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