What happens when liberalism loses?

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June 4 marked the 37th anniversary of the Tiananmen Square massacre. It has been a long time since the China of reform and opening-up gave way to one of the strangest regimes of our age: a country with the political freedoms of the Soviet Union but economic power approaching that of the United States, capable of shaking the global economy simply by restricting rare earth mineral exports.

On the domestic front, it has created a social credit system that aims ‘to civilise people’, in which ‘the trustworthy shall be allowed to roam everywhere under heaven, but the discredited will find it hard to take a single step’, as one government directive explained. Yet China was, in fact, made powerful in large part because of the West, notably the United States. Was that a mistake?

Milton Friedman, like many free-market economists, believed that economic freedom would bring political freedom in the long run, as shown in the example of Chile. Although this point is true as a matter of first principle – as Margaret Thatcher said, ‘There can be no liberty unless there is economic liberty’ – it fails to account for the modern reality of dictatorships. The ‘Friedman mistake’ was that he did not consider that states learn as well; they adapt to new realities.

There is a new line of academic work on how dictatorships have evolved. Daniel Treisman and Sergei Guriev show in their book ‘Spin Dictators’ that an old dictator would kill you if you wrote a book against him; the new dictator will let you write the book, but create conditions in which no one will read it. Modern dictatorships have understood the art of combining economic growth with oppressive political systems through a bargain for which China is famous: we (the Party) will give you security, and you will not challenge the political system. These dictatorships do not rest only on incentives, but are deeply rooted in culture. As the book points out, when asked to choose between freedom and security, 93% of Chinese respondents in 2018 opted for security.

Undoubtedly, the economic liberalisation of China was one of the miracles of the last century, perhaps even of world history, with 700 million people lifted out of poverty in the space of a few decades. But now economic freedom has not only failed to bring political freedom; it is threatening the political freedom of Taiwan, and has helped sustain authoritarian regimes in Africa through China’s influence. Five years after the Tiananmen Square massacre, China’s foreign direct investment had quadrupled. As Treisman and Guriev write, ‘When there is money to be made, memories of atrocities fade fast’. 

How did economic freedom not only fail to help political freedom, but ultimately turn against it? This is when liberalism loses.

Liberalism loses when it attaches itself only to economics. Yes, it is easy to blame the populist movements of both Left and Right that seek to undermine liberalism. But on one point, liberals should look at themselves. A liberalism that defines itself solely in terms of economic freedom cannot win the battle of ideas. Free markets are part of classical liberalism, but they are largely a by-product of the more important principles and institutions of a free society. When you have the rule of law, you can have property rights and effective contract enforcement. When you have the liberal attitude of tolerance, you can have the Royal Exchange, of which Voltaire wrote that when you enter, ‘all nations assemble for the advantage of mankind’, and ‘the Jew, the Mahometan, and the Christian bargain with one another as if they were of the same religion, and bestow the name of infidel on bankrupts only’.

To win the battle for liberalism, liberals must not confine themselves to the material benefits of free markets, but also emphasise the moral superiority of free societies. Hayek met Churchill only once, after ‘The Road to Serfdom’ had gained popularity. Churchill knew of him because of that book. When they were introduced, Churchill was, as Hayek put it, ‘stock drunk’. Churchill said to him: ‘You are completely right [about ‘The Road to Serfdom’]; but it will never happen in Britain’. As Hayek continued, ‘Half an hour later he made one of the most brilliant speeches I ever heard’.

Why, despite travelling some distance down the road to serfdom, did Britain never lose its political freedom? Why, in Churchill’s words, would this ‘never happen in Britain’? Because there is something more to liberalism than economics. Those deeper foundations resisted the road to serfdom in Britain, and they enabled its revival through Thatcher’s conservative revolution.

Liberals have failed to shape the climate of opinion and practical politics, relying too often on what Russell Kirk described as soulless ‘pleasure and pain equations’. China today is the example of a state that, viewed solely through an economic lens, appears impressive, yet has become a threat to freedom.

The China blueprint seems to be Donald Trump’s alternative to regime change. In Venezuela, the new government would be the same old system but with access to the markets of the free world. He also appears keen on reaching a deal with Iran. But this approach would only create new Chinas: economic powerhouses that fundamentally oppose the Western way of life.

Free societies, now facing stagnating economies and losing their share of global dominance – or, in Britain’s case, no longer being in the premier league of nations, as Tony Blair wrote – need a revival of liberalism. But this revival must be one that not only wins the battle for economic policy, but the battle for freedom itself.

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