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Liberalism is a political current embracing several historical and present-day ideologies that claim defence of individual liberty as the purpose of government. It typically favours the right to dissent from orthodox tenets or established authorities in political or religious matters. In this respect, it is held in contrast to conservatism.
The word "liberal" derives from the Latin "liber" ("free") and liberals of all stripes tend to see themselves as friends of freedom, particularly freedom from the shackles of tradition. The origins of liberalism in the Enlightenment era contrasted this philosophy to feudalism and mercantilism. Later, as more radical philosophies articulated themselves in the course of the French Revolution and through the nineteenth century, liberalism equally defined itself in contrast to socialism and communism, although some adherents of liberalism sympathize with some of the aims and methods of social democracy.
Classification in a consistent manner is made difficult by the tendency of the dominant strain of liberalism in a region to refer to itself simply as "liberalism" and reject that identification for other minority positions. Since many ideals of liberalism are now almost endemic to modern governments, a sharp distinction should be drawn to a philosophical use of the term, versus a campaign or governing use. Since the word "liberalism" ranges from being highly complimentary to a term of abuse, the connotations of the word in different languages can be starkly different.
The word liberalism has several different, but generally related, meanings.
The editors of the Spanish constitution of Cadiz in 1812 were the first to use the word liberal in a political sense. They named themselves the Liberales, to state that they opposed the absolutist power of the Spanish monarchy. The original meaning of the term "liberal" refers to a tradition, a political philosophy, originally founded on the Enlightenment tradition, that tries to circumscribe the limits of political power, and to define and support individual rights. In the present, a variety of ideologies attempt to claim the mantle of 19th century liberalism from libertarianism to modern liberalism.
The original Enlightenment thinkers, such as John Locke and Baron de Montesquieu, were attempting to establish limits on existing political powers by asserting that there were natural rights and fundamental laws of governance that not even kings could overstep without becoming tyrants. This was wedded to the idea that commercial freedom would best benefit the whole of the political order, an idea that would later be called capitalism, drawn from the works of Adam Smith and David Ricardo. The next important piece of the triad of ideas of liberalism, was the idea of popular self-determination. This principles would be embodied in the United States Constitution, which made free trade, capitalism, popular self-determination, and the rule of law central features of a new political order.
Beginning in the late 19th century, liberalism began to become the governing ideology in various countries, particularly in Great Britain. This brings a new usage: the term "liberalism" significantly evolves, and also diverges from one country to another. In some countries liberalism remained in its late 19th century form: limiting government involvement in private transactions of whatever kind, with government being devoted to protecting against threats from abroad, and enforcing civil order at home, along with maintaining a stable currency, based on a "sound money" policy.
However, with the coming of industrialization a new wave of liberal thinkers began seeing liberalism as a positive tool for progress, and hence aligned with the government acting to promote progress, and not merely avoiding interference. This change lead to a fundamental split in "liberalism" as a broad ideology, with one wing believing that the tenets of liberalism had been set by the late 18th and early 19th century, and another believing that liberalism was an evolving commitment to progress and stressing that government action can be necessary to strengthen individual liberty and self-determination.
This change in meaning, however, is not universal, nor universally acknowledged. Followers of libertarianism, while a vocal minority, still hold that liberalism should mean what it meant in 1890: laissez-faire capitalism, the gold standard and small government. They specifically argue that any deviation from this is socialism and not liberalism at all. Influential writers in this tradition include Ayn Rand and Friedrich Hayek. "See further the paragraph on .
Historically, liberalism is rooted in the tradition of humanism from the Renaissance, but is first seen in coherent action in the Glorious Revolution in Great Britain. From there ideas of the enlightenment, primarily, but not exclusively, in France, which focused on the rule of law, the importance of rational governance and of individual right to contract and ownership, would be incorporated into a growing body of thought that asserted that a well ordered society did not need to be constrained by ancient laws regulating everything from dress code to the price of a loaf of bread. These movements began to oppose absolute monarchy, mercantilism, and various kind of religious orthodoxy and clericalism, preaching liberty and tolerance.
However, with the coming of romanticism, liberal notions moved from being proposals for reform of existing governments, to demands for changes. The American Revolution and the French Revolution would add "democracy" to the list of values which liberal thought promoted, and based their political sovereignty on "the rights of man". This idea, that the people were sovereign, and capable of making all necessary laws, and enforcing them, went beyond the enlightenment's conception of rationality. Instead of merely asserting the rights of individuals within the state, "the people" were the state, and all of the state's powers were derived from "the just consent of the governed".
