Have the Tories embraced ‘progressive fusionism’?

George Osborne gave a surprising speech earlier this month. The Shadow Chancellor spoke about the egalitarian philosopher John Rawls and called for greater equality of opportunity. He praised Swedish educational reforms and argued that parents should be able to choose a school for their child. And he insisted the government needed to put a price on carbon to protect future generations from the costs of global warming.

At the same time, he reaffirmed the Tories’ belief in free markets and the liberalism of Friedrich Hayek. While arguing for greater fairness and social mobility, he insisted that these could only be achieved by conservative means. This sounds a lot like the ‘progressive fusionism‘ promoted by the Cato Institute’s Brink Lindsey. In a 2006 essay for the New Republic, Brink described it as “A movement that, at the philosophical level, seeks some kind of reconciliation between Hayek and Rawls.”

You might expect that a British conservative would struggle most with the Rawlsian part of this philosophical fusion. But surprisingly, it is Hayek’s ideas that Osborne chokes on. In his speech, he seems to deliberately avoid confronting one of Hayek’s most important insights.

Osborne insists that a “a fair society is one where people are properly rewarded for their effort and ability” and that “the free market economy is the fairest way of rewarding people for their efforts.” But Hayek argued that markets can never be fair in this sense. As Hayek scholar Jeremy Shearmur writes:

… Hayek argued — pace the wishful thinking of some conservatives — there simply is no moral merit to the distribution of wealth within such a society, and that one cost of such a society may thus be that it generates forms of economic inequality that we find morally unattractive (p 153).

Markets are efficient, but they are not engines of distributive justice. No doubt that’s a tough message to sell to a focus group.

Hayek distinguished between two kinds of fairness. The first is procedural justice. If we all sit down to play a game of poker and everybody sticks to the rules, then nobody can go home saying that the end result was unfair. It may be that you were unlucky and couldn’t possibly win with the cards you were dealt. But your bad luck doesn’t make the game unfair.

The other kind of fairness is what Hayek called ‘social justice’. Social justice is about outcomes rather than procedures. An outcome is socially just if everyone ends up with what they deserve. Depending on who you talk to, this might mean equal shares for everybody or it might mean proper reward for ability and effort.

Schools often aim at this kind of fairness. Tests and assignments are designed to reduce the impact of luck. Often a school will make allowances for a student who becomes ill or gets caught up in a family crisis. The aim is to make sure that everyone is rewarded according to ability and effort. A talented student who works hard, should always do better than a dull and lazy student. If this doesn’t happen, then the rules need to be changed.

Hayek argued that markets were only fair in the first sense. He called it the game of catallaxy — a game where the results are partly the result of skill and partly the result of luck:

It is indeed because the game of catallaxy disregards human conceptions of what is due to each, and rewards according to success in playing the game under the same formal rules, that it produces a more efficient allocation of resources than any design could achieve. I feel that in any game that is played because it improves the prospects of all beyond those which we know how to provide by any other arrangements, the results must be accepted as fair, so long as all obey the same rules and no one cheats (p 63-64).

As he wrote in The Mirage of Social Justice:

It has of course to be admitted that the manner in which the benefits and burdens are apportioned by the market mechanism would in many instances have to be regarded as very unjust if it were the result of a deliberate allocation to particular people (p 64).

Osborne seems unwilling to accept that this is the price we pay for the benefits of a market society. Instead, he insists that a “a fair society is one where people are properly rewarded for their effort and ability” and that “the free market economy is the fairest way of rewarding people for their efforts.” He contrasts this to government led efforts to ensure fairness:

A planned economy may seem fair in theory but is unfair in practice.

As economists from Adam Smith to Francis Edgeworth to Friedrich Hayek have demonstrated, however well intentioned the central planners and bureaucrats may be, they will never have the knowledge to allocate resources fairly. They will never have anything approaching perfect knowledge of everyone’s needs, abilities and efforts. Only the invisible hand of the market, where people choose freely to transact with other people, is able to do that a consistent way.

What Hayek actually argued was that central planners and bureaucrats can never have the knowledge they need to allocate resources as efficiently as the market. And unless the Conservative Party can learn to tell the truth about markets it will continue to make promises to the electorate that it will be unable to keep.

22 thoughts on “Have the Tories embraced ‘progressive fusionism’?

  1. “Schools and often aim at this kind of fairness.”

    A word appears to be missing in your first sentence, eighth para, Don.

    I like the sound of the school voucher system in Sweden, btw.

