Hayek’s Road (Part 2 Social Justice)

Hayek regarded ‘social justice’ as a mirage — an unattainable ideal. Chasing this mirage would destroy the market and put society on the road to serfdom.

In a ‘socially just’ society, the distribution of wealth and income would reflect some ideal pattern. Under egalitarian ‘social justice’ everyone would get the same share. Under meritocratic ‘social justice’ the size of shares would reflect differences in individual merit. And under needs-based ‘social justice’ the size of the shares would reflect the different amounts each individual needs in order to reach some goal (eg self-actualisation).

As Hayek put it, ‘social justice’ is the demand “for an assignment of the shares in the material wealth to the different people and groups according to their needs or merits” (p 121). And the trouble with demands for ‘social justice’ is that it is impossible for a free market society to satisfy them. As Hayek explained in The Constitution of Liberty:

Most people will object not to the bare fact of inequality but to the fact that the differences in reward do not correspond to any recognizable differences in the merits of those who receive them. The answer commonly given to this is that a free society on the whole achieves this kind of justice. This, however, is an indefensible contention if by justice is meant proportionality of reward to moral merit (p 93).

It’s not hard to see why markets can’t be meritocratic. In a large scale market society there are millions of different producers, many producing intermediate goods — goods that are used to produce other goods. For example, a company might be mining coltan, a mineral used to produce the metal Tantalum. Tantalum is used to produce electronic components like capacitors and these are used in consumer goods like mobile phones. The price of coltan can fluctuate in response to changes in demand for electronic goods. As a result, how much a producer earns will not depend just on how skilled and hardworking they are. A huge number of factors outside their control will influence the price — everything from political conditions in rival producer nations to technological innovation. It is impossible for producers to predict how these factors will change over time.

The same processes affect the demand for various kinds of human capital. Individuals invest in knowledge and skills that are often specific to particular industries and processes. Technological change can sharply increase or reduce demand for these skills. For example, desktop publishing technology eliminated the need for many skilled trades in the printing industry. For many workers, this seemed grossly unfair.

Markets enable the millions of different producers and consumers to coordinate their activities in a way that benefits everyone. But it can only do that if prices are allowed to adjust in response to shifts in supply and demand. As Hayek explains, the only way to achieve ‘social justice’ would be through a completely planned economy (p 69).

Surprisingly, one of best known advocates of ‘social justice’ in Australia is the Centre for Independent Studies’ Peter Saunders. Before coming to the CIS, Saunders argued that " in order for any society to work and function with stability, it has to have a clear sense of how it justifies its arrangements to those who live in it." People need to believe that the distribution of incomes corresponds to some principle of fairness. Saunders argued that reward according to merit was the only principle that a majority of Australians would accept. As a result, "we should endeavour to make the meritocratic principle work."

Strangely, Saunders thinks that freeing up the market will make society more meritocratic. This is the only way he can escape Hayek’s conclusion that the pursuit of ‘social justice’ leads to a planned economy and economic ruin.

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Update: Jason Soon has more over at Catallaxy — ‘Meritocracy and the Straussian conceit.’

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22 Responses to Hayek’s Road (Part 2 Social Justice)

  1. I think we can see these things about public opinion on income distribution:

    1. They believe that different jobs should be paid at different rates, but the ratios they nominate are more tightly bundled than we observe in the actual labour market.
    2. They believe that the gaps between rich and poor are too large though they have a very weak understanding as to where they are in the actual income distribution.
    3.They think there are too many people on welfare, and generally oppose increasing rates of payment to able-bodied welfare recipients.
    4. Only a minority believe that they do not have a chance of improving their own standard of living.

    I include the last point because though it is not about current income distribution, I think there is a huge sociological difference between societies where inequalities are permanent and those where opportunities exist.

  2. Yobbo says:

    Just because a *perfectly* free market wouldn’t be *perfectly* meritocratic doesn’t mean it wouldn’t be more meritocratic than the market we have now.

  3. Sinclair Davidson says:

    the only way to achieve ‘social justice’ would be through a completely planned economy (p 69).

    There is a change in meaning from what Hayek wrote. He argues that the term ‘social justice’ is meaningless in a market economy. It can only be given meaning in a ‘directed’ or ‘command economy’. Consequently it ‘could’ only – not would – be realised in such an economy. Of course, Hayek had already explained that such economies would fail – as they eventually did.

  4. Don Arthur says:

    Sinclair – I was hoping you’d find something more substantial to complain about.

    Here’s the quote if anyone’s interested:

    ‘Social justice’ can be given a meaning only in a directed or ‘command’ economy (such as an army) in which the individuals are ordered what to do; and any particular conception of ‘social justice’ could be realized only in such a centrally directed system.

    And yes, I think the calculation debate is over.

  5. Don Arthur says:

    Yobbo – I could have added that Hayek thought it was ridiculous to want society to be more meritocratic. In The Constitution of Liberty he wrote:

    The fact is, of course, that we do not wish people to earn a maximum of merit but to achieve a maximum of usefulness at a minimum of pain and sacrifice and therefore of merit. Not only would it be impossible for us to reward all merit justly, but it would not even be desirable that people should aim chiefly at earning a maximum of merit. Any attempt to induce them to do this would necessarily result in people being rewarded differently for the same service (96).

