Hayek meets Xi

Baruch Gottlieb
7 min readFeb 8, 2022

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The Road to Serfdom and the reality of Scientific Capitalism in the PRC

If you want a good tl;dr for Friedrich Hayek’s Road to Serfdom, read Bruce Caldwell’s introduction to the University of Chicago Press “definitive edition”. There you can read how the characterisation that Hayek was against “big government” is unjustified. Indeed, Hayek understood the need for government provisioning of such general needs as health care and public transportation, affordances which have massive positive externalities but which “themselves” tend to be unprofitable.

Hayek is famous as an economist, but his most pertinent insights come from his training as a psychologist. The market as a mirror of the social psyche, unconsciously alerting industry to material needs and desires to be fulfilled, is an excellent concept. Accordingly, the credo that “government intervention” in the market will disrupt this clairvoyance of the market can be appreciated but not upheld. There has never and will never be a “free market”. The concept remains a principle rather than a practice. Where the government has not weighed in, the various players, in business, finance, etc. collude to garner and institutionalize advantage at the expense of others. Given that there will always be “government” involved in markets, the chief beneficial purposes of government for liberals like Hayek or Eucken is to break up monopolies, and to manage rent-seeking activities like property speculation, and hoarding of title like IP which have anti-competitive effects. The question is not whether there should be government intervention in the economy or not, but what kind of intervention by whom and on whose behalf.

The Road to Serfdom is not a polemic against government intervention. It is quite clear to Hayek, as it was to liberals since the first bourgeois revolutions, that some government management of the economy is not only unavoidable but salutary.

“Nothing makes conditions more unbearable than the knowledge that no effort of ours can change them; and even if we should never have the strength of mind to make the necessary sacrifice, the knowledge that we could escape if we only strove hard enough makes many otherwise intolerable positions bearable. This is not to say that in this respect all is for the best in our present world, or has been so in the most liberal past, and that there is not much that could be done to improve the opportunities of choice open to the people. Here as elsewhere the state can do a great deal to help the spreading of knowledge and information and to assist mobility.” — Hayek, The Road to Serfdom, Ch. 7 p. 96

For Hayek, the greatest threat to European societies emerging from the 2nd World War is not “big government” but “planning”. Planning for Hayek, threatens not only to disrupt the clairvoyance of the market, but also to concentrate too much power in the hands of the planners, rendering them susceptible to corruption and the government to totalitarianism. Planning can be arbitrary. Because the planners can be inveighed upon to include privileged parties into the plan which will automatically provide windfalls for as long as the plan runs, planning may impede the market’s unconscious efficient allocation of materials and prices. Chief among Hayek’s concern’s when he was writing RtS was that the centralised wartime command economy would be repurposed after the war for peacetime management of the economy. This was the primary concern of the book: to discourage what came to be known as Military Keynesianism, the continuation of wartime economic planning in peacetime

This is vital to understand how Hayek’s concerns have been opportunized to produce quite the opposite of what he had intended, a perpetual war economy where a vast byzantine state presides over a bewilderingly arbitrary array of anti-competitive policies increasingly oriented, not towards the emancipation of capitalist innovation, but to massive fraud, waste and ever shorter-term investment. Hayek’s message has become dogma but not practice. Today’s “first world” “capitalist” economies are all war economies. They were cold war economies and now they are forever war economies. The military industrial complex completely skews the economy, acquiring the majority of R&D and scientific research funding, and siphoning away investment from public works, education, health care and other public needs which Hayek affirmed were essential for “liberty”. Government is 20% of most OECD economies, an industry in itself and hardly an unplanned one.

Even the purported national interest of military spending has clearly become embodied in the personal interest of US oligarchy. As economist Michael Hudson puts it, the US military is not even a fighting military, its a “spending military” whose function is a “Keynesian giveaway” to the oligarch class. Hayek is rolling in his grave at the self-serving anti-competitive hodgepodge of government policies, agencies and processes which have transformed the OECD into an unproductive, anti-competitive management economy barely providing survival incomes for the vast majority of citizens, and little of the vaunted liberty.

