Mr. Holt is an associate editor of the Missouri Conservative Union’s Front Line and a contributor to New Guard and Human Events.
Among certain circles in Western Europe and the United States economic freedom is commonly perceived as less morally elevated than other freedoms because it manifests in the “vulgar” pursuits of capitalism. Since economic freedom is presumed distinct from freedom broadly defined, the conclusion generally follows that it may be safely subordinated to “loftier” social objectives without imperiling traditional democratic liberties. This sentiment rather faithfully captures the prevailing attitude among those who bear the self- designation “social-democrat.” By juxtaposing its two terms, advocates of social-democracy suggest a potential compatibility between the two systems, and persist in resurrecting the myth of a “humane” socialism in which civil and political liberties might flourish. In truth, however, social-democracy is predicated on false assumptions which ignore a profoundly significant principle governing the relationship between man and state: Because activities deemed “economic” bear on practically every aspect of civil and political liberties, a nation’s commitment to economic freedom is paramount in determining both the quality and depth of its other freedoms. Indeed, it has been as a result of this indivisibility of economic from other freedoms that British and American flirtations with social-democracy have precipitated significant erosions of civil and political liberties within these two countries. Whatever social-democracy’s alleged rationale—whether redistribution or “social accountability” its considerable powers are rarely used for such idealistic ends. Instead, its common experience has been to brazenly consolidate the control of those in office by granting special privileges to the relatively powerful elements of society, in exchange for the latter’s electoral support. Privileges for Labor in U.S. and Britain Organized labor represents a large, powerful and well-financed constituency, and for that reason has been a traditional beneficiary of this process in the U.S. and Britain. This relationship was described by Nobel laureate Friedrich Hayek in his masterful treatise on collectivism, The Road to Serfdom:
So long as the socialist movement in a country is closely bound up with the interests of a particular group, usually the more highly skilled industrial workers, the problem of creating a common view on the desirable status of the different members of society is comparatively simple. The movement is immediately concerned with the status of one particular group, and its aim is to raise that status relative to other groups.[1]
Yet, as the U.S. has learned from its experience with “affirmative-action” and racial quotas, elevating the fortunes of certain privileged groups through government is accomplished only by trampling the rights, immunities and well-being of others not so favored.
Reflective of organized labor’s special position in the U.S. is the so-called “Davis-Bacon Act,” whose primary effect is to mandate that union wages be paid employees engaged in public works projects even partially benefiting from federal funding.[2] This unquestionably suppresses competition by smaller, nonunion construction firms which are less able to absorb such exorbitant labor costs; and in turn, shifts this work to unionized construction workers whose bargaining power is “strengthened substantially.”[3]
Similarly, U.S. minimum wage legislation is now widely recognized as a major contributor to the harrowing unemployment rate of unskilled (thus politically powerless) minority teenagers.[4] This result is attributable to its establishment of a wage “floor” greater than the value of the unskilled labor it ostensibly protects, causing employers to lay off or never hire many unskilled workers.
Despite its consequences, efforts at its repeal are invariably scuttled by the AFL-CIO and its minions in Congress, even though the AFL-CIO’s members command far more than the federal minimum wage dictates and would appear to be unaffected by it. In light of truly overwhelming evidence of its sinister effect on minority employment, many economists such as UCLA’s Jack Hirshleifer have become quite cynical when hypothesizing the reason for our retaining the minimum wage:
The most significant political pressure for higher minimum wages seems to come from organized labor, in particular, the AFL-CIO . . . . A higher minimum wage raises the cost of unskilled relative to skilled workers. The consequence is to induce firms to employ fewer of the unskilled workers, raising demand for the skilled workers represented by the AFL-CIO.[5]
As a corollary to the above, social-democracy’s granting of special status to privileged groups greatly enhances the power of those interest groups, and—as in the case of Britain’s trade unions- often enables the latter to frustrate the express will of the electorate.
British Trade Unions
Passage of the Trade Disputes Act of 1906 accorded British trade unions “a position of legal privilege that is without parallel in any other country,”[6] by granting them immunity from tortuous actions in all British courts. The Act thus cancelled what few checks there are to union power by prohibiting their prosecution for restraint of trade, conspiracy, and many of the various practices constituting “intimidation” of non-striking workers.[7]
Anyone familiar with modern Britain cannot fail to observe that as a result of their privileged status, trade unions have grown so powerful they are now able to paralyze the gasping British economy, as they so successfully confirmed with massive and widespread strikes in 1978.
