In defence of Economic Liberalism
Editors of "The Economist" get to write one signed editorial - as a valedictory at the end of their time in the job.
John Micklethwait, who has been editor since 2006, leaves the magazine this week, and his valedictory article, which you can read here, is a robust defence of economic liberalism. And by "Economic Liberalism" I do not mean wishy-washy centrism, but a clear conviction that the best way for countries to be happy economically successful is to help people maximise their potential by getting the state off their backs. The kind of Liberalism defended in this article is certainly not the sort of idea usually associated with the Liberal Democrats today - although some or the "Orange Book" Lib/Dems have not entirely forgotten the true Liberalism that their party supported in the age of Gladstone.
Here are a few extracts from John Micklethwait's valedictory article.
"Washington remains synonymous with gridlock. In every year of my editorship a clear majority of Americans have told Gallup that they are dissatisfied with the way they are governed.
"The only way to feel good about American democracy is to set it beside Brussels. Woefully unaccountable and ineffective, the European Union is often held together only by the woman who has somehow managed to be both the West’s most impressive politician and its greatest ditherer, Angela Merkel. But to what end? The near-permanent euro crisis has proved a classic exercise in shambolic decision-making, consisting mostly of agreeing to kick the can down the road.
"If liberal politics are rightly attacked, the blows that have rained down on liberal economics have perhaps been even more painful. It is now a commonplace to blame the dominant event of this editorship, the 2007-08 financial crisis, on unfettered capitalism. This is mostly a calumny: the epicentre was the American mortgage market, one of the most regulated industries on Earth, and Leviathan’s hand was all over much of the mess that followed.
"But part of the charge against capitalism was true, and it hurts. No liberal can justify a system in which huge banks’ balance-sheets teetered on tiny amounts of capital. In 2006 too much of finance was gambling, pure and simple; and too much of the bill ended up with taxpayers.
"This helps explain why a feeling of unfairness lingers across the West—visible in the streets of Athens, but also in the pages of Thomas Piketty. People blame liberalism for much of what they fear: whether large-scale immigration, technological change, or just what the French call mondialisation.
"Globalisation has indeed brought problems in its wake. But it has also done an incredible job in reducing want. Since 1990, nearly 1 billion people have been hauled out of extreme poverty; and the 75m people who bought an iPhone in the last quarter of 2014 were not all plutocrats. Moreover, open markets could do more, not least in the West. Free-trade pacts across the Atlantic and the Pacific would spur growth, while Mrs Merkel could open up Europe’s single market in services. The magic still works, and liberals should be far bolder in making that optimistic case.
"But that is not enough. Two great debates are forming that will redefine liberalism. The first is to do with inequality. A more open society, where global markets increase the rewards for the talented, is fast becoming a less equal one. As this newspaper pointed out last week, the clever are marrying the clever and manically educating their children, making it ever harder for the poor to catch up.
"Liberals should resist the left’s inclination to punish the talented and somehow to mandate equality. But in the name of equal opportunity, progressives need to hack away at unnecessary privileges (like university places for children of alumni) and wage war on crony capitalism.
"Private equity and Exxon are both clever enough not to need special tax breaks. Four times as much public money goes to the wealthiest 20% of Americans in mortgage-interest deductions than is spent on social housing for the poorest fifth.
"These were causes that motivated Wilson, John Stuart Mill, William Gladstone and the great liberals of the 19th century, who waged war on “the old corruption” of aristocratic patronage and protection for the rich, such as the corn laws this newspaper was set up to oppose. But they were progressives who also believed in a smaller state.
"This is the second debate forming around liberalism, and a dilemma: for although this newspaper wants government’s role to be limited, some of the remedies for inequality involve the state doing more, not less. Early education is one example. Only 28% of American four-year-olds attend state-funded pre-school; China is hoping to put 70% of its children through pre-school by 2020.
"The answer is to scale down government, but to direct it more narrowly and intensely. In Europe, America and Japan the state still tries to do too much, and therefore does it badly. Leviathan has sprawled, invading our privacy, dictating the curve of a banana and producing tax codes of biblical length. With each tax break for the already rich and with each subsidy to this business or that pressure group, another lobby is formed, and democracy suffers.
"Lessons lie in the private sector. It is often several decades ahead of the public sector in the West. Some of the answer is just good management: if Singapore can pay good teachers more and fire bad ones, so can Stuttgart and Seattle. Other answers lie in experiments at lower levels of government, as among America’s states, and outside the West—in India’s giant heart hospitals and Brazil’s conditional-cash-transfer system.
