Thoughts on economics and liberty

Tag: Freedom First articles

20th March 2011

The absurd dreams of libertarian anarchists

While socialism presents a real and ongoing threat to liberty, it is also important to challenge the fringe school of thought called libertarian anarchy or anarcho-capitalism. These people threaten liberty through a utopia in which we would not only organise our economic affairs privately, as in the classical liberal state, but even defence, police, and justice. This idea is untenable and will destroy liberty comprehensively, as this article will show. The febrile, adolescent dreams of libertarian anarchists must be nipped in the bud so we can get on with the serious challenge of battling socialism and statism in India.
 
The problem of foreign invasion
There are at least two problems for which the state is the necessary (but not sufficient) solution. The first is the problem of large-scale foreign invasion, wherein marauding armies come in across borders and raze down entire towns, causing catastrophic ruin. India has been raided hundreds of times, but even the communist takeover of Russia and China involved mass destruction of life and property. In response, people carried huge rocks to hilltops and built forts. This collective defence, that includes a large army, forms the foundational pillar of the state.
 
The second problem is of trust. Human nature is not always very pleasant. The private sector, left unregulated, is basically a rogues’ gallery steeped in fraud, bullying, deception, and violence. While governments are by no means trustworthy, the private sector’s credibility is much lower. Each of us has been cheated so many times by the private sector even in the regulated state: imagine what would happen without the state.
 
The classical liberal knows that the state is not a nice little Fairy but a potentially dangerous beast. Hence he builds checks and balances to ensure that power remains with the people. But of this he is clear: that it is more desirable to entrust our life and liberty to a parliament whose functions of lawmaking and governance we oversee, than to fraud-prone private businesses. It is from such considerations that the classical liberal social contract arises in which people voluntarily hand over some of their innate animal powers to the state, being assured in return of a level of security of life and property. The classical liberal state is an evolutionary stable Nash equilibrium of private strategies. This is evident from the fact that people swear allegiance to their national flag only as long as their life and property are secured by the state, else revolutions are precipitated. The state is a creature of public consent.
 
The libertarians can’t seem to understand this basic logic. They also can’t seem to understand that had anarchy been able to resolve the problems outlined above, then human society would have tended to evolve into anarchy, not into the modern, classical liberal state.
 
Taxation is not forced labour
Libertarian anarchists completely deny the validity of coercive taxation. Even some classical liberals claim that taxation is theft or forced labour. And Ayn Ran could only tolerate the idea of voluntarily payment of taxes. But these ideas are all misplaced.
 
Taxes are nothing but the dues for security and justice. Even libertarian anarchy would need to pay for these services, there being no free lunch. The question then is: Which is the most efficient way to get such services? The response must display a keen understanding of the mechanism of collecting fees for such universal services (‘public goods’).
 
And the first thing we note is that voluntarism can’t work. Imagine that India disappears overnight and is replaced by libertarian anarchy, with thousands of private businesses competing to provide us defence services against the nuclear-armed Chinese army. Apart from the chaos that this would entail, barely any funds would be collected on a voluntary basis. Everyone would expect others to pay. The next thing we know: those living in this anarchy would have come under control of Chinese communists, ending all liberty that they might have dreamt of.
 
Compulsory taxation that is tempered by democratically agreed principles is the only viable method of providing sound defence, police and justice. Everyone gets this point, but not libertarians! They need to snap out of their foolish day-dreams.
 
The inadequacy of private security and justice
The classical liberal is happy for police and justice to be provided by the private sector to the extent that is feasible. Indeed, private contracts that do not harm others and are viable (in terms of transaction costs and free rider issues) form a part and parcel of the classical liberal state.
 
In any event, the state can only provide the more basic policing and justice services. Just because we have a police system doesn’t mean we should keep our gold jewellery lying about on the roadside. The rich must necessarily complement the state’s security services with private security arrangements where appropriate. That does not give the rich man any right to shoot down a ‘thief’, however; since even the alleged thief needs the protection of natural justice.
 
Anarcho-capitalists suggest that all laws should be privately determined and apply only to those who have paid for them. Also, “[e]veryone may choose which of the competing courts he will look to for protection; and he may alter his choice at will.”[1] This means that we could very well be shot dead by a private ‘justice agency’ to which a rich man has paid a lot of money. There is not much to distinguish private justice agencies from the Bihar mafia. No person in his right mind will ever entrust his life and liberty entirely only to a private police or justice system.
 
