By David Howarth

This article was originally published in Reinventing the State: Social Liberalism for the 21st Century. We are grateful to David for allowing us to reproduce this article.

Sometime in the late nineteenth century, liberalism began to divide into two different streams. One stream, which came to be called ‘classical liberalism’, confined liberalism’s ambitions to establishing a robust framework to protect individuals from a rapacious and power-hungry state. It aimed to control the size of the state, especially its military expenditure, and to promote international free trade, both for its own sake and as a way to encourage peace. Its ideal was a state that left us alone to get on with our lives. It valued political freedoms – especially of speech and of belief – but also tended to see property rights in themselves as an important bulwark against oppression.

Some classical liberals shaded into what ought to be called libertarianism rather than liberalism. They came to view property rights as natural rights existing outside the framework of the state, so that the state may not even redefine property rights without committing a wrong.

The other stream, which has come to be called ‘social liberalism’ (but which might better be called ‘social justice liberalism’ ), also valued political freedom, also thought that the state should as far as possible leave us alone to make our own decisions on how to live our lives, also opposed militarism and also believed that international free trade was a way to preserve peace, but it believed in addition that liberalism required a commitment to a fair distribution of wealth and power, which in turn led to support for redistributive taxation and public services as ways of fairly distributing wealth and for democracy as a way of fairly distributing power.

Fairness can be seen both as a condition for the legitimacy of the state itself (the characteristic ‘social contract’ view as revived by John Rawls) and as a condition for meaningful freedom. In contrast to the views of libertarians and some classical liberals, rights of property came to be seen by social liberals as instruments of state policy that had to contribute to broader political goals rather than as goals in themselves.

In some countries, the division of liberalism eventually led to the creation of two separate liberal parties. An early example was the separation of the Danish Venstre and Radikale Venstre. Later examples include the Dutch VVD and D66 and the division of the French Radical Party into the Radicaux de Gauche and the Valoisien Parti Radical. But in Britain, and in a different way in the United States, ‘liberalism’ has come simply to mean social liberalism. British and American liberals believe not just in political freedom but also in social justice and in democratisation.

As a consequence classical liberalism does not have its own political home in Britain. Some classical liberals have ended up in the Conservative Party, but that has never been a particularly comfortable home for them because of the ever-present authoritarian and socially illiberal strands in Conservative thinking.

The confusion about ‘economic liberalism’

Occasionally the idea comes up that some British liberals are ‘social liberals’ whereas others – for example some of the authors of The Orange Book – are ‘economic liberals’, and that there is a fundamental difference between them. This is a confused view, which comes about through not understanding the difference between means and ends. All British liberals are social liberals, even the ones who claim to be more ‘economically’ liberal than others. To take an example often cited by commentators, David Laws, regarded by many as an ‘economic liberal’, is nevertheless an advocate of a very social-liberal view of redistribution. ‘Freedom is curbed by poverty and inherited disadvantage’, he has written, ‘which is why liberals have been concerned about these issues for more than a century’ . Economic liberalism, for Laws, is about the way in which we pursue social liberalism, not about the aims of social liberalism. He has further explained that his often-expressed view that British liberals should ‘reclaim our economic liberal heritage’ has been ‘misunderstood and misrepresented, as implying a downgraded commitment to the party’s social liberal roots … The argument is that social liberal goals should be pursued with economically liberal means.’

The confusion comes about because ‘economic liberalism’ is an ambiguous term. One possible meaning is that it is identical with ‘classical liberalism’, with the view that liberals need not be concerned about redistribution or with democracy but only with limiting the scope and activity of government. If that were what ‘economic liberalism’ meant, it would indeed sometimes come into conflict with social liberalism. That is not, however, the meaning used by ‘economic liberals’ within British liberalism. Their version of ‘economic liberalism’ is a preference for market mechanisms not in opposition to redistribution but as a method to be used in the detailed design of mechanisms for it. For all social liberals, whenever the use of the market might undermine the central aim of social liberalism – namely a society that protects effective freedom for all and which thus can generate and recognise a legitimate form of government – the market has to give way. The political goals of liberalism are always more important than any particular method of achieving them.