  2. Thanks Mel – I’ve fixed it now.

    The Swedish example is interesting. The independent schools (friskolor) are not allowed to charge parents any fees for tuition. And nobody is forced to send their children to a for-profit school.

  3. Though in practice the market does roughly distribute income according to common perceptions of merit – people who work long hours earn more than those who do not, people who get more education earn more than those who do not, etc.

    While of course Hayek is right that when we act as consumers in the market we are usually rewarding people for giving us what we want, not for being a good or meritorious person (since we usually have no knowledge of most of the people we are dealing with down the long supply chains that maintain our lifestyles), too few people believe that they personally are treated grossly unfairly for this to threaten the system’s legitimacy.

  4. Don:

    Do you know if Osborne mentioned that around 55% of brits are on some form of welfare and what he intends to do about that?

  5. Smith felt that markets were pretty fair – at least by comparison with alternatives. And Hayek would have agreed I think. But Hayek was more uncompromising in making it quite clear that there was no reason to expect markets to produce fair outcomes – except in so far as ‘fair’ or at least equal processes provides some tendencies towards ‘social justice’ at least in some respects – like other things being equal the harder you work the more you (usually) make. But there are a whole lot more things to justice than that.

    Don do you think a one line description of Smith’s position might be said to be this.

    If you’re towards the top or the bottom life isn’t fair – it’s way too easy if you’re rich and way too hard if you’re poor. But markets tend to be fair most of the time, in the long run for those in the middle.

    Well that wasn’t one line was it – but that seems to me to be the kind of message that comes out of the Theory of Moral Sentiments.

  6. “The Swedish example is interesting. The independent schools (friskolor) are not allowed to charge parents any fees for tuition. And nobody is forced to send their children to a for-profit school.”

    That’s why I like it. Snotty little rich kids have enough advantges already.

  7. Yes the Swedish example has long fascinated me. Funny how Leftists could not get enough of Sweden over the past 30 years. Haven’t heard boo from them on Swedish vouchers. Too busy dissing Marcia Langton, I suppose. ;)

  8. … in practice the market does roughly distribute income according to common perceptions of merit

    This is too vague a statement to be worth arguing with. And I think it’s wrong to assume that the market’s legitimacy depends on people believing that it’s true.

    If you’re trying to explain differences at the very top of the US income distribution — between the rich and the super rich — then knowing people’s IQs and the hours they worked probably won’t even ‘roughly’ explain the difference. And if you throw in some commonsense variables about how morally valuable the work was (eg marketing cigarettes vs caring for disabled children) you’ll probably just get more confused.

    This is an interesting question because it looks like a very large proportion of the monetary gains of recent economic growth have accrued to those at the very top.

    But if you were talking to a 12 year old from a disadvantaged background you wouldn’t tell them that it’s all a lottery. You’d tell them that it was worth staying school, getting a trade or going to university, working hard, showing up on time etc. And if they couldn’t already read, write, add and subtract, you’d be very worried.

    And you’d be right to worry. These things can help make the difference between a life of unemployment and welfare and a one of steady employment that pays the bills and allows people to retire in their own home with some savings.

    But if you were talking to talented 17 year old who was determined to go into one of the creative industries — they wanted to be an actor, a pop star, a painter, or open an cutting-edge fine dining restaurant — you wouldn’t tell them that hard work and talent are all they need for success. That would be cruel.

  9. Too right. The janitor may do a great job, whereas executive incompetence may send the company into a downward spiral- as we’ve seen with the US financial crisis. Yet the execs who wipe billions off shareholder value still get a golden handshake even when they’re deemed a failure and asked to resign. Oh, and the janitor, he gets laid off because the company has to cut costs. And because he was a contractor, he gets no handshake whatsoever.

  10. Don – I’m not talking about Gini coefficients, but about whether people feel that if they do things like acquire an education, do a good job, put in the hours etc that they feel they are likely to be rewarded, or whether, as in feudal society their life prospects are determined by their family of birth, or in communist societies by following the party line, or the whole thing is just a lottery.

    Markets aren’t designed to directly reward people for good behaviour, but they are not a lottery: certain behaviours are far more likely to be rewarded than others. That some people do much worse than they ‘deserve’, and others much better, does not undermine the fact that that correlation is good enough to guide behaviour, which is why you see so many people improving their education and doing other things to increase their prospects of doing well.

    (As the more sophisticated commentary on ‘merit’ notes, it is actually not always a good thing, sociologically speaking. It’s much easier to ‘fail’ if it can be put down to forces beyond your control than it is if failure reflects your own personal shortcomings.)

