The Questionable Record of Neoliberalism

Now, I suppose, is as appropriate a time as any to discuss the policies generally known as neoliberalism/free market economics: tax and spending cuts, union busting, deregulation, privatisation and free trade, and how they have fared in practice. Unsurprisingly, those on the right defend neoliberalism’s record. However, successes have been over exaggerated, while in cases of clear success, a closer look reveals policies which are anything but ‘neoliberal’. I’ll take a brief look at some countries or sets of countries which are commonly purported to show the success of these policies: the US & UK, Chile, Hong Kong & Singapore, and Scandinavia. I believe that in none of these instances do we get a clear example of neoliberal policies succeeding economically.


The US and UK had similar narratives during their transition to neoliberal policies. After a period of stagflation, a ‘strong’ politician (Ronald Reagan and Margaret Thatcher, respectively) rose who was willing to enact drastic reforms. The narrative here can be exaggerated – pro market reforms (eg deregulation under Carter) and economy-wide trends (the decline of manufacturing) preceded these two governments. Nevetherless, utilities were privatised, unions were weakened, direct taxes (mostly top tax rates and corporation taxes) were slashed, and various regulations were either cut down or replaced with a more ‘neoliberal’ model. Obviously some ‘free market’ purists will always claim it was not enough, but it was a substantial move in the neoliberal direction, and as such we should have seen clear benefits.

Economic growth under these two governments was decidedly average. If we measure from peak to peak in the business cycle to average out fluctuations, per capita growth under Thatcher comes out at 2.44% (1978-88), while Reagan comes out at 2.3% (1979-90). If we just measure the years they were in office, the respective figures are 2.05% and 2.77%. Whichever way you paint it, growth was not far from its 2.5% trend.

In fact, in both countries the ups and downs of the economy surely had more to do with monetary policy than anything else. Interest rates went as high as 17% in the UK and 19% in the US; around 1983 they had more than halved, dropping down to about 8%; following this GDP started to recover. Insofar as policy goes, the conventional story that neoliberal policies rescued their respective countries is a half truth at best. Thatcher benefited from an oil boom which helped her to fund her various preferred programs (including the Falklands War, which helped buy off discontent). Reagan’s policy of cutting taxes but increasing military spending during a recession was effectively Keynesianism. Ultimately, there is little evidence that the headline reforms were responsible for the overall performance of the economy in either country.

Singapore & Hong Kong

These two countries have certainly had impressive peformances over the past few decades, overtaking most developed countries for GDP per capita. For this reason, they are often touted as free market success stories. This is misleading in a couple of ways.

The narrative about the success of any policy in Singapore and Hong Kong is complicated by the fact that they have some obvious advantages over everywhere else, no matter their policies (within reason). First, they are port cities, which means that unless there are serious political problems, they will be a conduit for a large degree of trade no matter their economic policies. Second, they are city states, which reduces administrative and transaction costs, both in the public and private sectors. Third, Hong Kong does not have to fund a military due to protection from China, which helps to explain its low tax rates.

In any case, the two countries are anything but a paragon of the ‘free market’ in action. In Hong Kong, the government owns all of the land. In Singapore, the government owns about 60% of the land, heavily regulating its usage, while government-linked corporations produce up to 60% of GDP. Both countries have public health care, transportation and education, public housing programs and safety nets, and Singapore owns public utilities while Hong Kong regulates them tightly.

Clearly, whatever the success of these countries is caused by, it is not simply ‘free markets’.


The story painted usually painted about Chile is that it went from a poor country to one of the richest in Latin America after ‘free market’ reforms were put in place by the dictator Augusto Pinochet following the 1973 coup d’etat. What actually happened (from a policy perspective) was much more of a mixed bag, combining both neoliberal programs with long-standing state directed ones.

Key industries remained either directly in the hands of the state (such as copper and oil) or in receipt of subsidies, advice and management, and training through the government organisation CORFO (such as forestry and fishing). These state-directed industries experienced massive growth and fueled an export boom, which drove the economy for decades to come. It is true that some industries, such as banking, were privatised and deregulated, but this was far from a success: it produced a financial bubble, which collapsed in 1982, reducing GDP by 14%, back down to where it was in 1970. Only 5 out of the 19 banks that had been privatised remained, (reluctantly) bailed out by the government, which also had to reinstate capital controls and other interventions. Furthermore, once democracy was reinstated in the 1990s, governments moved leftwards and embarked in significant, successful poverty reduction programs.

