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Thinking people, once they are shown that order generated without design outstrips plans made by men, are willing to change their minds about the spurious virtues of central decision making. A column by Victoria Curzon Price.
Victoria Curzon Price
It is an «astonishing fact… that order generated without design can far outstrip plans men consciously contrive» (Hayek, Fatal Conceit, 1988, p. 8)
According to Hayek this «astonishing fact» – that spontaneous order is superior to rational planning – is not a matter of opinion but an observable truth. Indeed, most people nowadays would not dispute this statement, in a general sense, when applied to the economy.
After all, the real-life experiment in central planning of the USSR stands as a dire warning against putting one’s faith in a few all-knowing, wise and well-intentioned people to take charge of the economy.
However, why do most people (often the same) continue to believe that vital services like personal health insurance, educating the young, caring for the elderly and so forth are too important to be left to the market? The implication is that markets are fine for frivolous things like cinema tickets, but »conscious design» is needed to correct for market failures in all really important areas.
It is therefore also an «astonishing fact» that people continue to put their faith in the efficiency of «conscious design», despite all the evidence to the contrary. Preference for «conscious design» is also prevalent in political life.
Why do centralized nations like Spain or Italy refuse federalism as an answer to local nationalisms? Why do so many business people support the EU’s current plans for harmonizing corporate taxes across the whole of Europe?
Why do so many people lament the fact that the EU has failed to harmonize social security regimes? Why does the EU have a broad political mandate to create harmonized business standards and regulations for the entire continent?
A large group processes more information than a small one
Because people really do believe in order created by conscious design and the bigger the better! They are yearning for a «level playing field» over as wide an area as possible, they dream of a world without «unfair competition» (because competition is always «unfair» when conditions differ).
They believe they can enjoy the huge benefit of competitive markets (the magic of efficiency) without the stress of competition… But if you harmonize everything first, then no competition is possible!
Let us remind ourselves why spontaneous orders are so efficient: briefly, individuals acting in their own self-interest according to whatever imperfect information they may possess, will collectively process far more information than a necessarily small group of even well-intentioned people taking decisions on their behalf.
This is the main point made in Hayek’s famous article «The Use of Knowledge in Society» (American Economic Review, 1945). Competition is needed to weed out inevitable mistakes and promote «correct» decisions (i.e. outcomes that people desire).
Without competition, there is no way to discover the difference between better and worse decisions. The Darwinian process of natural selection (not the «survival of the fittest» because there is no end-game) is at work here.
If we look carefully enough, we shall see natural selection at work all around us. It is simply part of life, and it certainly does not require a «level playing field» to work its magic.
By contrast, decisions taken by the few on behalf of the many are of a radically different order. The head of the family, the corporation or the state will always be using less information than exists in the unit affected by the decision maker.
If the units are small, a competent decision maker will be sufficiently informed not to make too many mistakes and competition from other small units will generate enough pressures for natural selection of correct decisions to emerge.
By contrast, the bigger the unit, the less efficient decisions become (fewer people are taking decisions on behalf of ever larger numbers) and the weaker become the competitive pressures.
Large corporations, oligopolies, monopolies, and of course entire states are subject to the iron law of diminishing marginal efficiency of their inevitably authoritarian structures. Therefore they should, in their own long-term interest, adopt decentralized, federal structures of governance.
The heritage from the face-to-face troop
Liberals know all too well that their ideas are held by only a tiny minority of people. So why, if Hayek is right that it is a demonstrable fact, not an opinion, that spontaneous, decentralized decision making «far outstrips» conscious design, does public opinion continue to offer unthinking support for planners and centralizers, and give so little credence to the liberal alternative?
Hayek’s explanation for this paradox is that primitive man, in a small roving band, evolved under rules of solidarity and altruism, rather than under the rule of individual property rights which underpin the modern age.
Individual rights emerged in the last two to three hundred years in our small corner of the world, and gave rise to many scientific discoveries and applications, rapidly copied throughout the planet because people liked the outcomes (running water, sanitation, hot showers, plenty to eat, scientific medical attention, etc.).
However, according to Hayek, the values of liberty – individual property, freedom and responsibility – are no match for the more deeply embedded collective values of solidarity.
As Hayek puts it «we have not shed our heritage from the face-to-face troop» (FC p.17). It is difficult to do justice to Hayek’s subtle thinking in this short article, but his main point is that people not only do not understand where their prosperity springs from, but they dislike the values of individual property, freedom and responsibility which lie at the core of successful modern societies, and attribute far greater moral superiority to the collective ideals of altruism and solidarity.
Authoritarianism is the default system
Daniel Wagnière, in a thoughtful but pessimistic essay entitled «The Rise and Demise of the Individual» (Wheatmark Publishing, 2017) notes «the unfortunate transformation of government», which «reduces the individual’s freedom of choice and systematically relieves him of responsibility» (p.2).
Several reasons are offered, but among them Wagnière points to «the belief that political decisions… can replace… individual choice, and the conviction that all problems have formal, centralized solutions». Democracies also suffer from time inconsistency – there is no way to link disastrous outcomes to ill-informed political decisions taken long ago (p.3).
I would like to add another explanation – perhaps almost too obvious to be mentioned – namely that authoritarianism is the default system in human affairs.
All human societies known to history have been based on various forms of dictatorship, with little or no freedom for most people – with the recent exception of a few societies in Western Europe (and their offshoots).
Is it then surprising that people fear taking responsibilities, distrust freedom and prefer «leaders» to solve problems for them? It is not only Hayek’s face-to-face troop of hundreds of thousands of years ago, but also the last ten thousand years of recorded history which suggest that serfdom is hard-wired into our psyche.
Globalization puts a brake on collectivism
But all is not lost! Most thinking individuals, once they are shown «the astonishing fact … that order generated without design can far outstrip plans men consciously contrive» are willing to change their minds about the spurious virtues of central decision making.
It’s just that they never thought about it that way. Education is therefore useful if we wish to accelerate the process by which natural selection, in the long run, will gradually weed out the abysmal centralizing policies of modern democracies.
However, my reason for optimism lies less in the virtues of education than in the fact that globalization has placed our modern, so-called liberal democracies in direct competition with each other.
Collectivists would dearly like to cut themselves off from the world, tax the rich to extinction, nationalize all big corporations and manage people’s lives from the cradle to the grave, but they cannot risk such suicidal policies. They are obliged to trim their programs to fit the reality of competitive natural selection of public policies in a globalized world.
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