Raymond Gastil

Raymond Gastil The discussion has gone in many different directions since I originally raised my hand, but let me make a few points on what has been going on. The first point is that very clear majorities can be very coercive, and what they do may ruin society. For example, one man one vote could ruin South Africa, no doubt about it. Nevertheless, in most situations there is very little alternative, (1), to having governments and, (2), if you accept certain principles about equality, to having majority rule, in spite of some of the results that may accrue from that.

It seems to me that majority government, as oppressive, coercive, and so on as it may be and in spite of all the theory that one might have that unanimity or something else is a possibility or would be nicer, is really for most situations the only available solution to the problem of power. From that perspective, I find the remarks by Walter, for example, reminiscent more than anything of listening to Marx speak about the terrible things that were going on in the world. It is utopianism to say that something that has never been anywhere on any scale—and probably because of the nature of people will not be anywhere on any scale—is the way in which we should organize our relationships.

The second point is just a thought in regard to Tibor’s point that only individuals really have ends. That may be true in some philosophical sense, nevertheless, in a practical sense, if we think about the fact that we as Americans are very interested in the survival of certain values over the future centuries that stretch out in front of us, it isn’t as appropriate to think of those in terms of our individual wants and desires as to think of those in terms of group wants and desires. I don’t think it is we as separate individuals that are really interested in that long-range future, but we as members of a collectivity.

The point that I was really going to talk about when I raised my hand was Assar’s point having to do with the media. Let me just point to National Public Radio in the United States, which is the closest thing to a government-owned and controlled media we have in this country, and yet is the most consistently critical of the United States government. Voice Republican government! Ramon Diaz Assar Lindbeck said that he didn’t find it difficult to think of a regime where all property was social and yet political and civil liberties remained. I think that is perfectly right, as a logical point of view. If we think of society as made up of so many chessmen, we can arrange them in a logical way in that sense. But I doubt that this is a very relevant statement. Actually, what we are talking about here has to do with the rule of law and with competitive capitalism, and this is a very unique circumstance. As the Friedmans say in their paper, the typical state of mankind is tyranny, servitude and misery. We are in a very, very special circumstance. I Discussion 71 copyright The Fraser Institute think it is inconceivable that we could have come to this special and privileged historical circumstance if the society had been made up of civil servants. Civil servants will not produce a society that upholds freedom. We have a character in this great play that is enacted in Western society, and this hero of our play is a property owner. Therefore, I think that we have to focus on the very special characteristics that have prevailed in the West which have produced a particular individual who thinks of himself as a separate private individual with property rights and not as an employee of the government. Michael Parkin I would like to go back to the sentence that begins the thesis of this chapter and which several people have picked up on. It seems to me that if we think about what is being said there in just a slightly different way from the precise words that are used, we see that the statement really has a lot of strength. Milton and Rose distinguish between socialism and capitalism, but they always—or almost always (as Milton has said)—qualify the word “capitalism” with the word “competitive.” It seems to me to be useful to think about a two-fold classification—competitive and noncompetitive arrangements; and capitalistic and socialistic arrangements—and then ask ourselves, which is the key dimension? We know that scarcity means that every situation has to be fundamentally competitive, but using the word in the more limited sense, to talk about how we explicitly organize our social institutions, I wonder whether it is the competitive rather than the socialist/capitalist dimension that makes the difference? Think about competitive as being a situation in which there is freedom of entry and exit. That is what makes competition different from other arrangements. There might be only one (producer, government or whatever), but the fact that that one got there through a process that could have resulted in any one, or more than one, being there, doing whatever it is, makes the situation different from a situation in which there is one and only one there because others are excluded by explicit rules and procedures. If we think of things in this way, I think we see that Assar is wrong in the inferences he draws from Sweden. Sweden is an example of competitive socialism. It is competitive in the sense that it competes on the world market to sell its output. We wouldn’t want to say that IBM is in some sense a socialist country, but Sweden is a big organization, a big corporation, like IBM, that produces goods and services by means that do not use the market very extensively, internally, but that sell the output competitively on the world market.

