Economics

After Socialism

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

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In 1947, a small group of classical liberal intellectuals gathered in the Swiss Alps to form an international society whose purpose was "to work out the principles which would secure the preservation of a free society." Named for their meeting place, the Mont Pelerin Society was the brainchild of Friedrich Hayek, the economist and social philosopher whose popular boo 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.

We must keep in mind what socialism is, and therefore what it is not. Socialism, creeping or galloping, is an ideological concept with a particular sense of what is important. What distinguishes socialism is its appeal to economic fairness. It declares that markets do not allocate wealth and power fairly, and that political processes will do a better job. Socialism is not simply about moving money from the powerless to the powerful–a goal as old as politics–but about flattening the distribution of income and wealth. Pork-barrel spending is not socialism. Farm subsidies are not socialism. "Corporate welfare" is not socialism. These programs are not ideological in nature. They are about competing interest groups.

Socialism is about claims of justice, and it is also about money: about wealth, income, physical and financial capital. It is an ideology based on allocating economic resources. It may try to achieve that goal by nationalizing assets, by command-and-control regulation, or by taxation and redistribution. But the goal is the same: to rearrange society's wealth, generally from the "haves" to the "have nots." Rearranging wealth (or income) is not the only possible ideological goal of economic regulation. It is merely the goal we have become accustomed to since the late 19th century.

Market processes do more than determine who winds up with which resources. That means that socialism is not the only conceivable ideology that might launch an attack on markets and, conversely, that anti-socialist conservatives are not the only possible allies for classical liberals in defense of economic freedom.

Markets have many characteristics. They serve and express the individual pursuit of happiness. They spread ideas. They foment change in the ways people live and work, and in what character traits are valued. They dissolve and recombine existing categories, from artistic genres to occupations. They encourage the constant search for improvements, and they subject new ideas to ruthless, unsentimental testing. Markets evolve through trial and error, experimentation and feedback. They are out of anyone's control, and their results are unpredictable. It is this dynamism of markets–their nature as open-ended, decentralized discovery processes–that attracts the greatest ideological opposition today.

The most potent challenge to markets today, and to liberal ideals more generally, is not about fairness. It is about stability and control–not as choice in our lives as individuals, but as a policy for society as a whole. It is the argument that markets are disruptive and chaotic, that they make the future unpredictable, and that they serve too many diverse values rather than "one best way." The most important challenge to markets today is not the ideology of socialism but the ideology of stasis, the notion that the good society is one of stability, predictability, and control. The role of the state, in this view, therefore, is not so much to reallocate wealth as it is to curb, direct, or end unpredictable market evolution.

Stasists object to markets because the decentralized evolution of market processes creates not just change but change of a particular sort. By serving the diverse desires of individuals and by rewarding the innovators who find popular improvements, markets constantly upset unitary notions of what the future should be like. Markets don't build a bridge to the future–a path from point A to point B across a scary abyss; they continually add nodes and pathways in a web of many different futures. Market processes make it impossible to make society as a whole adhere to a static ideal–whether that ideal is a traditional way of life, the status quo, or a planner's notion of the one best future.

As a result, we find stasist enemies of markets arrayed across the old left-right spectrum, which we may define by its relation to socialism. Consider CNN's Crossfire, a show whose entire premise is the sparring of left and right. In denouncing the dynamic economy, the show's right-wing host, Pat Buchanan, has joined forces on one occasion with left-wing technology critic Jeremy Rifkin and, more recently, with corporate gadfly Ralph Nader. All agree that international trade, technological innovation, global financial markets, corporate reorganization, the expansion of some industries and the contraction of others–and just about every other manifestation of economic competition or creativity–portend a terrible future. They also agree, in principle at least, that the government should do something to curb market dynamism. This is not a socialist call for regulation. It is a stasist one.

The stasist attack on markets, regardless of what part of the old spectrum it may come from, applies two common tactics that are very different from the old arguments for socialism. First, it argues that we should not let people take chances on new ideas that might have negative consequences. This "precautionary principle" is particularly well developed–and increasingly enshrined in policy–in the environmental arena. (See "Precautionary Tale," April.) But it can crop up anywhere. I recently read an article in Policy, the magazine of the Centre for Independent Studies in Australia, in which the author distinguished between conservatives like himself and classical liberals on just these grounds: He criticized the Tory government of London for deregulating the color of buses. "The gain remains potential, and this is the key word," he wrote, while the loss of uniformly red buses is guaranteed.

