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Liberalism, Welfare Economics, and Freedom*

  • Daniel M. Hausman (a1)


With the collapse of the centrally controlled economies and the authoritarian governments of Eastern Europe and the former Soviet republics, political leaders are, with appreciable public support, espousing “liberal” economic and political transformations—the reinstitution of markets, the securing of civil and political rights, and the establishment of representative governments. But those supporting reform have many aims, and the liberalism to which they look for political guidance is not an unambiguous doctrine.



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1 There are some echoes here of C. B. Macpherson's contrast in “Maximizing Democracy” between justifying liberal regimes by claiming that they maximize utility and justifying them by claiming that they maximize individual powers. See Macpherson, , “Maximizing Democracy,” in his Democratic Theory: Essays in Retrieval (Oxford: Clarendon Press, 1973), pp. 210.

2 As authors such as Samuel Scheffler and Thomas Nagel convincingly argue, equal respect does not in general entail impartiality, and it is certainly not the same thing. But in the context of political theory or of the theory of social justice, equal respect is equivalent to a certain interpretation of impartiality. See Scheffler, , The Rejection of Consequentialism (Oxford: Clarendon Press, 1982), chs. 2 and 3; and Nagel, , The View from Nowhere (Oxford: Oxford University Press, 1986), ch. 11, and Equality and Partiality (Oxford: Oxford University Press, 1991).

3 A joke circulating in Leningrad (now St. Petersburg) in 1988: Two men are waiting in a long line to buy something. They wait and they wait. Finally one says, “I've had it. I'm going to shoot Gorbachev.” And he runs off. Two hours pass and he returns. His friend, who is still in line, asks, “So what happened? Did you shoot him?” “No, the line was too long.”

4 Market socialism has been almost entirely removed from the agenda because of the association of socialism with authoritarian government and because of the association of capitalism with affluence. Even many of those who have studied market socialism seriously are dismissive. For example, Jànos Kornai comments in The Road to a Free Economy—Shifting from a Socialist System: Hie Example of Hungary (New York: W. W. Norton & Company, 1990), p. 58: “I wish to use strong words here, without any adornment: the basic idea of market socialism simply fizzled out. Yugoslavia, Hungary, China, the Soviet Union, and Poland bear witness to its fiasco.” It seems to me that the evidence is inconclusive and that some forms of market socialism might in fact be better able to satisfy the conflicting aims governing the current transformations. See Roemer, John, “The Morality and Efficiency of Market Socialism,” Ethics, vol. 102 (1992), pp. 448–64.

5 Przeworski, Adam, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge: Cambridge University Press, 1991), p. 10. This book is a brilliant recent study of the problems that arise when one attempts to introduce democracy at the same time as attempting economic transformation. Contemporary “democracies” are, of course, not what the Greeks or Rousseau had in mind when they spoke of “democracy,” and their undemocratic features are well known.

6 But one should not exaggerate: “In spite of Vaclav Havel's eloquent eulogies to the subversive power of truth, the spiritual force that provided the lasting source of opposition to communism was not a yearning for liberty (as distinguished from independence from the Soviet Union), but religion and nationalism; indeed, the historically specific amalgam of the two” (Przeworski, , Democracy and the Market, p. 93).

7 A friend regarded this phrase as comical, and commented that “liberalism has always been a recourse of those whose passions for more and better have been for one reason or another quashed.” It is hard to picture the romantic liberal revolutionary. But I shall stand by this phrase.

8 In chapter 13 of part I of Thomas Hobbes's Leviathan, equality is reflected in the ability of individuals to kill one another. Adam Smith makes a more radical claim: “The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour.” See Smith, , An Inquiry into the Nature and Causes of the Wealth of Nations [1776] (New York: Modern Library, 1937), book I, ch. 2. But the relevant sense of equality has less to do with people's abilities than with how they should be treated.

9 Dworkin, Ronald, “Liberalism,” in Hampshire, Stuart, ed., Public and Private Morality (Cambridge: Cambridge University Press, 1978); reprinted in and cited from Dworkin, , A Matter of Principle (Cambridge: Harvard University Press, 1985), p. 183. See also Larmore, Charles, Patterns of Moral Complexity (Cambridge: Cambridge University Press, 1987), pp. 5966.

10 Dworkin, , “Liberalism,” pp. 192–93.

11 Feinberg, Joel, Harm to Self (Oxford: Oxford University Press, 1986), p. 28.

12 See especially ibid., pp. 31f.; Dworkin, Gerald, The Theory and Practice of Autonomy (Cambridge: Cambridge University Press, 1988), ch. 1; Kuflik, Arthur, “The Inalienability of Autonomy,” Philosophy and Public Affairs, vol. 13 (1984), esp. pp. 271f.; and Christman, John, “Liberalism and Individual Positive Freedom,” Ethics, vol. 101 (1991), esp. pp. 347f. See also Christman, John, ed., The Inner Citadel: Essays on Individual Autonomy (New York: Oxford University Press, 1989).

