THE PRINCIPLES OF THE LIBERAL ORDER

FOR THE OMEGA PROJECT AT CENTRE 2000 IN 1987

The Omega Project in Britain was a libertarian “wish list” of policies to show what a full-blooded libertarian/liberal political agenda would look like.

Centre 2000 was a think tank founded in Sydney by a small group of young people and the Omega Project aimed to duplicate the British model. With limited funds the project made some headway with draft chapters and the statement of guiding principles was fully formed.

The political landscape was highly volatile at the time, with the emergence of Joh Bjelke-Petersen and his push for Canberra, and Centre 2000 was a victim of the political landslide. John Hyde wrote about the Centre in the long form of his history of the “dry” or classical liberal/conservative movement in Australia which is on line at The Institute of Public Affairs.

These paragraphs are extracted from the introductory statement of principles to indicate that Hayek speaks to our condition 40 years later, and indeed since he wrote “Why I am not a conservative” that was published as an appendix to The Constitution of Liberty in 1960.

From that essay:

“We must make the building of a free society once more an intellectual adventure, a deed_of courage. We need a program which is neither a mere defence of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which is not too severely practical and looks beyond what appears today as politically possible. We must make the philosophic foundations of a free society a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. Otherwise the prospects of freedom are indeed dark. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost.” END OF EXTRACT

It has to be said that the aspects of conservatism that the criticised are not held most of the people who identify as conservatives at present.

TURNING TO THE INTRODUCTION

1. THE IMPORTANCE OF GENERAL PRINCIPLES

The Omega Project will touch the whole range of government agencies and activities, often suggesting more or less radical reforms based on principles which are systematically brought to bear upon the problems and issues at hand.

We are presenting liberal principles in an undiluted form and we recognise that many of our suggestions are not politically feasible at the present time. However we see a need to carry the debate beyond the limited range of options that politicians are prepared to contemplate.

Our aim is to proceed beyond suggestions for immediate reforms to help create a body of public opinion which renders possible ever more liberal policies. The magnitude of this task should not be under-estimated. The liberal revival in recent years has not yet arrested the continuing momentum of undesirable changes in many areas of public policy. The great challenge is to persuade the people who support these changes that their effects will in many case be the opposite of those intended.

2. THE LIBERAL ORDER

The term ‘liberal’ in this report is not a party label. Nor does it signify the interventionist and welfare-statist philosophy that has appropriated the name of liberalism in the United States. Probably the best short statement of our principles is provided by Hayek’s essay “Why I am not a conservative.”

One of the most damaging features of the current debate is the way that liberalism has attracted the labels ‘New Right’, ‘Hard Right’ and ‘Radical Right’. These names conjure up visions of jackboots, whips and concentration camps; they assume that there is a spectrum of political beliefs ranging from the Far Right to the Loony Left. Turning to Hayek:

‘The picture generally given of the relative position of the three parties (the socialists, the conservatives and the liberals) does more to obscure than to elucidate their true relations. They are usually represented as different positions on a line, with the socialists on the left, the conservatives on the right and the liberals somewhere in the middle. Nothing could be more misleading. If we want a diagram, it would be more appropriate to arrange them in a triangle with the conservatives occupying one corner, with the socialists pulling towards the second and the liberals towards the third’.

The green and pink “moderates” of the Liberal Party want to be seen on the middle ground between the extremes of Left and Right. This gives their green and pink agenda an image of responsibility because we most people are wary of extremists and fanatics so the ‘moderates’ gain support from people who have not thought through the issues.

Returning to the contending forces at the apexes of the triangle, Hayek noted that;

‘...as the socialists have for a long time been able to pull harder, the conservatives have tended to follow the socialist rather than the liberal direction and have adopted at appropriate intervals of time those ideas made respectable by radical propaganda’.

