Liberalism Should Reject Welfare Statism

Posted on: March 4, 2020 at 11:39:47 CT

https://www.aier.org/article/liberalism-should-reject-welfare-statism/

Richard M. Ebeling


Dislike for the personality and disagreement with the policies of Donald Trump have helped to revive a seemingly dead idea: socialism. This has placed friends and defenders of a free society on the defensive in having to make the positive case for free market liberalism.

The economic and psychological shocks from the financial crisis of 2008-2009, and the emotional distaste on the part of many in the country for Donald Trump’s words and deeds have opened the door for the more radical and “progressive” elements in the Democratic Party and among the “left-leaning” intellectual elite to call for an almost root and branch overhaul of the entire American political and economic system.

The call is not for a bit more regulation of businessmen or a modest extension of existing social welfare programs. No, the demand is for a transformation of American society in the direction of far, far greater direct government command and control of finance and industry, near-full funding of health and medical care, the end to tuition-based higher education, and the imposition of central planning in all but name with a Green New Deal to “save the planet.”

In addition, freedom of speech and association would be subject to a dramatic narrowing of the permissible in the name of political correctness and identity politics. Arbitrary and personal feelings of “hurtfulness” are becoming, already, the basis of claims of “harmfulness” leading to restrictions on what may be said or done by being labelled as instances of “hatefulness.”

Progressives Come Out of the Closet as the Socialists They Are

The decades-old “social liberalism” of the progressives has finally “come out of the closet” to, now, boastfully declare what it has always been – a form of socialism but made milder in sound with the modifier “democratic” in front of it. “Democratic” simply refers to the political means by which these proponents of socialism say they wish to be elected and remain in power. “Socialism” refers to what those put into political office through the ballet box would proceed to impose through the power of the state.

Advocates of “democratic socialism” like Bernie Sanders or Alexandria Ocasio-Cortez insist that what they want has nothing to do with the “bad” socialism of the 20th century that went under the title of communism in the Soviet Union. Theirs is a kinder and gentler socialism with none of the authoritarian and brutal aspects experienced in or in places aligned with the Iron Curtain countries of the Cold War era.

Socialists and Communists Differed Over Means, Not Ends

The fact is that through a good part of the 19th century, socialism and communism were often used as synonyms meaning, basically, the same thing: the abolition of private property in the means of production, a centralized planning of economic activity, and an equalization of incomes in the collectivist society of the future.

Socialists may have differed concerning a variety of the features, qualities, and characteristics of the post-capitalist society-to-come, but they all agreed on the need to end private enterprise, the profit motive, and market competition through radical institutional change.

As the 19th century progressed, another difference emerged among socialists, that being whether socialism could come to power peacefully through democratic elections or required violent revolution to unseat the capitalist exploiters of the downtrodden workers. The German Social Democrats generally were confident that the ballot box could serve as the effective means for the achievement of a socialist society. Others, especially many of the Russian socialists such as Vladimir Lenin, were insistent that power could only come through the barrel of a gun, followed by a “dictatorship of the proletariat.”

But, at this time, while they may have argued over the appropriate means, they all agreed on the desired end: the end to the private ownership of the means of production and the instituting of a centralized system of government planning in the name of the interests and well-being of the society as a whole.

Many democratic socialists in countries such as France and Germany sincerely believed in the preservation of civil liberties and for that reason opposed the Soviet Union. It remains a fact, though, that from their ranks a good number of recruits could be found to serve as spies, infiltrators, and “fellow travelers” for the Marxist masters in Moscow, both in the interwar period and during the Second World War, as well as in the early Cold War decades. These were people who spied for the “better world” of socialism and not for money; and there were a lot of them, as the partially opened Soviet archives and the Venona documents demonstrated in the 1990s, with a good number of them in the higher reaches or in crucial departments of Western governments.

It was only in the 1960s and 1970s that Social Democratic parties in the Western Europe “gave up the ghost” and eliminated from their party platforms calls for total or wide nationalization of industry and central planning. In its place, the policy goals became a heavily regulated economy and a greatly enlarged redistributive state.

