Hayek’s spotty record as a prophet in the Road to Serfdom – part 2: what about the post-colonial Third World?

Gordon Tullock used Sweden to argue that  the problem with The Road to Serfdom was:

“that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden did not lead to any loss of non-economic freedoms.”

But was socialism good for democratic consolidations in the post-colonial third world? Was that not a better hunting ground for Hayek’s fears?

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The people and parties, very often with a socialist hew, who won the election after the colonial government left town are not always all that keen to give up the reins of power.

Remember Huntington’s Two Turnover Test: when a nation moves from an emergent to a stable democracy, it must undergo two democratic and peaceful turnovers of ruling parties.

After an emerging democracy’s first turnover, the new administration often reverts to authoritarian rule. Russia under Yeltsin and Putin are examples.

Would Singapore be an example of central planning and state ownership leading to serfdom and a one-party state?

The state controls and owns firms that comprise at least 60% of the GDP through government entities. The vast majority (more than 80%) of Singaporeans live in public housing;

Although initially styling itself an anti-Communist and Social Democratic, the People Action Party (PAP) was expelled from the Socialist International in 1976 because it suppressed dissent and jailed opposition leaders. Hayek would be vindicated?!

The Index of Economic Freedom says that Singapore is a nominally democratic state ruled by the PAP since the country became independent in 1965, and that certain rights, such as freedom of assembly and freedom of speech, remain restricted

The Freedom House 2010 country report notes that Singapore is not an electoral democracy despite elections free of irregularities and mentions that all domestic newspapers, radio stations, and television channels are owned by government-linked companies, which limits free speech. The PAP has used the Government’s extensive powers to place formidable obstacles in the path of political opponents.

Daron Acemoglu has written on the role of institutions on post-colonial development in his why nations fail research agenda.

  • In Africa, Central America, the Caribbean and South Asia, European powers set up extractive states. These institutions did not introduce much protection for private property nor did they provide checks and balances against government expropriation. The explicit goal of the Europeans, in one form or another, was the extraction of resources from these colonies.
  • This colonization strategy contrasts with the institutions that the Europeans set up in colonies in which they settled in large numbers, e.g., the United States, Canada, Australia and New Zealand. In these colonies, life was modelled after that in the home country; the emphasis was on the enforcement of property rights for a broad cross-section of society, especially smallholders, merchants and entrepreneurs.

The same British colonists established different institutions in very different parts of the world:

  • If Europeans settled in a colony, institutions were developed for their own future benefits.
  • If Europeans did not settle in a colony, they set up a highly centralized state apparatus and other similar institutions to oppress the native population and to facilitate the extraction of resources in the short run

Acemoglu has written on Singapore as a stable non-democracy that can persist without significant repression.

Singapore was able through industrialization in the post-colonial period to ease social tensions and thus eliminate the need for democratic consolidation and also the need for repression. China’s ruling elite has the same current goal.

Why has Singapore not democratized? Acemoglu suggests is it is because Singapore is a very equal society. There is no traditional wealthy landed elite and the economy relies on external capital and businesses.

Most people appear to be relatively happy with the status-quo, at least not so unhappy that they want to engage in serious, and potentially costly, collective action to induce a major change in political institutions.

All and all, political economy has come on in leaps and bounds since 1944. Hayek should be judged against the other predictions of his times. Few socialist countries in the post-colonial Third World stayed democratic for long.

Hayek’s spotty record as a prophet in The Road to Serfdom – Part 1

Gordon Tullock used Sweden to support his argument that the basic problem with The Road to Serfdom was:

“that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden did not lead to any loss of non-economic freedoms.”

Hayek discusses the Road to Serfdom

When looking back longingly at the mixed economies of 1950s and 1960s, people often forget who won elections much of the time back then.

The period that managed to combine a large degree of state ownership and control of the UK economy with a free and diverse media and political pluralism was often under Tory rule (1951 to 1964) with the Labor governments (1964-1970) often with a margin of a few seats.

Then there was the Menzies era in Australia with Liberal party rule from 1949 to 1972; and then 1975 to 1983. Much the same in New Zealand. The Left rarely held power in the mid-20th century.

The Christian democrats usually ran both Italy and Germany in coalitions, as I recall, up until the late 1960 or the early 1970s. Gaullist France? The LDP in Japan?

