Is Libertarianism "Unfair"? (2013), By David Webb

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Is Libertarianism "Unfair"?
by D.J. Webb
Published on the LA Blog 10th February 2013

I have umm’d and aah’d for a long time over how to approach this issue, because it often seems that libertarianism is an ideological reflex of personal interests. For example, Allister Heath at City AM, generally fairly free-market in his approach, called recently for tax reform, but a “reform” that would retain taxes on income and profits and avoid imposing any levies on the occupation of land. On this very LA blog, many people otherwise libertarian in their general views have seemed vituperatively to oppose shifting taxation from income and profits onto property. Such people are often vocal in decrying any attempt to talk about the “fairness” of the free market, while happy to accept state intervention to skew economic opportunities in the interests of those who already have wealth and property. It is likely that most people who are “free-market” in their view of economics are simply expressing their own interests in the economy.

However, Sean Gabb, director of the Libertarian Alliance has indicated, for example, in his views on limited liability, that libertarianism should not be a ginger-bread group for corporate interests or the interests of the well-heeled alone. We have to be able to talk to the broad mass of people today and explain why libertarianism would work for them. We cannot only talk to people who are economically successful, but need to forge arguments around why things could be better for everyone. If libertarianism would not be a better approach for most people, then there would be no cogent argument in its favour. Consequently, fairness in society and the economy is a valid issue for most people to raise, and it would be foolish of libertarians who have money, don’t need the state and don’t want to pay more in taxes to argue the case for their views purely along the lines of their own self-interest.

Unfairness is natural

Fairness is central to economic and political discussion nowadays, usually in the context of demands for compensation for some allegedly unfair (or often a blatantly unfair) economic outcome. The “fairness” agenda holds back the entire economy by making it difficult for companies to sack staff who underperform or who don’t fit in, and also imposes costs on all consumers of services, in the form of higher charges across the board to pay for the shakedowns being successfully achieved by others. Libertarians clearly are aiming for a free society, not an equal society, and so, to that extent, the outcomes we would favour would be classed by others as “unfair”, because not all members of society would have equal life opportunities in a libertarian economy.

However, this is also the case today, and has to be the case in every possible configuration of society. A truly equal society is a society that is on the verge of starvation, where the economy produces no more than is needed to barely sustain life. This was probably the case in Stone Age society, before a greater economic surplus allowed the emergence of a class of priests and rulers who did not have to occupy themselves with tilling the soil or herding animals. Since that time, every attempt to create an equal society, including the glaring example of the Soviet Union, has, by necessity, produced a society with a clearcut division between the rulers and the ruled. Therefore, it is difficult to deny that society has to be unfair in the modern age. We can’t all be chiefs; some of us have to be Indians. There are only so many positions in the economy for executives and senior managers.

This generally then leads into a discussion of equality of opportunity where there can be no equality of outcome. This line of approach holds that unfair social outcomes are acceptable, as long as we all have an equal chance at becoming managers or executives, or taking other top positions. But equality of opportunity amounts to the same thing as equality of outcome, given the left-wing fondness for claiming that unequal outcomes are the key means of determining whether opportunity is being unfairly distributed or not. For example, women today do have equal opportunity, or better than equal opportunity given the rise of political correctness, to become board directors, but it is held by many that the fact that most directors are male is in itself proof that women are being held back. So it seems that equality of opportunity is just an abuse of the English language, a rephrasing of the goal of equality of outcome in more acceptable terms. When it comes down to it, the left are still demanding equality.

People are different: women have different average personalities, for instance, and there is an increasing body of evidence that people of different races have differing average IQ levels. Once we add cultural background into the mix, there is no reason to expect people to have equal starting points in life, let along equal socioeconomic outcomes. “Unfairness” therefore is, to a large extent, just the way the market sorts out who is to get the senior positions in a society that produces a social product well beyond the needs of bare subsistence for all, and therefore capable of supporting a wealthier ruling class (and indeed, a prosperous stratum of middle-class hangers-on).

Generally speaking, people do deserve their socioeconomic outcomes in a free market. And to the extent this is not true, it is just tough luck. It is indeed “unfair” that some people are more beautiful—I myself consider it to be unfair that some people are born with blue eyes—but that is life. And no intervention by the state will make things otherwise.

