"A manifesto for renewing liberalism", The Economist (I/II)
https://diplomatizzando.blogspot.com/2018/09/the-economist-reinventing-liberalism-in.html
The Economist: reinventing liberalism in the 21st century
https://medium.economist.com/a-manifesto-for-renewing-liberalism-8d36c9699649
A manifesto for renewing liberalism
Success turned liberals into a complacent elite. They need to rekindle their desire for radicalism
https://www.economist.com/essay/2018/09/13/the-economist-at-175
The Economist at 175
Reinventing liberalism for the 21st century
I
Reinventing liberalism for the 21st century
Reinventing liberalism for the 21st century
IN SEPTEMBER 1843 James Wilson, a hatmaker from Scotland, founded this newspaper. His purpose was simple: to champion free trade, free markets and limited government. They were the central principles of a new political philosophy to which Wilson adhered and to which The Economist has been committed ever since. That cause was liberalism.
Today liberalism is a broad faith—far broader than it was to Wilson. It has economic, political and moral components on which different proponents put different weights. With this breadth comes confusion. Many Americans associate the term with a left-wing belief in big government; in France it is seen as akin to free-market fundamentalism. But whatever version you choose, liberalism is under attack.
The attack is in response to the ascendancy of people identified by their detractors, not unreasonably, as a liberal elite. The globalisation of world trade; historically high levels of migration; and a liberal world order premised on America’s willingness to project hard power: they are all things that the elite has sought to bring about and sustain. They are things the elite has done well out of, congratulating itself all the while on its adaptability and openness to change. Sometimes it has merely benefited more visibly than a broad swathe of lesser souls; sometimes it has done so at their expense.
Populist politicians and movements have won victories by defining themselves in opposition to that elite: Donald Trump over Hillary Clinton; Nigel Farage over David Cameron; the Five Star Movement over the Brussels bureaucracy; Viktor Orban over George Soros, who was not actually running in the Hungarian elections last April but personifies that which Mr Orban despises, and is Jewish to boot. The populists deride the leaders of the past as obsessed with bossy political correctness and out of touch with what matters to ordinary people; they promise their voters the chance to “take back control”. Meanwhile rising powers—as well as Russia, which though in decline is still dangerous—seek to challenge, or at least amend, the liberal world order. And in the near future the biggest economy in the world will be China, a one-party dictatorship. In all these ways the once-barely-questioned link between economic progress and liberal democracy is being severely put to the test. The Economist marks its 175th anniversary championing a creed on the defensive.
So be it. Liberalism has succeeded by serially reinventing itself while staying true to what Edmund Fawcett, a former journalist at this newspaper, identifies in his excellent history of the subject as four key elements. The first is that society is a place of conflict and that it will and should remain so; in the right political environment, this conflict produces competition and fruitful argument. The second is that society is thus dynamic; it can get better, and liberals should work to bring such improvement about. The third is a distrust of power, particularly concentrated power. The fourth is an insistence, in the face of all power, on equal civic respect for the individual and thus the importance of personal, political and property rights.
Unlike Marxists, liberals do not see progress in terms of some Utopian telos: their respect for individuals, with their inevitable conflicts, forbids it. But unlike conservatives, whose emphasis is on stability and tradition, they strive for progress, both in material terms and in terms of character and ethics. Thus liberals have typically been reformers, agitating for social change. Today liberalism needs to escape its identification with elites and the status quo and rekindle that reforming spirit.
Epic stale males
The specific liberal philosophy Wilson sought to promulgate was born amid the tumult of industrialisation and in the wake of the French and American revolutions. It drew from the intellectual inheritance of Enlightenment thinkers such as John Locke and Adam Smith. That tradition was further shaped by a series of Victorian intellectuals, most notable among them John Stuart Mill, which included this newspaper’s second editor, Walter Bagehot.
There were at the time liberal movements and thinkers throughout continental Europe as well as the Americas. The first politicians to claim the name, Spain’s liberales, did so in a short-lived era of parliamentary rule after 1812. The creed was embraced by many of the 19th century’s newly independent Latin American countries. But the movement’s centre was Britain, the world’s predominant economic and political power.
That liberalism was not today’s. Take foreign affairs. Victorian liberals were often pacifists who welcomed the ties of trade but eschewed military alliances. Later, a tradition of “liberal imperialism” justified colonialism on the basis that it brought progress—in the form of laws, property rights and so forth—to peoples that lacked them. Few make either argument today. The Economist was sceptical of imperialism, arguing in 1862 that colonies “would be just as valuable to us...if they were independent”. But “uncivilised races” were owed “guidance, guardianship and teaching”.