The contractual nature of liberal thought to this point must be stressed. One of the basic ideas of the first wave of thinkers in the liberal tradition is that individuals made agreements and owned property. This may not seem a radical notion now, but at the time most property laws framed ownership as being to a family or to a particular role, such as the head of a family. Obligations were based on feudal ties of loyalty and personal fealty, rather than an exchange of particular goods. Gradually the liberal tradition began to see the voluntary consent and voluntary agreement as being the basis for legitimate government and law. This view was advanced by Rousseau in his notion of a social contract.
Between 1774 and 1848, there were waves of revolutions, each revolution demanding greater and greater primacy of individual rights. The term "liberalism" itself was invented. These revolutions placed an increasing value on the idea that national unity was an important part of political unity, and that a people could not be properly governed by those who were not present. This was a particularly important concept in the revolutions which ended Spanish control over much of her colonial empire in the Americas, and in the assertion of nationalism in Europe which separated regions from monarchies which had traditionally controlled them. As part of this revolutionary program, the importance of education, a value repeatedly stressed from Erasmus forward, became more and more central to the idea of liberty.
The early 19th century also saw the primary ideological conflict within liberalism brought forward. The two key concepts of liberalism are the dignity of the individual and the right to individual liberty, particularly to own and control the results of their labour as expressed in private property. The conflict between dignity and property would come to a head in the question of chattel slavery. To the slave owners, slaves were property, and some thinkers now regarded as important members of the liberal tradition owned slaves themselves. However, slavery itself was clearly a violation of the principle of natural rights and human dignity. With the gradual abolition of slavery, requiring violent upheaval in the United States and other slave countries, the weight of liberal thought tilted towards the importance of human dignity. Namely that people's right to self-worth was more fundamental than the claims of property. However, balancing these two fundamental values would lead to a series of conflicts within liberal thought.
With the rise of utilitarianism originating from John Stuart Mill, liberalism found a basis for its ideas which was self-justifying. Namely, that human happiness is a good, that self-determination brought happiness, and therefore there was no need to invoke a metaphysical cause. This idea of instrumentalism remains a powerful current in liberal thought through the work of John Rawls: namely that liberal society is morally better because it produces better results than other forms of society.
The late 19th century saw the expansion of voting rights, education and economic progress in the form of industrialism. It saw the expansion of trade, and therefore opportunity, as well as an explosive growth in the spread of culture and literacy. At the same time, it produced vast inequalities of wealth, and vast human misery in the form of famines and child labor. Again the conflict between property and dignity came forward. One strain of liberal thought demanded laws against child labor, and requiring minimum standards of work and wages, at the same time laissez-faire theories of economics argued that such laws were an unjust imposition on property and a hindrance to economic development.
Another important project of liberalism was rationality of government and its institutions. The late 19th century saw the rise of standardization and internationalization of such areas as time keeping and weights and measures, as well as money systems and international commercial transactions. Liberalisms insistence that the individual, real or corporate, was the important unit of law made it the only framework within which laws governing increasingly interdependent trade could be governed. Gradually feudal notions of property, in many nations still in force, were gradually stripped away. For example, serfdom was still practiced in Russia well into the 19th century, and commerce restrictions dating from the middle ages existed in German states right up to unification under Prussia in 1871.
With the 20th century the conflict between dignity and property became acute. Industrialization produced vast fortunes, and tremendous increases in potential standard of living. It also produced vast misery, and engines of war which made it possible for nations to attempt to invade and seize resources which were a growing bottleneck to growth. While in the late 19th century industrial nations had been able to seize land and materials from less technologically advanced and politically organized nations in an age of imperialism, by the early 20th century the globe had been carved up, and in order expand, industrial nations would have to turn on each other.
In 1911, L.T. Hobhouse published Liberalism , which, while it summarized the liberalism of the 19th century, also included qualified acceptance of both government intervention in the economy, and the collective right to equality in dealings, what he called "just consent", which included trade unions.