The nightmare of contractualism
Libertarians want us to negotiate all our defence, police and justice needs individually. In this context we note that laws of modern nations run into the thousands of pages, with clear definitions, precise formulations of accountabilities and punishments. The idea of individually replicating this effort through private suppliers is beyond absurd!
 
It is undoubtedly cheaper to send our representatives to parliament to make our laws and organise a police and justice system. This takes advantage of specialization, and allows us to supervise these systems. The classical liberal is perfectly happy to increase contestability even in matters of security and justice. For example, in Breaking Free of Nehru I suggest that the Indian government should register a range of marriage contracts that comply with minimum standards established by parliament. But note that even this needs minimum standards to be enacted and enforced by the state. The classical liberal state sets the foundation of the rule of law. That underpins modern civilisation.
 
The libertarians clearly betray not even the remotest understanding of human nature, nor understand costs and benefits. Theirs is mere idle, delusional day dreaming. The people, fortunately, are far more sensible. No peoples have ever demanded anarchy nor is there any mechanism (known even to the libertarian anarchists!) to convert the modern state into libertarian anarchy. The sooner the libertarian anarchists get real, the better for everyone.
 
Freedom Team of India
Let me assert that India can’t become a classical liberal state without your active participation. FTI (http://freedomteam.in/) is looking for leaders to lead a movement for necessary political reforms in India. Please join FTI or otherwise support it! There is no magic involved in getting a good government, only a lot of hard work and perseverance.

[This article of mine was published in Freedom First, March 2011]

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15th February 2011

The beliefs of the liberal

Classical liberalism has been vindicated in the 20th century through the collapse of totalitarian regimes in Germany and Italy, and communist USSR. Attempts in the West to promote a social democratic welfare state have also floundered badly. These ideas – that give the government a role beyond delivering law and order and a modicum of infrastructure – have by now been thoroughly discredited.
 
Freedom First has bravely defended classical liberalism in India for over 57 years in the face of socialist delusions. But not only have liberal ideas emerged unscathed, the only things that have actually worked in India since independence are based on the liberal philosophy. Thus, its 1950 constitution has defended at least some civil rights, and the liberal economic policies forced upon reluctant socialists (after they had bankrupted India in 1991) have helped it recover from a disastrous experiment with socialism.
 
Despite the sterling success of liberalism (even in India), even today there is no national liberal political party, and the shenanigans of corrupt socialists continue, unchecked. It is crucial for liberals to assert the moral claims and worldly benefits of liberalism, and to put to bed socialist and other collectivist ideas that have harmed India for so long.
 
Why freedom?
Liberalism gives primacy to two key values: life and liberty. It asks for the protection of “autonomous spheres in which the ends of the individuals are supreme” (Hayek). It asks that we must be allowed to do what we want as long as we don’t harm others.
 
This crucial value – of freedom – can be explored from two angles: the moral and empirical. The moral imperative requires everyone to be treated equally under the law, which means everyone should have the same freedom of action. All moral theories of justice also lead us to freedom. Individual justice (not social justice: a vacuous concept) is the other side of the coin of freedom. The idea of justice makes sense only where free-will prevails. Only a free man can be held to account.
 
The other aspect – empirical – argues that freedom is the only value capable of ensuring a harmonious society. The liberal, as a scientist, observes human weaknesses and limitations; and hence promotes a system that will permit us freedom but hold us to account. Another key empirical justification for freedom is that it generates huge amounts of wealth.
 
Institutions of liberty
The institutions of liberty are designed to empower self-interested individuals with widely differing tastes to cooperate voluntarily to achieve their personal goals using knowledge which is scattered across the society. I highlight below some of the key institutions below. A detailed excursion into liberty and its institutions is provided in my draft manuscript, The Discovery of Freedom (http://discovery.sabhlokcity.com/).
 
The state – for the defence of our freedom
Liberalism opposes anarchy. A state (nation) with an agreed boundary and government is the basic liberal institution. Also, “[o]ne must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace” (Ludwig von Mises). The government must therefore perform the key functions of defence, justice, and police. In particular, justice must be quick, proportionate, and accessible.
 
Limited government
Functions beyond these core areas of responsibility can be taken up by a government only where a strong case for the provision of public goods, or a level of equal opportunity, exists. In doing so, the government must not reduce our liberties, nor skimp on the delivery of its core functions. It is particularly important also that each citizen is allowed to pursue his own happiness the way he or she pleases. The government must never become our nanny.
 
Live and let live
A harmonious society can arise only when no one is permitted to forcibly impose his personal beliefs (religious or otherwise) on others. Note that liberalism is not against religion. Far from it. But it does demand tolerance and freedom of expression. It is intolerant of intolerance.
 
