Neoliberalism has created the highest standard of living on the planet, Northern Europe proves.

Yet, the neoliberal revolution has been widespread and highly successful. And the motives of neoliberal reforms are much purer than one would imagine after reading left-wing criticisms of free-market reforms. First, to understand what neoliberalism it, we need to start with the term “liberal.” The best way to make sense of liberalism, in all its permutations, is to assume that liberals are people with constantly evolving policy views but relatively stable utilitarian values. In the late 18th and early 19th centuries, idealistic utilitarian reformers, aka “classical liberals,” believed that free-market capitalism was the best way to improve human welfare. Views shifted over the course of the 19th century, as capitalism was increasingly associated, whether accurately or not, with overly-powerful corporations and increasing inequality. After the Great Depression, many liberals saw laissez-faire not just as unfair, but also as dysfunctional. In the United States, self-described “liberals” moved toward somewhat more socialist policy views. Modern liberalism (or social democracy outside the United States) reached its peak between the 1930s and 1970s. The policy mix included a great deal of statism (barriers to trade, price controls, high marginal tax rates (MTRs) and government ownership of industry), as well as greatly increased government spending, especially in government transfer programs. Then, beginning in the late 1970s, there was a sudden and dramatic shift away from one aspect of socialism—statist policies were discarded and free markets came back into vogue. However, there was no significant reduction in government spending: In most countries, the government’s share of GDP has been fairly stable in recent decades. The neoliberal revolution combines the free markets of classical liberalism with the income transfers of modern liberalism. Although this somewhat oversimplifies a complex reality, it broadly describes the policy changes that have transformed the world economy since 1975. Markets in almost every country are much freer than in 1980; the government owns a smaller share of industry; and the top MTRs on personal and corporate income are sharply lower. The United States, starting from a less-socialist position, has been affected less than some other countries. But even in the United States there have been neoliberal reforms in four major areas: deregulation of prices and market access, sharply lower MTRs on high-income people, freer trade, and welfare reform. Many other countries saw even greater neoliberal policy reforms, as once-numerous state-owned enterprises were mostly privatized. There is an unfortunate tendency to associate the term “neoliberal” with right-wing political views. In fact, the quite liberal social democracies of northern Europe have been among the most aggressive neoliberal reformers. Indeed, according to the Heritage Foundation’s Index of Economic Freedom, Denmark is the freest economy in the world in the average of the eight categories unrelated to size of government. The Nordic countries have begun to privatize many activities that government still performs in the United States. These include passenger rail, airports, air-traffic control, highways, postal services, fire departments, water systems, and public schools, among many others. These countries do have much larger and more comprehensive income-transfer programs than the United States has, but are not otherwise particularly socialist. So why is the left so skeptical of the neoliberal revolution? And why does the right tend to overlook it, except for the obvious cases, such as the collapse of communism? Many on the left are skeptical about how much freer markets have actually achieved. Part of this skepticism reflects the slowdown in worldwide growth since 1973. Because almost all countries instituted at least some reforms, and yet growth slowed in most countries, there is a tendency to assume that the reforms failed. Others point to well-publicized fiascos in electricity and banking deregulation and assume that these represent the broader reality. On the right, many American economists focus on the failure of Reaganomics to reduce the size of government, as well as on increased regulation in areas such as health, safety, and the environment, while the so-called “economic regulations” were trimmed back.