State intervention produces unfairness

State intervention claims to even up social outcomes. To some extent, this goal is supported by most people, not least because of its role in fostering social stability and keeping a lid on crime. Extremely unequal societies often incur additional costs in the form of security and policing, and where some social spending can maintain stability, it is in the interests of the wealthy elite to allow this. For example, the French queen, Marie Antoinette, may have in later life regretted the fact that nugatory sums were not made available before the French Revolution for the distribution of bread to the poor of Paris. This is also probably why charitable donations were considerable in nineteenth-century England, as the wealthy sought to keep society functioning.

However, massive state intervention on the level that is practised in the UK is entirely counterproductive. When 50% of GDP is spent by the state, it becomes clear that a large part of this is being captured by a public-sector elite, and where the money does go directly to the indigent, it fosters in them habits that prevent the normally functioning of the economy, reducing economic growth and the creation of job opportunities, which would have had positive effects on social welfare in the absence of state intervention.

While disparity in earning power should be accepted in the private sector—footballers, for example, earn far more than most people can earn, but are not embezzling our taxes—the same phenomenon in the public sector is much more repugnant. And this is a form of unfairness that libertarians should be prepared to decry. I was surprised to read, during the recent scandal over the removal of Slovak children in Rotherham from a family that supported the political party UKIP, that the “director of children’s services” in a dead-end northern town was earning more than £130,000 a year, plus expenses and pension contributions. This put her in the same earnings bracket as the prime minister—and in Rotherham, it would be a salary that very, very few in the private sector could hope to command. While this is not legally classed as theft, morally, in my view, paying a bureaucrat doing a job that if it does need to be done by the state at all could be done just as well by an operative earning a quarter of that amount does amount to stealing public funds.

It is idle for libertarians to deride calls for more “fairness” when some people have access directly to the public purse and can lift such sums therefrom. Claims that the main fraudsters in society are “welfare queens” and “benefit scroungers”—i.e., by and large, single mothers who are not working, but hardly living in luxury—are wide of the mark indeed. I want to cashier the state bureaucrats as a matter of much greater urgency.

Then there is the issue of pensions. Local government pension contributions account for one-quarter of monies received as council tax. Shockingly, people who have no other pension provision—other than reliance on the state retirement pension (of around £5,000 a year)—are being forced to pay council tax so that council workers do not have to rely on the state retirement pension themselves, and do not have to take out their own self-invested personal pensions either. It seems difficult to deny that we have a grossly unfair system—not, in fact, the natural unfairness of the free market, something that has to be permitted in a competitive labour market—but the overt defrauding of working people by bureaucrats who claim they need to be employed in order to combat the unfair economic outcomes produced by the free market!

We can also see those who benefit from state scams to address “inequality” as helping to produce additional forms of state-created unfairness. Some people can sue for discrimination if they lose their jobs, on the basis of their race or sex. I have never been able to argue that being an white Englishman is a source of discrimination, but I have been aghast at the trivial compensation suits that are often settled out of court where an obviously disruptive member of staff has been able to insist on a payout on racial grounds. Far from evening things up, this makes things more unfair—for people like me! Compensation payouts are another creation of the state. Many of these run into telephone-number-like sums, including the nurse who won nearly £500,000 for pricking her own finger with a needle: apparently she was “traumatised for life”, but why the need for any payment at all? Much of what the state and the courts are doing nowadays has little to do with fairness, but is producing a lottery-style outcome, where certain talentless individuals are able to walk away with large sums for nothing.

State encouragement of novel family arrangements and broken homes also fosters social inequality, in that children are much more likely to be brought up in poverty by single mothers. The statistical correlations with juvenile crime and violence are also quite high. It seems odd that we seem obsessed with equality of social outcomes while trying to make it possible for unmarried mothers to bring up children without the support of the fathers and without any sources of income other than state welfare. While preventing inequality is not a libertarian goal, state policies that heighten inequality are repugnant in every sense, in that they tax incomes and profits, prevent the creation of jobs, foster crime, and fail to achieve the ostensible goals of state intervention in terms of creating more equal social outcomes.

It seems clear to me that state intervention does not prevent unfairness, but in fact produces its own types of unfairness. Unfairness is impossible to eradicate without stifling economic growth altogether. And other negative effects are also produced, including the destruction of the education system in order to allow those who attend bad schools (or who are lacking in intelligence, or who come from broken homes, which are themselves encouraged by the state) an equal chance in life.

