2014-04-22 - Socio Economic Review 2014 - Full text and cover - FINAL

Box 2.1: Neoliberalism – what’s in a word?
The term ‘neo-liberalism’ has become more widely used in popular debate since the
economic crisis began. A speech by President Higgins which used the term attracted
some opposition as it was interpreted as a political insult by some (O’Brien, 2013).
Initially the term was used by a small group of radical economic thinkers such as
Friedrich van Hayek and Milton Friedman to describe their own distinctive
economic and social philosophy (Friedman, 1951; Stedman Jones, 2012). However,
the term is increasingly used as a helpful analytic category used to describe a specific
theory of government – not a theory of economics as is commonly imagined - and
an associated economic and social policy agenda, and institutional framework.
Indeed, President Higgins (2013) made this explicitly clear, distinguishing neoliberal
doctrine from classical and neo-classical economics.
Finlayson (2013) has provided a useful précis of neo-liberalism as a governing
philosophy which is based first on an ‘economic’ theory of human nature – that is,
that human beings are rational and utility-maximising, and second, on the liberal
principle that people should be left to do what they want, and how they want.
Following these principles, price is seen as the key mechanism in transmitting
information, allowing rational individuals make decisions and allocate resources;
and following this, effective competition and competitive exchange is required for
prices to be accurate. Finally, Finlayson argues that, due to these principals, neoliberals
do not hold a concept of the ‘common good’ in politics as they fear that
government will act on a set of principles dictated by the common good, which will
in turn make rational individual decision-making difficult.
Such a perspective is not necessarily anti-state, as is often implied. Rather, neoliberals
advocate an enhanced role for market processes in many areas of social and
economic life, which can often result in the rule of the state actually expanding as
it takes up additional regulatory powers to ensure market competition and
enforcement of rules. Associated with this is the widespread outsourcing and
privatisation of government services, which doesn’t actually reduce the scope of the
government, but theoretically increases competition and thus more accurate – but
not necessarily lower - pricing.
On a wider institutional but less precise basis, the term ‘neoliberal’ is used to describe
the thrust of policy development from the 1970s on. This larger shift involved the
liberalisation of capital flows, deregulation of finance and the concomitant growth
of international capital flows and the power of international financial institutions
and actors. In the Irish context, neo-liberal ideas in areas such as the role of finance
and low levels of taxation were often simply accepted as ‘common sense’ rather than
explicitly identified with a specific philosopher. It is hopefully clearer now that
underlying policy approaches to areas such as banking regulation were neo-liberal
beliefs in the superiority of the price mechanism and competition in leading to
beneficial outcomes.
2. From Crisis to Viable Future Pathway 15