  11. Is it at least fair to say that the market provides the only objective metric to compare outcomes?

    Whether an economy is planned or free there will still be a luck factor in outcomes. Obviously some people do better than others in the communist countries and partly that will be luck of party position and so forth.

    However, the market price does at least provide an objective measure of the goods and services people produce. We might not like it, but it is dispassionate.

    The luck of fortunate birth seems to be unobjectionable from a moral perspective. We exist because we reproduce and clearly we are programmed to favour our offspring, so why should inheritance be a moral problem requiring redress through death duties?

  12. It seems to me you’re in danger of imposing your own meaning over what Osborne is actually saying. Take these few quotes from his address:

    But just as Conservatives have always stood against the utopianism of controlled economies, so too have we recognised that unfettered free markets are also flawed. The pursuit of self-interest without any constraints does not lead to the fair reward of effort – it leads to the abuse of power and the emergence of monopoly.

    It is this understanding that differentiates Conservatives – who believe in markets that work – from libertarians and their laissez faire assumption that the pursuit of self interest is enough.

    Today, Martin Wolf puts this argument into a modern context . . . . : “There have to be rules, ethical norms and institutional constraints governing profit-maximizing behaviour, to ensure that the maximization operates for the social good.”

    There’s a very clear emphasis throughout that, in his view, the workings of markets need to be ameliorated by state interventions and a constantly evolving legal framework. Given the full context of his speech, the claim that he “seems to deliberately avoid confronting one of Hayeks most important insights” seems rather a stretch.

    Having said that, I’m very grateful you drew our attention to the speech. Quite remarkable, I thought. He manages to lay out a very clear narrative that may well have great popular appeal in Britain after the interminable waffle of the last 10 years.

  13. There’s a political spectrum from left to right, so we can distinguish the left of the left from the right of the left from the left of the right to the right of the right. people in the central groupings however feel a sense of intellectual inferiority at their cross-dressing, hence they try to present themselves as true radicals; the ‘radical centre’ pap. Tony Blair & Kevin Rudd updated versions of the old Labor right, McCain Nixonian Republicanism retrod (hopefully without the paranoia).

  14. The idea that the acceptance that markets are flawed is the difference between Conservatives and Libertarians seems pretty absurd to me – can this really be what Osborne meant? Hell, I’d happily vote for a party that was basically libertarian but accepted markets were occasionally flawed – but I would never vote for any of the conservative parties that have been dominant during my life time, in almost any English speaking country.

  15. It’s been a while since I read Theory of Moral Sentiments, but I think Nicholas’s summary is fair enough, both as to Adam Smith’s argument and as to the reality i.e. markets are pretty fair for most in the middle.

    Markets are a bit like Winston Churchill’s famous remark about democracy: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”

    Markets aren’t completely fair in the sense of rewarding merit (or even hard work) or lack of it proportionately, as Hayek honestly conceded but they do so more fairly overall than any other system so far devised by man (certainly than any form of socialism). However, that concession doesn’t mean we should never interfere with markets to reduce identified instances of serious or unintended unfairness and remedy market failure, although it does mean that we should be wary of closet socialists advocating interventionist solutions that mandate their own moral preferences under the guise of remedying an alleged “market failure”.

  16. Ingolf – I think Osborne’s comments about how the state needs to put a strong framework around the market in order to preserve competition are important. But you’ll need to join the dots for me. I don’t see how they relate to the point I was making.

    It seems to me that Osborne is saying two things:

    1. That cartels and monopolies may emerge unless the state creates a framework to stop them. Cartels and monopolies prevent competition from operating and can weaken and ultimately destroy the market.

    2. The employer-employee relationship needs to be regulated to prevent employers from exploiting vulnerable workers.

    He sums this up by saying that the:

    framework involves state intervention to prevent the emergence of unfair cartels and the exploitation of individual workers – and Conservatives have been at the forefront of that state intervention since the days of Wilberforce’s campaign to end the slave trade Shaftesbury’s fight against the Manchester Liberals for legal limits to factory hours.

    The first point is perfectly consistent with his claim that markets reward people fairly for their effort and ability. Without competition, markets can’t function as markets.

    The second point is a fairly minor caveat. Osborne also accepts the need for a minimum wage (Hayek didn’t have any principled objection to a minimum wage either).

    I still think that one of Hayek’s most important ideas was his rejection of the idea of a ‘just price.’ In a market the prices of goods and services are set by supply and demand — not how much effort and ability goes into creating them.

