(Photo by Ilias Bartolini)
Daniel Pryor argues that free market policies are often best-placed to combat inequality.
Those of us who extol the virtues of smaller government and the free market often seem to have an inbuilt reflex when ‘inequality’ is mentioned; “stop being envious – it’s unavoidable and a necessary component of capitalism”. Such dismissive reactions don’t do us any rhetorical favours, and also fail to appreciate the laudable motivations behind those who do concern themselves with fighting inequality.
Indeed, the casual observer might be forgiven for thinking that the Left hold something of a monopoly on discussing the issue. Yet it is precisely in this area that free market policies can make a substantial contribution! Whether it concerns our incomes, our opportunities or simply the laws under which we live, inequality is frequently symptomatic of the immense harm caused by an overbearing state.
Inequality is frequently symptomatic of the immense harm caused by an overbearing state.
Our inadequate welfare state is a prime example. Income inequality is exacerbated by a hugely complicated benefits system, with low work incentives serving to trap the least well-off in poverty. Whilst Iain Duncan Smith’s Universal Credit reforms are to be welcomed, they should only be viewed as a first step. The ideal situation would be a basic income guarantee for all UK citizens (or ‘Negative Income Tax’) to replace much of the British government’s anti-poverty initiatives. Such a scheme has received support from across the political spectrum, from Friedrich Hayek and Milton Friedman to Martin Luther King and John Kenneth Galbraith. Whilst opponents (correctly) point out that a guaranteed income would reduce the incentive to work, empirical evidence suggests that the effect need not be particularly significant: and a worthy price to pay for alleviating widespread poverty whilst eliminating the ‘benefits trap’. It’s difficult to object to a true living wage, achieved by market incentives rather than state penalties. Making the government’s role in poverty reduction simpler, more effective and less paternalistic is a great example of free market policy fighting income inequality.
Moving from the plight of the poorest to the privilege of the richest, critics of libertarianism ubiquitously describe it as an ideology that only helps the super-wealthy. This emphatically misses the point. Encouraging wealth creation and innovation in a free market is poles apart from advocating big government corporatism. Time and time again, state efforts to prevent competition have resulted in a gradual creep towards what Karl Marx called ‘monopoly capitalism’. As he remarked in Volume One of Capital:
“The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it.”
Subsidised and insulated from competition by the state, the beneficiaries of monopoly capitalism include large financial institutions, supermarkets, the arms industry, and energy firms. Allowing the government to pick winners and losers has resulted in huge wealth transfers from the poorest to the richest. Recent years have seen billions of pounds taken from UK taxpayers’ and used to subsidise the financial institutions that helped to create the Great Recession. Referring to the American situation, Rand Paul perfectly summed up the libertarian sentiment towards such corporate welfare:
“The average guy who’s working class is not real excited about paying taxes and sending it out to bail out a guy who makes $100m a year.”
Unfortunately, the Left tend to respond by criticising those super-rich who are subsidised by the system, rather than the system itself. History tells us that it is easy to blame our problems on a scapegoated group (in this case the ‘evil bankers’). However, I would argue that a more helpful attitude is to criticise the anti-competitive activities of the state. The ‘too big to fail’ attitude, exacerbated by the excessive regulation that shuts out potential new entrants to the market, has resulted in an intolerable inequality – ‘heads the bankers win, tails the taxpayer loses’.
Another strength in the Right’s case against inequality is that unlike inward-looking ‘national socialism’, free market policies are not limited to alleviating the poverty of those in the country they are implemented in. Tyler Cowen, an economist whom I very much admire, has described immigration as the ‘best anti-poverty program’; I am inclined to agree. If we are to combat world inequality, there is no better way of raising the incomes of the worlds’ poorest than opening borders. What is more, we will make ourselves better off in the process.
Free market policies are not limited to alleviating the poverty of those in the country they are implemented in.
So far, I have only concentrated on income inequality. Shockingly for a libertarian, I like to think of myself as someone who fights social inequalities alongside economic ones. To that end, some of the most vocal support for marriage equality originates from advocates of the free market; ideally, the state should have no involvement in marriage whatsoever. Opening up the education system to competition through free schools and a differentiated voucher system will reduce inequality of opportunity. Legalising marijuana and other drugs will reduce the catastrophic harms caused by the (failed) War on Drugs, which disproportionately affects the least well-off and minority communities. Feminist voices arguing against gender inequalities can also be found in the libertarian movement; I’d highly recommend following the work of Cathy Reisenwitz and Cathy Young.
Inequality is important. It is often symptomatic of government intervention that harms the poorest and privileges the richest. Free market policies offer effective ways of combating the causes of such inequality, primarily by assisting the least-well off but also making sure that those who become wealthy do so only by creating jobs, demonstrating entrepreneurship and helping the poorest: rather than suckling at the teat of a corporatist state.