Venezuela's Road to Serfdom

Xavier points to a useful article for understanding the current situation in Venezuela.

Does Venezuela offer the best exemplar of the mechanism Hayek proposed in the Road to Serfdom?

Competitive authoritarian regimes in which the ruling party becomes less competitive risk becoming more rather than less authoritarian. The reason is that they amass an arsenal of institutional capacity and, in the case of Chávez until 2008, enough resources to enact policies and laws that restrict the opposition. What these regimes do not readily realize is that they will soon find themselves in a trap. The government seeks to compensate for its declining hegemony over the electorate by expanding and tightening its hegemony over institutions, but this move in turn contributes to the incumbents’ decline in competitiveness. The assault on checks and balances not only alienates moderates, but also causes policy failings that fuel anti-incumbent sentiment. The 2008 and 2010 elections suggest that this negative electoral effect is stronger in regions with greater access to information and autonomous organizations—namely, densely populated and economically diversified zones. Nevertheless, precisely because incumbents control institutions, and in the case of Chávez, growing sectors of the economy, these regimes are still able to generate policies that feed clientelistic networks and thus garner enough support from some elites and counter-elites to keep the ruling party afloat.
It is hard to be too optimistic about a possible escape from this vicious, self-reinforcing trap. In 2009, Chávez acquired yet another institutional asset—the right to indefinite reelection—that seriously undermines the prospect of any alternative authorities arising from within the chavista camp. Moreover, shortly after the 2010 legislative elections, the country’s most senior military commander, General Henry Rangel Silva, declared that the armed forces would never “accept” an opposition government. When the Mesa and the secretary-general of the OAS protested what Rangel had said, Chávez responded by promoting him to a higher rank.
Just as gravely, taking advantage of his expiring megamajority in the lame-duck National Assembly, Chávez obtained passage of a December 2010 “enabling law” allowing him to rule by decree for eighteen months. His first use of his decree powers was typical in its employment of a bit of social policy to sugarcoat a large dose of autocracy: He created a social fund (to help victims of flooding) along with ten new military districts throughout the country that he will have power to rule as supreme commander of the armed forces.

Hayek's mechanism starts with a liberal regime that moves totalitarian as either the initially benevolent leaders become totalitarian because they place plan over liberty, or because they're replaced by those who have the will to get the job done. Venezuela doesn't fit exactly, but it's not bad. An inefficient and corrupt leftist planning but democratic regime, propped up by oil exports, tries to retreat from planning when oil prices collapse; Chavez gets elected by folks looking for a strongman who can make the plan work. As planning leads to worse outcomes, Chavez doubles down.

So far, Hayek supporters haven't been able to point to a single real world example that's a close analogue to the Road to Serfdom mechanism. Venezuela's looking more and more likely as a candidate.

Caldwell vs Farrant: Round Two

What does "planning" really mean? The latest issue of Challenge has Caldwell again battling with Andrew Farrant and Ed McPhail over whether Hayek intended his argument in Road to Serfdom to apply only to planning in the Soviet/Nazi sense [Caldwell] or to planning as practiced by the Attlee government in Britain [Farrant/McPhail].

Let's recall first the context of the debate. Farrant initially argued that the Road to Serfdom was wrong and insulting: for the mechanism to work, would-be planners in England would have had to have preferred totalitarianism to liberalism. Otherwise, they would have retreated from planning before the Rise of the Demagogue. Further, since none of the European welfare states that started on the road to planning wound up at Serfdom, Hayek was wrong.

When Glen Beck started selling Hayek as a tome for our times against Obama, Farrant & McPhail wrote a piece arguing that Beck's interpretation of Hayek was correct but that Hayek was wrong.

Bruce Caldwell, probably the world's leading Hayek scholar, has replied. He notes the differences between Hayek's critique of the welfare state and his critique of planning and says Farrant & McPhail conflate the two. Hayek said that welfareism would kill liberty through many small cuts intended to patch up the flaws of the welfare system; planning would lead more quickly to jackboots.

Farrant & McPhail argue that Hayek intended his critique to apply to planning in Britain at the time of writing, and that "planning" in Britian at the time referred to the mix of interventionism, planning and welfarism.