Reasonable social liberals can disagree about the desirability and practicality of specific proposals for delivering social liberal goals. Market mechanisms will always have attractions for liberals, because they decentralise decision-making and encourage innovation – both important liberal enthusiasms – but market mechanisms will never be more than means rather than ends in themselves. The inherent limitations of market mechanisms, even in the absence of barriers that all liberals, including classical liberals, have always recognised, such as monopoly, are now very well-known. Asymmetries of information, transactions costs, and our limited capacity as human beings to calculate and imagine (‘bounded rationality’) all inevitably contribute to market failure. That does not mean, of course, that other mechanisms – state regulation or voluntary action – will do any better, but the possibility that they might should not be excluded. Above all, liberalism, as opposed to libertarianism, sees markets, and the property rights on which they rest, as intimately connected with the state, since markets, other than the most elementary and short term, fail without state guarantees of rights. Thus, for liberals, whether a market exists is a matter of policy choice, not a matter of brute fact.

It is an oddity of British political debate that so much emotional energy is expended on a question that almost certainly has no general or stable answer, namely whether public services should be organised using market or administrative mechanisms – except that no one now disputes that the state should compete for labour in the labour market and not be able to direct people into its jobs (though perhaps even that is not fully accepted by some in the National Health Service, who have recently attempted – with disastrous results – to introduce a directed labour element to the employment of junior doctors in training to become consultants). As a practical matter, some kinds of service at some times are better suited to be delivered through commercial contracts with separate organisations, whereas other kinds of service at other times are better delivered by directly employing the providers of the service. For example, where the aims of a service are in dispute or in transition, and so the criteria for its success or failure are unclear, governments would be well-advised not to attempt to contract the service out but instead to retain the flexibility of direct employment and management. On the other hand, simple services with uncontroversial aims might be better managed through a contract with another organisation. The fact is that British politics – largely because of a party structure that originally organised itself around the ‘sides’ of industry – elevated issues of personnel and resource management into matters of fundamental principle, while paying very little attention to issues that really are fundamental, such as political freedom, the development of democracy and the effects of gross inequalities of wealth and power.

The common core of liberalism

One should not, however, exaggerate the differences between classical and social liberalism. Both begin, and end, with the view that a state that fails to secure political freedom is not legitimate. Both reject the conservative view, for which the main advocate in Britain is the Labour Party of Tony Blair and Gordon Brown, that security is always more important than liberty. That view attributes to the state a wildly exaggerated capacity to provide security – not only because of the all-too-apparent limitations of the competence of state officials to keep us safe but also because, as the arbitrary power of the state increases, the more the state itself becomes a source of insecurity. The citizens of the Soviet Union were not more secure because of the immense arbitrary power of the Soviet state – they were less secure. The politics of fear, as practised in Britain by Labour, is ultimately self-defeating. It will destroy both the very freedoms it is the state’s task to preserve and security itself.

That is not to say that liberalism denies any significance to security. It is just that it values security only in so far as it contributes to freedom. Tony Blair’s view, in contrast, seemed to be that the only right that matters is the right to life. He would have sacrificed any political freedom if he thought that by doing so he would save a single life. One wonders what our forebears who sacrificed their lives for political freedom, from the seventeenth century to the twentieth, would make of the view that political freedom is not worth a single life. One wonders what the Blair doctrine would have implied in 1940, when we could have avoided a great many deaths in exchange for sacrificing the political freedom of the whole of Europe. For Labour, however, political freedoms are only ‘traditional’, as if they were a form of folk dance, and as such are merely romantic indulgences be sacrificed on the altar of the ‘modern’. In contrast, for liberals of all kinds, unless the state guarantees political freedom, it has no moral claim on us at all.

Admittedly, to the extent that liberalism is built upon a social-contract view of politics, it cannot ignore existential threats. The social contract is not a suicide pact. But, as Lord Hoffmann has said, aptly but to the fury of large numbers of conservatives in the Labour Party and beyond, the current threat from terrorism is not existential. We are not faced with 1940. The greater threat is from laws that remove political freedom.

Indeed, if there is an existential threat that creates a need to readjust the basic liberal social contract about what powers we ought to cede to the state, it is not terrorism, but climate change. But even a real existential threat such as climate change does not justify the erosion of fundamental liberties such as freedom from arbitrary arrest.

