PART 3:
In relation to economic events, and not least the evolution of economic policies, issues of causation are typically complex and hard to unravel. The present case is no exception: there is no simple explanation of the trend towards more market-oriented systems. Here I outline what I see as the main interacting influences, while casting doubt on some lines of thought which appear oversimplified or misleading. In doing so, I look at implications for the future; and in this context, I consider how far the turn of events has reflected a wider acceptance of, and a more assured status for, the ideas of economic liberalism.
THE POLITICAL DIMENSION
To start with, there is a question as to how far economic reform has been linked to particular political creeds, parties or régimes. Here the main points to be made are three.
First, as can be inferred even from Tables 1 and 3 above, and is confirmed by other evidence, reforming governments have materialised not only in every region of the world but also in widely different political guises. Both democratic and authoritarian régimes have been involved. In the former category, the core OECD countries are to be found together with a substantial and growing number of countries from the developing world and the former communist grouping. At the same time, authoritarian régimes, past and present, have also been numbered among the reformers: this can be seen, among other instances, in Indonesia under Suharto, Chile under Pinochet, China since 1978 and Ghana in the 1980s, as well as in politically freer but still heavily controlled systems such as Malaysia, Singapore and (before the recent move to democracy) the Republic of Korea.
Second, and despite this heterogeneity of reforming governments, there is clearly a strong association between political and economic freedoms. During these past two decades taken as a whole, there is probably no case to be found where under a democratic government the balance in economic policies has moved towards interventionism. On the other hand, there is probably a clear majority of non-democratic countries among the 37 non-reformers referred to in Table I, for which an index of economic freedom can be compiled, while all the other non-reformers -- Cuba, Iraq, Myanmar, Sudan and so on -- have highly authoritarian régimes. This is no accident. Where political rights are assured, the more extreme forms of interference with economic freedom cannot now be maintained. While democratic institutions are neither a necessary nor a sufficient condition for liberalisation, their restoration or establishment may clear the way for it.
Third, the impetus to reform has come from both sides of the conventional political divide. There have been radical reforming governments of the left, most notably, in chronological order, in China, Mexico, New Zealand and Argentina. In core OECD countries besides New Zealand, liberalisation measures have been carried through by governments with left-wing credentials, at different times over the past 20 years -- in the US, under the Democratic administrations of both Carter and Clinton, and in France, Sweden, Australia, Spain, Ireland, Greece, Portugal, Finland and the UK. As to the immediate future, the prospects for continuing reform in Britain appear better with the present Labour government than they would have been if the Conservative Party had won the election of 2005.
Such developments are neither novel nor surprising. It is not the case, as is often assumed, that in this recent reform process parties of the left have stolen their opponents' clothes. (70) Historically, liberalisation has not been preached by "conservatives" when in opposition, nor consistently practised by them when in power. Among the core OECD countries in recent years, Australia and (still more) New Zealand offer clear examples of this: in both, the economic reforms of the 1980s were accelerated, and even made possible, because right-wing governments which were not at all liberal lost office. (71) In Britain, Margaret Thatcher's retrospective view of the Conservative government which held office from 1970-74 under the leadership of Edward Heath -- of which she was herself a member -- is that "it proposed and almost implemented the most radical form of socialism ever contemplated by an elected British government". (72) In Spain, the military dictatorship of General Franco maintained a tightly regulated economy up to the initial liberalisation measures of 1959, which were adopted only in response to a situation of crisis and accepted with great reluctance by traditionalists. In France not long ago, the prime minister of the then government of the right said in an interview: "What is the market? It is the law of the jungle, the law of nature. And what is civilisation? It is the struggle against nature." (73) Outside the OECD area, the former nationalist régime in South Africa was deeply hostile to free markets in both its doctrine and its practice. (74) In India today, as between the two largest political groupings, it is the party of the right, the BJP, which has taken more of an anti-reform stance in its public pronouncements on economic policy.
None of this is new, strange or incongruous. Limited government is the leading principle, not of conservatism nor of "right-wing" political thought, but of liberalism, traditional and modern; and as Hayek has argued, in a brilliant essay appended to The Constitution of Liberty, there are important respects in which liberalism in this sense and conservatism are at odds. In right-wing as in left-wing parties around the world, there typically have been, and still are, strongly held and influential anti-liberal views. (75) It is within political parties, rather than between them, that the balance between liberalism and interventionism is decided; and at any given time, the influences that lead to a change in this balance are likely to be at work right across the political spectrum. This has been true during these past two decades; and looking ahead, it can be expected to continue to hold good.
Hence the future of economic reform in democratic countries does not depend much, and often not at all, on the political colours worn by the parties that are in power. On the one hand, governments of the right hold out no special promise for liberalisation: the Australian Coalition government elected in 1996 has provided a clear recent example. On the other hand, and arguably more significant for the future, the liberal cause will not necessarily suffer, and may even in some cases prosper, as and when left-wing parties come to power.
Since liberalisation cannot be accounted for in terms of a general shift in the political centre of gravity, an explanation for the recent trend has to be sought elsewhere; this brings in wider issues of how and why economic policies change course.
INTERESTS, IDEAS AND LIBERAL GAINS
Under the spell of the brilliant closing paragraph of Keynes's General Theory, the economics profession is prone to think of policies as being shaped by two main influences, vested interests and the ideas of economists. (76) Clive Crook, in the article referred to above, has argued that group interests have long been and will remain a dominating adverse influence on the fortunes of economic liberalism. The Friedmans, in their Epilogue reproduced above, (pp. vii-viii), suggest that while liberalism has now won the battle of ideas the fruits of its victory have so far been disappointing: as Milton Friedman put it in an earlier essay, "It is hard not to be discouraged by the miniscule changes in policy that have so far been produced by a major change in public opinion" -- an outcome which he attributed in part to "the fact that our political structures give specific interests a considerable advantage over the general interest". (77) These respective views of the situation, which share a qualified pessimism as to the future and a belief that "specific interests" are highly effective as an obstacle to reform, can be taken as a point of departure.
Interests: a Powerful but Overrated Factor
Crook focuses chiefly on the continuing growth of public expenditure in general, and state transfer payments in particular, in the core OECD countries. He sees this as the predictable result of the working of modern democratic systems, advancing what may be termed a Triple Alliance theory of the growth of government:
A combination of [three] elements -- self-interested politicians, self-interested bureaucrats and self-interested pressure groups -- may not be the whole explanation for the remarkable expansion of government this century, but it goes a long way. What it implies is a kind of democratic failure.
