Term Paper, 2017
16 Pages, Grade: 1,0
2. Brief History of Neoliberalism
3. Ideological background of Neoliberalism
4. Thatcher & Thatcherism
5. Thatcherism as a neoliberal regency?
Throughout time economic theories have influenced the path of society and history. Neoliberalism is one of these economic theories and its roots trace back to classical liberalist of the 18th century like Adam Smith. Over time Neoliberalism has evolved into an independent school of thought aiming at maximizing the individual’s freedom and limiting state power. The work by Friedrich August von Hayek and Milton Friedman can be seen as the underlying fundament of this school of thought. Neoliberalism became reality in the United Kingdom through the implementation of Prime Minister Margaret Thatcher’s neoliberal policies in the 1980s and 1990s. In order to assess whether Thatcher’s regency classifies as neoliberal, this paper conducted a literature review to compare Thatcher’s policies with the neoliberal ideology constructed by von Hayek and Friedman. Thereby, significant similarities in the perception of socialism, as well as the importance of individual freedom and the handling of inflation were detected, just as significant differences in the fields of Law & Order, Centralization, and National identity. Thus, this paper concludes that Thatcher’s regency included several important elements of neoliberal thought, but also showed several contradictions to this ideology. Therefore, Thatcher’s regency can be classified as a neoliberal regency with certain limitations, outlined in the paper.
‘Who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first […].’ (Thatcher 1987)
This famous quote by former Prime Minister Margaret Thatcher illustrates the key concept of Neoliberalism – the role of the individual in society, as well as it controversial nature. Neoliberalism and Thatcherism in particular have strongly shaped the British identity in terms of economy, politics and self-understanding. Not only during her eleven year reign but throughout her life the ‘Iron Lady’ has polarized the public opinion and society. While celebrated by her supporters, her opponents saw her as the personification of egomaniacal Neoliberalism.
Originating from the ideas of liberalism of the 18th century, Neoliberalism evolved in the early 20th century and has reached its peak and real-world implementation in the 1980’s with Thatcherism and Reaganomics as its most prominent exemplifications. This paper will critically Margaret Thatcher’s influence on Great Britain through her regency and its subsumption to Neoliberalism. Therefore, the following research question was developed: May Thatcherism be classified as a neoliberal regency?
In order to answer the question, this paper firstly aims at summarizing the history and evolution of Neoliberalism in the Western World by reviewing the existing literature provided by Steger and Roy (2010) and Harvey (2005). Secondly the work of Friedrich August von Hayek and Milton Friedman will be examined more closely to outline the ideological background of Neoliberalism. Subsequently, Margaret Thatcher and Thatcherism will be introduced shortly and subsequently Thatcher’s regency regarding the six dimensions: perceptions of socialism, individualism & public expenditures, inflation, centralization, Law & Order and British identity & Euroscepticism will be outlined and compared to the neoliberal ideas by von Hayek and Friedman to critically assess compliance as well as contradictions between Margaret Thatcher’s ideas and neoliberal ideology. Afterwards, a short conclusion will summarize the main findings of the paper.
As the term Neoliberalism itself already indicates, neoliberalism evolved from the key concepts and premises of classical liberalism, introduced in the late 18th century.
Classical liberalism was sharpened particularly by Adam Smith who shifted the focus from autocratic mercantilism to a free market lead by an invisible hand (Steger and Roy 2010:2). Smith introduced the concept of the invisible hand to the world in his book the Wealth of Nations published in 1776 (Smith and Campbell 2009). According to Wight (2007: 341) the invisible hand can be understood as ‘the unseen instincts of human nature that motivate and direct behavior’. Thus, there is an innate aptitude of mankind that once appropriately incentivized can produce ‘a spontaneous and beneﬁcial social order‘(ibid: 341). Classical liberalist believe that individuals in themselves have the will and potential to organize resources efficiently and effectively and hence do not have to be supervised by a central authority. In a liberal economy, economy and politics should be separated with the state in the role of a ‘night watchman’ to secure open economic exchange. As a ’night watchman’, the state acts in the rear and only in exceptional cases actively intervenes in the economic process (Steger and Roy 2010: 5).