On the eve of the first world war, it was regarded by some in the liberal camp as being unthinkable that there should be a war at all. Rationally everyone could see that such a war would cost more, disrupt trade, and cause more damage, than could possibly be gained in profit from it. And yet war came, and with it years of slaughter and disruption. From the liberal viewpoint, it was feudal institutions and the inbred stupidity of hereditary monarchy which was to blame for the war. The rational and enlightened path was to set up a series of institutions which would prevent conflict by using political pressure, such as the League of Nations, and to pursue rational economic arrangements which would enforce trade and interdependence. Liberals also argued that nations which had been under imperial rule should be allowed to form their own states, and that old empires should be broken up, at least on the European continent.
It is at this point that a philosophy arose against which liberalism would define itself for the rest of the century: totalitarianism, the belief that only by centralized ideological control of all of the resources of the state can there be prosperity and stability. Whether of the nationalist sort, as found in Nazi Germany, or of the communist sort, as exemplified by the Russian Revolution, totalitarianism argued that individual greed and weakness would overwhelm economic and political systems.
With the depression of the 1930s liberalism as an ideology would receive its most powerful test. Many rational people felt that the market failures of the late 1920s and early 1930s had discredited the liberal experiment in politics and economics. In Italy and Germany nationalist governments arose that linked corporate capitalism to the state, rather than to individual liberty, and promoted the idea that conquest and national superiority would give these nations a rightful "place in the sun". The totalitarian states argued that democracy was weak and incapable of decisive action, and that only a strong leader could impose the kind of discipline necessary. In the Soviet Union, a government arose which imposed collectivism on agriculture and took state command of every aspect of the economy. In the 1920s one of its leaders, Leon Trotsky, promised to "export revolution".
The rise of totalitarianism became the lens for liberal thought. For the majority of liberals, totalitarianism rose because people in a degraded condition turn towards dictatorships for solutions. From this it was argued that the state had a duty to protect the economic well being of its citizens, as Isaiah Berlin would say "Freedom for the wolves means death for the sheep." They also argued that rationality of governance required the government acting as a balancing force in economics, as elucidated by Keynes. It was necessary both, to "save capitalism from itself", and for free nations to accept the burdens of defending democracy and liberty with force if need be. However for an minority, the cause of totalitarianism was an increase in state power, and they became as alarmed by the rise of the Democratic Party in the US, as by any of the totalitarian states. This branch became libertarianism or as it calls itself classical liberalism.
In much of the West, expressly liberal parties were caught between "conservative" parties on one hand, and "labour" or social democratic parties on the other hand, the UK Liberal Party became a minor party. The same process occurred in a number of other countries as the movement towards social democratic parties being the main party on the left, with pro-business "conservative" parties becoming the main party on the right.
The post-war period represented the heyday of this "modern" version of liberalism. Linking modernism and progressivism to the notion that a populace in possession of rights and sufficient economic and educational means would be the best defense against totalitarian threats. In the post-war period, this meant threats from Stalinism and the growing network of states and revolutionary movements centered in the USSR - liberalism of this period took the stance that by enlightened use of government power, individual liberties could be maximized, and self-actualization reached by the broad use of technology. Liberal writers of this period include economist John Kenneth Galbraith, philosopher John Rawls and sociologist Ralf Dahrendorf.
At the same time a significant dissenting strain of liberalism grew in force, namely, the thread which viewed any government involvement in the economy as a betrayal of liberal principles. Calling themselves "classical liberals" and "libertarians", this movement, centered around such schools of thought as Objectivism of Ayn Rand and Austrian Economics, and later giving rise in the United States to the Libertarian Party, argued that the New Deal government was destined to be as dangerous as stalinism, that it would lead to prison camps, and all of the other evils of collectivism.
However, for all of the polemical tone to this debate, the fundamental agreement that totalitarianism represented the ultimate evil in human affairs remained at the core of the idea of liberalism. The question was in its implementation.
With the 1970s the pendulum had swung away from government action, and towards the use of the free market as the tool with which individuals were most able to protect their self-interest. With the growing skepticism in government, and in corporations, the ethos of self-reliance would find expression in internetworking and in internet discussions. It would also lead to the rise of the idea described as neo-liberalism, which refers back to the program of reducing trade barriers and internal market restrictions as a way of expanding trade and ultimately opportunity. While neo-liberalism is sometimes described as overlapping with Thatcherism, economists as diverse as Joseph Stiglitz and Milton Friedman have been described as "neo-liberal". Most liberals would subscribe to this program, but at the same time many neo-liberals would pursue outside economics a non-liberal agenda.
