Having been on a roll for more than seven decades, the liberal world order seems to have entered its sunset period. The obituary of the liberal order is being written not by the working class or the proponents of a rival doctrine but by its inner contradictions.
Nineteenth-century German philosopher Hegel hit the nail on the head when he stated that every doctrine and every system contains within it the seeds of its destruction. What inner contradictions are pushing the liberal order to the grave?
Liberalism took birth in England in the second half of the 18th century intending to hold up the Industrial Revolution before spreading to continental Europe. The intellectual basis of liberalism was provided by three British thinkers: Adam Smith, David Ricardo and Jeremy Bentham. Smith and Ricardo laid the foundations of classical economics, while Bentham put in place the legal and political underpinnings of liberalism.
Laissez-faire, literally translated as ‘leave us alone’, was the economic doctrine, while utilitarianism, which identified goodness with individual happiness and usefulness, was the social philosophy of liberalism. These two doctrines undergird easily the two most celebrated forms of political and economic organization in the modern world, viz capitalism and representative democracy.
Common to both verities of liberalism was the belief that freedom meant the absence of legal restraints. For Bentham, law and liberty were mutually incompatible. When applied to industry, the doctrine ushered in horrid working conditions, with the government keeping its hands off in the name of freedom of contract. The situation forced subsequent liberal thinkers to concede a more active role for the government in the interest of society. Thus, capitalism took a human face.
The liberal philosophy rests upon two mutually incompatible concepts of nature – both dating back to antiquity. The first concept identifies nature with harmony and justice. The natural order being inherently beneficial necessarily brings happiness and prosperity to individuals. By the same token, left to themselves, the market forces have the capability of producing an optimal outcome in the long run.
One implication of the harmonious view of nature was the labour theory of value. If workers draw subsistence wages, they must be putting in low value as well, that is to say, the fault lies with them and not with the system. At any rate, whether workers prosper or languish, the outcome is deemed to be ‘natural justice’.
The other concept of nature strips it of any ethical connotations. Instead, the natural order is regarded as being red in tooth and claw. This view sees society as consisting of classes rather than individuals. The interests of one class are always opposed to those of others, thus leading to class conflict. As production steps up, the scarce land is increasingly brought under cultivation – resulting in larger rents for the landlord and smaller profits for the capitalist – while the labour gets wages just enough for it to keep the wolf from the door.
Thus, the classical economists highlighted perpetual antagonism between the land-owning and the other two classes (capitalists and workers) to prove that the landlord was the villain of the piece. In its historical context, taking such a position was also necessary for making a case for free trade. It was left to the genius of Karl Marx to use the logic of the labour theory of value to show that the interests of the working and capital-owning classes were also irreconcilable and that the capitalist was the prime villain.
However, contrary to Marx’s prediction, the working class or the proletariat has not been able to overthrow capitalism – both the Russian and Chinese ‘red’ revolutions took place in agrarian or preindustrial societies. Starting with laissez-faire, capitalism went on to accommodate sweated labour in the 19th century through social legislation. In the 20th century, capitalism created the welfare state to keep communism at bay. Once – in the late 1980s – the Marxist threat had fizzled out, capitalism dumped the welfare state and contrived neoliberalism, which represented essentially the resurgence of laissez-faire capitalism.
The kernel of liberal economics is its creed-like faith in market forces. Such phrases as ‘individual liberty’, ‘the right to choose’, ‘free trade’, ‘unhindered competition’, ‘freedom of enterprise’, ‘economic integration’, ‘open borders’, and ‘flexible markets’ have been the rallying cries of the liberal ‘revolution’.
Liberalism has captivated contemporary economic thinking hook, line, and sinker, with the result that the word ‘reform’ has become synonymous with putting in place an arrangement in which the market leads both the state and society by the nose.
The founders of liberalism, as well as its diehard exponents, believed that the almost infinite number of possibilities of capitalist development could be actualized only in a democratic polity fashioned on Western values. Historically as well, capitalism and multiparty democracy have gone hand in hand. Hence, when in the late 1980s Soviet leader Mikhail Gorbachev set upon restructuring the socialist economy, he was advised by his American counterparts to open up the authoritarian political system as well. He agreed and ended up breaking up the USSR.
Almost concurrently, Americans made similar demands on another mega-socialist nation, China. But the Chinese leadership was far-sighted enough not to pay heed to the advice. The Chinese adopted market economics but adapted it to the fundamental conditions and unique history of their society – ‘socialism with Chinese characteristics’ as the adaptation is called. Today, socialist China is the world’s second-largest economy and the hub of global manufacturing. As the doomed USSR and successful Chinese cases bring out, there is no logical relationship between the political and economic varieties of liberalism.
Of late, the most potent challenge to liberalism has come from nowhere else but its paterfamilias – the US. Free trade, which lies at the heart of liberalism, has strong distributional effects within an economy, as its scales are tipped towards relatively abundant factors of production and are skewed against the scarce ones. Thus, on balance, in developed countries, like the US, in the wake of free trade agreements (FTAs), labour-intensive sectors have been the losers, while skill- and capital-intensive sectors the winners.
Former US president Donald Trump pulled his country out of the Trans-Pacific Partnership Treaty (which envisages the globe’s largest free trade area), made the World Trade Organization (WTO) – liberalism’s multilateral face – virtually irrelevant and later had Nafta re-negotiated. He also unleashed a trade war with China and other leading economies, thus making a clear departure from liberalism.
His successor Biden, despite adopting a more liberal posture, has continued the trade war. By announcing to restrict immigration into the US and building a wall on the border with Mexico, Trump also upended the notion of open borders, which is so vital to liberalism. Not to be left behind, the UK decided to quit the European Union – the biggest-ever embodiment of the principle of free movement of goods and of people.
Before Covid-19 had hit the world, the basic principles of liberalism had already been torn to shreds. The lockdowns necessitated by the pandemic renewed with tremendous vigour the calls for national self-sufficiency, manufacturing at home and curtailing the dependence on the market for resource allocation. Several developed countries have set up funds to bring back offshore investments in contravention of the principle of cost minimization.
In his seminal work, ‘Decline of the West’, Oswald Spengler argues that as a rule, democracy gives way to Caesarism, by which he means charismatic or strong leadership. Already, the world is witnessing the rise of such leadership in several democracies. It remains to be seen whether Spengler’s view holds water in the 21st century.
Irrespective of the fate of liberalism, capitalism does not seem to be at risk. Over the past two centuries, capitalism has exhibited enormous capacity to dig in. In the 21st century, capitalism will not hesitate to wash its hands of liberalism in the interest of its survival. The child will outlive its father.
The writer is an Islamabad-based columnist. He tweets/posts hussainhzaidi and can be reached at: hussainhzaidigmail.com