After Socialism

Now the greatest threats to freedom come from those seeking stability and the "one best way."

In 1947, The Road to Serfdom had been a sensation only a few years earlier. The 39 founding members included future Nobel laureate economists Milton Friedman, George Stigler, and Maurice Allais (and Hayek himself) as well as such luminaries as philosophers Karl Popper and Michael Polanyi and Hayek's mentor Ludwig von Mises. Through intellectual camaraderie and rigorous discussion, they sought to achieve "the rebirth of a liberal movement in Europe" and, by implication, the rest of the world.

Fifty-two years later, both the society and the world have changed. Liberal ideals of free minds and free markets have indeed enjoyed a rebirth, not only in Europe but throughout the world. And Mont Pelerin now boasts a membership of nearly 500, including scholars, journalists, think tank researchers, and business people. In late August, those from the Americas met in Vancouver to take up the question, "Are we experiencing 'creeping socialism?'" In 1947, socialism's growth was obvious. In 1999, it was a matter of much debate. In one of the opening talks, REASON Editor Virginia Postrel argued that "socialism" is no longer the major challenge to markets and economic freedom and that classical liberal ideals face opponents with new arguments and different values. The following is a slightly adapted version of her speech.

The theme of this conference is "Are we experiencing 'creeping socialism,'" and I am supposed to provide the optimistic answer to that question. The format presumes, however, that it is the right question, which I don't believe it is.

But I'll start with the official question. It immediately raises the issue of what we mean by socialism, creeping or otherwise. As a good journalist, I'll begin with an anecdote: The week of our graduation from college in 1982, my husband (who was then my boyfriend) participated in a debate between two teams of graduating seniors. The resolution was something like, "Resolved: Socialism is better than capitalism," and Steve, not surprisingly, was on the anti-socialism side.

One of the critical terms of that debate was the definition of socialism. Steve's team argued that socialism was the Soviet Union, and therefore guilty of the terrors of the Soviet system, while the opposing side argued that socialism was Sweden, and therefore innocent of eroding political freedom. Seventeen years later, we are gathered to examine whether socialism is expanding--and I would argue that the terms of that debate suggest quite clearly that it is not. Neither the Soviet system nor the Swedish system is on the march.

That does not mean we don't have to worry about threats to liberty. It just means we don't have to worry very much about socialism. The issues that define our political, intellectual, and cultural coalitions are changing, and we ignore those changes to our peril.

Socialism is not simply a synonym for a large state or for government regulation of the economy. In both the nasty Soviet model and the nice Swedish one, it is particularly concerned with some issues and less concerned with others. It may be a fuzzy term, but, like an electron's quantum field, the fuzz forms around some places and not around others. The goal of socialism is a fairer allocation of economic resources, which its advocates often claim will also be a less wasteful one. Socialism is about who gets the goods and how. Socialism objects to markets because markets allocate resources in ways socialists believe to be unfair on both counts: both the who and the how.

In its pure form--what Hayek in The Road to Serfdom called "hot socialism"--socialism essentially turns the economy into a government monopoly, either through direct state ownership of the means of production or through complete state direction of economic life. Socialist governments nationalize industries. They set up boards governing wages and prices. They direct supply and demand.

Until the mid-1980s, this sort of socialism was common, not only in communist countries but throughout the free world--which is why it made for a good debate topic in 1982. During my teenage years, the American economy itself was marked by wage and price controls and complex schemes to allocate energy supplies; in the 1970s, you could call for the U.S. government to nationalize the oil industry and not be dismissed as a nut. (I would argue, and do in The Future and Its Enemies, that the U.S. regulatory system is better understood as technocracy, which substitutes the judgments of supposedly efficient experts for diffuse market decisions, than as socialism. But from time to time, the U.S. government did adopt both the methods and the goals of socialism.) Today, the remnants of hot socialism exist in the very few countries with deliberately socialist regimes, of which North Korea is the purest example, and in a few industries within otherwise nonsocialist countries. But few remnants remain.

Hot socialism disappeared so quickly, both as a policy and as an ideal, that we have forgotten how utterly common its assumptions used to be. That's one reason we can seriously debate whether our contemporary situation represents "creeping socialism," a term that dates back to the 1950s, when socialism really was on the march.

The other sort of "socialism" is what I, like Steve's debating team, would more properly call "social democracy," or the redistributive state. This is the Swedish model, which uses massive redistribution through taxation and subsidies to rearrange economic outcomes. The goal is the same as for hot socialism--a fairer allocation of resources--and the animating ideology is economic egalitarianism.

Having spent some time recently in Sweden, I find it hard to imagine that Swedish socialism is creeping anywhere, except possibly under a rock to hide. The Swedish system is in serious trouble. The Swedish economy is no longer creating jobs--private sector employment has been shrinking for decades, and the public sector can no longer absorb more workers. The country is facing a brain drain. A backlash is developing against refugees and immigrants, who once represented Sweden's commitment to human rights and now are increasingly seen as outsiders consuming a fixed welfare pie. Many Swedes are pessimistic about the future, in large measure because they cannot imagine how their system can survive, yet cannot overcome the political obstacles to changing it.

The "social democracy" form of socialism is difficult to maintain because it runs head on into the political pressure of democracy--which replaces abstract issues of "fairness" with the practical calculations of interest-group politics--and the economic pressure of open markets. The Western democracies, Sweden among them, have not been willing to sacrifice their political freedom or their general prosperity to maintain ever-expanding socialism. They haven't, for instance, kept their people from leaving the country or even, in most cases, from sending their money abroad. That freedom has maintained the political legitimacy of social democracies, but it has undermined their ability to stay socialist.

As Hayek noted in The Road to Serfdom, "Many kinds of economic planning are indeed practicable only if the planning authority can effectively shut out all extraneous influences; the result of such planning is therefore inevitably the piling-up of restrictions on the movements of men and goods." The flip side of Hayek's observation is that countries that allow the more or less free movement of products, people, and financial capital will find that socialism cannot be sustained. A socialist regime depends on monopoly power that cannot survive the pressures of competition from outside. In the postwar period, a combination of liberal idealism, economic pragmatism, and Cold War calculation led not to Hayek's "piling-up of restrictions" but to increasingly free international markets, greater freedom of movement, and, most recently, ever freer capital flows--all enhanced by advances in communications and transportation.

We are not experiencing "creeping socialism." That is not the challenge we face. If you are used to fighting socialism, and have developed your arguments, tactics, and alliances accordingly, it's tempting to define any form of redistribution or regulation as creeping socialism and therefore to declare the expansion of any and all government programs to be socialism. But that sweeping definition leads to political and economic confusion: It destroys the ability to detect threats early, to form alliances and perceive enemies, and to hone arguments.

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