I don’t know the fraction of Swedish GNP that is traded internationally, but it must be pretty high. That puts a discipline on the Swedish economy that would not be there if this were a closed economic system. Secondly, a feature of the freedom of entry and exit view was touched on by Brian Kantor, that is, individuals who don’t want to put up with the arrangements that are in place in Sweden are, in fact, pretty reasonably free to take their human and physical capital and locate it somewhere else. That also makes it a competitive environment in the same sense as before. I will summarize very quickly just by saying that if we think about the words “competitive” and “noncompetitive” as being more important for this particular point than the words “socialist” and “capitalist,” we make more sense of the original thesis and it emerges as a much more powerful thesis. Svetozar Pejovich I have three points. The absence of private ownership is what I understand to be socialism. In that sense, Sweden is not a socialist state and, in that sense, Hungary is. If I have a car that belongs to the state, I cannot sell it. And for that reason there is no market for capital goods. On the second point, I want to ask Mr. Friedman. What I observe is that people trade freedom for other things, like security, marriage, the priesthood, and if this is so, then there must be diminishing marginal returns to the freedom that people enjoy. If so, then a perfectly free society will be an inefficient society. To me, what is important seems to be the ease of exit, the cost of exit. Assar Lindbeck I think we all agree that there are very important links between political and economic systems. We are trying to discover the character of those links. What I tried to say is that those links are much more complex than earlier thought by Hayek and the Friedmans in their expositions. Moreover, they are not deterministic, but they are highly probabilistic. I think Milton should include chance and risk in these considerations as well. There is not a monotonic relation between the size of the public sector and individual freedom. If you go to a society where public ownership is 10 percent and increase it to 40, 50, 60 or 70 percent, you could not predict what would happen to civil liberties in that society. If public spending increased to 65 percent of GNP in Sweden, I couldn’t say that there are fewer civil liberties now than when the sector was 20 percent or in countries where it is presently 20 percent. Discussion 73 copyright The Fraser Institute As the size of the public sector grows, freedom of choice—the possibility for an individual to change his own life situation by his own effort—decreases. But I think that is very different from civil liberties. By civil liberties I mean that you have elections, you have freedom of speech, you have a competitive political system—you can feel free to criticize the government as much as you like. That is different from the fact that it is difficult to change your own disposable income by your own effort. I am not saying that the latter is less important, only that it is different. We should make distinctions between those different aspects of freedom—freedom of choice versus civil liberties. Lastly, in Sweden there is no big risk in criticizing the government, with some exceptions. Research institutes, for instance, that live on government funds, might think for awhile before they criticize government. There could be some limitations there. What is more important is that people hesitate much more to criticize labour unions, because labour unions can influence the career of a person in the sense of affecting promotions. Labour unions do not have a truly competitive political system for choosing their leaders. You can get a new government after two or three years, but it is very difficult to get a new political party to rule the labour union. That is ruled by the same group of people decade after decade. So there is a private organization besides the state which I think is much more detrimental to freedom of speech in my country than is the government because of the lack of a competitive political system between the unions. Finally, it is very misleading to call Sweden a socialist state. I think 7 percent of manufacturing is owned by the government—less than in practically any country in the world. It is a transfer state rather than a socialist state. Gordon Tullock I think we have three different things: economic freedom, which is the right to work, et cetera; civil freedom or personal freedom, which is a large collection of things which, really on traditional grounds we think are important, like the right to speak, and so forth; and then finally there is the use of the voting system in some variant. I spend most of my time trying to think of ways to make it work better, so I say “some variant.” I agree with Block, that the use of freedom for the third kind of freedoms is a somewhat odd use of language. It doesn’t follow from that that I don’t think it is important. I do think it is important, but I don’t think, strictly speaking, that freedom is the correct term to use with it. If you go back to the 19th century you will find the opposite of what I am calling here the Friedman/Hayek position. You find people saying that if you want a free economy you have to have democracy.