Paradoxically, British public opinion clearly favors legal restrictions on trade unions. According to internationally-respected journalist Robert Moss of the London Daily Telegraph, a series of public opinion polls conducted since 1958 have consistently indicated majority support for even such harsh measures as banning all strikes.[8]
During its brief lifetime, moreover, opinion polls also demonstrated majority support for the 1971 Industrial Relations Act; the only pest-war legislative effort to restrain trade union power, and one consisting primarily of numerous restrictions on the ability of unions to strike.[9] The Act was nevertheless repealed in 1974 after intense pressuring of the newly-elected Labour government by British trade unions.
Majority opposition to union power was again demonstrated in the mandate of the 1978 national elections, which brought Mrs. Thatcher and the Tories to power amidst public outrage over Labour’s inability to stem a crippling nationwide strike. But even here majority will has been thwarted by the entrenched power of unions, whose strike-threat weapon and immunity from civil sanctions seem quite literally to exempt them from political reform.
Recognizing that privileged status, once granted, can neither be tolerated nor so easily revoked in a democracy, American economist Henry C. Simons once remarked of the frightening position of British labor: “. . . government, long hostile to other monopolies, suddenly sponsored and promoted widespread labour monopolies, which democracy cannot endure, cannot control without destroying, and perhaps cannot destroy without destroying itself.”[10]
Discriminatory Harassment
The power of social-democracies to outlaw “economic” behavior must necessarily include the additional authority to attach sanctions for lack of compliance; which, themselves, have profound and direct consequences for individual liberties.
In his classic Capitalism and Freedom, Nobel laureate Milton Friedman mentions the plight of a California retailer, imprisoned for selling “Alka-Seltzer” below its price established under so- called “fair trade laws.”[11]
Consider also the more recent case of the Boston service-station owner who, in February of 1980, was sentenced to one month in jail and fined $9,450 for selling his legally-purchased gasoline to willing customers, but at prices above the federal ceiling price then in effect. As The Wall Street Journal pointedly commented, he was convicted of what Soviet authorities call an “economic crime.”[12]
The unfortunate service-station owner’s real offense was his misfortune to be part of an industry that federal officials periodically find a convenient scapegoat for the government’s own ineptitude in managing energy. This suggests another consideration.
If reasonable and traditionally legitimate economic activities have no immunity from arbitrary whims of the state, no safeguard exists to prevent the discriminatory harassment or ruination of unpopular industries by shamelessly demagogic politicians promoting purely political ends. Certainly the misnamed “windfall-profits” tax, the steel industry’s experience with price “jaw- boning,” and the tribulations of the nuclear power industry suggest this very real threat.
Similarly, when dissolving economic freedom and destroying property rights becomes a legitimate function of government, the state’s power is dramatically enhanced, greatly expanding its opportunities to indulge in coercion and intimidation against private individuals who are critical of or oppose the political agenda of those in power.
To wit, it was reported in the October 31, 1977 edition of U.S. News & World Report that Energy Secretary James Schlesinger threatened oil industry officials with more regulation or divestiture if they didn’t publicly support the Carter Administration’s controversial “windfall- profits” tax.
Likewise, Internal Revenue Service Commissioner Jerome Kurtz threatened private schools with revocation of their tax-exempt status if they did not conform to IRS schemes involving racial quotas.[13] The “chilling” of freedom-of-speech and freedom-of-association reflected in the above two examples would seem to be self-evident.
The Expanding Public Sector
Opportunities afforded by a healthy private economy also provide refuge and immunity from governmental caprice for individuals whose political party, life-style, viewpoint or values happen to offend (or differ from) those in power.
On the other hand, however, a definitive characteristic of social-democracy is its “creeping” conversion of private sector into public sector. Conveniently overlooked by those who anxiously ascribe to it benign consequences, is that at some point in this process, individual freedom-of- choice becomes effectively preempted by government actions impinging on the private sector.
This creeping conversion of private sector into public eventually diminishes the range of private choice available, and by thus eroding private sector alternatives, ultimately facilitates the imposition of state control over hapless individuals left without recourse: In The Road to Serfdom, Professor Hayek elucidated this principle as well:
We can unfortunately not indefinitely extend the sphere of common action and still leave the individual free in his own sphere. Once the communal sector in which the state controls all the means, exceeds a certain proportion of the whole . . . . the effects of its decisions on the remaining part of the economic system become so great that indirectly it controls almost everything . . . . There is, then, scarcely an individual end which is not dependent for its achievement on the action of the state.[14]
Possibly the most frightening illustration of this eventuality involved Winston Churchill’s unsuccessful efforts between 1933 and the beginning of World War II to warn the British people of the imminent danger posed by Nazi-Germany’s massive peacetime military build-up.