Liberalism was not born with the umbilical link to political democracy that it now enjoys. Liberals were white men who considered themselves superior to the run of humanity in both those particulars; though Bagehot, like Mill, supported votes for women, for most of its early years this newspaper did not. And both Mill and Bagehot feared that extending the franchise to all men regardless of property would lead to “the tyranny of the majority”.
Or consider the relationship between the state and the market. Liberals like Wilson had a near-religious faith in free enterprise and saw scant role for the state. Early Economist editorials inveigh against paying for state education through general taxation and greater public spending on relief efforts during the Irish famine. But in the early 20th century many European liberals, and their progressive cousins in America, changed tack, seeing progressive taxation and basic social-welfare systems as necessary interventions to limit the market’s failures.
This led to schism. Liberal followers of John Maynard Keynes embraced a state role in boosting demand to fight recession and providing social insurance. As this newspaper noted on its centenary in 1943, “The greatest difference...between the 20th century liberal and his forefathers is the place that he finds for the organising powers of the state.” Followers of Friedrich Hayek thought those organising powers always overreached in dangerous ways; hence the emergence of a “neoliberalism” interested in radically curtailing the state.
The Economist has, at times, embraced elements of both, driven by pragmatism and a sense of the present’s shortcomings as much or more than by ideology. When we supported graduated income taxes in the early 20th century, a position Wilson would have scorned, it was in part because those taxes, a Liberal policy, were more to our liking than the protectionist tariffs the Conservatives were touting. After the Depression and the second world war we hewed to Keynesian views that both allowed for significant state involvement in the economy and saw value in liberal nations working together to create a world in which their values could thrive. When we rebelled against the subsequent state overreach to champion the deregulation and privatisation that Margaret Thatcher and Ronald Reagan would later bring in, we were moved as much by the failures of the status quo as by libertarian zeal.
The Economist of recent years has been a supporter of stable prices and fiscal responsibility at home, of open trade and investment internationally, and of the market-friendly cocktail of policy prescriptions dubbed the “Washington consensus”. Amid today’s distrust of liberalism—and liberal self-doubt—it is worth remembering just how fruitful those positions have been. The core liberal causes of individual freedom, free trade and free markets have been the most powerful engine for creating prosperity in all history. Liberalism’s respect for diverse opinions and ways of life has whittled away much prejudice: against religious and ethnic minorities, against the proposition that girls and boys should have an equal opportunity to attend school, against same-sex sex, against single parents. The post-war liberal world order has contained conflict better than any previous system of alliances. Liberalism’s principles, pragmatism and adaptability have generated policies that solve practical problems while advancing its core tenets.
Many liberals have become conservative
There is, in short, much to be proud of. But the liberal ascendancy that came with the end of the cold war has been troubled. The misguided invasion of Iraq (which this newspaper supported at the time), and other failed interventions in the Middle East have exposed the hubris and difficulty of military action in the pursuit of universal values. The global financial crisis laid bare the dangers of under-regulated finance. Liberal economists paid too little attention to the people and places harmed by trade and automation. The liberal world order failed to confront the epic challenge of climate change or to adapt its institutions to the growing importance of emerging economies. Liberal thinkers paid too little heed to those things people value beyond self-determination and economic betterment, such as their religious and ethnic identities.
These failures mean that liberalism needs another reinvention. Those in favour of open markets and societies need to see off the threat posed by those who value neither. They also need to do a lot more to honour their promise of progress for all. That means being willing to apply their principles afresh to the existing and emerging problems of the ever-changing, ever-conflicted world.
It is a tall order. And it is made taller by the fact that this has, indeed, been a period of liberal ascendancy. Liberals like Wilson saw themselves, by and large, in opposition to entrenched elites. Today that is hard for liberals to do with a straight face. They have been the shapers of the globalised world. If it is a smallish number of the rich, and a large number of the very poor, who have done best out of that ascendancy, rather than liberals per se, liberals have still done pretty well; it is not too wide of the mark to caricature their views on migration as more influenced by the ease of employing a cleaner than by a fear of losing out. The wars, financial crisis, techified economy, migrant flows and chronic insecurity that have unsettled so many all happened on their watch, and in part because of policies they promoted. This undermines their credibility as agents of change.
Worse, it can also, shamefully, undermine their willingness to be such agents. Many liberals have, in truth, become conservative, fearful of advocating bold reform lest it upset a system from which they do better than most.
They must overcome that fear—or, if they cannot, they must be attacked by true liberals who have managed to do so. As Milton Friedman once put it, “The 19th-century liberal was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favouring major changes in social institutions. So too must be his modern heir.” On the occasion of our 175th birthday, we offer some ideas to meet Friedman’s challenge.