At present liberalism and its descendants are the most prominent philosophical schools in the west and in the increasingly large sphere of economies and societies linked to them. The ideas of free markets, individual liberties, personal dignity, private property, universal human rights, transparency of government, limitations on state power, popular sovereignty, national self-determination, privacy, enlightened and rational policy, the rule of law, fundamental equality - all radical notions some 250 years ago, and not all completely codified into law until late in the 20th century, are almost universally admitted as the goals of policy in most nations, even if there is a wide gap between statements and reality.
The oldest school of "liberalism" was organized into a coherent set of economic and political doctrines in the late 19th century. This school of thought focuses on the primary importance of the individual being unencumbered by the power of the state. The central ideas of this school of thought is the importance of the individual, and their freedom. Classical liberals have tended to favour a free market economy and reject government influence in society. Historically, liberalism opposed opposed mercantilism and what they identify as socialism, and particularly marxism, as well as any form of collectivism.
In the view of this branch of liberalism, the first conceptions of liberalism began in the United Kingdom and the first philosopher identified as "liberal" is John Locke (1632-1704) who defended religious freedom in his important work A Letter Concerning Toleration (1689). However, he would not extend his views on religious freedom to Catholics.
Locke was responsible for the idea of "natural rights" which he saw as "life, liberty and property". Natural Rights theory was the forerunner of the modern conception of human rights. To Locke, property was a more compelling natural right than the right to participate in collective decision-making: he would not endorse democracy in government, as he feared that the "tyranny of the majority" would seek to deny people their rights to property. Nevertheless, the idea of natural rights played a key role in providing the ideological justification for the (at least moderately democratising) American revolution and French revolution.
The Scotsman Adam Smith (1723-1790), is seen as important because he broadly advocated the doctrine of "laissez-faire" or "let [it] act" -- minimal government or command intervention in the function of the economy. Adam Smith developed a theory of motivation that tried to reconcile human self-interestedness with unregulated social order (mainly done in The Theory of Moral Sentiments (1759)). His most famous work, The Wealth of Nations (1776), tried to explain how an unregulated market would naturally regulate itself via the "invisible hand" of aggregated individual decisions.
American thinkers were also heavily influenced by liberal ideas. Both the third and fourth Presidents of the United States, Thomas Jefferson (1743-1826) and James Madison (1751-1836), put the Liberal movement's ideas into practice. Not only did they set up a liberal democracy, they also furthered liberal ideology's influence on the American system of government, by advocating a system of checks and balances, federal states' rights and a bicameral legislature (two-chambered, like the US Congress' Senate and House of Representatives.) The seminal exposition of Liberal values in American government is The Federalist (1788), more commonly known as The Federalist Papers, by Madison, Alexander Hamilton, and John Jay.
At the core of the classical liberalism was most often the ideal of a night-watchman state, a state limited to its minimum functions of upholding the law and defending the country with an army. It could be argued that the closes any state has come to such a form of minimum state was the original U.S. constitution. Thus, the libertarian minarchists claim to be closest to the classical liberal ideology.
John Stuart Mill (J.S. Mill, 1806-1873) was influential in developing modern concepts of liberalism. He opposed collectivist tendencies but also placed emphasis on quality of life for the individual. He also had sympathy for female suffrage and (later in life) co-operatives -- positions which were, however, made somewhat unclear by his support of the British Raj, or British colonialism in India. Even contemporary classical liberals however argued, that Mill was often ready to forfeit some of the more important ideals the other liberals held in exchange for "greater public good". Many, though not all historicists, don't count Mill as being in the core canon of classical liberalism. He is also regarded very important because of his emphasis on subjective value, an important part of later theories of the free market. In a way, Mill can be considered to be a breakpint in the evolution of liberalism.
Liberals tend to consider as part of their tradition many classical authors of contrasted opinions, such as John Locke, Thomas Hobbes, Jean-Jacques Rousseau, and Immanuel Kant. One of the key figures in the development of this strand of liberalism is the earlier mentioned John Stuart Mill. His philosophy of utilitarianism grounded liberal ideas in the instrumental and pragmatic, allowing the unification of subjective ideas of liberty gained from the French thinkers in the tradition of Jean-Jacques Rousseau and the more rights based philosophies of John Locke and the British tradition.
