Freeman

ARTICLE

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

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March 1987

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