The term neoliberal is semantically very confusing. In American political usage liberal has usually carried a connotation of being oriented toward change and progress as opposed to conservative which is oriented toward preserving existing structures and power distribution. The liberal in neoliberalism refers to Liberalism as it was established in England at the dawn of the industrial revolution. To understand the meaning of neoliberalism in today's world we need to have a good look at its historical origins.
Globalization, A Pictorial History
This diary provides a background perspective for this discussion.
England in the middle of the 18th C was a place of economic ferment. The landed aristocracy were still generally in control and holding onto the vestiges of feudalism. Agricultural production was becoming more efficient resulting in a surplus of labor. The lords on the manors were withdrawing access to what had long been common land forcing peasants to seek means of earning income to supplement their limited sources of food. Increasingly they turned to traditional home textile crafts for production for sale rather than just family use.
The rise of such cottage industries gave rise to itinerant entrepreneurs who developed what came to be known as the putting out system. They would deliver raw materials to the cottage workers and later purchase the finished cloth which they would then sell on the textile markets. By the end of the 18th C they began to open factories and move the workers from their cottages into them. This was the birth of the industrial revolution.
The new factory owners became wealthy. The British textile industry was harnessed to the growing colonial empire. From producing cloth made of wool grown in the British Isles they expanded to cotton grown elsewhere. Expanding cotton plantations stimulated the British slave industry. The ever increasing production needed new markets. Exporting the cheaply produced cotton textiles to the colonies undermined the traditional indigenous industries and created a process of deindustrialization.
These dramatic economic developments created an intellectual cottage industry that came to be known as economics. Adam Smith is one of the best known writers of what is now termed the classical school of economics.
His The Wealth Of Nationsbrought us the image of the invisible hand of the market. Other early economist who are considered to be part of the classical group include Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Their ideas were developed in reaction to the dominant views of the landed aristocracy who had the hold on political and economic power.
The traditional elite were wedded to the economic nationalism of mercantilism. In that view the purpose of economic activity and trade was seen as being to increase the wealth and power of the state. The classical economist promoted the emergence of capitalism to triumph over the last vestiges of feudalism. The wealth of the nation was produced by labor, land and capital. Market forces were seen as being the most efficient way of allocating these resources. The best thing for the state to do was to get out of the way and let the invisible hand of the market hold sway.
These new economic theories gave the rising industrial entrepreneurs and their activities some sense of legitimacy, but they were seriously lacking in political power. The aristocracy had the electoral system wired so that they were able to maintain great control over parliamentary elections. The new money began to organize itself itself into what became known as the Liberal Party. In the context of that time and place the word liberal did connote an idea of change and progress. They wanted access to political power, new laws and different economic policies. They advocated for policies of laissez-faire capitalism. Free trade was one of their most important objectives. As the nation that was leading the world in industrial production, this was seen as being the most advantageous policy for Britain. Their most famous leader was William Ewart Gladstone.
He was a brilliant, complex and strange man.
As the industrial revolution gathered force and the Liberal Party came to be one of the two major political parties, some people got very rich. However, the masses of the British public who had no voice and no vote were being herded from the land into new industrial cities characterized by pollution and filth. Entire families went to work in the factories.
Meanwhile Mr. Smith's invisible hand sometimes ran into difficulties in allocating resources. There were panics and recessions. That left people unemployed and desperately poor. However, the new lords of the loom found it easy to dismiss all this as what today might be called collateral damage. If people were poor it was because they lacked sufficient desire to work. The solution was to send them to the poor house which was intended to instill a proper sense of industriousness.
The policy positions of the 19th C Liberal Party are today known as classical liberalism. This is where the liberal in neoliberal comes from. It has nothing to do with the liberals and liberalism that we associate with the new deal of US political history. Neoliberals are in fact mostly avowed enemies of the new deal.