This point of view vanished in the 1920s and ‘30s for rather obvious reasons. There has been an effort to simply reverse it. I don’t see any strong reasoning for doing so. In fact, in the 19th century I think it was essentially an accidental coincidence that economic freedom and democracy coexisted. I also think it is essentially an accidental coincidence now. We can be in favour of all of these freedoms without feeling that we have to allege that they come out of each other. Some of the personal freedoms come out of the use of some kind of voting system, because you can’t do it unless you have freedom of speech and things like that. That is part of the voting system. But other than that, they seem to be three different things—all of which are desirable—and I don’t see any strong reason for arguing that they are correlated. Alan Walters I think the sort of distinction which Milton makes in his book somewhere between totalitarianism and despotism is a very important one. Hong Kong is ruled by a despot, by the governor, but it is completely opposite to a totalitarian society. I think that distinction tends to be lost sometimes. I would like to go back and support a point that Gordon made in a positive sense, and that is, it isn’t just that great art comes from these despots. It is also true that those despots, to a very large extent, had competitive art systems supplying them. The second point I think is very important too. For all of their many successes, America and Britain in their capitalist heydays have been pretty much an artistic desert. It is tragic and it is something we cannot easily explain. There is no good art, no good music produced during these long periods. Raymond Gastil I made most of my points before, but let me just add that there is a great difference between different contexts as to what are the important and significant issues of freedom. As you move from capitalist to socialist, from government control to private control and so forth, you have different problems arising. One thing that we have not spent enough time on is that if you don’t have government controls that limit freedom, you very often find that the controls come from other sources. They might come from unions, from religion, or from business. Walter Block Gordon agrees with me that we should put economic and civil liberties on the one side and political freedom on the other, and even that political freedom is sort of a misnomer. But he insists that it is important, nonetheless. I would urge that it is not quite so important. Certainly the Hong Kong example of the despotism not ruining economic liberty is one example. Another example would be British colonial rule over Africa and India, which was despotic in many ways but which was very beneficial in terms of economics. Second, I don’t regard unions as private enterprises. I regard them as bits of government or “overmighty subjects,” as Peter has called them. I regard them as bands of criminals who compete with the government gangs. Somehow they have wrested some legitimacy and some ability to initiate coercion from the government. But, just like government, they do provide some legitimate services. So they are neither fish nor fowl. But to call them private institutions is a misnomer. Third, about Sweden being like IBM. I am very reluctant to accept this analogy. I see a vast difference between a voluntary organization such as IBM, which receives its capital from the voluntary choices of investors, and Sweden, which obtains its revenue from the involuntary taxation system. My last point is with regard to utopians. I accept happily the notion that I am a utopian, if, by utopian you mean all that is good and pure! And I do mean it just that way, at least in one sense: a utopian is someone who does not care much whether something is or is not politically feasible. A utopian says what is right and what is not right is much more important than what is politically feasible. Certainly, a free enterprise system now is not really politically feasible, but I think that is really unimportant. My concerns are for what is right and just and not for what is likely to occur in the next couple of years. Milton Friedman There are so many things here I don’t know quite what to react to. But I want to start by making a few comments in connection with Assar Lindbeck’s various comments. I believe that Assar neglected to read the whole of the sentence which he criticized, because it says, “A society which is socialist cannot also be democratic, in the sense of guaranteeing individual freedom” (italics added). And the next sentence goes on, “Economic arrangements play a dual role…On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood.” So when Assar says that socialism is not compatible with freedom of choice, he is agreeing with us that it is not possible to have a democratic socialism which guarantees individual freedom. Because in our view economic choice is an extremely important component of economic freedom, and not simply a means toward another end.

I agree thoroughly with Ingemar that government spending as a fraction of income is an imperfect measure of the role of government and is not necessarily closely related to most of the other things that we talk about. But government influence, in the sense of controlling the activities of individuals, including redistribution of income, does severely interfere with freedom of individuals as such. Therefore, I am not going to retreat from believing that that sentence is basically a correct sentence. I also will agree with him, and with Michael, that what is really relevant is pluralism and competitiveness, and that is why in an earlier page on this little document we got out we said that “The second broad principle is that government power must be dispersed…If I do not like what my local community does…I can move to another local community.” I have no doubt that a world of small, dispersed governments—even if governments in that case owned all the means of production—could be, in principle, competitive as among the different governments and could, in principle, produce exactly the same results as what we call a free enterprise, private enterprise, situation. With respect to Raymond’s various comments, I want to separate myself completely from the notion of group values. Again, if I may just go back to show that I am not making this up anew. If we say, he—and by that I mean a liberal in my sense of the term liberal—“recognizes no national goal except as it is the consensus of the goals that the citizens severally serve.” I believe there are such things, very important things, as consensus about values, agreement about values, but I think the notion of group values is a dangerous notion that inevitably leads to an organismic concept of society and in a direction I don’t think Raymond would want to go. As to some of the other comments, I will make one more comment only. I have no doubt that the best of all forms of government is benevolent dictatorship. I am not going to quarrel with that at all, and we have had some examples in history of good, benevolent dictatorships, as in Hong Kong, in Singapore with Lee Kuan Yew—he’s been a benevolent dictator. The problem with benevolent dictators is that they don’t stay benevolent, which goes to Herbert’s point of what is the time period. They don’t stay benevolent, and they tend to be replaced by people who aren’t so benevolent, and the benevolent people tend to get corrupted as well. On to Gordon’s point about the notions contained in Hayek’s Road to Serfdom and our Capitalism and Freedom. The key feature of Hayek’s Road to Serfdom, as I see it, is the chapter which says the worst rise to the top. In that respect I believe that he has been completely right. I don’t believe you can say he has been wrong. He was wrong in predicting that the increase in the size of government measured by government spending would lead to dictatorship and totalitarianism, but what happened in the course of the next 20 years is that the character of government expenditures and control changed. It started out in the direction of nationalization and then it changed into redistribution. And there is no doubt that—and this is a point Assar has been making—the effect on the tendency toward dictatorship is quite different as between these two modes of government expenditure.