This is clearly at odds with the idea of Chile as a free market success story. In fact, I’d go so far as to say that in the case of Chile, success was clearly concentrated in areas with obvious state intervention, while failures were concentrated in those without.


Scandinavian countries are a synonym for economic success, faring well in GDP per capita, but even better in overall standard of living indexes. So it is no surprises that both sides of the debate claim them as their own. The claim is more perplexing when coming from the right, however, since it requires them to effectively claim that countries which are clearly social democracies are not social democracies. It is generally asserted that beneath the high tax rates, these countries are ‘economically free’, which roughly translates as lightly regulated. So are they?

Disregarding such nonsensical indexes as Heritage and heading for the more credible OECD, we can see that Scandinavian countries have average to low strength regulatory frameworks by the standards of developed countries:

In case you were wondering, there is no clear correlation between this index and GDP growth.

While, with the exception of Sweden, the Scandinavian countries have below average regulation indexes, if this were causing their success then surely the US, UK and Spain would be doing well, too? Perhaps low regulation must be combined with a strong safety net and public services to work. More likely, the Scandinavian countries are unique and have specific institutions that cannot necessarily be emulated elsewhere, something I’ve argued before.

In fact, that last point is true of every country. The path to development and sustained growth  is different for every country, and the recipe for growth cannot be captured in vague platitudes about a ‘free market’, completely devoid of context. I expect that there exist countries where neoliberal reforms are appropriate, but these are far outweighed by one where they are not. The people best suited to decide which reforms are appropriate are those who live in and understand the country, not outsiders with a one size fits all model that they see as a neutral template. This was clear even in Chile, where the national military were reluctant to abandon the state-driven model on which they had always relied.

I expect those who support neoliberalism might look at this article and conclude that countries would do even better if only those last pesky statist policies were removed. But this is a superficial perspective. Why were the state-supported industries much more successful than the privatised ones in Chile? Why do Scandinavian countries do well with high tax rates and big welfare states, when many countries with similar strength regulatory frameworks and smaller welfare states do much worse? Why does every purported ‘free market’ success story collapse under close inspection, and why are there no clear real world examples of the ideal being implemented and working? Until I can see such a case I will remain unconvinced of the virtues of the elusive free market.



  1. #1 by amoghsahu on April 13, 2013 - 11:43 am

    Desperate Libertarians trying to cover up for the obvious success of Sweden.

  2. #2 by The Arthurian on April 13, 2013 - 3:00 pm

    Interesting position, that neoliberalism is more parlay (or, parlez) than policy.

    I recently reviewed an old Krugman post from May 24, 2010. He links to three of his own, including another of the same date, where he links to a rebut by Scott Sumner.

    Sumner says: “Growth has been slower [since 1980], but that’s true almost everywhere. What is important is that the neoliberal reforms in America have helped arrest our relative decline…
    …neoliberal reforms lead to faster growth in real income, relative to the unreformed alternative

    Not a strong argument for neoliberalism, in my view. Hope you like the links.

    • #3 by Unlearningecon on April 13, 2013 - 9:50 pm

      Sumner is what inspired this post – I forgot to link to that one, though.

      Where do you begin? Sumner clearly thinks ‘statism’ is a dial you can turn up and down. Anyway, he is either woefully ignorant or just intellectually dishonest.

      Canada has far more tightly regulated banks than the US; as they embarked on austerity in the 1990s they experienced a huge export boom, which explains the growth Sumner attributes to ‘neoliberalism’.

      Australia: more public services than US, highest minimum wage in the world (afaik), two main parties are ‘liberal’ and ‘labour’ – they don’t really do conservatism.

      Switzerland: banks, banks, banks.

      The Japanese model was ‘free market’? Dear god. And neoliberals accuse you of straw manning when you point out how selective they are!

      Italy, France and Germany: Germany is currently above UK, France very close, Italy overtook the UK in the 1990s and things only really started going to s**t with Berlusconi in charge.

