Liberal Vision

Clearing up some confusion about ‘market failure’

Nick Clegg thinks that the “short-termism and recklessness [that] eventually consumed our banks, taking the whole economy to the edge of a cliff” is an example of “market failure”.

For David Cameron, it is a sign of “a market failure [that] between 1998 and 2010 the average pay of FTSE executives [went] up four times”.

While for Ed Milliband, there is a “the market failure in the finance gap for SMEs that want to expand.”

All three make a common and simple mistake: they believe that market success is defined by a number of uneconomic measures such as social justice, or even (that ultimate weasel-word) fairness, and that it is a sign of market failure if market participants (that is to say, you and I) do not act in a way that the politicians think is appropriate for a market actor.

But that isn’t what market failure means at all. Market failure is a clearly defined economic term, and it has nothing to do with whether we get the outcomes that we want.

I explain this in more detail in my latest article for the Institute of Economic Affairs. Please visit their site to read more and to leave your comments.

Shocking market failure as woman rejects apricots

Mark Littlewood: Liberal Voice of the Year

Congratulations to Mark Littlewood, formerly of this parish, for winning LDV’s Liberal Voice of the Year.

As we posted hear a couple of days ago, we thought Mark was a deserving candidate – but even we were somewhat surprised by the decisiveness of the vote.

Mark Littlewood 32%

The Occupy Movement 13%

Ken Clarke 13%

Mohamed Bouazizi 11%

Nick Davies and the Guardian 10%

Ai Weiwei 8%

Hugh Grant and the Hacked Off Campaign 6%

Hilary Rodham Clinton 4%

Barack Obama 3%

Love Thy Nimby

In the past week, the Coalition have backed controversial plans to construct the London to Birmingham section of HS2, a major public works scheme that aims to connect the capital to Scotland by high-speed train over a generation into the future.  However it’s looked at, the logic of this depends upon a highly dubious belief  - that a trainline that won’t open until 2026 and will only reduce the journey time by half an hour at most is the best possible use of £33 billion of public money.

The government are trying to sweeten opposition by floating figures of how many jobs it will create, always rather neatly ending in ’000′. The correct response is to pull a innocently confused expression and enquire, ‘I’m sorry, but isn’t that irrelevant?’ To make job creation on this scale anything but spin we must first know how much these jobs pay, how long they will last, who they will be given to and how they are economically productive.

If job creation were the name of the game, why not just pay one billion of the world’s poorest people £33 to spend a day digging wells. That would give the government an impressive amount of jobs to boast about on polling day and might actually do some good. It’s not about an empirical evidential base either as the case for the project is based upon unfounded assumptions over the direction of future technologies and the habits of businessmen and overlooks the economic harm caused by taking £33 billion out of people’s pockets.

No, this seems to be about ideology, as from the rather telling quote from the Transport Secretary:

“If we used financial accounting we would never have any public spending [and] we would build nothing.”

Who needs evidence when you’ve got belief?

But who’s ideology is this? After all, the project was set up by a Keynesian Labour government and is now being supported by a government that rejects Keynesian stimuli. The trouble is, it’s just about everyone’s belief as I recently found out campaigning against my local council’s proposals to build a thousand new homes on the local Green Belt over five years. While local residents overwhelming welcomed my input, my somewhat socialist acquaintances attacked me for nibyism. What came as a surprise was that my libertarian acquaintances attacked me for much the same reason.

Both argued that local residents should let the councils proposals go through, no matter what the social, environmental and economic arguments against them. Development is necessary, they said, signalling my cue to shut down my mental facilities and bow to perceived wisdom. How could ideologists of such opposing first principles support the plans which have provoked thousands of formal objections and united villagers together? My guess is that it’s for the same reason that every post-war government (with the debatable inclusion of Thatcher’s) have supported the ‘post-war consensus’.

For those who don’t know, the post-war consensus was the belief that the outwardly impressive centralised, bureaucratic planning that had seen us through the war could herald a golden age for Britain. What started with socialist MPs and William Beveridge was later supported by Churchill’s government and has been the stalwart of state plans for economic development ever since. It’s gifted us such ineptly managed projects as the Channel Tunnel, the Millennium Dome and all those lovely sink estates.

Now Labour’s 1947 planning system (which instructs bureaucrats to ignore the opposition of local residents and gives the power for local authorities to forcibly appropriate your property should it be in the way of ‘progress’) is gifting us HS2 and a thousand protested homes on Gravesham’s Green Belt. The government says HS2 will create hundreds of thousands of jobs; Gravesham Council say each house built creates one job. The government claim against reason they have compelling evidence that HS2 will be popular in 2026; Gravesham Council say much the same about homes must be built now for the market of 2031. Neither have a credible mathematical ground to back up their omniscient vision and both can only guess what changes they are likely to inflict upon the local communities, environments and economies.

