Lost Causes: The Retreat from Classical Liberalism
The ideas that Lal has written about include: replacing the NHS with a state-funded private health insurance system; largely abolishing foreign aid; ending the crusade against tobacco; and the misconceived fight against terrorism using methods that seriously reduce personal liberty. Indeed, these very four issues have been in the news recently including a very-well-researched House of Lords report criticising government aid policy.
So, why are these issues – and many others – lost causes? Lal refers back to the theme of another recent IEA publication – the Public Choice Primer by Eamonn Butler. The state exists, in the mind of liberals, to protect us from predation. However, that same state has now become the main predator because, through interest groups and the democratic processes, we are able to legally confiscate each other’s property and do so to the tune of 50% of national income (if inter-generational transfers through government borrowing are taken into account). Majorities in a democracy can easily take the property of others (especially of the next generation by building up debt). However, minorities can prey upon majorities as long as they are well organised and bureaucratic interests find it especially easy to prey on others. The mechanisms by which we hold them to account are very imperfect.
What is Lal’s solution?
The first is a radically decentralised state raising (mainly) local taxes on consumption. People could choose where to live including on the basis of the level of tax. All taxes should be flat taxes to reduce predation through redistribution. Tax competition will then operate within countries and this will complement the tax competition between countries that Lal expects to become more effective over time as Asian states grow richer and attract talent from the West.
If this policy is followed, the state will have to focus not on predation but on providing the best possible public goods – in those cases where there is a role for the state – for the lowest cost. This will then lead to solutions, such as those proposed by Lal, being adopted.