Although a member of Parliament and a former cabinet minister, Churchill was prevented from addressing the nation over British radio because his jaundiced view of Hitler clashed with the Chamberlain government’s official policy of appeasement. His government was able to thwart Churchill’s timely warnings (and freedom-of-speech) precisely because British radio was a government-controlled monopoly administered by the British Broadcasting Corporation, which permitted no private competition?
The process by which U.S. federal courts have realized their current dominion over public education further vindicates Professor Hayek’s foresight; albeit, in a more complex manner than Mr. Churchill’s experience reflects.
The Education Monopoly
Through their respective fiscal powers over the past several decades, federal, state and local governments have successfully diverted enormous amounts of resources to public education from private sources. Since public education is, in this manner, financed by non-refundable tax revenues rather than tuition fees, taxpayers are compelled to finance public education whether or not their children actually attend public schools.
This anomaly sharply reduces the range of available educational options for most parents, since few can afford the luxury of private tuition on top of a steadily mounting tax burden that already includes the $80 billion or so annually earmarked for public education. Hence, a large majority of parents have no alternative but to educate their children through what is, in effect, a public education monopoly.
But public functions involve government control and interference. As a result, unelected federal judges routinely seize control of public school districts from their democratically elected local school boards and, with impunity, make a mockery of Jefferson’s “consent of the governed” by imposing onerous forced-busing requirements consistently opposed by 80 per cent of the American people.
Moreover, the informal check that traditionally accompanies private sector functions—i.e., the public’s ability to withdraw its patronage and take it elsewhere—has simply been foreclosed by government’s role as sponsor of the public education monopoly. In the final analysis, parents of public school students are a “captive audience” who have lost the freedom to decide even such basic matters as whether their children will attend neighborhood schools, or be bused across town at the whim of judicial social engineers.
Finally, economic freedom plays an important role in the exercise of liberal democratic procedure, and its erosion portends harm for certain aspects of the American political process.
One of the hallmarks of liberal democracy is its provision of a formal institutional framework for political opposition, without which elections become merely pro forma. It is therefore disquieting that recent restrictions on campaign expenditures pose a threat to the vitality of political campaigns by opposition candidates.
That is, the greatest challenge facing non-incumbent presidential candidates lies in their ability to achieve sufficient media exposure to mount an effective challenge. Often this is accomplished only by spending far greater amounts than an incumbent President, who enjoys the considerable advantage of free national exposure as an appurtenance of holding office.
Hence, to the extent that the expenditure limits imposed by the Election Campaign Act of 1974 serve to reinforce an incumbent President’s already substantial advantage over challengers, they make political opposition just that much more difficult for any candidate whose party is out of power.
The Election Campaign Act also limits political campaign contributions by corporations and private individuals. Its chilling of First Amendment rights notwithstanding, the law contributes even further to the already substantial burden borne by challengers for public office.
Again, challengers must often outspend the incumbent by a substantial margin just to achieve equal name recognition. Any law limiting the size of individual contributions must, on the margin, work to reduce a challenger’s opportunity to raise sufficient funds to compete adequately against the advantages of incumbency.
Clearly, economic freedom is more than merely a function of material well-being, it is an essential prerequisite for the realization and enjoyment of practically every aspect of democratic liberties. For a government to interfere with so fundamental a freedom—as “social-democracies” unquestionably do—is for it to simultaneously undermine a broader range of freedoms which it is the very purpose of democracies to protect. “Social-democracy” is, therefore, a contradiction in terms. []
1. F. A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1972), p. 114.
2. Yale Brozen, “The Law that Boomeranged,” Nation’s Business, April 1974, p. 71.
3. J. Gould and G. Bittlingmayer, “The Economics of the Davis-Bacon Act” (Washington, D.C.: American Enterprise Institute, 1980), pp. 61, 67.
4. F. R. Welch, “Minimum Wages: Issues and Evidence” (Santa Monica, Calif.: The Rand Corporation, 1978).
5. Jack Hirshleifer, Price Theory and Applications (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1976), p. 377.
6. Robert Moss, The Collapse of Democracy (New Rochelle, N.Y.: Arlington House, 1975), p. 100.
10. Quoted in F. A. Hayek, The Constitution of Liberty (London: Routledge, 1960), p. 267.
11. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1974), p. 9.
12. Editorial, “The New Morality,” The Wall Street Journal, February 7, 1980, p. 26.
13. John Lofton, “Private Schools Face IRS’s New Despotism,” Human Events, December 9, 1978, p. 8.