Separation of the domains of the state and religion
The liberal state is non-denominational. It does not support nor comment on any religious matter. Thus it does not make religious law, nor fund religious activity. Religions, similarly, are expected not to impose their demands on the functions of the state.
 
Participative government
As part of equal freedom, every adult should have equal political rights – including democratic franchise. Different views exist, however, on which form of democracy is best. Based on an analysis of incentives (see Breaking Free of Nehru: http://bfn.sabhlokcity.com/ for details), I recommend continuing India’s current form of democracy, subject to a few reforms.
 
Limited democracy
There is a belief among some liberals that the ‘will of the people’ is supreme. This is incorrect – to the extent that such ‘will’ tramples on the liberty of a minority. Just as the government should be restricted to its core functions, democracy should be limited through constitutional safeguards that disallow the rule of the mob. Democracy is not an innate social value. Our freedom is.
 
Accountable government
The authority we give to the government is not a blank cheque for whimsical taxation or interference in the economy, or whimsical support for one group at the expense of another. The citizen, as principal, is entitled to hold his agent – his political representative, and the government – firmly to account. The executive must disclose the reasons for its decisions to the parliament, and the parliament must return back to the people every few years to renew its mandate.
 
To bring about greater accountability, the governance system must align our agents’ incentives (i.e. of MPs, MLAs and bureaucrats) with ours, so that our agents advance our security and welfare, not just their own. This means, in particular, that MPs’ and bureaucrats’ compensation must be high enough to eliminate corruption, with a major part of it linked to performance indicators of freedom, integrity, and prosperity.
 
Rule of law, and general rules
As Hayek noted, “[t]he great aim of the struggle for liberty has been equality before the law.” The state must not create special laws for special ‘classes’ of people – whether religious or otherwise, or favour particular businesses at the expense of others. (For instance, it can’t give the powers to issue currency only to a single bank.) Further, the functionaries of government should comply with, and disclose precisely how their decisions are compatible with the general rules. There is no place for whimsy in the free society.
 
Reasonable equality of opportunity
Free societies generate huge quantities of wealth, leaving only a tiny residue of poverty. But while a harmonious society can exist even with extreme economic inequality, poverty dampens the allegiance of the poor to the nation. For many other reasons, as well, the liberal accepts the need for a direct social insurance mechanism that supports, at a frugal level, those who fail to earn a minimum livelihood despite their best efforts.
 
These, in a nutshell, were the beliefs of the liberal. Clearly, India is far from being a free society. The liberals have a lot of work ahead of them to bring freedom to India.
 
Freedom Team of India
FTI (http://freedomteam.in/) is looking for Indian liberals to step forward and lead India to freedom. Please join or otherwise support FTI!
 
[This article by Sanjeev Sabhlok was published in Freedom First on 1 February 2011]
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18th November 2010

India needs a non-interfering agriculture policy

[Published in the November 2010 issue of Freedom First]

All that a government is required to do in for farmers, as it is required to do for others, is to ensure security (including biosecurity in this case), strong property rights, and justice. Justice, in the case of agriculture, includes minimising harm to the environment (see my Freedom First article of May 2010 for how this can be achieved.)

In addition, a government can legitimately undertake a few other functions for agriculture, such as maintaining a strategic reserve of foodgrains; facilitating agricultural research through (private only!) universities and the private sector; ensuring infrastructure such as irrigation canals through private enterprise and public-private partnerships; and supporting the re-skilling of agricultural workers who want to move into more productive vocations. Beyond that, the free market should operate. That, in essence, should be the agriculture policy of India.
 
Freedom is vital to food security
Innovation is a direct outcome of freedom. As a result, free nations manage to produce huge quantities of food, cheaply. I love the story about a young couple, Craig and Helen Elliott, who started with virtually nothing in their pocket in 1995. Without any government assistance, they built a farm in New Zealand which generates 26,000 litres of milk per day. Between the two of them they milk 900 cows each day![1]
 
Similarly, just 3.5 lakh farmers, representing four per cent of Australia’s workforce, produce food not only for Australia but export it in huge quantities. So also, in free societies the share of food in family budgets has declined to less than 10 per cent while in unfree nations like India up to 70 per cent of the family budget is spent on food[2].
 
The Indian farmer is bound and gagged
Markets, operating through the price system, allocate resources optimally to the production, supply and distribution of all commodities, including food. But socialist India has never tolerated markets. The Essential Commodities Act (ECA) enables the government to “control of the production, supply and distribution of, and trade and commerce, in certain commodities”. As a result, every aspect of agriculture is whimsically distorted in India, making agricultural investment a game of chance.
 
