Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 5.1.1 The state as a system, which defines the state, its parts and their relationships, and some ways to classify states
Section 5.1.2 Origins, legitimacy and power of states, which explains how states came about, how they gain legitimacy and maintain power
Section 5.1.3 Functions of the state, which explains the various roles of the state in providing goods and services, protecting the population, and stabilising and guiding change
Section 5.1.4 Balancing state and non-state power, which explain the importance of balancing state and non-state economic power and strategies to achieve such a balance
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.3 Systems diagrams and models, which explains the systems thinking in some familiar information tools as well as the symbols used to represent parts/wholes, relationships and perspectives
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems
Learning objectives:
describe the neoliberal narrative and explain how it came to dominate economic thinking
evaluate the impact of neoliberal narratives on society, the economy and Earth systems
In England in 2025, millions of litres of drinking water are lost every day because of leaking pipes. Water bills have risen, and rivers and coasts are polluted by untreated sewage.
This crisis began decades ago when the state sold the public water and wastewater systems to private companies. Since then, these companies have taken on large sums of debt and made huge profits distributed to shareholders. But critics claim they have failed to invest in fixing infrastructure, worsening water services and polluting ecosystems.
Many people now ask whether a basic need like water should be controlled by businesses aiming to maximise profit (Section 3.2.5)? This question is at the centre of a wider story about the relative roles of markets and states in recent decades, shaped by the narrative of neoliberalism.
Narratives are repeated stories in education, media, politics, and daily conversation that influence how we understand the economy and our place in it. Neoliberalism is one of the most dominant and damaging narratives about economic relationships in history.
Figure 1. Privatised water companies in England have polluted rivers and coasts with sewage
(Credit: licensed from Adobe Stock)
What is neoliberalism and how did it become so dominant?
What is neoliberalism and how did it become so dominant?
Neoliberalism is a narrative based on three main ideas: ‘free’ markets, minimal state and competition (Figure 2). Neoliberal thinkers believe private companies are more efficient than the state. They argue that lower taxes, fewer regulations, and privatisation of public services will benefit everyone.
This narrative became popular during the economic crises of the 1970s. In countries like the United States and the UK people faced high inflation, where prices increased rapidly, along with high unemployment and low economic growth. Many blamed state policies. At the same time, state control seemed unattractive in light of the failures of state-led planning in countries like the Soviet Union and China, marked by food shortages and political repression. Economists like Friedrich Hayek and Milton Friedman argued that too much state power limited personal freedom and innovation. They called for a smaller role for the state.
Crises weren’t the only reason why neoliberal narratives spread. Wealthy individuals and corporations supported neoliberal ideas. They funded think tanks, business schools, and media campaigns to make neoliberal ideas seem like common sense. Organisations like the Heritage Foundation and Cato Institute in the United States played a key role. Politicians such as Ronald Reagan and Margaret Thatcher embraced these ideas, mocking ‘nanny state’ and praising markets as the answer to all problems (Figure 3).
Figure 2. Main parts of neoliberal ideology
Figure 3. US president Ronald Reagan and UK prime minister Margaret Thatcher embraced neoliberalism, calling it ‘common sense’ economics.
(Credit: adapted from Reimer & Bjørkskov, Building Green 2024)
This narrative hid the state’s key role in economic progress. Economist Mariana Mazzucato notes that technologies like the internet and global positioning system (GPS) came from state investment (Section 5.1.6). But media stories often celebrate private entrepreneurs as self-made heroes, especially in Silicon Valley. This creates the false idea that progress comes only from businesses in markets.
Through crisis, fear of state control, and strong promotion by elites, neoliberalism became a powerful story. It reshaped views of the state, reducing trust in the state’s role and celebrating markets as the main path to progress.
What are the impacts of neoliberal narratives?
What are the impacts of neoliberal narratives?
The state has special powers (Section 5.1.2), sometimes unlimited, and history shows this power can be misused. Challenging excessive state power is important. But weakening the state too much, especially in areas of social care and economic coordination, creates new problems. Neoliberal narratives often worsen these problems.