Farrant points to a somewhat obscure 1945 Hayek article, "Genius for Compromise", written in response to a Harold Nicholson piece arguing that one can stop on the road to serfdom. Hayek's response there makes very clear that Hayek had in mind the partial planning undertaken under Attlee:

Signs are not wanting that some of those who are largely responsible for the present craze for planning are beginning to be uneasy about the forces they have loosened, and to feel a little like the sorcerer's apprentice who cannot lay the ghosts he has raised. Once prices or incomes are guaranteed to some producers, there is little ground left for refusing the same to any others. If the supply of pig iron or coal cannot be left to the unregulated forces of competition there is no reason why that of tobacco should. If you argue for a particular purpose that "individuals have no machinery for limiting imports to the level of exports" you must not be surprised if your disciples insist that the government should individually match each item of imports with a corresponding item of exports. And if you generally denounce the "humbug of finance" you must not expect the people to respect the particular piece of financial machinery of your own design.
...
Our planners are likely to be equally mistaken when they think they can stop the movement long before any of the horrors are reached which most of the more sensible among them admit that a completely planned society would involve. It takes a long time before such a tendency can be stopped, once the intellectual forces driving it on have got well under way. What I am pleading for is that it is time to stop and reflect if the momentum of the movement is not to produce very unpleasant results.

All three of Farrant, McPhail, and Caldwell know far more about the Hayek literature than I do. My assessment is that Hayek meant Road to Serfdom to apply to Britain in 1945. The planning he then referred to was mostly industrial policy and nationalization. If Beck and Limbaugh hold up American nationalization of car companies as setting us on the road to serfdom, they're not out of line with what Hayek was saying. And while Hayek's mechanism for the welfare state differs a bit from that in RTS, I don't think it would be wrong to say that Hayek's mechanism there leads us to the kind of planning that's consistent with the RTS mechanism: maybe it's the driveway that leads to the Road.

Do hit the Hayek tag below for the previous posts in this series. While I think the mechanism in RTS is wrong, I'm a fan of Hayek overall. The Use of Knowledge in Society is probably the most important piece of economic writing in the 20th Century. What should we take from Hayek today, as far as welfare and planning are concerned?

First, you can't do full scale planning without totalitarianism. Yeah yeah, you tell me - we all know that. Really? How many on the left cheered the rise of Chavez, thinking it would all work out just swell?

Second, a broad welfare state and social insurance system beget regulations that work to the detriment of liberty. Private actions that otherwise might well be thought left private become regulated, taxed or prohibited because of the socialization of downside costs. I have a hard time believing that regulation of demerit goods like smoking, drinking and "bad" eating would be anywhere near as popular absent the fiscal externality argument. This doesn't lead us to serfdom but to nannydom.

I don't much disagree with Caldwell's assessment of what we should today take from Hayek even if, following Farrant and McPhail, that isn't quite what Hayek had in mind when he was writing.

Cage Match: Caldwell versus Farrant [updated]

Update: text below updated in a couple of spots for accuracy and clarity.

Bruce Caldwell replies to Farrant and McPhail on Hayek's Road to Serfdom; I'm told the reply is coming out in a later issue of Challenge.

For Farrant and McPhail, the resurgent popularity of RTS hinged on a reading of Hayek that, while unpopular among RTS fans, was in fact the right reading of Hayek: any moves towards socialism would lead to serfdom. Consequently, Glenn Beck's using of Road to Serfdom as a rallying call against Obama's policies does no disservice to Hayek. Hayek, however, does disservice to those British socialists who rated liberalism above totalitarianism and who would have stepped back from planning rather than allow the rule of the demagogue.

Caldwell argues that Farrant and McPhail miss essential context. The argument in RTS was addressed only to "hot" socialism: full nationalisation of industries and central command planning. When restricted to that set, Hayek was right: full planning cannot be undertaken without totalitarianism. Caldwell notes that no socialist state achieved totalitarianism through Hayek's mechanism: democratic election leading to failings of planning leading to the rise of the demagogue; he argues that consequently no test of Hayek's mechanism has been undertaken. While the argument in RTS was restricted to "hot socialism", Hayek's later writings provided other warnings of the dangers of the welfare state. The mechanisms and arguments in those later writings were different and oughtn't be conflated with the dangers noted in RTS.

Farrant and McPhail respond to Caldwell [Note: they're there responding to earlier Caldwell arguments, not this particular piece], and others, in the latest issue of Challenge, unfortunately gated. I'll leave to one side F&M's noting that the current talking heads promoting Hayek's argument on Beck's show happily identify Obama's policies as the starting point on the road to serfdom; the more interesting question is whether Hayek meant the argument there to apply.