Douglass North I want to pick up on Milton’s point about competitiveness. Actually, it relates to something Michael said earlier. It seems to me that what is crucial about competitiveness is two aspects of it that make institutions have greater viability. One is that competition maximizes the chance to make mistakes and, therefore, perhaps the chance of finding successful ways to do things. Since we don’t know which ways work, we want to maximize those opportunities. Certainly, the kind of institutions that do that are very crucial.

Secondly, competitiveness eliminates the losers, and that is equally important. If you let the losers continue and persist in the society, then you build into it structural weaknesses. I have a term that is not original, “adaptive efficiency,” which is very different I think from allocative efficiency as we use it in economics. But it is related to institutions that do maximize both the choice set that is available to people and the competitiveness, so that you wipe out losing sets of institutions. The Northwest Ordinance, which I talk about in my paper, is a marvellous illustration of it. It provided for some very simple things like fee simple ownership of land, easy transferability of title, inheritance laws that were clear and simple. The result was that while downstream in U.S. history we made terrible ways of distributing land, it didn’t make much difference because with these institutions in place we could transfer land, as we did, to more efficient uses and ones that solved our problems better. So the competitiveness is something that has a precise meaning in the way I want to think about it that relates to your point and to Milton’s. Arnold Harberger As I have been listening through the discussion this morning and also from the very beginning, looking at the title of the conference, I felt that this was a topic that could easily fall prey to semantics and definitions, to creating categories and arguing between them. Now, there is nothing wrong with all of that, but I think we should recognize, for the efficiency of our discussion, that it is a trap that we could easily fall into. I would like to try to help the discussion get a bit more concrete by speaking a little from my own experience. I float around in Latin America a lot, and I also try to study economic growth around the world a fair amount. There is a question that really gets me sometimes, especially in ideological discussions in Latin America. They keep pounding me. They say, in effect, that the kind of economics I am selling is okay, but it is only dictatorial, autocratic governments that can really do it. It has been bothersome to me to have to agree with this view to some extent. The problem is that we all like all the freedoms. If we only liked one, it would be easy. I look at the actual historical record of Hong Kong, Singapore, Korea, Indonesia, Taiwan, Spain in the latter decade of Franco, Portugal, Brazil, in each case, its economic miracle took place under an autocratic government. Chile has had two spates (of which it is currently in one) where it has outperformed its neighbours, largely as a consequence of this type of policy. While not many seem to be aware of the fact, Guatemala and Nicaragua, starting around 1950, had very good growth under autocratic government. The reality is that these governments have had better than average economic performance under that kind of rule. My first response is, we are economists, we know that other freedoms are a part of our value system; we have to be willing to pay a price. And that is really where I sit when I have to. But at the same time I wonder what is the secret there? Why are these essentially autocratic regimes seemingly more successful than other regimes? First of all, let me note that most of these autocracies seem to turn into technocracies. They tend to acquire a higher proportion of technocrats, and this transition seems in some way to be important for the growth process. The reason appears to be that the technocracy in turn imposes a discipline and self-restraint on government. It keeps government small when a lot of populist and other pressures are trying to make it bigger. Autocratic government seems to be able to impose self-restraint and to avoid doing a lot of things that it would be pressured to do in a more open political system. Moreover, and perhaps more importantly, autocratic governments often bring discipline, restraint and predictability to the economic scene, which before had been chaotic. It is this transition that is the common thread in these various success stories. But, I can also think of three cases of democratic governments which have been successful in the growth encouraging game—Switzerland, Japan, and Panama. Switzerland is an old democracy but very self-restrictive by the nature of its constitution; nothing can happen in Switzerland, hardly. Japan in the modern world is a democracy, but they have a lot of built-in self-restraint by their culture. Panama had built-in restraint by having the dollar as a circulating medium and having a prohibition against having a central bank. But during the 1960s, when it led the Western Hemisphere in the rate of growth, it didn’t have the tendency to populism that later infected and ultimately overwhelmed it in the late 1970s and early 1980s. So, here are three cases where democracy has worked to produce high rates of growth, in all of which the elements of discipline and restraint, and in a certain sense predictability, have been present. Raymond Gastil I think insofar as that is true, I would have some questions about the democracies in each case, and particularly in the case of Panama. But perhaps we don’t wish to get into that at the moment. Alvin Rabushka First of all, I don’t have a dictionary with me, but I think the word “despotic” conveys some norms and modes of behaviour. Hong Kong is not despotic; please stop calling it despotic. Call it regulated, call it night watchman, call it authoritarian, call it unrepresentative, call it administrative no-party state, but stop calling it despotic. The second thing is precisely the point that Arnold was making—this notion about semantics and language and what these words mean. Words have meanings, and we have to talk about them in some way or we can’t talk about the subject. I think we all have a sense about what civil liberties are, and I’d buy the Freedom House list intact. I think we have some pretty good senses of what economic freedoms are, and in my own paper I basically enumerate the Friedman bill of rights and add three or four more, which I think he might be willing to buy as well. So I think we can get around that. Now we get to the political problem, and Block is right. But I think we can amend that a little bit. The way I would like to talk about it is to talk about political freedoms having imbedded within them, shall we say, some kind of constitutional, written or unwritten custom limitations on the abilities of those majorities to take away the rights of individuals and minorities. If we can do something like that, I think we would get a better handle on what we mean by political freedom that won’t bother us all that much.