The precautionary principle counts only the downside of new ideas, not their potential benefits–the potential doesn't count–and it ignores the costs of maintaining the status quo. It puts no value on discovery and learning, either as social processes or as means to individual satisfaction. Market processes simply cannot survive this standard of judgment. It outlaws their inherent uncertainty.

The second stasist attack on markets has equally devastating potential. This is the argument against externalities. Most of us have been willing to grant the problem of externalities in such areas as air pollution and to look for ways of addressing it with minimal disruption of market processes. But it's not that hard to declare that every market action has potentially negative spillover effects. The infinitely elastic version of the externality argument turns the language of market-oriented economics against the essential nature of commerce. Indeed, we increasingly see the externality argument aimed not at producers, the traditional target, but at consumers. My choice of which movies to watch creates cultural pollution. My purchase of convenient packaging produces environmental waste. My house color or garage facade does not please the neighbors. My purchase of consumer goods leads to "luxury fever" that hurts everyone. We are all connected in the marketplace, and therefore, in this view, our actions must be tightly regulated to contain spillovers.

Stasists do not just make tactical left-right alliances on specific issues; they share a worldview and similar rhetoric. On the left, stasist critiques of markets are increasingly replacing traditional distributional arguments. Green demands for "sustainability" and a "steady-state economy" have supplanted socialist concerns for fairness. Critics like Juliet Schor and Robert Frank attack markets for encouraging ever-expanding yuppie consumption, not for immiserating the poor. The sociologist Richard Sennett, who was raised on children's books from the Little Lenin Library, attacks today's "flexible capitalism" not for exploiting the workers or paying poorly but for fostering instability and rewarding personal adaptability. Today's jobs, Sennett complains in The Corrosion of Character, do not tell workers who they are and thus threaten "the ability of people to form their characters into sustained narratives." Egalitarian bioethicist Daniel Callahan attacks the push for medical progress, which he finds expressed in the dynamic interplay of markets, technological innovation, and individual patients' desires. He calls for "steady state medicine" and "finite health goals." Although socialized medicine might provide a regulatory vehicle for achieving his goals, Callahan is not making a socialist argument.

Turning to the center of the old spectrum, we find stasists who are,if anything, even more upset about market dynamism than their counterparts to the left and the right–because decentralized discovery processes cannot coexist with technocratic, political control. There are many examples of such objections, which are particularly virulent when Europeans start denouncing the "American" openness of the Internet, but one of the best is from Arthur Schlesinger Jr., who defined the postwar "vital center" in the United States. Writing in the 75th anniversary issue of Foreign Affairs, Schlesinger condemns the "onrush of capitalism" for its "disruptive consequences." He warns of dire results from the dynamism of global trade and new technologies: "The computer," he writes, "turns the untrammeled market into a global juggernaut crashing across frontiers, enfeebling national powers of taxation and regulation, undercutting national management of interest rates and exchange rates, widening disparities of wealth both within and between nations, dragging down labor standards, degrading the environment, denying nations the shaping of their own economic destiny, accountable to no one, creating a world economy without a world polity."

Meanwhile, over on the right we find two major objections to market dynamism. Like their counterparts on the left, some on the stasist right attack trade, immigration, technology, large-scale retailers like Wal-Mart, and other elements of market dynamism that upset "settled ways." In these attacks, stasist conservatives often make alliances with environmentalists pursuing the same goals. Sometimes it's easy to apply the old left-right distinction–Pat Buchanan is clearly a man of the right–but not always. I would certainly put Prince Charles on the right–he's a hereditary aristocrat, after all–but many people consider his stasist views, especially his views of technology, to be versions of left-wing environmentalism.

At least in the United States, however, the more common right-wing objection is that by serving diverse individual desires, markets undermine a central notion of the good. Thus some conservatives, notably David Brooks and Bill Kristol of The Weekly Standard, have called for federal programs to serve the ideal of a "national purpose." More often, we hear markets subjected to conservative attack when they produce goods or institutions–from violent movies to domestic-partner benefits to in vitro fertilization–that do not fit conservative goals.