Classical Liberalism bloomed during the 18th century, were its principles were implemented after the French and American revolution, resulting in the separation of state and church, abolishment of monarchy as well as the detachment of mercantilism (Steger 2010: 3). During the 19th century liberalism spread further around Europe and the rest of the world but developed quite divergently. Great Britain experienced what is also called the ‘apex of British liberalism`, with the foundation and establishment of The Liberal Party in 1859 and its assuming of governmental responsibility during a 14-year period (1868-1894) (Liberalism in the 19th century 2016). Similarly, the United States elaborated on their liberal fundament. Prominent figures like Benjamin Franklin, Thomas Jefferson and Alexander Hamilton pushed further liberal ideas such as the ‘incursions of government power’, the granting of personal freedom, as well as the abolishment of slavery (Raico 2010). This insist on liberty for the individual has been the unifying and cohesive notion of the new American identity and can for instance also be observed in the construction of the laissez-faire constitutionalism from 1897-1934 which restricted the ‘authority of states to exercise their police powers’ (Lindsay 2010: 57).
With the early 20th century came the Great Depression with large and persistent unemployment and market failure (Ohanian 2009: 2311-2312). This was often interpreted as the justification to end the doctrines of the free market. Moreover, Marxism evolved and gained supporters and influence around the world, which ultimately also led to the establishment of the Soviet Union as the first socialist state in 1922 (Suny 1995: 86-88), followed by China and the German Democratic Republic, among others.
What followed after World War II, was the rise of ‘egalitarian liberals’ such as John Maynard Keynes and Karl Polanyi who demanded a stronger role of the state in the economy but clearly distanced themselves from a Marxist perspective. The period of 1945-1975 is thus also referred to as the ‘golden age of controlled capitalism’. Resulting in an increase of the Welfare State with rising wages of employees and high taxation of wealthy individuals and corporations (Steger and Roy 2010: 6-10). The ‘embedded liberalism aimed at the redistribution of wealth, supervision of the mobility of capital, expansion of public expenditures to increase building of the welfare state’ (Harvey 2005: 11). Hence, allocating a more active role to the state and allowing some degree of central planning, as well as the utilization of Keynesian fiscal and monetary policies (ibid: 11-13).
However, with the end of the 1960s the breakdown of this tenant commenced. This era was characterized by growing unemployment and inflation at the same time (Devine 2007: 37), resulting in decreasing tax revenues and simultaneously increasing social expenditures for the state and thus leading to severe fiscal crisis in several states. The already impaired system of fixed exchange rates was permanently abandoned in 1971, as a result. The ‘golden age of controlled capitalism’ had come to an end and a solution for the crisis was in need. Synchronously, two answers evolved. Firstly, an increase in state control and supervision of the economy which was pursued by socialist and communist parties e.g. in Italy, Spain, Portugal and the Scandinavian countries (Harvey 2005: 12). And on the other hand, there was the doctrine of neoliberalism gaining in influence and supports, aiming at a liberalization of trade and markets with limited state interventions and social security (Chomsky 1999: 19-20).
As already elaborated in the previous chapter, Neoliberalism is based on the fundaments of classical liberalism. However, it also embodies additional and aggravated ideas which will be explained in this section.
The term “neoliberalism” was first introduced to the public in 1938 by the Colloque Water Lippmann in Paris which was held to discuss the demise of liberalism and conditions for its renewal. The 25 participants included prominent figures Ludwig von Mises and his former scholar August von Hayek (Köhler 2008: 2) who would later on shape the form and influence of neoliberalism profoundly. Although tensions between classical liberalists like von Mises and von Hayek and the ‘new liberalists’ like Eucken and Röpke were apparent, the research institute Centre International d’Études pour la Renovation du Libéralisme was founded conjointly (ibid: 3). During the second world war put an ends to those endeavors but nevertheless the interest of many intellects still persisted (Walpen 2000 :1071).
In order to attract adherents of the free market to resuscitate liberalism, the Mont Pèlerin Society was founded in 1947 by Friedrich August von Hayek (Glossner 2010: 10-11). Members included among others Ludwig van Mieses, Milton Friedman and partly Karl Popper and called themselves ‘liberals’ (Harvey 2005: 19). They affiliated to the idea of free market principles of neoclassical economist like Alfred Marshall, William Stanley Jevons or Leon Walras (ibid: 20) and strongly opposed the growing influence of Keynesian and socialist policies.
Hayek, a member of the Austrian School of Thought (Horwitz 2005: 71), had become acknowledged through his book ‘The Road to Serfdom’, published in 1944 (Mudge 2008: 711), which can be seen as a ‘war cry against central planning’ (Block 1996: 340). In this book Hayek advocates the economic freedom as the presupposition of ‘any other freedom’ which cannot be obtained by a government’s actions but only by the individual and its right of choice (Blundell et al. 2006: 35).
