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As explained in the preceding sections, there are several diverging (and sometimes opposing) strands of liberalism. In addition, there are also a number of ideologies and philosophies that influence liberals and liberal theory, or that share many common points with (a certain version of) liberalism. Social democracy can be considered liberalism's closest "neighbor" on the left, while conservativism is liberalism's closest "neighbor" on the right. Neoliberalism is a certain type of pro-market economic policy that arguably rose from the liberal tradition. It is often adopted by conservative, christian-democratic and social democratic politicians, not necessarily combining this with a liberal agenda outside politics. Libertarianism, which developed out of classical liberalism, is sometimes considered a branch of liberalism and sometimes a separate ideology in its own right.
See main article Neoliberalism. Neoliberalism is an economic ideology rather thana broader political ideology. The swing away from government action in the 1970s led to the introduction of this term, which refers to a program of reducing trade barriers and internal market restrictions as a way towards a more free market capitalist system. It does accept a certain degree of government involvement in the economy, particularly the acceptance of the need for a central bank and a capable national defense, but it seeks to reduce government regulation (and particularly taxes) as much as possible. While neoliberalism is sometimes described as overlapping with Thatcherism, economists as diverse as Joseph Stiglitz and Milton Friedman have been described -- by others -- as "neoliberal". As said before, this economic agenda is not necessarily combined with a liberal agenda in politics: neoliberals often do not subscribe to individual liberty on ethical issues or in sexual mores. An extreme example was the Pinochet regime in Chile, but some will also classify Ronald Reagan, Margaret Thatcher, Tony Blair or Gerhard Schröder as being neo-liberal.
The fundamental difference between liberalism and social democracy, besides the fact that they have very different origins, lies in their views regarding the role of the state in the economy. Social democracy seeks to achieve a certain extent of equality of outcomes, and upholds egalitarianism as the source of its moral values. Social democrats support a large public sector and the nationalization of utilities such as gas and electricity in order to avoid private monopolies, achieve social justice, and raise living standards for all. Liberalism, on the other hand, prefers much more minor state intervention, for example in the form of subsidies, and believes that major industries should be regulated, but not state-owned. Beyond that, however, liberalism shares many of the same basic goals as social democracy.
It should be noted that, in the 1990s, many social democratic parties adopted neoliberal economic policies such as extensive privatizations and open markets, much to the dismay of their own voters. This has led these parties to become de facto neoliberal, and often resulted in a drastic loss of their popular support. For example, critics of the German Social Democratic Party and the British Labour Party accuse them of pursuing neoliberal policies. This last case has led to the odd situation where the Labour Party, is seen by some (many?) as being to the right of the Liberal Democrats.
The modern tradition of libertarianism claims the ideological inheritance of "classical liberalism". However, many object to this 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.
Libertarians argue that the term "classical liberalism" was actually coined by Friedrich Hayek, who was deeply critical of modern liberalism. Libertarians also support the philosopher Frederic Bastiat - who advocated the absolute free market unreservedly. Several smaller libertarian parties around the world, who identify themselves with the Austrian school of economics, call themselves "liberals" without further qualification. Generally, this happens in countries where no larger "liberal party" exists, and thus there is no one to challenge their claims to liberalism.
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