liberalism – Page 2 – thinking liberal

Rethinking Liberalism 1: capitalism

In my last post I suggest that liberalism, and its British variant Liberalism, had lost its way. To many people it does not address the key issues of today, and looks to be a political irrelevance. I want to address this by thinking about how liberals, and British Liberal Democrats, should deal with these critical issues. In my first essay I will take on the burning issue for the political left: what to do about capitalism?

To get a flavour of how some on the left are thinking, read thus piece by David Graeber in last weekend’s Guardian: Savage capitalism is back – and it will not tame itself. Mr Graeber is a self-described anarchist, who wrote Debt: the first 5,000 years, which I reviewed last year. His view is that the capitalists are taking over the political system, and pushing everybody else into effective slavery (though he doesn’t put it quite like that). Stopping them will take more than a bit of polite political debate and a few tweaks to the tax system. He has jumped on the Thomas Piketty bandwagon, appropriating the French economist’s recent book to his cause. He says that it shows how the capitalism is reverting to it natural state whereby the wealthy accumulate the lion’s share of the riches. Mr Graeber is somebody I find extremely annoying. But he says a lot of perceptive things, and he should always be taken seriously – up the point where he runs dry and turns silly.

What do I mean by capitalism? It is best seen as the marriage of two ideas: maximising the reach of open market trade, and a system of private ownership for accumulating gains from trade. Both ideas are initially appealing to liberals.

Let’s start with markets. To many, the use of free competitive markets is the ultimate form of democracy. Consumers choose freely, and the producers must adapt themselves to consumer demand. This idea has currency on the political right, who think markets should replace many functions of government, and reached into Britain’s New Labour project under Tony Blair. There is some truth to this view, but there are limits. There are two groups of arguments against the extension of open markets: those concerning economic efficiency, and those concerning human preferences.

The arguments concerning economic efficiency are rehearsed often. Efficient markets require information and trust; these can be expensive to maintain. This gives rise to the shape of the developed economy, which is dominated by large organisations that are run using command and control methods, not market exchanges, and by strong governments that are required to maintain the institutions that allow markets to flourish, and supervise the delivery of services that markets cannot provide efficiently.

We talk less about human preferences. Market exchanges are of their nature transactional; they require very little of human relationships. Once the deal is done, the parties walk away from each other. The word “arm’s length” is often used to describe the arrangement, with the suggestion that markets will not be efficient unless transactions are conducted at arms length. Such arrangements do little to satisfy many human and social needs. People choose to limit market relationships to only part of their lives. If we lend a friend a hedge-trimmer, we don’t ask for anything in return, still less establish a fair price – because that would be inimical to friendship.

So markets are constrained by the requirements of efficiency on the one hand, and our preference for cooperative, trusting relationships on the other. But, if we allow for these important constraints, free markets are a vital part a modern, liberal society.

But that is only one side of capitalism. But, as its very name suggests, capitalism is about much more than this. It is about wealth and capital. The profits from trade are retained by owners of businesses, capitalists. The capitalists then invest this wealth. To optimists this is a thoroughly benign process: new businesses are created, which help economies to expand and innovate, benefiting all society. To pessimists the wealth is simply used to maximise status and power. In Mr Graeber’s view an important dimension of this is the loaning of the wealth as a means of establishing power over the debtors – a dynamic that has a long history. Both optimists and pessimists have a point.

On the optimistic side, investment and laons in modern society do not lead to enslavement as they used to. Expanding economies provide many opportunities to pay debt back. Furthermore modern legal systems place severe constraints on the power of creditors. They used to be able to cart your children off as slaves, even after your death. They aren’t allowed to nowadays, and there are many ways, through death and bankruptcy, by which debts are extinguished to the loss of creditors. Furthermore, the instruments of ownership, shares and bonds, are mechanisms by which wealth, and power, can be distributed more widely through society. It is the basis on which the middle classes, who form the bulk of a developed society, maintain a degree of independence.

On the pessimistic side, there is a tendency for wealth to accumulate amongst an elite. And for the last generation, it seems that this elite is growing while the fortunes of the middle and lower classes stagnate – one of the central political challenges of our time. There four interrelated sets of problems that should worry liberals:

The capitalist system is creating an elite who are gaining undue political influence, which is tending to perpetuate their own dominance.
The amassing of wealth, only a small proportion of which is invested in new production, is slowly suffocating the economy as a whole.
The poor, and even not so poor, are finding their market power is diminishing, reducing their overall power and control that they have over their lives.
The relationship between the capitalists and their employees, and, all too often, their customers is often abusive and exploitative.

