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The demonisation of market liberalism
Samuel Brittan: Contribution to EU Seminar on Europe in 21st Century, Florence, April 14 2000

Scenario Danger

There is a danger in the scenario approach when it comes to beliefs and values. Scenarios were originally invented by large corporations to examine alternative economic developments without confining themselves to single point forecasts. They may have some value for this purpose. But when the technique is applied to alternative views of how western societies should be organised it lends itself to caricature.

Looking at the summaries of the five scenarios, we are obviously meant to recoil from "Triumphant Markets" (as we are from "turbulent neighbourhoods"). There is a little bit of sympathy for the "hundred flowers" and for "creative societies". But the favoured model is clearly the one entitled Shared Responsibilities. This bears some resemblance to Third Way pamphlets, the propaganda for stakeholder companies and for managerial jargon such as "win-win".

Let me concentrate on market liberalism of which I am an unapologetic exponent. Why call it "triumphant markets"? To give the impression that there is some form of dominating imperialism which snuffs out all non-commercial considerations.

The first piece of propaganda is to equate it with the unchallenged leadership of the American enterprise model. There are many ways of organising enterprises; and there are many kinds of values which they can reflect. Moreover history suggests that the technological lead does not stay indefinitely with one country but passes from one part of the world to another. The American model - whatever that is - will only be triumphant indefinitely if Europe fails to get its own act in order.

Still in the first part of the summary: shareholder value is given as if it were a highly contentious and anti-social notion. In fact it only means that the owners of an enterprise should try to get the best possible return on their investments. In whose interest is it that they should do anything else?.

It is the job of the governments and legislators to formulate a framework of laws and regulations aimed to bring social and commercial returns as far into line as possible. But before we push these correctives to an absurd extent, let us remember that there is also something called government failure, resulting either from lack of knowledge or the domination of the political process by interest groups.

The demonisation of market liberalism continues in the next summary paragraph where it is associated with materialism and consumerism and a "war on idleness". The most materialist societies are the wrecks of the former Communist parts of Europe, where economic performance is still so poor and poverty so great that it is natural for people to want to seize all they can. A properly functioning market supplies whatever it is that its citizens want - including leisure and cultural goods - if that is what they desire.

Redistributive Market Liberalism - RML

Of course there are some American Republicans and Big Business types who live up to the Commission caricature. But the core ultraliberal belief, as far as I am concerned, has nothing to do with Wall St.. fashions or the US Republican Party. It is in John Stuart Mills statement in On Liberty:

The sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number is self protection... His own good, either physical or moral, is not a sufficient warrant.
The principle is often called negative freedom in political philosophy and non-paternalism in economics. Specific economic systems, such as competitive market capitalism, are merely means for extending such choices as far as possible.

There is, of course, nothing inherently right about the pattern of rewards produced by the combination of inheritance and the market. But the way to introduce correctives is not to impose vague "stakeholder" responsibilities on business or to preach against self-interest. It is to devise a framework of rules - including, if necessary, redistributive taxation and transfers - by which a market economy can be induced to serve broader objectives. This version of classical beliefs is sometimes called in Britain Redistributive Market Liberalism or RML. Until somebody comes out with something more scintillating, I propose to use the term to describe my own beliefs.

It is necessary to spell out that sensible redistribution may involve a minimum income, but it does not mean minimum wages or any other kind of interference with competitive wage and price setting. The main result of such intervention is to price people out of work, as has occurred to a large extent on the continent of Europe. We should seek instead changes in the rules of the game - for instance in property and inheritance laws.

One advantage of a prosperous economy is that it can afford to provide an adequate safety net. But it is counter-productive to push redistribution to a point where it reduces economic performance so much that the beneficiaries fail to gain, or even lose. Beyond a certain point, which has probably been reached in much of Europe, the combined effect of taxes and benefits is to reduce hours worked and also the proportion of the population seeking employment at any given real wage.

Three sources of income

Professor James Meade, the Nobel prize-winning British economist who died in 1995, envisaged a situation in which a typical citizen would have three sources of income: first, a wage or salary; secondly a basic income payment "from the state"; and, thirdly, some income from capital ownership, over and above the family home. Marx made quite the wrong criticism of private ownership of capital. The only thing wrong with investment or unearned income is that not enough of us have it.

I know no magic way of bringing the third element about. It is a matter of looking for whatever opportunities come our way to encourage dispersed ownership. We missed a chance when privatisation shares were sold on the capital market rather than being handed over to all citizens on a pro-rata basis. We may have something to learn from the experience of the former Communist countries, some of which have issued very cheap vouchers to be used to purchase assets in state enterprises. In Russia it seems that many of these vouchers have been bought up at bargain prices by Mafia operators, but this may not be true nearly to the same extent in the Czech Republic or Poland. Another example has been in Alaska where state oil revenues have been distributed as credits to all citizens.

Some More Distortions

To come back to the Commission summary: it is beyond caricature. We are told for instance that market liberalism involves "law and order" politics. I hope we all believe in law and order. But the labeling is meant to suggest unduly harsh punishments, zero toleration for misdemeanours and a weakening of the processes which have evolved to protect people against unjustified prosecution and conviction.

Must I go on? The individualisation of industrial relations is meant to horrify us. But should it, if contracts of employment are tailored to individual abilities and requirements in a world where there is a demand for talent of all kinds? As for the privatisation of the social services, this is another bogeyman.

It is not who provides health or education that matters but the adequacy of the service. The state does have a role in enabling people of all incomes to enjoy such services. But do they have to be provided by government, whether national or local.

Just as market liberalism is demonised, the rather muddled Third Way approach is put on a pedestal. We learn of policies to "reorientate technologies towards the user". There is such a policy and it is known as the free market. The Third Way is supposed to be associated with "widespread tolerance of diversity". It is precisely because it enables people to make different choices about how and where to live and where and how to work that I have always favoured free markets. The political route means the domination of one group by another: in practice domination by concentrated interest groups. And heaven help us from "an important minority of active citizens conditioning political and community life." How about those of us who prefer to cultivate our own garden?

Conclusion

The hard collectivism of Communism has disintegrated, so has the vision of a planned democratic socialist society. But we are still threatened by softer and more seductive forms of collectivism. These have in common with their predecessors the delusion that the group is more important than the individuals of which it is composed. On the right this is seen in an outmoded devotion to the nation state and a hostility to the European Union which is always in danger of degenerating into a shrill chauvinism. On the left it embodies worship of an ill-defined "community" which, in practice, becomes a pervasive bossiness in matters ranging from intolerance of smoking to attempts to impose educational requirements by central government.

The dividing lines today are at least as much on the freedom versus authoritarian dimension as on the traditional one of left versus right.

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