He concludes that "The evidence to date is that democracy is indeed incompatible with economic freedom, at least in a form that the classical liberals might have recognised" -- whilst adding, rightly in my view, that the prospects for economic liberalism under non-democratic forms of government are worse. (78)
If correct, this would be daunting from a liberal point of view. However, the pessimism here is overdone, because the diagnosis is at fault. It is of course true that liberalisation is often contrary to the interests of vocal and well-placed interest groups. Hence it is obvious that, for the future as in the past, the pace and extent of reform in democratic countries will be constrained by public acceptability, and that governments that wish to liberalise will have to give a lot of attention to overcoming, disarming or buying off opposition from those groups which will suffer from the measures they have in mind. It is also true that these interests may receive support from politicians and civil servants who identify with their cause partly or wholly for reasons of personal and professional advantage. But this does not at all mean that the cause of further reform is doomed or blighted; for if it were true that the dominant continuing influence on the economic policies of democratic states is and has been the combined influence of pressure groups, politicians, and bureaucrats, all of whom are motivated only by self-interest and whose interests coincide, the reforms of the past 20 years could never have taken place.
This can be seen from a listing of the kinds of changes that have been made. Reforming governments have reduced or eliminated tariffs and other barriers to imports, opened up formerly closed or regulated markets to new entrants, paved the way (through privatisation and "corporatisation") for substantial reductions in staffing by large firms, imposed new taxes, raised existing rates of taxation, reduced or eliminated tax exemptions and fiscal preferences, pared down subsidies, introduced or raised charges for public services, reduced or held down various forms of public transfers and entitlements, imposed stiffer performance tests on government agencies and their employees, resisted the growth of wages and salaries in the public sector, and curbed the powers and legal privileges of trade unions and professional associations. Aside perhaps from the removal of exchange controls, it is hard to think of any measure, in the long and varied list of economic reforms over these years, that has not conflicted with the interests and wishes of some specific, well identified and influential group. All this is inconsistent with the Triple Alliance theory. Why would "rational" ministers and officials, concerned to advance their personal interests by dispensing well-judged favours to pressure groups, go out of their way to affront so many of these groups, and to provoke gratuitously a host of new enmities?
A possible answer might be that these ministers and officials, on the basis (as ever) of a considered and well-informed maximising exercise, decided to placate other interests than those directly affected, or to pursue their own private self-regarding agenda; but besides being inconsistent with the idea of a stable and predictable Triple Alliance, this does not square with the facts. Historically, it is not easy to identify, in any country, measures or episodes of liberalisation which can be explained in terms of willing or acquiescent governments responding to pressures from interest groups. This does not mean that such groups and coalitions of interests have little influence on events: far from it. Much (though by no means all) of the history of interventionism can be interpreted in this way; and even more, it serves to explain successful opposition to reform. But the argument does not hold in reverse: in relation to reform itself, a different mix of influences is typically involved. When it comes to the last two decades, I find it hard to think of instances of liberalisation, across the whole range of democratic governments which have been responsible for such changes, which can be accounted for by the combined influence of specific interests and their allies in the corridors of power.
Here as in many other cases, the notion that policies and outcomes are almost wholly determined by well defined and correctly perceived sectional interests, which is often taken as an unexamined presumption in present-day economics and political science, does not accord with the facts. In part, this is because the treatment of roles and personalities is oversimplified to the point of caricature. To portray political leaders as no more than scheming opportunist nest-featherers and vote-catchers can be useful as a corrective or a point of departure. But in relation to this recent reform process, it is clearly misleading not only for such prominent figures as Ronald Reagan, Margaret Thatcher, Turgut Özal, Jacques Delors and Roger Douglas, but also for many other politicians who were involved. In the same way, it is too naïvely dismissive to think of civil servants, whether national or international, as an undifferentiated mass of faceless, dedicated rent-seekers.
Hence it is mistaken to think that coalitions of interests largely preclude economic reform in modern democratic states, or even that liberalisation has been, or is now, contingent on their support. As to ideas, I think that the Friedmans are right in saying that liberalism has made large gains which may prove lasting -- not only in the US, which is their chief concern, but across the world. These gains have been made on two fronts -- one local, within the economics profession, and the other more inclusive.
Ideas: the Liberal Element in Economic Thinking
Locally, economic liberalism has improved its status among the economists. In my opinion, this has entailed a change of emphasis within the subject, rather than a revolution. In the world of economics, liberal ways of thinking have always been a well- identified feature, a recognised part of the intellectual scenery even for those who thought little of them or condemned them. The economic reforms of recent years have given expression to ideas which are characteristic of economists, as of no other group -- ideas concerning the functioning and uses of free markets. The foundations here were laid over two centuries ago, with Adam Smith and Turgot as master builders; and they were later extended and strengthened, in particular with the coming in 1870-90 of the "marginal revolution". This perspective on issues and events is not wholly confined to economists, while within the profession itself it is often ignored, misunderstood, dismissed as unimportant, or rejected. All the same, it is an integral part of the subject, and widely accepted as at any rate a partial guide to policy. It is a semi-consensus.
Contrary to some versions of history, the semi-consensus was neither forgotten nor repudiated as a result of the "Keynesian revolution". As to Keynes himself, Robert Skidelsky rightly says that he was "never a collectivist in the sense ... [of] someone who wanted to replace private choice by government choice", and in referring to "his crucial role in restoring economic liberalism". (79) Nor were his disciples and followers typically anti-liberal or étatiste, though some of them were. Keynesian ways of thinking were not closely linked, either in logic or in practice, with a belief in the merits of protectionism, regulation, public ownership or a continuing relative growth of state transfers. Clear evidence of this is to be found in the writings of leading Keynesians, such as James Meade, and in the memoirs and reflections of economists who, during the period from the Second World War to the early 1970s, held responsible advisory positions in government. (80)
Contrary to another common misreading of the past, it is likewise not the case that leading economists, both in this period and earlier, paved the way for expanded state programmes because of a chronic incapacity to grasp the facts of political life. This view is to be found, among many other places, in the article by Crook, where he asserts that economists are "the ones who cleave most naïvely" to the view "that governments are Platonic guardians -- selfless servants of the public good". (81) It is not clear when this age of innocence is supposed to have begun. As to Keynes, his scathing portrayals of the Big Four at the Versailles Conference of 1919 are enough in themselves to demonstrate his freedom from illusions about political leaders. (82) At much the same time, in what became an established and widely used treatise on the economics of public policy, the already eminent A.C. Pigou included, in a chapter headed "Intervention by Public Authorities", the following salutary words of caution:
In any industry, where there is reason to believe that the free play of self-interest will cause an amount of resources to be invested different from the amount that is required in the best interests of the national dividend, there is a prima facie case for public intervention. The case, however, cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously. It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustments that economists in their studies can imagine. For we cannot expect that any public authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. (83)
This passage dates from 1920. One could hardly have a clearer formulation of the notion of "government failure", which is often now presented as a path-breaking recent discovery.
