Economic Theory

The libertarian right and the socialist left: just as bad as each other?


Over the past year or so, I have occasionally mocked socialists for their tendency to disown real-world socialist experiments whenever they end in failure (as they always do), and to revert to their favourite excuse: “But that wasn’t REAL socialism! REAL socialism has never been tried!”

Some readers got back to me on social media, claiming that free-market fundamentalists like myself were just as bad. When confronted with the problems of capitalist economies, we often blame these on government interventions. Is that not a form of saying “But that wasn’t REAL capitalism! REAL capitalism has never been tried!”?

Indeed, the temptation to protect one’s worldview against refutation is not unique to socialists. Focusing on impurities in implementation, and claiming that an attempt at X was not ‘real X’, is an easy way of doing that. I won’t claim that no free-market liberal has ever done it (or, indeed, that I have never done it).

Nonetheless, I do not accept the equivalence. Here are two important qualitative differences between the no-true-socialism and the no-true-capitalism lines:

Second-best solutions

Free-marketeers, even at the more purist end of the spectrum, usually accept imperfect approximations of their ideals. (I have met exceptions to this, but not many.) We are comfortable embracing second-best, even third-best and fourth-best solutions. Browse through the IEA’s publications section, and you will find IEA authors endorsing the Chilean pension system, the Swiss healthcare system, the Icelandic system of tradable fishing quotas, Sweden’s approach to labour migration, and many other such examples. None of these endorsements come without qualifications: the authors are saying “This is not real X. Real X has never been tried”. But unlike socialists, they can identify X-approximations that they consider quite good.

That is because free-marketeers generally believe in a positive dose-response relationship. A little bit of liberalisation does a little bit of good (think of the difference between Mao’s China and Deng Xiaoping’s China), quite a bit of liberalisation does quite a bit of good (think Chile before and after the Chicago Boys), and a lot of liberalisation does a lot of good (think Hong Kong and Singapore). That’s an oversimplification. There are reform bottlenecks: When an economy gets the basics wrong (the rule of law, independent courts, enforceable contracts and property rights etc), measures like trade liberalisations or privatisations count for little. Also, most free-marketeers accept some role for the state, so they do not strive for absolute purity. But let’s keep it simple here.

Socialists do not just claim that ‘real’ socialism has never existed. They make a much stronger claim than that, namely that real socialism has never even been approximated. It is one thing to say that East Germany was not ‘really’ socialist, but whatever ‘real socialism’ is, surely East Germany was at least closer to it than West Germany? Surely North Korea is at least closer to ‘real’ socialism than South Korea? Surely Cuba is closer to it than Puerto Rico, and Mao’s China was closer to it than Taiwan was during the same period?

We can represent the implied dose-response functions of both worldview’s graphically (see below). The X-axis shows where we are on the socialism-capitalism spectrum, with 0 representing pure capitalism, and 100 representing pure socialism. The Y-axis measures how pleasant it is to live under those systems: 0 represents hell, 100 represents heaven. The socialist dose-response function has an odd shape, because it only knows two outcomes: pure socialism, which is heaven (and which has never been tried), and not-real-socialism, which is hell.



The ability to define ‘the real thing’

Secondly, my main criticism of the not-real-socialism line is that while socialists are horrified whenever somebody mentions the Soviet Union or another example of socialism in action, they usually struggle to explain what exactly they would do differently. They talk about what outcomes they would like to see, rather than what rules and institutions they would like to see in place.

The free market critique of the status quo, in contrast, tends to focus on specific government interventions and policies. We do not just proclaim, in the abstract, that something or other is ‘not a real free market’. We can, and do, say what it is that we would do differently. Again, browse these pages, and you will find lots and lots of tangible proposals to change specific policies. And since they are tangible, they are, at least in principle, falsifiable. You can argue against it. You can say “But they’ve done this in countries X and Y, and the outcome has been a disaster”. Making tangible claims makes it easy for opponents to attack you – and that’s good. Because it should be easy.

You cannot do the same if somebody talks loftily about ‘creating a fair society’ or ‘a society in which wealth and power are evenly shared’. Those are vague intentions. They are not implementable policies.

Besides, while the statement that the British economy is not truly a free market economy may be controversial in the abstract, it ceases to be so once you break it down into its individual components. The NHS, for example, is not a part of the market economy. That is not a controversial thing to say. Socialists would agree with it. They would argue that the NHS has been ‘corrupted’ by private sector involvement, and undermined by the mechanisms of the internal market. They would argue that it has strayed too far away from its socialist founding principles. But they would not claim that it is a part of the market economy in the way in which supermarkets and airlines are part of the market economy. Something similar applies to state schools. And the roads network. And the state pension system. And the land use planning system. And the BBC. And so on.

Free marketeers draw the conclusion that if so many sectors of an economy are under varying degrees of state control, then that economy cannot really be described as a free market economy. We can argue about whether that’s a good thing or not, but as a description of the status quo, it should not be that controversial.

So beware false equivalences. There is a world of difference between radicalism and defensive utopianism.

 

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).


4 thoughts on “The libertarian right and the socialist left: just as bad as each other?”

  1. Posted 28/06/2017 at 11:54 | Permalink

    I pretty much agree with you. But theoretical socialist thinking has a mirror in a certain kind of purist scholastic Libertarianism, whose goal is to show how every process and institution can emerge without a hint of coercion so that a pure libertarian society can be achieved.

    Spending inordinate effort in showing how things would be mostly the same but ideologically purified is not to me a worthwhile project. And one that neglects the Hayekian insight rational redesign of market institutions is unlikely to go well.

  2. Posted 28/06/2017 at 21:02 | Permalink

    there is another difference too. When libertarians comment about something not being a real free market they reason deductively from that. E.g. banking was not a free market because of large numbers of state guarantees (especially in the US) and these state guarantees affected behaviours in ways which we observed (we also accept that, we would not have perfection without such guarantees – there would be bank runs and so on). However, because we cannot observe real socialism and because it assumes a degree of perfection of human nature which is impossible to achieve, it is impossible reason deductively from ways in which the world differs from socialism to conclusions about what it would be like if it didn’t.

  3. Posted 30/06/2017 at 00:22 | Permalink

    Socialism Sucks – while a great bumper sticker it obscures a nuance that embarrasses my (few) Socialist friends: when pressed what they really mean is a purer form of Social Democracy with a penchant for the Norwegian variety. All that oil makes Socialists salivate — another form of the Resource Curse.

    This whole debate would be tauter if Socialist came out the closet by ditching Venezuela and embracing Scandinavia. And as for the road to Denmark and how they will get us from here to there, besides plundering other people’s bank accounts the silence is deafening.

  4. Posted 31/08/2017 at 11:26 | Permalink

    Q.E is socialism . State subsidy of the financial sector…. the basis of capitalism ….. other state sponsored instruments apply .

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