There are alternative ownership models to the capitalistic one: state ownership; cooperatives including customers and/or workers; non-profit enterprises with non-commercial aims. But each of these carries its own disadvantages; it is difficult to see how a healthy economy can work without a large component under capitalist ownership.

So what are my conclusions?

The capitalist system remains essential to a modern, liberal society. Without it life would spiral into even greater depths of poverty and exploitation.
The capitalist system is only a part of that that modern, liberal society and should be confined to those areas where it is efficient, and where people want it to be. It should be part of a diverse, pluralistic system.
There should be specific measures to counteract excessive power accumulated by capitalists, and protection for those vulnerable to exploitation.

So that set’s a general tone. It is different from the hard left, like Mr Graeber, that wants the capitalist system dismantled entirely. It also differs from the far right, that wants the capitalist system extended into further areas of society, and for the capitalists to be given more power over their employees and customers. But it covers a broad spectrum of views, from mainstream left to centre-right. Any distinctively liberal ideas are going to come from precisely how the problems of modern capitalism are addressed. That is where my future essays will go.

The search for a new Liberal narrative

There is a basic human need to understand the world in terms of simple stories. This is as true of politics as it is for other parts of life. Something that explains how we have got to where we are – and guides us towards what to do next. These are referred to as “narratives” in the jargon of political marketing. A narrative is a critical part of the political “brand”, another useful piece of political marketing jargon, which refers to what the public understands to be the core elements of a political party or movement. And liberals the world over, but especially here in Britain, are adrift. Here it is brought on by the spectacular collapse in support for the Liberal Democrats since they entered coalition government in 2010, and the way the other parties are veering away from liberal policies. In the European elections only about 2.5% of the British electorate voted for the only avowedly liberal party on offer.

I particularly like this article, The not so strange death of Liberal England, by Simon Radford in Left Foot Forward. I think he articulates very clearly what many liberals are currently thinking, especially those on in the Liberal Democrat and Labour parties. I will draw shamelessly from it as I develop my own narrative of how liberals and Liberals have reached the current dark patch.

Mr Radford suggests that Liberalism (as I will call the political movement which started with the Liberal Party) started in the 19th Century when the key political battle was between landowners and tenants. The state was tilted heavily in favour of the landowners, both terms of trade (particularly the lack of free trade of food) and taxation (little or no income tax). Liberalism was the movement that took the side of the tenants, and free trade was its central organising principle. To this were added the ideas of social insurance, and the birth of the welfare state. It was a long struggle, but the Liberals won, led by Asquith, Lloyd-George and Churchill, before war struck in 1914.

But the game had already moved on. The central drama was now the battle between the capitalists and workers. Liberal policies of free trade did not address this conflict. Instead the Labour movement arose, based on organising workers and forcing capitalists to give up a more equal share of the wealth – through better wages, workers’ rights, taxation and an expanded welfare state. The Liberals faded into irrelevance between the two wars.

Then came what many mistakenly regard as a golden age, after the Second World War. The forces of technology and demographics combined to give steady growth in which the wealth of all advanced. Social democracy was the prevailing wisdom, with a large role given to labour unions. Labour had a strong enough hand to ensure that they a decent share of the gains went to the workers. Liberalism had little to add, although liberal instincts accorded well the optimistic and more tolerant ethos of the times. Many in the Conservative and Labour parties described themselves as liberals.

Then came the 1980s, when capitalists advanced and labour retreated. Some on the left see this as the result of a sinister coup, masterminded by politicians such as Margaret Thatcher, to corrupt a system that was already working well. But the social democratic system was by then collapsing under its own weight, and it did not need much of a push to send it crashing to the ground. The old liberal ideas of free markets and trade came to the fore, and brought forward economic growth, but the process was not led by liberals; state services were neglected and taxes cut. By the 1990s new technology and globalisation were adding to the mix. The hope was that the benefits of growth would spread to all.