Both European liberalism and American liberalism see their tradition as embracing the enlightenment, the American War of Independence, the more moderate bourgeois elements of the French Revolution, and the European Revolutions of 1848, with philosophical roots going back to the renaissance traditions of empiricism, humanism and realism of Sir Francis Bacon, Erasmus and Niccolò Machiavelli respectively.
In the late 19th century and early 20th century there became a growing body of opinion which asserted the idea that to be free individuals needed to have access to all of the requirements of fulfillment: in that view individual liberty acquires the society to see as its responsibility to provide a basic level of opportunity, protection and education in order to be free of economic and social coercion. After similar developments in continental Europe (e.g. Brentano) and the United Kingdom (e.g. Hobhouse), John Dewey and the socialism on the other hand, which argued that only by community control of the means of production, could the benefits be distributed equitably.
From the perspective of this form of liberalism, the progressive improvement in the relationship of individual to reasonable expectations from their society - from the mere negative right of being left alone, to the positive rights of membership, is the story of liberalism. Thus the "bundle of rights" as Rawls calls them, is not fixed by some absolute list, but is relative to the forms of participation.
The crucial question of this form of liberalism is the question of whether people have positive rights as members of communities, that is, just expectations in excess of being protected from wrong doing by others. For the modern liberal, the answer is "yes", individuals have rights based on being a member of a national, political or local unit, and have a just expectation to benefits accruing to them, and protections being afforded to them. For a present day "classical liberal" or libertarian, the answer is "no", individuals have no such rights as members of communities, which they call socialism. If individuals have a right as a member of a community, they therefore have a right to expect that that community will regulate the economy, since rising and falling economic circumstances are not part of what an individual can control, if individuals have a right to participate in a public, they then have a right to expect education and social protections against discrimination as members of that public. And so on. Many liberals are in fact somewhere between these answers and differ about the amont of these rights. For example, education belongs everwhere to the liberal agenda.
In the begining of the twentieth century, this view of liberalism would take definite political as well as philosophical shape. Its idea was that a free people would correctly be able to decide which powers government needed to exercise to meet present challenges, that is social and economic reform, while formal mechanisms would restrict government over reach, that is institutional and political reform. This branch of liberalism, in sharp contrast to the older form, regarded liberalism as moving forward to expand the range of liberal action, rather than protect a specified list of liberties already established.
This form of liberalism is generally associated with parties of the center and left, but not exclusively so. Even center right liberal parties accept a certain amount of government involvement, even in ecomomics. Nor is being liberal, in any sense, a requirement for being a member of the left. Many members of the left deny liberal principles and deny that they, individually, are liberals. To many members of the extreme left, liberals are not the left at all, but a pseudo-left which intends to protect capitalism and corporatism and is standing in the way of greater progress towards communitarian ideologies. To many members of the right, liberalism as it is practiced in much of the US and Europe is a betrayal of individualism and is infected by communitarian and collectivist philosophies. At the same striving after a free market, doesn't make a person a liberal. It is only a - though important - part of the liberal agenda.
A caveat is in order: as with any other political philosophy, an abstract explanation of liberalism refers to an ideal. In practice, politicians make pragmatic compromises (see centrism), have personal interests, and may pander to voters, so that the ideal is never a perfect description of any one individual's politics. Further, as with any other political philosophy, liberalism in any of its forms is defined somewhat differently by its proponents and its opponents. Those who adhere precisely to a well-defined set of principles are often those who are far removed from contention for power. The policies of liberal parties are always more or less based on the right to self determination of the individual, and the reciprocal responsibility of the state to protect and promote the individual citizens which make it up.
In general, liberals favour constitutional government, representative democracy and the rule of law. Liberals at various times have embraced both constitutional monarchy and republican government. They are generally opposed to any but the milder forms of nationalism, and generally stand in contrast to conservatives by their broader tolerance and in more readily embracing multiculturalism. Furthermore, they generally favour human rights' and civil liberties, especially freedom of speech and freedom of the press (while holding various positions on whether people have an inherent right to the means of economic subsistence). The liberal commitment to untrammelled individual liberty is not necessarily absolute: "One cannot shout fire in a crowded theatre." quipped Oliver Wendel Holmes, and liberal parties support restrictions on incitement to violence.
Liberals believe in a free market and free trade, but they differ in the degree of limited government intervention in the economy. In general, government responsibility for health, education and fighting poverty fits into the policies of most liberal parties. But they all, even American liberals, tend to believe in a smaller role for the state than would be supported by most social democrats, let alone socialists or communists.
