David Miliband’s Rejection of State-Directed Socialism

Driving back from work a couple of weeks ago, I caught a radio 4 interview with David Miliband. As I said here, he has every chance of becoming the Leader of the Labour Party and has a very good chance of becoming the next Prime Minister. We must all listen very carefully to what he has to say as he outlines his vision.

On economics he is a slave to the underconsumptionist cranks that have been refuted again and again throughout history, but like a Zombie, keep coming back to haunt us. A stake in the heart is the only thing for that branch of economics, and it is part of the Cobden Centre’s mission to help provide that stake.

I recall the interviewer questioned Miliband about the Big Society project. This brought to mind a quote from Cobden 150 years before that is the strap-line to this web site,

Peace will come to earth when the people have more to do with each other and governments less.

I have written favourably about The Big Society project before, so I eagerly awaited his response. To my delight, he was very supportive of people doing more things with each other and said that the Labour Party had become too much of a State-supporting Party and that this was not the be all and end all. He also said something surprising: that being a Socialist is really about being socially minded, that it does not necessarily entail the State doing everything, but rather allows the possibility of mutual co-operation. Socialism to me is the State control of the means of production, distribution and exchange, allegedly for the benefit of all. There is promise in Miliband’s interpretation, but there is also a historical justification for it.

Murray Rothbard, in his celebrated 1965 essay Left and Right: The Prospects for Liberty talks about the radical anti state origins of the Socialist movement:

Socialism, like liberalism and against conservatism, accepted the industrial system and the liberal goals of freedom, reason, mobility, progress, higher living standards for the masses, and an end to theocracy and war; but it tried to achieve these ends by the use of incompatible, conservative means: statism, central planning, communitarianism, etc. Or rather, to be more precise, there were from the beginning two different strands within socialism: one was the right-wing, authoritarian strand, from Saint-Simon down, which glorified statism, hierarchy, and collectivism and which was thus a projection of conservatism trying to accept and dominate the new industrial civilization. The other was the left-wing, relatively libertarian strand, exemplified in their different ways by Marx and Bakunin, revolutionary and far more interested in achieving the libertarian goals of liberalism and socialism; but especially the smashing of the state apparatus to achieve the “withering away of the State” and the “end of the exploitation of man by man.” Interestingly enough, the very Marxian phrase, the “replacement of the government by men by the administration of things,” can be traced, by a circuitous route, from the great French radical laissez-faire liberals of the early nineteenth century, Charles Comte (no relation to Auguste Comte) and Charles Dunoyer. And so, too, may the concept of the “class struggle”; except that for Dunoyer and Comte the inherently antithetical classes were not businessmen versus workers, but the producers in society (including free businessmen, workers, peasants, etc.) versus the exploiting classes constituting, and privileged by, the State apparatus. Saint-Simon at one time in his confused and chaotic life was close to Comte and Dunoyer and picked up his class analysis from them, in the process characteristically getting the whole thing balled up and converting businessmen on the market, as well as feudal landlords and others of the State privileged, into “exploiters.” Marx and Bakunin picked this up from the Saint-Simonians, and the result gravely misled the whole left-socialist movement; for, then, in addition to smashing the repressive State, it became supposedly necessary to smash private capitalist ownership of the means of production. Rejecting private property, especially of capital, the left socialists were then trapped in a crucial inner contradiction: if the State is to disappear after the revolution (immediately for Bakunin, gradually “withering” for Marx), then how is the “collective” to run its property without becoming an enormous State itself in fact, even if not in name? This was a contradiction which neither the Marxists nor the Bakuninists were ever able to resolve.

Having replaced radical liberalism as the party of the “left,” socialism, by the turn of the twentieth century, fell prey to this inner contradiction. Most socialists (Fabians, Lassalleans, even Marxists) turned sharply rightward, completely abandoned the old libertarian goals and ideals of revolution and the withering away of the State and became cozy conservatives permanently reconciled to the State, the status quo, and the whole apparatus of neomercantilism, State monopoly capitalism, imperialism, and war that was rapidly being established and riveted on European society at the turn of the twentieth century.