"The battle for the future of the state is an area where modern liberalism should plant its standard and fight, just as the founders of the creed did. Because, in the end, free markets and free minds will win. Liberalism has economic logic and technology on its side."
John Micklethwait, who has been editor since 2006, leaves the magazine this week, and his valedictory article, which you can read here, is a robust defence of economic liberalism. And by "Economic Liberalism" I do not mean wishy-washy centrism, but a clear conviction that the best way for countries to be happy economically successful is to help people maximise their potential by getting the state off their backs. The kind of Liberalism defended in this article is certainly not the sort of idea usually associated with the Liberal Democrats today - although some or the "Orange Book" Lib/Dems have not entirely forgotten the true Liberalism that their party supported in the age of Gladstone.
Here are a few extracts from John Micklethwait's valedictory article.
"Washington remains synonymous with gridlock. In every year of my editorship a clear majority of Americans have told Gallup that they are dissatisfied with the way they are governed.
"The only way to feel good about American democracy is to set it beside Brussels. Woefully unaccountable and ineffective, the European Union is often held together only by the woman who has somehow managed to be both the West’s most impressive politician and its greatest ditherer, Angela Merkel. But to what end? The near-permanent euro crisis has proved a classic exercise in shambolic decision-making, consisting mostly of agreeing to kick the can down the road.
"If liberal politics are rightly attacked, the blows that have rained down on liberal economics have perhaps been even more painful. It is now a commonplace to blame the dominant event of this editorship, the 2007-08 financial crisis, on unfettered capitalism. This is mostly a calumny: the epicentre was the American mortgage market, one of the most regulated industries on Earth, and Leviathan’s hand was all over much of the mess that followed.
"But part of the charge against capitalism was true, and it hurts. No liberal can justify a system in which huge banks’ balance-sheets teetered on tiny amounts of capital. In 2006 too much of finance was gambling, pure and simple; and too much of the bill ended up with taxpayers.
"This helps explain why a feeling of unfairness lingers across the West—visible in the streets of Athens, but also in the pages of Thomas Piketty. People blame liberalism for much of what they fear: whether large-scale immigration, technological change, or just what the French call mondialisation.
"Globalisation has indeed brought problems in its wake. But it has also done an incredible job in reducing want. Since 1990, nearly 1 billion people have been hauled out of extreme poverty; and the 75m people who bought an iPhone in the last quarter of 2014 were not all plutocrats. Moreover, open markets could do more, not least in the West. Free-trade pacts across the Atlantic and the Pacific would spur growth, while Mrs Merkel could open up Europe’s single market in services. The magic still works, and liberals should be far bolder in making that optimistic case.
"But that is not enough. Two great debates are forming that will redefine liberalism. The first is to do with inequality. A more open society, where global markets increase the rewards for the talented, is fast becoming a less equal one. As this newspaper pointed out last week, the clever are marrying the clever and manically educating their children, making it ever harder for the poor to catch up.
"Liberals should resist the left’s inclination to punish the talented and somehow to mandate equality. But in the name of equal opportunity, progressives need to hack away at unnecessary privileges (like university places for children of alumni) and wage war on crony capitalism.
"Private equity and Exxon are both clever enough not to need special tax breaks. Four times as much public money goes to the wealthiest 20% of Americans in mortgage-interest deductions than is spent on social housing for the poorest fifth.
"These were causes that motivated Wilson, John Stuart Mill, William Gladstone and the great liberals of the 19th century, who waged war on “the old corruption” of aristocratic patronage and protection for the rich, such as the corn laws this newspaper was set up to oppose. But they were progressives who also believed in a smaller state.
"This is the second debate forming around liberalism, and a dilemma: for although this newspaper wants government’s role to be limited, some of the remedies for inequality involve the state doing more, not less. Early education is one example. Only 28% of American four-year-olds attend state-funded pre-school; China is hoping to put 70% of its children through pre-school by 2020.
"Lessons lie in the private sector. It is often several decades ahead of the public sector in the West. Some of the answer is just good management: if Singapore can pay good teachers more and fire bad ones, so can Stuttgart and Seattle. Other answers lie in experiments at lower levels of government, as among America’s states, and outside the West—in India’s giant heart hospitals and Brazil’s conditional-cash-transfer system.
"The battle for the future of the state is an area where modern liberalism should plant its standard and fight, just as the founders of the creed did. Because, in the end, free markets and free minds will win. Liberalism has economic logic and technology on its side."
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