Nevertheless climate change does pose a challenge for classical liberals who are tempted by libertarianism. If one believes, as libertarians do, that property rights are fundamental and pre-political, one will find climate change a very thorny issue. Libertarians typically deal with environmental problems by saying that they depend on deciding which person, the polluter or the pollutee, has the better property right. But the global and existential nature of climate change makes this analysis very difficult for libertarians to apply. The consequence of saying that the polluter has the better right will be to undermine all property by destroying the physical conditions in which property has any meaning. But, because carbon emissions are so pervasive in our way of life, the consequence of saying that pollutees have the better right is to undermine such a broad range of property rights that one would be close to having to abandon any pretence of giving absolute priority to property rights. The exception would have swallowed the rule. Perhaps this dilemma explains why some libertarians tend towards climate change denial.

Classical liberals who are not libertarians, however, should have no difficulty with the idea that property rights should be designed by the state so that catastrophic effects such as climate change are avoided.

Two forms of social liberalism

Social liberalism moves beyond classical liberalism in two ways – a commitment to redistribution and a belief in democracy. But both are affirmations of liberalism’s attachment to political freedom, not contradictions of it. The fundamental idea is that the over-concentration of power is itself a threat to political freedom. Excesses of wealth and poverty are themselves threats to freedom because they tend to produce self-perpetuating oligarchies who buy up the political system, either directly or through politically influential actors such as the media. On the other side, democracy, with its basic rule of political equality (one person, one vote) tends towards the dispersal of power, which safeguards liberty, especially if it takes the form not just of the passive democracy of occasional voting for representatives but also the active democracy of taking part in public decision-making. Social liberalism thus opposes gross inequalities of wealth and supports the extension and deepening of democratic decision-making.

Stating the basic principle does not, of course, settle how far to take it in particular circumstances. Indeed there is a disagreement within social liberalism about whether the principle that freedom should be safeguarded from the consequences of economic inequality is sufficient in itself or whether it should be supplemented by some further principle of fairness (for example John Rawls proposed two such principles: ‘la carrière ouverte aux talents’ – the principle that state jobs should be held only on the basis of ability; and his ‘difference principle’ – that material inequality should only be tolerated to the extent that it benefits the least advantaged). No social liberal would allow a supplementary fairness principle to undermine their commitment to political freedom, so that for all social liberals there is a clear hierarchy of value between freedom and equality (and one that is the opposite of that held by socialists), but there is disagreement about whether state policy should promote economic equality beyond the point strictly required by the goal of safeguarding political freedom.

What is sometimes interpreted as a difference of approach between ‘social’ and ‘economic’ liberals in Britain is often merely a difference within social liberalism between those who recognise supplementary fairness principles (‘maximalist’ social liberals) and those who recognise only the principle that there should be redistribution to the extent that maintains the conditions for political freedom (‘minimalist’ social liberals).

One point, however, tends greatly to reduce the practical distance between minimalist and maximalist social liberalism. Nearly all social liberals accept that the existence of formal political rights cannot be enough by itself to create a liberal society. Citizens need to be in a position to exercise their rights. That principle, which sounds modest, in reality implies a far-reaching programme of public services that goes beyond the classical liberal list of ‘public goods’ (such as defence). It implies in particular a commitment to the broadest possible provision of education, not for the sake of economic development, as in the socialist and utilitarian traditions, but to ensure that citizens can exercise their democratic rights in practical ways and not fall victim to political fraud and demagoguery. It also implies government guarantees in health care, since citizens who are ill or constantly in fear of illness are hardly in a position to give their time to public affairs.

Democracy – dialogue, community and localism

The commitment of social liberalism to democracy, especially to democratic participation, introduces another potential point of tension between social liberalism and markets. Markets are essentially a way in which people can communicate their desires and their abilities to other people without saying very much. Information flows through markets by the device of the price mechanism alone. The process of bidding prices up and down communicates all that needs to be communicated about preferences and costs. Democracy, however, especially in its participative form – but even in its representative form, when the representatives engage in debate – implies a much richer form of communication. Both markets and democracy use forms of rationality, but the rationality of the market is closed. It is limited to working out the consequences of what we happen to want. Democracy, especially in its deliberative forms, goes further, into open discussion of what we ought to want.

