What is liberalism? Liberalism, according to Hobhouse, the great British liberal, in his book on Liberalism, which is a classic, is “a belief that society can safely be founded on the self-directing power of personality, that it is only on this foundation that the true community can be built. Liberty then becomes not so much a right of the individual, as a necessity of society.” Prof. Parkinson said in an article recently published in England, “The word Liberal means generous or open-handed. Be generous with what? With freedom and political responsibility.”
Now, these are two quite good definitions of liberalism. How do we apply them to the problems of social welfare or social justice with which we are concerned? Their application to the economy means a free economy. What is a free economy? There are many variations of the free economy in different parts of the world, but one thing is common to all of them—the Government plays a limited and restricted part. Liberal economics are the economics of limited government. Social controls and regulation are necessary, but must be restricted to the minimum. That is one aspect.
The other aspect of a free economy is that “the consumer must be king”. What does this mean?
Who is the consumer? All of us are consumers. We all buy something or other. Therefore, the whole country is made up of consumers. What doe; it mean that the consumer must be king? This means that what is produced in a country should be what the people want, should be something for which the people are prepared to pay a price in the market. The pattern of production must be dictated, not by Government, not by a Planning Commission, not by the diktat of anyone, but by the collective will of the people as expressed in the marketplace. This has been well described as “the ballot of the marketplace”. The ballot of the marketplace is superior to the ballot of the political election. You can shift your choice from hour to hour and day to day. You can buy one brand of soap one day, change over to another brand the next day, if you do not find it good. You can change your perfume, your shoes, your clothes—everything.
How does this choice of the small man—it does not matter whether he has ten rupees in his pocket or a thousand rupees—affect the pattern of production? It affects it through the profit motive, through what is called the law of the market, which is the only sane economic law—the law of supply and demand. The industrialist or the businessman does not produce for fun or for love. He produces for a profit. He produces what will get him a profit in the market. Any profit is made when the demand exceeds the supply, because when the demand exceeds the supply, then prices go up. But where the supply exceed; the demand, prices drop.
The biggest capitalist has thus to consider what the smallest man in the market wants. This is how the consumer is king and this is what is called a free market economy. This is the liberal economy, as opposed to the socialist. Socialism says that a group of 5 or 10 or 15 people sitting in Moscow or Delhi will dictate to the people what they shall take. This is 100 per cent true in Moscow and 40 per cent true in Delhi. The National Planning Commission, arbitrarily selected, become God. They decide what you shall buy and what you shall not buy, and at what price you shall buy it. The liberal way, on the other hand, is the way of letting people freely decide what shall be produced for their needs. This is a system which is practised in the whole world, except for the communist countries, in different forms.
The Manifesto of the Liberal International, which was adopted many years ago, is still valid because liberal principles do not change every five or ten years. Among these principles in the Manifesto, there are certain items of an economic nature:
“The right to private ownership of property and the right to embark on individual enterprise; consumers’ free choice, and the opportunity to reap the full benefit of the productivity of the soil and the industry of man. The suppression of economic freedom must lead to the disappearance of political freedom. We oppose such suppression whether brought about by State ownership or control or by private monopolies, cartels and trusts. We admit State ownership only for those undertakings which are beyond the scope of private enterprise, or in which competition no longer plays its part. The welfare of the community must prevail and must be safeguarded from abuse of power by sectional interests.”
I think this is a very fair statement of what I have been trying to say.
The examples of this kind of a free economy range from the United States, which have achieved the highest standards of life and equality for their people, Britain, the Scandinavian countries, France, West Germany, with its German miracle produced by Dr. Erhard, a great Liberal, Japan, the one country in Asia which has raised its standard of life to the European level, Australia and New Zealand.
What are the results? One is prosperity. The buying power of the man in these countries is out of all proportion to what it is in the socialist countries. Here are the figures of how long a worker has to work in America and Russia to obtain the same commodity. It is very interesting. It shows you where labour is exploited, and where it is really free. For a loaf of bread—this was valid last year and could not have changed now very much—the U.S. worker had to work for six minutes. The Soviet worker had to work for 36 minutes to buy the same loaf of bread. For a pound of butter the U.S. worker works 19 minutes, the Soviet worker 3½ hours, a ratio of 10:1. For a pound of sugar, the American worker works for three minutes, the Soviet worker for 54 minutes—18:1. For a man’s cotton shirt, 1¼ hours in the U.S. and 13 hours in the Soviet Union—again 10:1. The same for shoes, 10:1, 11:1 for a suit: 10:1 for women’s shoes: 10:1 for soap,—and 5:1 for vodka.
Even the Indian worker, under so-called capitalism, is better off than Russia under socialism, since he does not have to work as long as a Russian worker, to get a pair of shoes or some cloth.
I think I have said enough to show that there is no question about the fact that liberal methods lead much faster to the socialist objective than socialist methods. Liberal methods. which are economic freedom or economic democracy, lead to social justice, equality, prosperity and freedom much quicker than the methods of State Capitalism or State-ism, which in France is called Etatisme. That is a much more accurate name than socialism, which may mean anything or nothing.
It is interesting that most of the world is beginning to see this. The world trend is away from communism and socialism and towards liberal democracy. This is not surprising because, after all, human intelligence wins in the end.
Even the Communists are now moving away from socialism. Even in Poland, Hungary and the Soviet Union they are edging away, as fast as they can under a dictatorship, from collectivism or Stat-ism. You have only to read the works of Professor Liebermann who, while protesting that he is a socialist, is trying to get away from the dead hand of the past, which is keeping down the standard of life of the Russian people. It is important that we discard labels and look at the facts behind them pragmatically. An American professor has coined a very good phrase on this point. He has said that in our time all “isms” have become “wasms”.
There is a great Liberal in the Philippines, He is Carlos Romulo, who represented his country with great distinction in the UN for many years. Two or three years ago he was nominated President of the University of the Philippines in Manila. A group of “Leftist” or communist students went to him and put to him a question, asking for his declaration of policy. He was asked: “Mr. President, are you going left or right?” Carlos Romulo, a good Liberal, answered: “I am going forward.”
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. This essay is excerpted from a booklet (Is Socialism Outdated?) published by the Forum of Free Enterprise, based on an article by Minoo Masani, in March 1966. The original version can be accessed here.