This explains the drift to welfare statism and interventionism by the conservative parties of Australia, especially after WW2 ‘Nugget’ Coombs with his Keynesian and Fabian fellow-workers laid the groundwork for the increased pace of centralisation under Whitlam. The interventionist drift of conservatives has left them with little to offer the liberal cause beyond anti-socialist rhetoric and nowadays we are obliged to oppose the positions that green and pink Liberals share with the socialists. Chief among these is ,----._ the notion that any problem under the sun demands that the state should forthwith legislate or otherwise intervene to put things in order.

As Hayek put it:

‘The conservative feels safe and content only if he is assured that some authority is charged with keeping social change “orderly”. This is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces.’

3. THE MARKET ECONOMY

‘Market liberalism’ is a social order where the maximum of free play is allowed for market forces to operate in exchanges of goods and services. Some salient features

Co-ordination by prices The profit motive

The evolutionary process

Recognition of the effects of interventionism.

The market acts as a vast medium of communication between the myriad of producers and consumers. It signals shortages and stimulates producers to increase the supply of the item. This permits rapid and efficient co-ordination of the activities of millions of individuals in a manner that is quite impossible with centralised control and regulation.

The profit motive activates entrepreneurs (which to some extent means everyone) to satisfy unmet needs and search for more efficient methods of production and distribution. Managers and other workers in state enterprises have no such motivation to enhance efficiency, flexibility or innovation. Their entrepreneurial flair is expressed in bureaucratic empire-building and the pursuit of personal interests and agendas by legislation and regulation.

The market economy can be depicted as a kind of Darwinian evolutionary process where the market contains ‘niches’ that can be colonized by entrepreneurs. Some of these ventures succeed, but some fail through misjudgment, bad luck or the pressure of competition. Uncertainty is the order of the day because there is

no way to know in advance whether an innovation will succeed, or if it succeeds at first, how long it will survive. The environment changes because colonising a niche changes both the . niche and its surroundings. Rival enterprises change also as they

try to produce competitive innovations.

This dynamic process of innovation and “natural selection” can be distorted by intervention to bestow state-protected monopoly status on some producers or to impose tariff barriers to protect favoured producers. Intervention can be ad hoc, to serve the interests of selected individuals or groups; alternatively, it may be comprehensive as in the theoretical concept of the centrally planned economy. Two effects flow from intervention of any kind, first the favoured producers gain at the expense of all consumers (usually by inflated prices) and secondly, resources are used inefficiently because the redistribution of resources from failed enterprises to more efficient units does not occur or is delayed.

It is often asserted that free markets enable the strong and the lucky to win out and create monopolies with consequent exploitation of the poor and the weak. Based on this assumption, socialists offer a choice of central planning or monopoly so most people of good will have opted for planning through ignorance of the function of markets, especially the price-control and co­ ordination functions. Far from being a cause of monopolies, open markets are the best protection against monopolies and consequent high prices.

Many critics claim that liberals regard the market order as an end in itself, regardless of the social consequences. To the contrary, experience of the social consequences of closed markets provides reasons for us to favour open markets and the liberal order. Most of the social problems which socialists attribute to the play of market forces (such as the concentration of powers with monopolies, inflated prices and unemployment) turn out to be caused by the intrusion of state regulations or state protected monopolies. A typical example is the situation with commercial TV licences where the decision to allow only three channels in the major cities has created a hugely inflated value for the licences and has allowed ownership to concentrate in few hands. The typical interventionist response is not to eliminate the problem at the root and allow more licences but to tinker with further and increasingly complicated regulations to limit ownership of media outlets.

The welfare benefits of economic rationality

Market liberals have not so far made much progress in explaining the welfare benefits of open markets, free trade and deregulation (especially in the labour market and the wage fixing system). This is partly due to the tenacity of myths about the evils of market forces and partly because arguments for liberalism often emphasize somewhat abstract benefits such as Freedom, Enterprise, Wealth Creation and Growth. It will help in some quarters to emphasize the benefits that flow to poor people, especially those on small, relatively fixed incomes (such as pensioners) who are hard hit by inflation, and the unemployed. One immediate benefit of free trade is to lower prices which is especially important for people with little money. And deregulation of the wage fixing system would reduce involuntary unemployment because many employers cannot afford to pay current award rates to inexperienced and unskilled people.

