Since it has been argued so far that an essentially liberal economic regime is a necessary condition for the success of any interstate federation, it may be added, in conclusion, that the converse is no less true: the abrogation of national sovereignties and the creation of an effective international order of law is a necessary complement and the logical consummation of the liberal program. In a recent discussion of international liberalism, it has been rightly contended that it was one of the main deficiencies of nineteenth-century liberalism that its advocates did not sufficiently realize that the achievement of the recognized harmony of interests between the inhabitants of the different states was only possible within the framework of international security. ....
That nineteenth-century liberalism did not succeed more fully is due largely to its failure to develop in this direction; and the cause is mainly that, because of historical accidents, it successively joined forces first with nationalism and later with socialism, both forces being equally incompatible with its main principle. That liberalism became first allied with nationalism was due to the historical coincidence that, during the nineteenth century, it was nationalism which...fought against the same sort of oppression which liberalism opposed. It later became allied with socialism because agreement as to some of the ultimate ends for a time obscured the utter incompatibility of the methods by which the two movements tried to reach their goal. But now when nationalism and socialism have combined—not only in name—into a powerful organization which threatens the liberal democracies, and when, even within these democracies, the socialists are becoming steadily more nationalist and the nationalists steadily more socialist, is it too much to hope for a rebirth of real liberalism, true to its ideal of freedom and internationalism and returned from its temporary aberrations into the nationalist and the socialist camps? The idea of interstate federation as the consistent development of the liberal point of view should be able to provide a new point d’ appui for all those liberals who have despaired of and deserted their creed during the periods of wandering.
This liberalism of which we speak is, of course, not a party matter; it is a view which, before World War I, provided a common ground for nearly all the citizens of the Western democracies and which is the basis of democratic government...But the realization of the ideal of an international democratic order demands a resuscitation of the ideal in its true form. Government by agreement is only possible provided that we do not require the government to act in fields other than those in which we can obtain true agreement. If, in the international sphere, democratic government should only prove to be possible if the tasks of the international government are limited to an essentially liberal program, it would no more than confirm the experience in the national sphere, in which it is daily becoming more obvious that democracy will work only if we do not overload it and if the majorities do not abuse their power of interfering with individual freedom. Yet, if the price we have to pay for an international democratic government is the restriction of the power and scope of government, it is surely not too high a price, and all those who genuinely believe in democracy ought to be prepared to pay it. The democratic principle of “counting heads in order to save breaking them” is, after all, the only method of peaceful change yet invented which has been tried and has not been found wanting. Whatever one may think about the desirability of other aims of government, surely the prevention of war or civil strife ought to take precedence, and, if achievement lies only in limiting government to this and a few other main purposes, these other ideals will have to give place..--Hayek (1939) "The Economic Conditions of Interstate Federalism" [HT: Wolfgang Streeck, Buying Time]
This post was prompted by yet another fascinating essay, "The Shortcut to Serfdom," by Jacob Levy and its re-reading of Hayek's Road to Serfdom. (Read it in full.) Levy treats the technocratic presidency of "the Obama administration" as the misguided but well-intentioned cause for the "increasing the [dangerous] presidential power that the Trump administration would now inherit."* The passage just quoted merely suggests that certain powers of the Trump administration are a consequence of the Obama administration, but below I quote a much stronger claim on the slippery slope from Obama to Trump.
Even so, the real interest in Levy's piece is not its explanatory framework, but that it is aiming to shape the future of classical liberalism (which includes libertarianism as its most intellectually active component) and thereby to return it to its true orientation. In fact, there are two polemical points. First, a rejection of
[t]he long postwar “fusionist” alliance with organized conservatism entangled many libertarian admirers of Hayek with the rearguard defense of Jim Crow. The Confederate-sympathizing southern populism of some self-identified libertarians is even worse, identifying the cause of liberty with the celebration of serfdom or slavery itself. It is long past time for those links to be broken, and for the people who think of themselves as heirs to Hayekian liberalism to identify with the civil rights movement that broke serfdom once and for all.
While this is a strictly American phenomenon, many European liberals have also succumbed to the temptation of getting entangled with (hierarchy loving and ethnocentric) conservatives. Levy has made the point before (from the inception of BHL) [recall], but with the rise of Trump disassociating liberal views from ethnocentric nationalists has become more urgent. For Trump represents a strategic danger: he may seem to represent the defeat of the "democratic left" and is quite capable of buying off some would-be-liberal-interests; yet, thereby he cements an illiberal regime which is the last thing a classical liberal wishes for. As Levy writes:
A deceptive, ruthless, nationalist executive, unconstrained by either traditional rules of law or by parliamentary or legislative oversight, choosing particular firms and industries for favor and disfavor, seeking to undo the international system of trade: this is very much the shape of the rising populist and nationalist authoritarianism in the world, from Turkey to Hungary to the United States. Hayek’s warning is that the good intentions of the democratic left can lead to bad results like that. To embrace those results for the sake of keeping the democratic left at bay is to dishonor [Hayek's] warning, not to heed it. This is true even if the lawless nationalist authoritarian promises a few pro-market victories on policies or personnel: some deregulation here, a tax cut there, a couple of undersecretaries.
Levy closes his piece by channeling Constant and warning against the demagogue who promises the bourgeois "public order, protection from [terrorists], and enjoyment of private profits." (I have inserted terrorists where Levy has 'the mob.') I hope Levy succeeds in orienting North American, classical liberalism in the direction of "the combination of secure private liberty, including freedom of religion, speech, and commerce, with public constitutional, parliamentary government anchored by the rule of law." I call this 'Constant's combination' in what follows.
