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A seeming contradiction

Over at the Stumbling and Mumbling blog, the author asks this question, after watching an interesting TV programme about the sort of free market activities he sees going on in bits of Africa:

“Why is it that the societies that come closest to the libertarian ideal are poor ones, rather than rich? (It would, I think, be a stretch to argue that libertarianism causes poverty in this case). What is it about wealthier societies that brings with them bigger government?”

I think this can be fairly easily explained: as countries get richer, their voters think – naively – they can afford to have big government, at least until they start to hit those sort of problems that we have encountered in the West in recent decades with government overload. In the US, for example, the country became so rich, relatively, after the Second World War that things like the Great Society reforms, or the Space Program, were easier to contemplate and the risks and costs could be shrugged off, at least for a while. I guess what happens is that after a burst of wealth creation – as in the UK’s Industrial Revolution – part of the population that has made a lot of money wants to ease up, or wants to turn to the easier, and possibly more exciting, realm of politics.

I sometimes notice that some of the noisiest anti-libertarians, such as many academics in the universities, live in the US, the world’s richest nation, and I think the two things are in fact connected. If you have an incredibly wealthy country, it spawns a lot of folk who have the inherited wealth, the time, and the inclination, to make a living outside the immediate commercial system, and hence, will argue for something different. You can see this in certain family businesses: the Alpha Male type sets it up and makes a shedload of money; the son is sent to a posh school and starts to want to be part of the Establishment and is teased by his schoolfriends for being in “trade”. The next son may end up in the professions, and as such, will tend to be drawn towards the State, or at least take a more benign view of state power than granddad. And I think this is partly what happened in the UK in the second half of the 19th Century and into most of the 20th Century. Part of the “business class” that might be expected to form the backbone of a free market order got housetrained by a remarkably conservative, ruralist, anti-commerce establishment. (This book makes such a case, for example).

There is also the issue of “correlation is not causation”. Just because big government can sometimes be seen in wealthy societies in no way proves that the former helps bring about the latter, or vice versa. Stumbling and Mumbling implies that libertarianism, being what it thinks might be a simple-minded creed, cannot work in a sophisticated, wealthy society. In fact, I’d argue quite the reverse: the more complex a society is with a complex division of labour and profusion of individual tastes and demands, the less effectively big government tends to work. In fact, there are plenty of examples of rich societies with a relatively small government – perhaps Hong Kong being one of the best examples.

The CATO Institute’s annual index of freedom report also suggests a pretty close relationship between countries that are rich and where the government focuses on the core, minarchist roles of protecting life and property, enforcing contracts, preventing fraud, etc. That does rather undermine the point made in the comment I link to.

It is, of course, excellent news if it is true that parts of Africa are heading down the pro-market route. But using such examples to make a bit of a dig against the wider application of classical liberal ideas is unfounded.

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31 comments to A seeming contradiction

  • Ian Bennett

    What is it about wealthier societies that brings with them bigger government?

    Ask Willy Sutton; “Because that’s where the money is.” A wealthy society has more for the government to take. It does more that the government can regulate.

  • Dishman

    One also needs to look at history, rather than just the moment.

    Much of Africa was substantially more statist than it is now. Wealthier countries used to be much more free market.

  • I am exactly the kind of descendant of a rich entrepreneur type that you describe. And one of the reasons I have worked so hard to spread libertarianism is that it presents the views of “granddad”, and argues for the legal framework that made his achievements possible, in a way that might actually appeal to his relatively ignorant and unworldly grandsons. It has the intellectual content of pro-capitalism, but psychologically it has quite a lot of the look and feel socialism, and answers all the complaints from socialists in terms of alleged socialist ambitions, for the poor especially. Therefore, it may, at least somewhat, displace socialism in the intellectual and political landscape, in a way that a political movement launched by granddad never could. It will thus keep the spirit of granddad alive.