4. THE ROLE OF THE STATE

Within the liberal order the role of the state is minimal but

not negligible or unimportant. The state has the function of protection from external threats and maintenance of the rule of law within the state. As Karl Popper has explained, the protective function does not mean protectionism or paternalistm (The Open Society and its Enemies, chapter 6).

The rule of law

Maintaining the rule of law means enforcing a system of rules and regulations that protect the citizens from force and fraud perpetrated by other individuals, groups, or from agencies of the state itself. Voluntary transactions are governed by mutually agreed regulations and contracts, e forceable in courts which dispense decision without regard to the rank, station or other peculiarities of the contending parties. People who administer the rule of law have the minimum amount of discretion in their decisions, thereby minimising the impact of willfullness, patronage and corruption.

Justice and equality

Popper sketched the leading principles of equalitarian justice as follows:

(a) an equal distribution of the burdens of-citizenship.

(b) equal treatment of the citizens before the law, provided that;

(c) the laws show neither favour nor disfavour towards individual citizens or groups or classes.

(d) impartiality of the courts of justice.

In contrast, the collectivist theory of social justice in its socialist and conservative forms places the solidarity of the collective above individual rights. The individual is subordinated to “the interests of the whole” though of course these interests are inevitably the interests of some group that claims to speak for everyone. The result in practice is to remove from individuals the protection of stable principles and to give discretionary powers to those who claim to serve a ‘higher’ morality.

Individualism and altruism.

The liberals’ concern with individual rights (especially property rights) is often labelled as a form of possessive or selfish individualism. This exploits a lasting confusion that Plato created in moral and political philosophy· by placing individualism and altruism at odds with each other, as though we have to make a choice between selfishness and the warm-hearted altruism of the collectivist or tribal mentality. He achieved this effect in his dialogues, especially The Republic by putting the case for individualism in the mouth of a political desperado of the worst kind while the case for altruism fell to Socrates who emphasised the harmony and well-being of the citizens in the ‘ideal’ state. Popper showed that the supposed conflict between individualism and altruism was contrived by Plato as a part of his defence of totalitarian justice whereby the individual is completely subordinated to the interests of the collective. Plato’s account would deny the possibility of individualists having altruistic motives, and the well documented examples of selfishness on the part of collectives (Chapter 6, Open Society). But as a result of Plato’s work, people often feel obliged to choose between one or the other horn of the dilemma. Collectivists of course choose ‘altruism’ while others such as Ayn Rand opt for ‘the virtues of selfishness’ in reaction. But this is a dangerous path to follow; as Popper pointed out:

‘Individualism must not be identified with an anti-institutional personalism. This is a mistake frequently made by Individualists. They are right in their hostility to collectivism, but they mistake institutions for collectives (which claim to be aims in themselves), and therefore become anti-institutional personalists; which leads them dangerously close to the leader­ principle’ (note 23 to chapter 7 of Open Society).

This raises the question of leadership and the respective rights of rulers and the people in a free society.

5. THE LIBERTARIAN THEORY OF DEMOCRACY

Most political theories embody a theory of sovereignty, whereby some agency is elevated to the status of the supreme and unchecked power in the land. In these theories the fundamental problem of politics is “Who shall rule?”. Among the answers that are offered to this question we find “The Wise”, “The Good”, “The Proletariat 11 “The Rich” and the hereditary monarch. Since democracy has become fashionable the usual answer is “The People” or “The Majority of the People”.

However, following Popper and Hayek we reject all theories of

unchecked sovereignty because they are dogged by serious logical and practical problems. They are logically self-contradictory; what happens to the principle of majority rule if the majority wants a dictator? Or if The Wise decide that The Strong should rule? In addition, the majority can never actually rule in any meaningful sense (though by citizens’ veto they can impose a decisive check upon the power of the rulers).

