Economic freedom II / Chávez - 6 comments

My Monday post, on John Pilger and Hugo Chávez, has come in for a bit of criticism. Not so much for the post itself, which largely consisted of a large quotation from Hayek arguing that the existence of a democratic mandate does not in itself stop power being wielded arbitrarily by states, but for this extract from my follow-up comment:

In Venezuela, Cuba, and so many other countries, the top priority for their governments is (sic) to open their economies, cede political power, tackle corruption, and stop blaming the country's problems on internal and external enemies. [...]

Obviously I meant 'should be', rather than 'is', but I can't deny that's a fairly succinct, though hardly nuanced, expression of my view.

Tom from NewerLabour has left a couple of lengthy comments, and Citizen Andreas has also posted, so here's my response.

Firstly, when I refer to 'opening' one's economy - reducing state control of industry, dismantling tariffs, allowing the free movement of capital and labour, etc. - I don't mean to imply an 'off-the-shelf' solution with any guaranteed economic and political return, in any particular time frame, just that economic openness is correlated with greater individual rights and more economic wealth, less exploitation of the population by monopolists, and a reduced scope for political corruption. Note that this is not a specific point about capitalism, it's about the economic freedom of individuals from the state and from monopolies of labour or capital, and insofar as posited socialist or other future economic systems respect the individual, this analysis will apply just as much to them.

I can't make any similarly general point about the likelihood of an egalitarian distribution of income: only governments and powerful economic actors can claim to have the power to alter this - whether they really have the ability to deliver is another matter altogether, but consider this, as I quote for a second time from Hayek's The Road To Serfdom (Chapter 14), and try to imagine I'm not a starry-eyed 17-year-old Thatcherite who wears a suit to college [my emphasis]:

The refusal to yield to forces which we neither understand nor can recognise as the conscious decision of an intelligent being is the product of an incomplete and therefore erroneous rationalism. It is complete because it fails to comprehend that the co-ordination of the multifarious individual efforts in a complex society must take account of facts no individual can completely survey. And it fails to see that, unless this complex society is to be destroyed, the only alternative to submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men.

Tom continues:

There already exists a party which is meant to give us liberalism and nothing further (though I would argue that they are only liberal where it hurts poor communities and authoritarian in many other aspects. [B4L: presumably the Tories?] They may fail orthodox liberalism as Labour fails orthodox socialism). We need a party that offers more than liberalism: justice. That should be Labour.

Well, of course there has to be justice. Markets can't create justice: they have to work within the rules of justice that it is the state's responsibility to devise and enact. These can take an infinite number of forms. Only systems of justice that allow individual freedom, private property, and enforceable contracts are compatible with free markets, but this still leaves us a tremendous range: as law-makers we can try to reflect a society that enjoys risk and accepts wide variations in outcomes; one that is risk-averse and prefers strong and ample safety-nets; we could quite easily raise inheritance taxes to such a degree that inheritance was practically impossible, if society so desired. So equality of outcome can be tackled without substantially imposing on economic freedom. All of this, however, requires that the state sticks to the agreed laws and system of justice, and not penalise or promote people at its whim. This is the Rule of Law.

Too often, self-proclaimed socialist regimes have taken root within states that glorify nationalism and have contempt for individual rights, or have attempted to shift opinion in that direction. This means that, as far as justice is concerned, all bets are off. The erosion of individual rights that makes it progressively harder for people to organise outside the state represents a second reason why aspiring dictators cannot be allowed to continue far down the road to autocracy. It's all the more unfortunate when the government in question appears to have a genuine commitment to aiding a previously disadvantaged social group, as in Venezuela.

Returning to economic nationalism, Tom says:

What you seem to be saying is that it is impossible to tackle the priorities of the Venezuelan people [...] without allowing multinationals from other states to take control of certain industries.

No, not necessarily. It needn't make any substantial difference what country a particular company 'comes from', and while 'faceless multinationals' are a minority in the world economy, one compensation for homogeneity and hierarchical organisation is exposure to international labour standards.

The 'take control' reference is also crucial: whatever the economic system, my view is that the cases where society is not best served by monopolistic companies (whether in the public or private sector, foreign or domestic) being open to competition, belong in the textbooks. Free economies should not permit domination, let alone 'control' of industries, nor ought they to be as susceptible to this kind of abuse than those where state control provides companies with opportunities for corruption and collusion. Of course our favoured politicians are of unimpeachable morals, but our freedoms shouldn't depend upon the character of a few good men.

Tom also argues that:

nationalism is often progressive where the intentions of outside actors are regressive in character [...]

I would very much disagree with the 'often', and I find even qualified support for nationalism mystifying. I concede that it might bind a population together sufficiently to overthrow a tyranny, but unless that unifying force is swiftly replaced with more rational economics and politics, a generation of domineering politicians will take root, backed by the dead hand of the military, with the population stifled.