Unfairness in wages

Libertarians ought to accept unfairness in earnings in the private sector as a natural phenomenon. Theoretically speaking, the free setting of wages in contracts between employers and employees should not prevent workers from receiving a living wage. No minimum wages set by the state are required. This is because workers need to survive; the workforce needs to be reproduced; and workers need to be able to take part in a normal level of consumption in society. In a free economy, there would be no tax credits to top up wages and no benefits: employers would not be able to pay wages that were so low that they imposed social costs.

It is important to see this issue from a whole-society perspective. Clearly, there are employers who relish the chance to employ people from Eastern Europe on the minimum wage, which amounts to around £13,000 a year. But this is not enough to live on in the UK, and certainly not enough to raise a family. The fact that people do take up positions offering such wages reflects the availability of tax credits and benefits for people in work that makes such salaries, while paltry, just about survivable. For the company concerned, it is good economics; for the economy as a whole, it is a bad deal, as someone has to pay the taxes that cover the social costs. Magazines like The Economist that tirelessly propagandise for immigration do so, no doubt, out of recognition of the fact that vested interests in the economy support cheap labour, but it is economically illiterate to support mass immigration of unskilled labour, when we have millions and millions of idle unskilled people of our own. The assumption must be that the state is picking up much of the tab, but as the state has no money of its own, the outcome for the economy as a whole is pretty dire, as the current economic slump shows, with so many millions having been allowed to become dependent on state handouts, which makes it difficult to cut spending at a time when a reduction in the state is desperately needed.

The UK doesn’t save anything by allowing free immigration of unskilled labour, because what is gained in higher profits by the freeriding companies concerned is more than compensated for by losses imposed on the tax base as a whole. Furthermore, free immigration, far from being a libertarian concept, is a form of intervention in the labour market that prevents wages from finding their appropriate level. Low-end jobs would attract higher salaries in the absence of immigration, simply because the labour market would tighten, and workers would be able to demand wages that allowed them to keep themselves healthy, to raise a family, and to rent or buy property in regions like London without state subventions. Clearly, markets for durable goods need customers, and so allowing the free market to operate naturally would allow wages to rise to a level that enabled workers to participate as consumers in the market.

Once again, we see that the British economy today is unfair—and it is not the natural disparity of incomes produced by the free market that is the culprit—but the way immigration has been used to support property prices and hold down low-end wages. There is nothing free-market about the ability of employers to offer work for £13,000 a year and find workers willing to take up such places. That such low-end workers probably support the state and its payments and tax credits reveals the fact that they do not realise how the labour market is being distorted against them by the state and its schemes, including the immigration scam, which aims to allow companies to privatise profits and nationalise costs at the expense of the general taxpayer.

Finally, we come to the unfairness of executive pay. Executive pay has soared out of all connection with average salaries in the UK, and while libertarians would support wages finding their own level in the free market, it is worth asking whether remuneration committees of listed companies are doing their jobs effectively. An unlisted company, owned by the family founders, is not a legitimate subject for libertarian scrutiny: an entrepreneur who founds a company and retains 100% ownership of it can pay himself what he likes. A listed company has millions of shareholders, and the large sums bandied about by remuneration committees are the shareholders’ money. Just as the Libertarian Alliance has supported abolishing limited liability, I think the LA could also consider the issue of minority shareholders’ rights in the face of boards of directors and remuneration committees who behave as if they are the sole owners of the companies concerned. Companies do need to be able to pay the going rate for their talented managers, but votes on pay packages by shareholders at annual general meetings should be binding, and be considered in law to fully unpick any contracts signed on their behalf between AGMs. Some kind of reining in of “share options” is also appropriate. If executives want to purchase shares in their companies, they should do so on the open market at the market price, taking their fair share of risk as they do so.

Property fraud

Finally, we come to the essential issue of landed property, which is the fundamental form of social scrounging in the UK today. Land is not the result of anyone’s activity; it is the gift of nature. No one has absolute title to land, because there was no one who originally owned it to buy it from. There can be no question that levying a land value tax is an attack on “property rights”, because no one has allodial title to land in the UK, as “freehold title” is just tenancy in fee simple held of the Crown, in whom allodial title is vested along with the common-law right to levy an assessment on land. Contrary to claims by some on the LA blog, this has nothing to do with David Ricardo or Karl Marx. It has everything to do with the fact that land is a common social resource that is not the product of anyone’s labour.