      I’ve dealt with the rest above.

      “Almost every serious development economist attributes their relative success to their neoliberal reforms.”

      [citation needed]

      • #4 by Magpie on April 14, 2013 - 7:11 pm

        “Australia: more public services than US, highest minimum wage in the world (afaik), two main parties are ‘liberal’ and ‘labour’ – they don’t really do conservatism.”

        That’s a sad mistake, although it is understandable.

        The “Liberal” party here is as damn conservative as the Republicans in the U.S.

        John Howard, former liberal PM, was the little partner in the Coalition of the Willing, for instance. Apart from that, his claim to fame was to finish unions off, bribe the top incomes for votes, sending asylum seekers to desert prisons, etc.

        And our Labor party is not much of a labor party, more concerned with not flaming “class war” than with helping the labourers.

        I guess it’s because we are in the other side of the world that things here are upside down. 🙂

      • #5 by Unlearningecon on April 14, 2013 - 8:59 pm

        Ah, shame, I just threw that one out there with little thought.

        But I stand by the point that Australia has a lot of progressive policies.

  3. #6 by Hedlund on April 13, 2013 - 3:27 pm

    On Chile: I’ve had this bookmarked for a long while, just gathering dust. Go, little link, be useful!

  4. #7 by friedmanseconomy on April 13, 2013 - 3:58 pm

    “not outsiders with a one size fits all model that they see as a neutral template.” – Describing the IMF

    • #8 by Unlearningecon on April 13, 2013 - 9:56 pm

      Some people still insist accepting assistance the IMF is ‘voluntary’. I don’t even

  5. #9 by Geolibertarian on April 13, 2013 - 4:36 pm

    You know, some of the most vocal free-marketeers i know are also some of the most vocal critics of Neoliberalism i know. Case in point, Kevin Carson’s collection of critiques of Neoliberalism from a free-market Mutualist are a good perspective to analyse:

    Most cases of Governments and policies accused of “Neoliberalism” don’t seem as much “pro-market” as their rhetoric suggests. To me, it seems that those Governments tend to remove the interventions that favor the poorer (i.e, the Welfare-State) but tend to increase and maximize the interventions that favor the rich (regressive taxes, military spending, removing union freedoms, etc).

    They don’t really pursue “Small Government” but rather a partial Small Government (Small Government for the poor, Huge Government for the rich). An old Geography teacher i had told me he defined Neoliberalism as “a set of policies designed to actively maximize profits”, and i think this is a much better definition than to see everything in terms of “Free-marketeers vs. Interventionists”.

    • #10 by Unlearningecon on April 13, 2013 - 9:37 pm

      I understand that many libertarians are as outraged at what happened in Chile as they are at, say, Stalin (in principle, at least, even if not in degree). However I think that while this should be applauded, it is a case of naivety about the reality of capitalism. This quote really sums it up for me:

      Some observers claim to have found something paradoxical in the fact that the Thatcher regime combines liberal individualist rhetoric with authoritarian action. But there is no paradox at all. Even under the most repressive conditions . . . people seek to act collectively in order to improve things for themselves, and it requires an enormous exercise of brutal power to fragment these efforts at organisation and to force people to pursue their interests individually. . . left to themselves, people will inevitably tend to pursue their interests through collective action — in trade unions, tenants’ associations, community organisations and local government. Only the pretty ruthless exercise of central power can defeat these tendencies: hence the common association between individualism and authoritarianism, well exemplified in the fact that the countries held up as models by the free-marketers are, without exception, authoritarian regimes.

      from “the continuing relevance of socialism”

      • #11 by Geolibertarian on April 15, 2013 - 3:01 am

        Carson’s (and other Libertarians’s) critique of Neoliberalism doesn’t limit itself just to the authoritarian policies of Pinochet and Thatcher, but to their economic policies too. “Neoliberal” Governments all promoted regressive taxation, regulations on unions and fraternal societies, militarism, corporate subsidies and at times even protectionism (Reagan for example was quite the protectionist, putting tariffs on Japanese goods), all interventionist policies specifically designed to aid big business. Their policies not only did not reflect “social” libertarianism but didn’t reflect economic libertarianism either. In Brazil where i live, Fernando Collor’s neoliberal programme confiscated the savings of the entire brazillian population to “fight inflation” (with disastrous results and a lot of corruption going on).

