Liberty Matters

Arthur Seldon as Author

United Kingdom.  First was Keynesian management of the economy.  Second was a mixed economy in which certain industries are considered so important they had to be state-owned, such as energy or telephones. Third was a universal welfare state, in which certain benefits or services had to be provided for all, such as education or health. Arthur contributed to demolishing the first two pillars, but had less success with the third, the one he cared about the most.   I want to focus on his own writings (rather than on his role at the IEA as editor) and specifically on two topics that dominated his thinking. First was how to achieve policy change, through ideas or interests, which continues to drive debate among libertarians. The second theme is his critique of the welfare state.  Finally, I will make some suggestions on how libertarians can build on Arthur’s work, by developing a coherent theory of government failure in the realm of ideas, and by promoting opportunities for producers to exit, in the realm of interests. 
Before that, I want to briefly mention my own personal experience with Arthur as editor, which was only positive.  He invited me to contribute to a book he edited, The New Right Enlightenment (1985), published by his own (alas short-lived venture) Economic and Literary Books;  an edited volume on Re-Privatising Welfare: After The Lost Century;[5] and several essays to the IEA journal Economic Affairs.  I also spent several very pleasant occasions receiving hospitality at his home with his wife, Marjorie, who was active on education vouchers.  Beyond that I met him at numerous IEA events, where he always pleasant and forthright.
The role of a think tank is to change public policy.  The most effective method depends on what you believe determines public policy. In 1959 Harris and Seldon presented a paper to the Mont Pelerin Society  on their model of political change, which said:
There are three basic requirements for the establishment of and maintenance of a free society. 1. The philosophy of the market economy must be widely accepted; this requires a large programme of education and much thought about how to finance it; 2. The transformation from a controlled  economy must be eased by compensating those interests whose expectations will be disturbed; 3. Policies must be designed to make otiose all pleas for protection from the consequences of change that democratic politicians would have difficulty in resisting.[6]  
They added: “Education at varying levels must be directed first at the influencers of opinion; i.e. intellectuals, politicians, businessmen and all (not least journalists) who help form public opinion.” 
Arthur frequently quoted (and the IEA prominently displayed) Keynes on the power of ideas: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist…. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas."
Hayek expressed similar sentiments in his essay “The Intellectuals and Socialism,”[7] in which scholars and intellectuals changed policy by their influence on public opinion. The IEA was clearly committed to the Hayekian approach to winning the intellectual battle without regard to short-term political battles. Arthur described it this way: “The IEA was the artillery firing the shells (ideas) … but the Institute would never be the infantry engaged in short-term, face-to-face grappling with the enemy.”  Authors were told to rigorously follow their analysis and policy conclusions and ignore objections that their proposals were “politically impossible.”
Yet this view about the power of ideas compared to interests was challenged by Arthur’s deep interest in Public Choice. Another major contribution of Arthur was to introduce Public Choice to the United Kingdom, (while adding some interesting twists of his own), by publishing Gordon Tullock, The Vote Motive.[8] Arthur preferred the term ’‘the economics of politics” to Public Choice. The essential theme of Public Choice is that political actors pursue their own self-interest, just like economic actors.  This challenged the assumption behind many policy proposals that there is market failure caused by the economic actors’ pursuit of their own self-interest, which required the government to step in to correct those failures, motivated by the public interest. Tullock identified some themes of Public Choice analysis: rent-seeking, log-rolling, and bureaucratic size maximization. Seldon followed up the success of Tullock with many other Public Choice books.
Arthur provided his own contribution to this school.  Most valuable was his contrast between political and economic democracy. If democracy is “rule by the people,” do the people rule more effectively through elections or through the market?  He argued forcibly that the market empowered the workers and the poor much more than voting.
His critique of political democracy is that it makes decisions by majorities, or counting heads, in contrast to capitalism, which provides for all heads, including minorities and even individuals. Access to goods and services can never be equal. The issue is whether the distribution is determined by cultural or economic power.  Inequality in economic power can be corrected by giving cash to the poor, while cultural power cannot be corrected, giving power to the elite. He described political democracy as “Government of the Busy, by the Nosy, for the Bully.”