While libertarian think tanks are siding with the nimbys against HS2, I find it odd that libertarians should find it so unfathomable that local campaigners like myself are not a threat to the free market. Liberalism is about believing that individuals are better at shaping their lives than the state and when thousands of locals are contributing arguments against a development, that can only be a good thing. It’s about protecting those individuals from vested interests and many local councils are being far from transparent about the wealthy developers who lobby them. Economic liberals should support critical scrutiny against the instinct that development is always to be preferred.

Our philosophically bankrupt government have now embraced the statist planning system to which nimbys are often the last line of defence. The Coalition fails to the see the irony that at a time when Scottish independence is being widely discussed, the UK is about to make the same bankrupting mistake which led Scotland to sell its freedom in the first place – speculating in a state-funded transport development which private investors wouldn’t so much as toss as a cable at. If we free-marketeers truly wish resources to be channelled where they are most productive, it’s time we suspended mistrust of the warnings of nimbys and respected the local knowledge they possess.

David M Gibson is a classical liberal, member of the Liberal Democrats and active campaigner. A collection of his writings can be found at davethedystopian.blogspot.com, as well as on the Freedom Association website.  David recently  posted “the stupid 100%” and “Sympathy for Occupy LSX” here on LV.

John Milton (1608-1674). Areopagitica (1644)

John Milton (1608-1674)

Areopagitica (1644)

John Milton is best known as a poet, in English and in Latin,  particularly for his epic Paradise Lost, one of the major works in all English literature.  It is work with a religious structure, which also shows evidence of his opposition to (Satanic) tyranny, and support for republicanism as the most godly form of government on Earth.  As this suggests, Milton was also one of the major seventeenth century English republican thinkers.  Nineteenth century English liberals gave great importance to Milton as a forerunner, as in The Whig-Liberal  historian, politician and civil servant Thomas Macaulay who elevated Milton to the status of ‘martyr of English liberty’.   It is Milton’s strangely name Areopagitica which has made the biggest impression in the history of political thought.  Milton was a supporter of the English Commonwealth (1649-1660, though in the strictest sense it ended in 1653), which followed Parliament’s victory over the English monarchy, and the execution of Charles I.  He  argued for the Commonwealth on the basis of  a form of popular sovereignty argument (in which Milton thought that aristocratic bodies could be adequate to represent the nation) inThe Tenure of Kings and Magistrates of 1649.  He worked for Oliver Cromwell, commander of the Parliamentary army, and increasingly dominant in politics, as Secretary of Foreign Tongues (which meant chief translator and publicist for the government).  Cromwell can as much be regarded as the great traitor to English republicanism as its hero, but he did have republican supporters like Milton. Cromwell’s elevation to rank Lord Protector in 1653, along with his crushing of republican and democratic thinkers, his restrictions on parliament and religious dissenters, and increasingly monarchical pretensions, ended the hopes of a pure republic of liberty and parliamentary power, in England.  He was still the defender of the next best thing for Milton,  and for others. Areopagitica refers to the Athenian court of Areopagus which has secular and religious, legal and poetic, significance.  In secular terms it was a court of Athens, the most democratic and liberty respecting of ancient Greek states.  Ancient Greek tragedy links the Areopagus Hill with the transition from revenge to law, as it is the location of the trial of Oestes in the Eumenides (the last part of Aeschylus’ Oresteia), in which the Furies becomes the Kindly Ones.  As St Paul famously spoke there (New Testament. Acts 17: 24), it has an important place in the origins of Christianity.  This is very favourable to Milton’s interest in both Christian religion and antique literature. As was normal for republican and liberty oriented thinkers of the time, he drew on Ancient Greek and Roman history, along with the Hebrew Bible/Old Testament, for examples of good and bad political forms.  In Milton, there is a particular emphasis on liberty, as the Protestant liberty for a Christian to seek an individual understanding of the Bible, and of God’s word.  Political liberty is necessarily bound up with this for him.