Weakening the state
Weakening the state
Neoliberalism weakens the state through a self-reinforcing cycle. First, these narratives portray the state as wasteful and slow. If those ideas take hold, voters elect leaders who promise to shrink the state. These leaders cut spending, lower taxes, and privatise public services. Cuts to spending and investment are broadly known as austerity and mainly impact healthcare, education, childcare, eldercare and transport. These funding cuts and privatisations reduce the state’s ability to carry out its functions (Section 5.1.3), creating real failures that seem to prove the original point and then justify more privatisation (Figure 4).
Figure 4. How neoliberal narratives about state incompetence pave the way for privatisation
(Credit: Reimer & Bjørkskov, Building Green 2024)
These cuts hit households hard. Families must fill gaps left by the state. Often, women bear most of the burden. They take on more unpaid care work like child- and eldercare when public services are reduced (Section 5.2.1). Women are also more likely to work in public service jobs that get cut. This increases both gender and income inequality, makes daily life harder, and slows action on social and environmental issues. People feel more insecure.
As the state loses its ability to function, it loses legitimacy (Section 5.1.2). People stop supporting public investment in schools, transport, or renewable energy. Over time, this weakens societies and trust in democracy.
Ironically, shrinking the state too much can increase the risk of authoritarianism. When governments fail to provide essential services, people may support strong leaders who promise order. Over time, this damages both democracy and economic stability.
Impact on society and the economy
Impact on society and the economy
Neoliberal policies have deepened economic inequality. One reason is tax cuts for large companies and the very wealthy. In the United States, corporate tax rates fell from 52% in the 1950s to just 21% by 2018. Meanwhile, multinational companies use legal loopholes to avoid paying taxes. This leaves states with less money for healthcare, education, and public services.
As public funding shrinks, wealth becomes more concentrated. Oxfam reports that by 2023, the richest 1% owned nearly two-thirds of all new global wealth created since 2020 (Figure 5). In contrast, half the global population saw almost no improvement. This increased wealth comes with increased power in society and politics, harming social cohesion and creating economic and social instability.
Figure 5. Since 2020, the richest 1% have captured almost two-thirds of all new wealth.
(Credit: Oxfam, with Credit Suisse data)
Neoliberalism also changes how people think about success. When markets and wealth are the judge of value, rich people are seen as hard-working and deserving. People who struggle are often blamed for their circumstances, rather than recognising the role of economic systems in people’s fates. This creates a society that values competition over cooperation and weakens trust in collective solutions.
International impacts
International impacts
Internationally, the influence of neoliberalism is clear in the policies of global institutions like the International Monetary Fund (IMF) and the World Bank. These organisations, influenced by wealthy donor countries, require states in poorer countries to adopt neoliberal policies, such as privatising public services or raising taxes, as conditions for loans. The neoliberal narrative is passed on to countries that might already have weak states, further weakening trust, and eroding legitimacy.
In some cases, countries that resisted these reforms or seek another role for the state have faced force. In 1973, the United States supported a military coup in Chile that overthrew the elected government of Salvador Allende, who had pursued socialist policies. The new regime, led by General Pinochet, violently suppressed opposition and introduced neoliberal reforms with help from neoliberal economists trained in the United States. This marked one of the earliest and most extreme examples of neoliberalism being enforced through state violence.
Impact on Earth systems
Impact on Earth systems
Neoliberal narratives have led to an overreliance on market-led responses to climate change and other areas of planetary boundary overshoot (Section 1.2.7). These strategies rely on businesses, often supported by states, to develop new products and markets that promise environmental solutions. They focus on profit and technology instead of the deeper social and economic system changes. Though often described as efficient and innovative, these approaches have been too slow and too limited to match the scale of the crisis. They also do not account for the fact that improvements in efficiency, without attention to sufficiency and limiting growth, can make the problem worse, called the rebound effect (Section S.9)
A clear example of this is the focus on carbon capture technologies (Figure 6) and carbon markets. States spend large sums on these solutions, which claim to reduce emissions while fossil fuel use continues, often with state subsidies. This gives the impression of progress without tackling the root, our overuse of energy and material resources. These market-based strategies are necessary, but alone they are not enough to address planetary boundary overshoot.
Figure 6. A carbon capture plant in Iceland.
