Welfare States At War: H. Sennholz

While throwing the blame for the present crises on the doorsteps of ((capitalist colonialism," the Welfare States are battling each other. All parties involved in the Mid-East are either socialist or interventionist Dr. Hans Sennholz, Professor of Economics at Grove City College, Pennsylvania, has regularly contributed to The Freeman and other work of The Foundation for Economic Education In numerous ways. This article Is reprinted from the February 1957 Freeman at the time of Nasser's seizure of the Suez Canal. nations. Israel is a large army camp crowded by people who are given to socialist ideas; Egypt is an interven tionist country with a dictator bent upon leading his nation to socialism; France has a socialist government with controls that leave little room for competitive enterprise; and Brit ain is floundering between socialism and interventionism. In other words, there is little capitalism, in the sense of competitive private enterprise, in anyone of these countries.

Absence of individual freedom and free enterprise makes for economic nationalism and· international con flict. By fundamental nature and ob jective, the Welfare State controls private property and limits individ ual freedom in order to distribute economic spoils and privileges to pressure groups. The Welfare State is a favor state. 217 218 THE FREEMAN April Pressure groups of producers ex pect the government to increase the prices of their products or services, with utter disregard for the eco nomic interests of the vast majority of their own countrymen and of many foreign producers. In most cases of welfare legislation the favored group's foreign competition is either eliminated entirely or severely cur tailed. This is economic national ism, the most important source of international conflict. Economic Nationalism Creates Conflict Let us demonstrate how interven tionist policies lead to economic na tionalism with a few American ex amples. In order to enhance the price of sugar cane and beets produced by a few thousand American farmers, the federal government not only lev ies a highly protective sugar tariff, but also imposes severe import quo tas. To afford our domestic produc ersa temporary gain, we partially close our markets to Central Amer ican sugar. In other words, we cause domestic prices of sugar to rise and depress foreign prices, subsidizing our sugar farmers at the expense of Amer~can consumers and Cuban farmers. This is economic national ism.

Meanwhile, Soviet Russia takes political and economic advantage of our shortsighted ((welfare policies." She buys Cuban sugar at depressed prices, thus appearing as benefactor to our southern neighbors. In deference to our cattlemen, we prohibit the importation of cheap Argentine beef. That is to say, we favor domestic producers to the det riment of domestic consumers and South American producers. These and similar acts have earned us the hostility of our Central and South American neighbors. Russia, of course, ably utilizes our trade re strictions for her own purchase pol icies. Her efficient propaganda then interprets our behavior as capitalist imperialism, and her own as a token of communist friendship. Similar acts of economic nation alism on the part of our federal gov ernment include the recent tariff in creases on Swiss watches, the import restrictions on foreign dairy products, and many others. In each instance we severely hurt foreign producers in order to ((assist" our pressure groups.

West Sets Bad Example Of course, the other Western pow ers are guilty ·of similar policies of economic nationalism. The United States, Britain, and France em barked upon the welfare road to in ternational conflict after Imperial Germany had shown the way. In the 1880's the German government im posed heavy social costs on the Ger man economy. The logical outcome would have been a loss of sales to 1981 WELFARE STATES AT WAR 219 foreign competition, with German unemployment. To avoid these un desired effects, the government cre ated cartels. Behind high walls of protective tariffs these organiza tions then charged monopoly prices on the domestic market and dumped excess supplies on foreign markets at low prices. This was economic na tionalism at its source. Germany has become the classical example of government omnipo tence in economic matters. There is scarcely any restriction on trade that was not practiced and fully devel oped in Germany. The people iIi un derdeveloped areas, unaware of the meaning of individual liberty and capitalism, have admired this seem ingly omnipotent power of the Ger man state and often have endea vored to imitate it.

Britain's economic nationalism dates back to World War I and es pecially to the Import Duties Act and Ottawa Agreements of 1932. The preferential principle that became the· guiding principle of British po litical action gave tthome producers first protection, Commonwealth pro ducers second protection, and for eign producers none at all." Britain imposed· substantial duties on most foreign foodstuffs arid raw materials in order to grant trade preferences to Commonwealth producers. Con sequently, foreign sales in Great Britain declined considerably. The Churchill government during World War II imposed a multiplicity of restrictions from the armory of so cialism. The Labor government then went on to nationalize the ttmeans of exchange," the coal mines, the gas and electricity industries, the iron and steel industries. It vested in a Central Land Board all develop ment rights in land. It did its utmost to eliminate rent, profit, and inter est in order to employ the revenue for projects of ttnational develop ment." In all these acts of seizure of private property, the Labor govern ment showed no hesitancy because offoreign investments. It seized them along with those of its own nation als. All this meant economic harm to foreigners, who watched and learned the lesson in government omnipotence.

UnderdevelopedAreas FollowSuit Can it be surprising, therefore, that governments in underdevel oped areas of the world finally begin to imitate the West's own policies? Can we blame them for feeling free to do what they please provided they enjoy the backing of their own pop ular majorities? Indeed, they may have learned from us to seize and nationalize private property and ar bitrarily to tear up contracts, in cluding their own charters. Colonel Nasser is a thorough stu dent of Western welfare statism and economic nationalism. He desired revenue for a program of ttnational 220 THE FREEMAN April development." Why should he not seize the Suez Canal Company, this private corporation on Egyptian soil? What does it matter that his govern ment was paid in full for the use of a desert strip before the Canal was built? What of Egyptian signatures to international agreements? What if there were government charters and promises? He enjoys the. back ing of a popular majority. Does this not make him omnipotent? Does this not lift him above the restraints of moral and ethical laws of human re lations?

