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!