Fukuyama and Economic Liberalism

Economic Liberalism
Photograph shows stock brokers working at the New York Stock Exchange. Thomas J. O’Halloran, photographer – This image is available from the United States Library of Congress’s Prints and Photographs division.

The third of six posts on Francis Fukuyama’s recent book Liberalism and its Discontents.

Economic Liberalism

Liberalism is a loaded term. Americans think of an ideology associated with the left. Europeans think of a laissez-faire school of economics associated with Mises, Hayek, and Friedman. Meanwhile, academics imply a form of political liberalism when they refer to liberal democracy. Fukuyama says liberals “agree on the foundational importance of equal individual rights, law, and freedom.” Nonetheless, even political liberalism can imply aspects of economic liberalism. For example, property rights depend on the rule of law. Moreover, the rule of law facilitates the creation of markets. Even freedom implies a more limited version of the state.

Indeed, the proliferation of liberal democracy also came along with trade liberalization, deregulation, and privatization. During this period, Fukuyama frankly admitted, “Political liberalism has been following economic liberalism, more slowly than many had hoped but with seeming inevitability.” It was generally easier to apply economic reforms than adopt liberal political philosophies. Nonetheless, steps toward liberalization of economies indicated a willingness to liberalize other areas of state control as well. Unfortunately, history has also shown plenty of examples where economic liberalization did not produce liberal societies. Chile under Pinochet is perhaps the best known example of a repressive regime implementing neoliberal economic policies.

Fukuyama believes democracy was a necessary complement for liberalism to succeed. He explains, “Liberalism’s pairing with democracy tempered the inequalities created by market competition, and general prosperity enabled democratically elected legislatures to create redistributive welfare states.” Indeed, this vignette brings out a surprising theme from Fukuyama’s book. He believes the answer to liberalism’s problems “is not to abandon liberalism as such, but to moderate it.” Ironically, Fukuyama’s defense of liberalism depends on reasonable limitations. So, it’s not an unqualified defense. In some ways Fukuyama himself is a critic of liberalism. This is likely the most surprising revelation for most readers.

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