A final point on liberal institutions: the idea that Chávez (and so many before him) should have domestic restrictions tolerated on the grounds that their domestic achievements would otherwise be overturned by powerful domestic or foreign forces is, I'm sure, very persuasive for the left. Democracy's greatest weapon might not literally be 'people power', but Cuba demonstrates how those who claim to 'protecting the revolution' have created themselves a job for life. Chávez's best chance of protecting his social programmes (which I'm not going to analyse in detail) is to liberalise his economy and state, to ensure the state's monopoly of force, to break up power blocs, allow a free press and media, have a trusted legal system, and to avoid acting in such a way that prevents his government winning international friends from mainstream political parties.

Update (29/08): There are currently 6 comments stretching to approximately 3500 words, so clearly I'm not going to be able to respond "in full", but I will try to pick out a few topics and deal with those. If you want to comment yourself, please be concise and read what's been said earlier on!

'The War Against Democracy' - 7 comments

My TV listing magazine declares that, tonight at 11.00 pm on ITV:

Film-maker John Pilger argues that intervention by the United States into the political landscapes of Latin American countries has been conducted with the intention of stifling democracy

I wonder how that's going to go. Just on the offchance - the offchance, that is - that it turns out to rest on the fact that Venezuela's President Chávez was re-elected with a higher share of the vote than both George W. Bush and Tony Blair, allow me to inject just one of many possible notes of caution that you're unlikely to hear during its approximate 90 minute running time:

The fashionable concentration on democracy as the main value threatened [by a 'socialist' dictatorship] is not without danger. It is largely responsible for the misleading and unfounded belief that so long as the ultimate source of power is the will of the majority, the power cannot be arbitrary. The false assurance which many people derive from this belief is an important cause of the general unawareness of the danger we face. There is no justification for the belief that so long as power is conferred by democratic procedure, it cannot be arbitrary; the contrast suggested by this statement is false: it is not the source but the limitation of power which prevents it from being arbitrary. Democratic control may prevent power from being arbitrary, but it does not do so by its mere existence. If democracy resolves on a task which necessarily involves the use of power which cannot be guided by fixed rules, it must become arbitrary power.

F Hayek, The Road To Serfdom, Chapter 5

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On second thoughts I don't think this ("Lawrence killer to remain in UK") does demonstrate the current arbitrary use of power here in the UK, but for Shadow ministers to argue that the Human Rights Act that affects us all should be altered on the basis of a single case, on the grounds that it fails to allow the Government to deport a former criminal to - if he has reformed - a life of exile in a country he left 20 years ago, or - if he hasn't - possibly inflict future crimes upon our Italian friends, then this seems a senseless and unreasonable use of Government power in an interconnected world, however (understandably) strong the feelings of the criminal's former victims.

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PS. This post delayed by 2-3 hours due to Blogger being broken, as usual.

Update (24/08): I didn't manage to complete my response to the comments, this evening. I might be ready by Friday afternoon, though most likely the evening.

Economic nationalism v. self-determination - 1 comment

I was going to post about this anyway, but Tom Miller's comment on my Iraqi Oil post gave the plan some added impetus.

The issue there was whether a population's chances of economic self-determination (the ability to act freely) are improved by an industry - or the economy in general - being owned/managed by their government, rather than by foreign companies (I should add that the most obvious alternative - ownership by domestic companies - wasn't mentioned explicitly). There is a sense in which that desire for self-determination could have been intended to apply to the country as a whole, but that idea really takes us back to a model of countries on a war footing, desperate to secure "strategic" resources. That's something for aspiring despots like Chávez to worry about, and isn't helpful for a discussion that should focus on open economies, and differences in economic power within those economies.

I don't think we can, or should generalise about the economic freedom/autonomy of individuals solely on the basis of the ownership of the largest economic assets. Incompetent or corrupt governments can - and do, throughout the developing world - subjugate their own populations, and deprive them of the means (legal, material, social, etc.) to enjoy economic freedom, just as others can - and do - expose them to the predation of private companies. That those companies might be owned, or based abroad, doesn't in itself alter the motivation to take advantage of the economically powerless.

The idea that people cannot enjoy economic autonomy - either individually or collectively - without state ownership, "strategic resources", "national champions", or widespread restrictions on economic activity, is both prevalent and destructive, and reduces our ability to explain and to tackle our own economic inequalities, let alone those in the developing world.

Or, for rather more lucid and persuasive coverage, try this - Cooperative Islands in a Capitalist Sea? :

If everyone capable of benefiting from the alternative economy participates in it, and it makes full and efficient use of the resources already available to them, eventually we'll have a society where most of what the average person consumes is produced in a network of self-employed or worker-owned production, and the owning classes are left with large tracts of land and understaffed factories that are almost useless to them because it's so hard to hire labor except at an unprofitable price. At that point, the correlation of forces will have shifted until the capitalists and landlords are islands in a mutualist sea--and their land and factories will be the last thing to fall, just like the U.S Embassy in Saigon.

And much more. I don't agree with all of it, but it offers a model of economic empowerment that no amount of grant or subsidy can conjure up.

Update (21/01): fixed typo