Liberal paradigm stems from the studies of Adam Smith, an outstanding economist of the late 18th century, who argued that minimization of government's role in economic relations would facilitation growth of trade. The liberal economic model had dominated in national and international economic relations for almost two centuries until the new Keynesian model took over in the 1930s. This model advocated interventions of the state in economic relations and proved its efficiency helping effectively rebuild European economies after the devastating world wars. However, despite the apparent success of Keynesian paradigm liberalism resurrected in the early 1970s with increasing numbers of economists supporting the claim that deregulation of markets, privatization and minimization of government intervention would foster further growth of the international economics. That resurrected model of economic liberalism was called neoliberalismii.
Also known as 'economic rationalism', the neoliberal model "has an interest to provide reason to limit government in relation to the market"iii and incorporates the "beliefs in the efficacy of the free market and the adoption of policies that prioritize deregulation, foreign debt reduction, privatization of the public sector...and a (new) orthodoxy of individual responsibility and the "emergency" safety net - thus replacing collective provision through a more residualist welfare state"iv. In other words, neoliberalism stresses the role of self-conduct in economic relations requiring individuals to exercise more power and control over their life and well-being. This is often called 'the entrepreneurial self'v.
Government that promotes neoliberalism stimulates individual to adopt highly practical and rational relationships to themselves without limiting their freedom in economic relations. Therefore, this model is reasonably perceived as a fundamental challenge to the principles and ideas underpinning the concept of 'welfare state'vi. Almost immediately after its onset in the 1970s, the basic ideas, especially the concept of unregulated market, underlying neoliberalism have been debated intensively in the economic community. The philosophy of neoliberal economy views unregulated market as the most ethical and fair method of producing and distributing goods with the Keynesian principles of welfare state and social fairness being labeled as biased and not fairvii.
However, the developments that have been occurring globally have provided sufficient evidence to understand that the criticism poured on the neoliberal ideology in economic relations is reasonable. Over only a few years unregulated and barely controlled market forces have almost brought capitalism to verge of collapsing. The banking systems, financial system, industrial and agricultural sectors and industries of the Western states that had adopted neoliberal paradigm as the key concept of their economic development were strongly affected. Consequently, policymakers and economic experts revised their attitude toward the selected pattern of economic relations with many of them claiming that the roots of contemporary crises should be sought for in the system itself. Thus, George Soros stated that "...the salient feature of the current financial crisis is that it was not caused by some external shock ... the crisis was generated by the system itself"viii.