Sweden: A Free Market Society or a Social Democracy?

This became the new “social democracy” in place of the older, traditional democratic socialist call for pervasive central planning. It is what is still being called for instead of Bernie Sanders’ brand of socialism by some contemporary self-styled “social democrats” such as MIT economist, Daron Acemoglu, who said in a recent article, “Social Democracy Beats Democratic Socialism” (Project Syndicate, February 17, 2020) that this is the real Swedish model that America should follow:

“Social democracy refers to the policy framework that emerged and took hold in Europe, especially in the Nordic countries, over the course of the twentieth century. It, too, is focused on reining in the excesses of the market economy, reducing inequality, and improving living standards for the less fortunate. . . . Simply put, European social democracy is a system for regulating the market economy, not for supplanting it . . . What is needed, then, is not market fundamentalism or democratic socialism, but social democracy . . . The market must be regulated, not sidelined.”

In other words, Sweden is neither a “fundamentalist” free market economy, nor a heavily top-down “democratic socialist” system of central planning, according to Acemoglu. It is a “social democracy,” the interventionist-welfare state.

But is it? Well, not according to some others. For instance, the Swedish classical liberal, Johan Norberg, has said that Sweden does not have democratic socialism because, it is, in fact, a free market economy:

“I don’t think the American Left knows that Sweden is the country of pension reform, school vouchers, free trade, low corporate taxes and no taxes on property, gifts and inheritance. Sweden affords its big welfare state because it is more free-market and free trade than other countries. So, if they want to redistribute wealth, they also have to deregulate the economy drastically to create that wealth . . .

“We do have a bigger welfare state than the U.S., higher taxes than the U.S., but in other areas, when it comes to free markets, when it comes to competition, when it comes to free trade, Sweden is actually more free market.”

This has been reiterated by libertarian commentator, John Stossel, who said in one of his columns, “Next time you hear democratic socialists talk about how socialist Sweden is, remind them that the big welfare state is funded by Swedes’ free market practices, not their socialist ones.”

So, is Sweden a free market economy that has an expensive social welfare system, or is it a “social democracy” with a regulated economy to successfully fund an extensive welfare state? And in either case, is a free market classical liberal society compatible with such an extensive and pervasive welfare state?

Johan Norberg and other market-oriented liberals in Sweden have emphasized that the welfare state there has reformed into allowing wide degrees of personal choice and freedom in how one selects health care and in the schooling of children. So, it is not a traditional notion of a government-only and monopolistically providing system of social welfare care and redistribution.

Neo-Liberalism as the “Middle Way” Between Laissez-faire and Planning

Is this the new classical liberal ideal, a fairly free and competitive market with a costly welfare state that permits degrees of choice, while still funding through taxation expensive social safety nets? By omission, that easily can be interpreted as the message.

Since arguments about this can too frequently end up being a contentious contest over who is the “real” or “true” classical liberal and who is not, let me phrase this as merely saying that this “Swedish” model of free markets with a welfare state is not my understanding or ideal of a free and liberal society. The following, therefore, are my objections to and differences with this “Neo-liberalism” that is implicitly being presented and defended as the free market society against the likes of Bernie Sanders and AOC, who otherwise point to places like Sweden or Denmark as their vision of “democratic socialism.”

My representation of this Swedish model as a Neo-liberal one might, itself, seem objectionable since the “progressive” left paints the United States and similar “capitalist” countries as instances of Neo-liberal “market fundamentalism,” which Daron Acemoglu rejected in the earlier quote in which he defended Sweden as a model of “social democracy.”

The fact is, this “middle way” between laissez-faire liberalism and totalitarian socialism (of either the Soviet or Nazi sort) was the alternative that a noticeable number of free market-oriented liberals were groping for in the interwar years of the 1930s. It was crystallized in the August 1938 “Colloquium Walter Lippmann,” held in Paris to discuss the fate and future of liberalism in the context of the recent publication of Walter Lippmann’s The Good Society (1937).