II
Free markets and more
Free markets and more
“JESUS CHRIST is free trade and free trade is Jesus Christ.” Even by the standards of the 1840s, Sir John Bowring, a British politician, made bold claims for the rock on which The Economist was founded. But his zeal was of the times.
The case for getting rid of British tariffs on imported grain was not a dry argument about economic efficiency. It was a mass movement, one in which well-to-do liberal thinkers and progressive businessmen fought alongside the poor against the landowners who, by supporting tariffs on imports, kept up the price of grain. As Ebenezer Elliott, a radical and factory owner, put it in one of the poems that led him to be known as the “Corn Law rhymer”:
Give, give, they cry–and take!
For wilful men are they
Who tax’d our cake, and took our cake,
To throw our cake away.
When liberals set up the Anti-Corn Law League to organise protests, petitions and public lectures they did so in the spirit of the Anti-Slavery League, and in the same noble name: freedom. The barriers the league sought to remove did not merely keep people from their cake—bad though such barriers were, and strongly though they were resented. They were barriers that held them back, and which set people against each other. Tearing them down would not just increase the wealth of all. It would bring to an end, James Wilson believed, the “jealousies, animosities and heartburnings between individuals and classes...and...between this country and all others.”
The age of global trade ushered in by the free trade that followed the repeal created a remarkable amount of wealth. Given that it ended in the first world war, though, its record on reducing animosity was, at best, mixed. The next great age of global trade, which began after the second world war and grew into fullness with the end of the cold war, did even better, bringing with it the greatest reduction in poverty ever. Unfortunately there is still significant cause for jealousy, animosity and heartburning among those who live in places that lost out—enough of it that, amplified by unscrupulous leaders with protectionist politics, it is putting the remarkable gains of past decades at risk.
The modern era of multilateral trade negotiation was ushered in by the General Agreement on Tariffs and Trade (GATT) in 1947. It was based on the insight that unilateral tariff reductions, such as the repeal of the Corn Laws, are unstable. The concentrated displeasure of producers exposed to foreign competition is more powerful than the diffuse gratitude of the mass of consumers, and so tariffs get reimposed. If reductions are taken in concert with foreign powers, some producers gain new foreign markets, thus becoming supporters, and the international nature of the obligations makes backsliding harder.
In 1995 the GATT became the WTO, and almost every country on Earth now belongs to it. Tariffs are cut by negotiation and agreed rates applied to all trade partners; a dispute-settlement system authorises retaliation against miscreants. There are still high levies on some goods, and many emerging economies, such as Egypt’s or India’s, would benefit a lot if tariffs were cut further. But tariffs on goods are in general no longer a big barrier to global commerce. The best estimate is that getting rid of those which remain would add only about 1% to global GDP.
Freeing trade in services, such as those of lawyers, architects or airlines, would yield gains six times larger, maybe more. But the WTO, for which nothing is settled until everything is settled, has spent decades failing to reach big deals on services. Nor has it succeeded in stopping China, which joined in 2001, from flouting the spirit, if not always the letter, of its rules by shaking down foreign investors for technologies it fancies and giving under-the-table assistance to its own industries.
The trade system would benefit hugely from a grand agreement forged between America, China and Europe that put multilateral trade on terms appropriate for the 21st-century economy, and for a world in which the biggest trader is not a free market. Terms attractive enough that the rest of the world could be brought into them would both require and allow substantial reform of the WTO. Multilateral agreements in which groups of like-minded countries forge ahead should lead the way. Working towards such a goal should be at the forefront of trade policy.
Alas, the more urgent necessity is to ensure the survival of the current system which, having been undermined by China, is now under determined attack by America, once its greatest support. Fighting to forestall losses is not as inspiring as fighting for new progress. But it is yet more vital; backsliding is a threat to the livelihoods of hundreds of millions of people.
By George he had it
Defending the existing trade system is thus a paramount goal. And the gains it may yet offer, in services and elsewhere, are substantial. But no one could claim that free trade has the capacity to stir the spirit today in the way that the fight against the Corn Laws did, nor that it offers as much scope for progress in an already globalised world as in the mercantilist 19th century. Modern liberals must look for new reforms where dismantling barriers and increasing freedom will once again produce transformative gains for individuals and society.
They are spoilt for choice: there is much to do, from rewriting campaign-finance laws that give lobbyists disproportionate power in politics to removing the implicit subsidies still enjoyed in parts of the financial system. In both those cases, and many more, concentrations of power allow the rigged markets and rent-seeking that liberals abhor. But the cause of free trade was powerful in its simplicity, and in that respect two new targets stand out.