Intriguingly, Bruce Caldwell — commenting on the Beck-inspired surge in Hayek’s sales—notes that Hayek wrote his “full-fledged attack on socialism and totalitarianism” largely in “response to the British Labour Party platform of the time” (Caldwell, as quoted in Zaitchik 2010, 3). Caldwell’s reference to the policy program of the British Labour Party is particularly noteworthy. Hayek often invoked postwar British experience to illustrate the supposed veracity of The Road to Serfdom. As Hayek explained in 1948, British experience supposedly clearly demonstrates that “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which sooner or later totalitarian forces get the upper hand” (Hayek 1948, as quoted in Farrant and McPhail 2010b). Unsurprisingly, the tenor of Hayek’s remarks is markedly congruent with the logic he laid out in chapter 5 of The Road to Serfdom: Planning and intervention (it is highly revealing that Hayek invokes the interventionist and welfare state policies adopted by Labour as full-blown “socialist planning”) generate pervasive economic inefficiencies and dislocations.8 This pervasive inefficiency supposedly leads to the wholesale replacement of democracy.

They then cite the foreword to the 1976 edition of RTS:

In the preface, Hayek notes that if any reader asked whether he would still “defend all the main conclusions of ... [the] book ... the answer ... is on the whole affirmative” (xxiii). Importantly, Hayek notes that “terminology has changed” between 1944 and 1976, and

for this reason what I say in the book may be misunderstood.... At the time I wrote, socialism meant ... nationalization ... [and] central economic planning.... [Hence] Sweden ... is today very much less socialistically organized than ... Britain or Austria, though Sweden is commonly regarded as much more socialistic. This is due to the fact that socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In [this] ... latter kind of socialism the [totalitarian] effects I discuss in this book [Road to Serfdom] are brought about more slowly, indirectly, and imperfectly ... the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book. (Hayek 1976/1994, xxiii–xxiv, emphasis added)

Hayek intended the argument to apply to the British Labour Party. British socialists would then had to have preferred totalitarianism to liberalism for the RTS mechanism to run its course; otherwise, they'd have retreated from planning before going too far down that path. It's of course possible that their retreat came only because Hayek showed them the inevitable outcome of pushing through with planning. But that we can't point to an example of a democratic country turning totalitarian using the RTS mechanism suggests that the RTS mechanism isn't a particularly important one in explaining any real world totalitarianism; totalitarianism tends to come in with planning rather than as later consequence of it.

So, I'll disagree with Caldwell that Hayek's mechanism hasn't been tested. Caldwell writes:

Next, there are no examples of democratically elected governments that tried to put such a system into place.10 So we cannot directly test to see if he was right or wrong. We do, however, have examples of such systems that were not democratically elected. And Hayek’s description of life under such regimes is spot on.

Planning cannot be done without totalitarianism. But the RTS argument isn't just that; it's that steps toward planning push us to totalitarianism. And that many western European democracies turned back from planning rather than continuing on the road to serfdom suggests Hayek's mechanism was wrong, even if he was right that planning cannot be done without totalitarianism.

But I will have to re-read Constitution of Liberty and Law, Legislation and Liberty to contrast the mechanisms there with those in Road to Serfdom.

Note also that John Quiggin reviews Farrant and McPhail's argument at Crooked Timber:

Until the right went completely crazy, the most common claim in support of Hayek was that his predictions had somehow been vindicated by Thatcher’s reaction against the welfare state. Leaving aside the fact that Thatcher’s remodelling of the British economy in the image of the City of London looks a lot less appealing today than it did only a few years ago, this totally misses the point of Hayek’s book. If he had wanted to argue that social democratic policies would reduce the rate of economic growth, and to throw in a bit of hyperbole, he could have called it “The Road to Destitution” or something similar. Hayek wanted to make the much stronger claim that the attempt to implement Labor’s policies would necessarily lead to a loss of personal and political freedom.

Inevitable serfdom

Andrew Sullivan picks up on Farrant and McPhail's argument, via Barkley Rosser. Boettke also weighs in.

Rosser:

Anyway, they [Farrant & McPhail] say that Samuelson was right all along, and that one can find passages in RTS where Hayek certainly looks like he is making the strong version of the slippery slope argument that he later realized was an embarrassment, even if it is probably the source of the renewed sales. Thus, Farrant and McPhail would say that Limbaugh and Beck are more on the money here than Caldwell, even if they are ignoring Hayek's call for social insurance (a clear sign that he did not view any and all such moves as going onto the slippery slope).
...
(in comments} The fact is that Hayek says one thing in one place, but then says things in other places that appear to contradict what he said in that first place. This is part of why Samuelson and others have had trouble taking Hayek seriously when he got all in a dither over such people suggesting he was making the slippery slope argument. In some places he denies doing so, but in other places he sure as heck looks like he is making it. Needless to say, Hayek is hardly the first or only prominent economist to find himself contradicting himself, especially over long periods of time, and Hayek's views on some of these mattters did change over the course of his long life.

