Government versus Markets – The Question of Persuasion

There is a growing voice of reason in India today that is passionately arguing that government interference in the economy is the primary cause of India’s lack of dynamism and prosperity.

Those making this argument primarily draw their inspiration from the writings of classical liberals such as John Locke (a 17th century English philosopher and social theorist) and Frederic Bastiat (a 19th century Frenchman who is principally responsible for having introduced the concept of opportunity cost into economic theory) and of American libertarian economists such as Friedrich Hayek (1974 Nobel Prize winner) and Milton Friedman (1976 Nobel Prize winner). These intellectuals have argued, each in their own way, that free enterprise is the only possible means of creating widespread prosperity, and that the rule of law should be constituted in such a way that men and women can be free to truck, barter and trade as and when they see fit, without any kind of supra-individual authority (viz. the government) having a say in the matter.

Those in present-day India that subscribe to this view essentially view government activity in the economy as not only unnecessary but also value-reducing. They propose, in effect, the idea that individuals know what is in their self-interest, and as long as an individual’s pursuit of self-interest does not infringe on the rights of others to pursue their self-interests, then a kind of human action emerges by which the common good is spontaneously delivered without any necessity of human design. Furthermore, this is the only way to achieve enhanced levels of well-being for all members of society as such a spontaneous order is, by its very nature, a positive- and not a zero-sum game.

Proponents of a classical liberal (or libertarian) persuasion also take their cue from public choice theorists such as James Buchanan (1986 Nobel Prize winner) who has argued that the case for government intervention built on the notion of market failure is not a sound one because politicians and bureaucrats can be relied on to pursue their own self-interests, which are often in conflict with the interests of society. And so government failure is just as likely as market failure and therefore there exists no guarantee that government will in fact be able to deliver the common good.

While there is substantial merit in all of these arguments, it is still worthwhile to take a step back and parse the classical liberal argument somewhat more carefully, because there are at least two problems with it that its proponents either explain away unsuccessfully, or overlook completely.

The first is that classical liberal notions of liberty and equality, although grounded in natural rights theory (the idea that humans are born with God-given rights such as the right of an individual to own the fruits of his or her labor), are not conceptually stable. By this I mean that although liberty and equality are supposed to be inalienable rights, the free market renders them alienable, because the ownership of wealth, or access to monetary resources, is a precondition for the ability to exercise either of these rights. Thus, for example, there is a formal equality between men (and women) of the right to participate in market exchange, but no real equality since not all men have equal purchasing power. Similarly, liberty is only liberty insofar as one is free to sever from oneself property that one already owns through the mechanism of market exchange. Thus, these conceptions of liberty and equality, which apparently a market unencumbered by governmental supervision is meant to uphold, become artificial constructions under the gaze of a critical eye.

The second problem that arises is that the order that is supposed to emerge spontaneously from unfettered human action is not actually spontaneous at all, because it presupposes that all human subjects have first internalized the ideology of classical liberalism. That is, that they must be already committed to the principles of free market economics. In this sense, the Hayekian “spontaneous order” is quite different from the actual spontaneous order of language development, species evolution, the self-organization capacities of simple organisms, or even hurricanes.

The second problem, in particular, highlights a key difficulty that present-day classical liberals in India must confront – namely, that of how the polity is to be persuaded of the virtues of free markets. Here, I think that there is not enough of a recognition among those upon whom the burden of persuasion must fall, that the commitment on the part of an average human being to this or that ideology is not only rational but also, and to a significant extent, affectual. This means that whether government intervention is reasonable or not, is not a matter merely of reasonableness but of belief itself, or of “the passions,” as philosopher David Hume referred to them. Thus, for example, when you read Two Contrasting Visions of the State, a dialogue about the role of government between James Buchanan and Richard Musgrave, who are from opposite sides of the ideological spectrum, you discover that the debate is never settled one way or the other. The two excellent economists appear to be arguing past each other for the most part.

This is why the debates that are currently emerging in India, especially in this past week on the occasion of Thomas Piketty’s visit to the Jaipur Literary Festival, are of critical importance. And yet, there too, the talk is too much about numbers and statistics and not enough about persuasive strategy. Perhaps it is necessary to appreciate that ideological positions represent abstract extremes of passionate commitment, and that the truth of the matter is simply that it is a tight wire that India’s stewards must walk: how to organize enough state support to make impersonal markets flourish amid the suffering, inequality and disparate experiences of luck that those very markets produce.


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