But the last point is this whole question of running around the world looking at other countries, and Latin America is one of the few places I haven’t gone to look at. One thing I did do at a prior Liberty Fund Symposium and in some other papers was take a hundred countries in the developing world in the post-war period and then take the Freedom House data and look at their scores on civil liberties and look at their scores on political rights, and I discovered the following.

First of all, civil liberties and political freedoms come out reasonably similar when you simply do a cross classification against some economic factors (I will tell you what those are in a minute), which means there is a very high internal overlap between the presence of political rights and civil liberties as measured in the Freedom House scores. And that is very encouraging. It means that if you are going to have political rights, you can have civil liberties, and vice versa. You don’t have to choose one over the other. So you don’t have to worry about the majorities tyrannizing civil liberties out of existence.

Now, in terms of what these economic variables were, I used two: one was per capita income, and the other was rates of growth over the last 20 years, that is, per capita rates of growth in income. The results come out reasonably the same; that is, countries that have had very high rates of economic growth for 20 years now have a reasonably high per capita income. Countries that have had very low growth rates don’t. The results came out reasonably similar, and they are as follows.

Where there is zero or low growth—I mean negative growth up to 1 or 2 percent—and per capita incomes are $400 and under, there are almost no civil liberties and political rights. In countries that have high rates of economic growth and per capita incomes over a thousand, or seven hundred and up, there is a fifty-fifty mix, between countries that have high civil liberties and not and countries that have high political rights and not. So stagnation and poverty are just iron-clad guarantees of not having any freedoms. Prosperity gives you some chance of getting some of the liberties. In this context, I think what Arnold has described as a cross-sectional phenomenon also is exhibited longitudinally. What is clearly happening in Taiwan and in Korea—for that matter, mainland China and some other places—is there is a gradual emerging of civil liberties and political rights that didn’t exist in the first instance. So affluence is a kind of nice breeding ground in many of these countries for a much looser society, a much less restricted, a much less controlled society. On the basis of the evidence, I am willing to go on the line and simply say that if one can impose the kinds of growth-oriented policies that work, one will get—down the road a generation later, in those places where it has had a chance to work—probably many more rights and freedoms than there were in the beginning or than there are in other countries which are similar except for the growth experience. Gordon Tullock I would deduce from these numbers that you have given that a country that has a per capita income of about $150 a year could never have freedom. I am, of course, referring to the United States in

1776. But going on from that, actually what I wanted to talk about is that we observe that a dictatorship sometimes is successful economically and democracy sometimes is successful economically. As a result of the fact that a lot of democracies in the great 19th century were leading countries, both in economy and politics, a lot of them are still pretty wealthy. I am sure that is the reason the United States is still pretty wealthy. Although we had the advantage that the 19th century, in our case, lasted right through to the 1930s. So we left the 19th century somewhat later than anyone else. There is another possible explanatory variable, an unpopular one. Again, this is found in pre-World War II or even pre-World War I literature. The anthropologists divide the European culture up into 3 main groups, by language, actually: Slavic, Latin and Teutonic. There is an overwhelming correlation between being members of that Teutonic group and being both prosperous and democratic, and also, I should say, being protestant. It may be that we are simply talking about a characteristic of one particular subculture within the European collection. I sincerely hope not.