Towards the end of the second world war and a decade into New Deal reform, Austrian philosopher F.A. Hayek published his now famous political polemic,
The Road to Serfdom, which argued that economic planning by the government would inevitably lead to totalitarianism. This book was written at a time of great paranoia and shock, a sort of reaction to the Fascism that had caused so much destruction around the world, including Hayek’s native country of Austria.
It was also a reaction to the mixed economies that had formed in the post-depression years. Governments around the western world, including the United States and the United Kingdom, where Hayek was living at the time, were embracing Keynesian economics, named after economist John Maynard Keynes. Keynesian reform was an attempt to save Capitalism from itself, a compromise to prevent a Socialist revolution, which seemed very possible at the time. Unregulated capitalism had caused a great deal of misery and inequality, and the consensus was that government had a part to play in preventing these evils. A blend that embraced the good in Capitalism and the good in Socialism seemed logical.
But in Hayek’s view, mixed economies were the first step towards Fascism. Once the government began intervening with the economy, it would be unable to help itself, and would increase its control until Totalitarianism was recognized. It was only a matter of time until America and Britain would fall into the inevitable trap, unless they quickly ceased Keynesian type planning.
We know today, of course, that this was the paranoid overreaction of a free market thinker. The twentieth century has shown that a mixed economy results in a more equal and stable society. As Thomas Piketty’s book Capital In The Twenty-first Century shows with tremendous data, the post-WW2 western economies, aided with government intervention and high progressive income taxes, resulted in a flourishing middle class with high growth and innovation, hardly Fascism.
Nonetheless, Hayek’s book is worshipped by Conservatives everywhere today as some kind of sacred text proving that only free markets are compatible with democracy and freedom. That civil freedom and economic freedom are one in the same and cannot be separated. This attitude has spread, and around the world free market reform and privatization have been implemented in many developing countries, as well as our own. Milton Friedman, who wrote Capitalism and Freedom, played a major role in this movement, with his “Chicago Boys,” economists, all trained at The University of Chicago.
Since the 1970’s, we have seen a strange reversal of what happened during the mid twentieth century. In many developing countries, like Chile and Argentina, free market economics, rather than interventionism, were enforced with autocratic repression and violence. In September 1973, the democratically elected President of Chile, Salvador Allende, was displaced and killed in a military coup by General Augusto Pinochet, who was supported by the United States. Allende was a Socialist with a policy of industry nationalization, which American corporations and politicians did not particularly like. Once Pinochet took hold of power, he embraced free market reform, nicknamed shock therapy, with the guidance of Friedman’s “Chicago Boys.” After the first year of industry privatization, government spending cuts, and the elimination of price controls, inflation went through the roof and foreign multinationals benefited greatly at the expense of Chilean people. In 1975, Friedman came to support the continuation of reform and met with Pinochet. The dictator was unsure of the policies because of the human cost they were having, but Friedman convinced him otherwise.
After Friedman’s visit, the shock continued with more force. Further government cuts and privatization cost hundreds of thousands of Chilean jobs. During the first year, Chile’s economy contracted by fifteen percent and unemployment reached 20 percent, 17 percent higher than the three percent under Allende. During this “shock therapy,” any political opposition was treated with brutal repression. Thousands were murdered, tens of thousands tortured, and nearly one hundred thousand were sent to internment camps, or “disappeared” by the Pinochet regime.
Two decades later, in post-Soviet Russia, the same sort of dictatorial action was required by Boris Yeltsin to enforce the extreme privatization that helped create the Russian “Oligarchs” by selling nationalized industries at fractions of their worth. As in Chile, the human costs were immense. We now see what good this privatization did for the Russian people, with dictator Vladimir Putin as President.
The United States supported Chile and Russia and other nations undergoing this free market shock therapy that seemed to always require repression and anti-democratic action to be properly enforced.
This raises the question, do free market ideologues believe economic liberty is more important than civil liberty? If free market reform requires brutal repression and the elimination of civil rights, is it worth it, as Friedman and others seemed to believe. When ones economic freedom begins to effect ones civil liberties, like the freedom of assembly, or collective bargaining, should it not be restrained? Wealthy individuals have a lot to gain from an unregulated market and privatization, and many have. In Russia, thousands starved while men like Vladimir Putin became super-billionaires. All of this, of course, was for freedoms sake.
When Hayek wrote The Road To Serfdom, it was a very different world. Europe had just been destroyed by Fascism and mixed economies were relatively new. It was a book of its time. But today, it is clear that a mixed economy does not inevitably lead to totalitarianism, as Hayek predicted. Instead, it leads to a more equal and stable society. In spite of this, the global economy has retreated back to unregulated capitalism over the past few decades. Inequality is back at its highest since the Great Depression and the global economy is frighteningly unstable.
Conservatives claim that the markets need to be freed even more from government restraints, and they quote men like Hayek and Friedman to support these beliefs. But the reality is that unregulated economies based solely on the chaotic market inevitably lead to Plutocracy. Many argue we are already there in America. It is important to ask how long a Democracy can last in a society like this, because once the right to vote becomes meaningless, civil liberties will slowly start disappearing like socialists under Pinochet’s regime.