Social liberals are drawn to markets because of their ability to disperse power and to promote innovation, but they are often also repelled by their impersonality. Moreover, markets seem potentially to undermine political freedom by undermining political activity. They do this by providing a means for obtaining what one wants without having to engage in anything but the thinnest of dialogues with one’s fellow human beings. The extensive availability of the option of ‘exit’, to use Hirschman’s venerable but still useful vocabulary, tends to dissolve the option of ‘voice’.

The dangers of replacing political participation with markets are apparent in British society today. It is connected with the rise of consumer politics, in which one’s vote is seen not as a responsibility to choose what is best for all but as an instrument of self-interest. It is one of the factors behind growing disillusion with politics, which in turn is a major threat to political freedom, as disillusion turns inevitably to cynicism. If politics is seen simply as ‘buying’ products in a political marketplace, it will soon lose all coherence, and hence, in the longer term, it will lose all credibility. Pure manoeuvre replaces attempts to reflect values. That in turn leads to endless disappointment, since, unlike in a real market transaction, if voters choose incoherently, as they are likely to do if they follow only their immediate desires (more services and lower taxes) they can and will blame ‘politicians’ for their own incoherence.

In contrast, political participation in decision-making (and not only in campaigning – single-issue politics can only be entry-level politics, not the full deal) is an education in political responsibility. It gives an insight into understanding the problem of political value and choice. To govern is to choose, but if only a few people understand that fact, and the rest are infantilised into believing that they can have everything they want, democratic government will not endure.

The classical liberal view that all the state should do is guarantee rights and then move out of the way leads to a situation in which politics appears not to be necessary. Social liberals fear that this classical liberal dream is a dangerous delusion, for there never can be a society in which rights are so firmly guaranteed that no political action is necessary to secure them. That is because securing rights can only take place through human institutions, such as the legal system, and human institutions are populated by human beings, who are not necessarily to be trusted. Any attempt to create such a perfectly non-political society (what might be called ‘legal liberalism’) will have the unintended but serious effect of making rights ultimately less secure. Liberalism, to be sure, values the rule of law, but social liberalism also recognises that law should not attempt to replace or abolish politics. Instead, law should be seen as a form of vitrified or frozen politics, a form that is valuable because it deliberately slows down some kinds of decision and because it is more firmly committed than the rest of the political system to ideas of procedural justice; but we also need the means by which other decisions can be taken more quickly, whether in the marketplace or in politics.

The value social liberals give to dialogue and democratic participation also emerges in another theme of British liberalism, that of community. If one were to read only recent liberal political theory, and ignore the practice of liberal politics in Britain over the past forty years, one might conclude that the idea of ‘community’ was the exclusive possession of an anti-liberal group of politicians called ‘communitarians’. It is true that anti-liberal, and indeed illiberal, communitarians exist. But they are not the only politicians interested in community. The liberal idea of community arises from the democratic ideal of people taking and using political power rather than from any metaphysical notion that people only exist in their relations with other people – a view liberals would reject, even though they value opportunities for rich human interaction. Liberal community politics can be criticised as tending to confuse society and the state, but its deeper meaning is as a form of active democracy, in which people come together, decide what they want to change and then work to bring that change about. The idea is not that politics should reflect the views of existing ‘communities’ – the amorphous groups within which communitarian (and specifically Labour) politicians want to trap people – but that it should create communities. More than that (and this is where the practice of community politics can go wrong), liberal politics should aim to create liberal communities.

All this explains why localism is a long-standing social liberal commitment. Local government combines all the liberal desiderata, not just some of them. It helps to disperse power and to promote experimentation and diversity, but, in addition, unlike markets, it can facilitate political participation. It has a human dimension that markets tend to suppress. Classical liberals sometimes criticise social liberals for claiming to believe in decentralising power but failing to promote further decentralisation from local government to individuals through markets. The social liberal response is that political freedom depends on active participation in politics and that can best happen, both from a practical point of view and from the point of view of avoiding the dangers of excessive concentrations of power, in local government.

