Neoliberalism is a form of capitalism which promotes private, market-based interests at the expense of public, usually state-supported institutions.
Examples of neoliberalism include the privatization of government services in the UK and Australia, floating of the dollar in the UK, and austerity in Chile.
Central to the neoliberal ideology is the idea that governments are poor economic managers and inefficient compared to private enterprise. Thus, low government intervention and high levels of private participation in the economy are seen to be good for society. It is therefore seen as a type of capitalism and economic and political ideology.
This article will look at examples of the implementation of neoliberal ideology around the world. These examples range from developing countries which have tried to use neoliberalism to increase their economic growth to wealthier ones where it is often a way to try and decrease the power of government institutions and increase competition.
Examples of Neoliberalism
1. Economic Development in Chiapas, Mexico
Following the implementation of the North American Free Trade Agreement (NAFTA) Treaty (see below), the local peasants in the poor southern Mexican state of Chiapas rose up in arms. This became known as the Zapatista Rebellion.
The Zapatista Army of National Liberation is a libertarian socialist guerrilla movement, which supports the rights of the local farmers. They feel that free trade under NAFTA endangered the livelihoods of the locals.
Free trade is a key aspect of neoliberalism. While free trade brings its benefits (imagine for example, not having access to foreign foods or cheaper electronics), it also means increased competition. In this case, the poor farmers had no way of competing with the multibillion-dollar American agricultural industry, with its highly efficient operations.
In a country like Mexico, competition of this kind can lead to severe loss of jobs in a region like Chiapas. This is why the locals reacted by taking up arms, as it was literally a threat to their lives.
2. Floating the Dollar
In 1971, the US under President Richard Nixon chose to unilaterally leave the Bretton Woods System and float the dollar. The Bretton Woods system was an international arrangement, set up after the Second World War in Bretton Woods, New Hampshire, which governed how the currencies of the world’s countries were valued against each other.
Currencies have different exchange rates relative to one another. One US dollar will be a different amount in Russian Rubles, which will be a different amount in Chinese yuan, and so on. Under the Bretton Woods system, the values of the US dollar was tied to the price of gold, and all the other currencies were tied to the US dollar.
By floating the dollar, the US decided to unilaterally to abolish the system.
After the floating of the dollar, the US dollar would no longer be tied to the price of gold but would instead be determined by market forces. This means that the price would no longer be stable and predictable, but rather ‘floating’ (i.e. it would fluctuate).
The US decision to float the dollar was a product of the Vietnam War. As the war was very expensive, the US government wanted to print money in order to finance it. This, however, was limited by the need to keep the supply of the dollar constant with that of gold.
The decision to give up on Bretton Woods was seen as damaging to the stability of the world’s financial system, which had functioned very well in the post-WWII years. The rest of the world’s countries had to subsequently adopt market-based rates for their currencies as well. In the years since, there has been a lot more instability in the world’s financial markets.
3. North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement set up a free trade area between the North American countries of Canada, United States, and Mexico.
What this means is that the three countries promised not to have tariffs between each other anymore.
Tariffs are a type of tax that people have to pay when transporting products from one country to another in order to sell them. They are used by states to protect their local industries from foreign competition.
A free trade area removes tariff taxation when good move over national borders. It has the benefit of making products cheaper for consumers. It means we can get the cheapest goods from around the world. It also increases competition by forcing local industries to lower their prices to compete with overseas competitors. It therefore makes the economy as whole more effective.
However, free trade agreements can also have negative effects.
Many people have criticized NAFTA for leading to the decline of many major industrial cities in the United States. The agreement made it easier for manufacturers to move their factories to Mexico in order to cut costs (this is called ‘outsourcing’). Cities such as Detroit have suffered immensely as jobs have been lost.
4. Manufacturing Outsourcing to Mexico and China
The outsourcing of manufacturing jobs has been harmful for the local economies of many parts of the United States.
People who have been working in the same factory for decades will find it hard to get a new job if their workplace shuts down.
Mexico is not the only place where factories have moved, as many have also gone to China and other Asian countries. These are not part of NAFTA, but they often have separate free trade agreements, and in any case their cheap and efficient workers are worth it for companies to invest in.
