Welfare States at War
FEBRUARY 01, 1957 by HANS F. SENNHOLZ
Dr. Sennholz, author of How Can Europe Survive?, is Professor of Economics at Grove City College, Pennsylvania.
The new international crises sparked in the Middle East, and the constant danger of another world war, need not surprise the student of contemporary international relations and economic policies. The ideology of socialism and interventionism has swayed our foreign relations, and the policies of Welfare States have destroyed international peace and order.
While throwing the blame for the present crises on the doorsteps of “capitalist colonialism,” the Welfare States are battling each other. All parties involved in the Mideast are either socialist or interventionist nations. Israel is a large army camp crowded by people who are given to socialist ideas; Egypt is an interventionist country with a dictator bent upon leading his nation to socialism; France has a socialist government with controls that leave little room for competitive enterprise; and Britain is floundering between socialism and interventionism. In other words, there is little capitalism, in the sense of competitive private enterprise, in any one of these countries.
Absence of individual freedom and free enterprise makes for economic nationalism and international conflict. By fundamental nature and objective, the Welfare State controls private property and limits individual freedom in order to distribute economic spoils and privileges to pressure groups. The Welfare State is a favor state.
Pressure groups of producers expect the government to increase the prices of their products or services, with utter disregard for the economic interests of the vast majority of their own countrymen and of many foreign producers. In most cases of welfare legislation the favored group’s foreign competition is either eliminated entirely or severely curtailed. This is economic nationalism, the most important source of international conflict.
Economic Nationalism Creates Conflict
Let us demonstrate how interventionist policies lead to economic nationalism with a few American examples. In order to enhance the price of sugar cane and beets produced by a few thousand American farmers, the federal government not only levies a highly protective sugar tariff, but also imposes severe import quotas. To afford our domestic producers a temporary gain, we partially close our markets to Central American sugar. In other words, we cause domestic prices of sugar to rise and depress foreign prices, subsidizing our sugar farmers at the expense of American consumers and Cuban farmers. This is economic nationalism.
Meanwhile, Soviet Russia takes political and economic advantage of our shortsighted “welfare policies.” She buys Cuban sugar at depressed prices, thus appearing as benefactor to our southern neighbors.
In deference to our cattlemen, we prohibit the importation of cheap Argentine beef. That is to say, we favor domestic producers to the detriment of domestic consumers and South American producers. These and similar acts have earned us the hostility of our Central and South American neighbors. Russia, of course, ably utilizes our trade restrictions for her own purchase policies. Her efficient propaganda then interprets our behavior as capitalist imperialism, and her own as a token of communist friendship.
Similar acts of economic nationalism on the part of our federal government include the recent tariff increases on Swiss watches, the import restrictions on foreign dairy products, and many others. In each instance we severely hurt foreign producers in order to “assist” our pressure groups.
West Sets Bad Example
Of course, the other Western powers are guilty of similar policies of economic nationalism. The United States, Britain, and France embarked upon the welfare road to international conflict after Imperial Germany had shown the way. In the 1880′s the German government imposed heavy social costs on the German economy. The logical outcome would have been a loss of sales to foreign competition, with German unemployment. To avoid these undesired effects, the government created cartels. Behind high walls of protective tariffs these organizations then charged monopoly prices on the domestic market and dumped excess supplies on foreign markets at low prices. This was economic nationalism at its source.
Germany has become the classical example of government omnipotence in economic matters. There is scarcely any restriction on trade that was not practiced and fully developed in Germany. The people in underdeveloped areas, unaware of the meaning of individual liberty and capitalism, have admired this seemingly omnipotent power of the German state and often have endeavored to imitate it.
Britain ‘s economic nationalism dates back to World War I and especially to the Import Duties Act and Ottawa Agreements of 1932. The preferential principle that be-came the guiding principle of British political action gave “home producers first protection, Commonwealth producers second protection, and foreign producers none at all.” Britain imposed substantial duties on most foreign foodstuffs and raw materials in order to grant trade preferences to Commonwealth producers. Consequently, foreign sales in Great Britain declined considerably.
The Churchill government during World War II imposed a multiplicity of restrictions from the armory of socialism. The Labor government then went on to nationalize the “means of exchange,” the coal mines, the gas and electricity industries, the iron and steel industries. It vested in a Central Land Board all development rights in land. It did its utmost to eliminate rent, profit, and interest in order to employ the revenue for projects of “national development.” In all these acts of seizure of private property, the Labor government showed no hesitancy because of foreign investments. It seized them along with those of its own nationals. All this meant economic harm to foreigners, who watched and learned the lesson in government omnipotence.
Underdeveloped Areas Follow Suit
Can it be surprising, therefore, that governments in underdeveloped areas of the world finally begin to imitate the West’s own policies? Can we blame them for feeling free to do what they please provided they enjoy the backing of their own popular majorities? Indeed, they may have learned from us to seize and nationalize private property and arbitrarily to tear up contracts, including their own charters.
Colonel Nasser is a thorough student of Western welfare statism and economic nationalism. He desired revenue for a program of “national development.” Why should he not seize the Suez Canal Company, this private corporation on Egyptian soil? What does it matter that his government was paid in full for the use of a desert strip before the Canal was built? What of Egyptian signatures to international agreements? What if there were government charters and promises? He enjoys the backing of a popular majority. Does this not make him omnipotent? Does this not lift him above the restraints of moral and ethical laws of human relations?
Can the sovereign state of Egypt be bothered that the private property it seizes happens to be the life line of British Commonwealth trade and controls the flow of Mideastern oil? What does it matter that the well-being of all Europe must deteriorate through his nationalization of the Canal? What other sovereign state considered foreign interests in the realization of its statist objectives? Influenced by such ideas, Colonel Nasser embarked upon his tragic policies of economic nationalism and international conflict.
