The Drum 12th March, 2014
Friedrich Hayek's warnings about the dangers of collectivism remain as relevant in 2014 as they did in 1944.
This week, 70 years ago, Friedrich Hayek's book The Road To Serfdom was first published in the United Kingdom. Dedicated "to the socialists of all parties", the book quickly became a bestseller with five reprints within 15 months in the UK, and with US sales in the first six months exceeding initial expectations 10 times over.
Some 400,000 copies of The Road to Serfdom have been sold in the United States alone, and in the aftermath of the global financial crisis, the book came first on Amazon's bestseller book list.
The popularity of the book may have surprised Hayek, but it is not surprising that his warnings about collectivism bringing about a loss of liberties resonated with many people during World War II, and even through to the present era with its macroeconomic controls, welfarism, regulatory obstructions, and lifestyle paternalism.
A central theme of Hayek's The Road to Serfdom is that extensive economic interventions by government suppresses the ability of individuals to make their own choices, and this leads to several dire consequences.
Under any mode of economic organisation, the challenges of resolving what, how, when and where to produce and exchange goods and services unavoidably presents itself.
Markets allow such economic decisions to be made to the mutual benefit of buyer and seller. Without any grand plan, individuals coordinate with, and learn from, other people about ways of efficiently allocating scarce resources and satisfying the desires of consumers.
Importantly, all this market coordination and learning is undertaken in a decentralised, 'bottom-up' fashion, through changes in relative prices and adjustments to profits and losses.
The alternative is for the problems of economic life to be addressed through political processes, in which the competitive striving of market players to satisfy others is ameliorated, or replaced, by centralised, 'top down' determinations as to how resources will be allocated.
When Hayek wrote the first edition of The Road to Serfdom in 1944, this central planning was equated with socialistic political attempts to comprehensively, and directly, control production processes, supplanting markets as the prime means of economic organisation.
For Hayek, this manifestation of socialism was a grave threat because:
Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his mercy. And an authority directing the whole economic system would be the most powerful monopolist imaginable.
Importantly, Hayek also pointed out that central planning socialism cannot distil the economic knowledge needed to ensure that resources are allocated to their highest valued uses.
Hayek advised it is possible for nations to avoid central economic planning and political totalitarianism, and to even bring themselves back from the brink of socialism, but he equally warned of severe consequences from the dalliance with interventionism in the Western world.
As he indicated in the preface to the 1956 edition of The Road to Serfdom:
The most important change which extensive government control produces is a psychological change, an alteration in the character of the people.
Nowhere is this problem more apparent than in the area of government welfare policy.
Treasurer Joe Hockey, in his 2012 'End of The Age of Entitlement' speech, stressed that proliferating personal subsidies and transfers not only threaten a return to sustainable budgetary outcomes, but hamper economic growth and productivity in the long run.
But the deeper problem seems to be that people no longer perceive getting, begrudgingly, a portion of other people's incomes, through government force, as a strictly temporary, and preferably avoidable, backstop if they find themselves in catastrophic situations.
Today, more people apparently view helping themselves to others' money as their "welfare entitlement", a situation recipients resolutely defend when reasonable calls for their reform are expressed in the public domain.
Even as Soviet-style central planning collapsed, and Western socialist parties surrendered their ambitions to directly own entire industries, the widespread enthusiasm for redistribution remained unabated and, if anything, has grown with relish in time.
But as Hayek noted in the late 1970s, the welfare state in no way diminished the basic thrust of The Road to Serfdom, explaining, "Some parts of the present welfare state policies - the redistribution aspect of it - ultimately lead to the same result: destroying the market and making it necessary ... gradually to impose more and more central planning."
Nobody but the most ardent socialist would have imagined, in 1944, that government fiscal activities, predominated by welfare transfers, would account for the 35 to 50 per cent of national income that Western economies experience today.
Nor could they have envisaged the extensive web of regulations ensnaring individuals and businesses within an ever-decreasing ambit to undertake discretionary actions, and exercise their own choices.
In Australia, we should take Hayek's wise advice and sharply reverse our journey toward the final hellish destination on the road to serfdom.
This article was originally published on ABC's The Drum, available at: http://www.abc.net.au/news/2014-03-12/novak-dangers-of-collectivism/5315134