Sullivan:

Whatever Hayek meant, it's best to read "The Road to Serfdom" as a rhetorical exercise that can ground your thinking about the motivation behind socialist policies. It's worst to think of it as a playbook for how this stuff plays out -- i.e., passing social insurance leads inexorably to tyranny. And it's easy to whine about Glenn Beck pounding home the wrong lesson by having his viewers buy the book. But let's remember who these viewers are. They already think that modest social insurance of the type a European Christian Democrat party might introduce is going to bring about serfdom. Sending these viewers to a non-crazy (that is, non-Skousen) text is one of the best public services Beck has performed.

Boettke (from comments, where his best stuff often winds up):

Barkley's position that Hayek's warning of the slippery slope has been proven bunk runs into a problem -- what Ulrich Witt referred to as the "endogenous public choice theorist.". In other words, the warning itself altered the path.

Hayek does distinguish between hot socialism which is more or less Soviet and Nazi, and cold socialism which is milder forms of social democracy. But I believe the commentators are missing Hayek's limits on democratic agreement argument. When cold socialist policies are pushed beyond general rules, the ability to get democratic consensus collapses. Then we are faced by a Hayekian form of Arrow's theorem; I first made this argument in my EEJ paper (1995) and then again in more detail in a paper with Pete Leeson on Hayek, Arrow, and Democratic Decision-Making.

So Hayek's analysis is applicable to both hot and cold socialism and cold socialism has exhibited many of the problems predicted. As Lavoie argued in National Economic Planning (1985), one of the real issues is militarization of the economy. This result is not only a result of bad intentions, but the logic of the situation -- check out the Wash Post series on the secret military world in the US since 9/11.

Commitment to the generality norm plus the endogenous process of heeding the warning, results in cold socialism not becoming hot socialism.

The whole comments thread over at Boettke's post is excellent, with Koppl, Rosser, Ebeling and others arguing the case.

Boettke wonders if my post has an inconsistency in conflating inevitability with very high probability. What I'd been, perhaps hamfistedly, trying to say was that Beck and the like are making an inevitability argument, that a very reasonable interpretation of RTS is that there's a very high probability that we can't avoid serfdom if we start down the road, and that that high probability is closer to Beck's reading of Hayek than to readings that take Hayek as offering only a cautionary tale. I follow Farrant in finding the inevitability / very high probability reading the more natural reading of RTS, though Hayek, as Rosser points out, does contradict himself more than a few times.

I'm also a bit curious about the endogenous public choice claim. I can buy that RTS acted as a cautionary tale, and may have affected folks decisions to pull back from planning in the mid 20th century. But isn't that kinda like the claims that, but for all the Y2K fearmongering, the world really would have ended with planes falling from the sky and electricity shutting down on 1 January 2000? As I'd noted last go-round:

I really like Hayek's "The Use of Knowledge in Society". The Road to Serfdom provides a nice explanation of why central planning is incompatible with personal liberty. But reading beyond that, following what Hayek seems to have intended, in reckoning that every divergence from market liberalism runs great risk of totalitarianism, is simply wrong. It's the right reading of Hayek, but the wrong reading of the world.

Arguing that RTS was critical in stopping the Road to Serfdom I think requires that planners, when push came to shove, would have preferred totalitarianism to liberalism, but only would have held that preference after getting past some critical stopping point.

If planners preferred liberalism to totalitarianism all along, the RTS mechanism fails and we'd just see the retreat from planning experienced in the mid twentieth century regardless of the publication of RTS. This is consistent with both the outrage of western social democrats at the argument made in RTS, and with the path in the real world.

If planners always preferred totalitarianism to liberalism, then RTS could never have made a difference.

It's only in the case that planner preferences between totalitarianism and liberalism shift as we move along the path to socialism that the publication of RTS could have prevented further moves. And the only plausible mechanism for this is Hayek's "Why the worst get on top": otherwise, you're having to specify that the planners' individual preferences shift. But that mechanism is inconsistent with the real world experience of socialism in the twentieth century. In places that went for full-blown socialism, the worst started on top. In places that retreated, the worst never got to the top. And, I can't think of a single case that's consistent with the RTS mechanism: well-intentioned planners being supplanted by nasty folks. Lenin was terrible, he started on top. Pol Pot was terrible, he started on top. Mao was terrible, he started on top. Even if RTS cautioned some Western planners against going farther, I'd love to hear of a single case that followed the basic Hayek mechanism: failures of planning (where planning was led by the well-intentioned) followed by the rise of the demagogue. In all the ones I can think of, the demagogue starts on top having won command of the communist party before the communist party took over the country, and the communist party hardly takes over because of the failures of an existing welfare state's planning apparatus.