        Kevin Carson defines economic intervention in “Primary” and “Secondary”. “Primary” interventions are those that establish class monopolies and privileges to those at the top, while “Secondary” are those who intend to stabilize the system by giving some help to the poor and more rights to workers to prevent social unrest and constant crisis. His critique of Neoliberalism is that it severely cut Secondary intervention, but didn’t cut and in fact increased Primary Intervention, only being “pro-market” in rhetoric while being “pro-oligarchy” in practice.

        As for your quote, i don’t see why “liberal individualism” must be opposed to “collective action”. Individualism doesn’t mean people shouldn’t act in groups, join unions, community organizations, associations and etc; it simply means individuals should have freedom to form and join those organizations as they please and be allowed to pursue their individual goals. Market exchange is a social action by nature, individualis and free-markets doesn’t go against unions and collective action, authoritarian neoliberal pseudo-free-markets do.

        Georgists describe our goal as being “Co-operative Individualism”. Mutualists and Individualist-Anarchists speak at lenght about mutual exchange, reciprocity and co-operative institutions inside the context of a market. I don’t think authoritarianism is necessary to reach this, or that belief individualism means being naive about how Capitalism works. In short, there is nothing wrong with Individualism, it’s just that Thatcher and Pinochet sure as hell were not Individualists.

      • #12 by Unlearningecon on April 16, 2013 - 1:30 pm

        As for your quote, i don’t see why “liberal individualism” must be opposed to “collective action”.

        It opposes these things when they translate into law. A lot of libertarians (not yourself, I would guess) often see the state in quite a crude perspective: as an outside instrument imposed by the elites. This can obviously be true (such as in Chile), but when a population demands, say, a legal curtailment of a company who is using environmentally harmful materials in production, the state merely acts as an instrument through which the interests of the community are realised. As you yourself point out, neoliberals are willing to equate the aforementioned with far more restrictive practices and hence miss the big picture.

        I understand the kind of society libertarians have in mind – it’s actually similar to the communist ideal in many ways. But I just think that, if a system is based on acquiring wealth, this will naturally translate into inequalities of power and we will be back to square one before too long. I mean, the US itself is a natural experiment in this.

  6. #13 by Ramanan on April 13, 2013 - 5:50 pm

    Good post.

    One thing I have realized is that economists are simply poor at “attribution analysis”. This runs across topics – anything and everything. Inability to get causality right is what neoclassical economics is all about.

    • #14 by Unlearningecon on April 13, 2013 - 9:29 pm

      I agree. If you think about Friedman’s ‘Methodology of Positive Economics’, ultimately equating correct conclusions with correct theories is just a version of correlation/causation fallacy. This is then transposed on to popular interpretations of economics as ‘oh look, there are free markets in China’, ignoring the important details of China’s policies, or Friedman’s ‘Pinochet was ousted eventually, so free markets = free people’, ignoring, well, reality.

  7. #15 by Dan on April 13, 2013 - 7:45 pm

    Good post, reminds me of Ha-Joon Chang’s book “Kicking Away the Ladder” which essentially debunks the myth of free market development and how nations like the UK and USA relied extensively on protectionism, welfare systems and a whole host of other non-free market strategies only to turn around and tell other developing nations that they couldn’t have them themselves. The Asian tigers basically told the West to go take a hike, while South America and Africa were stuck in the grips of neoliberalism. Is it really even debatable who is the better off out of that group?

    The fact is that mixed markets are not only highly successful but are basically the default economic system of humanity. Humans like mixed markets, and the fact is that it works better than anything including laissez faire. For all their obsession with economic “naturalism” you would think the libertarians would’ve realized that. Mixed markets compromise 99% of all human economies. Its quite obvious and simple: mixed markets are the natural state of humanity. Laissez faire is a deviation from our natural state.

    • #16 by Geolibertarian on April 13, 2013 - 8:41 pm

      The “natural state” of humanity was a Gift Economy where everyone had direct access to land. Markets of different sorts seem to become “natural” after civilization and hence exchange becomes more complex, but i don’t think any market – mixed or otherwise – can be called “our natural state”.