Input and output prices are distorted by fertiliser and electricity subsidies which can only be exploited by wealthy farmers, by the price support system, and by compulsory procurement. Subsidies on fertilizers have increased over the past decade, as have the number of states that supply electricity free of charge to farmers. This has under-priced ground water and reduced incentives for efficient water management.
 
Opportunities to develop private crop insurance have been blocked, and logistics and trade (including exports) literally strangulated. By blocking markets in forestry and wildlife products these resources are now grossly undervalued and hence over-harvested. The loss of habitat due to socialism is almost irreplaceable.
 
Zoning of agricultural land prevents farmers from receiving the true value of their land, and efficient farmers are prevented from expanding through the imposition of land ceilings. Reservations for small scale industry in agro-processing and restrictions in foreign direct investment in the food supply chain destroy incentives for innovation, destroying huge quantities of perishables.
 
Not happy with strangulating the farmers, the corrupt public distribution system (PDS) creates huge deadweight losses and destroys massive quantities of food. Corrupt politicians use the farm sector (which pays almost no land revenues, and no income tax) to launder black money. Confused environmentalists like Vandana Shiva attack the use of science and technology. By blindly opposing pesticides and biotechnology including GM crops (I’m only referring to those that have been fully tested), agricultural potential is significantly impacted. And not to be outdone, Hindu fanatics – who don’t seem to know their own religion and culture – prevent farmers from using cattle in the most productive manner.
 
With all this, and more, it is a miracle that any food gets produced at all. One thing is sure, that no farmer’s child wants to work on the farm. And our system doesn’t allow well trained agriculture experts to buy and operate large farms, which is how the Western farming sector works.
 
The reform package
Indian agriculture can’t be liberated without first ensuring that no farmer or his family goes hungry. Poverty must be eliminated first, using methods outlined in my May 2009articlein Freedom First. There should be people support, not price support, for those below the poverty line. Once poverty has been eliminated, a range of liberation policies can be introduced.
 
Agricultural subsidies would need to be phased out quickly, and barriers to agricultural trade eliminated by abolishing the ECA, the Agricultural Produce Market Committees Act and thePDSalong with all shades of compulsory procurement. Modest strategic reserves can be procured at market price, and stored privately.
 
Property rights must be absolute, subject only to strongly demonstrated public purpose. Long diluted by Indian socialist governments, these rights must be strengthened so that farmer who own land must have full rights to its use (including when and whom to sell). It is legitimate for a government to acquire land to prevent public roads from bending at the boundary of each farm. But nothing beyond obvious public purpose can be used as ground for land acquisition. Ceilings on land holdings would necessarily have to be abolished, allowing the more efficient farmers to buy out their less efficient neighbours. Similarly, by abolishing land zoning and encouraging strong local governments, small towns will boom, reducing the pressure on large cities.
 
A well-regulated insurance industry would then provide high-quality crop insurance, with futures markets allowing farmers to hedge. Farmers will study the markets carefully for relevant signals and if their crop fails, both crop insurance and, in the worst case, the social minimum (frugal subsistence) will protect them.
 
Agricultural regulation motivated by religious interference would have to be repealed. It should be possible, given the great diversity of religious beliefs in India, for those who do not wish to slaughter cows to sell them to those who will. What is needed are, instead, are laws (with strong enforcement) to prevent cruelty to animals, as part of the justice system.
 
Finally, we should stop worrying about WTO matters. If foolish Western nations want to destroy their taxpayers’ wealth through agricultural subsidies, by all means let them. We should exploit such foolishness by buying their products at throw-away prices. We must, however, to insist on selling our agricultural products to them freely, and insist that foreign aid, which comes tied to insidious objectives, come to an immediate halt.
 
With these policies India will become a powerhouse in all sectors, including in food production. Lack of freedom today has meant that our farmers are one of the least productive in the world. Over half of India’s workers, over 20 crores, are engaged in agriculture but produce only 17% of our GDP. Free India can produce sufficient food with less than 1.5 crore professionally qualified expert farmers.
 
Freedom Team of India
I once again request you to join the Freedom Team of India (http://freedomteam.in/) or at least becoming a Freedom Partner to politically oppose India’s misgovernance.
[1] John Dyson, ‘A Rich Harvest and No Handouts’, Reader’s Digest, January 2008.

[2] A 2003 report by Economic Research Service of the United States Department of Agriculture. [http://ajol.info/index.php/jfecs/article/download/52867/41469]
 
ADDENDUM
 

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