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The Emergence of Market-oriented Economic Theory, or Neoliberalism

[The] golden age of controlled capitalism ground to a halt with the severe economic crises of the 1970s. In response to such unprecedented calamities as “oil shocks” that quadrupled the price of petrol overnight, the simultaneous occurrence of runaway inflation and rising unemployment (“stagflation”), and falling corporate profits, an entirely new breed of liberals sought a way forward by reviving the old doctrine of classical liberalism under the novel conditions of globalization (Steger & Roy, 2010, p. 9).

As we mentioned earlier in this introduction, current discourses concerning the relationship between education, workforce development, and economic progress are shaped by an ever-changing mixture of elements from two contemporary economic models. The most recent of these, and currently the most influential in many political circles, is market-oriented economics, or neoliberalism. Although the term “neoliberalism” has a degree of historical accuracy, in which it reflects a turning back toward many of the tenets of classic liberal economic theory, in this introduction, the editors are, as we mentioned earlier, making preferential use of the term “market-oriented economics” because of inconsistencies in the use of the term “neoliberal” and the pejorative connotations that the term has acquired.

Classical liberalism as seen in Smith (1776/1976) or in Ricardo (1817) creates an image of homo economicus—a human who operates as an independent agent motivated primarily by economic self-interest. Economic systems work best when the state respects economic liberty and refrains from excessive interference with the economic system.

The ideas of liberalism were revived in the twentieth century, during a time when Keynesian ideas dominated government discourse. The term “neoliberal” was coined in 1938 by Alexander Rustow (Denord, 2009) at the Colloque Walter Lippman. Other participants included Friedrich Hayek and Michael Polanyi. The focus of the colloquium was a rejection of socialism and collectivism. Contemporary neoliberalism was defined and clarified by Hayek in 1947 with the founding of the Mont Pelerin Society. Hayek considered most forms of economic intervention to be the “road to serfdom,” and prescribed “undistorted price mechanisms” as the route to freedom and prosperity (Steger & Roy, 2010, p. 34). The ideals of neoliberalism were later championed by economists such as Milton Friedman. Although proponents of this philosophy originally used the term “neoliberal” to refer to themselves, more recently they have avoided this terminology due to its association with a variety of authoritarian regimes in South America, and, more recently, its use by Center-Left and Left intellectuals as a critique of free-market philosophies.

Neoliberalism or market-oriented economics is, of course, a complex concept, and it differs from location to location globally. However, some central tenets that unite many of its proponents follow. Most agree that economic growth is best stimulated by freeing up private money for investment. Strong proponents of market-oriented economics refer to the “Laffer curve,” which predicts that lowering taxes will actually increase government revenues through economic growth (Laffer, 2004). Many feel that government investment in the economy and government-run programs tend to be inefficient, and that market-driven alternatives function better and better serve the interests of citizens, who are often redefined as “consumers” (Steger & Roy, 2010). Following Ricardo’s concept of “comparative advantage,” many believe in free trade, as a “win-win” economic strategy. Finally, if proponents of this philosophy see a need for government at all, beyond national defense, it is to promote the economic interests of corporations and to promote the economic success of the nation in a competitive global economy.

However one labels it, neoliberal or market-oriented theory has had a significant influence on the way we have talked about education in the last quarter century. Beginning in the 1980s, there has been a litany of critiques of public education in public discourse. In the United States this was first prominently manifested in the publication of the incendiary report “A Nation at Risk” (National Commission for Excellence in Education, 1983), which compared the “failures” of our educational system to an attack from an unfriendly nation. This was followed by a well-publicized poll in the fall of 1983 by the Public Policy Analysis Service indicating support among all population groups for the proposition that “the erosion of public education threatened our future as a nation.” Over 70 percent of those surveyed agreed (US Department of Education, 1984, p. 14). The three decades since then have seen a flood of criticism of public schools in the United States—most based on international comparison studies citing results on tests such as the PISA and the TIMMS. Among the most recent have been Eric Hanushek’s assertions that mediocre scores on international comparison tests indicate future weakness in international economic competition. For example, Hanushek (2013) wrote recently in his blog,

But what is the question that these calculations answer? The reason that Secretary Duncan and others, including me, are concerned about the performance of U.S. students is that the international achievement scores in math say a great deal about the skills that our students will take to the labor force. These human capital differences, according to historical data, bear a direct relationship to growth of the national economy. And the economic implications of mediocre performance are enormous.

While these criticisms undoubtedly reflect socioeconomic changes and increased competition for global resources, they also may be examples of the distrust of public institutions that are typical of market-oriented philosophies.

Increasingly the solutions proposed to the problem of “failing schools” involve market reforms—explicitly repositioning parents and students as consumers and asking that they be granted the same type of “choice” they would get in commercial enterprises. This language began to show up as early as the 1980s. A salient example of this type of language again comes from the United States where the then (Republican) secretary of education William Bennett said,

In a free market economy, those who produce goods and services are ultimately responsible to the consumer; if quality is shoddy the consumer will buy someone else’s product. It doesn’t work that way in public education, however. Even when armed with adequate information about school quality, parents in most places around the country cannot choose to shift their child from a bad school to a good one. (1988, p. 46)

Globally there have been increasing calls for “charter” or “voucher” schools (in the United States) or, as another important example, “academies” (in the United Kingdom) to replace public schools— again under the tenet that parents and children should be consumers, presented with as much choice as possible. A prime example of this is provided by Lee’s (2009) discussion of voucher schools for young children in Taiwan.

Human Capital Theory as a Pastiche of Economic Theory Although some theorists argue that we have experienced a paradigm shift from Keynesian theory to neoliberal or market-based theories, others (Steger & Roy, 2010) assert that contemporary political and economic discourse contains an often awkward pastiche of Keynesian and market-based language and concepts. As evidence, they cite sources such as Obama’s (2009) inaugural address, which combines clear references to the need for a market-based economy with criticism of the previous administration for its laissez-faire policies that he implies let the market get out of control leading to the great recession of 2007. This mixture of language and concepts can be seen clearly in policy documents such as the Education Act 2002 in Britain, which calls for increased government investment in early childhood education but with the purpose of developing entrepreneurial citizens who will have the agency to act as free agents, contributing in the future to the economy of the United Kingdom. It is also evident in language of the No Child Left Behind legislation in the Unite States, which refers to economic competition and market forces while greatly increasing government involvement in public education and expanding the scope of the Elementary and Secondary Education Act.

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