    For Hayek, demand rests on subjective value. When you go into a supermarket and buy a slice of pumpkin, you don’t think about how much work the farmer put into tending the field or how many hours the truck driver was on the road. You think about how much you want pumpkin and whether you can get it cheaper if you go to the fruit and veg shop next door. If pumpkin farmers don’t like the price the supermarket offers them, they either sell to someone else or stop growing pumpkins.

    For me, one of the interesting things about Osborne’s first point is that preventing cartels and monopolies was one of the central concerns of the ordoliberals (German neoliberals). The ordoliberals saw cartels and the rise of totalitarianism as part of a package. They were far more concerned about this than Hayek was.

    According to David Gerber, the ordoliberals argued that:

    Powerful economic institutions could also destroy or limit freedom, especially economic freedom. Having witnessed the use of private economic power during the Weimar period to destroy political and social institutions, the ordoliberals emphasized the need to protect individuals from misuses of such power. This meant that the state had to be strong enough to resist the influence of private power groups.

    Liberals still differ over this issue. But the difference of opinion is not about whether the prices under a cartel conditions fail to produce outcomes that reward producers according to effort and ability.

    The distinction between procedural and distributive justice is central to Hayek’s arguments.

  17. Don:

    For me, one of the interesting things about Osbornes first point is that preventing cartels and monopolies was one of the central concerns of the ordoliberals (German neoliberals). The ordoliberals saw cartels and the rise of totalitarianism as part of a package. They were far more concerned about this than Hayek was.

    Of course because Hayek and Mises both saw the folly of the idea of a monopoly in a contestable market.

    Nearly all competition watchdogs that i know of work from the premise of the perfect competition model which only appears in something like the wheat market -and even then there are different varieties of wheat.

    If markets are contestable and the government doesn’t allow rent seeking there is no cause of concern with monopoly situations building up. Most fines levied or actions demanded have been a travesty based on a faulty economic assumption- the perfect competition model causing no end of injustice.

  18. I agree with Ingolf that you might have misunderstood Osbourne’s point about fairness.

    You say:
    “Osborne insists that a a fair society is one where people are properly rewarded for their effort and ability and that the free market economy is the fairest way of rewarding people for their efforts. But Hayek argued that markets can never be fair in this sense.

    Osborne seems unwilling to accept that this is the price we pay for the benefits of a market society. Instead, he insists that a a fair society is one where people are properly rewarded for their effort and ability and that the free market economy is the fairest way of rewarding people for their efforts. ”
    I think the key point is that Osbourne believes the free market is the “fairest”, which is not the same thing as intrinsically or completely fair. It is one thing to say markets are relatively unfair and another thing entirely to come up with a fairer alternative, which Osbourne effectively says.

    How is that inconsistent with what Hayek says and you quote:
    “I feel that in any game that is played because it improves the prospects of all beyond those which we know how to provide by any other arrangements, the results must be accepted as fair, so long as all obey the same rules and no one cheats.”

  19. Don, I have no problem with Hayek’s distinction between procedural and distributive justice. Nor do I think there’s any such thing as objectively “just prices”; as you say, they’re simply the result of supply and demand and the demand side is largely based on subjective perceptions of value.

    My disagreement was confined to the feeling you were making too much of Osborne’s failure to explicitly acknowledge these matters. He does tend, after all, to say the free market economy is the “fairest” way of rewarding people for their efforts and talents, not that it is in some final sense “fair”. I think you may also be interpreting him a little narrowly in focusing only on the control of cartels and the employer-employee relationship. Taking his comments as a whole, he clearly believes that in order to produce “fair” outcomes, these specific interventions are only a part of a larger package that he sums up as being “within the framework of the rule of law, a fair tax system and strong social norms.” The latter is elaborated on later in the speech: “Where markets work well, they aren’t just constrained by formal rules, but by institutions, social norms, self-regulation, and the character and personal responsibility of those who act within them.”

    The overall impression I get from his speech is that he wouldn’t argue with you about these matters any more than I have and it certainly doesn’t seem at all odd to me that in a political speech he would gloss over them in the way he has.

    As for concerns about cartels and monopolies, I’m pretty close to JC’s view.

  20. In any event, Osbourne won’t have the time to worry about fair rewards from the market. He’ll be struggling with how to work out a fair tax system.

  21. Pingback: Andrew Norton » Blog Archive » Why neither right nor left support meritocracy

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