Localism lies at the heart of what social liberals mean when they talk of reinventing the state. If the units of decision-making are small enough, more people will believe that their participation can make a difference and hence they will be more likely to participate. But, even more importantly, they have to believe that the unit of government in which they are invited to participate can make decisions that make a difference. The first condition of wider participation in local government is that local government needs to have effective power. Undermining that power, by, for example, purporting to ‘devolve’ power further to individuals in markets, will defeat the whole exercise. This is why both Labour and Conservative versions of localism will ultimately fail.

Classical liberals might object that the implication of localism is that, as long as the state is decentralised, it should be permitted to displace the market entirely. But this is not the implication of localism, at least for social liberals. Social liberalism’s devotion to localism arises principally from its commitment to preserving political freedom through encouraging political participation. The degree to which localised state institutions should displace market mechanisms, or quasi-market mechanisms such as voucher and insurance schemes, depends on the degree to which such mechanisms might undermine political participation, and the degree to which local political control might encourage political participation.

Because social liberalism supports localism for its political effects, for its contribution to liberty rather than to fairness, it ought to be supported by all types of social liberal, both minimalist and maximalist. The difference between them will be that minimalist social liberals will be satisfied if localism succeeds in safeguarding political freedom. Maximalists, however, will want to use local power to further their extended fairness goals. Maximalists will also argue that the dangers of state action for freedom itself will be less acute if that state action is taken at local level, since power will inherently be less concentrated and individuals will retain an option to exit (that is, to move house) that will usually be fairly easy to exercise. But maximalist social liberalism is not socialism. Ultimately it values political freedom above fairness, and it should not ignore the real dangers of the abuse of power at local level.

Getting the economy out of the state – beyond public choice

Classical liberalism enjoyed an intellectual and academic renaissance between thirty and forty years ago largely because of the rise of public choice theory. The basic premise of public choice theory is that since politicians and public administrators are humans too, their behaviour can be explained in the normal economic way of assuming that they are maximising their own welfare. Political behaviour in a democracy, for example, is explicable through the fact that politicians need to win re-election. Bureaucratic behaviour is explicable in terms of bureaucrats’ desire to maximise their number of subordinates. Both incentive structures lead to obvious inefficiencies. Public choice thus became the study of state or bureaucratic failure, a study that parallels, supplements and, crucially, changes the policy conclusions of economic thinking about market failure. Its central policy message was that market failure does not necessarily imply state intervention because state or bureaucratic failure might be worse.

Public choice theory has important weaknesses. Its view of what politicians want is very thin, because it ignores the role of political values and ideals. It promotes a view of democracy that is entirely passive – as a marketplace for desires in which votes are expressions of existing preferences, not as a forum in which desires are formed and changed. It assumes that political actors have no concept of virtue or public service whatsoever, an assumption that has the potential to feed back into a substantive belief that politicians in reality have no such concepts. It turns the older liberal-republican idea that, although political virtue exists, it is limited in supply and thus needs to be husbanded carefully into a conception of politics that dissolves all virtue and seems to require politics to be suppressed altogether.

Nevertheless public choice theory has a kernel of truth. The theme that political discretion is often dangerous and should be minimised forms part of the intellectual background to policies of all the main British political parties. It crops up not only in the Conservative privatisations of the 1980s but also in the quintessentially Liberal Democrat policy of independence for the Bank of England, a policy subsequently stolen by Labour.

There is, however, a problem. Public choice theorists tended towards libertarianism, and therefore tended to downplay the part played by the state in creating and structuring markets. They thought that if state activity were to be replaced by market activity, politics would be less important and we could all sleep more safely in our beds. This turned out to spectacularly wrong. The privatisations of the 1980s and ’90s were accompanied by the biggest-ever rise in lobbying, especially by business. The consultancy sector in the UK rose by a factor of thirty-one (or eleven-fold in real terms) between 1979 and 1998. What happened was that for privatisation to work, the state had to create, through regulation, a series of new organisations and markets, but it also created, in the form of the newly privatised companies themselves and others who might have an interest in them or their activities, a vast number of people who might benefit or lose according to precisely how the government chose to regulate. Furthermore, these organisations, unlike the previous state organisations, had budgets to spend on influencing those decisions.

