Applying Hayek's "Local Knowledge" Insight to Foreign Policy By David Henderson

Now, there’s nothing in Hayek’s arguments to suggest that it applies only to central planning of a domestic economy. A government that wishes to intervene in another country’s affairs faces the same problem, possibly even magnified by the fact that the small number of government policymakers at the center have even less information about the foreign country than they have about their own country. The problem then becomes one of knowing which countries they should intervene in and, beyond that, even if they seem to have solid grounds for intervening, how to intervene. You might think it’s completely moral, and I might agree with you, to intervene in certain country’s affairs but that doesn’t mean you’re going to do it well and that doesn’t mean it’s going to work.

One economist who addressed this issue briefly but insightfully is David Friedman, the son of the late Milton Friedman, and himself a well-known economist. By the way, I interviewed this economist – I have a little hobby of interviewing older economists about their lives. I interviewed this guy who had done his dissertation under Milton in the 1950s, and he told me, “I used to think Milton Friedman was the most brilliant man in the world. Then, I met David.”

So David Friedman, writing in 1973, pointed out that when a government such as ours wishes to intervene, it often faces a choice between two or more illiberal dictators. Friedman gives a pithy instance. “In practice, an interventionist policy almost inevitably involves alliances with the Shah of Iran or the present government of China” – this is when he was writing in the ’70s – “or Joseph Stalin or Ferdinand Marcos or, in the case of actual policy over the past 45 years, all of the above.”

He also pointed out – this is more on the information problem – “In order for the policy to work, it is necessary to correctly figure out which countries are going to be your enemies and which your allies 10 years down the road. If you get it wrong, you find yourself unnecessarily blundering into other people’s wars, spending your blood and treasure in their fights instead of theirs in yours. You may, to take an example not entirely at random, get into one war as a result of trying to defend China from Japan” – World War II – “spend the next 30 years trying to defend Japan and Korea and Vietnam from China, and then finally discover that the Chinese are your natural allies against the Soviet Union.”

In his book Endless Enemies, former Wall Street Journal reporter, Jonathan Kwitny recounts how US government officials made major decisions about foreign policy with little knowledge of the countries for which they were making the decision, with often disastrous consequences. In discussing the Congo, for example, Kwitny tells how US government officials in 1960 failed to understand that the Congo was a few hundred mini nations whose people were trying daily to avoid starvation. Instead, those officials interpreted everything with reference to their own Cold War with the Soviet Union. This lack of local knowledge extended even to cultural differences. President Eisenhower’s undersecretary of state, C. Douglas Dillon, judged the Congo’s Patrice Lumumba to be, quote, “an irrational, almost psychotic personality.” What was his evidence? Lumumba “would never look you in the eye.” What Dillon didn’t know, apparently, was that many Africans are taught that avoiding eye contact is deferential. I’ll ask about that maybe a little later. Because of these officials’ negative assessments of Lumumba, President Eisenhower had him murdered. Clearly, knowledge of Lumumba’s true character and personality was important given the major decision riding on that misinformation.

The above 5 paragraphs are from a speech I gave at the Hoover Institution in early February. The other 3 speakers were former Chief of Naval Operations Gary Roughead, Bruce Thornton, and George Shultz. My speech is titled “An Economist’s Case for a Noninterventionist Foreign Policy.”

The transcript of the speech is here and the audio is here.