Can the sovereign state of Egypt be bothered that the private prop erty it seizes happens to be the life line of British Commonwealth trade and controls the flow of Mideastern oil? What does it matter that the well-being of all Europe must dete riorate through his natiohalization of the Canal? What other sovereign state considered foreign interests in the realization of its statist objec tives? Influenced by such ideas, Colonel Nasser embarked upon his tragic policies of economic national ism and international conflict. The next move then was up to those whose property had been seized. Among the victims, the gov ernments of France and Great Brit ain decided to seize the Canal by force, pending an international con ference to discuss the Canal's inter nationalization. No party involved wants to return the Canal to its lawful owners. Internationalization and control by several governments, however, merely means collectivism and economic nationalism on a su per-governmental basis.

What Course Freedom? The defender of private property and competitive enterprise, observ ing such an insoluble conflict, is at a loss regarding the question of guilt. Is he to sympathize with the culprit who started the conflict in order to finance various ~~welfare policies"? Or is he to sympathize with the so cialized victims who resort to force, which is evil, in order to alleviate the original evil? In sharp contrast to the interna tional conflict between socialist gov ernments in this Mid-Eastern affair is the peaceful coexistence of laissez faire nations, which realize the ide als of personal freedom of choice, private ownership and control of property, and peaceful· exchange in a competitive market. Under this concept, the sole function of govern ment is the protection of its own people from domesti~ peacebreakers and from foreign aggressors. Such a government would wage war only to defend the lives and property of its own citizens. This means that it should not participate in foreign wars that grow out of economic national ism. For such warfare only destroys and does not protect life and prop erty.

1981 WELFARE STATES AT WAR 221 While an individualpeacebreaker can easily be punished and isolated in a penitentiary, a collectivist na tion conducting policies of economic nationalism can be disciplined and subjugated only through a full-scale war and subsequent occupation of its territory. To discipline a nation that refuses to embrace the doc trines of freedom and free enterprise is an endless and hopeless task. A citizen of a free country who goes abroad should know that he travels at his own risk. Crossing the L border of his state· and entering so cialist or interventionist territory is to leave law and order behind. He risks transgressions by the foreign state upon his life, liberty, and prop erty. A businessman who invests his funds in collectivist territory must consider the risks of expropriation, foreign exchange control, confisca tory taxation, and many other uwel fare" measures. He is beyond the protection of his capitalist govern ment. He. is on his own.

Despite curbs and checks on its power, and its inaction in a world of conflict, a government designed for freedom is a natural leader. The cre ative power of a free nation by far excels that of socialist or interven tionist countries of similar size. And it is productive strength that lends the position of leadership to a coun try in a world that is always fight ing or preparing to fight. But true leadership that exerts potent influence toward world peace and prosperity springs from a far more important source than ma terial and military might. True leadership grows out of impeccable behavior and moral conduct. A lead ing nation that lacks these prereq uisites can guide the world only to more chaos and conflict. Above all, such a nation must re frain from any act of economic na tionalism. It must not harm any other nation through ((welfare" pol icies of its own. It must adhere to its own design for freedom. To repri mand other nations for policies of economic nationalism while waging economic war upon its own neigh bors would be hypocrisy and sancti mony.

Throughout most of the nine teenth century Great Britain was a true world leader. Her famous open door policy treated Britishers and foreigners alike. The Empire was a vast free-trade area in which the government merely undertook to maintain peace, law, and order. Most civilized nations soon followed suit in removing their trade barriers and adopting the Empire standard of ex change, the gold standard. The Brit ish government indeed led the world during the most peaceful century of human history. A leading nation must also reject the immoral principle that one act of economic nationalism by one gov ernment sanctions the nationalistic 222 THE FREEMAN policies of all other governments. This is the principle that crime be comes righteousness if a previous crime has remained unpunished. But this very assumption underlies many prevailing notions concerning for eign affairs. Things We Can Do World leadership demands that we should openly judge world events and explain the fallacy of every act of economic nationalism. If a foreign government contemplates or em' barks upon economic aggression through ((welfare" legislation, we should call attention to the inevita ble harm inflicted upon other na tions. We need not intervene forc ibly, for nations cannot be coerced to peaceful coexistence. Only a change in political and economic outlook can bring this about.

Naturally, we would sign no treaty with a government .that has disre garded its own agreements and torn up its own charters. Nor would we assist any government that nation alizes private in<;lustries,for then we would be helping to promote collec tivism and ultimate destruction. There could be no point in our exw. M. Curtiss IDEAS ON tending diplomatic ,recognition to any government that indulges in eco nomic nationalism. Finally, world leadership requires that we constantly defend the prin ciples of individual liberty and free enterprise. At every opportunity we should call out to the world that only competitive private enterprise can lead to peace and prosperity. We have a glorious history of individual freedom and safety of property-the absence of nationalization and con fiscation by an omnipotent state. Our recent excursions toward the Wel fare State endanger our record-and ourselves. But if we will correct that trend, then with pride we can dem onstrate to the warring world that individual liberty is the only dura ble foundation for peace and pros perity.

If our way is freedom, then other nations on their disastrous roads may someday listen to reason and follow us as all civilized nations followed Great Britain during the nineteenth century. Law, order, and peace may then return once again to a battered world suffering from an absence of individual freedom and free enter prise. , LIBERTY TRADING, when engaged in by individuals, is a peaceful, friendly project. When controlled by governments, it provides opportunity for favoritism, intrigue, and a display of power politics. It cannot lead to other than animosity, suspicion, and unfriendly relations.