(Credit: licensed from Adobe Stock)
Neoliberal narratives take our economies in the wrong direction. Real solutions require rethinking how economies work. This requires that states take a leading role to reduce wasteful production, encourage fairer sharing of resources, and focus on sufficiency and regeneration instead of endless economic growth. The next Section 5.1.6 explores how a different narrative about the entrepreneurial state can help political leaders take bold, creative action to build a regenerative future.
Activity 5.1.5
Activity 5.1.5
Concept: Power
Skills: Thinking skills (transfer and critical thinking)
Time: varies depending on option
Type: Individual, pairs, and/or group
Option 1: Functions of the state
Time: 20 minutes
Section 5.1.3 explained three broad functions of the state provisioning institution (Figure 7). To do this activity, you may need to remind yourself quickly what each of these functions is about.
Which of the three broad functions of the state does the neoliberal narrative support, and which does it reject? It could be that neoliberalism supports one broad category, but not all the parts of that category.
Share your ideas with a partner or briefly discuss as a whole class.
Figure 7. Which functions of the state does neoliberalism support and reject?
Option 2: The Road to Serfdom - an opposing storyboard
Time: 40+ minutes
In 1944, the economist Friedrich von Hayek published a book called The Road to Serfdom, where he argued that state power in the economy threatened freedom by leading to authoritarian governments. A cartoon storyboard published in Look magazine in 1945 helped to make the ideas more understandable to the public (Figure 8).
Also in 1944, another economist Karl Polanyi argued the opposite in his book The Great Transformation. He claimed that too much unrestricted market power undermines social order, paving the way for authoritarianism. This is an argument that many people are making today in light of rapid rises in economic inequality and emergence of more authoritarian leaders around the world.
Using Hayek’s storyboard as a reference, make your own storyboard to illustrate how neoliberal narratives may lead to authoritarianism. You can use information from this section and from Section 5.1.4 to help. Your storyboard does not have to have as many frames as Hayek’s, just try to capture the main line of argument.
Figure 8. The cover of the cartoon storyboard version of The Road to Serfdom. The cartoon made the ideas more accessible for the public.
(Credit: Mises Institute)
Option 3: Neoliberal narratives in your context
Time: 40+ minutes (depends on how quickly students can find examples)
Look through recent news articles, political speeches, social media posts, or advertisements in your local or national context.
Can you find examples of neoliberal narratives? Look for messages that suggest markets should be free from government control, or that government action is always less efficient than business. You can also look for stories that show how these ideas shape decisions about education, healthcare, housing, or the environment.
Choose one example and explain which part of the neoliberal narrative it reflects. Try to connect your example to what you learned in this section.
Share your example with a partner or small group and discuss: What other stories could have been told? Who benefits or loses from the way the issue is framed?
Ideas for longer activities and projects are listed in Subtopic 5.5
Checking for understanding
Checking for understanding
Further exploration
Further exploration
The Invisible Doctrine: The Secret History of Neoliberalism - A film and a book about the origins and development of neoliberalism by Guardian columnist George Monbiot and Peter Hutchison. Difficulty level: medium
How Economists Invented Austerity & Paved the Way to Fascism - a 16 minute video with economist Clara Mattei where she argues that austerity is not merely an economic policy aimed at balancing budgets or reducing debt, but a political tool used to maintain the power of elites and suppress challenges to capitalism. Difficulty level: hard
The 89 Percent Project - 80-89% of the world’s people want their governments to be doing more to address climate change. This project aims to tell their stories to help trigger social tipping points and new narratives on state action for people and the planet. Difficulty level: easy