It might perhaps be argued that at some later stage than this, possibly in the post-Second World War decades, mainstream economics underwent a general lapse into naïveté. However, it is not hard to find cautionary words about the limitations of governments in widely used texts from this later period, (84) nor do the memoirs and recollections just referred to show signs of other-worldliness.
Liberalism Downplayed
It is not the case, therefore, that mainstream economics repudiated its liberal heritage, and promoted a continuing expansion of the role of the state, under the combined influence of Keynesian ideas and a naïve belief that politicians and bureaucrats were disinterested and selfless. What is true, however, is that, as from the 1930s, both liberal ideas and their implications for economic policies became less central, less a matter of concern, within the profession generally. This was true both in the core OECD countries and in relation to "development economics".
In the former case, two main factors were at work. First, professional attention became strongly focused on macro-economic issues and a particular (Keynesian) way of viewing them: this was a natural result of the Great Depression of the 1930s and the experience of war economies that soon followed. As a result of these developments and what were seen as their lessons, the semi-consensus, with its emphasis on prices and markets, came to be viewed, not as mistaken, but as relevant only to issues that were secondary rather than central. Demand management, often associated with incomes policies, was at the centre of the stage (with economists themselves having good claims to a share in the managerial role); and in this task, for which the responsibility necessarily lay with governments, the ideas of the semi-consensus had at most a minor place. Second, while there was concern over the growth of public expenditure and state regulation, high and rising rates of taxation, the increasing power of trade unions and other special interests, and the risk that these trends might endanger prosperity and economic freedom, such doubts and worries were to a large extent allayed by the amazingly good sustained performance of the OECD economies over the years from the Second World War to the early 1970s. Hence the thoroughgoing liberalism of writers such as Friedman and Hayek, and the arguments for a consistent market-oriented approach to economic policy that were developed through institutions like the Institute of Economic Affairs in Britain, appeared as interesting but rather extreme, well out of the main current of professional thinking. As a profession, economists neither endorsed nor promoted the growth of interventionism in the OECD countries, but it was common if not typical for them to disregard or acquiesce in it.
In relation to developing countries also, in the initial post-war decades, the central issues of policy were seen, even by mainstream development economists (as distinct from Marxists, "structuralists" and others, who of course were anti-liberal and rejected the semi-consensus), as relating to macro-economic aggregates. Here again, the role of prices and markets was typically seen as secondary or even irrelevant, while the case for strategic direction by governments was widely accepted. (85)
The Liberal Revival in Modern Economics
All this has greatly changed over the past 20 years or more. As always, there remain serious differences of opinion among economists. But the professional centre of gravity has now moved closer to liberalism, and the semi-consensus, still fully recognisable in modern dress, has been restored to its earlier central status as a guide to policy. As part of this process, the ideas of Friedman and Hayek have gained much wider recognition and acceptance -- as also, in relation to the developing countries, have those of Peter (now Lord) Bauer: the main stream of thinking has changed direction, so that it now embraces them.
In this, professional thinking has become more "universalist", in the sense that the ideas of the semi-consensus are now more widely seen as applicable to different economies across the world. There has developed what John Williamson has referred to as
... a conviction that the process of policy reform involve[s] much the same things -- stabilisation where needed, liberalisation and opening up everywhere -- irrespective of whether it might in the past have been classified as an industrial country, whether it had been part of the socialist bloc, or whether it had been poor in the 1950s when the world was declared divided into three. (86)
The spread of this conviction helps to account for the development already noted, by which the differences between economic philosophies across the world have narrowed. (87)
Wider Liberal Gains
It is not only among economists that such changes have taken effect. More broadly, and going beyond academic debates, the balance of informed opinion has shifted -- and indeed, without this much wider movement economic reform would not have been possible. Naturally, what has counted most has been the change in what may be termed the extended professional milieu. This goes well beyond card-carrying economists (though it includes some of them), so as to cover all those who are directly involved in the continuing debate over economic policies -- most notably, though by no means only, politicians, civil servants (national and international) and central bankers. In particular, as time went on, the key central economic departments in the core OECD countries gave more attention to micro-economic issues and more consistent support to measures of "structural" reform. This tendency became general in the 1980s, so that by the middle of the decade pretty well every government had come into line: as can be seen in the wording of official statements and communiques, liberalisation became an accepted recipe for change.
At the same time, though in a way that was more gradual and remains less complete, the counterpart ministers and officials in developing countries, partly under the influence of the staff of the International Monetary Fund and the World Bank, came round to much the same way of thinking. As noted by a former senior IMF official:
... the paramount need for the combined application of macroeconomic stabilisation, structural adjustment, institutional reform (and, in the 1990s, good governance) became the accepted credo not only of the Bank and the Fund but also over time of the regional banks, the aid agencies of the industrial countries, and, most importantly, of an increasing number of developing countries. (88)
The End of Communism
The gains made by liberal ways of thought have by no means been confined to these inner circles of policy-making: advances have been made on a broader front. In a growing number of countries, the change in the intellectual climate became apparent, naturally with differences in timing and extent, from the early-to-mid 1970s onward. As from the late 1980s, however, a new element has entered in, bringing with it everywhere a powerful reinforcement to the liberal cause. All over the world, ideas about political and economic systems and their future evolution have been profoundly changed by the downfall of the Soviet model. By exposing the apparently inherent weaknesses and incapacity of state-directed economic systems, this has everywhere made liberalisation appear as more natural and more acceptable. Over a large and growing number of economies, in which it had long been taken for granted that economic systems would and should be subject to state direction to a large and probably increasing extent, a different set of working assumptions now enters into the consideration and choice of economic policies. This reflects changes in the attitudes of both governments and public opinion. The whole conception of long-run historical trends, of what the future is likely to hold, has been transformed.
All this suggests a brighter future for our hero than that sketched by the Friedmans and Clive Crook. Economic liberalism now has a stronger basis in the realm of ideas and opinion -- in the groves of academe, the corridors of power, and more generally -- than at any stage since the end of the 1920s. At the same time, past experience, including the events of the past two decades, suggests that extensive and lasting measures of liberalisation can be carried through despite the opposition of well-placed interests. However, this is not all: there are other aspects of the situation which from a liberal standpoint are less heartening.
LIBERALISM'S CHRONIC WEAKNESS
The main point here is a simple one. Both as doctrine and programme, liberalism is subject to a chronic weakness, in that its conscious adherents are, even now, so limited in numbers and so unrepresentative of even informed opinion across the world. There are few if any countries in which there is a well-supported political party or movement which openly and consistently makes classical liberalism, in the European sense of the term, its central body of doctrine, its raison d'être; (89) nor is there much reason to suppose that this situation will change, since it mirrors the state of public opinion generally. The fact is that economic liberalism as such has no solid basis of general support. In most if not all countries, majority opinion remains hostile to the idea of what is termed "leaving it to the market", and ready still to accept and endorse a much wider role for governments than economic liberals would wish to see. There is no sign that this situation, which historically has been the norm, is now about to change.