The Peoples’ Republic of China shows that the liberal-maximalist fear of “big government” is misplaced. Liberalism emphasizes an apocryphal “individual” and assumes the social sphere which reproduces the individual’s capacity to act in the world. Liberal economics is pessimistic in the sense that it tries to make the bug of self-interest into the feature of innovative productivity. Accompanied by a cynical misreading of Hayek, liberals today push a selective small government dogma which only serves to concentrate the power of the business class, not by increasing productivity (which, it is assumed, would benefit all) but by concentrating the power of individuals. Liberalism has become the dogma of powerful individuals on whose fates and foibles the whole world assumedly must hang in the balance.

Socialism, in contrast, has an optimistic view of humanity which understands that the destructiveness of the creative tendency of individualism needs to be buffered by ensuring basic human needs are taken care of for all. In a socialistic model, as in the PRC, the liberal tendency is allowed to function but only in a way that it can not imperil the well-being of the generality.

From Deng’s market reforms to Jiang’s organisational and industrial reforms to Xi’s scientific capitalism and scientific management of the feudal mode we can see in the PRC a certain positive apotheosis of Hayek’s intelligent markets theory, and an unexpected resolution to his concern. Completely subject to the discipline of party directives, capitalists are emancipated to compete, now that anti-competitive and anti-social tendencies of capitalism are attenuated by the state.

Informed by Mao’s Mass Line practice, a feedback model is built into Xi’s economic policy whereby, in the formulation of policy, the party must always encounter the productive forces and be informed by their experience. As such, policy does not calcify but remains adaptive and responsive. The planning in the economy moves from precise targets for the production of particular goods to general targets in terms of economic dynamism and disposable income. Meanwhile planning is able to carry out high-quality large scale public affordances like high-speed rail and sustainable electricity generation quickly efficiently and at massive scale, infrastructure which in turn boosts general productivity.

Now is not 1943, when the Road to Serfdom was penned, and there is more than enough evidence that the “free market” discourse is not the guarantee of liberty it once claimed to be. Conversely, in the PRC, instead of Hayek’s nightmare of totalitarian bureaucrats who sacrifice the health of the economy and the liberty of citizens for their own arbitrary self-interest, the economy is managed by a responsive party which guides the economy with a scientific methodology, employing all the best insights from computation and scholarly research. Through the stability of long term planning and policy afforded by the one-party-democratic process, the CPC ensures economic sufficiency and social security which avails a greater latitude of personal liberty on a vaster scale than Hayek ever imagined.

Reading closely, one can only make out in the obscurity of Hayek’s objections to “planning” the same old liberal aristocratic bourgeois dictatorship which rules from some apocryphal acropolis, in the best case according to the best advice of their erudition, fortified and improved through the earnest challenge of their peers. Well we all know how that goes with “earnest political challenge” in liberal democracy. Politicians represent business interests who pay them, no more no less, and when the masses are thrown into war or destitution or both through the vagaries of arbitrary conflicts between the ruling class or misjudgements by the aristocracies, these throw up their hands and absolve each other with the gentlemanly magnanimous assumption everyone was just doing their jolly best. For these gentlemen, liberty is the liberty to prevail atop the system be it efficient or just or not, and liberty for the rest is the liberty to adapt to whatever conditions precipitated downward from the capricious decisions made on high.

The CPC is elaborating methods to appropriate the dynamism of capitalist individualism to the benefit of the great generalities, to help emancipate not only its own people but the struggling people of the world. Call it scientific capitalism or scientific liberalism, it acknowledges the need to foster unique creative power of individuals, while, by scientifically mitigating preference to those already born into advantageous positions, attempts to ensure a truly free-market of ideas and a radical emancipation of human ingenuity.

Chongqing pedestrian shopping area — photo Chen Hualin from Wikimedia CC A-SA

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