Lippmann’s book is a clearly written and insightful critique of socialist central planning of either the totalitarian sort or a softer “creeping” socialism being introduced on a piecemeal basis in the Western democracies. But he also makes the argument that if liberalism is to survive it must be “reconstructed” in a direction of greater government regulation and welfare redistribution if it was to compete against the totalitarian collectivist temptations.

The colloquium in Paris brought together in that summer of 1938 many of the leading liberal economists and political scientists of that time from around Europe and a few from the United States. Many, if not most, of the participants concluded on the basis of either principle or pragmatism that if a market economy operating on the basis of a competitive price system was to be saved, then some form of the interventionist-welfare state was essential to implement as a complement to it.

A consensus of the attendees was comfortable with referring to such a reformed and “reconstructed” society as Neo-liberalism. A few objected to the analysis and the conclusions reached by a majority of the participants; the leading such critic was the Austrian economist, Ludwig von Mises. But, nonetheless, a general outline for a new market-based liberalism was offered that now incorporated aspects of the welfare state. (See my articles, “Neo-Liberalism: From Laissez-faire to the Interventionist State” and “The Walter Lippmann Colloquium and the Meaning of Liberalism”.)

Many Advocates of Free Markets Have Accepted the Welfare State

Since the end of the Second World War, there have been many able and compelling arguments by free market proponents against socialist central planning and the dangers and abuses from an overextended political paternalism through the unending growth of the welfare state. But very few of these defenders of a market-based liberalism have called for a return to a laissez-faire liberalism under which government would be limited to protecting each individual’s life, liberty and honestly acquired property under a system of impartial rule of law. Period. Full stop.

This is still the case today. I will not go down a list of those well-known and otherwise able and insightful advocates of the free market who for seven decades, now, have at the same time made the case for one or several types of “necessary” interventions and social safety nets that, they say, cannot be left up to the free market. So, for all the insistences that what is wanted is a “return” to a free market society, a good number of them are really variations on the “Neo-liberal” theme those attendees discussed and debated at the Walter Lippmann Colloquium in August 1938.

Individual Rights and the Immorality of the Welfare State

So, for whatever they are worth, what are some of my objections to any incorporation of the interventionist-welfare state into the agenda and implementation of a classical liberal, free market institutional order?

First, I consider any and all such interventions and coerced redistributions to be immoral. It is using the force of the government to restrict or command associations or exchanges on terms different from the ones the individual market participants would have chosen if left free to make their own decisions.

I am from that older 20th century libertarian generation that was still weaned on the intellectual mother’s milk of John Locke and the American Founding Fathers in the Declaration of Independence, of Frederic Bastiat’s The Law (1850), and Ayn Rand’s notion that your life is your own by reasoned natural right that no other may compel you to live in any way other than according to your own vision and values of what would peacefully and honestly make a good and happy life for you.

Many in society, including some classical liberals and libertarians scoff at the idea of “natural rights.” How do you prove they exist and how or who gave them to people? In an increasingly non-religious age (in which I include myself as a member) “gifts” from God carry little weight in many intellectual circles.

But, as someone who is not a trained and professional philosopher, I have always understood it that when Locke or the Founding Fathers or Frederic Bastiat explained the content and meaning of an individual’s “natural right” to his life, liberty and honestly acquired property, they were saying that all men of good will might use their reason to introspectively reflect on the general nature of man, the circumstances in which human beings find themselves, and what would be needed for people to peacefully and mutually prosper using their mind and talents in a world of other men.

Natural Rights and the Introspective Reflection on Man

Over the years, I have sometimes asked my students if any of them ended their day disappointed that no one had killed them, or enslaved them, or stolen from or defrauded them? Amazingly, not one has raised their hand in the affirmative. All of us, common sensically, wish to be left peacefully alone, not violated in any of these fundamental ways as a conscious and thinking human being. And a bit more introspective reflection easily leads to the conclusion that if you want others to respect your life, liberty and property, you are called upon to reciprocate and respect theirs.