The next move then was up to those whose property had been seized. Among the victims, the governments of France and Great Britain decided to seize the Canal by force, pending an international conference to discuss the Canal’s internationalization. No party involved wants to return the Canal to its lawful owners. Internationalization and control by several governments, however, merely means collectivism and economic nationalism on a super governmental basis.
What Course Freedom?
The defender of private property and competitive enterprise, observing such an insoluble conflict, is at a loss regarding the question of guilt. Is he to sympathize with the culprit who started the conflict in order to finance various “welfare policies”? Or is he to sympathize with the socialized victims who resort to force, which is evil, in order to alleviate the original evil?
In sharp contrast to the international conflict between socialist governments in this Mideastern affair is the peaceful coexistence of laissez-faire nations, which realize the ideals of personal freedom of choice, private ownership and control of property, and peaceful exchange in a competitive market. Under this concept, the sole function of government is the protection of its own people from domestic peace breakers and from foreign aggressors. Such a government would wage war only to defend the lives and property of its own citizens. This means that it should not participate in foreign wars that grow out of economic nationalism. For such warfare only destroys and does not protect life and property.
While an individual peace-breaker can easily be punished and isolated in a penitentiary, a collectivist nation conducting policies of economic nationalism can be disciplined and subjugated only through a full-scale war and subsequent occupation of its territory. To discipline a nation that refuses to embrace the doctrines of freedom and free enterprise is an endless and hopeless task.
A citizen of a free country who goes abroad should know that he travels at his own risk. Crossing the border of his state and entering socialist or interventionist territory is to leave law and order behind. He risks transgressions by the foreign state upon his life, liberty, and property. A businessman who invests his funds in collectivist territory must consider the risks of expropriation, foreign exchange control, confiscatory taxation, and many other “welfare” measures. He is beyond the protection of his capitalist government. He is on his own.
The Principles of World Leadership
Despite curbs and checks on its power, and its inaction in a world of conflict, a government designed for freedom is a natural leader. The creative power of a free nation by far excels that of socialist or interventionist countries of similar size. And it is productive strength that lends the position of leadership to a country in a world that is always fighting or preparing to fight.
But true leadership that exerts potent influence toward world peace and prosperity springs from a far more important source than material and military might. True leadership grows out of impeccable behavior and moral conduct. A leading nation that lacks these prerequisites can guide the world only to more chaos and conflict.
Above all, such a nation must refrain from any act of economic nationalism. It must not harm any other nation through “welfare” policies of its own. It must adhere to its own design for freedom. To reprimand other nations for policies of economic nationalism while waging economic war upon its own neighbors would be hypocrisy and sanctimony.
Throughout most of the nineteenth century Great Britain was a true world leader. Her famous open-door policy treated Britishers and foreigners alike. The Empire was a vast free-trade area in which the government merely undertook to maintain peace, law, and order. Most civilized nations soon followed suit in removing their trade barriers and adopting the Empire standard of exchange, the gold standard. The British government indeed led the world during the most peaceful century of human history.
A leading nation must also reject the immoral principle that one act of economic nationalism by one government sanctions the nationalistic policies of all other governments. This is the principle that crime becomes righteousness if a previous crime has remained unpunished. But this very assumption underlies many prevailing notions concerning foreign affairs.
Things We Can Do
World leadership demands that we should openly judge world events and explain the fallacy of every act of economic nationalism. If a foreign government contemplates or embarks upon economic aggression through “welfare” legislation, we should call attention to the inevitable harm inflicted upon other nations. We need not intervene forcibly, for nations cannot be coerced to peaceful coexistence. Only a change in political and economic outlook can bring this about.
Naturally, we would sign no treaty with a government that has disregarded its own agreements and torn up its own charters. Nor would we assist any government that nationalizes private industries, for then we would be helping to promote collectivism and ultimate destruction. There could be no point in our extending diplomatic recognition to any government that indulges in economic nationalism.
Finally, world leadership requires that we constantly defend the principles of individual liberty and free enterprise. At every opportunity we should call out to the world that only competitive private enterprise can lead to peace and prosperity. We have a glorious history of individual freedom and safety of property — the absence of nationalization and confiscation by an omnipotent state. Our recent excursions toward the Welfare State endanger our record — and ourselves. But if we will correct that trend, then with pride we can demonstrate to the warring world that individual liberty is the only durable foundation for peace and prosperity.
If our way is freedom, then other nations on their disastrous roads may someday listen to reason and follow us as all civilized nations followed Great Britain during the nineteenth century. Law, order, and peace may then return once again to a battered world suffering from an absence of individual freedom and free enterprise.
Philosophies in Conflict
There is a sharp distinction between liberalism and the fraudulent substitute that passes for it today. Throughout history two basic philosophies of life have been in deadly conflict. One concept, the liberal concept, is based upon the belief in the importance of the individual soul and personality. It is based upon the theory that the state was made to serve man, not man to serve the state. The other concept, the authoritarian concept, assumes that man, the individual, is of no importance. It assumes that man, collectively, as represented by the state, the church, the labor union or some other collective aggregate, alone is important. One concept exalts man, the other debases him.
Towner Pelan, Liberalism Stands for Freedom
To Choose for Himself
It may be great and glorious to fight and die for the world’s salvation, for the salvation of the United Nations, for the salvation of democracy and Christian civilization, but that is a privilege of each man, a privilege he has a right to choose for himself. It is not a duty which citizenship imposes.
Louis St. Laurent, addressing the Canadian Parliament, 1942