Could Miliband be thinking of re-connecting with this anti state and pro individual Liberty past? We must remember the role that trade unions played in helping to establish the early private and voluntarily administered welfare state. Before the National Insurance Act 1911, friendly societies provided a mixture of health care at a fixed membership free, and employed doctors at affordable wages so the masses of the working-class could afford them.  They provided drug dispensary services, sick pay, and much more. Such was the success of the societies that they provided 75% of the population with welfare services, with the remainder provided for by the Poor Law and private subscription for the paupers and the rich. Lloyd George sought to apply the cover to all people and in the process let his bill be amended to transfer the power of provision away from working-class lay-controlled mutuals to control by the professional medical class, at significant higher wages, and to the state administrators. All power was to the State post 1948 with the establishment of the NHS. Dr David Green’s 1985 book Working-Class Patients and the Medical Establishment: Self-Help in Britain from the Mid-Nineteenth Century to 1948, which I reviewed in August, is a must to read for anyone serious about better medical provision. Could Miliband seek to really dismantle the Leviathan welfare state and really empower the people by devolving power and taxes back to the masses? As he was a Cabinet Minister who presided over one of the largest and most unproductive transfers of wealth from the people to the State, this may well be wishful thinking.

I am indeed intrigued why he makes the distinction between the social element of Socialist and his eagerness to disassociate himself with the politics of the Labour Party, which has always been a pro-state Party since it came anywhere near government.

Could Miliband have recognised that socialism is in fact a truly anti-human ideology?

Mises in his seminal 1920 Essay, “Economic Calculation in the Socialist Commonwealth”, outlined how in the absence of a market based prices system, no central planners could possibly collect all the data that freely produced prices tell us about scarcity of resources. The case for the impossibility of a socialist economy was thus made.

His student, F A Hayek in his essay “Economics and Knowledge”, laid out the case that it was impossible for central planners to collect the various bits of knowledge embedded in each participant in the economy to centrally plan production for all. Hayek’s Nobel Lecture focused on this very point.

Socialism: an anti-human intellectual error

Professor Jesus Huerta De Soto has just launched an English language version of his 1992 book called “Socialism, Economic Calculation and Entrepreneurship”. I have previously reviewed one chapter on Entrepreneurship and I now intend to share with you some of the highlights of his opening chapter on Socialism.

First let us recap on the essential role of entrepreneurship. All acts of entrepreneurship are creative and generate new information. This information is transmitted to third parties via the price system; this allows 3^rd parties to adjust their behaviour according to the new set of beneficial arrangements. Any intervention to stop or redirect this process will lead to a change of behaviour away from the original behaviour the entrepreneur wanted and will lead to suboptimal results.

By contrast the Socialist aims at usurping this role and getting government departments to do it. This is a big and bold thought process. Huerta De Soto says,

Hence, the question socialism poses is this: Can the coercive mechanism possibly instigate the process which adjusts and coordinates the behaviour of different people and is essential to the functioning of life in society, and can it do so within an environment in which people constantly discover and create new practical information that permits the advancement of civilization? Socialism establishes a highly daring and ambitious ideal, since it involves the belief that not only can the mechanism of social coordination and adjustment be set in motion by the governing body that applies institutional coercion in the social sphere in question, but also that this coercive procedure can even result in a more proper adjustment.

For example, back in July I had a conversation with a potential entrepreneur who has identified an abundant source of farm waste product that could be excellent for fish feed. If his business is developed, farmers will suddenly be made aware that what was once a cost can now be a source of revenue for him. Thus he will adapt his farming processes to now harvest this waste and costly product for profit. The fish farmers will eagerly await this new source of protein and adapt their newer and better buying accordingly. If this has to be approved by a government department or some European paper shuffler, this innovation will not happen, or if allowed with modifications to suit some pre-determined government target or outcome, the act of entrepreneurship may be rendered unprofitable, and so fail to proceed. Farmers will miss out on opportunities to save money on waste and make cheaper food for us all.

With State planning in healthcare and education, the very act of entrepreneurship is positively discouraged as there is no role for it; the relevant department initiates or controls most eventualities. This is a staggering waste of human creativity and it is no wonder these departments, no doubt full of noble and well-intentioned people, produce suboptimal results.

Socialism aims to set a system of institutional coercion of the economic system to produce results that accord with the views and preferences of the social engineers who operate the system.

