Freedom and Social Democracy; E. P. Holt III

Earl P. Holt III FREEDOM and "SOCIAL-DEMOCRACY" AMONG certain circles in Western Europe and the United States eco nomic freedom is commonly per ceived as less morally elevated than other freedoms because it manifests in the "vulgar" pursuits of capital ism. Since economic freedom is pre sumed distinct from freedom broadly defined, the conclusion generally follows that it may be safely subor dinated to "loftier" social objectives without imperiling traditional dem ocratic liberties. This sentiment rather faithfully captures the prevailing attitude among those who bear the self-des ignation "social-democrat." By jux taposing its two terms, advocates of social~democracy suggest a poten tial compatibility between the two systems, and persist in resurrecting the myth of a "humane" socialism in which civil and political liberties might flourish. Mr. Holt is an associate editor of the Missouri Con servative Union's Front Une and a contributor to New Guard and Human Ellents.

In truth, however, social-democ racy is predicated on false assump tions which ignpre a profoundly sig nificant principle governing the relationship between man and state: Because activities deemed "eco nomic" bear on,practically every as-r pect of civil and politicalliberties,a nation's commitment to economic freedom is par*mount in determin ing both the quality and depth of its other freedomsJ Indeed, it has been as a result of this indivisibility of economic from other freedoms that British and American flirtations with social-de mocracy have' precipitated signifi cant erosions of civil and political liberties withill these two countries. Whatever social-democracy's al leged rationale-whether redistri bution or "socialaccountability"-its considerable powers are rarely used for such ideali~tic ends. Instead, its common experience has been to bra zenly consolidate the control of those in office by.granting special privi207 208 THE FREEMAN April leges to the relatively powerful ele ments of society, in exchange for the latter's electoral support.

Privileges for Labor in U.S. and Britain Organized labor represents a large, powerful and well-financed consti t uency, and for that reason has been a traditional beneficiary of this pro cess in the U.S. and Britain. This relationship was described by Nobel laureate Friedrich Hayek in his masterful treatise on collectivism, The Road to Serfdom: So long as the socialist movement in a country is closely bound up with the in terests of a particular group, usually the more highly skilled industrial workers, the problem of creating a common view on the desirable status of the different members of society is comparatively sim ple. The movement is immediately con cerned with the status of one particular group, and its aim is to raise that status relative to other groups.! Yet, as the U.S. has learned from its experience with "affirmative-ac tion" and racial quotas, elevating the fortunes of certain privileged groups through government is accom plished only by trampling the rights, immunities and well-being of others not so favored.

Reflecti ve of organized labor's special position in the U.S. is the so called "Davis-Bacon Act," whose primary effect is to qlandate that union wages be paid employees engaged in public works projects even partially benefiting from federal funding. 2 This unquestionably sup presses competition by smaller, non union construction firms which are less able to absorb such exorbitant labor costs; and in turn, shifts this work to unionized construction workers whose bargaining power is "strengthened substantially."3 Similarly, U.S. minimum wage legislation is now widely recognized as a major contributor to the har rowing unemployment rate of un skilled (thus politically powerless) minority teenagers. 4 This result is attributable to its establishment of a wage "floor" greater than the value of the unskilled labor it ostensibly protects, causing employers to layoff or never hire many unskilled work ers.

Despite its consequences, efforts at its repeal are invariably scuttled by the AFL-CIO and its minions in Congress, even though the AFL CIO's members command far more than the federal minimum wage dic tates and would appear to be unaf fected by it. In light of truly over whelming evidence of its sinister effect on minority employment, many economists such as UCLA's Jack Hirshleifer have become quite cyni cal when hypothesizing the reason for our retaining the minimum wage: The most significant political pressure for higher minimum wages seems to come from organized labor, in particular, the 1982 FREEDOM AND "SOCIAL-DEMOCRACY" 209 AFL-CIO .... A higher minimum wage raises the cost of unskilled relative to skilled workers. The consequence is to induce firms to employ fewer of the un skilled workers, raising demand for the skilled workers represented by the AFL CIO.5 As a corollary to the above, social democracy's granting of special sta tus to privileged groups greatly en hances the power of those interest groups, and-as in the case of Brit ain's trade unions--often enables the latter to frustrate the express will of the electorate.

BritishTrade Unions Passage of the Trade Disputes Act of 1906 accorded British trade unions "a position of legal privilege that is without parallel in any other coun·· try,"6 by granting them immunity from tortuous actions in all British courts. The Act thus cancelled what few checks there are to union power by prohibiting their prosecution for restraint of trade, conspiracy, and many of the various practices con stituting "intimidation" of non· striking workers. 7 Anyone familiar with modern Britain cannot fail to observe that as a result of their privileged status, trade unions have grown so power· ful they are now able to paralyze the gasping British economy, as they so successfully confirmed with massive and widespread strikes in 1978. Paradoxically, British publi(~ opinion clearly favors legal restric tions on tradel unions. According to internationally-respected journalist Robert Moss of the London Daily Telegraph, a series of public opinion polls conducted since 1958 have con sistently indicated majority support for even such harsh measures as banning all strikes. 8 During its!brief lifetime, more over, opinion polls also demon strated majori~y support for the 1971 Industrial Relations Act; the only post-war legi~lative effort to re strain trade -q.nion power, and one consisting primarily of numerous restrictions on the ability of unions to strike. 9 The! Act was nevertheless repealed in 1974 after intense pres suring of the ~ewly-elected Labour government by British trade unions.