The reasons for this pervasive weakness have to be sought primarily in the world of ideas, perceptions and attitudes, rather than interests. It is often taken for granted today that the decisive battle of ideas has now been won for the liberal cause. Given the extent of recent reforms, the shift in opinion just noted -- among the economists, in the extended professional milieu, and more widely -- and the fact that few people believe any longer in the desirability or inevitability of state socialism, there are clearly grounds for such a view. All the same, it is mistaken: in relation to economic policies, the battle of ideas is far from over, nor is an end in sight.
The Power of Do-It-Yourself Economics
In part, this is because of the strong differences of opinion among economists. (90) But a further and underrated factor is the continuing prevalence, and influence, of intuitive economic ideas which owe little or nothing to textbooks or treatises, and which have taken shape independently of the professionals: they can justly be termed "pre-economic". This situation is not new, nor has it changed over these past two decades. All over the world, as each day's news bears witness, such notions and beliefs retain their power to affect the state of opinion and the design of policies. There is here a whole way of viewing economic events, relationships and objectives, which I have labelled "do-it-yourself economics" (DIYE). (91) Two features of it are worth emphasising.
First, what is in question here is not just "popular economic fallacies", the uninstructed beliefs of ordinary and unimportant people. These same ideas are held with equal conviction, and expressed in much the same language, by political leaders, top civil servants, chief executives of businesses, general secretaries of trade unions, well-known journalists and commentators, religious leaders, senior judges and eminent professors -- as also by economists themselves, in uninstructed or unguarded moments. That is why they should be taken seriously. This is not "pop economics", since it is embraced by leaders as well as led; it is not "voodoo economics", since those who practice it are not just cranks or unbalanced enthusiasts; and it is not "businessmen's economics", since its adherents are equally to be found in many other walks of life. (92)
Second, as compared with the economists' semi-consensus, DIYE is strongly interventionist. It holds for example that products, industries and activities can be characterised as "essential" and "non-essential", or ranked in order of priority, independently of willingness to pay at the margin; that national self-sufficiency in essentials is a key objective, which governments are responsible for achieving; that when transactions take place across national boundaries, the state is necessarily involved, so that international economic competition is predominantly between states; that exports represent a gain to each country, and imports a loss; that bilateral trade balances between countries are rightly matters of concern and official action; that tariffs, import restrictions and export subsidies serve to increase total employment; that administrative actions to reduce or constrain the size of the labour force -- such as compulsory reductions in working hours, enforced early retirement, or tighter restrictions on immigration -- are bound to ease the problem of unemployment; that actions undertaken for profit, or more broadly from self-interest, are open to question as such; that when markets appear not to function well, the remedy lies with direct regulation; that market processes are often, if not inherently, chaotic, disruptive and unjust; and that the responsibility for ensuring just and effective outcomes, over a vast range of particular cases, rests with governments. All this makes for an indefinitely large regulatory agenda.
These twin features of DIYE -- its high-level patronage, and its bias towards interventionism -- can be seen in a host of instances, past and present. Historically, a remarkable case, or set of cases, is that explored in Hayek's fine study of the "illegitimate extension to the phenomena of society of scientistic methods of thought", as in the collectivist teachings of Saint-Simon, Comte and their successors in both the 19th and 20th centuries. (93) A current specific example is to be found in a widely-accepted economic argument for closer European union. The main point here, a familiar one, is to be found in a speech made by Garret FitzGerald in mid-1984, when he was Prime Minister of the Republic of Ireland. He argued that there were two economic superpowers, the US and Japan, and that
attempts to compete on an equal basis in the economic sphere with these super-powers by independent, individual action, are quite simply bound to fail.
From this widely accepted premise the conclusion has been drawn, in Brussels and elsewhere, that Community-wide officially-sponsored action programmes hold the key to better economic performance in Europe and indeed to its continuing independent status. Here, for instance, is a former British Commissioner for regional policy, Bruce Millan, on policies for industry:
If Europe does not develop an industrial policy, it will be invaded by Japan, the Far East, and other parts of the world.
For research and development, a similar message came from Jacques Delors, during his time as President of the European Commission:
Europe will never be built if we all continue, in piecemeal fashion, to conduct the research which is the basis for our prosperity and our hope for the future.
On a later occasion, Delors reproached member governments for
... the European Council's refusal to give the Community the means, in the shape of concerted research and training projects, to encourage European companies to cooperate to become more competitive in a world dominated by economic war [sic]. (94)
All this makes sad reading, the more so in that both FitzGerald and Delors are economists (though both might be challenged on the credentialist grounds of today). Contrary to FitzGerald, and many others, it is not the case that competition in world markets is between states: unless governments go out of their way to engage in cross-border transactions, competition in international markets, just as within national boundaries, is between enterprises and the goods and services that these enterprises produce. Governments can influence the terms on which particular forms or products compete, for example through tariffs or subsidies or anti-dumping actions, but this does not turn them into direct front-line competitors. FitzGerald's assumption is a prime specimen of the aspect of DIYE which I have termed "unreflecting centralism". (95) It is likewise not the case -- except in a world quite unlike our own, of closely restricted international trade -- that enterprises will necessarily gain from being located in large rather than small states, as is clear from the instances of Switzerland and Hong Kong: the whole notion of an "economic superpower" makes little sense in an open international economy. Again, it is not the case that R & D activities in European countries, or elsewhere, are primarily carried out by states as such, nor that they would necessarily be more effective if they were "concerted" at national or at European Community level to follow what is sometimes alleged, or just assumed, to be successful American and Japanese practice. Finally, the notion that today's world is "dominated by economic war" is not only absurd but, coming from a man in Delors's then position, deeply irresponsible. Nonetheless, these views of the world, and of the European situation, have been and continue to be highly influential.
Here as in many other cases, the eminent persons who have come to hold such opinions are far from being merely the servants of interest groups. The connection is more the other way round: such groups have been formed to exploit the opportunities opened up by policy decisions based on economic ideas which have carried weight in themselves. No doubt some of their appeal to political leaders derives from the fact that they assign to such individuals a prominent and innovative role: there is an element of interest here. All the same, these ideas represent genuine convictions, and indeed they are widely held by people outside political life to whom this personal motive does not at all apply.
