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Book Review: Is There a Third Way?

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Is There a Third Way?
by Michael Novak (London: Institute of Economic Affairs, 1998); 62 pages; £6.00.

In spite of the failure and collapse of Soviet-style socialism and the free market’s demonstration of its superiority over all forms of central planning, the ideal that still guides most intellectuals and all governments is the “middle way” of the interventionist-welfare state. While the advocates of a society of free men and free markets are more numerous and consistent on this side of the Atlantic than in Europe, the fact remains that small is the actual number of people who consistently defend the philosophy of freedom.

A good indication of the ideological climate of our time is found in a recent publication issued by the Institute of Economic Affairs in London entitled Is There a Third Way? Half of the slender volume comprises an analysis by Michael Novak, “The Crisis of Social Democracy.” Novak is the well-known author of The Spirit of Democratic Capitalism (1982) and resident scholar at the American Enterprise Institute in Washington, D.C. The rest of the volume contains commentaries on Novak’s arguments by Anthony Giddens, director of the London School of Economics and the author of one of the most widely used textbooks in sociology; John Lloyd, associate editor of the New Statesman and former Moscow correspondent for the Financial Times, and Paul Ormerod, chairman of Post Orthodox Economics and author of The Death of Economics (1994).

Novak argues that not only has socialism failed but the western European ideal of social democracy, as a middle way between central planning and the market economy, is in serious crisis. First, the welfare state has become too costly to maintain. Bloated bureaucracies and redistributive programs have reached a point of financial unsustainability. The reality of budgetary bottom lines is forcing spending cutbacks and welfare reforms that run counter to the vision and appeal of social democratic policies during most of the post-World War II era.

Second, the welfare state has created a culture of dependency upon government paternalism that has weakened the character of society through a diminished sense of self-responsibility and risk taking.

And, third, the welfare state has replaced the free and voluntary institutions of civil society. No longer do individuals have the moral sense of family responsibility and local participation in those charitable associations that are the noncoercive means for ameliorating community problems. Novak asks:

“Can it be agreed that a free society is first a project in self-government? Since the main idea of an experiment in self-government is that people ought to be free to do for themselves all that they can do for themselves in their own associations and communities, independently of the state, they must keep the government strictly limited.”

It should be pointed out that Novak does not advocate the complete abolition of the welfare state. At various points, he says things such as the following:

“I freely concede that the free market alone is not enough, and that nowadays some sort of welfare system is almost always needed. The argument today is not, then, whether to have welfare programs but of what kind to meet new conditions and to correct deficiencies and unintended consequences that sixty years of experience have brought to light.”

But Novak’s concessions to the ideology of the “middle way” seem like minor points of little importance in comparison with the remarks of his three interlocutors. Often in tones of self-righteous indignation, they go on the attack when they say, “Some of the comments Novak makes seem to me ridiculous, such as ‘The welfare state corrupts us’ or ‘The peoples of the welfare state have once again become serfs.'” (Giddens). Or, “Michael Novak’s essay is typical of the current misplaced triumphalism of the American right” (Ormerod).

John Lloyd argues that the welfare state

“gives individuals, families and larger groups the sense of belonging to a wider community of interest than their own immediate relatives, friends and colleagues…. It remains important … that the citizen sees some provision which flows from his taxes, and which is open to all on roughly the same terms.”

It is not explained in what way an individual or a family has any sense of “wider community of interest” through the welfare state, other than whether they are the ones plundered by taxes and redistribution or the lucky recipients of the plundered goods. Nor is it explained in what way an individual benefits in his sense of citizenship when his income and wealth are taken from him by the state and he is precluded from the free choice of deciding how and for what purposes that which he has earned shall be used.

Ormerod, in typical Orwellian new-speak, tries to argue that “Novak, in common with many right-wing Americans, fails to understand that European social democracy is now, and always has been in practice, just another species of the broad genus, capitalism.”

Social democratic parties emerged in the 19th century with the purpose of bringing socialism to power through the ballot box. Their goals were nationalization of the means of production, central planning, and forced redistribution of wealth. Only in the 20th century, as the tyrannical character and economic inefficiency of socialism became generally realized, did the European social democratic parties retreat from their demand for full socialism into an advocacy of the interventionist-welfare state. Their acceptance of any elements of the market economy has been reluctant and forced by political reality.

Giddens wants to have his cake and eat it too. He wants the welfare state to be reformed if it leads to dependency and fatalism, but “the principle of collective responsibility is equally important.” And “welfare systems need to contribute to the entrepreneurial spirit, encourage the resilience necessary to cope with a world of speeded-up change, but provide security when things go wrong.” He seems not to appreciate that responsibility, whether individual or combined in a group association, has meaning and substance only through free choice and participation. Nor can real independence or healthy confidence be fostered in any setting of coercive taking and getting.

In his reply to his critics, Novak shows utmost courtesy and searches for areas of common agreement. But his essay and their commentaries merely demonstrate how far we still are from the victory for the society of freedom.

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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).