That is where Hayek got it wrong. The left-wing parties were not the face of the future.

Power rotated in Schumpeterian sense. Governments were voted out when they disappointed voters with the replacement not necessarily having very different policies.

The right-wing parties won many western European elections by that well-proven old trick of being slightly to the right of the left-wing parties. Hayek failed to predict this.

Hayek was himself a major critic of detailed predictions:

“We can build up beautiful theories which would explain everything, if we could fit into the blanks of the formulae the specific information; but we never have all the specific information.

Therefore, all we can explain is what I like to call “pattern prediction.”

You can predict what sort of pattern will form itself, but the specific manifestation of it depends on the number of specific data, which you can never completely ascertain. Therefore, in that intermediate field — intermediate between the fields where you can ascertain all the data and the fields where you can substitute probabilities for the data–you are very limited in your predictive capacities.”

“Our capacity of prediction in a scientific sense is very seriously limited. We must put up with this.

We can only understand the principle on which things operate, but these explanations of the principle, as I sometimes call them, do not enable us to make specific predictions on what will happen tomorrow.”

Hayek’s warnings in The Road to Serfdom was against a background where democracy was still young and insecure in Europe and peacetime democratic governments were, up until then, not much bigger than a post office and a military. The big governments of his day were not democratic.

As Popper and Kuhn understood it, bold, risky hypotheses are at the heart of great advances in the sciences and scholarship generally.

Academics and their bias against the market

The expansion of jobs for graduates from the 1960s onwards increased the choices for well-educated people more disposed to the market of working outside the teaching profession. Those left behind in academia were even more of the Leftist persuasion than earlier in the 20th century.

Dan Klein showed that in the hard sciences, there were 159 Democrats and 16 Republicans at UC-Berkley. Similar at Stanford. No registered Republicans in the sociology department and one each in the history and music departments. For UC-Berkeley, an overall Democrat:Republican ratio of 9.9:1. For Stanford, an overall D:R ratio of 7.6:1. Registered Democrats easily outnumber registered Republicans in most economics departments in the USA. The registered Democrat to Republican ratio in sociology departments is 44:1! For the humanities overall, only 10 to 1.

The left-wing bias of universities is no surprise, given Hayek’s 1948 analysis of intellectuals in light of opportunities available to people of varying talents:

  • exceptionally intelligent people who favour the market tend to find opportunities for professional and financial success outside the universities in the business or professional world; and
  • those who are highly intelligent but more ill-disposed toward the market are more likely to choose an academic career.

People are guided into different occupations based on their net agreeableness and disagreeableness including any personal distaste that they might have for different jobs and careers. There is growing evidence of the role of personality traits in occupational choice and career success.

The theories of occupational choice, compensating differentials and the division of labour suggest plenty of market opportunities both for caring people and for the more selfish rest of us:

  • Personalities with a high degree of openness are strongly over-represented in creative, theoretical fields such as writing, the arts, and pure science, and under-represented in practical, detail-oriented fields such as business, police work and manual labour.
  • High extraversion is over-represented in people-oriented fields like sales and business and under-represented in fields such as accounting and library work.
  • High agreeableness is over-represented in caring fields like teaching, nursing, religion and counselling, and under-represented in pure science, engineering and law.

Schumpeter explained in Capitalism, Socialism, and Democracy that it is “the absence of direct responsibility for practical affairs” that distinguishes the academic intellectual from others “who wield the power of the spoken and the written word.”

Schumpeter and Robert Nozick argued that intellectuals were bitter that the skills so well-rewarded at school and at university with top grades were less well-rewarded in the market.

  • For Nozick, the intellectual wants the whole society to be a school writ large, to be like the environment where he or she did so well and was so well appreciated.
  • For Schumpeter, the intellectual’s main chance of asserting himself lies in his actual or potential nuisance value.

Richard Posner also had little time for academics who say they speak truth to power:

  • The individuals who do so do it with the quality of a risk-free lark.
  • Academics, far from being marginalized outsiders, are insiders with the security of well-paid jobs from which they can be fired with difficulty.
  • Academics flatter themselves that they are lonely, independent seekers of truth, living at the edge.
  • Most academics take no risks in expressing conventional left-leaning (or politically correct) views to the public, which is part of the reason they are not regarded with much seriousness by the general public.

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