  • lukas

    i don’t know… Botswana, arguably the most free-market economy in Africa, seems to do fairly well compared to most of its neighbours, and they would do even better without the scourge of HIV/AIDS. Mauritius, too, has seen rapid growth due to free market policies. I wonder which countries the author is thinking about, is this “SOMALIA!!!!!” all over again?

  • Johanthan Pearce

    Brian, good point. In fact, I am a wholehearted supporter of inherited wealth for the reason that Hayek gave, in that it created a class of folk who had time on their hands to ponder new ways of living and thinking, innovating in certain ways, rather than spend all their waking hours toiling away. (For obvious reasons, a lot of folk on different sides of the spectrum of politics hate this insight).

    The “cycle of wealth” issue that happens with some families is not the whole story, of course. Some ancient families with long histories can, and are, associated with what I would call liberal civilisation in its best sense, such as supporting the intermediary institutions that form those Burkean “little platoons”.

    What I was trying to get at is the issue of “gentrification” – in some societies, such as the UK’s, it is very easy for people, once they have forgotten where money comes from, to be beguiled by the option of turning to the State. Look at the sort of folk often associated with the Green movement in the UK, such as the Porritts, Goldmiths, Melchetts, and the rest. The mindset tends to be pro-state in effect if not always in design.

  • You make your money, you want to keep to it, you move to politics to make sure that your wealth is protected. Vested interests, lobbying, etc…..

  • Ian B

    Well, I think this ties in with my article on Old Nichol, and Johnathan’s highlighting the distaste at “petty capitalism”. I think one of the elements driving our form of Big State; the model which generally applies since the anglosphere invented it; is an idea that “business” is a matter for a particular business class, and the greater mass of the population should adopt a subordinate dependent role as “employees”. So a society with that model in mind (I appreciate that “societies” don’t have minds of their own, what I mean is that that view is held by influential members of that society) is going to adopt bigger and bigger institutions, particularly government, and naturally veer away from liberalism.

    The petty capitalist has an awareness that, even if it is very difficult, he can better himself. Once they are part of a class of employees, they can only improve by bettering their class as a whole; that is, for instance, an individual in a group who all get the same wage can’t get a payrise just for himself, he has to work for a payrise for his employee collective and that leads to “class struggle”. So entrepreneurship cultures full of petty capitalists are more “libertarian” and employment economies will become more “socialist”.

    The western model isn’t necessarily natural. It arose for a variety of interesting historical reasons. The people of Old Nichol, and much of the rest of the poor, were trying to be individualist capitalists, and their “betters” determinedly stamped that out, to concentrate “business” as an activity of the “business class”. Our socialised societies are a consequence of that (and other things of course). So we have to ask whether as some kind of universal law, every advancing society will automatically seek that social model, or whether it’s a consequence of particular historical processes in the Western World. What I’m trying to get at here is, to use an example, most of the religious people on the planet worship in one way or another the Jewish God. That’s a consequence of particular processes in history; it would be erroneous to presume that no society can advance without worshipping that particular god. Likewise we shouldn’t presume that because the “anglo model” dominates the economic world that that is the only possible model.

    It just so happens that the two supperpowers of the industrial era are anglo nations- Britain and America, and have thus spread their ideology far and wide. In both cases though they actually rose to power before or in the early stages of the anglo-statist model. The rise of cloying statism in Britain accompanied our decline from superpower status and the same may now be happening to the USA.

  • Ian Bennett

    But Hektor, Big Government is more likely to take your hard-earned wealth than it is to protect it. A strictly limited government should be more attractive to the wealthy because those limits prevent it from plundering your wealth, whereas big government is able to take it from you (and needs to do so, simply to sustain itself).

    At the same time, strictly limited government should also be more attractive to the less wealthy, assuming they have sufficient moral compass to recognise the evils of parasitism, and sufficent intellectual wherewithal to compete with others on a fair basis.

