Heaven on earth is not the lot of humanity

Ten or fifteen years ago it seemed as if the battle of ideas between free markets and the various alternatives had been settled in favour of free markets. It is now clear that the battle of ideas has not been won – such battles never are. The forces that support the ‘Big State’ have regrouped, and are once again very powerful and although the move towards free markets, which took place in the 1990s, has nowhere been reversed, it has been slowed down nearly everywhere, and in some places brought to a halt.

This does not mean that the free market has failed. The empirical evidence that the free market is not only the most effective means, but is virtually the only means of bringing about widespread general improvement in the economic and social condition of the people, is as strong as ever, or more so. There has indeed been some disillusion, partly the disillusionment which inevitably follows on euphoria. Heaven on earth is not the lot of humanity and no system, however excellent, will give us everything that we want, and what it can deliver takes time. The collapse of socialism was so spectacular that it inevitably gave rise to unrealistic expectations which have been disappointed. It is worth noting in this regard that while people express disappointment with the free market, nobody claims that actual experience shows that there is a better alternative. It is very noticeable how, at present, the critics of free markets confine themselves to destructive criticism while carefully avoiding saying what they actually stand for.

There is also another source of disillusion. Following the spectacular collapse in the 1980s not only of Marxism, but also of the “moderate socialist” way of Britain and India, everybody said that they were following free market principles, but not everybody actually did so. There are countries, South Africa included, where what were claimed to be free market principles have partially failed for the simple reason that certain indispensable components had been left out. In South Africa, the missing piece was a free labour market. In Russia, a more spectacular example, it was the creation of an adequate legal and court system.

Important though it is, this too is not the most crucial point. The fact is that the proponents of the ‘Big State’ are not, in general, convinced believers in a theory. They are vested interests who will use any theory which serves their purposes and have shown a remarkable capacity to discard theories which have been discredited and find others which produce a similar result.

First among the vested interests are all politicians. The Big State promises to those who control it bigger jobs, more power and the handling of more money. To the corrupt, all those things constitute opportunities, but their appeal is not only to the corrupt. Bigger jobs are more interesting, especially to those who enjoy power, and are perfectly legitimately paid more. Nobody would question that the president of the United States should earn more than the president of Switzerland.

Exactly the same considerations apply to the senior civil servants. There are more jobs, bigger and therefore better paid jobs, and more power. For the corrupt, there are more opportunities. For the more junior civil servants, there are just more jobs. It is true that these jobs are created at the expense of a larger number of jobs in the private sector, but the conditions of employment in the public sector tend to be more attractive to the type of people who work there. The desire not to be exposed to the competitive atmosphere of the private sector is an important source of resistance to privatisation.

These are the most powerful interests, and they have enormous resources to devote to stating their case. In the matter of intellectual debate, however, they are not the most important. The fact is that the Big State is in the class interests of the class of intellectuals, the very people who conduct the debate. The Big State employs such people as “experts” and gives them power to impose their ideas on other people, something which greatly appeals to many intellectuals. Those whose talents lie more in the manipulation of people than in the delivery of goods, find conditions in the public sector greatly preferable to those in the private.

Marxism perfectly illustrates the point. Marx said that ideologies were created to serve the class interests of those who created them. Whatever the virtues of this as a generalisation, he told the exact truth about himself. He was an intellectual, not a proletarian, and throughout the history of Marxism, it was intellectuals, not proletarians who embraced it. In the Twentieth century in Continental Europe, in countries where the communist party could not command 20% of the votes of the workers, the intellectuals were Marxists almost to the last one. In the United States, where the communist party could command practically no votes, still a great many of the intellectuals were Marxists.

So, in a way, the intellectual debate is not conducted in good faith. The advocates of the Big State are, in general, just that – advocates, not convinced believers. But this does not mean that the debate is unimportant. Political decisions are eventually determined more than anything else by what is generally believed, and in general, most people want and need real information for they will benefit only from genuinely effective policies. The policies of vested interests can benefit those interests but only genuinely effective policies can benefit the majority and indeed everybody. That is what a genuinely effective policy is.

There is only one longer-term objective which it is worthwhile for any government to pursue, and that is the achievement of a high rate of economic growth, for such growth produces all the benefits which a government can wish for or hope to bring about. It does not do everything but it does everything which can be done by public policy. It improves the material standard of living which also improves most social conditions; it improves health far more than any government health programme has ever done; it eliminates unemployment and severe underemployment, and it brings the government greatly increased resources with which to do whatever it has to do. It does not produce heaven on earth, or a problem-free society, but neither does any other possible line of policy.

The only effective way to pursue high economic growth is by the consistent application of free market principles. The government does not have to practice laissez faire, though that is a viable option. It can undertake to “steer” the economy, as some Far Eastern governments have done, provided that it does it with great skill (laissez faire is far better than inept dirigisme) and acts always strictly in accordance with market imperatives. Whether it does this or not, at street level there must be a high level of economic freedom; an absence of price controls, restrictive licensing and other forms of control. This includes freedom in the labour market. Trade Unions are a legitimate and necessary part of a free market but they must not have the power to impose rules on people that they do not genuinely represent.

We must never forget that the Free Market is not an ideology, or even a theory. It is a system which evolved over the centuries – it was never invented – and which works. It works so well that it used to be customary, every time it was actually applied, to call the result a miracle, but today there have been too many success stories for that to be possible. Miracles which are commonplace, are hardly miracles. The opposite of being ideological is to be pragmatic. To be pragmatic is to do what has been demonstrated to work; and that is the Free Market.

Author: The Late Michael O’Dowd was Chairman of the Free Market Foundation from 1978 to 2005. This is his statement to the Annual General Meeting of the Free Market Foundation on Wednesday, 24 August 2004. The statement may be republished without prior consent but with acknowledgement to the author.

FMF Feature Article/ 25 August 2004 - FMF Policy Bulletin/ 22 December 2009