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The Death of Libertarianism? Part 2

- July 28, 2009

In yesterday’s post, I suggested that American libertarianism both is and ought to be dying. Is and ought are of course two different things. But if there’s one lesson from the history of political thought (my field), it’s that the two are closer together than many realize.

In times of political crisis, people overhaul their institutions, fixing the problems that have most recently arisen. But in turn they must change their understandings of themselves. Institutions are the structures we create to serve our most significant shared ends (and which, in a sort of recursive loop, also create the ends themselves). Our institutions undoubtedly have their origins in myriad political bargains and social innovations too difficult to comprehend all at once – so we justify them by telling ideological stories. In particular, the interested groups which support our institutions become their champions, telling stories which knit their group together and provide some passable justification to the groups outside their coalition. With change in the institutions, the stories must change, and the task of storytelling falls to the coalition that effected that change (doubtless through many bargains and innovations of their own).

I would contend that this is the moment we are in. Taken one by one, the institutional changes we are contemplating are not revolutionary. But taken together they amount to a rejection of American libertarianism, both in the institutional forms it has taken and in the stories its champions have told about the American ideal of liberty.

Take just a few of the questions we are asking about the institutions of American business: How should CEO’s be paid to ensure that they are “incentivized” to direct their companies responsibly? Should securities traders be paid huge bonuses even in those instances when their activities don’t create value for the rest of the economy? More broadly, what is the value created by a corporation, and what are its responsibilities? These are questions of human identity (our motivations, interests, relationship to others), and human purposes (our goals and ends). And ultimately the crisis we are in is forcing us to reassess how the system of capitalism harnesses human identity in the service of human ends.

Here’s just one example of that reassessment: The ideology of “shareholder value” had been a prominent part of the story (of _very_ recent vintage) told in American business schools to justify the role of management in the modern, publicly-owned corporation. The idea is that a corporation is owned by individuals with a desire to maximize self-interest, in this case dividends. The story made decent sense of twentieth-century institutional changes that had arisen to give shareholders more power over corporations, and to bring about more transparency in management. And the story grew out of deep roots in American libertarianism, in particular in the conception of economic activity as a series of contracts between free, self-interested individuals (see for instance, Chapters 1 and 10 of Milton Friedman’s “Capitalism and Freedom”:http://www.press.uchicago.edu/presssite/metadata.epl?mode=synopsis&bookkey=28534). Institutional changes occurred, which spawned an ideological story with roots in a peculiar variant of American ideals of freedom – and in turn, the more mainstream that variant became, the more its proponents successfully pushed for further institutional changes, deregulating business to fit the theory’s core assumptions.

But the events of the past few years have called into question _precisely_ this ideological story. Corporate structures designed to maximize current share price (a short-term measure of shareholder value) may indeed have blinded American business to the Potemkin-quality of its own balance sheets. And so the ideology is being rapidly supplanted, not by outside radicals but by business school faculty themselves. Responding to innovations in corporate form and especially in opportunities for business in the developing world, business schools now teach a “stakeholder”:http://sloanreview.mit.edu/the-magazine/articles/2003/summer/44411/the-shareholders-vs-stakeholders-debate/ theory alongside the shareholder theory. Numerous popular books offer alternative corporate theories, such as the concepts of “sustainable business”:http://www.johnson.cornell.edu/sge/hartbook.html, “bottom-of-the-pyramid” management”:http://www.businessweek.com/innovate/content/may2008/id20080519_851847.htm and “social business”:http://www.grameenfoundation.org/yunus_book/.

The process of institutional change and ideological rethinking is already underway. Will libertarians be able to control this process, convincing Americans (opinionmakers, policymakers, and ultimately citizens themselves) that their particular variant on the philosophy of freedom is the best way to make sense of the changes that we see, and the best plan of action for future changes? Probably not. Though the American commitment to capitalism will remain unshaken, it doesn’t take too much effort to see that the libertarian ideal itself is what is under assault. It’s assumptions about human motivations are too shallow, and thus the institutional forms they took too narrowly-focused. And it’s obsession with freedom as non-interference too obtuse to notice the other ways in which American-style capitalism was not enhancing the “substantive freedoms”:http://www.amazon.com/Development-as-Freedom-Amartya-Sen/dp/0385720270 of people world-wide. Events may have outstripped the ideology — its own presumptive champions in the world of business are developing new interests, creating new institutional forms, and innovating beyond the ability of the ideology to explain.

There’s no doubt that the libertarian version of the American ideal of freedom has become somewhat firmly planted in the American psyche. It still has appeal for many voters. But with the institutional changes being contemplated, we have begun the process of ending its rein in public policy. It is breathing its last gasps, in part because policymakers who speak the language of libertarianism to members of their coalition just won’t find as receptive an audience in the newer, high-tech, sustainable business world that is “emerging”:http://www.washingtonmonthly.com/features/2001/0205.florida.html and altering the “political landscape”:http://books.google.com/books?id=KrSyiLvJtbMC&dq=emerging+democratic+majority&printsec=frontcover&source=bn&hl=en&ei=zzZvSr34J4aJtgeE7MjVCA&sa=X&oi=book_result&ct=result&resnum=4. And luckily there has been a far-flung, 25-year academic movement (a movement often portrayed as conservative, not liberal – for many liberals have their own civil-libertarian ideology, the twin of conservative economic libertarianism) to question libertarianism. This movement has taken various forms: “communitarianism”:http://books.google.com/books?id=raHvqM1puPsC&dq=sandel+liberalism+and+the+limits+of+justice&printsec=frontcover&source=bl&ots=Hs_eevGmin&sig=9CWoyqLMGlDnmBrB4NQmSO4FCXY&hl=en&ei=IvdtSv77KJ-Etgezk_yIDA&sa=X&oi=book_result&ct=result&resnum=1, “culturalism”:http://books.google.com/books?id=eiRqsXrJo1UC&dq=kymlicka+multicultural+citizenship&printsec=frontcover&source=bn&hl=en&ei=bvdtSuXiKo-itgfXyYmJDA&sa=X&oi=book_result&ct=result&resnum=4, “pragmatism”:http://www.tnr.com/politics/story.html?id=864f5c8e-e036-473f-8d36-cd09e5ad54f9 or “behavioralist economics”:http://www.predictablyirrational.com/. But what knits all of these disparate academic trends together is the desire to question the rather stark (simplistic) individualism at the core of American libertarianism and libertarian economics. Any of these forms would provide more fertile ground than libertarianism for incubating an ideological “story” through which we can explain to ourselves the institutional changes we are experiencing.