  • My post wasn’t intended to be a dig at libertarianism; it was simply asking the question.
    Your answer raises other issues:
    1. If voters think naively that a richer society can afford big government, doesn’t this imply a big tension between libertarianism and democracy? Is it possible to be a libertarian and a democrat?
    2. What is the origin of this naivete? (It seems to exist in all wealthy societies, which requires a supra-national answer).
    3. Why have the problems that big government brings not led to more of a backlash? I mean, in 2007-08 (the peak of a cycle), the UK government spent 41.1% of GDP. That’s pretty close to the 41.9% it spent at the cyclical peak of 1972-73. 35 years of experience of trouble with big government did not create much desire to reduce it, it seems.
    As I say, I ask all this not to to snark in a partisan way, but merely to try to understand what’s going on.

  • Johnathan Pearce

    Chris, I was not thinking you were being snarky, so my use of the word “dig” should not mean that. Your post was very courteous and I also enjoyed reading the comment thread along with it.

    As for the tension between democracy and liberty, this is something we have commented on before quite a lot, in fact. There is a tension: democracy means that if 51% of the population want to empty the wallets of the 49%, then without any checks, balances or other constraints, this is what happens. The Public Choice School (as in James Buchanan and friends) has also pointed out how government can, in a democracy, take on a sort of momentum of its own.

    The growth of mass democracy has sometimes coincided with, and occasionally been friendly to, liberty as we would understand it. But then again, there are times when voters have voted to rob their fellows, vote for oppressive laws, and the like. And of course there is the sort of “ratchet effect” that Maggie and Sir Keith Joseph used to talk about in terms of the difficulty in reversing a move towards a bigger state.

    Democracy is the least-bad way of removing a government from power peacefully. (“Kick the rascals out”) But I tend not to put much more store on democracy than that.

  • Ian B

    Johnathan, people tend to criticise democracy as the tyranny of the majority, but in the overwhelming number of cases, democratic systems are arranged to ensure the tyranny of minorities.

    If every law required the active vote of over half the population, hardly any would ever pass. That is, if you could only pass a smoking ban if at least 51% of the eligible population had to get to a polling station and actively vote for it, it wouldn’t make it into law. The Can’t Be Bothereds and the Don’t Cares would make a fine bulwark against authoritarian government.

    Most of our laws are made because activists only have to get the votes of 324 MPs or, in most cases, of just a handful of ministers (since most votes are whipped anyway). Ruling parties rarely get more than 50% of the popular vote, let alone of the population, in a general election. That isn’t the tyranny of the majority.

  • Damon

    Can I suggest another element in the equation? Rule of Law.

    Perhaps there are two different factors at work here:

    1. As mentioned above, our wealthy (western) societies believe we can “afford” big-statism. We stay wealthy in spite of this (although that won’t continue, as the big-state grows…)

    2. In Africa, i.e. the “petty capitalists”, the problem is the lack of Rule of Law to allow the petty capitalists to keep their newly acquired wealth, and build on it.

    Damon

  • Sorry, I was quite succinct with my comment, so I shall elaborate.

    As in the example above, the father or grandfather makes a pile, but the chances are that his progeny are too lazy to continue making money (too much boring hard work when you’re rich already) or the competitive advantage is gone. Thus, to maintain your relative status (what good is earning £1,000,000 every year if everyone else is doing so?) you enter politics to make sure that you stay on top of the pile. You get your (grand)father’s company contracts, you build up a network, you hamstring others making it harder for them to compete. It is also a “safe” way of making a living: you need no qualifications and it doesn’t really matter if you’re awful at your job!

  • Ian Bennett

    Thus, to maintain your relative status (what good is earning £1,000,000 every year if everyone else is doing so?) you enter politics to make sure that you stay on top of the pile.

    Hektor, that’s a really cynical view of capitalism! Wealth is only desirable if it’s relative to others? Personally I’d prefer more people to be wealthy because it’s wealthy people who make stuff more available for everyone.

  • Not capitalism, human nature. Otherwise bankers would retire after their first bonus! People are generally greedy and envious given half a chance. Slightly less cynically, they also want to look after their children and set them up as well as possible for life (how do you afford Eton’s school fees) and to buy nice trinkets, such as Ferraris. These are exclusive and status building and by lying down and letting others reach your level of wealth you effectively give them up both for yourself and your children…..

