In Chapter 3, Harvey describes the difference between neoliberal theory and its practice. He begins by giving a summary of the theoretical neoliberal state. The key belief of neoliberal theory is that the state, or a government, “should favour strong individual private property rights, the rule of law, and the institutions of freely functioning markets and free trade” (64). In this view, free markets are the best way to reduce poverty. The state should use its power to ensure free markets and the rule of law while reducing barriers to trade, such as tariffs and regulation, but it should not support individuals. Instead, individuals are responsible for all of their own outcomes, such as paying for health care costs. Internationally, states should work together through institutions like the G8 to ensure low barriers to trade between countries. Neoliberal theory holds that democratic power could threaten this framework and therefore seeks to insulate regulatory institutions like central banks from democratic control.

In the section entitled “Tensions and Contradictions,” Harvey outlines some of the ways that applied neoliberalism differs from its ideal theory. First, while neoliberals do not find commercial monopolies problematic, they oppose state monopolies, even where “‘natural monopolies’” exist, such as in the case of electricity or railways.