      • #17 by Dan on April 13, 2013 - 9:25 pm

        Well I was being somewhat jocular with my statement and really meant it as a dig at Milton Friedman who was really big on promoting laissez faire as the “only” way and that it was “natural” as opposed to the “unnatural” welfare and regulatory state.

        In reality humanity has no natural state, you could say it was gift economies perhaps, or maybe Austrolopithicus’ economy less existence, or perhaps when we were boreal apes, or maybe when we rodent like mammals huddling in the ground. In other words, evolution is the only constant and the idea of returning to ” natural” anything is bogus.

        That being said, I do think its kind of hard to overlook the fact that mixed markets are overwhelmingly the default economic structure all over the world in the modern era. Certainly this should tell us something. If 99.99% of our species has the same economic structure chances are it serves some kind of beneficial purpose. This should serve as evidence that mixed market economies are successful, if not ideal.

    • #18 by Unlearningecon on April 13, 2013 - 9:59 pm

      I agree with geo in that I wouldn’t call anything our ‘natural state’, but I think a mixed economy is what capitalist societies tend toward over time. See also my quote about authoritarianism and libertarianism in response to geo below.

      • #19 by dan on April 16, 2013 - 4:41 pm

        I saw your response to Geo and I pretty much agree with you. There are plenty of times when the state is just carrying out the role of market regulator, and to view all state activities as purely exogenous interlopers ignores that important point.

        In my opinion governments form mainly out of security concerns, and once it is in place it can create numerous externatilities both good and bad. People have chosen to use the state to do things like regulate polluting companies because the government’s power and economy of scale make it the most obvious vehicle for meeting those societal needs. If states did not exist people would look to some other entity to undertake those tasks.

        People talk about the “self regulating market” as if regulation only takes the form of price signals and some implicit code of conduct. But there plenty of times that regulation is very much explicit, even in the absence of the state. Take stock exchanges and guilds for example. And in our modern world many of these explicit regulatory activities have been taken up by the state. So when reform minded people try to attack government by, say, restricting the regulatory authority of financial regulatory agencies they may be unintentionally depricing the economy of a vital regulatory mechanism and not even know it. This is the danger of the fallacy of the government market distinction. And I think the events of 2008 were largely because of that mistaken belief.

      • #20 by Unlearningecon on April 17, 2013 - 12:06 pm

        Interesting point: the real distinction that should be made is probably that between price signals and non-price signals.

        An example of this can be seen with those who advocate ‘free banking’. They often imply there is a need for a dominant private bank to set norms and such. This just strikes me as an incredibly naive application of the ‘markets are better’ way of thinking – how would such an entity really be different from a central bank?

  8. #21 by stone100 on April 15, 2013 - 2:18 pm

    I got the impression that most of the “benefits” from neo-liberalism came from capital flows. If a country was made an ideal site for storing wealth (eg. asset price inflation outstripping wage inflation), then a country can become a “piggy bank for the world”. Then trade can simply be an exchange of real goods in return for account statements. Global commodities become cheap for such a neoliberal economy. Before the Thatcher and Regan neoliberal revolution, the developing world was starting to be able to afford a share of the global supply of commodities. From 1980 onwards that became sharply reversed and the wealthy elite of developing countries channeled all of the money to the neoliberal developed world causing a spiral of impoverishment across the developing world.

    • #22 by Unlearningecon on April 17, 2013 - 12:09 pm

      Well, this is precisely what Joe Stiglitz, who was working for one of the prime institutions responsible for ‘neoliberal’ revolutions, the World Bank, says. There is no puppet master, but if you view policies as if they are done to benefit the financial elite, things suddenly make a lot of sense.

  9. #23 by Hedlund on April 15, 2013 - 5:13 pm

    Kinda tangential to a discussion of Thatcher: In a debate a year or so ago, I actually came across someone using, without a trace of irony, the line “the economy doesn’t exist”; blah blah it’s just individuals, etc.

    I’ve heard that the “no such thing as society” meme is something of a misinterpretation, which makes its earnest echoes seem all the more vulgar. Needless to say, the other party in my case identified with the Austrian School — the undisputed masters of replacing a word with a less-convenient phrase and then declaring their opponents wrong ex vi terminorum.