  • Ian, so you think that direct democracy can be at least part of a solution?

  • Ian B

    Alisa, I only think so if it were the tyranny of the majority, rather than normal referenda. That is, a law can only pass if it gets 50%+ (or maybe a higher pass-mark) of the electorate, rather than a majority of votes cast.

    That’s because most people aren’t strongly motivated either way, especially on issues that don’t directly concern them. Like, I would oppose a law against angling, but wouldn’t be motivated to go on demonstrations etc probably; and I would probably be motivated to vote against, but I’m a politics nerd. Most people wouldn’t be that interested. So a normal referendum would basically be a numbers game of anti-fishing activists vs anglers, and the anti-fishers may well conjure the largest minority via organised activism (animal rights, greenies, etc). So you might get that law passed on a vote of 8% in favour and 7% against, with 85% not bothering to vote. But I think they should be counted as “against” since they weren’t that interested in passing the law either if you see what I mean. Only a very small minority actively wanted the law.

    By making voting an effort- you must go to a polling station- and requring a majority of the electorate, we’d see that most legislation would be stymied by the Don’t Cares. Only a law with strong support from a majority would pass. Not perfect, but much better than any current system, IMV. Needless to say, there should be no obligation to vote, since then you get lots of people who don’t care much voting almost at random, or whimsically.

    Of course as a libertarian I think most areas should be simply off-limits to legislation constitutionally, but I’m talking here about sort of “better democracy”.

  • lukas

    Alisa, it doesn’t seem to work out too badly for the Swiss. Sure, you get the occasional idiocy like putting a ban on minarets into the constitution, but overall, what little direct democracy exists in Switzerland has stopped many power grabs by central (federal and cantonal) governments.

  • Alsadius

    I think what it proves is that freedom is the second most important factor in the prosperity of a society, not the most important. #1 is the rule of law. Fascism, while terrible, is less terrible than anarchy. The ultra-free African states tend to be either terribly corrupt(rule of whims), borderline anarchic(rule of force), or some other terrible situation of a similar type. There’s no objective law, which prevents long-term planning and the creation and maintenance of wealth and prosperity.

    Also, I hear having a third of your population infected with a terminal disease can screw you up pretty good.

  • Johnathan Pearce

    I think what it proves is that freedom is the second most important factor in the prosperity of a society, not the most important. #1 is the rule of law. Fascism, while terrible, is less terrible than anarchy. The ultra-free African states tend to be either terribly corrupt(rule of whims), borderline anarchic(rule of force), or some other terrible situation of a similar type. There’s no objective law, which prevents long-term planning and the creation and maintenance of wealth and prosperity.

    Sure, without the rule of law, ensuring respect for life and property, the freedom is not likely to last very long in any event. That is why the greatest scholars and defenders of liberalism (think of the likes of Lord Acton, Locke, Hume, Hayek, and more recently, the likes of Randy Barnett, Tom Palmer, Richard Epstein, etc, are steeped in the understanding of law, of limited government and so on.

    You are damn right that what is required in many cases is law; it is, of course, a matter of considerable debate between different types of libertarian as to what is the origin of law, and whether we need states for certain laws to operate effectively. That’s a whole subject on its own.

    For instance, I reject those legal positivists who argue that all laws are created by states and hence property rights are nothing more than government-stamped pieces of paper, with the implication that they can be ripped up when the state thinks it is convenient. Just because laws are Man-made does not mean they can be casually tossed aside.

    But as I said, another issue, another time.

  • Ian: I like it. Lukas: how does it work in Switzerland ? (or should I just open Wikipedia?)

  • Alice

    IanB: “That is, a law can only pass if it gets 50%+ (or maybe a higher pass-mark) of the electorate, rather than a majority of votes cast.”

    IanB — Your idea gets my vote, for what little that is worth.

