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Neoliberalism: Definitional Problems

by Michael Rosch Saturday, Nov. 22, 2003 at 5:37 PM

"Neoliberalism starts from a negative.. assumption that every person prefers him- or herself or circle. Therefore corruption is inevi-table. This development can only be prevented by reduction of the public sector and the absolute self-control of the market."

Neoliberalism: Definitional Problems

By Michael Rosch

[This article is translated from the German on the World Wide Web,]

The definition of the term neoliberalism raises different problems. Firstly, clarifying what neoliberalism means in Latin America and what measures are applied there should be discussed. Bidding farewell to the usual definition of liberalism in Europe and the US as the basis of an explanation of neoliberalism is vital. The normal interpretation that neoliberalism developed out of liberalism comprised of economic and political aspects is only conditionally correct here. In Latin America, neoliberalism in its practical application only includes the economic component of liberalism. This thesis is proven in the most well known neoliberal project in Latin America, the Chilean model. The neoliberal Chilean project came under the control of the “Chicago Boys”, a group of economists who sought above all to realize Milton Friedman’s ideas through massive modifications of the Chilean economy. The authoritarian dictatorial regime of Pinochet continued. Thus liberal principles were only realized in economic policy. A liberalization of society was not attempted.

Great confusion prevails among sociologists on the term neoliberalism… Different socioeconomic questions are hardly raised.

In addition, no theoretician explicitly describes him- or herself as a neoliberalist. This term is a label mainly used by critics.

The basic ideas of neoliberalism as understood and applied in Latin America are largely adopted from Friedman’s statements and ideas. Friedman had a decisive influence on the later development of this economic current through his teaching at the University of Chicago.

Neoliberalism’s Image of Man

Neoliberalism starts from a negative image of man based on the assumption that every person particularly in public offices prefers himself or persons from his circle. (Messner 1005). Therefore it is assumed that corruption is inevitable. This development can only be prevented or at least restricted by a far-reaching reduction of the public sector and the absolute self-control of the market. Friedman describes the optimal idea of the person in neoliberalism as comparable with Robinson Crusoe’s situation. On his island, he has only limited power and alternatives. While not influenced or suffering discrimination by any person or group of persons, the only limitation of his possibilities results from natural circumstances. Thus he can live and act in absolute freedom (Friedman 1962).

The Role of the State in Neoliberalism

“In economic terms, the state is part of the problem, not the solution” (Green 1995). All state activity that goes beyond an absolute minimum is mistaken and exaggerated in the theory of neoliberalism. This minimum consists in guaranteeing equal opportunities, protecting the individual, preventing discrimination and assuring the framing conditions of a free market.

Discrimination for Friedman means only interference in equal opportunities. Unequal taxation would be one example. Like tariffs, this is discrimination on principle against those affected. Therefore reducing taxes and tariffs as much as possible is a goal of this theory. The only legitimate encroachment of the state in the economy for Friedman is the prevention of monopolies leading to distortions of market conditions.

The greatest discrepancy exists here between Friedman’s theory and the practical conversion of his followers in Chile. In Chile, the “Chicago Boys” accepted an extremely authoritarian and repressive regime to carry out their pilot experiment. However this paradox dissolves upon closer consideration since a strong state is indispensable at least in the beginning for executing radical economic and social reconstructions. The acceptance of this economically liberal state in Chile shows that the neoliberal theory can only be described as liberalism in a few economic points. The role of the state in neoliberalism can be compared with Nozick’s minimum state with the difference that an authoritarian or totalitarian state is accepted in practical life in Chile.

Pinochet’s government was rated positively by the “Chicago Boys” and even regarded as a prerequisite for their redesign. For example, De Castro, a member of this group, explained on February 15, 1976 in “El Mercurio” “..that the real freedom of the person can only be guaranteed with an authoritarian government exercising power by means of norms that are the same for everyone (quoted according to Valdez 1995). This quotation corroborates the thesis that neoliberalism reduces liberalism to its economic components and is evidence of a far-reaching alliance between economists on one side and the military junta on the other side..

Since state enterprises represent an inadmissible interference of the state, the main goal of neoliberalists is the complete privatization of these enterprises. In Chile, for example, nearly all enterprises with state involvement were transferred within a few years. Many agricultural enterprises were included. The land was divided and sold either to big landowners or small farmers. But these small farmers could not survive without state subsidies. The economic-Darwinian orientation of neoliberalism in Chile appears in this example and the official reaction to an enormous wave of bankruptcies. This was admitted in a commentary of Admiral Merinos, a member of the military junta, on these bankruptcies: “Let fall those who must fall. Such is the jungle of economic life, a jungle of savage beasts where he who can kill the one next to him kills him. That is reality.” (quoted according to Green 1995).

Social Policy in Neoliberalism

Social measures are not important for neoliberalism but are understood as discriminations against those who do not profit from these measures. The only accepted “social measure” consists in creating and maintaining equal opportunities in the sense of equal legal treatment of all members of society. According to the theory of neoliberalism, equal treatment on free markets leads automatically to social justice. However social justice for neoliberalism only means equal opportunities. Therefore the question about the social consequences of the reconstruction measures is hardly raised for neoliberalism. Here neoliberalism is definitively removed from more moderate theoreticians of liberalism like Rawls who very clearly postulated the social components in his justice principles. “..That social and economic inequalities, like different wealth or different power, are only just when advantages for everyone, especially for the weakest members of society, result.” (Rawls 1994) This position would hardly be acceptable for orthodox neoliberalists. Friedman even goes so far as to identify responsibility for realizing ethical principles only with the individual. “A major aim of the liberal is to leave the ethical problem to individual struggle.”(Friedman 1962). Thus he releases the state from all ethical and social responsibility.


Neoliberalism represents an economic theory or model that elevates reduction of the state in the economic realm to the supreme political maxim. Political rule has little significance as long as it fulfills the tasks assigned by the economists. An authoritarian state is often preferred to enforce the necessary measures. The highest goal is the greatest possible self-control of the market that must lead to optimal conditions, according to the theory. Therefore neoliberalists justify enormous social costs that occur inevitably with the necessary reconstruction.

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