In Brazil, the right creates precarious workers, and precarious workers prefer the right, but the cycle can be broken - a fascinating article by political theorist Rodrigo Nunes in The Guardian, explaining how neoliberal narratives have co-opted Brazilian gig workers and others in the precariat in support of the right. He describes some strategies that have mobilised workers as a more effective countervailing force against market power and right-leaning states. Difficulty level: medium
Save the Planet? In THIS Economy? Pffft - A Public Broadcasting Services (PBS, USA) video about the socially and ecologically damaging impacts of current growth and profit maximising business behaviour. It makes the case that the economy was designed this way and we can redesign it. Difficulty level: easy
Varieties of Democracy - V-Dem collects data on democracy in countries around the world, past and present. It includes a mapping tool and other data visualisation tools where you can explore different parts of democracy, like free elections or media freedom, and compare how countries score. It’s a useful way to see where democracy is strong or under threat. Difficulty level: medium
Understanding Neoliberalism as a System of Power - a ca. 90 minute talk by Damon Silvers at the University College London Institute for Innovation and Public Purpose (2023). The lecture addresses neoliberalism as a global system that has made governments weaker and given more power to big companies and the wealthy. Silvers explains how this has affected people’s lives and increased inequality around the world. Difficulty level: medium/high
Sources
Sources
Aulenbacher, B., et al. (Eds.). (2020). Karl Polanyi: The life and works of an epochal thinker (J.-P. Herrmann & C. Welch, Trans.). Falter Verlag. https://www.karlpolanyisociety.com/wp-content/uploads/2020/10/Polyani_Buch_engl_E-Paper_lo.pdf
Austin, D. (2021, October 21). Market-led sustainability is a fix that fails. https://bothbrainsrequired.com/wp-content/uploads/2021/10/2021-10-21-Market-led-Sustainability-is-a-Fix-that-Fails-Final.pdf
Bayliss, K., Mattioli, G., & Steinberger, J. (2021). Inequality, poverty and the privatization of essential services: A ‘systems of provision’ study of water, energy and local buses in the UK. Competition & Change, 25(3-4), 478-500. https://doi.org/10.1177/1024529420964933
Bevins, V. (2023, November 14). How the Chicago Boys brought neoliberalism to Chile. The Nation. https://www.thenation.com/article/world/chicago-boys-chile-neoliberalism/
Collins, R. (2023, July 24). The rise and fall of neoliberalism. The New Yorker. Retrieved January 25, 2025, from https://www.newyorker.com/magazine/2023/07/24/the-rise-and-fall-of-neoliberalism
The Economist. (2025, February 27). EIU’s 2024 Democracy Index: trend of global democratic decline and strengthening authoritarianism continues through 2024 https://www.eiu.com/n/democracy-index-2024/
Friedman, M. (2002). Capitalism and freedom (40th anniversary ed.). University of Chicago Press.
GOV.UK. (2025, March 27). Environment Agency storm overflow spill data for 2024. https://www.gov.uk/government/news/environment-agency-storm-overflow-spill-data-for-2024
Hayek, F. A. (1945). The road to serfdom (Cartoon version). Look Magazine. https://cdn.mises.org/Road%20to%20Serfdom%20in%20Cartoons.pdf
Human Rights Watch. (2024, July 16). Kenya: IMF should align economic reform with rights. Human Rights Watch. https://www.hrw.org/news/2024/07/16/kenya/imf-align-economic-reform-rights
Monbiot, G., & Hutchison, P. (2024). The invisible doctrine: The secret history of neoliberalism (& how it came to control your life). Crown.
Polanyi, K. (1944). The Great Transformation: The Political and Economic Origins of Our Time. Fred L. Block. Beacon Press.
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House.
Riddell, R., et al. (2024, January 15). Inequality Inc. Oxfam. https://www.oxfam.org/en/research/inequality-inc
Roth, K. (2023, January 12). The rotten roots of global economic governance. The Nation. https://www.thenation.com/article/culture/the-rotten-roots-of-global-economic-governance/?utm_source=chatgpt.com
Stanford Encyclopedia of Philosophy. (2021, June 9). Neoliberalism. Stanford Encyclopedia of Philosophy. https://plato.stanford.edu/entries/neoliberalism/
Taneja, A., et al. (2025, January 20). Takers, not makers: The unjust poverty and unearned wealth of colonialism. Oxfam. https://www.oxfam.org/en/takers-not-makers-unjust-poverty-and-unearned-wealth-colonialism
Tax Policy Center. (n.d.). Corporate top tax rate and bracket. Tax Policy Center. https://taxpolicycenter.org/statistics/corporate-top-tax-rate-and-bracket
Terminology (in order of appearance)
Terminology (in order of appearance)
Terminology list and Quizlet terminology games coming soon!
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