But the public weren’t happy with the political leadership. Labour were not trusted because they were associated with the collapse of the social democratic system, in welter of industrial disputes and stymied productivity, in the 1970s. And yet they disliked Mrs Thatcher’s Conservatives, and their rejection of social solidarity and neglect of public services. Liberalism started to revive. It offered a kinder version of the capitalist system. Tony Blair’s Labour Party managed to capture much of this liberal enthusiasm (calling his ideas a “Third Way”), which, allied with traditional Labour supporters gave him a ruling coalition which lasted from 1997 to 2010 (though he himself had been turned out by then). Although Mr Blair’s “New Labour” was the main beneficiary, the Liberal Democrats prospered too, establishing themselves as a credible third force, in a way that would have seemed unimaginable in the 1950s, 60s or 70s. And it seemed to work; the country enjoyed steady economic growth, the benefits of which were distributed widely – inequality of income may not have been reduced, but it didn’t increased either.

But then came the bust of 20008-2009. It turned out that the growth enjoyed in the Labour years was built on air. They had expanded government ahead of what the economy could sustain, and much of its new infrastructure had to be dismantled. Living standards fell, hurting especially for those on low or middle incomes, while those on very high incomes still seemed to prosper. Worse, the quality of work seemed to fall for the majority, especially for most young people entering the job market. Steady, if mindless, factory jobs were swapped for rootless service ones, often badly paid. Meanwhile the low interest rates required by the sagging economy hit the country’s growing army of pensioners, as bank deposits yielded less and annuities became more expensive. A sour political mood has resulted.

Populist, conservative narratives are taking hold. Globalisation is seen as the problem, and especially two obvious elements: immigration and the country’s membership of the European Union, which is blamed for loss of control over immigration, bad laws and regulations, and excessive subsidies to foreigners. This narrative is incoherent, but it is not my purpose to pick it apart. The problem is that liberals have lost confidence in their own narrative.

Capitalism is not working for all. A minority is raking off profits and amassing wealth, while most of the rest are having to put up with increasing insecurity. But how to replace capitalism, since the usual alternative, state ownership and direction, has proved such a spectacular failure under Communism? The left say that increased state power is the answer. The Labour party has come up with various ideas for forcing capitalist enterprises to behave better. But these are hardly liberal. Liberals dislike the idea of putting peoples’ fates in the hands of wise bureaucrats. And also Labour’s ideas are pessimistic. It’s all about stopping people from inflicting harm, and little about allowing people to better themselves (as this week’s Economist Bagehot column points out).

Liberals are optimistic about human nature. They want to help people to help themselves, and allow them to make their own choices. I think there is an optimistic narrative to be found. It is about taking on both big government and big corporations. Working internationally to curb multinational businesses. Developing more sustainable lifestyles which are more locally based. It means ditching an obsession with economic growth for a broader understanding of well-being.

I aim to develop these ideas further. But it is clear that such a narrative implies some hard choices. It may mean that liberals are unable to accept the compromises entailed in coalition government. But if there are no hard choices there is no credibility.

Vienna 1900 – parellels with Europe today

Today we went to see the last day of the National Gallery’s exhibition of portraiture from Vienna at the turn of the 19th/20th Century. The art was interesting in its own right, but the main impact for me was learning about the Austro-Hungarian Empire, which lasted from 1867 to 1916, and its implications for our time.

Austria-Hungary came into being after the Habsburg Austria Empire’s disastrous war with Prussia in 1866. This put to an end idea that the Habsburgs would lead a united Germany. It also put paid to the Austrian Empire’s possessions in Italy, which joined the new Kingdom of Italy. Austria’s rulers had to consolidate what they had, and they took a distinctly liberal approach. The Kingdom of Hungary was established as a parallel entity to Austria, rather than simply being part of Austria’s extensive possessions, and it took perhaps about half of the total land area. Hungary included what is now Slovakia, Croatia and the Transylvanian region of Rumania. In each part of the dual monarchy, democratic reforms were enacted, with elections and citizenship open to all (I think these were more advanced in Austria than Hungary).

Many people of different backgrounds migrated to Vienna, which became a liberal, multicultural place. Jews, in particular, were offered a route into the higher echelons of society, and many assimilated into the Austrian culture. But by 1900 all this liberalism was creating a backlash, and tensions started to mount. There was political stalemate, broken by the First World War in 1914 – which Austria-Hungary itself started, by attacking Serbia. This brought catastrophe down on the Empire, which broke up after Emperor Franz Joseph’s death in 1916, with complete dismemberment when the war finally ended in 1918. Things got worse after that, with anti-Semitism growing into the horror of the Holocaust. Hitler was an Austrian and part of the Vienna scene before 1914. The betrayal of Jews, in Austria especially, has left a stain on Europe’s history that will never be expunged, to rank alongside exploitative, racist colonialism, which Austria at least did not take part in.

