Turning Away From “The Road to Serfdom“: Re-Defence of Liberalism

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Hayek’s “The Road to Serfdom“ was written in defence and as a justification of liberalism in the times when all the European political landscape (including Nazi Germany, UK, USSR, France, among others) had been dominated by various forms of socialism. The latter had been so strong that even evidently totalitarian practices of socialist regimes could not shatter its positions. GULAG had been praised by G.B.Shaw, L.Feuchtwanger, Eleanor Roosevelt. Thus it comes as a surprise for a conservative liberal to find oneself in the situation where liberalism has to be defended once again. But since the EU is dominated by more or less evident socialist agenda (like the endless donations to the socialist Greece and, on the other hand, the complete defeat of Liberal Party in the UK) it, nevertheless, seems to be the case.

Looking back at the recent history we also have to admit that the classical free-market ideology is something slightly inappropriate these days. Until very recently, the True Finns’ Party has been somewhat frowned upon – up to their success in the last elections. President Vaclav Havel had been considered Europe’s enfnat terrible in spite of the fact that among the EU leaders he had been the only truly high-ranking scholar of macro-economics. Today, a decade and a half later, it seems almost surreal that the rising star of democratic liberalism – Jörg Haider – had been claimed to be a fascist just because of some of his ideas on immigration issues that are truly modest versus the discourse that is going on in the EU today. The EU’s first sanctions had not been against Russia and Putin, but against Austria and Haider. At the same time Estonia is proud to declare that it stayed outside of that violation of international law and morals.

We can say that the EU had been not only political but economic success story for long time. Europe managed to keep the peace on the continent untill the French President Sarkozy accepted the Russian war against Georgia and since the financial core of the EU – the eurozone – did not manifest its inability to cope with fiscal issues caused by the crises in the real sector of economy. What was previously considered as a growth turned out to be a bubble. Overexpanded social programs and the inability to grasp the signs of forthcoming crises has brought us to the current state of affairs. Estonia is among the very few countries in Europe with growing economy. But among the other factors that favored us – the liberal government included(!) – was the fact that Estonian financial sector had been overwhelmingly dominated by Swedish banks (Swedbank, SEB, Danse and Nordea) that are capitilized outside of the eurozone. Thus the government had the opportunity to deal with the real sector of economy knowing that its back is protected by the Sewdish krona.

The combination of unsubstantiated currency with somewhat overextended socialist sector of economy has produced the most serious danger for our economic growth: the problems within otherwise truly prosperous Finnish economy. Thanks to the appropriate poltical decisions we are able to survive economic sanctions against Russia but the downturn of Finnish economy is something that puts our developments at real risk. Finland as a market and as a business partner can’t be replaced for Estonia. And that means that the success of liberal ideology in Finland is a promising note for Estonia and other countries as well. The same with the UK: just the promise of referendum on the UK’s membership in the EU may have a positive influence on EU’s developments and serve as a wake-up call to eurosocialists as we know them.

I can’t emphasize enough: the EU was indeed a success story in the very beginning and for some 20 years after that but now it is not. The question is: what went wrong?

To put politics aside let us focus on the ideas that served as the foundations of the EU.

Foundations of the European Union

First: free market, i.e. elimination of tariff restrictions within the EU.

Second: common foreign border (the so-called “Fortress of Europe“).

Third: economies based upon the principles of free market inside the EU.

Within these regulative limits Europe operated well. Single market area did not mean single administrative regulation but the free flow of economic factors over the national borders. It did not succeed at all times (as thousands of cases of the European Court show: packaging of butter and margarine, canning the beer, allowing and forbidding love-dolls etc.) but in most cases – they actually did. Hostile economic conflicts in spe were being eliminated shortly after establishing the European Coal and Steel Community.

Territorially, Europe is a relatively small continent with enormous national, cultural and socio-economic differences. Thus it had a natural tendency to require the existence of certain natural monopolies (like the sectors of energy, for example). The neccessity to regulate its existence was a deviation of the free market principles. But what was a source of even higher vilotaion of liberalism was agriculture. CAP (common agricultural policy) did not make much of a sense from the very beginning but was a compromise to the EU members with strong political influence of the agrarian sector. It is something really against the normalcy of economic development that Estonia with its very poor condtions for agrarian business (bad climate plus 40 years of kolkhoz farming) gets two times less farm subsidies than the wealthy agrarian countries of the South.

We can get accustmoed to the demoralaizing influence of CAP (after all, we get money supporting other sectors) but what turned out to be truly poisoneous to the EU itself was the political power to control about half of the EU budget through that very same CAP. It was not only the temptation but the real tendency to control more and more resources through the administrative means of the EU. Administration of the economic factors has a mirror-effect – national economies started to construct their own socialisms within their borders: by creating their own monopolies that had to compete with the monopilies in the other countries and with the EU itself. Among the biggest nationalized sectors were all the kinds of social programs, including pension funds, subsidies, unemployment benefits, free services (health care, educatin) etc.

It goes without saying that the socialist management of certain sectors is jsutified and truly appropriate but that does not justify the “welfare society at any costs“ as we know it. This is not a matter of moral choices but a matter of the existing resources: we have them as much as we do and not even a penny more, as the Greek example has so well manifested.

