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The problem with liberal economics: educate me
I'm a firm believer in liberal economics, and I can't understand why others aren't too. Can someone enlighten me?
This post is largely inspired by this one, and the resulting comments. I'd advise anyone reading this to read that too.
I'm an economic liberal. I think that some regulation is necessary, but that we have more regulation than we presently need, and that this tends to act in favour of the large corporations who can most easily absorb the costs of this regulation. I think that the government wastes enough money at present that it has the scope to their cut taxes or redistribute money in a far more straightforward and direct way. I believe in the ability of people to have their own values and decide, as much as possible, how best to spend money in pursuit of those values. I believe that diversity and competition are important both in their practical effect of raising standards and in their liberal principled effect of giving people choice and freedom.
I also believe that people should pay fairly for the costs of their actions and their unearned benefits. They should pay for the pollution that they cause, and they should pay for wealth that they have received purely through the acts of others. I believe that nobody should live in poverty and that educational opportunity should be freely available to all, at least to the level of a person's first degree or equivalent. I believe that universal health coverage should be state-funded, but I'm very suspicious of monopoly state provision, and that suspicion applies to most state activities. I generally approve of private ownership, but I'd like to see a lot more employee-ownership, cooperatives and mutual societies.
I believe in an engaged society where freedom provides the main protection from oppression. People who feel that large corporations are negatively affecting their communities need freedom to organise alternatives. Sometimes this means simply choosing not to deal with that company (which requires vibrant competition and diversity to provide an alternative), but it might also mean investing directly in local companies in order to support them. We need to eliminate any and all regulation that stands in the way of creative, entrepreneurial individuals who want to take on their more powerful rivals. Regulation, done incorrectly, will choke off the underdog long before it brings the powerful to heel. Regulation sets hurdles so high that only those who already have power and money can afford to jump over them. Our present regulatory environment is a mirror of our tax and benefit environment, which crushes the aspirations of the poor with eye-watering marginal tax rates and leaves the poorest paying more tax than the richest as a proportion of income. If you're on minimum wage and get an extra £50 per week in your pay packet, you'll lose more of that £50 in tax and benefit reductions than if you were a millionaire earning the same amount extra.
To sum up, I'd say that liberals are on the side of the least powerful, and we should want to set them free, not trap them in the machinery of the state.
This is what I believe the meaning of economic liberalism is. And yet, economic liberalism is something that is often derided as 'a bit right-wing', referred to disapprovingly as little more than warmed-up Thatcherism. Personally, I can't understand why. But I want someone to explain it to me, in the hope that perhaps we might realise that we, as liberals, all have a lot more in common than we think, and that divisions between 'economic' and 'social' liberals are mostly misunderstandings. So, who wants to take up the debate?
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As I have just commented on Charlotte's post, I am so glad we seem to have so many people discussing these issues. I am not politically satisfied by being in a party that thinks it has these two seemingly irreconcilable factions.
I actually see it more as a conflict between those who want policies for the world we are in (and there is a lot to be said for that), and those who want policies to create a different sort of world in which the problems to which what are termed "social liberals" find the solutions in state intervention to help the worst off would be significantly lessened, if not eradicated. This, I believe was the aim of the late nineteenth and early twentieth century liberal economic tradition.
I'm so glad too that people are talking again, and seriously, about Citizen's Income and LVT. I think it was a disaster for our party fifteen years ago or whenever it was to drop the CI policy. LVT and CI are key components of rebalancing the inbuilt economic advantage that currently accrues to capital, land and credit creation.
The reason we need to support people in kind (education, healthcare, housing, dole etc) with all the attendant risks of dependency and interference with peoples' free choices is that the wealth we all work together to create is not equitably returned to us all as of right and so some will never in that current welfare based system get to the point of being able to afford to exercise choice. Give us the hard cash to make such choices and those big government services need not exist for the most part.
Only at the weekend I wrote to colleagues on the ALTER executive suggesting that our next project ought to move the "Liberal Overton Window" in the direction of radical econommic liberalism. Re-open the nineteenth century debates about protectionism and free trade which have been largely forgotten, or at least corrupted by the idea that "free trade" means something protecting multi-nationals through WTO agreements or creating competition by providing protection for political allies in business (such as Murdoch in broadcasting in the 80s).
We should maybe have a reading list of the "liberal economic tradition" that would include people like Herbert Spencer and his "Social Statics" and Henry George and his "Protection or Free Trade" ("Progress and Poverty" gets a lot of coverage but some of his other work is at least as important in understanding why LVT is part of the "tarrif free" world that would benefit primarily the labourer).
With the ideological merger of Labour and Conservative in this country, into one more or less protectionist party, I personally think we are at the stage when the twentieth century can be "put down to experience" and we can once again build a political landdscape based on Liberalism versus Conservatism. And this time I think we can win it.
(Sorry about that - it's a bit rude to have a comment longer than the post it responds to I guess!)