Liberals believe generally in a neutral government, in the way that it is not for the state to determine how individuals can pursue happiness. This self determination gives way to an open mind in ethical questions. Most liberal parties support the 'pro choice' movement and advocate the emancipation of women and homosexuals. Equality for the law is crucial in liberal policies, Racism is incompatible with liberalism. All liberal parties are secular, but they differ on anti-clericalism. Liberal parties in Latin countries tend to be very anti-clerical.
The variant of liberalism, variously called New liberalism, modern liberalism or social liberalism, is a stance in political economy that argues for government regulation and partial intervention in economy. The degree of this intervention is often hotly debated, and there are greater extremes in rhetoric than in practice.
It is a stance in general policies, based on the idea that the society has very limited interests in the private behavior of its citizens in the areas of private sexual relations, free speech, personal conscience or religious beliefs, and political association. However, it is equally fundamental to this view that the society has a responsibility to guarantee equal opportunity for each of its citizens. Assurance of personal liberties and freedom, particularly to individual expression, is paramount in this form of liberalism. As John Rawls put it, "The state has no right to determine a particular conception of the good life". This form of liberalism also asserts that international institutions, such as the United Nations, are an implicit part of creating world peace and order. It is generally associated with Keynesianism in economics, broad civil rights movements and transparency in government. In general it does not believe that the government should directly control industrial production through state owned enterprises, which places it in opposition to parties such as the Social Democrats of Germany, or the UK Labour Party.
This form of liberalism is often associated with the left in the US, the center in the UK, and with the center-right. It serves as an intellectual foundation for explicit liberal parties like the Liberal Party of Canada, the United States Democratic Party, (most) member parties of the European Liberal Democrat and Reform Party, like the British Liberal Democrats, the Democratic Alliance of South Africa]], the Democratic Progressive Party of Taiwan, the Uri Party of Korea and the Liberal Party in the Philippines. There are many parties which are called "conservative" or are parties of the right, which nonetheless generally accept a high degree of government involvement in the economy, particularly the acceptance of the need for a central bank and an economy capable of national defense. These parties accept parts of this version of liberalism, in that while they seek to reduce government regulation, lower taxes, particularly income taxes and are more aggressively interventionist in foreign policy, are fundamentally based in the ideas of personal liberty and free enterprise within the context of state balancing of the ebb and flow of economic tides. At the same time these parties generally do not subscribe to individual liberty on ethical issues or in sexual mores. In many multi-party democracies, the main parties can be accurately thought of as practicing part of modern liberalism, with center-left parties more accepting of government intervention in the economy and favoring greater personal liberty in sexual mores and the center-right parties accepting more corporate autonomy and a greater adherence to "traditional" morality.
In Europe and the United States, in the end of the 19th century and the early 20th century, governments started to intervene significantly in the economy; this trend gathered momentum after World War I, and became dominant after the Great Depression of the 1930s. People like Lujo Brentano, Leonard Trelawny Hobhouse, Thomas Hill Green and John Maynard Keynes theorised why and how a government could intervene in the economy without the country becoming a socialist planned economy. The above mentioned British liberals took the name of new liberals, to signify how they endorsed the evolving tradition of personal liberty and dignity, while rejecting the radical element from the classical liberal school of economic thought as well as the then-revolutionary elements from the socialist school.
The origins of this political current can be found in the Liberal Party in Britain, particularly since Lloyd George's People's Budget. This is the "liberal" tradition that John Maynard Keynes claimed in the 1930s (although he was also influenced by Fabianism). The Oxford Liberal Manifesto of 1947 of the world organisation of liberal parties, the Liberal International, represents this form of liberalism. The influence of Keynesianism on Franklin D. Roosevelt's New Deal has led liberalism to be identified with the welfare state in the United States and in Canada. Almost all modern liberal parties accept the need for an independent central bank, and regulation of financial markets and institutions, as well as counter-cyclical economic intervention. In short, this version of liberalism believes that while individual freedom should be guaranteed and that the free market is the best engine of wealth creation, laissez-faire had often failed to protect the basic rights of citizens, and often failed to maintain a robust and growing economy essential for providing "full employment" and sufficient industrial capacity.