I realize that far more thoroughly trained philosophers, even some who are classical liberal in their views, will pooh-pooh such an approach. But I would remind those philosophers that in the 1850s, when Frederick Douglass spoke in the Northern states for an end to slavery he called upon his listeners to practice what almost all of them preached, that every free man has a “natural right” to his liberty, and for them to act accordingly in supporting the end to slavery. He moved the conscience of many who heard his words because in themselves they believed in the natural right of every human being to be free.

Should we retrospectively say, “Sorry, Fred, but that isa philosophically poorly grounded argument with little demonstrable cogency. So, back to your former slave master you must go. Get back to us when you have a better philosophically developed argument for your freedom. Have a nice day.”

The intuitive and common-sense insight that each person can have, in my view, when reasonably reasoned with, that every person as a human being has a right to his life, liberty and honestly acquired property, remains a powerful one for making the case for a free society. Indeed, it seems hard to imagine how a society of relatively wide personal, social and economic freedoms that came into existence in the West would have been possible, if not for the idea of natural rights and the influence that it had on people’s minds.

And for me, the idea that each of us have such natural rights also makes “legalized plunder,” to use Bastiat’s term for compulsory redistribution and command, to be immoral in all its various forms, even when couched in the rhetoric and rationale of social welfare functions, the utilitarian majoritarian good, or tribal notions of social justice and identity politics. But, that’s just me.

The Welfare State Eats Away at Personal Worth and Responsibility

Second, I believe that it undermines essential elements of a good society that can only be cultivated and fostered when all such “social problems” that almost all people today assume is the duty of government to deal with are, instead, left in the hands of individuals and the voluntary associations of civil society. This is undermined when such “social responsibilities” are transferred from individuals to those in political authority. I have always found persuasive the argument along these lines offered by the French social philosopher, Bertrand de Jouvenel (1903-1987), in his book, The Ethics of Redistribution (1951).

Income is not merely a means for physical maintenance of oneself and one’s family, plus a few dollars for leisure activities. What we do with our income is an expression of ourselves, a statement about what we value, how we see ourselves, and what we wish and hope to be. In addition, the way we use our income enables us to teach future generations about those things which are considered worthwhile in life. Income earned above some minimum of our defined necessities is also the way individuals have had the means to perform many activities “for free” that are considered the foundation of the social order, from community and church work, to support for the arts and humanities, and charities to assist those less well off than ourselves.

Deny an individual the honest income he has earned, even when it is above some claimed, “reasonable maximum,” and you deny him the ability to formulate and give expression to his own purpose as a human being. And you deny him the capacity to make his voluntary contribution to the civilization and society in which he lives, as he sees best. De Jouvenel argued that such personal and voluntary contributions have been and remain essential to a healthy and good society.

He also pointed to another vital aspect to governmental redistribution. What is redistributed is not wealth from “the rich” to “the poor,” but power from the people to the state. Individuals no longer plan their own lives and use their own money to fulfill those plans. Individuals no longer care for their own children, teach them how to live as human beings or guide them as to what to value or pursue in life.

In terms of time, income and talent, individuals increasingly lack the means and the motive to contribute to the society in which they live. The welfare state all but dehumanized and depersonalized these things by transforming them into “affairs of state” rather than the mutual concerns and interests of actual people in society to consider and solve as the common matters of their shared human existence.

The Welfare State is an Insatiable Leviathan

And, third, once the premise is accepted that it is the duty and responsibility of the government to undertake and fulfill these welfare state activities, there is no limit to what and how far it will be extended and encroach upon what remains of the private domain in society.

The German free market economist, Wilhelm Röpke (1899-1966), was one of the attendees of the Walter Lippmann Colloquium in 1938, and who both between the two World Wars and after attempted to find that “middle way” between laissez-faire and the all-encompassing totalitarian planned society. He sincerely believed in the creative power of the market economy and its importance for preserving human liberty, but he also believed that the state had to provide a variety of social safety nets for a proper and humane balance in society.