However, there is a tension between the belief that policy can be changed by good ideas and the matter of whether those ideas can be suppressed by the power of interests.  This was a theme of several IEA volumes, such as the anthology Ideas, Interests, and Consequences.[9]   I am not sure that Arthur ever resolved this tension, which was reflected in his own passion for reforming the welfare state.
Arthur was opposed to the universal welfare state as established in the United Kingdom, while supporting a largely cash-based safety net.  This for him was personal: He described his own experiences as a child in the poverty-stricken East End of London. He criticized Conservative politician Lord Balniel’s welfare reforms in these words:  
You have never been poor. I have. The poor do not thank those who give them gifts in kind which question their capacity and affront their dignity. Cash gives the power of choice; service in kind, denies choice. But much more than that; the poor who are given care or kind will never learn choice, judgment, discrimination, responsibility. [10]
His criticisms of the welfare state were manifold. It deprived the poor of the opportunity to make decisions about their own lives. The middle class was able to capture most of the benefits for themselves. There was an adverse effect on the supply of welfare goods and services, such as education, as incentives to provide for one’s own life were reduced. The welfare state created excessive demand by providing services for free at the point of delivery. The administrative costs were excessive because there were no incentives to be efficient.  The welfare state resulted in low-quality services for the poor, and it was fiscally unsustainable. Policies were usually “conceived in fear, composed in haste, adopted in ignorance.”[11]
Arthur sought ways to extend the free market to health care, housing, education, and pensions by injecting prices, competition, and incentives, supported by cash benefits or vouchers for the poor.   He demonstrated widespread dissatisfaction with the welfare state through a series of unique public-opinion surveys, which showed great demand for contracting-out of state services, and rapidly declining support for universal provision once the costs in taxes were priced.
So why was there so little progress in welfare-state reform?  He concluded, for example, that education vouchers had failed due to producer interests and opposition from the civil servants. Intellectual arguments were not enough.   Nonetheless he remained deeply optimistic.  He had faith in the power of exit, or escape. Economic laws are stronger than political power.   People would find ways to escape the state to satisfy their wants, perhaps by resorting to the shadow economy.
So how can we improve on Arthur's work? One suggestion is that we need to formulate a more coherent theory of government failure.  Almost any educated person will be familiar with the concept of market failure and its key features: public goods, negative externalities, monopolies, and  asymmetric information.  Yet there is no similar awareness of the key areas of government failure, such as the problems of collective action, rent-seeking, principal-agent problems, concentrated beneficiaries, the problem of democratic decision-making, and knowledge problems.  We need to make the educated person as aware of these as he is of market failure.
Second, Arthur placed great emphasis on the value of exit, or opting out, for consumers.  We should also look at giving producers the power of exit. To undermine opposition to change, we must identify and empower producers who are dissatisfied with the status quo.  Many welfare-state producers, such as teachers, are as dissatisfied as consumers and know that given autonomy and control of resources, they could produce better services and obtain greater job satisfaction. 
Our best homage to the work of Arthur Seldon is to build on his insights.
[5] Re-Privatising Welfare: After The Lost Century ( London: Institute of Economic Affairs, 1996).
[6] Arthur Seldon and Ralph Harris, “The Tactics and Strategy of  the Advance to a Free Society.” Quoted in Richard Cockett, Thinking the Unthinkable (London, Fontana 1995), p.140.
[7] F.A. Hayek, “The Intellectuals and Socialism,” The University of Chicago Law Review, Spring 1949, pp. 417-33. Online at: <>.
[8] Gordon Tullock, The Vote Motive (London: Institute of Economic Affairs, 1976).
[9] Ideas, Interests, and Consequences (London: Institute of Economic Affairs, 1989).
[10] IEA archives, 16 November 1967. Quoted in Cockett, p. 139.
[11] Colin Robinson, ed., The Collected Works of Arthur Seldon (Indianapolis, Liberty Fund, 2005),  p.47.