    But maybe you think merit is something else? Something that doesn’t involve effort?

  6. Steve Edney says:

    I’m puzzled by all this talk of merit as seemingly objective? Surely it is highly subjective. Personally I think I’m just wonderful and deserve plenty of rewards whereas Don wastes his time writing articles about Hayek and bad Peter Saunders and doesn’t deserve anything.

  7. Patrick says:

    Does anyone outside the socialists still use the word ‘social justice’ in the sense Hayek did? I hear it a lot, and it seems to me that a profession of support for social justice today is a profession of support for Hayek’s own

    most desirable order of society

    that you quoted in part 1.

    (ie,

    one which which would choose if we knew that our initial position in it would be decided purely by chance

    ), etc.

    Which tends to boil down to, in these people’s estimation, one with a seriously active intervention program for the lowest decile, a more ‘humane’ (but oddly less expansive) immigration program and slightly more or at least equally progressive taxation but otherwise very similar to the one we now have.

  8. Sinclair Davidson says:

    I am happy to complain if that’s what you want. :)

    Hayek actually has a long nuanced argument about merit starting on page 69 of ‘The Mirage’ that you seem to ignore. The problem for readers in commenting is knowing where you’re taking your argument – that long nuanced section on merit in Hayek may or may not be relevant for your purposes. So how about providing us with a quick roadmap?

  9. Peter Saunders says:

    Don,
    I have a feeling we’ve been down this road before! I’m happy to reiterate that I disagree with Hayek on this issue – I cannot see how a society indifferent to meritocratic principles will be seen as legitimate by its members. But this does not mean all resources have somehow to be distributed on some central agency’s view of how meritorious we are. Notwithstanding Hayek’s comments, open market competition doesn’t do too bad a bad job in rewarding those with talent who work hard and behave wisely (hence my empirical evidence on the openness of the UK class system), but it does have to be underpinned by certain rules that prevent talented and hard working individuals from being unfairly excluded from the competition. In my book ‘Unequal But Fair’ I say: “Rules have to be established which ensure, as far as possible, that the competition we are all entering is a fair one” (p.89). Once you’ve done that, you can allow people to compete in the marketplace. The outcome will be reasonably (but not perfectly) meritocratic. And I’m happy to live with that.

  10. Don Arthur says:

    Peter – I haven’t managed to get hold of a copy of your ‘Unequal But Fair.’

    What kinds of rules do you think need to be established?

  11. Jason Soon says:

    1) Peter contends that the Noble Lie of meritocracy must be taken as a given because the alternative is that a society will be torn asunder.
    2) This is in tension with his generally pro-market commitments so he proposes as a fallback position that:
    i) even though markets are not perfectly meritocratic, they ae meritocratic compared to the alternatives
    ii) therefore we can add to Noble Lie 1 a Noble Lie 2 that markets generally promote meritocracy
    3) The problem with this approach for the sake of stability is that the signs that markets are not meritocratic are more evident to most people than the signs that they are relatively more meritocratic e.g. Paris Hilton. This distinction will be lost on many.
    4) Therefore perpetrating Noble Lie 1 that we should accept the idea that societies be based on meritocracy will backfire on Noble Lie 2 as those ‘losers’ from market transactions will decide that
    i) the market is not really meritocratic
    ii) however given Noble Lie 1 we should attempt to introduce meritocracy into society
    iii) therefore ‘Down with markets’.

    5) This is exactly the situation that Hayek was trying to avoid hence he regarded being frank about the Noble Lie of Meritocracy as more important than covering up with Noble Lie 2 of Markets=Meritocracy. Get people used to the idea that randomness and volatility is simply a feature of real life.