The effects of outsourcing have included not just mass unemployment, but also indirect harms such as the opioid epidemic. Losing money is not the only effect of losing one’s job, with the loss of purpose in one’s life being often an even worse issue.
Many people turn to drugs when they are idle and bored. This also leads to anger. Many argued that the election of populist president Donald Trump (who campaigned heavily against outsourcing) was the result of people venting their anger at the establishment.
5. Charter Schools in the United States
Neoliberalism doesn’t always have to be strictly economical. Charter schools in the United States are an example of neoliberalism affecting a traditionally non-economic part of society.
Traditional public schools work by enrolling students who live in the nearby area. They are free and anyone can get in, provided they live close by. A government agency (the local school board in the US) will own and manage the schools.
Charter schools are different. They are privately owned and operated, sometimes by a company making profits. The students will often come from a larger area, but there will be an entrance exam to get in or the possibility of expulsion for bad behaviour or grades.
They may charge fees, though the government will often give parents ‘education vouchers’ for free to pay these fees.
Charter schools are argued to provide an alternative to those public schools which are not doing a good job.
The neoliberal ideology states that competition is good as it forces everyone to try harder in order to not lose to their competitors. While this logic originated with companies competing for customers in the marketplace, it is in this case being applied to schools competing for students.
Critics of charter schools claim that they undermine public schools by directing resources away from them and weakening the power of teacher unions, leading to worse wages. Critics point to countries like Finland, which has some of the best academic results in the world produced by a traditional public school system with good resourcing.
6. Deregulation in Chile
Western countries are not the only ones driving neoliberalism. In South America, Chile has become one of the world’s leading advocates of the neoliberal model.
Chile was not always like this. In 1970, the country elected the world’s first freely elected Marxist (in other words, communist) president, Salvador Allende. After three years, he was assassinated in a coup with the help of the CIA, leading to the military dictatorship of Augusto Pinochet.
Pinochet reorganised Chilean society by applying neoliberal ideology. He was helped in this by a group of US-trained economists, called the ‘Chicago Boys’ (as they all came from the University of Chicago).
The reforms by Pinochet led to fast economic growth in Chile, making it one of Latin America’s richest nations. However, they also led to deep inequality. Many poor Chileans struggle to survive with meagre pensions and poor public services.
In 2019, years of resentment boiled over in anger as thousands of people took to the streets of Santiago, Chile’s capital. This led to months-long protests and riots, with a violent police response.
In order to calm down the protesters, the government promised to draft a new constitution to replace the one passed by Pinochet. In 2021, the country elected a Constitutional Convention to write it.
7. Deregulation in Peru
Another South American country, Peru also went through a process of neoliberalisation in the past few decades. Here it was led by Alberto Fujimori, a president who was also considered to be authoritarian.
Fujimori came to power in the 1990’s by espousing a combination of neoliberal economic ideology and socially conservative populism. This is a combination which has also been seen applied by other right-wing politicians, such as those belonging to the Republican Party in the United States.
Peru’s economy also benefited from some of the reforms, but again this came at the steep price of inequality. Many of the poorer Peruvians tend to be from the country’s Indigenous population who descend from the Incas, while the wealthier people are whiter-skinned descendants of Spanish conquistadors.
Also like in Chile, the years of neoliberalism have led to a backlash, with the 2021 election leading to the victory of far-left Pedro Castillo. His main opponent was Keiko Fujimori, daughter of the neoliberal leader.
8. Privatization of Trains in the UK
The train system in the United Kingdom used to be publicly owned under British Railways (similar to the national airline British Airways). In the early 1990’s, the UK railway network was privatised.
Privatizing means transforming a government-owned entity into a private company. Neoliberal ideology argues that this increases efficiency, as private companies need to be profitable in order to succeed (whereas state enterprise is under less pressure to perform well because they hold a monopoly).
Critics of privatisation meanwhile argue that putting profit first will lead to a deterioration in what should be a public service. Healthcare, education, and public transport, they argue, should be provided by the state for free with sufficient levels of investment to make them function well.