As a result of this coercion, the actor, who otherwise would have freely exercised his entrepreneurship, is forced, in order to avoid greater evils, to act differently than he would have acted in other circumstances, and thus to modify his behaviour and adapt it to the ends of the person or persons who are coercing him. We could consider aggression, when defined in this way, to be the quintessential antihuman action.

Huerta de Soto defines Socialism as

any systematic or institutional coercion or aggression which restricts the free exercise of entrepreneurship in a certain social sphere and which is exercised by a governing body responsible for the necessary tasks of social coordination in this area.

Following Mises and Hayek, he argues that

Socialism is an intellectual error, because it is theoretically impossible for the agency in charge of applying institutional aggression to gain access to enough information to allow it to issue commands capable of coordinating society.

The error of socialism from the standpoint of society: the static argument

In my business with all my 500 members of staff (supply of fish to the food service sector) each of us have knowledge about what our 6,000 customers require each day, 6 days per week, 52 weeks of the year to feed their customers. We could not possibly communicate this information to a central planning department who could then plan out the fish consumption requirements, procurement, cutting and delivery to the part of the food service sector I supply. And yet, as said, the direction for health and education in this country comes firmly from the centre. It is impossible that the centre could possibly understand and manage the changing health and educations needs of the 60 million people in the country.

Therefore, the knowledge in question is only available to the human beings who act in society, and by its very nature, it cannot be explicitly transmitted to any coercive central body.

As this knowledge is essential to the social coordination of the different individual behaviours which makes society possible, and because it cannot be articulated and thus cannot be transmitted to the governing body, the belief that a socialist system can work is logically absurd.

The dynamic argument

Earlier this year, I watched my local farmer bring in a grass crop frantically in 3 days as he assessed a window of opportunity for him to do so, since rain was coming. He could not send this up to a State planner to make a decision for him – only his local knowledge about this particular time and circumstance, and his informed intuition regarding the weather could lead to this decision. He has crop that he can sell now. A planner in Whitehall would neither have all the information necessary nor respond quickly enough to make this all happen.

In short, we conclude that from the standpoint of the social process, socialism is an intellectual error, since the governing body in charge of intervening via commands cannot conceivably glean the information necessary to coordinate society. It cannot do so for the following reasons:

First, it is impossible for the intervening body to consciously assimilate the enormous volume of practical information spread throughout the minds of human beings.

Second, as the necessary information is of a tacit nature and cannot be articulated, it cannot be transferred to the central authority.

Third, the information actors have not yet discovered or created, and which emerges only from the free process of entrepreneurship, cannot be transmitted.

Fourth, the exercise of coercion prevents the entrepreneurial process from provoking the discovery and creation of the information necessary to coordinate society.

The paradox of planning explained

Thus arises this unsolvable paradox: the more the governing authority insists on planning or controlling a certain sphere of social life, the less likely it is to reach its objectives, since it cannot obtain the information necessary to organize and coordinate society. In fact, it will cause new and more severe maladjustments and distortions insofar as it effectively uses coercion and limits people’s entrepreneurial capacity. Hence, we must conclude that it is a grave error to believe the governing body capable of making economic calculations in the same way the individual entrepreneur makes them. On the contrary, the higher the rung in the socialist system, the more first-hand, practical information essential for economic calculation is lost, to the point that calculation becomes completely impossible. The agency of institutional coercion obstructs economic calculation precisely to the extent that it effectively interferes with free human action.

I wish David Miliband the best of luck. I hope he is serious about getting back to the original anti-state route of the socialist tradition. I hope after experiencing working in the worst government this nation has produced in living memory, he has questioned the foundations of the ideology of socialism and realised that a) it is impossible to achieve and b) it is truly anti-human as it precludes the employment of the freely creative talents of the people. If they were to read up on the history of the spontaneous working class control and provision of medical care via friendly societies, both David Cameron’s “Big Society” Conservatives, and Miliband’s “New New Labour” Party would realise that rejection of State monopoly solutions is a very credible way forward.

If you have any doubts about the inefficiency and inhumanity of watered-down socialism via a mixed economy, I would urge you to read the book mentioned above: Socialism, Economic Calculation and Entrepreneurship by Jesus Huerta De Soto.