Thus pre-economic ideas may well influence outcomes and policies, even in their own right. Viewing recent history, even in the OECD countries, a striking aspect has been the adoption, often as it would seem almost heedlessly, of far-reaching interventionist principles, measures and programmes that were based on dubious and largely unexamined economic assumptions. Two areas of policy where this is especially noticeable are energy (for example, Project Independence and the later 1978 programme in the US, the Canadian National Energy Program of 1980, and early British notions as to depletion policies for North Sea oil and gas which were based on the naïve idea that the object should be to ensure the longest possible period of national self-sufficiency), and labour markets (for instance, the growth and spread of anti-discrimination laws, the introduction of statutory provisions for earlier retirement and limitations on hours of work, and the imposition of wage uniformity). Pressure groups have been involved in some of these developments, but by no means all; and in every case DIYE has played its part.
Economists typically ignore or underestimate this factor, for two related reasons. First, they find it hard to believe that "rational" agents -- intelligent, highly educated, well informed, experienced and influential people, including many if not most of those in high places -- are apt to view economic systems and issues in ways that are quite different from theirs. Hence they disregard the ample evidence that this is so. Second, as noted above, they prefer to model human behaviour in terms of well-defined and clearly articulated private interests, and therefore view the actions of politicians and officials too exclusively through the prism of public choice theory. The result, as I think, is that the profession now has a conception of history which is too circumscribed, too stylised, to place events in a true perspective.
An Informal but Powerful Alliance: DIYE and the Lobbies
In particular, this view of the system takes too little account of the combined influence of DIYE and the lobbies. Interest groups are successful not just through expert lobbying and persuasion directed towards rationally compliant politicians and bureaucrats, but also by appealing to a wider public opinion, made up of people who do not see themselves as standing to gain or lose from the way in which the issue is decided. It is when these groups can draw support from widely accepted ideas and beliefs -- including especially economic ideas, not necessarily those of the professionals, relating to fairness or national interest -- that their campaigns are most likely to achieve results. This is not sufficiently allowed for in the theory of public choice, which divides the population into (1) well-informed specific interests, and (2) voters who are "rationally ignorant", and hence uninformed and inactive, in relation to questions where their immediate material interests are not at stake. But of course, people are not necessarily indifferent about issues which do not directly involve them, and which they have neither time nor inclination to investigate in full. Typical voters have ideas and opinions as to what is fair, right, just, reasonable and acceptable, and on what actions are likely to promote social or national goals of which they approve. What they think matters. Political outcomes are not necessarily decided by the politicians, officials and lobbyists alone.
Hence it is in conjunction with interest groups, rather than independently of them, that the main impact of DIYE on economic policies is often made. In such cases, though exceptions can be found, both the interests and the ideas are typically opposed to liberalisation. Now as ever, the prospects for further reform are under threat from the combination, in informal alliance, of strongly held anti-liberal economic ideas and interests which see themselves as threatened by what is proposed. This helps to account for the general absence of solid public support for liberalisation, which in turn explains why the trend to economic liberalism has been, and will probably continue to be, uneasy and unassured.
Two further points are worth making on perceptions and ideas, and both of them add weight to the pessimistic prognosis. First, as Crook notes in his survey article (p. 56), there is now an impression "in many western nations" -- and, I would add, in other countries also -- that "the market reforms of [recent] years went too far, and that it is time to reaffirm the role of the state". Such a mood, even if it does not lead to a reversal of what has been done, may well constrain what is possible in this next stage.
New Forms of Anti-Liberalism
Second, I believe that anti-liberal ideas and causes have gained increasing support in recent years from three interrelated developments. The first is the rise and growing influence of environmentalism in forms which involve condemnation of or disregard for market processes and a bias towards collectivist ways of thinking and regulatory programmes. One aspect of this is opposition to greater freedom of international trade and capital flows. (96) The second is what the Friedmans, echoing Tocqueville, refer to as "an excessive drive to equality". This shows itself, in particular, in
- labour market legislation -- in the ever-widening scope of anti-discrimination laws and through various forms of affirmative action in relation to hiring and conditions of employment, and
- affirmative action programmes in such areas as housing, the availability of credit, and admission to universities. (97)
The anti-liberal ideas which bear on these issues have increasingly found institutional expression and support -- through single-interest pressure groups, in specialised areas of national administrations, and in UN agencies and international committees of experts. Part of this process has been an ever-extended interpretation of human rights in which the whole notion has become devalued and debased. (98)
A third related development is the growth and spread, largely within universities, of the subjects that can be grouped together under the heading of "cultural studies" and the ways of thinking that typically go with them. Economists have given little attention to this trend, probably because their own subject has so far largely escaped the ravages of "deconstruction", "post-modernism" and related tendencies, while these movements in turn have not developed a systematic economic orientation or philosophy of their own which has claims to be taken seriously. But despite a lack of knowledge of, or interest in, what economists and economic historians have to say, many of the authors concerned share an aversion from, or even hatred of, what they conceive to be the essential features of capitalism in general and present-day "global capitalism" in particular. As a recent survey of the field by two well-known academic authors expresses it:
... the post-modern turn is intimately bound up with globalism and the vicissitudes of transnational capitalism ... In a global market capitalism, commodity markets are opening with great fanfare in China and Russia as capitalism exports its markets, products, McCulture and status consciousness round the globe, bringing with the new goodies its seamy side in the form of crime (both organised and street thug), drugs, social decay, and pathological acquisitive individualism ... it appears that Marx's nightmare of a totally commodified society is becoming a reality. (99)
Both post-modernism in its different guises and the more recent forms of egalitarianism characteristically share a vision of the world in which past history and present-day market-based economic systems are viewed in terms of patterns of oppression and abuses of power. Free markets and capitalism are seen as embodying and furthering male dominance, class oppression, racial intolerance, imperialist coercion and colonialist exploitation. The appeal of this profoundly anti-liberal way of thinking seems to have been little affected by the collapse of communism.
All these are grounds for pessimism about the prospects for economic liberalism. Yet the phenomena described above are for the most part not new: as noted, the weakness is chronic rather than acute. Hence the issue of causation arises here as well. If economic liberalism had and has such limited support, what is it that made possible the reforms of recent years, and is it to be expected that influences of much the same kind will operate in the future?
ACCOUNTING FOR LIBERALISATION
What is in question here, and has to be explained, is a particular change in direction within economic policies, the shift (on balance) from interventionism towards more liberal systems. For this, it is necessary to go beyond the conventional framework of interests and economic ideas.
As to interests, pressure groups have generally speaking not played a significant role, since liberalisation either did not figure on their agenda or was seen as contrary to their interests. There are exceptions here, perhaps most notably in relation to the abolition of exchange controls and the freeing of financial markets. But in most areas of policy, either business or labour interests, or both, were opposed to liberalisation. At the same time, both labour interests and other pressure groups have argued for tighter regulation relating to occupational health and safety, workplace practices, and the environment, and for more comprehensive anti-discrimination laws. In this, they have usually been trying, in a number of areas and countries with some success, to make economic systems less liberal.