Quite apart from the breakdown of the principle of sovereignty, for liberals the question “Who shall rule?” is not fundamental. Our basic concern is to control all forms of power and especially to prescribe limits to the power of the state which has emerged as by far the most powerful agency in modern times, far surpassing monarchs and magnates. On this issue Hayek has drawn attention to another similarity between conservatives and socialists which places them at odds with liberals. This ‘...is the characteristic complacency of the conservative toward the action of established authority and his prime concern that this authority be not weakened rather than that its power be kept within bounds. This is difficult to reconcile with the preservation of liberty...Like the socialist [the conservative] is less concerned with the problem of how the powers of government should be limited than with that of who wields them; and, like the socialist, he regards himself as entitled to force the values he holds on other people’.

From the time of Plato, representative democracy with its blend of individualism and non-collectivist equalitarian principles (equality before the law) has repeatedly been damned as a failure. Sometimes the critic offers an alternative, as Plato did in the form of the rigidly stratified, authoritarian and totally self-contained state of The Republic. He even banned trade with other countries because subversive ideas might enter the country along with the goods. In modern times ‘progressive’ critics are less likely to offer alternatives, being content to point to failures in ‘the system’. This misses the point that democratic systems are merely instruments, analogous to a washing machine, and if the system does not work well it requires people to exert themselves to effect repairs (as in the case of the washing machine). Criticism is important to locate problems that are in need of attention, but criticism alone is not enough, and criticism of concrete failings is a very different thing from criticism that purports to undermine the principles of freedom, democracy and the rule of law.

The rights of minorities and dissidents

The rights of principles of protects the within the law.

minorities and dissenters are protected by the equalitarian justice and the rule of law which persons and property of all people who remain Under the principles of justice sketched above

neither the state nor anybody else has any right to interfere with legal activities or transactions between individuals on account of the religion, skin colour, or any other personal attributes of the participants. Such characteristics have usually been ignored in markets where races, creeds and cultures mingle. This is why free trade is so subversive to the interests of groups who believe in the natural superiority of some racial or religious collective. Individual traders have no motivation to refuse to deal with anyone; it is only when the possibility of organised market failure arises that some groups may seek to improve their situation against others by favour of a ruler or a government. [Footnote: The South African system of apartheid has been traced to a trade union demand to maintain their monopoly on certain types of work (and high wages)].

The existence of self-conscious and coherent minority groups creates special problems when the notion of the sovereign state is fused with some theory of ethnic, racial or religious self­ determination. From this it follows that the proper boundaries of nation states should correspond to some ethnic, racial or religious grouping. And within these boundaries (which may need to be redrawn to free minorities in adjacent states) the appropriate Mastergroup is entitled to have its way with minorities (which really ought to be somewhere else).

These comments pave the way towards some rational principles for dealing with the demands of various minorities such as the Aborigines in their quest for land rights, and for dealing with issues raised in foreign policy and in the United Nations. Much of the strife and suffering in the world at present arises from the activities of minority groups demanding self-determinism and separation from some larger group; this applies to the Sikhs in India, the IRA and their political wing in Northern Ireland, the Tamils in Ceylon, the Kanaks in French Caledonia, the Palestinians in Israel and the (majority) of blacks in South Africa. In all these conflicts the heart of the problem is the demand for ‘justice’ for the collective group by separation or self-determination; the result is an apparently insoluble dilemma and continuous violence. The liberal alternative is to focus on the rights of all individuals regardless of their minority group status; this calls for such things as a voting rights, freedom of association, due processes of law, and full rights to employment, education and ownership of property, including land.

These conflicts and their tragic human consequences can be seen as the unintended consequences of defective theories of democracy, freedom and justice. Similarly many of our economic problems are the unintended consequences of policies that are pursued on the basis of defective theories. This brings us to the distinctive contribution of the Austrian school of social and economic thought.