Milton quotes from Euripides’ tragedy the Suppliant Women at the beginning of Areopagitica, confirming the importance of Ancient Greek tragedy as a source of thought about liberty.  He also refers to the more strictly defined political thought of antiquity, as when he refers to Cicero in his account of  the value of publication freed from pre-censorship. In Areopagitica,  Milton is addressing parliament at the height of the English Civil War (1642-1651, also known, and more accurately, as the War of the Three Kingdoms) to appeal against the pre-censorship of books, which he refers to as licensing.  Milton’s argument in religion, in politics, and in all fields, is that truth emerges stronger for being challenged and then in the arguing for it. We can never be sure that we have found the highest truth, so we are bound to entertain counter-arguments to whatever we think is the highest truth we have.  Milton does make it  clear that he excludes atheism and Catholicism from the range of  thought which can be freely expressed, but this is not intolerance by the standards of the age.   It is the freedom of books in Athens that Milton refers to as a model in antiquity, and this extends to a suggestion that England is a particularly free nation, implicitly like ancient Athens, so we see the role of classicism, of nostalgia for ancient republics, in modern ideas about liberty.  Milton’s specific arguments for free speech include the idea that a right to free speech, and even demonstrable commitment to its exercise, is  a criterion of membership of a political community, both in legal terms and in terms of peer esteem.  Those who are not trusted in their actions, including the action of writing, even though their intentions are not known to be immoral or illegal, must be regarded as excluded from full citizenship, because of intellectual impairment, or citizenship of another nation.  Milton’s sense of liberty includes national self-government, and though his manner of referring to foreign residents may strike us as harsh, he does capture the idea that state power must be limited to what comes from the freely formed political will of the nation, and in responsible genuinely national political institutions, as opposed to the will of one person.  As a defender of free speech, and very few in his time went further in demanding liberty of expression, he is a great antecedent for John Stuart Mill, and all those who have argued for individual liberty, and for political institutions which act with rational deliberation, and which are accountable to public opinion.

Is South Africa doomed to stagnant politics?

In 2012 the African National Congress (ANC) celebrates its centenary, a hundred years of, eventually triumphant, struggle that commenced in a small Church in Free State province. The ANC will have another celebration this year; that of eighteen years of dominance and rule over post-apartheid South Africa. This figure is symbolic as it means for the first time, South Africa will have people of voting age who have known nothing but ANC, a matter especially crucial in the ‘African’ communities, where children will be raised with the legend of the fight against apartheid, and heroes such as Nelson Mandela and his ANC. Can such a generation be expected to view this party with the objective eye of a normal voter?

Since 1994 and the first free elections, the ANC has maintained a majority of around two thirds in the National Assembly and consequently every post-apartheid president has belonged to their party. The two thirds figure is important in South African politics as it allows the governing party to alter the constitution, a significant ability, if only by virtue of the dominance this denotes. This established dominance raises the spectre of stagnant politics when one looks at the election reports from the period: since being legitimized the ANC has held somewhat of a monopoly over the ‘African’ vote maintaining a vote share in the general election of between 62.7% (1994) and 69.7% (2004). These numbers become significant when you consider two other statistics; the percentage of the South African population described as African has been around 80% and voting turnout of registered voters has been between 76.7% (2004) and 87.9% (1999), multiplying these two statistics together to give us a rough estimate of the African turnout returns a range between 61.3% and 70.3% which is remarkably close to the range in ANC vote share over the same time period. This potential coincidence is backed up by the similar correlation between white turnout and vote share of the former apartheid parties that make up the majority of remaining votes.

Now I am not suggesting anything sinister in this observation; merely that a monopoly seems to be held over the African community’s vote. I suggest this is due to the fact that after the hate and oppression of Apartheid and the joy of its overthrow, which is mainly attributed to ANC members, the African community has taken the ANC to be part of their identity. In fact the only occasions when the ANC has lost significant votes to another black group (other than the Zulu nationalist party IFP, which attains around 90% of its total votes in the Kwazulu-Natal province)has been when a splinter of the ANC has stood, as in 1999 with the UDM and in 2009 with the Mbeki faction COPE.

This internalisation of a political group as part of an identity leads towards the stagnation of society, a situation where ideas become so accepted and widespread that they cease to be challenged. This is a danger John Stuart Mill warned about, claiming that one of the critical reasons for free speech and the encouragement of unconventional ideas, is to challenge our views; to keep pushing us onwards in development. In politics, the stagnation found when a party can rely on a dominant vote removes many of the incentives for that party to toil in the interests of the people, as they are under no pressure to fight for votes. The controversial stance President Mbeki took on the AIDs problem in South Africa (essentially denying a crisis which has reportedly infected 1 in 10) was a worrying sign of this potential loss of touch with the ANC’s voters and aims. If South African politics does indeed stagnate, it is unlikely we will ever see the ANC push on with its aim of empowering the weakest in society, with anything like the determination evident in its great history of struggle against apartheid. The principles inherent in which, provide the emancipating positive-liberty view that is needed to help the majority of South Africans who still live in poverty, beset by a growing AIDS crisis. It may be that the split of the COPE faction will offer an acceptable alternative to some of the ANC voters, but until another party can present a legitimate challenge to the ANC, the marketplace of South African politics will be devoid of the competition needed to ensure that this fine organisation (or its opposition) sees 2012 as the beginning of a new century of struggle for liberation, rather than the end of an old one.

Ben Waistell is a second year politics and philosophy student at University College, Durham. He was a member of the youth parliament for a term when he was 15, during which time he chaired the transport committee. He has worked with the local council and on behalf of his local MP and spoken on transport, health issues and drug legalisation.

Nick Clegg wishes Lib Dem rallies looked a bit like this.