As to ideas, the main positive factor -- at any rate until the collapse of communism at the end of the 1980s, by which time reform was well under way in a wide range of countries -- was the gradual increase in support for the economists' semi-consensus. But this did not mean that the profession became united in support of economic reform: in every reforming country, in varying degrees, dissenting economists have been well represented among the numerous critics of liberalisation. Further, even a greater measure of professional agreement would by itself have done little to launch or sustain the reforming process in any country, given the continuing prevalence of anti-liberal pre-economic ideas, the widespread opposition of interest groups, and the chronic lack of general support for economic liberalism as such. In any case, the change in professional thinking has itself to be explained.
Hence a search for causes has to go wider. In particular, allowance has to be made for the influence of events. I believe that the trend towards liberalisation can be largely attributed to the combined impact of events and ideas on the prevailing climate of opinion. Of the several interacting causal relationships involved, this is the one that typically bears most weight.
The Importance of Attitudes
To speak of this relationship takes us beyond the realm of economic ideas. These ideas themselves affect the general climate of opinion both within and across countries; and indeed, one can speak of a climate of opinion -- a micro-climate, so to speak -- within the economics profession itself. But ideas and "climate" are not at all the same. In relation to the latter, what is in question is not formal systems of thought or well constructed arguments, but broad perceptions -- views of the world, working assumptions, attitudes. The distinction between the two, and the extent to which outcomes are affected by attitudes, have been well brought out by Henry Phelps Brown:
Attitudes do not consist of beliefs in the sense of conscious convictions or creeds: they are rather the "feeling or opinion", the presuppositions that guide our actions because they frame and focus our view of situations, and cast both ourselves and other people in roles that we take to be inherent. ... Because attitudes govern responses, they are among the basic determinants of the course of history. (100)
Attitudes can thus be viewed as the medium through which policies and lines of action are constantly reassessed and reshaped. It is here that we have to look for the more immediate explanation of the recent shift in the balance between liberalism and interventionism. In causing attitudes to change, it is the influence of events -- of new developments, and the constructions placed on them -- that has often been the main determining factor, particularly when those events were unforeseen and posed problems.
The Impact of Events
This is to be seen in actual recent episodes of reform. In many if not most of the reforming countries, the main single impulse to change has been reactive, rather than (or as well as) affirmative: reforms have resulted, not so much from an endorsement of liberal principles as such, but rather from perceptions of failure, malfunctioning or ineffectiveness within the system, perceptions which themselves arose from events and what were seen as the lessons to be drawn from them. Reforming measures have been precipitated, or made possible, by a loss of confidence -- within official circles, across a wider public opinion, or both -- in the policies of the past, and governments have taken the path of reform in response to what they saw as problem situations.
The problems in question have variously been acute, chronic, or a combination of the two. In the extreme case of the communist countries of Central and Eastern Europe and the former Soviet Union, the whole system was abruptly revealed as no longer viable: it was evident that a new start had to be made. In a number of other instances, the possibility for reform was likewise opened up by crises, usually external, to which a response had to be made by the government concerned, and which prompted questions about the underlying character of the policy régime and the role of the state. In different ways and in varying degrees, this applies within the core OECD countries to Turkey in 1979 and 1980, France in 1982-83, Australia at the end of 1983 and in mid-1986, New Zealand (a conspicuous case) in mid-1984, and Sweden in the early 1980s and again a decade or so later. Elsewhere much the same phenomenon can be seen in Chile after the overthrow of the Allende régime, Mexico following the debt crisis of 1982, Ghana in the early 1980s, Argentina in the late 1980s, India in 1991, and a number of East Asian countries, including most notably Indonesia and South Korea, following the successive financial crises of 1998.
A second source of pressure, sometimes linked to foreign exchange crises but often constituting a problem in its own right, has been the need to control fiscal deficits and the growth of public debt: there are numerous examples here, both in the core OECD area and more generally, where governments have found themselves forced into some combination of retrenchment and tax increases.
At the other end of the spectrum, where the element of crisis was less involved, the ground was prepared for reforming governments by chronic and growing concerns over what was seen as poor economic performance. This seems to fit the case of China. In the UK, two factors were, first, the "inflationary explosion" of 1975, which "led to a destruction of confidence in the general character of the economic strategies hitherto followed by successive governments", (101) and second, an increasing resentment of the behaviour, and hence of what appeared as the excessive power, of trade unions. Chronic concerns were also dominant in the US, and they go far to explain the decision by the governments of the European Community to launch and carry through the Single Market programme from the mid-1980s onwards. In several cases, such as Chile, Turkey, Mexico, New Zealand and Argentina, both the chronic and acute elements were present and mutually reinforcing. The crises gave rise to radical reform programmes (in the Turkish instance, only partly realised in the event), the case for which had already been argued independently of them.
Now there is no law which asserts that foreign exchange or fiscal crises, or general dissatisfaction with economic performance, or even both together, will necessarily lead to liberalisation. Historically, they have sometimes had the opposite result, with governments resorting more to regulation and control: this was, at least so far as initial reactions went, a common pattern during the period just after 1973. With a few exceptions, such as Chile in 1981, New Zealand in 1982, and Malaysia in 1998, this has not happened in these past 20 years (and in both the first two cases, the interventionist measures then taken were seen as, and proved to be, no more than temporary). In responding to pressures and challenges, governments in these past two decades have typically moved in the opposite direction. (102) Here a number of mutually reinforcing factors have been at work.
Why Events Brought Liberalisation
In some areas, technical changes have either made regulations harder to enforce (financial markets being the main example) or made possible an extension of the sphere of markets and competition (as in telecommunications and electric power). Again, considerations of national competitiveness have been a factor in some cases: in financial markets especially, some governments, often with the support of the interest groups involved, have deregulated in order to keep their own national financial centres competitive with others, and a similar concern has operated against restrictions on direct foreign investment, both inward and outward. In cross-border liberalisation generally, governments have found it easier to go forward because others were doing so, within regional or multilateral agreements. In privatisation especially, there has been an international learning process which has spread to a growing number of countries.