13 Feinberg, , Harm to Self, pp. 32, 4044.

14 Friedman, Milton, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), ch. 1.

15 The view of economics sketched over the next few pages is developed at length in my recent book, The Inexact and Separate Science of Economics (Cambridge: Cambridge University Press, 1992). See particularly chapters 1, 2, 4, and 15.

16 An agent A's preferences are complete if and only if for all alternatives x and y, A prefers x to y or y to x or is indifferent between x and y. A's preferences are transitive if for all alternatives x, y, and z, whenever A prefers x to y and y to z, then A prefers x to z, and similarly for indifference.

17 If there is an uncountable infinity of options, then the existence of a continuous utility function also presupposes that an agent's preferences are continuous. See Debreu, Gerard, The Theory of Value (New York: Wiley, 1959), pp. 5459.

18 Apart from these obvious difficulties, there are subtler philosophical objections which I shall not comment on. See Griffin, James, Well-Being: Its Meaning, Measurement, and Moral Importance (Oxford: Clarendon Press, 1986), part I; and Arneson, Richard, “Liberalism, Distributive Subjectivism, and Equal Opportunity for Welfare,” Philosophy and Public Affairs, vol. 19 (1990), pp. 158—94. My interpretation of Hamlet is, no doubt, contestable.

19 Elster, Jon, “Sour Grapes—Utilitarianism and the Genesis of Wants,” in Sen, Amartya and Williams, Bernard, eds., Utilitarianism and Beyond (Cambridge: Cambridge University Press, 1982), pp. 219–38.

20 See Akerlof, George and Dickens, William, “The Economic Consequences of Cognitive Dissonance,” American Economic Review, vol. 72 (1982), pp. 307–19.

21 Hausman, , The Inexact and Separate Science of Economics, ch. 12.

22 This argument is presented in more detail in ibid., section 4.6.

23 See particularly Buchanan, James and Vanberg, Viktor, “The Market as a Creative Process,” Economics and Philosophy, vol. 7 (1991), pp. 167–86. Robert Nozick's influential defense of libertarianism, Anarchy, State, and Utopia (New York: Basic Books, 1974), argues that questions of justice are completely independent of welfare appraisals.

24 See Sen, Amartya, “The Impossibility of a Paretian Liberal,” Journal of Political Economy, vol. 78 (1970), pp. 152–57, and “Liberty and Social Choice,” Journal of Philosophy, vol. 80 (1983), pp. 528.

25 As Joseph Raz points out in chapter 5 of The Morality of Freedom (Oxford: Clarendon Press, 1986), one can interpret neutrality as a constraint on the effects of policies or on the kinds of arguments one can use in support of policies. Kymlicka, Will—in “Liberal Individualism and Liberal Neutrality,” Ethics, vol. 99 (1989), p. 884—calls these two notions of neutrality, “consequential” and “justificatory.” I follow Kymlicka in regarding justificatory neutrality as the correct interpretation. See also Larmore, , Patterns of Moral Complexity, p. 44. Although defenders of neutrality are not always clear on the point, neutrality is intended as a constraint on political argument. Liberalism itself is not uncommitted or neutral concerning views of the good.

26 See Lomasky, Loren, Persons, Rights, and the Moral Community (Oxford: Oxford University Press, 1987), esp. chs. 2 and 3, for a powerful argument that libertarianism derives from an appreciation of the centrality of individual projects.

27 Arneson, Richard, “Liberalism, Freedom, and Community,” Ethics, vol. 100 (1990), p. 377.

28 Rawls, John, “Justice as Fairness: Political not Metaphysical,” Philosophy and Public Affairs, vol. 14 (1985), pp. 245–46.

29 Larmore, , Patterns of Moral Complexity, pp. 7077.

30 Dworkin, , “Liberalism,” p. 191.

31 Scanlon, Thomas, “Contractualism and Utilitarianism,” in Sen, Amartya and Williams, Bernard, eds., Utilitarianism and Beyond (Cambridge: Cambridge University Press, 1982), p. 110.

32 Larmore, , Patterns of Moral Complexity, p. 53.

33 In The Morality of Freedom, pp. 138–39, Raz distinguishes “political welfarism,” the doctrine that the state should not attend to individual ideals and should focus instead on satisfying desires, from “moral welfarism,” the doctrine that what is good for individuals is whatever satisfies their actual or rational desires. Moral welfarism, unlike political welfarism, does not need any principle excluding valid ideals from influencing political decisions, because it denies that there are any. The moral welfarist is not a defender of liberal neutrality.

34 I am here indebted to Guy Perez.

35 See Nagel, , Equality and Partiality, pp. 165–66.

36 See Raz, , The Morality of Freedom, chapters 12, 14, and 15.

37 Ibid., p. 133.

38 Unfortunately, it is not clear that such optimism is justified. Consider, for example, the alarming contrast between the slow pace of economic development in India, in which individual rights have been protected, and the much more rapid pace of development in China, in which rights have generally not been respected.