European economy has stopped moving and we could tolerate this (people can be taught to live without dreams and aspirations) if there were no factors to push us actually backwards. Inflationary pressures is just one among them, others can be referred to at as structural imbalances – we spend more than we have and we spend it for expenditures that we can’t neither afford nor do we need them. Just for the sake of a joke-example – the mandating of new, so-called “energy-saving“ bulbs that do not, in fact, save any energy (and need to be replaced all the time), do not last, produce bad and unhealthy light, pollute the environment (because they are made from hazadours materials) and, last but not least, are quite expensive. The latter aspect – the price – reflects not the direct costs of their production and the normal profit, but also the huge costs of intorducing this market-wise irrational product (lobbying, expenses for the officials, payments for “research“, implementation in national legislation. The frivolous costs conducive to the so-called green-house effect (that is non-existing from a scientific point of view) can’t be even calculated. Luckily for Europe, some of our big competitors have fallen for that unsubstantiated idea too. The immoral character of all the “green agenda“ is proved by a strange phenomenon of selling and buying the pollution quotas – this procedure does not reduce the polution (and there is truly no need to do that on a global scale) but redistributes the speculative monies.

The intellectual breaking point of the EU can be traced back to one single idea – the one that climaxed in the so-called Lisbon Strategy. It had been implicitly motivating the EU cabinets much earlier than that – in the form of the idea “to catch up with the USA“ by the year of 2010. Although it had been irresponsible politicizing from the very beginning, it mirrors some crucial elements of our non-liberal mentaility. First, a direct borrowing from the USSR discourse (“to catch up with America“ is an idea formulated by Kruschev in early 1960s). Second, admission of lagging behind the USA. Third, readinness to set up political agenda that does not make any (neither economic nor humanistic) sense whatsoever – the real task of any government is to make peoples’ lives safer and the people happier and not to “catch“ somebody. Here we have a purely ideological task which was to be implemented by explotation of real wealth and resources. The money that had been wasted on this “catching up“ affair (which was a failure in the very moment of its anew formulation after Kruschov) could have been used for other puropses, first of all, to cover the costs of turning back of the EU to the conditions of democratic market economy. Every reform has a price and brings losses in the beginning. But market reforms promise real returns, as the case of the British Airways’ privatization under Margaret Thatcher has so brightly illuminated.

Even if we were ready to live under these unsound socialist economic conditions “happily ever after“ we can’t do that: the competition eliminated with the EU is out there nevertheless: outside the EU’s borders. USA we have accepted, but then comes Latin America, China, and the entire Pacific region. Russia is a story in the making: Putinistic Russia will be over sooner or later (and rather sooner than later) and with its enormous economic, natural and intellectual potential it will be more than a match to the stagnated EU. Russia is not only about gas and oil, it is about all the practically unexplored Sibera, bigger than our whole continent.

What Options Do We Have?

Actually, we have two of them. The first one – further and rapid centralization of the EU economy. To concentrate and allocate the resources, Europe needs not only a central bank, it needs a huge central bank plus a planning institution. Today’s movements towards the socialist plan-control (like stringing the European money to certain approval procedures of projects, bureaucratc controls and reporting systems) are way too soft to coordinate the economic efforts. The essence of socialism is plan-discipline, a Lenin’s case taught, and we should not forget this lesson if we choose to proceed in this mannes. By combining the Communist regime with certain market elements, China outcompetes Europe hands down. It should also be mentioned that from the planned economy’s point of view, the rate of centralization and redistribution of European budgetary means is way too small. If the federal budget of the USA redestributes more than of a quater of the aggregate budget, Europe does only 1%. Such a fiscal system can’t serve the purposes of strictly planned economy.

The only shortcomings of the socialist future are that European nations most probably would not like it (and it becomes more and more difficult to sell the idea). And secondly, because the planned economy is sentenced to death. The second way, the one I (as a devoted European and a liberal) definitely prefer is the restoration of economic freedoms and support for market economy. The effect might not be immediate: reorientation of people back to their freedoms and responsibilties will take time. Nanny-state is something addictive and not easy to give up. It will necessarily take time to re-learn to work, to be responsible for your decisions, to learn to enjoy life, to see the individuality, the altruism, compassion as sources of happiness and fulfillment. Not an easy task will be the privatization of socialist properties, elimination of the bureaucratic practices and most of the EU apparatus, restoration of free economic thought. Before a company starts competing with China for, let’s say, rare earth metals of Russia – it has to learn competition in soft homely conditions of Europe.

European ideal is not – to my mind – “being the first“ at any costs. Europe does not need to conquer anybody – these times are over and the fundamentally colonialist subconscious idea of Lisbon Strategy has faded into our Medieval past. But I state here that all European people have the right European ideal is not – to my mind – “being the first“ at any costs. Europe does not need to conquer anybody – these times are over and the fundamentally colonialistic subconscious idea of Lisbon Strategy has faded into our Medieval past. to pursuit their happinnes“ (I have to borrow this from the Declaration of USA, as today’s EU has not been able to formulate anything better than that), i.e. means to enjoy all the wealth – both economic and intellectual – the continent has accrued over its long and troubled past.

The choice is ours. We are faced with two roads ahead: one , “to serfdom“ and another, to our freedom, dignity and prosperity that only market economy is able to bring about.

An article by Igor Gräzini

Academy of Liberalism