British politics is now dominated by corporate lobbying. Lobbying lies at the heart of the crisis in party funding, for example, and the cash-for-honours scandal. It also contributes to alienation from politics, and ultimately from democracy itself, because the power of big economic interests to get their way demonstrates to everyone else their powerlessness and encourages a belief that political activity is pointless. Corporatism was not killed off by Thatcherism, as the public-choice theorists hoped. It has merely been reborn in a new form, with, for the most part, only one ‘side’ of industry being represented, but still otherwise intact.

Although we should be wary of the dangers of public choice theory’s libertarian anti-politics, its anti-corporatism remains entirely admirable. Public choice theory’s error lay not in hoping for the end of corporatism but in promoting methods of pursuing that goal that only made things worse. But the anti-corporatist theme itself, and especially the aim of rolling back the corporatist-lobby state, is entirely in line with social liberal instincts.

The role of a social liberal party

The question remains: how broad a church should a social liberal party be? Clearly there is no difficulty in holding within itself social liberals with different ideas about how to pursue social liberal goals, such as ‘economic liberals’. Almost as clearly, the gap between ‘minimal’ and ‘maximal’ social liberals does not lead to insuperable difficulties. The question in practice is about the degree of desirable redistribution or equality of opportunity, not the desirability of those things in the first place. And all social liberals can agree about democratisation and the redistribution of power.

The case of classical liberals, however, is more difficult. Classical liberal adherence to the common core of liberalism, namely the ultimate importance of political freedom, provides a very substantial shared base. But where classical liberalism starts to look like libertarianism, with pre-political theories of property rights and suspicion of all politics including democratic politics, there is more difficulty. Perhaps the issue is ultimately a practical one for classical liberals – do they feel more uncomfortable with fellow liberals who happen to believe in redistribution and democracy or with people who are not liberals in the first place?

There is also, and finally, the question of the relationship between the party and personal liberalism. Liberals in politics are often liberals in their own lives as well. Many liberals hold liberalism as a ‘comprehensive’ doctrine – one that offers guidance for all aspects of life – and not just guidance for politics. ‘Comprehensive’ liberalism means, for example, not just that the state should refuse to condemn other people’s choices when it does no one harm but themselves, but also that we should refuse to do so personally as well. Ultimately, personal liberalism comes down to the idea, derivable from the philosophy of Immanuel Kant, that there is no ‘core’ self that we cannot escape. We should be prepared to abstract away from any allegiance or prejudice and be prepared to start again.

There are difficult questions here. Comprehensive liberalism has political implications, for example about the extent to which we should tolerate illiberal behaviour within other people’s communities. Should we tolerate communities that do not allow people to leave them, for example? Irrevocable membership violates the most basic comprehensive liberal view, that people always have the capacity to change, and that denying that capacity denies their humanity. But should the state intervene to preserve that capacity for people who seem not to believe in it or to want it to be preserved?

If we accept the reality that a social liberal party will always have as its bedrock people who are comprehensive and personal liberals, the question becomes whether such a party should discourage from membership liberals whose liberalism is not personal but only political? That is, what about people who are not liberal in their own moral views but who are only liberal to the extent that they believe that, in public life, we should refrain from invoking arguments that appeal only to those from very specific cultural backgrounds or with very specific religious views (roughly ‘political’ liberals in Rawls’ sense)? Or what about those who would not even go that far along the route of restraining their own commitment to their own moral view but who believe that the only way to create a tolerable state of affairs in a society dominated by competing and incompatible comprehensive views is by a non-aggression pact, or more accurately a no-attempts-at-domination pact (‘modus vivendi liberals’)?

These questions are particularly pressing in a party that has always welcomed religious minorities and dissenters (for example the Nonconformist tradition) but whose political line tends towards secularism.

The best tradition of the party is that it should welcome liberals of all sorts, although it should recognise the tensions that will arise as a result. Liberalism, although as strong a political force in Britain as anywhere in Europe, is not so strong that it can afford to divide its forces. And it is also no longer possible to imagine, as Ralf Dahrendorf once did, that there is no need for a separate liberal party because the other parties could be sufficiently suffused with liberalism to make them safe. The rise of illiberalism, both in the media and in the New Labour government, has been too strong in the past decade to make that a plausible stance.

Social liberalism’s combination of political freedom, social justice and democracy are needed now more than ever.