Other Positive Liberals: Theorists of the Thick State

Starting from Mill and Green in the nineteenth century, positive liberalism has its advocates in Hobhouse, Tawney, Laski and MacIver in the twentieth century. Some of the other equally significant contributors to positive liberal concept include J. M. Keynes, J. K. Galbraith, C. B. Macpherson, John Rawls, J. W. Chapman, Joseph Stiglitz and Amartya Sen.

They have argued for enlarged conception of freedom of individual. This relates to the positive power and capacity of individuals to exercise their liberty and seek moral and self-development. This cannot be possible, they argue, without state intervention regulating the economic sphere for ensuring employment (Keynes) and equal social opportunities (Sen); mitigating the adverse impact of twentieth century capitalism (Galbraith); providing public goods (Stiglitz); ensuring distributive justice (Rawls and Chapman); maximizing developmental power of marginalized people (Macpherson), etc.

The issues relating to liberty and equality, economic freedom and moral and developmental freedom, distributive justice and state intervention have been the concerns of the positive liberals. These issues have largely informed the concept of a welfare state. Rejecting the traditional liberal position of laissez faire, minimalist or thin state, these theorists and commentators have argued for a more thick state, a state with orientation of welfare, economic regulation, social provisions and individual capacity development.

Arguably, when Adam Smith’s ‘invisible hand’ came to face the Great Depression of 1929, the capitalist economy was not able to sustain its growth and production. This brought ‘unemployment hardest to bear’ along with loss of production and mass penury. There was neither demand nor supply. In this scenario, capitalist economy needed a hope to lift up again and self-regulate.

John Maynard Keynes, a British economist, sought to put forward that a depression may not cure itself at all and the economy could lie stagnant indefinitely.⁶⁸. The General Theory of Employment, Interest and Money (1936), argued that there was no automatic safety mechanism to lift up the economy. Keynes identified the problems as threefold:

First, an economy in depression could stay there. There was nothing inherent in the economic mechanism to pull it out. One could have ‘equilibrium’ with unemployment, even mass unemployment. Second, prosperity depends on investment. If business spending for capital equipment fell, a spiral of contraction would begin. Only if business investment rose would a spiral of expansion follow. And third, investment was an undependable drive wheel for the economy. Uncertainty, not assurance, lay at the very core of capitalism. Through no fault of the businessman it was constantly threatened with satiety, and satiety spelled economic decline.⁶⁹

Keynes’s diagnosis is simple. Depression will not cure on it’s own, investment is required and this, however, is not dependable. The solution then was that the government must take up the task of investment. This way, Keynes suggested that government must do public spending for creating employment. His proverbial suggestion to fill up old bottles with bank notes and bury them at suitable depth in disused coal mines and filled up with town rubbish and leave it to private enterprises on the well-tried principles of laissez faire to dig the notes again, is telling of his suggestion for government intervention for removing unemployment and lifting up production. The impact of the theory became apparent when the US President, Roosevelt started the ‘New Deal’ programme. The New Deal legislations were aimed at nationalization. Through government interference capitalist economy was sought to be revitalized. Thus, nationalization, planning, public investment and state support to capitalist economy came to be justified. Keynes’s theory and diagnosis led to increased economic functions of the State and was a denial of the long-held laisse-faire policy of non-interference.

John Kenneth Galbraith, a Canadian-American economist and one-time US ambassador to India (1961-1963), who remarked that India was a ‘functioning anarchy’ and who coined the term ‘conventional wisdom’ which we all use so frequently, has analysed the role of the State in changed circumstances after the Second World War. The New Industrial State (1967), Affluent Society (1958) and Mass Poverty are analysis and diagnosis of dynamics of economy in capitalist countries and the phenomenon of poverty across continents. He is an exponent of Keynesian economics and has dealt with the issues of demand and distribution, unemployment, mass poverty, security of workers, economic inequality, taxation, education, social and public services and planning. He has sought to justify the concept of planned economy in liberal states in the changed circumstances of the twentieth century. In his The New Industrial State, he supports planned economy and says, ‘A fully planned economy, so far from being unpopular, is warmly regarded by those who know it.’⁷⁰ He champions mixed economy and economy based on coordination between the public sector and the private sector. Core of his concept is to bring certain public measures to inform the liberal state and the capitalist economy in order to have a directed distribution of wealth and resources.

