Wednesday, 1 August 2018

Free market liberalism has never been popular - maybe it should be?

There's a sort of mythology about economic liberalism - for people on both left and right in politics it is the enemy, the thing that undermines workers rights, throws people on the scrap heap as their job migrates to Romania or India, the destroyer of community and the temptress of migration. We see the shock and fear of liberal ideas in the economic sphere in the attacks on the Institute of Economic Affairs, Adam Smith Institute, the Koch brothers and the Cato Institute.

Part of the myth is that nobody could possibly believe in free market liberalism without, in some way, being the paid shill of powerful corporate influences. This myth is, usually in the next breath, accompanied by the entirely contradictory argument that free market liberals are swivel-eyed, rigid ideologues so wedded to their dogma they can't see the real world. It's not helped by the (entirely admirable) preference of these organisations for keeping their donors names private.

The reality is that, however much left and right might hate free market liberalism, it has never (at least in the UK and USA) been an idea with either broad popular support or even a political party with a hope of governing that espouses these ideas. Other than in the Netherlands, no developed nation has a successful and powerful liberal party (for Canadians and Australians I mean a party that actually believes in free market liberalism not a party with that name).

Indeed, since the beginnings of free market liberalism - Adam Smith, David Riccardo, J S Mill - the ideas have always had to fight for political space. First from the resistance of slave owners, corn barons and owners of mercantilist monopolies, then from intellectual elites who disliked the idea that thick spoken blokes with brummie accents and rough hands were the equal of grand university types. Free market liberalism was attacked by trade unionists, by aristocrats, by lawyers and by the mandarins of everywhere's bureaucracy. Laws were passed, riots were fomented, strikes were called and farmers were protected - all to try and kill free market liberalism.

Through history there have been leaders who have pushed for free market ideas - Peel, Gladstone, Coolidge, Reagan and Thatcher - even Blair or Clinton. But each of them have had to work with parties and supporters who did not share the mission preferring the statist blandishments of what Deirdre McCloskey calls The Clerisy. Those supporters weren't just socialists, communists and fascists but include an abundance of capitalists - the sort of business leaders for who mercantilism, protectionism and licencing is an opportunity to carve out monopoly in the same way their predecessors did with salt, shrimps and corn. Free market liberalism isn't capitalism, it just suits many capitalists to pretend that their cosy little love-in with government is, in some way connected to liberty, choice and the betterment of everyone.

Despite all this free market liberalism - hidebound, tied up, limited, constrained and condemned as it is - has carried on doing what it does best: making everyone wealthier, healthier and happier. No political party dare promote the idea - it's a vote loser every time they fear - and putting limits on "unfettered free markets" is ever popular with the folk who think (wrongly near every time) that doing this will be in their economic interests.

In the end, the reason why Kohl and Chirac, Blair and Major, Clinton and Bush - most sane world leaders of the last fifty years - have ended up promoting a liberal world economic order is because they were persuaded by the evidence. More free markets, more liberal economic policies, open trade, easier movement round the globe - these things really do work, they really do make near everyone wealthier, healthier and happier. Free market liberalism persists because, when the counting is done and evidence is gathered, the most successful places are more open, property rights are upheld and most people with something to sell don't need permission from the government to find someone willing to buy. It's just a shame that nearly all these rich successful places are dominated by a politics that completely denies - from right and left - this essential truth.



Quite Likely said...

I think the issue here is that politics is a struggle between interest groups. It sometimes seems like business is the "pro-free market liberalism" interest groups, but of course as you say what they are for the most part interested in is regulatory capture and the opportunity to become monopolies, not ensuring open competition. Meanwhile the working class's most pressing political need is for the state to back them up in their conflict with business, so they're not exactly going to be riled up in favor of shifting more power from the state to businesses.

richard yot said...

If more liberalisation does make us all richer, how do you explain that overall growth, and per-capita growth even more so, was actually higher in the Keynesian era (1945-1975) than it has been since we've had the wave of liberalisation, privatisation and global trade? Not just in the UK, but all over the western world.

And while free markets have done much to help the developed world since 1990, which is true, that only tells half the story. The biggest factor in the global reduction in poverty is China, which has liberilased considerably and enjoyed a big rise in living standards as a result - but it hasn't done so by becoming a Hayeken free market utopia, it has done it with a massively interventionist state pulling the strings.

So the story is far more nuanced and complicated than the free market utopians would have it. The historical evidence points very strongly to a mixed economy being the optimal solution. The debate is obviously exactly where to draw the line, but there is no evidence to suggest that leaving everything to the market is going to deliver better outcomes than having a mix of state and market. The Hayekian vision ultimately is as naive and utopian as the Marxist one, blinded by ideology and blind to pragmatism.