Even on education policy, where the conservative "line" is support for school choice, there are signs of disquiet. Choice is a useful political tool against the teachers unions tied to the Democratic Party and against secular public schools, but its premises of variety, competition, and tolerance cut against many conservatives' views of good education. When California conservative Ron Unz editorialized against vouchers in the left-wing Nation, he shocked many on both the left and the right. But he was only expressing a worldview he absorbed over years of reading neoconservative publications: We know the right answer already; there is no need for a discovery process in education.

The good news is that just as the breakdown of socialism has created new alliances against markets, it has also created new alliances in support of them. The idea that markets produce not chaos and disruption but positive, emergent order has become common in the same circles where a generation ago socialism, or at least technocratic planning, was all the rage. Some of you may have seen, for instance, this endorsement of market dynamism from a noted economist: "What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy." The source of that upbeat assessment of markets was Larry Summers, now U.S. secretary of the treasury and the epitome of a Cambridge economist.

If Schlesinger's hysteria exemplifies the attitudes of centrist stasists, Summers' optimism represents a new centrist coalition on the side of dynamism. That does not mean that Summers is a classical liberal, of course. It simply makes him, and other centrist dynamists, the sort of ally on behalf of markets that anti-socialist conservatives were in an earlier time. The American center (and, I suspect, Britain's New Labour) is full of chastened technocrats who have come to accept the practical limitations of state action and the practical advantages of economic freedom.

There are also many political "moderates"–journalists, scholars, technologists, scientists, artists, and business people, all far less famous than Summers–whose intellectual appreciation for self-organizing systems has come from outside economics: from complexity theory, from the decentralized evolution of the Internet, from the process of scientific discovery, from ecological science, from cross-cultural exchange, from organization theory. These centrist dynamists share an appreciation for dispersed knowledge and trial-and-error evolution that spills over into their attitudes toward markets. They do not always prefer markets to government, but they usually do. They lack the reflex that says a single, government-imposed approach is the best solution to public problems. They are more concerned with finding mechanisms to encourage innovation, competition, choice, and feedback. One thing that makes our political discourse confusing is that the term moderate does not distinguish between those whose moderation implies an appreciation for market processes and those whose moderation suggests just the opposite–a long list of schemes for small-scale government tinkering.

Even more striking is a profound split on what used to be the left. While leftists like Sennett are attacking economic dynamism, their erstwhile allies are finding in markets the values of innovation, openness, and choice. The counterculture has morphed into the business culture–to the consternation of both commerce-hating leftists and cultural conservatives. The left that gave us socialism is not the left that gave us personal computers and Fast Company magazine. Yet both the PC and America's hot new business magazine were unquestionably created by people who, by both personal history and political agenda, saw themselves as left-wing critics of establishment institutions. Individuals who would have no great love of "markets" if that concept implied static, hierarchical, bureaucratic corporate structures have embraced the idea of markets as open systems that foster diversity and self-expression. The very characteristics that make stasists wary of markets lead an emerging coalition of dynamists to defend them.

On the old political spectrum, socialism defined the left. That meant that the more you opposed socialism, for whatever reason, the further right you were. On the old spectrum, therefore, classical liberals were on the right, which makes us the right wing of the dynamist coalition.

It matters a lot whether we define our central challenge today as opposing socialism or as protecting dynamism. If we declare "the left" our enemies and "the right" our allies, based on anti-socialist assumptions, we will ignore the emerging left-right alliance against markets. We will miss the symbolic and practical importance of such cutting-edge issues as biotechnology, popular culture, international trade, and Internet governance. We will sacrifice whole areas of research and innovation to stay friendly with people who'll agree to cut taxes just a little bit, and only for families with children. We will miss the chance to deepen the appreciation for market processes among people who lack the proper political pedigree. We will sacrifice the future of freedom in order to preserve the habits of the past.

So, yes, I am an optimist about creeping socialism. We must always be vigilant, of course, and we still have many socialist legacies with which to deal–legacies that can provide powerful tools for the partisans of stasis. But socialism is dead as an ideal and dying as a policy. The challenges of the 21st century will be different: They will be to defend the virtues of dynamism and to rally a new coalition on its behalf. How we rise to those challenges will determine whether the next century will mark a new flourishing of liberalism, or yet another long era of twilight struggle.

Editor Virginia Postrel (vpostrel@reason.com) is the author of The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress (The Free Press).