Clearly, there is unfairness in property in the UK. A whole generation of young people are growing up knowing that they can either sit on benefits or take a job paying £13,000 a year, with the likelihood of never being able to afford to buy a property, as government policy has over decades boosted the property market and it cannot retreat on this policy without a large impact on the banking system, most of which has foolishly been taken into public ownership. This “unfairness” is not the natural result of a free economy; John Stuart Mill himself supported a land value tax, which would prevent the passive capturing of socially-created values by a rentier class, reduce taxes on labour and capital, and ward off cycles of boom and bust that have made life in the UK so expensive, as property values have diverged from wages so sharply over decades.

A home is not an investment. It is a place to live. And someone who has “invested” in a property by building an extension might reasonably expect the increase in the building value—when calculated separately—to be capitalised in his estate, but cannot expect the increase in the land location value as the result of infrastructure developments paid out of public taxes to be capitalised in his estate. This is middle-class land fraud, where the wealthy and not-so-wealthy have thrown in their lot with the financial services sector and the banks by sinking their entire savings into freehold property in the hope of capturing site value increases paid for by others.

The implications are considerable. Not only do parents who own their own houses now see their children growing up in a world where they could never expect to buy property, but the astonishing rise in property prices in the South-East in particular has pushed up executive pay and public-sector pay to allow executives and the self-entitled public-sector bureaucrats the lifestyles they feel they need. The taxpayer has to stump up colossal sums in housing benefit to pay the mortgages of buy-to-let landlords, where much smaller sums would have been sufficient without the land value boom of the past few decades. Many on benefits have effectively been priced out of the labour market, as they could not hope to earn enough to pay rents/mortgages on the properties they live in if they did not have housing benefit. The rise in the cost of living necessitates tax credits that could simply be eliminated if property were much cheaper.

Many private businesses are extremely land-value-sensitive. Nursing home fees include a large contribution towards property rentals, often drawn up on overtly fraudulent rental agreements providing for “upwards-only” rent reviews. The workers in the nursing homes are themselves on the minimum wage, and it would be difficult for average fees to be as high as five-star hotel bills without high land values. We can add the state’s willingness to pay nursing home care bills into the mix, but in truth the state has been forced into this by its other policies designed to boost the property market and the banking sector.

The fact that people who have no assets have their full care bills covered by the local government, whereas those with assets are asked to pay towards their care, strikes many people as “unfair”. It is of course unfair. But the whole setup of society as currently constituted, with massive tax burdens, state intervention in property and state encouragement of unskilled immigration, is also unfair. Many of those who have reached retirement without putting any savings aside have achieved this purely because of the low-wage, high-taxation, mass-immigration and high-property-price economy that has been created—laughably—in the name of “Thatcherite” free-market economics. Those who are in nursing care having their bills paid never really had the chance to earn a living wage in the first place, and, where they were on benefits for much of their lives, their participation in the labour force would have been deterred by the low wages, high taxes and high property prices beloved of successive governments.

Weep when you read it—the government has imposed a £75,000 “cap” on nursing home fees, so that the heirs of those who own property can inherit the capitalised increments in land value passively gained by their parents or other relatives simply by managing to buy property at the right time. This ought to be known as property heirs’ benefit, because it is a form of social scrounging in its own right. Why should the taxpayer be paying purely to prevent a nonagenarian who will never be able to return to his former property from having to sell the house?

Vested interests and libertarianism

Consequently, I reach the conclusion that libertarians, while supporting a free economy, do not need to support the vested interests that lie behind massive state spending, huge tax bills, wages repressed by free immigration, and a raft of policies to support the banking sector and the property market. There is nothing free-market about any of this. And yet, apparently, most libertarians seem to believe that the various intertwined levels of unfairness produced by all of this are just the natural product of market forces.

Nothing can make any society truly equal, and we shouldn’t even try. It is another thing entirely to be constantly intervening to help those who already have money maintain their position in society at the expense of labour and capital. Young people entering the labour market now face an economy dreadfully skewed towards the interests of older generations, public-sector mandarins and the banking sector. “Let them eat cake!” cannot be the libertarian response. After all, if libertarianism means anything at all, it means that labour and capital must be set free. That way leads to employment creation, an end to welfarism, higher living standards, and the self-respect of people who are masters of their destiny in a free market. This form of libertarianism could be supported by people of all levels of income, as they would all benefit from a free economy. Such a free economy would not be fully equal, but inequality would not be being fostered by the state, and such inequality as existed would be natural, earned and deserved—and therefore, by and large, “fair”!