George Osborne gave a surprising speech earlier this month. The Shadow Chancellor spoke about the egalitarian philosopher John Rawls and called for greater equality of opportunity. He praised Swedish educational reforms and argued that parents should be able to choose a school for their child. And he insisted the government needed to put a price on carbon to protect future generations from the costs of global warming.
At the same time, he reaffirmed the Tories’ belief in free markets and the liberalism of Friedrich Hayek. While arguing for greater fairness and social mobility, he insisted that these could only be achieved by conservative means. This sounds a lot like the ‘progressive fusionism‘ promoted by the Cato Institute’s Brink Lindsey. In a 2006 essay for the New Republic, Brink described it as “A movement that, at the philosophical level, seeks some kind of reconciliation between Hayek and Rawls.”
You might expect that a British conservative would struggle most with the Rawlsian part of this philosophical fusion. But surprisingly, it is Hayek’s ideas that Osborne chokes on. In his speech, he seems to deliberately avoid confronting one of Hayek’s most important insights.
Osborne insists that a “a fair society is one where people are properly rewarded for their effort and ability” and that “the free market economy is the fairest way of rewarding people for their efforts.” But Hayek argued that markets can never be fair in this sense. As Hayek scholar Jeremy Shearmur writes:
… Hayek argued — pace the wishful thinking of some conservatives — there simply is no moral merit to the distribution of wealth within such a society, and that one cost of such a society may thus be that it generates forms of economic inequality that we find morally unattractive (p 153).
Markets are efficient, but they are not engines of distributive justice. No doubt that’s a tough message to sell to a focus group.
Hayek distinguished between two kinds of fairness. The first is procedural justice. If we all sit down to play a game of poker and everybody sticks to the rules, then nobody can go home saying that the end result was unfair. It may be that you were unlucky and couldn’t possibly win with the cards you were dealt. But your bad luck doesn’t make the game unfair.
The other kind of fairness is what Hayek called ‘social justice’. Social justice is about outcomes rather than procedures. An outcome is socially just if everyone ends up with what they deserve. Depending on who you talk to, this might mean equal shares for everybody or it might mean proper reward for ability and effort.
Schools often aim at this kind of fairness. Tests and assignments are designed to reduce the impact of luck. Often a school will make allowances for a student who becomes ill or gets caught up in a family crisis. The aim is to make sure that everyone is rewarded according to ability and effort. A talented student who works hard, should always do better than a dull and lazy student. If this doesn’t happen, then the rules need to be changed.
Hayek argued that markets were only fair in the first sense. He called it the game of catallaxy — a game where the results are partly the result of skill and partly the result of luck:
It is indeed because the game of catallaxy disregards human conceptions of what is due to each, and rewards according to success in playing the game under the same formal rules, that it produces a more efficient allocation of resources than any design could achieve. I feel that in any game that is played because it improves the prospects of all beyond those which we know how to provide by any other arrangements, the results must be accepted as fair, so long as all obey the same rules and no one cheats (p 63-64).
As he wrote in The Mirage of Social Justice:
It has of course to be admitted that the manner in which the benefits and burdens are apportioned by the market mechanism would in many instances have to be regarded as very unjust if it were the result of a deliberate allocation to particular people (p 64).
Osborne seems unwilling to accept that this is the price we pay for the benefits of a market society. Instead, he insists that a “a fair society is one where people are properly rewarded for their effort and ability” and that “the free market economy is the fairest way of rewarding people for their efforts.” He contrasts this to government led efforts to ensure fairness:
A planned economy may seem fair in theory but is unfair in practice.
As economists from Adam Smith to Francis Edgeworth to Friedrich Hayek have demonstrated, however well intentioned the central planners and bureaucrats may be, they will never have the knowledge to allocate resources fairly. They will never have anything approaching perfect knowledge of everyone’s needs, abilities and efforts. Only the invisible hand of the market, where people choose freely to transact with other people, is able to do that a consistent way.
What Hayek actually argued was that central planners and bureaucrats can never have the knowledge they need to allocate resources as efficiently as the market. And unless the Conservative Party can learn to tell the truth about markets it will continue to make promises to the electorate that it will be unable to keep.