According to Hayek totalitarianism is solely another word for ‘what in theory we call socialism’ (Hayek 2005: 34). Furthermore, he states that fascism and Marxism are ‘a necessary outcome of those [socialist] tendencies’ (ibid: 39-40). Socialism even in a democratic scheme remains an ‘utopia’ (ibid: 44) which aims at ‘the very destruction of freedom itself’ (ibid: 44), as it deprives the individual of its most important freedom - the economic freedom (ibid: 35). In order to achieve central planning, power ‘of a magnitude never known before’ (ibid: 40) must be obtained by enforcing collective action and thus creating absolute control over the individual (ibid: 35-41) which is dispatched on its way to serfdom. Hayek acknowledges that systematic planning forms an important part in the life of society, however he stresses that this planning should be in the hands of the individual. Conditions should be created which promote ‘the knowledge and initiative of individuals’ (ibid: 45) the best extension to plan for themselves. Individualism forms the core pillar of Hayek’s beliefs which he defines as ‘based on the respect of Christianity for the individual man’ and the freedom to develop one’s ‘own individual gifts and bents’ (ibid: 42). Similar to Smith’s principle of the invisible hand, Hayek developed the concept of the ‘spontaneous order’ (Rehr 1992). According to this concept, markets are realized through ‘the spontaneous and uncontrolled efforts of individuals’ (Hayek 2001: 15) with unforeseen results, thus the market cannot and must not be controlled. Instead a society should make as ‘much use as possible of the spontaneous forces of society, and resort as little as possible to coercion’ (ibid: 17). Nevertheless, Hayek was critical of the laissez-faire principle and argued that things should not be left to themselves, but actions should be promoted that utilize ‘the forces of competition’ best to coordinate ‘human efforts’ in a ‘thought-out legal framework’ (Hayek 2005: 45). Competition is thus ‘superior’ and should always be favored over ‘coercive or arbitrary intervention of authority’ (ibid: 45).
To summarize Hayek in his own words: ‘a policy of freedom for the individual is the only truly progressive policy’ (Hayek 2001: 246) and only private property can grant this freedom through economic power and independence and the power of choice (Hayek 2005: 35-43). For his work Friedrich August von Hayek was rewarded the Nobel Prize in Economic Sciences in 1974 (Rehr 1992).
Another neoliberal thinker who was rewarded the Nobel Prize in Economic Sciences in 1976 was Milton Friedman (Steger and Roy 2010: 17). As leader of the Chicago School of Economics he shaped the economic thought of the 20th century immensely and his ideas were transferred into reality by politicians like Ronald Reagan and Margaret Thatcher (Butler 2011: 7-14). Friedman’s work can be seen as ‘an antidote to Keynesian thinking’ (Frazer 1982: 526), focusing on the supply side and long run effects. Monetarism is often used as a synonym for Friedman’s work and describes the influence of money on the price level, as well as the level of economic activity and thus the importance of control over the money supply (Vaggi and Groenewegen 2003: 319). Friedman (1970: 24) stated that ‘inflation is always and everywhere a monetary phenomenon’ and perceived it as a ‘disease [...] produced by government’ (Friedman et al. 1976: 11). Inflation according to him results out of a disproportion between the quantity of money and the output of an economy in real terms (ibid: 11). Thus, if the amount of money in circulation is higher than the actual output, inflation will rise with extensive effects. It will ‘dislocate’ (Butler 2011: 56) the function of prices and hence harm the self-regulation of the market. Friedman compares inflation to ‘a drug’ which firstly produces a ‘boost’ but then requires higher and higher doses to produce ‘a high’ (Friedman and Friedman 1984: 88). By printing more money a government signalizes to enterprises to produce more as there is a rise in demand which is unfed. In the short run this will foster economic growth, as e.g. more jobs are created, wages increase. However, this will lead to a rise in prices, thus wages also have to increase, as a result more and more money needs to be provided, resulting in a devaluation of the currency and, according to Friedman, to the destruction of the economy.
Similar to Hayek, Friedman sees liberalism as ‘fundamentally fearful of concentrated power’ (Friedman 2009: 39) with preservation of ‘the maximum degree of freedom for each individual’ (ibid: 39) as its ‘ultimate goal’ (ibid: 12). Nonetheless, he acknowledges that ‘absolute freedom is impossible’ (ibid: 25) and therefore the existence of a government is needed (ibid: 15). This government is responsible for maintaining law and order, and thus inhibits conflict; carrying out contracts which were voluntarily joined; specifying, construing and prosecuting property rights and providing the monetary scheme (ibid: 27).
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