Ideas@TheCentre – The CIS newsletter (Sydney), 15 May 2009

What did the word ‘neoliberalism’ originally mean?

Was it a) extreme capitalism, b) radical socialism, c) a ‘Third Way’ or d) just another word for greed?

No, you cannot ask the audience or use a 50:50. And, if your phone-a-friend lifeline was the Prime Minister you would not get the right answer, either.

In his long essay in The Monthly, Kevin Rudd attacked neoliberalism as ‘personal greed dressed up as an economic philosophy’ within a system of ‘extreme capitalism’. Indeed this is how neoliberalism is often regarded these days. However, the original inventors of neoliberalism had something completely different in mind.

Neoliberalism developed as an economic philosophy in the 1930s and 1940s. At the time, the Great Depression had given a boost to more state intervention. The ideas of Keynes and the policies of Roosevelt were gaining popularity around the world.

However, a small group of German economists and sociologists still believed in the great strengths of open, competitive markets. They also thought these markets needed a stable framework to operate in and that these legal foundations had to be established and policed by the state.

In order to differentiate their new philosophy of a free economy under a strong state from the old and unpopular liberalism, these intellectuals called their model ‘neoliberalism’. It was a positive word for a new ‘Third Way’ between crony capitalism and inefficient socialism.

Neoliberalism became the economic philosophy of West Germany. It underpinned the country’s fast post-war recovery, the so-called ‘economic miracle’. The Germans began to like their ‘Social Market Economy’, but the original term ‘neoliberalism’ gradually disappeared.

It is quite ironic how neoliberalism re-surfaced a few decades later, albeit bearing an entirely different meaning. Where neoliberalism once was a positive, optimist philosophy it has been reduced to nothing but a political swearword. Unsurprisingly, nobody wants to be a neoliberal any more. That’s a pity because neoliberalism had important insights to offer.

In any case, next time you want to know about neoliberalism, don’t ask the Prime Minister.