    It really ticks me off that the “majority” vote may represent 51% of the 15% of the electorate who bothered to vote. And in the US, where there are elections for County issues and School Boards that in some States by law have to be held on different dates, that low a turnout can & does happen. But that minority can commit 100% of the population to higher taxes, etc.

    One other benefit to requiring 50%+1 of the Electorate — it might discourage certain parties from padding the electoral rolls with dubious voters. The larger the electoral roll, the more votes you will need to pass your intrusion on liberty.

  • I’m not sure where Stumling and Mumbling’s author gets the idea that the society he is commenting on comes close to the libertarian ideal. Yes, in this instance the payment of compensation to the victim of a crime by its perpetrator, leaving the state out of it, is libertarian-ish. What he doesn’t look at though is the fact that many of these poorer countries are corrupt kleptocracies where the rule of law is lacking and the institutions to protect the rights of the individual are weak where they exist at all. The odds of a successful entrepreneur popping up there are extremely poor because as he becomes successful he becomes the target of a predatory ruling class who will pick his pockets clean.

    Of course the same thing can (and does) become true in wealthier societies as populist politicians play interests off against each other by, for example, leveraging wealth envy to pass laws that take from the successful to benefit the ones keeping the incumbents in power and weaken the protections afforded to the individual.

  • Ian B

    Alice-

    One other benefit to requiring 50%+1 of the Electorate — it might discourage certain parties from padding the electoral rolls with dubious voters. The larger the electoral roll, the more votes you will need to pass your intrusion on liberty.

    I hadn’t thought of that. It’s definitely another bonus.

  • Nuke Gray

    I think the growth of government is a reflection of the electoral cycle. Politicians outbid each other to get our votes, and then claim a mandate to expand government powers in the promised direction. So government keeps on growing. Young countries might start off with less laws, but if they are democracies, then they’ll become centralistic over time, unless you’ve got a good working constitution to slow the growth.

  • Ian Bennett

    The trouble with IanB’s 50%+ of the electorate is that it still allows 51 wolves and 49 sheep to vote on dinner. The fundamental issue, in my view, is the extent to which the state infiltrates our lives.

  • lukas

    Alisa,

    in Switzerland, any law passed by the legislature is put up for a referendum if its opponents manage to collect a sufficient number of signatures demanding it (50,000 signatures within 100 days, at the federal level). Popular initiatives can also be put up for a referendum without any legislative action if they collect 100,000 signatures. Some laws are subject to obligatory referenda: this includes changes to the constitution, some international treaties and membership in international organizations (Switzerland only joined the UN in 2002, and if the political class had their way, Switzerland would have joined the EU a long time ago.) In some cantons and municipalities, referenda are obligatory for all expenditures exceeding a certain threshold.

    Thus there are up to four referenda each year where the citizens vote on a bunch of federal, cantonal and municipal issues. Turnout hovers around 40%.

  • All good, except for the first part, which is the opposite of what Ian proposes. Still and overall, better, I think, than what we have most everywhere else. Thanks for the explanation.

  • Maybe the editor rejected the item about democracy (citizen-led) which we posted here a few hours ago.

    While it has an activist face, much stuff at the web site would lend itself well to the detached discussion which you seem to favour. Please therefore review http://www.iniref.org

    Forget not:

    All that is necessary for the triumph of evil is that good men do nothing

  • Tom McKendree

    Johnathan,

    I assume you have read the book you reference (English Culture and the Decline of the Industrial Spirit, 1850-1980, by Martin J. Wiener). If so, then I suggest you submit a small review at amazon.com, to offset the single, ill-informed review that is posted.

    Tom

  • Paul Marks

    lukas what you say is true.

    But remember the biased nature of the Swiss media – for example there are no anti statist radio or television stations. So the government has a big advantage in campaigns.

    Switzerland is not immune from the growth of government – indeed the growth of government since 1959 (when the Social Democrats came into the government) has been terrible.

    Although, almost needless to say, Switzerland is less statist than Britain.