    I have decided there is no point in arguing emergent phenomena and complexity and so on with such individuals; now, the whole of my reply is to agree with them, and submit in turn: “There is no history, either; just a long sequence of events ending in the completion of this sentence.”

    • #24 by Unlearningecon on April 16, 2013 - 1:12 pm

      The funniest thing about this is that whenever Austrians attempt to come up with some other way to gauge GDP, they are forced, by nature, for fall back onto aggregates. I mean how else do you measure such a large volume of production?

      My person favourite is: well, if you want to be reductionist, why not start from quantum mechanics?

  10. #25 by Blue Aurora on April 18, 2013 - 10:28 am

    As someone who knows Hong Kong from personal experience…I will say that while libertarians from the Western world like to champion this place as the paragon of laissez-faire, most people in Hong Kong tend not to be ideologues.

    Although to a large part, people in Hong Kong (both the locals and the expatriates) tend to be friendly to the idea of a free market and supportive of business, by and large, I don’t think most of them would describe themselves as “libertarians”. A good portion of the people of Hong Kong would call themselves “practical” and “pragmatic” when it comes to economic policy (and let’s put aside Keynes’s famous statement in the last chapter of The General Theory, please).

    Many of the people here in Hong Kong would agree with the concept of political and economic freedoms coming hand-in-hand with each other, but I think many of them would scoff and snort at the more radical and uncouth advocates of libertarianism in the West.

    As for Singapore, which I have some familiarity with as well…Singapore is hardly anything like a “free market paradise”, despite being one of the so-called “Asian Tigers”. In fact, if you asked any citizen of Singapore who has lived through it’s economic development after Singapore and Malaysia separated (and who has followed economic matters closely), they would also scoff at whoever thought that. Singapore’s economic development owes a certain amount of credit to the public sector’s actions. Arguably, Singapore’s economic development has had more public sector involvement than Hong Kong’s has – but like a good portion of the people of Hong Kong, if you asked a citizen of Singapore about economic matters and the libertarian perception of it, they’d most likely scoff at you. You can also ask any person affiliated with the People’s Action Party (which has governed Singapore since the split) and who has had some degree of involvement in economic policy. Don’t be surprised if that person scoffs at you, and uses the word “pragmatism”.

    Singapore’s success in economic development – along with Hong Kong’s success – was never due to the public sector alone, nor was it due to the private sector alone. While the two places aren’t the same, the comparisons are strong enough for one to reach the conclusion that both the private and public sector are needed for achieving prosperity, and that there is no cookie-cutter, one-size-fits-all formula to accomplishing prosperity.

    • #26 by Unlearningecon on April 18, 2013 - 4:21 pm

      Thanks for your perspective.

      It seems the dogmatic perspective is quite a western thing. If you take a step back it is quite perplexing as to why people would be quite so upset about a country setting fixed exchange rates or providing education.

      • #27 by Dan on April 28, 2013 - 4:33 pm

        I would take it one step further, rather than being perplexing it borders on cruelty. Look at fixed exchange rates, countries aren’t “allowed” to do these things under current laws, even though the problems of having an overweight currency are quite well known (especially if you are developing “peripheral” economy). So as a way to avoid this many countries simply used government deficit spending as a way to increase the money supply and essentially maintain a favorable exchange rate. Then they get punished for debt. If you ask me the whole dysfunctional government debt and deficit paradigm that we are seeing around the world is really a product of unfair monetary and trade policies that limit a country’s ability to improve economic conditions.

  11. #28 by RightFromYaad on May 9, 2013 - 12:41 am

    Hong Kong growth began long before China took back control in 1997….befor that for 150 years it was under British rule…. Check your facts again and look up the name John James Cowperthwaite who was part of the reason Hong Kong made huge strides post WWII.

    • #29 by Unlearningecon on May 9, 2013 - 1:57 pm

      So? That’s just the same deal: Hong Kong didn’t have to fund a military because it was protected by a larger power. And I’ve already been through the policies that are and have long been active in Hong Kong. You can call them ‘free market’ reforms if you want, but that just highlights the vacuousness of the term.

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