Austria-Hungary was widely disparaged at the time – “the sick man of Europe”. Its attempt to forge a multicultural national entity was thought to be undemocratic and illiberal. The right way was to form nation states from largely one language and culture. Nowadays we have much more sympathy with the Austria-Hungary project. National identity is a complicated business, and the idea of creating states based on linguistic and cultural heritage proved to be romantic fiction at best, and licence for oppression, murder and war at worst. All European nations wrestle with the issues of being home to multiple cultures, and we have created a vast, multi-national entity in the EU, which shares many features with Austria-Hungary.

What the Exhibition showed, however, was that for all the tension and ultimate political failure, Vienna in particular produced a flowering of creativity. Many of the period’s greatest artists worked there (we can think of Gustav Klimt and Gustav Mahler, and the highly innovative Arnold Schoenberg). This creativity was not confined to the arts: there was Sigmund Freud, and in the discipline of economics, Joseph Schumpeter, each responsible for ground-breaking ideas that we now take for granted.

But there is a discomforting parallel with Europe today. The European liberal and multicultural project is under fire. Nationalist groups, promoting intolerance, seem to have the political momentum. This is creating a tension, and causing liberals to doubt. In Britain it is disheartening to see that both Labour and Conservative parties have decided to pander to the anti-liberal momentum, rather than stand up to it. And meanwhile, just as in the 1900s, economic advance seems to create inequality, creating yet more tension.

Are we heading for disaster? I don’t think so. The horrific events of the first half of the 20th Century still cast a strong shadow. But liberalism does need to reinvent itself. I dedicate myself to that cause.

10 years of Spiked

Yesterday was the 10th anniversary of this online journal. Spiked represents a different sort of liberalism to the type that I associate with. It stands up for freedom all right; in the words of its editor Brendan O’Neill in his 10th anniversary piece Spiked exists to:

…to fight the good fight for freedom, progress, growth, tolerance and a bit of Enlightened spirit.

But it sets itself against pretty much any attempt by the established political leadership to uphold liberal values. It finds itself against the idea that climate change is a threat worth doing anything about; it was against the smoking ban in public places; it got quite hysterical about Cleggmania. It has defined its enemies as “miserabilists” or, the current favourite, “misanthropists”. I browse their weekly email digest and sometimes click through to their articles. What do I think?

I want to like them. I may disagree with them most of the time, but it helps to have challenge. The problems start when I click through. Mostly, the articles just aren’t very good. They are usually too long and self-indulgent; they rarely credit the strength of the other side’s case. If you have the patience you can dig out the odd cogent argument and the occasional interesting observation. There is a general tide of negativity usually directed against an ill-defined “elite”. There can be quite a lot of description of abstract ideas. For example, one writer (Daniel Ben-Ami) in criticising the the fad for well-being economics spends so much time describing how these ideas evolved, and the other ideas it is associated with, that he scarcely engages with the ideas themselves. It mostly reads like contributions to undergraduate journals, but Spiked’s writers should have grown up by now. Unfortunately those that have got beyond the undergraduate ramblings (for example Mick Hume, the founding editor) just seem to rant rather than engage in sensible argument (for example this article about the judgement that caused the Littleborough & Saddleworth by-election). It is a striking irony that a journal attacking “miserabilists” is so miserable itself, without a positive word to say for any establishment position.

Just as striking is how defensive Mr O’Neill’s celebratory article is. He spends a lot of time trying to fend off the argument that Spiked takes its positions purely to wind people up, rather than out of a coherent set of principles. I suspect the problem is not the lack of a coherent view as an unwillingless to engage properly with the opposing argument; people won’t try to understand you if you make no effort to understand them. They also seem unwilling to host much of the way in genuine discussion on their website; I have had only one of a dozen letters published; looking at the letters page today, it hasn’t been updated this month at all.

Would Spiked’s world view start to fall apart if they did try to engage properly with the ideas? That would be an over-complacent view from a “left-liberal” like me; but I would like to read more stuff that is properly argued. Surely a missed opportunity.