Classical Liberalism and the Future of Public Policy
New Thinking in Political Economy series
Chapter 6: Poverty Relief and Public Services: Welfare State or Minimal State?
INTRODUCTION Part I of this book applied the principles of robust political economy to consider and rebut some of the major objections to classical liberalism arising from economics and political theory. Part II now turns to the practical implications of this analysis in three domains that have shown themselves most resistant to the classical liberal case. These are the welfare state, international development and environmental protection. The first of the chapters in Part II explores these issues in the context of the welfare state. The relief of poverty in developed economies and the supply of ‘public services’ have come to be viewed as essential functions of elected governments. For critics of classical liberalism, this movement away from the principle of non-interference in civil society has been a thoroughly progressive development. Within this context, proposals to extend voluntary action and private markets are criticised on economic and moral grounds. Economists point to ‘market failures’ associated with collective-good dynamics and information asymmetries held to prevent the effective operation of markets in areas such as education and health care. Political theorists, meanwhile, contend that even if an efficiency-oriented case for classical liberalism can be sustained, such an approach would strain the social fabric owing to its failure to address issues of social solidarity and distributive justice. Drawing on the principles of robust political economy this chapter tests the classical liberal alternative to the modern welfare state against its rivals. Focusing on ‘knowledge problems’ and incentive-compatibility issues, the analysis challenges both the economic and...
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