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Book Review: Against the Dead Hand

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Against the Dead Hand: The Uncertain Struggle for Global Capitalism
by Brink Lindsey (New York: John Wiley & Sons, 2002); 336 pages; $29.95.

THE WORLD IS BECOMING increasingly smaller. Commodities, capital, and people move around the world with far greater ease than at any time since before the First World War. Market-oriented reforms have been the watchword for economic policy for two decades all around the globe. Government-owned industries have been sold off to the private sector. International trade barriers and investment restrictions have been significantly lowered. Domestic regulations have been noticeably reduced in a large number of countries around the world.

By all outward signs and impressions, the current age represents a dramatic rebirth of free-market capitalism and its institutional foundations. Socialism and the interventionist-welfare state have been defeated. A grand vista of a new century of personal, civil, and economic freedom may be right in front of us.

Perhaps it will be, but there are those who have concerns and doubts about the continuing direction of the global economy. One of these is Brink Lindsey of the Cato Institute, who explains the reasons for his concerns in his new book, Against the Dead Head: The Uncertain Struggle for Global Capitalism. The trend towards a greater degree of economic freedom in various parts of the world over the last 20 years, Lindsey argues, has not been based on any thorough and positive belief in the virtues of the market society or the productivity of it. It has happened by default and with great reluctance in many countries simply because of the abject failure of government planning, regulation, and control.

Lindsey explains this thesis on a broad canvas on which he takes the reader on a journey that covers the political, social, and economic trend of ideas during the last two and a half centuries. He explains how the ideas of the classical liberals and classical economists liberated the world from its centuries-old system of government domination of society. The thinkers of the 18th and first half of the 19th centuries articulated the case for free men, free markets, and international free trade. The success of these ideas revolutionized the world, bringing about more freedom and prosperity than the human race had ever known.

But beginning in the second half of the 19th century, a variety of counterrevolutionary ideas emerged and began to have increasing influence and power over the minds of men and the direction of government policy. These ideas were socialism, protectionism, and the welfare state. Why they had arisen and successfully challenged the free-market philosophy, Lindsey says, was partly owing to the triumphs of the new market society.

Individual freedom, developing industrialism, and the new contract-based society weakened and undermined the traditional cultural and institutional anchors of society. Men were thrown into a new type of social order that created a sense of disorientation in many people and a disconnection from the customary arrangements that seemed to represent stability for many people. Socialism and the new mercantilist system of protection, regulation, and welfare seemed to offer a tamed and more humane industrial society.

In this critique of 19th-century market society, Lindsey follows closely many of the criticisms of early capitalist society that were made by the German economist Wilhelm Röpke and his colleagues who devised the “social market economy” in post­World War II Germany. He gives very few references, however, to this literature as a source for this part of his analysis.

As a number of other writers have pointed out over the last half-century, the breeding ground and spearhead for instituting socialist and interventionist welfare-state policies in the late 19th century was Imperial Germany under the leadership of Chancellor Otto von Bismarck. The German academics who spread the rationales for these policies were known as the “Socialists of the Chair,” and they soon influenced intellectuals and other academics throughout Europe and North America, including the United States. Lindsey concisely surveys and summarizes the history of Germany’s role in fostering and first experimenting with the statist economic policies that have dominated the 20th century.

The fundamental fallacy in these socialist and interventionist ideas, he argues, was the notion that industries and entire nations could be controlled and managed from the top down. He emphasizes Friedrich Hayek’s insight that the knowledge of the world and all of its nuances are far too great and complex for any such central direction. Only decentralized decision making and control, as is reflected in the workings of the free-market system, can provide the individual freedom and economic discretion to allow each person to use his own knowledge and ability as he sees best. The coordination of all that is undertaken by the multitude of free men is accomplished by the competitively generated price system.

But the path taken by both industrial and underdeveloped countries through a good portion of the 20th century was to establish and impose central planning and control over society. The upshot was both tyranny and poverty. But in spite of the general rejection of outright socialist policies, the world is not a free-market paradise. Lindsey enumerates how the heavy and choking hand of government control still dominates most of agriculture around the world.

For example, in the member countries of the Organization for Economic Cooperation and Development, total farm subsidies came to about $349 billion in the period 1996­98, equaling about 37 percent of all farm income. He also points out that the industrial and communications sectors in all of these countries are still heavily regulated and controlled by governments, limiting competition and innovation.

The root of the problem

Welfare-state costs and redistribution still dominate the social-policy arena. And labor markets are still inflexible under the weight of trade-union power, especially in the countries of Europe. For example, in Germany the compulsory trade unions control 95 percent of all wage negotiations; in the United States by comparison only 18 percent of the work force operate under union contracts.

The heavy hand of government also remains ever present throughout the developing world of Asia, Africa, and South America. Tariff barriers for all these nations average 13.3 percent, though they are as high as 27 percent in Egypt and 35 percent in India. And foreign direct investment in many sectors in these countries is still limited or even prohibited. Lindsey points out that the studies of Peruvian economist Hernando de Soto and others have highlighted the great extent to which formal property rights still do not exist in these nations, which has resulted in nonexistent or grossly inefficient product and capital markets. (See the review of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando de Soto in Freedom Daily, February 2001.)

The financial collapses that have occurred in a number of East Asian countries in the last few years, Lindsey explains, were not due to the failure of the newly tried free market and its open capital markets. Instead, they were caused by the continuing hand of governments in manipulating their banking systems and the allocation of capital and credit to politically favored sectors and industries, by the inflationary mismanagement of the domestic money supplies that has undermined the stability and value of their currencies in the foreign-exchange markets, and by the domestic regulations and subsidies that have prevented or retarded necessary pricing and production readjustments to restore economic balance and profitability.

The new critics of market-oriented globalization, however, blame all of these economic problems and difficulties around the world on the capitalist system. They also reject what they consider the culture of capitalism, with its emphasis on the creation of greater material comfort and rising standards of living for a growing number of people around the world, Lindsey says. But for all their complaints and criticisms, they have nothing to offer except a return to the old system of control, regulation, and planning.

This leads him to state,

There is at present only one viable vision of economic development: the liberal model of markets and competition. It is neither widely loved nor widely understood, but it is all there is. As when existing institutions break down so badly that changes become unavoidable, leaders in search of a template for constructive action now turn to the liberal model by default. In this way the dead hand yields, bit by bit, to the invisible hand of the market.

But Lindsey tempers the notion that good, free-market policies will slowly but surely supersede the bad, interventionist, and regulatory policies of the past. “Free-market partisans sometimes talk as if they have already won the war of ideas, but the self-congratulations are dangerously premature. They have confused passing a turning point with bringing the campaign to completion.” The opponents of the free-market society still criticize self-interested, decentralized, market decision making and advocate “public interested” political management. And they still argue that the opposite of government planning and regulation is “chaos” and “social injustice.” Thus, the task of the proponent of economic liberty, Lindsey concludes, is to hope that a change in ideologies and ideas has really begun to take hold but also to remain ever vigilant and determined to fight the large number of battles that still remain ahead if individual freedom and the free market are really to triumph around the world.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).