Since liberalism of this type is extremely broad, and generally pragmatic in its orientation, there is no hard and fast list of policy prescriptions which can be universally assumed. In some circumstances there will be tax increases, in others tax decreases. In some cases there will be the creation of a quasi-public entity to perform a function, in other cases privatization or the creation of a government program. Sometimes liberalism of this type emphasize financial aid to poorer citizens (e.g as unemployment benefits or negative income tax or basic income, guaranteed minimum income or citizen's dividend). Some liberal parties in existing welfare states, such as the Popular Liberal Party in Sweden, are ready to allow (local) government to continue to produce health services and basic education. Other liberals tend to think that it is enough that the government guarantees health services and basic education to everyone, but production of such should be entirely or partially privatized. Most new liberals believe that benefits from the social security shall be financed from taxes, whereas perks must be purchased by private insurances. In order to provide fuller choice for individuals, they may support vouchers in utilization of government-paid benefits such as education or senior care. In general the support continued divestment of government holdings in corporations.
Modern liberal parties of this type are generally actively involved in multi-national or international organizations, particularly those which advance the causes of humanitarian assistance, free trade and regional security arrangements, for example the Organization of American States, NATO and the World Trade Organization. Doctrines of privatization, free trade, globalism, governmental transparency and cautious use of public sector power are termed neo-liberalism, whose members range from Margaret Thatcher of the UK Conservative Party, to American Presidential Candidate John Kerry.
In the 1990s many social democratic parties, including the UK Labour Party and the German Social Democratic Party, as well as the Socialist Party in France and New Zealands "Labour Party" adopted the rhetoric of looking for a "Third Way" between liberalism and socialism. By moving to free trade, privatization and open markets, this has caused some formerly social democratic parties to become de facto adherents of neo-liberalism.
Calls for economic liberalization and divesture of state run industries were seen in India's National Congress Party, which had traditionally promoted state planning of the economy. Recognizing the economic realities of the slow growth which state-run industries created, the difficulty in generating employment that rigid labor laws worsened, and the growing costs of social services on aging populations, they sought to "liberalize" without opening the flood gates to a radically privatized economy.
The basic difference between liberalism and social democracy is in picture of human nature and in values. Social democracy stems literally from democracy, from community-based view. Social democrats in its original form believe in moral right of equality of outcomes, which is a strong form of egalitarianism. The key dividing line is national planning of the economy and state control of production. Most social democratic parties believe in large state run sectors, and many in explicit national plans for production, complete with production targets. Liberalism in all of its forms rejects such mechanisms in all but the most extreme circumstances, for example a war, and believes that nationalizing industries is counter-productive in almost all circumstances. While "modern" liberalism supports state run or state backed pensions, state subsidies for education and health insurance, this is meant as a means to move the society wide risks from the individual, which will encourage the individual to participate in the economic and political system. Another dividing line is the role of trade unions. In a liberal state, their function is to act as a collective bargaining counterweight to the power of corporations, where as in social democracy, they are part of the power structure, and often assured of seats on corporate boards and a legally backed voice in the operation of large corporations. Because of the wide variety of liberal movements and parties, where these lines are drawn varies widely, and changes from election to election based on fiscal and economic realities.
The modern tradition of libertarianism claims the ideological inheritance of "classical liberalism". In the 20th century this school of thought found a popular exponent in Ayn Rand and her doctrine of objectivism. However, many object to the blending of what they see as two separate, opposing philosophies.
Those who emphasize the distinction between classical liberalism and libertarianism point out that even Adam Smith believed a free market could not satisfy all the demands of a society. Furthermore, some (Haworth, 1994, pp. 27) argue that libertarianism and liberalism are fundamentally incompatible because the checks and balances provided by liberal institutions conflict with Libertarian support of complete economic deregulation or "market worship".
Libertarians argue that the term "Classical Liberalism" originated with Friedrich Hayek's book The Road to Serfdom, which they consider an unabashed attack on modern liberalism, although some would consider this a misinterpretation of Hayek or of what constitutes liberalism. Libertarians also support the philosopher Frederic Bastiat - who supported the free market unreservedly. Several smaller parties around the world who identify themselves with this school of thought -- identified with the Austrian school of economics -- call themselves "liberals" without further qualification. These include the ACT New Zealand party and the U.S. Libertarian Party. No governing party anywhere in the world supports the full program of complete government non-interference in the economy, though many use this rhetoric in political campaigns.
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