Thoughts on economics and liberty

Is liberalism on the decline?

An academic from Russia asked me the following questions (in bold) a few weeks back. I'm posting my responses here for the record, noting that I did not have much time to respond and so the language and argument could well have been significantly improved. But a blog is meant for such things: both semi-finished and finished products.

1. Is liberalism of Western type on the decline from both political and intellectual point of view? If it is so, can you define what is the concrete expression of this decline, and what can be a possible transformation of the whole notion of liberalism? If you disagree with this point of view, how could you define the present political and intellectual status of liberalism?

As is well known, there are a range of Western-type political conceptions that consider themselves liberal: the defenders of liberty. I subscribe to the version broadly classified as classical liberalism. In my view, later (mostly 20th century) versions of ‘liberalism’ do not defend our liberties but are in essence a form of welfare socialism. A great amount of mercantilism and statism also continues in the West today, masquerading as liberalism.

So we would need to know what ‘liberalism’ we are referring to (e.g. to suggest that there is a liberalism of the ‘Western type’ is a very broad generalisation that simply cannot capture the differences among these various forms). Since, in my view, the West has hardly ever been fully liberal in the classical liberal sense, there cannot be a decline of liberalism. Merely variations in the levels of welfare socialism and the like.

Whether liberalism is on the decline, one thing is sure: the freedoms of the West are currently declining badly. Illiberal ideas seem to be growing stronger in the West with each passing day, though the recent elections in the European Union given pause to such growth, indicating that the common citizen is beginning to dissociate himself from the false claims of social democrats and welfare socialists who have denied the value of liberalism in modern society.

My regret is that many policy makers in the West have refused to recognise that the recent ‘global financial crisis’ (GFC) has been caused primarily by their rejection of freedom (see [Addendum: this has moved – search on google) for arguments to illustrate my contention). The type of illiberal policies instrumental in precipitating the GFC include the centrally administered price of money by central banks (noting that central banks are essentially Marxian, being one of the ten pillars of communism: classical liberals do not advocate centralised money or banking or the administered price of money). Western welfare socialism has also meant a major government subsidisation of banks and mortgagees and a range of other bad practices too many to recount. Welfare socialism in its various forms seems to be very attractive to politicians in their short term interest, but it badly price signals and confuses investors, leading to huge wastage of capital and hurting the consumer. Poor regulation of the investment banking system and financial derivatives has added to the mix of problems for the West. None of these problems have come from freedom that is constrained by accountability. There has been either too much interference with markets, or too much freedom given without prudential regulation.

Sadly, the solutions currently being advocated by governments in the West will inevitably increase its economic problems in the face of rising competition from China and India.

There is only one long term solution for the West (and the world, more generally): to reinstate and advance freedom with accountability. Fortunately, the internet has prompted a revival of the ideas of freedom. The battle for the hearts and minds of policy makers is being furiously waged today. It would appear that the ultimate victory and resurgence of freedom is inevitable, given historical trends of the past few hundred years. I refer to the long term-trend towards increased freedom in the world. But I do not believe the West (or the rest of the world) will adopt liberalism and freedom easily. In the draft manuscript of my next book, The Discovery of Freedom – ( I have noted that: “Given the early stages or freedom in the world today, it may take another 200 years or more for the policies of freedom to become more widely adopted.”

It is heartening to note the growing number of educated people who are beginning to question illiberal policies. A recent example of the debates against centralist or statist interventions in the area of higher education and research and development is found in the book, Sex, Science and Profits by Terence Kealey, which I have reviewed at:

In brief, the fight for our freedoms worldwide has only just begun. There will be many temporary setbacks on the journey, but despite them liberalism will keep spreading and expanding across the world.

2. If you agree with the point of view that today liberalism is undergoing a period of crisis, why do you think there has been no ideological alternative to it within other schools of thought? Do you consider such an alternative possible or should we simply wait for the "rebirth" of the liberalism (meaning that a new version will reject some of its forms that have become unacceptable by now)?

As noted above, I do not believe that any ideological alternative to classical liberalism is needed. Only its continued and steady resurgence. This statement might sound too complacent, but liberalism encompasses an inbuilt need for continuous improvement. As Hayek said, “There has never been a time when liberal ideals were fully realized and when liberalism did not look forward to further improvement of institutions.”