The concept of an industrial state has been explained by some of the thinkers and commentators like Raymond Aron, J. K. Galbraith and others. The state in a situation of predominant industrial economy is an industrial state. The relationship between the State and the industrial system is one of interdependence. While industrial system requires the State for stability, the State itself has economic activity and mature corporations as its arm. The concept was also related to the convergence theory. It was argued that given the predominance of the State and industrial system in both the capitalist and socialist systems, it was possible that the type of state and political regulation in both the systems could converge. It was stated that in the spheres of economy, politics and ideology would converge.

Galbraith supported this view and believed that the American economy and State would be a ‘social democracy’ in future. Galbraith’s logic was simple. Taking a cue from the concept of industrial state, it implies that production involves large-scale processes, which require planning and planning requires stability.⁷¹ This led him to conclude that the market cannot be left on its own, and state planning have to be inextricably linked to the industrial production process.

Galbraith’s views are related to the concept of Big Government, which means an interventionist government involved in economic management and social regulation. His concept of planning, industrial state and big government, all points towards a welfarist or social democratic state. However, his vision of America becoming a social democracy has not come to fruition. On the contrary, writing in the Foreign Affairs, DeLong has called him Sisyphus, constantly pushing the boulder of social-democratic enlightenment up the hill. But the hill, it turns out, is too steep, and Galbraith not mighty enough.’ Notwithstanding the steepness of the hill, Galbraith’s views on the social democratic and welfarist requirements of the State in a capitalist economy are expected to nudge the policy-makers and planners sitting at the top of the hill whenever the ‘invisible hand’ appears helpless.

C. B. Macpherson, a critical liberal and a critic of capitalist economy, has argued for developmental power and moral and creative freedom of individual. He supports the positive welfare functions of the state. The Political Theory of Possessive Individualism (1962), he termed the theory of individualism given by Hobbes and specifically by Locke as theory of ‘possessive individualism’. According to this view, an individual is treated as having proprietorial right over his/her body, labour and capacity. As such, liberty and freedom require that the individual is not to be interfered in the exercise of this proprietorial right.

In his, The Life and Times of Liberal Democracy (1977), he discusses four models of democracy namely, protective democracy (corresponding with the quantitative utilitarian views of Bentham), developmental democracy (corresponding with the qualitative utilitarian views of J. S. Mill), equilibrium democracy (corresponding with the views of Schumpeter, Dahl, Berelson, and others) and participative democracy. Here he traces the idea of moral and developmental freedom in J. S. Mill’s as an idea of positive liberty. The same theme he touches in his Democratic Theory: Essays in Retrieval (1973). Taking a clue from Bentham’s protective democracy and J. S. Mill’s developmental democracy, Macpherson argues that the two principles can be identified in Western democratic theory: (i) maximization of utilities, and (ii) maximization of powers. In the first principle, the individual is treated as consumer of utilities requiring satisfaction of appetites—a pleasure-seeking person. In the second, s/he is treated as an actor, agent or creator requiring development of human capacities—seeking moral freedom. In essence, it becomes a moral and ethical principle where freedom is about realizing creative and developmental capacities of the self. At the core of Macpherson’s distinction is developmental and extractive power. While extractive power (such as under contractual obligations, power of employer over employees, right to property, economic freedom, etc.) relates to use of other’s potentialities for serving one’s own ends, developmental power (such as freedom of expression, choice, skill, knowledge, etc.) requires development of one’s own capacities and its application to one’s self-appointed goals. This is a view that treats the individual as an agent and a creative being.

Having explained his position, Macpherson argues that developmental power or creative freedom of the marginalized section in a capitalist economy is negligible. Moreover, their extractive power is also absent. As such, a capitalist economy is nothing but an exploitative system in the absence of these powers. This leads him to argue and conclude justifying welfare state. He says, ‘it is only in the welfare-state variety of capitalism … that there is a certain amount of checking of economic power by the political power.’⁷² He argues for a positive welfare state for bring equilibrium in capitalist economy and allowing marginalized people to acquire developmental power.