One is the market in urban land; the other, the anti-competitive economics of the modern economy, and particularly of the digital-technology businesses that increasingly dominate it. In both cases monopoly power distorts markets in ways that are economically significant, politically potent and ethically unjustifiable.
Start with land. Most 21st-century productivity growth and wealth creation will take place in highly productive cities. The world’s 50 largest conurbations house 7% of the population but account for 40% of gross product. The productivity gap between such cities and poorer places has widened by 60%, on average, in the past two decades, according to the OECD, and is still growing. Property prices in leading cities have soared. In Paris, Hong Kong, New York and London the median household spends on average 41% of its income on rent, as opposed to 28% 30 years ago.
This is a huge windfall gain for a relatively small number of property owners. It reduces the chances of prosperity for a much larger number who are prevented from moving to high-productivity cities offering better wages, and in doing so holds back the economy. One study suggests America’s GDP would be 9% higher if the less restrictive zoning laws of the median American city were to be applied to the priciest, fanciest ones.
The best solution to this is not new: it was well known, and pursued by liberals, in the 19th century. Tax landowners according to the underlying market value of the land that they own. Such a tax would capture for society part of the windfall that accrues to a landowner when his local area thrives. Land taxes capable of replacing all existing property taxes (which are raised on the value of what sits on the land, rather than just the land itself) and then some would greatly sharpen the incentive to develop. Because the amount of land is fixed, a land tax, unlike most other taxes, does not distort supply. At the same time, ease planning restrictions. It is no good raising the incentive to develop if regulation then stands in the way. But development rights have been so far collectivised in many cities as to come close to undermining the very notion of property. The curtailment of development rights enriches even owners of vacant plots; if the windfall gains from soaring property values are heavily taxed, NIMBYism will not be such a profitable strategy. The problem is getting those owners to give up the windfall and submit to a land tax in the first place.
The concentration of corporate power is a trickier problem. Returns to scale and strong network effects—the more users you have, the more you have to offer the next user—have encouraged concentration in various industries built around digital technology, and this encouragement has gone largely unchecked. One or two giant firms dominate each segment: Google in search, Facebook in social on one side of the Great Firewall, Alibaba and Tencent on the other. In addition, by collecting ever more data on ever more users’ habits, and armed with ever better algorithms, the incumbents can tweak their products to make them yet more attractive in various ways.
This risks reinforcing, perhaps supercharging, a wider trend for industries to be dominated by a few companies. In 2016 research by this newspaper showed that two-thirds of America’s 900 industrial sectors had become more concentrated from 1997 to 2012. In 2018, in a similar analysis for Britain, we found the same trend. It may help explain both higher profits and the squeeze on labour that has seen the wages of the less-skilled lowered.
If there is an economic problem in need of radical new intellectual approaches, this is it. The existing antitrust framework, created in the progressive era and refined in the 1980s, cannot deal with the nature of market concentration in the 21st century. The pace of mergers has risen. Large asset managers hold sizeable stakes in today’s big incumbent firms, and may encourage them to hoard profits and adopt safety-first strategies. Tech-platform firms enjoy network effects and are continually bundling more services together. The spread of artificial intelligence will give even more power to firms with access to lots of data.
Part of the answer is a tougher attitude to policing deals and to ensuring that new firms are not unfairly squashed. But when it comes to tech, something fresher and rooted in individual action and competitive markets would be best. One approach is to consider the data that users generate as a good they own or a service they provide for fees.
As with land taxes, there will be intense resistance to newly vigorous antitrust and competition law, or changes in the power structures building up around data, however popular they may be. Henry George’s call for a land tax, “Poverty or Progress”, sold more copies in America in the 1890s than any other book save the Bible. But the immense political power of landowners saw off the threat, there and elsewhere. David Lloyd George, a Liberal chancellor of the exchequer, put forward a land tax (with this newspaper’s support) in his 1909 “People’s Budget”. It did not pass.
Still, more affordable housing, more choice, lower prices and better jobs remain causes that people can get behind. And the ability of popular movements to grow as never before with the help of both social and mass media is one of the striking aspects of the modern age. This has allowed dissatisfaction with today’s liberal elite to mushroom; it might allow a liberalism of new reforms, new ideas and new alliances to do so, too.
This makes keeping the digital sector open and competitive all the more vital. Barriers to wealth-creation there are bad enough. Dominant companies which might limit, or skew, free expression, open deliberation and self-determination—encouraging “jealousies and animosities” in the realm of ideas—are worse.
III
Immigration in open societies
Immigration in open societies