39 But see the last paragraph in this section. The record is hardly unambiguous. Consider, for example, the poor performance of the economies of most of the less-developed nations. Of course, their markets are imperfect, but so are markets in developed nations. Since there are many possible ways in which to implement market socialism, and very few of these have been tried, there is little evidence concerning how well market-socialist economies perform.

40 Smith, Adam, Wealth of Nations, book III, ch. 4 (see note 8 above).

41 But it is questionable whether the range of economic choices available to most people increases. The prospects of unemployment and poverty are so chilling that many of the choices people make are much less than free. But I shall not review these venerable questions here. Even if freedom is in this way restricted for most people, it is also greatly enhanced in other ways.

42 Dworkin, , “Liberalism,” pp. 193–94, and “What Is Equality? Part 2: Equality of Resources,” Philosophy and Public Affairs, vol. 10 (1981), pp. 284f.

43 See, for example, Herman, Edward and Chomsky, Noam, Manufacturing Consent: Wie Political Economy of the Mass Media (New York: Pantheon Books, 1988).

44 Przeworski, , Democracy and the Market, p. 125. Furthermore, the combination of extensive markets with private ownership of the means of production does not uniquely determine an economic system. Blinder, Alan argues—in “More Like Them?” The American Prospect, Winter 1992, p. 53that Japan does not have a capitalist economic system, despite the small role of government regulation and private ownership of the means of production. For, in his view, the core employees, rather than the shareholders, are sovereign in Japanese corporations.

45 Michael Burawoy and Pavel Krotov argue that the collapse of central planning in Russia is leading not to capitalism, but to something more like a sort of commercial feudalism in which the distribution of goods is regulated within conglomerates of huge enterprises. See their essay “The Soviet Transition from Socialism to Capitalism: Worker Control and Economic Bargaining in the Wood Industry,” American Sociological Review, vol. 57 (1992), pp. 1638.

46 Even John Stuart Mill's uncompromising anti-paternalism gave way in the case of slavery. See chapter 5 of On Liberty [1859], ed. Shields, Currin V. (New York: Macmillan, 1985). For a general discussion of goods that should not be exchanged on markets, see Anderson, Elizabeth, “The Ethical Limitations of the Market,” Economics and Philosophy, vol. 6 (1990), pp. 179206.

47 Singapore is a particularly striking example in this regard. Although Jànos Kornai argues passionately in The Road to a Free Economy for minimal state interference in markets (see esp. pp. 38–39), he sees the state as developing and enforcing contract law (p. 45), as promoting investment through the provision of credit (p. 47), and even as promoting “social respect” toward the private sector (p. 49).

48 “Right now, in the beginning of the new era, many people in various political groups, even within strongly anticommunist movements, are still under the spell of their former indoctrination in extreme egalitarian values. They regard profit or high income as the result of unethical practices, and speculation and profiteering as sure signs of unacceptable greed.” Kornai, , The Road to a Free Economy, p. 21.

49 See Geertz, Clifford, Peddlers and Princes: Social Development and Economic Change in Two Indonesian Towns (Chicago: University of Chicago Press, 1963), ch. 3.

50 It is unfortunate that market socialism is so tarnished by the negative associations of the word “socialism,” for it might be able to respond to these difficulties better than even a carefully regulated capitalist economic system can. See Roemer, “The Morality and Efficiency of Market Socialism.”

51 There are also important difficulties with markets to which liberals have traditionally been blind. For in instituting markets one removes certain social choices from the agenda. Questions about the character of our communities and cultures are not open for rational discussion. The citizens of Southern California never deliberated about whether cities there should sprawl or whether the automobile should be the predominant means of daily transportation. If markets work as they theoretically ought to, such questions are answered through the consumption choices of individuals, which need not coincide with what would be the outcome of rational deliberation. Since liberals reject the notion of collective decision making about such issues, these problems about markets are not problems for liberals. But if the citizens of Eastern Europe learned anything about Marx at all, one can expect them to ask questions about the rational justification of market outcomes. Hirschman, Albert—in Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge: Harvard University Press, 1970)—makes the related but more modest point that “while exit requires nothing but a clearcut either-or decision, voice is essentially an art constantly evolving in new directions. This situation makes for an important bias in favor of exit when both options are present.… The presence of the exit alternative can therefore tend to atrophy the development of the art of voice” (p. 43; emphasis in original). Hirschman's point should heighten liberal qualms about markets.

52 See Coleman, James, Foundations of Social Theory (Cambridge: Harvard University Press, 1990), p. 599.

53 Notice that these problems, unlike some of the other objectionable features of television, are not due to monopoly power and would not be alleviated by greater competitiveness.

* I am indebted to Andrew Levine, to Michael McPherson, and to the other contributors to this volume, for helpful criticisms.

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