Unfortunately, Levy's analysis falls short of Hayek's for three different reasons. First, Hayek recognizes that nineteenth-century liberalism, which Constant espoused, failed. Hayek tried to address this failure in the 1939 essay that I quoted above. The essay anticipates ("socialists are becoming steadily more nationalist") Road to Serfdom's more sophisticated general slippery slope argument that Levy highlights. Hayek suggests that liberalism within a single country is fragile; it requires (i) an international order and within it (ii) a species of global federalism. (Here Hayek ends up agreeing with the internationalist, Marxist analysis of the survival of would-be-Socialism.) For, in fact, the 1939 essay is an important blueprint for the kind of federalism now familiar from the EU (but, in his essay, Hayek clearly is thinking to include the Americas and the British commonwealth countries).**
By contrast, while Levy both recognizes that "international peace" and "order" are key aims of classical liberalism as well as that "rising populist and nationalist authoritarianism" is an international phenomenon, his response appears to be fairly local. His position seems to be that we need Constant's combination, which is a national political agenda. But as Hayek reminds us, that not a stable position. To be sure, it is not obvious that Hayek's globalist approach is the right response to the nineteenth century failure of Constant's combination, but Levy's solution does not seem to acknowledge the problem--rather it doubles down on it.
As an aside (to which I return at the very end), it is a peculiar fact that the EU does not use the resources it has available to combat the rising "rising populist and nationalist authoritarianism" in its midst. The EU has genuine leverage--supplying up to 5% of GDP in Hungary and Poland, and innumerable soft and indirect other economic and political advantages. What this shows is that the institutions of interstate federation are not sufficient to ensure their own survival--what is required is political leadership in their functioning.
Second, Levy is right that Hayek was a defender of a social safety net (but a critic of the way it was organized). But while the welfare state has not been withered away at all, it is hardly the main threat to a liberal order. For, Levy does not really come to terms with the consequences of the financialization of the economy (either prior or after the crash). Now, to be sure, Wall Street is one of the most heavily regulated industries in existence. And, it turns out, the Wall Street we have is one of the greatest sources of political instability (and old-fashioned corruption/rent-seeking).
So, my point is not the simplistic one that the financial crisis and its aftermath is a product of blind faith in markets (after all, bail-outs are themselves a species of rent-seeking [recall]). But, rather the more sober fact that classical liberals were taken to be cheerleaders for the stock market we have and the spread of financial products and market values into many new areas of human life. Even if one were to grant that Obama's administration caused the Trump one, the effects of the market panic surely (yes?) aided in Obama's initial election. (This is not to deny "populist and nationalist authoritarianism" were already rising prior to the crisis, but they were boosted by the stagnation and malaise that has followed.)
How to respond to this observation is not easy. In my view, classical liberals need to be guided by Adam Smith's rather skeptical stance toward financial innovation and financialization (see his scathing treatment of the circulation of bills of exchange). For, Smith was happy to promote "regulations of the banking trade.” Even so, the Smithian position requires strong state capacity, especially epistemic capacity, to generate the right institutional order to contain excessive financialization. It is an open question to what degree this is a viable way forward, especially in light of Hayek’s observation (in the 1939 essay) that in a global liberal order the individual. state economic capacity is weakened.
Third, in his essay, Levy is silent on the Hayekian willingness to make space for transitional dictatorship: “Absolute powers that need to be used precisely in order to avoid and limit any absolute power in the future.” (The context is Pinochet, but Hayek also mentions approvingly Cromwell, Salazar, and the Adenauer/Erhardt duo.) The point here is not to score rhetorical points by mentioning Pinochet at the expense of Hayekian liberals. Nor is the point a reminder that (recall) last year some of the (non-liberal) intellectual defenses of Trump were articulated in terms not too dissimilar of Hayek’s sense that in times of social “rupture” a transitional dictator may be legitimately required. After all, Levy embraces parliamentary government.
Rather, it’s the more important issue that liberals need to think much harder about a species of the transition problem (recall), that is, how we move from extremely imperfect political order with populations cultivated in imperfect institutions to a moderately tolerable, stable liberal end state.*** There are really at least three challenges in the vicinity here:
- Not all liberalizations bring us closer to a stable liberal order. Markets often have a tendency to disrupt the status quo, and we need to become much savvier about the political costs of this. (In addition, Hayek himself was very clear on the fact that market outcomes mixes merit and luck. Yet, too many liberals focus only on the merit side.) But the gyrations of (leveraged and interconnected) financial markets can cause major disruptions.
- Not all existing liberal institutions promote a liberal political order. For example, a free press is absolutely central to a liberal order. But classical liberals have not grappled yet with the ways in which a for-profit press paved the way for Trump’s victory because such a press can also have clear (short-term) interests in undermining liberal values and political order.
- The means from here to there matter. Shock therapy may kill the patient. (For this reason Smith is a gradualist.) In fact, the 1939 essay is useful here because it reminds us of a more authentic (Schumpeterian) liberal defense of democracy: “counting heads in order to save breaking them.” That is, voting is a method of peaceful change in power (perhaps, the only “yet invented which has been tried and has not been found wanting.”) The prevention of civil war is the price we are willing to pay while risking, mass human folly. Of course, there need to be democratic means internal to the democratic order to prevent the rise of nationalist authoritarianism. Here, the EU's simultaneous unwillingness to defend its liberal order against Hungarian and Polish (and earlier Austrian) nationalist authoritarianism and its simultaneous willingness to impose huge suffering on the Greek population does not inspire confidence in the resources of liberal, interstate federalism even if it were a global order. The vitality and rebirth of the true liberal tradition as a political program requires that we find creative solutions to these challenges.