Majority opposition to union power was again demonstrated in the mandate of the 1978 national elec tions, which brought Mrs. Thatcher and the Tories to power amidst pub lic outrage ov~r Labour's inability to stem a crippling nationwide strike. But even here imajority will has been thwarted by the entrenched power of unions, whose strike-threat weapon and im~unity from civil sanctions seem quite literally to ex empt them fro:m political reform. Recognizing that privileged sta tus, once granted, can neither be tol erated nor so easily revoked in a de mocracy, American economist Henry C. Simons once remarked of the 210 THE FREEMAN April frightening position of British labor: "... government, long hostile to other monopolies, suddenly sponsored and promoted widespread labour monop olies, which democracy cannot en dure, cannot control without· de stroying, and perhaps cannot destroy without destroying itself."lo Discriminatory Harassment The power of social-democracies to outlaw "economic" behavior must necessarily include the additional authority to attach sanctions for lack of compliance; which, themselves, have profound and direct conse quences for individual liberties.

In his classic Capitalism and Freedom, Nobel laureate Milton Friedman mentions the plight of a California retailer, imprisoned for selling "Alka-Seltzer" below its price established under so-called "fair trade laws."ll Consider also the more recent· case of the· Boston service-station owner who, in February of 1980, was sen tenced to one month in jail and fined $9,450 for selling his legally-pur chased gasoline to willing cus tomers, but at prices above the fed eral ceiling price then in effect. As The Wall Street Journal pointedly commented, he was convicted of what Soviet· authorities call an "economic crime."12 The unfortunate service-station owner's real offense was his misfor tune to be part of an industry that federal officials periodically find a convenient scapegoat for the gov ernment's own ineptitude in man aging energy. This suggests another consideration. If reasonable and traditionally le gitimate economic activities have no immunity from arbitrary whims of the state, no safeguard exists to pre vent the discriminatory harassment or ruination of unpopular industries by shamelessly demagogic politi cians promoting purely political ends.

Certainly the misnamed "windfall profits" tax, the steel industry's ex perience with price "jaw-boning," and the tribulations of the nuclear power industry suggest this very real threat. Similarly, when dissolving eco nomic freedom and destroying prop erty rights becomes a legitimate function of government, the state's power is dramatically enhanced, greatly expanding its opportunities to indulge in coercion and intimida tion against private individuals who are critical of or oppose the political agenda of those in power. To wit, it was reported in the Oc tober 31, 1977 edition of U.S. News & World Report that Energy Secre tary James· Schlesinger threatened oil industry officials with more reg ulation or divestiture if they didn't publicly support the Carter Admin istration's controversial "windfall profits" tax. Likewise, Internal Revenue Ser1982 FREEDOM AND "SOCIAL-DEMOCRACY" 211 vice Commissioner Jerome Kurtz threatened private schools with re vocation of their tax-exempt status if they did not conform to IRS schemes involving racial quotas. 13 The "chilling" of freedom-of-speech and freedom-of-association reflected in the above two examples would seem to be self-evident.

The Expanding Public Sector Opportunities afforded by a healthy private economy also pro vide refuge and immunity from gov ernmental caprice for individuals whose political party, lifestyle, viewpoint or values happen to of fend (or differ from) those in power. On the other hand, however, a de finitive characteristic of social-de mocracy is its "creeping" conversion of private sector into public sector. Conveniently overlooked by those who anxiously ascribe to it benign consequences, is that at some point in this process, individual freedonl of-choice becomes effectively pre empted by government actions inl pinging on the private sector. This creeping conversion of pri vate sector into public eventually diminishes the range of private choice available, and by thus erod ing private sector alternatives, ulti mately facilitates the imposition of state control over hapless individu als left without recourse: In The Road to Serfdom, Professor Hayek eluci dated this principle as well: We can unfortunately not indefinitely extend the sphere of common action and still leave the individual free in his own sphere. Once the communal sector in which the state controls all the means, exceeds a certain proportion of the whole.

... the effects of its decisions on the re maining part of the economic system be come so great that indirectly it controls almost everytqing .... There is, then, scarcely an inqividual end which is not dependent for i~s achievement on the ac tion of the stat,.14 Possibly the most frightening il lustration of! this eventuality in volved Winston Churchill's unsuc cessful efforts between 1933 and the beginning of iWorld War II to warn the British people of the imminent danger pose~ by Nazi-Germany' s massive peacetime military build-up. Although a member of Parlia ment and a former cabinet minister, Churchill was prevented from ad dressing the p.ation over British ra dio because his jaundiced view of Hitler clashed with the Chamber lain government's official policy of appeasementl His government was able to thwart Churchill's timely warnings (and freedom-of-speech) precisely bec(Luse British radio was a government-controlled monopoly administered! by the British Broad casting Corporation, which permit ted no privat~ competition. 15 The process by which U.S. federal courts have realized their current dominion ov~r public education fur ther vindicates Professor Hayek's 212 THE FREEMAN April foresight; albeit, in a more complex manner than Mr. Churchill's expe rience reflects.