Private services might in contrast end up requiring users to pay, making them inaccessible to less well-off individuals.
There was a wave of privatisations in the UK in the 1980’s under the leadership of Prime Minister Margaret Thatcher, one of the most well-known neoliberals in history. In the case of British Rail, the privatisation was overseen by her successor, fellow Conservative Party leader and Prime Minister, John Major.
The rail system has been beset by large-scale delays and other problems ever since. Many have therefore called for it be nationalised, which is the opposite of privatisation (the government taking ownership of a private company). This shows that despite the claims of neoliberal ideology, privatisation doesn’t always lead to better outcomes.
9. Deregulation of Universities in the UK
The higher education system is also something that is considered a public service, but which has been subjected to neoliberalisation. The British university system has seen gradual deregulation, first in 1992, and then in the 2010’s.
In the 1992 reform, the Major Government abolished the old distinction between colleges and universities. Previously, colleges were considered of lower quality, while universities were held in higher esteem. This change made it harder to separate the two.
It could be argued that using one name for all educational institutions of the same level is more equal, as the quality of teaching should have the same standards. On the other hand, it could also lead to less-reputable establishments being able claim the same rank as objectively better ones.
More controversially, the 2010’s had seen successive governments raise the cost of university education to students. Studying had previously been free, but this had changed with the introduction of a 1,000-pound annual tuition fee. That was raised to 3,000 pounds in 2006 and to 9,000 in 2012.
Critics have argued that, for obvious reasons, this discriminates against poorer students, further cementing existing inequality as education provides one of the best ways of getting ahead in life. In response, the defenders of the system say that no one has to actually pay the money while studying, as the fees are covered by student loans (which have very high interest rates – even higher than home loans!).
10. Falling Corporate Tax Rates Worldwide
An effect of neoliberalism that is not limited to one particular country is the falling rate of taxation on corporate profits around the world. These tax rates have continued to decline for decades.
In neoliberal ideology, taxing corporations is criticized as their profits go either to the employees as wages (which are already covered by income taxes), to the shareholders as dividends (whose profits are covered by capital gains tax), or to consumers as cheaper prices (taxed by sales taxes).
However, the issues is that corporations often move overseas to the lowest-tax jurisdictions. The low tax countries become ‘tax havens’, which are economies that allows companies and even individuals to avoid taxes in return for investment.
In order to prevent corporations from moving to tax havens, other countries have to drop their tax rates as well. This then leads to a ‘race to the bottom’, where everybody has to cut their taxes, leaving corporations with more money.
Even worse, corporations in fact don’t often give the money to owners, workers, or customers, preferring to instead keep it in cash or buy back their own shares.
In 2021, under the leadership of the Biden administration, 130 countries came together to agree to a global minimum corporate tax rate of 15 percent. Once again, there are visible examples of the world pushing back against the excesses of neoliberalism.
11. Australian Government Sale of Qantas
In the 1990s, at the height of neoliberalism, the Australian government sold-off the government airline carrier, Qantas. This sale was designed to introduce key elements of neoliberalism into the the airline industry, such as private competition and market efficiency.
The sale took place in two stages: 1993 (25% sale) and 1995 (75% sale).
After privatization, Qantas has continued to be a profitable and successful business. However, critics do continue to highlight potential corporate excess that has occured since privatization, such as the incredibly high wages paid to CEOs.
Furthermore, at times when the airline industy has been under financial pressure, Qantas has significantly cut fleet size, employment, and routes. This occurred in 2020, for example, during the travel ban in Australia. Were Qantas to remain in the hands of the government, it may have been able to continue to operate at a loss due to less exposure to market forces.
As we can see above, neoliberalism is a global phenomenon. While it has been successfully spreading across decades, it is now being met with strong resistance. From Latin American political movements to leaders of developed countries, there is a sense that it has gone too far.
All socio-economic models have their problems, and not all things associated with neoliberalism are entirely faulty. Free trade, for example, has given many benefits. However, the well-being of people must come first. High quality free public services must exist alongside the market, so that growing economies go hand in hand with more equal societies.