Perhaps the most important single aspect has been the movement of ideas and attitudes both within the economics profession and more broadly -- the growing belief that economic performance had suffered as a result of the increase in regulation, the malfunctioning of public enterprises, the rise in public expenditures and taxation rates, the failure to curb inflation or to bring down fiscal deficits, and the growth of trade union power. Here again, however, events had a leading if not dominant part in changing the thinking of economists as well as others. It was not logic and debating skills, but actual and disconcerting developments within economic systems, which undermined the accepted Keynesian framework of thinking in the core OECD countries, put increasingly in question the dirigiste approach to developing economies, and destroyed the credibility of communism, and which in doing so raised the status of the liberal semi-consensus. In economics, as with other disciplines whose subject-matter is drawn from past and current historical events, the famous aphorism of Hegel still applies: the owl of Minerva takes her flight only with the gathering of the dusk. (103)
Under these various interrelated influences, attitudes were reshaped. Both newly elected governments, which had typically come into office as a result of dissatisfaction with their predecessors, and established governments that found themselves forced to deal with awkward situations or crises, found it natural, and sometimes unavoidable, to turn to liberal measures -- and often, in consequence, to liberal advisers. In some cases, as in Britain in 1979, this had in any case been an announced intention before coming into office. In a number of other countries the element of improvisation was greater; and in a few, such as France in 1982-84, earlier policies and working assumptions were jettisoned.
Two features of the process further help to explain why reforms went ahead despite the lack of support for economic liberalism as such.
First, as in many past episodes, it was not only the professed liberals who backed specific reforms. Among leading politicians, a good instance is Jacques Delors. He was a prominent reformer over a decade or more, in his successive roles as Minister of Finance in France, where he was mainly responsible for carrying through the redirection of policies just referred to, and as President of the European Commission where he was a leading architect of the Single Market; yet he has always been a staunch critic of liberal ideas in general. His support was given to particular forms of liberalisation, but in the service of wider objectives which he did not formulate in liberal terms. In other and perhaps more typical cases, politicians and civil servants who held no strong position, and in any case were mostly not economists, were affected along with others by events and trends of thinking: attitudes changed, and old assumptions about how things worked, and what was practical politics, were discarded. In the business community, support for cross-border liberalisation came from people who had no strong attachment to free trade or liberal ideas, but had come to think in terms of a future which would almost inevitably bring greater internationalisation and growing overseas opportunities: both interests and attitudes were involved in this. Here and elsewhere, reforms gained widespread support from influential fellow-travellers, as well as from the minority of committed liberals which itself had grown in numbers and gained some useful ground.
Second, governments were not simply the prisoners of events, nor were they purely reactive. In relation to the freeing of trade and investment flows, as noted above, they were not just carried along by a wave of "globalisation" which they were unable to control or resist: they took far-reaching measures of their own. Again, in many countries, liberals in office, especially in newly-elected governments, were able to grasp and exploit the initiative which events had placed in their hands. As a result, liberalisation was taken well beyond what the mere response to immediate problems or crises would have suggested, sometimes in ways that had not been the subject of prior consensus: governments, or individual ministers within them, took the opportunity to launch or take forward measures and programmes which they favoured in any case. In this, while they naturally had regard to public opinion in considering when and how to liberalise, they also anticipated and tried to mould it. A good example is the privatisation programme in Britain. Here Nigel Lawson has made the point that
In advance of every significant privatisation, public opinion was invariably hostile to the idea, and there was no way it could be won round except by the Government going ahead and doing it. (104)
In such initiatives, as in the reform process as a whole, outcomes in a good many countries have been strongly influenced by the personal commitment of political leaders.
Generalising, it can be said that over this period events helped to form new attitudes, and favoured the cause of reform, in three main interrelated ways. First, they forced governments to react to situations and problems, usually though not always external, which had got out of hand. Second, they provided new and unchallengeable evidence, most notably in the collapse of communism but also through other developments, that highly regulated economic systems function badly. Third, in many non-communist countries, and in China also, they provoked reflection and debate on the reasons for unsatisfactory or worsening economic performance; and in many of these countries, both among economists and in the extended professional milieu, the result was to breathe new life into the liberal semi-consensus.
Summing Up: Implications for the Future
From a liberal viewpoint, this interpretation of events has both positive and negative implications. On the positive side, the power of anti-reformist interest groups, private and public, appears as more limited than it is often said to be, while liberal ideas have both profited from the collapse of communism and made some useful gains in their own right. But despite its now more assured status in the world, economic liberalism still suffers from a lack of broad support, while anti-liberal beliefs of various kinds, some of them new, are widely held and influential. Hence the future of economic reform may well continue to depend in large part on the stimulus arising from events and the responses evoked by them; and there is no guarantee that recent history will be repeated, with events serving both to reinforce the professional semi-consensus and to push governments along a path of reform or give them, in some cases, a welcome opportunity to follow it. I turn now to look at some future possibilities more directly.
ENDNOTES
70. This view is to be found, for example, in Charles Grant's biography of Jacques Delors: "the old "fault line" between left and right -- i.e., more versus less planning for the economy -- has now narrowed; by the 1990s the left had accepted much of the right's free-market philosophy." (Charles Grant, Delors: The House that Jacques Built, London: Nicholas Brealey, 1994, p. 1.) In fact, "the right" had no such distinguishing philosophy in any country.
71. In both cases, the right-wing governments concerned -- of Malcom Fraser (1975-83) in Australia, and Robert Muldoon (1975-84) in New Zealand -- brought in reforms, but in Australia the balance between liberalism and interventionism remained much the same over the period while the New Zealand economy became far more regulated.
72. Margaret Thatcher, The Downing Street Years, London: HarperCollins, 1993, p. 7.
73. M. Edmond Balladur, quoted in the Financial Times of 31 December 1993.
74. As is shown in the enlightening essay by W.H. Hutt, entitled The Economics of the Colour Bar, published in 1964 by the Institute of Economic Affairs.
75. Hayek's The Road to Serfdom, first published in 1944, was perceptively dedicated to "The Socialists of All Parties".
76. J.M. Keynes, The General Theory of Employment, Interest and Money, London: Macmillan, 1936, p. 386. Actually, Keynes in this famous passage refers initially to the ideas of "economists and political philosophers", but economists have understandably preferred to focus on themselves.
77. Milton Friedman, "Has Liberalism Failed?", a contribution to the collection of essays in honour of Arthur Seldon which was published by the IEA in 1986 under the title of The Unfinished Agenda, pp. 139 and 138.
78. Clive Crook, "The Future of the State", op. cit., pp. 25 and 55.
79. Robert Skidelsky, The World after Communism, op. cit., p. 71. A recent instance where "Keynesianism" is wrongly placed among "forms of collectivism" is to be found in the over-acclaimed book by Richard Cockett, Thinking the Unthinkable: Think-Tanks and the Economic Counter-Revolution, 1931-1983, London: HarperCollins, 1994, p. 2. Later in the book (p. 71) Cockett makes the unfounded assertion that Keynes "was consulted by governments and politicians of all political colours -- because he was telling them things that they wanted to hear".