The EducationMonopoly Through their respective fiscal powers over the past several dec ades, federal, state and local govern ments have successfully diverted enormous amounts of resources to public education from private sources. Since public education is, in this manner, financed by non-re fundable tax revenues rather than tuition fees, taxpayers are com pelled to finance public education whether or not their children ac tually attend public schools. This anomaly sharply reduces the range of available educational op tions for most parents, since few can afford the luxury of private tuition on top of a steadily mounting tax burden that already includes the $80 billion or so annually earmarked for ,public education. Hence, a large ma jority of parents have no alternative but to educate their children through what is, in effect, a public education monopoly. But public functions involve gov ernment control and interference. As a result, unelected federal judges routinely seize control of public school districts from their democrat ically elected local school boards and, with impunity, make a mockery of J efferson's "consent of the gov erned" by imposing onerous forcedbusing requirements consistently opposed by 80 per cent of the Amer ican people.

Moreover, the informal check that traditionally accompanies private sector functions-Le., the public's ability to withdraw its patronage and take it elsewhere-has simply been foreclosed by government's role as sponsor of the public education mo nopoly. In the final analysis, parents of public school students are a "cap tive audience" who have lost the freedom to decide even such basic matters as whether their children will attend neighborhood schools, or be bused across town at the whim of judicial social engineers. Finally, economic freedom plays an important role in the exercise of lib eral democratic procedure, and its erosion portends harm for certain aspects of the American political process. One of the hallmarks of liberal de mocracy is its provision of a formal institutional framework for political opposition, without which elections become merely pro forma. It is therefore disquieting that recent re strictions on campaign expenditures pose a threat to the vitality of polit ical campaigns by opposition candi dates.

That is, the greatest challenge facing non-incumbent presidential candidates lies in their ability to achieve sufficient media exposure to mount an effective challenge. Often 1982 FREEDOM AND c:'SOCIAL-DEMOCRACY" 213 this is accomplished only by spend ing far greater amounts than an in cumbent President, who enjoys the considerable advantage of free na tional exposure as an appurtenance of holding office. Hence, to the extent that the ex penditure limits imposed by the Election Campaign Act of 1974 serve to reinforce an incumbent Presi dent's already substantial advan tage over challengers, they make political opposition just that much more difficult for any candidate whose party is out of power. The Election Campaign Act also limits political campaign contribu tions by corporations and private in dividuals. Its chilling of First Amendment rights notwithstand ing, the law contributes even fur ther to the already substantial bur den borne by challengers for publi.c office.

Again, challengers must often outspend the incumbent by a sub stantial margin just to achieve equal name recognition. Any law limiting the size of individual contributions must, on the margin, work to reduce a challenger's opportunity to raise sufficient funds to compete ade quately against the advantages of incumbency. Clearly, economic freedom is more than merely a function of material wel~-being, it is an essential prereq uisite for the realization and enjoy ment of practically every aspect of democratic liberties. For a govern ment to interfere with so fundamen tal a freedom-as "social-democra cies" unquestionably do-is for it to simultaneously undermine a broader range offreedbms which it is the very purpose of democracies to protect. "Social-democracy" is, therefore, a contradiction!in terms. i -FOOTNOTESIF. A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1972), p. 114.

2Yale Brozen, "'The Law that Boomeranged," Nation's Business~ April 1974, p. 71. 3J. Gould and G. Bittlingmayer, "The Eco nomics of the Davis-Bacon Act" (Washington, D.C.: American Enterprise Institute, 1980), pp. 61,67. I 4F. R. Welch, "Minimum Wages: Issues and Evidence" (Santia Monica, Calif.: The Rand Corporation, 197~). 5Jack Hirshleifer, Price Theory and Applica tions (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1976), p. 377. 6RobertMoss, TIze CollapseofDemocracy(New Rochelle, N.Y.: Atlington House, 1975), p. 100. 7/bid., pp. 101-U02. 8/bid., p. 105. 9/bid., p. 105. l°Quoted in F: A. Hayek, The Constitution of Liberty (London: ~outledge, 1960), p. 267. llMilton Fried$an, Capitalism and Freedom (Chicago: Univer~ity of Chicago Press, 1974), p.9. 12Editorial, "The New Morality," The Wall Street Journal, F~bruary 7, 1980, p. 26. 13JohnLofton, "Private SchoolsFace IRS's New Despotism," Hu~n Events, December 9, 1978, p.8.

14Hayek,Road ~o Serfdom, pp. 60-61. 15Friedman, p. :19.