3. Do you agree that one of the factors that led to a decline of liberalism, was the misuse of the notion during Bush era, when neo-liberal ideology got associated with militarism and 'spreading democracy’ by force? In that case, doesn’t it signify a serious political and ideological defeat for the West?

While there has been no decline of classical liberalism, there has been a noticeable decline in freedoms in the West over the past fifty years or so.

Regarding the recent economic plight of the West, the GFC has little or nothing to do with the former President George Bush’s drive to spread democracy ‘by force’ (that would be a serious misrepresentation of Bush’s stated and implied goals). It has, however, everything to do with Western (Bush’s including) illiberalism in the economic policy arena.

In the draft manuscript of my book, The Discovery of Freedom I have suggested that the West should stop wasting money on foreign aid and shift its focus to supporting freedom throughout the world in non-militarist ways:

“The West could therefore look for ways to teach its ‘fishing methods’ to the poorer nations, and stop providing them with ‘fish’ (which does not reach them, anyway). Doing so will not only be cheaper, it is the only ethical way to help one’s fellowmen without doing their work for them. And of course, before it claims to teach freedom to the East, it is obliged to throw open its markets and stop hiding behind trade barriers. But instead of doing these things, the West has spent, and continues to spend, trillions of dollars in strengthening its defences against its unknown enemies from the East. It then fights with a vengeance over trifles, and pours hundreds of billions of dollars into its ferocious wars. While that may be sensible if the West expects the world to last only for another twenty years, it will be more sensible for it to spend far less money – but on the right things: in spreading the message of freedom.”

I have also outlined many ways by which the West could support freedom. None of these methods include invading any countries.

4. Has the current global economic crisis brought an end to the global liberalization?

I assume you are referring to what is commonly called globalisation which includes both internal liberalisation and external (trade and investment) liberalisation. If so, I doubt it if the GFC has brought an end to globalisation.

First, the so-called global liberalisation till before the GFC was very patchy and incomplete. While more open than at any time in the past century, the world was still very closed. That is why many battles for freedom of trade and investment were still being fought at the WTO. Most countries had still not opened up their economies as would be desired, nor freed their foreign exchange markets.

After the GFC it is true that there has been a growing demand for welfare socialism and restrictions on trade and investment (with USA taking the lead). However, this is likely to be a temporary phenomenon, given the long-term trend towards greater freedom and liberalisation.

Second, it is worth recalling that in 1750, China accounted for 33 per cent of world’s manufacturing output and India 25 per cent. That situation will likely re-emerge in the coming 100 years. But the only way it can happen is for these two countries to liberalise dramatically. Therefore India and China are unlikely to push back their liberalisation. Even the West will sooner or later pull back from its current protectionist phase and re-assert its leadership in freedom.

But the GFC throws up a great once-in-a-lifetime opportunity for developing countries to follow the best policies of freedom and liberalism and to race ahead of the West.

5. If liberalism still has some potential, what versions of liberalism can be acceptable today? What liberal ideas the West will never reject?

Tolerance and democracy will likely remain the minimum expression of liberalism in the West. But if the West continues to harm down its economy then even these freedoms could be threatened. Thus, once the USA nationalises its banks and major industries, it will then be on the early stages of becoming an India, if not a USSR. Fortunately for the USA, I believe it has a good Constitution and it will pull back before the brink.

6. Is religious liberalism possible in any form in present-day society? And what could its possible forms be?

Religious freedom is a mandatory requirement of liberalism. Tolerance for all religions, under the overarching supremacy of the rule of law – a law made by elected citizens – is the way of freedom. Religious liberalism is feasible in all societies, even Islamic ones.

What does the word ‘liberalism’ mean for India ? How has the very notion changed during last decades? Has it been used as a political tool and for what end? Is being called a ‘liberal’ in today’s India a sign of condemnation or praise? And why?

India has been a socialist country ever since Nehru got enamoured by it in the 1920s and 1930s. It therefore remains predominantly socialist even though notionally a few of its economic markets have now been freed up (many restrictions still remain). Indian intellectuals have, by and large, still not understood liberalism and freedom, and are reluctant to call themselves liberal, being happiest to call themselves socialist. Thus there is no liberal political party in India even now. Trying to get one up and running is one of my objectives.

Addendum 13 June 2009. A sensible article by Paul Kelly in The Australian today. Fix it, Don't Break it.

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