80. For the UK, the main insiders' accounts are: Robert Hall, The Robert Hall Diaries, edited by Alec Cairncross, London: Unwin Hyman, Vol. I, 1989, Vol. II, 1991; Donald MacDougall, Don and Mandarin: Memoirs of an Economist, London: John Murray, 1990; and Alec Cairncross, The Wilson Years: A Treasury Diary, 1964-69, London: The Historian's Press, 1997.
81. Crook, "The Future of the State", op. cit., p. 22.
82. First published in The Economic Consequences of the Peace, London: Macmillan, 1920.
83. A.C. Pigou, The Economics of Welfare, London: Macmillan, first edition published in 1920. The above quotation is from pp. 331-32 of a later edition.
84. For example, in Arthur Lewis's Theory of Economic Growth, London: Allen and Unwin, 1955, possibly the most widely read and respected treatise of its time on this topic, the statement is made (p. 83) that "Most governments are, and always have been, corrupt and inefficient". The text offers several later variations on this theme.
85. Cf. Part I of I.M.D. Little, Economic Development, op. cit., and Deepak Lal's The Poverty of "Development Economics", London: Institute of Economic Affairs, second edition, 1997.
86. John Williamson (ed.), The Political Economy of Policy Reform, Washington, DC: Institute of International Economics, 1994, p. 4.
87. Of course, it can be argued that this professional convergence has its dangers. Two recent review articles in the Journal of Economic Literature have criticised what their respective authors see as the disposition on the part of current mainstream pro-reform economists to offer over-generalised standard diagnoses and prescriptions. Peter Murrell ("The Transition According to Cambridge, Mass.", Vol. XXXIII, No. 1, March 1995), in the context of economic reform in the former communist countries, has written of "an emphasis on top-down reforms designed by economists, using similar policies across countries, since market systems are [taken to be] much the same everywhere" (p. 173), and of an attitude of mind which assumes "the irrelevance of history for designing a strategy of reform" (p. 175). Similarly, William Barber, writing about the Chicago-trained reformers in Chile under Pinochet and after ("Chile con Chicago", Vol. XXXIII, No. 4, December 1995), has argued against an approach which he sees as characterised by "a hardcore neoclassicism" and as disregarding "The particularities of diverse cultural, institutional and historical environments" (p. 1,948). Both authors make good points, though in my view Barber undervalues by omission the reasons for thinking that liberal ideas are of general application.
88. Jacques J. Polak, The World Bank and the IMF: A Changing Relationship, Washington, DC: Brookings Institution, 1994, p. 8.
89. Until quite recently, the Czech Republic appeared as an exception, but since the split in the party that Vaclav Klaus had led, which went with its recent fall from power, this is no longer the case. Perhaps the closest approximation in the world to a party of economic liberalism is the ACT Party in New Zealand, which was formed only in 1994. It was happy to secure just over 5 per cent of the popular vote at the general election of 1996.
90. It is in my opinion going too far to suggest, as John Williamson has done, that the case for reform reflects "the common core of wisdom embraced by all serious economists" (The Political Economy of Policy Reform, op. cit., p. 18).
91. David Henderson, Innocence and Design: The Influence of Economic Ideas on Policy, Oxford: Blackwell, 1986. I have also drawn here on an article of mine, "The Revival of Economic Liberalism: Australia in an International Perspective", published in The Australian Economic Review, 1st Quarter 1995.
92. Here I have a friendly disagreement with Sir Samuel Brittan, who argues against the term "do-it-yourself economics" on the grounds, which I agree with, that almost any foolish notion may win support from sophisticated economists. However, the label "businessmen's economics", which he prefers, is misleading.
93. F.A. Hayek, The Counter-Revolution of Science: Studies on the Abuse of Reason, Glencoe, IL: The Free Press, 1952, p. 107.
94. FitzGerald was speaking at a conference in Brussels. The quotation from Millan is from remarks he made to a Committee of the European Parliament in the summer of 1993. The statements by Delors are from two of his annual addresses to the European Parliament: the first dates from 1985, the second from 1993.
95. Alas, it is not only those economists that have moved into politics who may lapse into unreflecting centralism of this kind. In a recent issue of the OECD's Economic Outlook (No. 62, dated December 1997) the statement is made (p. 40) that "a steadily increasing number of countries now have the capacity to become active players [sic] in the world economy". Cross-border transactions do not make up a game, or a drama, in which states are the participants.
96. As for example in Tim Lang and Colin Hines, The New Protectionism: Protecting the Future against Free Trade, New York: New Press, 1993.
97. An outstanding source here is the work of Thomas Sowell: two of many pertinent references are his book, Preferential Policies: An International Perspective (New York: William Morrow, 1990) and his Trotter Lecture, The Quest for Cosmic Justice (Wellington, New Zealand Business Roundtable, 1996). Going outside economics, I would mention particularly Aaron Wildavsky's The Rise of Radical Egalitarianism (Washington, DC: American University Press, 1991).
98. Hayek has commented on this latter aspect in Volume Two of Law, Legislation and Liberty, pp. 101-06.
99. Steven Best and Douglas Kellner, The Postmodern Turn, New York and London: Guilford Press, 1997, pp. 110 and 157. This book describes itself on the back cover as "a groundbreaking analysis of the emergence of the postmodern paradigm". Despite the confident assertions that are made in it about economic systems and events, the list of references, which extends to perhaps 500 books and articles, includes only a small unrepresentative handful of items which relate to economics or economic history. On the other side of the polemical divide, a well-argued critique of the impact of "cultural studies" on historical writing is to be found in Keith Windschuttle's disturbing book, The Killing of History, Sydney: Macleay, 1995.
100. E.H. Phelps Brown, The Origins of Trade Union Power, Oxford: Clarendon Press, 1983, pp. 299-300.
101. Lord Croham, "The IEA as seen from the Civil Service", in Arthur Seldon (ed.), The Emerging Consensus, London: Institute of Economic Affairs, 1981. Croham, a former top civil servant, notes that, while the first outcome of the loss of confidence was a rethinking of macro-economic policies, this was soon extended to a "willingness to examine alternative ideas on all fronts".
102. This puts in question the view expressed by Robert Higgs in his account of the growth of government in the US, that "under modern ideological conditions almost any kind of crisis promotes expanded governmental activity ..." (Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government, New York: Oxford University Press, 1987, p. 250.)
103. It should be added, however, that an early owl had already taken off in Chicago: the main deciding events in the OECD countries, and in particular the emergence of high rates of inflation and of unemployment as simultaneous and persistent features of these economies, had been foreseen and accounted for by Milton Friedman.
104. Nigel Lawson, The View from No. 11, London: Bantam Press, 1992, p.201.