I mostly agree. Market should have some basic rules set and overseen by the government. However, having a role of a sort of referee, government shouldn't be also a player in the market, and thus shouldn't participate to the economic activity for instance by producing public services. There are other ways to secure access to public services for everyone, but it seems that the socialists have succeeded in their propaganda, so that many people can't distinguish financing from producing.
What I am concerned about is that even some people calling themselves "liberals" seem to be exploiting this prejudice for their own advantage.
I can offer three tentative suggestions as to why so many Lib Dems have come to regard economic liberalism as only borderline respectable.
Firstly, politics always tends to resolve into two main camps – ‘us’ and ‘them’ so the rise of the Labour Party triggered a realignment with many of the more economically literate Liberals finding their way either into the Conservatives or into a non-party wilderness.
The second is the power of a successful paradigm. Once the idea became established in the public mind that Government could and should run or at least control the commanding heights of the economy and address inequality by redistributive taxation it became very difficult to imagine any alternative. Even the words one might use came to be understood (or rather misunderstood) in the context of a socialist framework.
The third is of course Thatcher whose espousal of a perverted interpretation of liberal economics gave it a bad name.
If the first reason is right then the ideological merger of the Conservatives and Labour offers a historic opportunity for the realignment of politics back into its pre-twentieth century Liberal – Conservative axis.
As for the rest it is increasingly clear that the established (socialist) paradigm is broken. The dawning realisation that this is so is the necessary precondition for people to cast about for a new paradigm – as indeed they are.
But … It is a big task which will require much education of both party members and the wider public. On the other hand after so long a liberal absence, there is plenty of low-hanging fruit. For my money Rob you are absolutely on the right lines when you talk of reforming regulation that has been hijacked to protect the rich and powerful from competition.
The tragedy is that, for as long as I can remember, the Lib Dems have not had a leader who has appeared to understand or even be interested in how a fresh interpretation of economic liberalism could transform the Party’s appeal. So, which of the two candidates is most likely to deliver on this?
I wish I knew - it would make my choice a lot easier!
I'm not sure whether I should be disappointed that nobody has disagreed much with me so far (I was looking forward to the argument!), or pleased that I can write posts like this without it being controversial.
I do have a problem of economic liberalism.
Not just me either.
In the 1930s, Keynes (social liberal) used to debate with Hayak (economic liberal) about the origens of the depression.
Keynes won, and the Liberal/Lib Dems have been a predominantly social liberal party ever since.
It was Thatcher who took inspiration forom Hayak and Friedman in the 1980s. It led to mass unemployment and widening divisions between the rich and poor.
I am not clear about how far "economic" liberals within the Lib Dems will go today. One blogger told me the number of neo-liberals in the party today he could count on one hand.
So what I would like to see from those who identify as economic liberals in the Lib Dems is what their critique of neo-liberalism and capitalism is?
I would suggest that one good place to start is the book called "The Corpoartion". There we find that the corporation, and for the matter capitalism itself is an invention of the state. Corporations were not viable in the way they are today until the state conferred legal protection on them, namely legal personification and limited liability.
Yet despite the legal privilege that makes corporations viable, they nonetheless routinely break the law depending on a cost benefit analysis in which they calculate they can make a profit in doing so. And of course they are responsible for "externalities", side effects of making profits if you like in which they create pollution and exploit consumers and workers. This is not a trivial matter. In the US, it is the private sector that lobbys government against taking action on global warming - something that could destroy our way of life for good - and coming soon.
Now I know that economics is complex, and that market forces are not always malign in their effects.
But we should certainly have a critique of capitalism, and not automatically assume that the interests of society as a whole are automatically met by market forces.
There is nothing wonderful about capitalism. It is the least worst system.
I agree with the idea that we should have a critique of capitalism. However, I would argue that the problem with capitalism is not too little regulation, but what is regulated and how this regulation is created. Presently, regulation favours incumbents in the marketplace, raising barriers to entry. This position of safety gives companies a stronger hand when bargaining with employees over wages, amongst other effects.
I'd personally like to banish all use of the phrase 'neo-liberalism'. If it means 'Thatcherism' then let's not dignify it with the word 'liberal'. If we take 'liberalism' to include the opposition to entrenched privilege and protection, then we have to oppose privileges and protections granted to companies. The problem with Thatcher was that she attacked the privileges of unions and the protections on employment, without paying any attention to the privileges of companies or the wealthy. Brown continues in this vein when he bails out the investors in Northern Rock whilst ignoring the 'little people' who lost money in the Farepak collapse.
Now, my personal view is that the government shouldn't bail people out of bad personal choices. I think that the government should administer adequate distribution of wealth to ensure that everyone has access to the necessities of life and the capacity to engage in society and, after that, people make their own decisions (you know, liberty and all that). You're right to point out that there are protected groups and organisations in society, and this creates an unfair imbalance which needs to be rectified. But, for me, the solution lies in more liberty and less meddling from government (I distinguish 'meddling' where the government tries to run people's affairs for them, from tax/redistribution).