6. THE AUSTRIAN HERITAGE

The Austrian heritage can be traced from Carl Menger through Ludwig von Mises to F. A. Hayek. Among the salient features of this heritage are the theory of the liberal (market) order and the need to examine the unintended outcomes of our activities. The Austrians emphasise the importance of a third category of phenomena, in addition to the (1) the phenomena of nature and (2) the fruits of human artifice such as a knife or an Act of· Parliament. This is (3), the realm of unintended consequences of activities such as the pile of sawdust at a sawmill. No sawmiller ever wanted to create a gigantic pile of waste on his doorstep; the pile simply accumulated as he went about his business of milling timber.

These unintended phenomena create problems and opportunities. Their causes and their consequences require ‘situational analysis to take into account the hist6rical antecedents and material circumstances of the situation and also the knowledge, assumptions and objectives of the actors involved. If we interpret these unintended consequences as designed products then we fall into errors such as the conspiracy theory of social evils and we are likely to over-estimate the degree of direct control that we can exert over them before we understand the way that they come about. People who look to state intervention to solve all problems may wish to legislate, regulate or otherwise attempt to directly control prices, wages, imports₁- exports, exchange rates, interest rates and the like. Most of the problems analysed in the Omega Report are the unintended and often unwanted results of state intervention to control such things and we demonstrate that the most effective remedy in many cases is less regulation rather than more. Many problems such as excessive government spending, inflation and unemployment are the fruits of injudicious policies which create a milieu where the goal-directed actions of millions of individuals lead to results that few if any would really want if they had a choice in the matter.

These conclusions emerge from ‘situational analysis’ at the micro level of events to illuminate causal linkages in the social and economic system. Many of these linkages are not visible to methods that use macro analysis of aggregates without attention to the finer structure. Macro methods received a huge impetus from the Keynesian revolution and the tendency has been aggravated by the use of computerised econometric models which purport to simulate the action of the ‘whole’ economy.

An example of the failure of macro-analysis is the belief that growth in GDP is required to generate jobs. There is some debate about the precise amount of growth that is needed; on one account 4% annual growth in GDP is required to sustain the current level

of employment and we can hope for a one per cent reduction in unemployment for every one per cent of extra growth of GDP. Apart from the meaninglessness of the GDP figure itself (a prime example of ‘macroeconomic madness’) the foregoing analysis confuses cause and effect. Unemployment is reduced when an employer puts on a worker and this increases ‘GDP’ by the amount of the wage plus extra production. GDP does not drive the employer’s decision because the change in GDP is an unintended outcome of his actions.· The actual processes that determine whether or not people are taken on by employers need to be explored by situational anlysis which will of course consider ‘macro’ factors such as interest rates and taxation policy. Paramount in the micro situation are the level of award wages and the on costs that the employer has to face also the productivity that he can expect to obtain from the worker.

Situational analysis is sufficiently flexible to apply to macro­ economic features as they emerge from the activities of small groups and individuals. It can be applied to historical situations to enable a rational reconstruction and an explanation of past events. It can be applied to alternative futures to assess the costs and benefits of possible strategies. This approach is especially useful in explaining and combatting some of the problems that repeatedly turn up in this project, especially the phenomenon of ‘producer capture’ in protected markets. It can also be used to draw attention to non-material aspects of social problems including the decline of valuable traditions ( s11ch i’:1.S t.he Austrian tradition itself).

7. NON MATERIAL GOODS

The economic rationalists of the so-called ‘New Right’ are often accused of caring about nothing but money i.e. “value for the dollar” in education. This view betrays a limited acquaintance with both the people and the works that are under attack but the charge is made often enough to require an answer. Market liberalism, among other things, aims to protect the private domain from forces that are liable to crush it if forces of political, economic or military power are unchecked by a strong liberal tradition and the rule of law. In view of the well tested law that power corrupts and absolute power corrupts absolutely, we anticipate that the triumph of unrestrained power of any kind will bring to nought the aspirations of those who cherish and nurture cultural and spiritual traditions. Seen in this light the liberal concern with free markets and economic efficiency does not reflect a crass, materialistic worldview, instead it urges the historical lesson that economic ruin brings in its train political and social disaster.

