Free Markets and Free Thinking
In his valedictory column upon the completion of his time as editor-in-chief of The Economist, John Micklethwait revisits the magazine’s raison d’etre and considers his hope for (19th century) liberal economics and the associated importance of free markets and free thinking.
If liberal politics are rightly attacked, the blows that have rained down on liberal economics have perhaps been even more painful. It is now a commonplace to blame the dominant event of this editorship, the 2007-08 financial crisis, on unfettered capitalism. This is mostly a calumny: the epicentre was the American mortgage market, one of the most regulated industries on Earth, and Leviathan’s hand was all over much of the mess that followed. But part of the charge against capitalism was true, and it hurts. No liberal can justify a system in which huge banks’ balance-sheets teetered on tiny amounts of capital. In 2006 too much of finance was gambling, pure and simple; and too much of the bill ended up with taxpayers. This helps explain why a feeling of unfairness lingers across the West visible in the streets of Athens, but also in the pages of Thomas Piketty. People blame liberalism for much of what they fear: whether large-scale immigration, technological change, or just what the French call mondialization.
Such a reaction is not unreasonable. Globalization has indeed brought problems in its wake. But it has also done an incredible job in reducing want. Since 1990, nearly 1 billion people have been hauled out of extreme poverty; and the 75m people who bought an iPhone in the last quarter of 2014 were not all plutocrats. Moreover, open markets could do more, not least in the West. Free-trade pacts across the Atlantic and the Pacific would spur growth, while Mrs. Merkel could open up Europe’s single market in services. The magic still works, and liberals should be far bolder in making that optimistic case.
But that is not enough. Two great debates are forming that will redefine liberalism. The first is to do with inequality. A more open society, where global markets increase the rewards for the talented, is fast becoming a less equal one…These were causes that motivated Wilson, John Stuart Mill, William Gladstone and the great liberals of the 19th century, who waged war on “the old corruption” of aristocratic patronage and protection for the rich, such as the corn laws this newspaper was set up to oppose. But they were progressives who also believed in a smaller state. This is the second debate forming around liberalism, and a dilemma: for although this newspaper wants government’s role to be limited, some of the remedies for inequality involve the state doing more, not less. Early education is one example. Only 28% of American four-year-olds attend state-funded pre-school; China is hoping to put 70% of its children through pre-school by 2020.
The answer is to scale down government, but to direct it more narrowly and intensely. In Europe, America and Japan the state still tries to do too much, and therefore does it badly. Leviathan has sprawled, invading our privacy, dictating the curve of a banana and producing tax codes of biblical length. With each tax break for the already rich and with each subsidy to this business or that pressure group, another lobby is formed, and democracy suffers…
The battle for the future of the state is an area where modern liberalism should plant its standard and fight, just as the founders of the creed did. Because, in the end, free markets and free minds will win. Liberalism has economic logic and technology on its side — as well as this wonderful newspaper, which I now hand over into excellent hands. And that is my last, best reason for optimism.