by economic liberalism or neoliberal institutionalism (or opportunism). However, there are some problems in her argument. Firstly, her definition of neoliberalism seems too narrow. She also admits this point. Secondly, she arbitrarily categorises some policies into economic liberalism or neoliberal institutionalism. In her argument, if policies, albeit including neoliberal substances, are not formulated under the name of neoliberalism, then they fall out of neoliberalism. For instance, she argues that because Thatcher’s government did not demonstrate evidence of adhering to neoliberalism, her policies were not neoliberalism. However, if this logic would be valid, there would be almost no neoliberal policies because the term neoliberalism has been used almost exclusively by its critics. We should investigate not whether policymakers use the term neoliberalism but whether the substance of policy is underpinned by neoliberal ideology. Therefore, it would be difficult to conclude that neoliberalism is not related to globalisation.