John Rawls and J. W. Chapman are considered equalitarian liberals and have argued from the perspective of distributive justice. They have reinterpreted the liberal principles from the perspective of fairness, distributive justice and moral freedom to give it a welfarist orientation.

Rawls’s theory justifies the welfare state on individualist assumptions. According to him, a liberal democratic society must satisfy certain principles of justice based on principle of difference as well as equality.  A Theory of Justice (1971) Rawls gives two principles: (i) difference principle, and (ii) equality principle. Both the principles are related to distribution of resources within society and provide ground for ‘liberal defence of welfare state.⁷³

The equality principles means: ‘social and economic inequalities are to be arranged so that they are both reasonably expected to be to every one’s advantage attached to positions and offices open to all.’

The difference principle has two elements: The first argues that each person to have an equal right to the most extensive basic liberty compatible with the similar liberty for others like citizen’s equal rights to basic liberties such as right to vote, freedom of conscience, etc. The second principle relates to justice or redistribution of resources. It says: The higher expectations of those better situated are just if and only if they work as part of a scheme, which improves the expectations of the least advantaged members of society. Thus, inequalities are allowed when this will lead to greater benefit and long-term prospect of the least advantaged. The capitalist class or the entrepreneur can be allowed to enjoy as per their skill, talent and resources if they increase the prospect of the working class.

Rawls criticizes the negative or natural view of liberty. In the negative view of liberty, every individual is free to use their skills and talents when they are not interfered with by the state. Deriving benefits from the free market as per skills and talents assumes that these talents and skills are independent of socially or naturally acquired advantages. In Rawls’s view, it is not appropriate to reward people as per their contingently acquired talents and skills only. We should not treat people with unequal skills and talents equally for the purpose of market competition. For example, can we equate a person having high education and skilled qualification with one who is an uneducated peasant for the purpose of market competition? If we do, it will be arbitrary. When these two people are left in the market, inequality will be produced by the operation of the market.

Rawls argues that state should interfere and correct for the inequalities produced by the market. He allows only those inequalities, which are likely to lead to everyone being better off. Rawls appears to be a redistributionist, as Samuel Gorovitz puts it. While he justifies the case for welfare, his is also a justification of inequality. On the other hand, a negative liberal point of view may blame him for sacrificing liberty for the sake of equality. Nevertheless, Rawls provides a liberal interpretation of distributive justice and justification for a liberal democratic state based on welfare principles. Rawls’s theory is an effective liberal critic of the arguments based on meritocracy and a survival of the fittest in a market situation.

J. W. Chapman, as American theorist, has tried to combine the idea of distributive justice with moral freedom of an individual. Chapman’s principles of justice involve distribution in such a manner that benefits are maximized according to the principle of consumer’s sovereignty. This is to take into account the economic rationality of an individual. Further, he says, a system is unjust if the material well-being of the few is gained at the expense of the many. Though not as strong as Rawls, Chapman supports the welfare and positive state.

Joseph E. Stiglitz and Amartya Sen, both Nobel laureates and outstanding welfare economists, have argued for state intervention in the economic affairs. They argue that the State and government should provide public goods, social opportunities for not only compensating market failures but for capacity enhancement and human development.

Economics of the Public Sector, has listed ‘six basic market failures’ and says ‘they provide rationale for government activity.’⁷⁴ These are:

1. Failure of competition—a perfect market requires perfect competition and assumes Pareto efficiency. Pareto efficiency, named after Vilfredo Pareto, Italian economist and sociologist, stands for ‘resource allocation that has the property that no one can be made better off without someone being made worse off’. Thus, a perfect market will ensure Pareto efficiency and intervention in this will disturb the efficiency leading to some getting worse off. According to Stiglitz, the prevailing market due to monopoly, oligopoly, natural monopoly or monopolistic competition may not conform to the Pareto efficient theorem. And in such a situation, a government-run monopoly is preferable to a private monopoly.
2. Public goods—public goods are those goods which either cannot be supplied by the market or if supplied will be in insufficient quantity. These include defence, policing, environmental protection, etc. Public goods have two critical properties: (i) zero marginal cost for additional member to benefit, i.e., it costs no additional amount to defend a country of 100 million or 100+1 million, (ii) difficult or impossible to exclude individuals from enjoying pure public goods. It is difficult to exclude a person from breathing clean air or enjoying police security. Market limitation or failure to provide public goods is the basis of many government activities.
3. Externalities—externalities refer to the effect or impact actions of one individual or activity have on others. It can be of two types: negative externality, when the effect or impact is bad; and positive externality, when it is good or beneficial. Many of the government’s policy are influenced by the concept of externalities. For example, CNG conversion of buses or ban on smoking in public places has positive externality on health. Similarly, emission of wastes or contaminated material by private activities negatively affects the general environment and individual right to clean air. Since, individuals do not bear the full cost of negative externality they generate, they may indulge excessively in it. Conversely, since they do not enjoy full benefits of positive externality they generate, they will engage too little in it. Governmental intervention in such a scenario is called for to ensure less negative externality and more positive externality.
4. Incomplete markets—Besides pure public goods, private markets also fail to provide many services adequately. Markets may not provide insurance for many disabilities and risks including crop, fire, unemployment insurance, etc. Further, coordination functions between farmers and industry using inputs also require planning and governmental intervention.
5. Information failures—imperfect information or information asymmetry also induces a lot of government activities. For example, quality certification of market produced goods can be an example. A soap is not a unique baby soap or a beverage has no contamination will not be provided by the market.
6. Unemployment, inflation and disequilibrium—periodic high unemployment and inflation points to the market failure. This at least was proved beyond doubt during the Great Depression.

Stiglitz holds that under these six conditions market is not efficient and this failure has to be compensated by government and state intervention. It is argued that the market can be efficient only under certain circumstances and conditions and there are certain conditions and circumstances in which it is not. This theorem provides a sound basis for a welfarist state policy.

Amartya Sen argues that ‘participatory economic growth’ and ‘expansion of basic human capabilities’ are important for overall development. He has focused on how ‘variations in social opportunities not only lead to diverse achievements in the quality of life but also influence economic performance …’⁷⁵ This means that human beings, if not provided with basic opportunities like education, health, minimum livelihood, housing, gender equality etc. will neither be able to enjoy ‘capability’ nor contribute effectively in the economic development. Capability means ‘the range of options a person has in deciding what kind of life to lead.⁷⁶ Let us assume person ‘A’ who is educated, skilled and is employable or is employed and another person ‘B’ who is uneducated, unskilled and poor. It does not require Socrates’s wisdom to see that A has more choices than B in choosing how to live. And if, B is a woman, the choice gets further limited in a gender-biased society. Capability in the sense of choice to decide how one wants to live gets restricted due to poverty, illiteracy, gender, social and economic inequalities. Sen would call this ‘capability deprivation’.

In a situation of capability deprivation, people will not be able to participate effectively in the economic process. For example, skilled people and people having a basic educational capacity will be useful for various types of economic processes, while people having no skill or basic educational capacity cannot even contribute in economic development. Sen cites the example of China and South Korea where expansion of capabilities in terms of education and skill, health and longevity has helped in industry, production and economic growth.

Sen argues for expansion of human capabilities through education, health, housing, gender equality, social and economic equality, political participation. Development then cannot be separately followed bereft of expansion of human capabilities. Development has to go along with expansion of real freedoms, capability expansion being one of them. Sen’s arguments are not only for state-based welfare but also participative economic growth. It can be said that his basic arguments relating to capability expansion, participatory economic growth and development provide an important basis for welfare and positive state.

A survey of the different perspectives on the functions and role of the state within the liberal framework reveals that the concept of liberty and freedom, role of the state in spheres of economic and social areas and relationship of the individual with the state have undergone change. This has happened not only because of the changing concept of individual freedom and requirement of the capitalist economy but also due to more a interactive relationship between the requirement of principles of liberty and equality on the one hand and the two with justice on the other hand. The concept of individual liberty and freedom has travelled from being possessive to moral and developmental; role of the State from a night watchman and laisse-faire state to a welfare and positive state; equality as a matter of an invisible hand to distributive justice; and above all the State as a necessary evil to a rightful coordinator.