  12. Peter Saunders says:

    Jason,
    People don’t mind randomness and volatility – what they object to is deliberate capriciousness. In ‘Unequal But Fair’ I give the example of lottery winners. Fortune is randomly dispensed, but while people may be envious of winners, they don’t resent them their good fortune because they recognise it was open to everyone to participate in the competition and the rules were not rigged.
    What people will never “get used to” (and nor should they) is evidence that ‘deserving’ people are being deliberately held back or excluded while ‘undeserving’ ones are being deliberately favoured. Yet libertarians ask us to accept the former situation (e.g. they argue it’s up to a buyer of labour whom to employ, and if an employer doesn’t want to employ you because you’re female or black, that’s something you’ll just have to accept). Similarly, welfare state socialists want us to accept the latter situation (for they argue you should get a hand-out if you are ‘in need’ irrespective of whether you have brought misfortune upon yourself through your own laziness or fecklessness). But neither of these arguments strikes most people as ‘fair’, and the reason is that neither is based in meritocratic principles.
    Nobody’s bothered much about Paris Hilton – what they’re bothered about is unfairness to underdogs. In other words, we need to be mainly concerned that meritocracy is driving upward mobility, and should worry much less about whether it is also driving downward mobility. My UK research showed upward mobility in that country is remarkably open (what you call ‘Noble Lie 2’ is not in fact a lie – this is an empirical issue, and the evidence shows it is broadly true that the market favours hard working people with talent). Most of the remaining blockages in the British class system are those (like private schools) that help prevent people at the top from sliding down. I think we can live with this – the system is not perfectly meritocratic, but it does more or less guarantee that a talented and motivated child born into poor circumstances will succeed, and that’s what mainly worries people (that’s why in Australia there’s so much concern about outback Indigenous communities where children clearly do not have the opportunity to compete fairly for success).
    Don – I think the above comments answer your question. Rules need to ensure rights of access to the competition, e.g. by outlawing discriminatory employment practices, or by laying down certain core standards for all schools so Muslim girls in Bradford or Aboriginal children in outback Australia can get a proper education. We can argue about how far this has to be taken (e.g. the left often argues that the right to buy a better education for your child represents a blockage to some other child’s chance to compete, but I don’t find this compelling), but the basic principle seems to me to be fairly clear. Hayek’s (and Jason’s) view that we just have to lump it when rectifiable unfairness stops talented and motivated people from competing seems to me to be morally indefensible (and is also politically a total non-starter, for you’ll never get people to accept it).

  13. Don Arthur says:

    Peter – Thanks for that. It makes you position clearer for me.

    My understanding is that sociologists (particularly British sociologists?) over-stress structural causes of economic inequality. If people are unemployed or low paid then the explanation is always going to have something to do with class, race, ethnicity, or gender. The message is — the game is rigged and unless it’s changed some groups can never win.

    It seems as if it’s taboo to even ask whether differences in ability might play some part in explaining differences in outcomes. Individual life choices and cultural practices are also off limits (the system must adapt to these, not vice versa). Self-destructive behaviour can only be discussed as a response to structural disadvantage — as a symptom not a cause.

    I agree that the big problem with this explanatory style is that tells people from disadvantaged groups that there is nothing they can do as individuals to improve their situation. It’s a problem because it isn’t true.

    But on the other hand, there are people who argue that disadvantage is always due to individual choices or self-destructive cultural practices. And the message here is that there’s nothing employers, governments or taxpayers can do to address the problem. I don’t think this is true either.

    I think the message from Hayek is that, while it might be possible to reduce “deliberate capriciousness” in markets it’s not possible to remove the randomness and volitility. If we want the benefits of markets then we have to accept the unmerited inequality they create.

    And once we’ve come to terms with that, then we can think more clearly about what governments should and shouldn’t do.

  14. Jason Soon says:

    School reforms can do a lot more to equalise people’s chances in life, I agree. But I also agree with Charles Murray that there is a limit on this
    http://www.opinionjournal.com/extra/?id=110009531

    Why set people up with false expectations and then make them feel as if the ‘system’ is stamping them as losers? We’re all playing with loaded dice.

  15. Don Arthur says:

    An interesting aside about Hayek — he didn’t think that people deserved their inborn advantages any more than they deserved the advantages of a privileged upbringing.

    For him merit was about the choices people made — about how hard they worked and the sacrifices they made.

    So while a person might be entitled to the returns they make on their inborn human capital, Hayek wouldn’t have said they deserve them.

    The difference between entitlement and desert is the difference between procedural justice and distributive justice.

  16. Jason Soon says:

    Yes Don, and perfectly relevant to the intelligence debate raised by Murray. Nobody ‘deserves’ to be born with a high IQ or a low IQ. Actually personality traits are heritable too and nobody ‘deserves’ to be born with the propensity to hard work or good concentration. Yet these are all relevant to the distribution of riches.

  17. I don’t think social justice is inextricably linked with the notion that all people should be literally equal. It’s meaning is more basic. For example, one’s access to medical assistance regardless your bank account. Or certain measures that help you to stay fed and off the street in the event of unemployment. It also applies to movements that seek to remove barriers to people on the basis of race etc.

    I don’t think social justice says everyone has a right to be smart, that’s folly. But it says everyone has a right to see a doctor if they’re sick no matter how dumb they are.

    As for social justice only having meaning in communist countries???? Australia has never been a communist country. Neither have Britain, France, Sweden, the United States, South Korea etc etc. Notions of social justice and their political expressions have played out in all these countries and it hasn’t lead to communism.

  18. Sinclair Davidson says:

    Don, you might profit by reading Thomas Sowell’s ‘A conflict of visions’.

  19. Don Arthur says:

    Sinclar – I’ve got a copy of Sowell’s book but haven’t looked at it much recently. What’s the bit you think I should pay attention to?

  20. Jason Soon says:

    Don
    Join the LDP. You and me can balance out the ‘hoons with guns’.

  21. Don Arthur says:

    Jason – Maybe you should have a word to Bryan and get him to update his political quiz so that it includes the LDP.

  22. Sinclair Davidson says:

    Read the whole thing – it is worth it. Unfortunately it very hard to summarise the argument into a paragraph.

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