Neoliberalism

The foregoing tenets of neoliberalism are based on certain assumptions. A philosophical assumption is made that human beings are driven by self-interest (as contended by Adam Smith) and that society is best advised to accommodate this drive since the welfare of society as a whole is best maximized by ensuring that individual self-interest is promoted and satisfied. Politically, neoliberalism accepts that individuals are formally equal and that they possess civil liberties that should be respected and protected, but it insists on the recognition that individuals have different capacities and potentialities which should be allowed to flourish, even if the result is income and wealth. Indeed, inequalities are seen as a major impetus to maximizing individual self-interest because inequalities require greater exertion and effort to acquire the most from the market. The philosophical assumptions about self-interest and freely arrived-at choices under conditions of competition have been relied upon to develop mathematically rigorous economic theories aimed at demonstrating the superiority of the unfettered market as a form of economic organization. In addition, neoliberalism has extended its terrain to the analysis of political and social behavior and arrangements to justify the superiority of the market as the major guarantor of both economic and social welfare, with minimum government involvement.

Some of the key economic policy implications of neoliberalism are found in the following prescriptions, which are rigorously and uncompromisingly promoted by its proponents:

Sound macroeconomic policy: The need for what are referred to as "sound macroeconomic fundamentals" by ensuring stable and predictable prices and positive real interest rates. This requires tight fiscal and monetary policy by ensuring that budget deficits and money supply are assiduously controlled to minimally acceptable minimum levels in relation to gross domestic product. The aim here is to stabilize key indicators of the market such as overall price levels, interest rates, and the exchange rate in the belief that the ensuing stability and predictability of the indicators provide a basis for rational economic behavior and decision making for all economic agents, thereby enhancing overall efficiency.

Trade liberalization: The need for trade liberalization by reducing tariffs and non-tariff barriers and freeing the exchange rate in order to enhance competition internationally.

Labor market flexibility: The call for flexible labor markets, in particular the freedom of entrepreneurs to hire and fire workers at will and to reorganize work as needed; and, for some, the need for the free mobility of labor within and across countries.

Privatization: The need for the state to exit from productive activities that can be undertaken by the private sector by transferring ownership or management functions from the state to the private sector. Over time, neoliberals have been able to drastically circumscribe areas that are seen to be legitimate government activities, thereby expanding those areas that need to be privatized. Thus, for instance, areas such as health, education, provision of water and sanitation, security, and certain routine administrative functions such as the issuing of licenses, collection of fees and rates, issuing of fines, and so forth, have increasingly been identified as areas that need privatization.

Deregulation: The need to remove any regulations that may act as barriers or constraints to the mobility of goods and services, capital, and labor or that may interfere with the optimal functioning of firms. By the same token, it is demanded of the state that it provide an appropriate regulatory environment for the functioning of the market and the protection of property rights and contracts.

Export-oriented sectoral policies: A policy environment that is neutral in relation to export promotion or import substitution, or preferably biased through the use of narrowly targeted supply-side incentives, in favor of export promotion and integration into the global economy based on open trade and free movement of capital across nations.

The foregoing policies are also seen by neoliberals to be compatible with the increased globalization of economic activities, so that support for neoliberalism and support for increased globalization have become conjoined and indistinguishable.