By personal permission from the author, translation of Opinion in Berlingske Online, May 26th, 2015, 22:30.
By Henrik Bach Mortensen, MS Econ. Chairman of the Danish Institute for Parties and Democracy (DIPD) and CEO of the Danish Association of Employers.
The tenet of “equal opportunities for all” becomes a hollow myth if in reality it turns out that economic wealth is primarily inherited through the generations. It is therefore imperative to assure social mobility if one wants to assure that capitalism stays an economic system favored by the majority of people.
What makes libertarian philosophy incompatible with socialism is that its focus is on creating the best possible opportunities for individual initiative while the socialist view emphasizes how people shouldn’t live under vastly different circumstances – the equality of outcome. The economic development over the last decades – in Denmark as well as globally – has proven that economies relying primarily on free markets and economic liberty have outperformed socialist or centrally run economies by far, i.e. the collapse of the Soviet Union and the capitulation of China towards almost unbridled capitalism. Nobody can seriously doubt that free markets produce the greatest overall wealth. Socialism has proven to be a certain way towards economic despair. Thus one could rewrite Fokuyama’s words: “Economic history is over.”
Nowhere do socialists still seem to fight for central control and socialization of production and commerce. Focus is on how to distribute the wealth. It is not enough for right wing politicians to declare victory in the battle of economic growth and then go home. They must share their opinions on how this wealth should benefit the various groups of the population.
This discussion of distribution has grown internationally over the last decade. The OECD, the Organization for Economic Co-operation and Development, has reported on the consequences of inequality, and the publishing of French economist Thomas Piketty’s book “Capital in the Twenty-First Century” has spurred a fresh debate among economists.
Defenders of free market economics need to explain not only its success in terms of economic growth, but also how this economic growth benefits segments of society. To that end, one has to have a philosophy on inequality and mobility. And to a special degree, it puts ethical demands on “rules of the game” when it comes to social, educational, and fiscal policies.
Economic inequality has caused both great confusion and heated debate. From the socialist side there has been a tradition for focusing on equality of outcome as a goal in and of itself. For the liberalist, equality has been about giving everybody a level playing field from which to create their own wealth. History shows that socialism has had a tendency towards making everybody equally poor - and nobody really believes in that model any longer.
Therefore, equality discussions should instead focus on how to assure that all citizens have fair and realistic possibilities to meet society well prepared, both for contributing to and benefitting from this prosperity. Policies have to reduce the negative impact of disparate childhood conditions; educational, labor market, and social policies should strive to provide everybody with the strengths to pursue their own dreams of happiness.
Inequality can never be a goal in and of itself for a liberalist. Differences in income stemming from higher engagement, hard work, and risk taking are, however, fully acceptable, in as much as they reflect a contribution to expanding wealth in society at large. Thus, reduction of inequality must focus on giving a better start to members from society’s lowest rungs, not by reducing the opportunities for success. But inequality cannot be treated as a pure menace. It must be discussed along with social mobility. Mobility is the true measure of the opportunity society offers to the individual in a free economy.
High social mobility reflects that neither the children of rich nor poor from birth are destined to inherit their parents’ place in society but that they themselves can – and are obliged to – secure their own position. Without mobility “the American Dream,” that everybody by hard work can “make it”, will only remain a dream. However, the natural consequence of mobility is also that some children will not rise to the social position of their parents.
The ideal of equal opportunities becomes hollow if reality shows wealth and position to be overwhelmingly inherited. Hence, a society that has neither mobility nor equality cannot properly convince its citizens that it is based on level playing fields and the implications for the legitimacy of the economic model built on free markets could be dire.
Proponents for free market economics must pay special attention to and support initiatives strengthening mobility. Politically, this means supporting measures that assure good education, good childcare, and social policies that enhance the individual’s chances of moving up the social rungs. With more members of society experiencing that they and their children have a real shot at financial security, the support for the economic model that assures most prosperity overall will also be the more favored by the general population.
This is not something we “just figured out”. Adam Smith, the father of free market economics, already knew over 250 years ago that creating the biggest wealth could not alone be the goal. He empathized what he named “moral sentiments” both related to the behavior of each individual and to the sum of individuals, i.e. the society governed by market economics. Market economics without ethical “balance” risks ending in anarchy or “high way robbery.” But ethics cannot be legislated as easily as writing economic policies benefitting the GDP. While economic theory can guide politicians and the rest of us towards models that will create the greatest wealth, there are no similar scientific answers to the moral questions on how to legislate to assure that this wealth best benefits the general population.
The American philosopher John Rawls has in the tradition of Adam Smith come up with a model for moral demands of a society; demands that any libertarian adherent to free market economics should pose. Rawls asks us to imagine an experiment where we create a society while not knowing which place in society we will personally hold: Will we be sick, be prosperous, or have another destiny? Said differently, we should argue for rules in this society without the benefit of knowing if we were to be upper or lower class. It is no big deal to advocate for inequality if your economic needs are all met. But which moral implications would this experiment entail in the real world? No two persons would have the same priorities – exactly because it is a moral exercise, not just an economic one.
The humble, but practical, conclusion must be that everybody who, for very good reasons, argues for a free market economy has to take up this moral requirement: Support for a market economy must be supplemented with requests for political initiatives that assure a society which we ourselves would wish to inhabit – regardless of how our position in this society could be radically changed tomorrow. This is a good standard by which to measure one’s commitment to fairness - the goal being to assure the general population’s continuous broad support for free market economics, the economic model most likely to provide prosperity for all.