Yet, by the end of the 1950s, Röpke bemoaned the seemingly insatiable appetite of the government to consume more and more of the productive wealth created by the private sector, as well as sapping away the character of a free people:

“If it is accepted that the modern welfare State is nothing but an ever-expanding system of publicly organized compulsory provision, then it follows that it enters into competition with other forms of provision in a free society: person provision, by saving and insurance, or voluntary collective provision by family and groups.

“The more compulsory provision encroaches upon the other forms, the less room will be left for individual and family provision, as it absorbs resources which might be devoted to this purpose and at the same time threatens to paralyze the will toward individual provision and for voluntary mutual assistance.

“Worse still, it is impossible to stop or turn back on this road once one has advanced beyond a certain point, because the weakening of self-reliance and mutual assistance automatically gives rise to increasing pressure for further public provision of the masses, which, in turn, still further paralyzes individual provision and voluntary mutual assistance.”

As Röpke concluded, “What remains is the pumping engine of Leviathan, the insatiable modern state.” Its only limit being the absorption of everything off which it can feed. And when taxes are no longer sufficient to serve this purpose, government resorts to deficit spending and growing national debt, and when necessary the printing of money is turned to cover all of the welfare expenditures it undertakes.

Liberal Principles vs. Welfare State Expediencies

Possibly Johan Norberg or one of his colleagues might reply, but in Sweden they tamed the welfare state and while it is large, they have kept it in bounds and left the market free enough to feed the redistributive schemes Sweden has in place. But this depends on the historical luck of the draw of people and policies at a moment in time. Two election rounds from now a Swedish Bernie Sanders or a Jeremy Corbyn may reemerge and persuade enough voters that it is necessary to reverse course once more and return to a far more aggressive welfare state and an accompanying higher tax structure to cover more redistributive expenses while also serving a greater social justice in terms of income equality.

The free market classical liberal ideal must, as a matter of principle, insist that it is not and cannot be the role and responsibility of the government to play political paternalist in overseeing, guiding and dictating the choice of individuals in the areas now considered by far too many as the domain of the welfare state.

This was emphasized, in particular, by Friedrich A. Hayek (1899-1992), in spite of the fact that he, also, believed in a variety of government duties far greater than the classical liberal limited state that I have suggested. In his last major work, Law, Legislation and Liberty, vol. 1 (1973), Hayek insisted:

“When we decide each issue solely on what appears to be its individual merits, we always overestimate the advantages of central direction . . . If the choice between freedom and coercion is thus treated as a matter of expediency, freedom is bound to be sacrificed in almost every instance . . . To make the decision in each instance depend on the foreseeable particular results must lead to the progressive destruction of freedom . . .

“That freedom can be preserved only if it is treated as a supreme principle which must not be sacrificed for particular advantages was fully understood by the leading liberal thinkers of the nineteenth century, one of whom even described liberalism as ‘the system of principles’ . . .”

A free society, including its competitive free market, in my view, cannot be maintained and sustained in the long run when, at the same time, the rhetoric and rationale for the welfare state is either left unchallenged or acquiesced in as a de facto set of institutions believed to be irreversible or considered to be the lesser evil to bear to prevent the loss of any market economy to more extreme collectivist forces in society.

Both as a matter of moral principle in defense of personal freedom in all peaceful facets of life, and as a pragmatic matter of not leaving standing a set of regulatory and redistributive institutions that always threaten the civil health of the society and looms as the Leviathan always ready to eat away and consume the remainder of what remains of people’s liberty, the Neo-liberal and social democratic variations on the welfare state themes must be opposed and eliminated root and branch.

Only that can lay the groundwork for the truly free society of material prosperity and social and ethical virtue that can come from individuals at liberty to live their lives as they choose in association with the fellow free men in the arena of the market and in the voluntary institutions of civil society. (See my recent book, For a New Liberalism.)