Market liberals are happy to acknowledge that we do not live by bread and technology alone because our lives are shaped and gain meaning from the values, myths and traditions that constitute the non-material world which we inhabit. Economic liberals may sometimes appear to lack interest in these things because they do riot speak with one voice on such matters and as cultural pluralists there is no reason why they should. We do not aim to impose religious, cultural or spiritual values, instead, as Hayek wrote, we wish to sustain “a type of order in which, even on issues which to one are fundamental, others are allowed to. pursue different ends”.

Traditional beliefs, attachments and sentiments are a significant part of any situation that involves people and so we need to maintain traditions that are worthy of respect i.e. the tradition of defending freedom and the liberal order. We also need to be aware of the malign influence of ideas which subvert the liberal order, such as the Platonic theory of justice and the myth that individualism is linked to selfishness. If we lose the capacity to subject our heritage of myths and traditions to imaginative criticism we are liable to forget how to defend those parts of our heritage that are required to maintain civilisation. These matters will come to the fore in the section on international relations and the United Nations where it appears that traditions quite antithetical to the liberal order have taken root.

Proper attention to these matters-will also help to take a firm grip on issues such as discrimination, censorship and conscription for military service. We need to revive the classical liberal traditions and put an end to the defection of idealistic young people to the socialist cause, impelled by the old saw “if you have a heart you should be a socialist at age 20”. Much needs to be done to retrieve the ground that has been lost to the left and in this task many conservatives in the anti­ socialist ranks do more harm than good. Bear in mind the image of the triangle sketched at the beginning of this essay because false views about liberalism confuse potential helpers who are repelled by the arrogance and rigidity of many conservatives. We need to look for allies in unlikely places, as Hayek suggested ‘Our hopes must rest on persuading and gaining the support of those who by disposition are “progressives”, those who, though they may now be seeking change in the wrong direction, are at least willing to examine the existing order and to change it’.

9. LIBERATION BY ENLIGHTENMENT

The flight to the left has been assisted by a pantheon of myths about such things as the miserable human consequences of the industrial revolution, the evils of open markets and free trade

and the workers. critical gain from

role of the trade unions in improving the lot of These myths need to be constantly challenged scholarship because the liberal cause has everything the search for truth and the elimination of error.

the by to

‘Though the liberal does not regard all change as progress, he does regard the advance of knowledge as one of the chief aims of human effort and expects from it the gradual solution to such problems and difficulties as we can hope to solve....(and)...to free the process of spontaneous growth from the obstacles and encumberances that human folly has erected’ (Hayek).

It is apparent that Australians can only hope to solve our economic and social problems if we are prepared to rethink accepted methods and practices from the highest levels of government and management to the classroom and the shop floor. The fabric of our social and political system is showing signs of strain and there is a great danger that people will panic. This will make the tasks of critical thinking, re-learning and creative problem-solving all the more difficult.

Those of us who are not captives to the daily trouble and strife of party politics have a heavy responsibility to keep calm and resist the temptations which are occupational hazards of men of events. That is, to be slaves to those events and to worn-out ideas that have either served their term or never did anything other than make a bad situation worse. Above all we have a responsibility to write and speak clearly so that all people who are interested can understand our view of the problems and can have the opportunity to criticise our suggested solutions. We need ideas that can stand up to the criticism of public debate, not ideas that are so exotic or so obscure that they are beyond comprehension or criticism.

The country needs leadership. Not the leadership of self-serving politicians or party machines but the leadership of ideas. We are confident that the liberal heritage provides many of the ideas that are required and we hope that the papers of the Omega Project will make an important contribution to public debate.

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