Today’s post is the English version of a former one in Spanish commenting on the work by Dr Juan Ramón Rallo Una revolución liberal para España: Anatomía de un país libre y próspero: ¿cómo sería y qué beneficios obtendríamos? (A liberal revolution for Spain: Outline of a prosperous country: How it would be and what advantages we would get from it), Deusto, Bilbao, 2014. I would like to thank particularly Mr Alberto Cornejo Pérez for both having let me know about this interesting book and for his useful ideas which I also include in this review. I would also like to thank Mrs Belén Alonso-Olea for her interesting ideas on Dr Rallo’s criticism of labour market regulation. I was not able to include them in this review on grounds of brevity, however, I will refer to them on another post.
- The author and his book
The author, who is a prominent representative of the Austrian School, takes the challenge of proving in his book the convenience of reducing the public sector in Spain to its least expression. Dr Rallo justifies his approach and describes the income and expenses of such ‘minimum state’. Later, he analyses each of the sectors where state activity is involved and intends to prove how there would be a dramatic improvement if state action (rule of law, municipal services, environment, infrastructures, currency and banks, business promotion, labour market, electricity market, research and development, education, culture and art, pensions, healthcare, social assistance) were suppressed (or reduced to its least expression). The author ends up by showing the steps to be made in order to implement his project (the transition from the current situation tothe ‘minimum state’).
- Ideological assumptions
The book starts from a few considerations that we could call ‘ideological’ (in the sense that they characterise a given worldview):
a) The exercise of public authority is a violent act to be rejected per se.
In Dr Rallo’s own words: ‘The State is coercion, violence. The vast majority of people instinctively oppose violence, however, paradoxically, they support the existence of the State in an unreserved way. Everyone rejects hard labour, but in several Western countries, the most part of the population still accepts compulsory military service; everyone rejects robbery and intimidation, but most people still accept taxes as legitimate and coercion against those who refuse to pay them’ (…). ‘Too many people clearly use a double standard: On the one hand, they reject violence from individuals and, on the other hand, they accept it blindly when it is the State who resorts to it (Huemer, 2012a). Perhaps it might have to do with the notion of the State as the territorial monopoly of legitimate violence. But, is not the use of violence rejectable per se regardless of who might use it?’ (p 9)
b) There are two markedly different notions of justice: ‘The Socialist principle of ‘each according to his abilities, to each according to his needs’ and the liberal principle of ‘to each his own’(Latin: suum cuique)’ (p 10). Dr Rallo specifies this idea: ‘What does actually that ‘his own’ mean, which everyone has to keep under control? Basically, his property. The starting point of the liberal ideal of justice is the ‘appropriability’ of external resources: The owner reserves a right to absolute control over his property, thus being able to prevent the other individuals from using it. Yet, how does one become owner? The general principle is that of ‘finders-keepers’ (he who finds it, keeps it) (p 10). As the resources are scarce, the ‘Socialist’ principle (aimed at dealing with everyone according to their abilities and needs) leads to permanent conflicts, whereas the ‘liberal’ principle allocates goods legitimately and encourages cooperation among humans.
In my humble opinion, these assumptions are biased and based upon an anthropological conception that does not match reality entirely. As Pope Francis says: ‘We can no longer trust in the unseen forces and the invisible hand of the market. Growth in justice requires more than economic growth, while presupposing such growth: it requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality’ (Evangelii Gaudium, no. 204).
a) First of all, I find the expression use of ‘violence’ inaccurate: the exercise of public authority cannot be simply regarded as ‘violence’ even if it is backed by a coercive structure. Furthermore, coercion might be legitimate at times. Dr Rallo himself does accept this idea – with a few nuances from which I differ – and points out that ownership implies ‘an absolute and a top priority control’ over the goods, thus preventing the other individuals from using it’. Dr Rallo also accepts coercion to force someone to keep to an agreement: ‘Pacta sunt servanda, i.e., voluntary contracts oblige the parties. Precisely because contracts allow to modulate individual rights and duties, they turn into the appropriate instruments to transfer title deeds and also to take on personal duties, i. e., to reschedule social availability of the scarce resources, including services rendered by third parties’ (p 11).
Mr Alberto Cornejo points out that ‘the difference between these two kinds of coercion lies in their origin: The one derived from contracts or from private property protection is a response to a prior aggression, in the form of non-compliance with the contract or of property theft, whereas the one exerted by the State starts without anybody else’s previous provocation’. Although I may be wrong, in my view, this difference is not as relevant as Dr Juan Ramón Rallo seems to hold, since coercion arising from the legitimate exercise of public authority is a requirement of human nature itself (I shall develop this idea in the following paragraph).
b) Moreover, I think there is no radical contradiction between the principles of ‘to each according to his abilities, to each according to his needs’ and of ‘to each his own’. ‘His own’ cannot be determined solely by the ‘finders-keepers’ criterion (he who finds it, keeps it), but also by each one’sabilities and needs. Man is a social being by nature and hecan onlydevelop himself with the help of others (Dr Rallo does not call this into question). As a result of that, there is a natural duty to help others. For this reason, even if the right to private property is essential, it is not an ‘absolute and a top priority’ faculty, but just a tool to arrange the universal enjoyment of goods in an ordered manner. Again, for this reason, private property hasthe social role of wealth as its limit, which legitimises the demand oftaxes, among other things. As Dr Lisa Herzog put it in her amazing book La libertad no es sólo para ricos: alegato por un liberalismo adecuado a los tiempos (Freedom is not just for the rich: Argument in favour of a liberalism adapted to times): ‘The notion of a confrontation between the Market and the State where the Market is the only empire of freedom and the State merely the empire of coercion and submission shall be rejected’ (L. Herzog, Freiheit gehört nicht nur den Reichen, Plädoyer für einen zeitgemäßen Liberalismus, C.H. Beck, Munich, 2014, ch 1) .
As a conclusion to his two ideological assumptions, Dr Rallo finds that people act ignorantly and selfishly whenever they do so through democratic institutions, whereas they act rationally and informedly through the market.
Let us have a look at two examples of this. Dr Rallo sees it as ‘an error to think that the State will end up being controlled by the voters, who will avoid its corruption and its abuses of power through the usual elections. Obviously, there are institutional networks more prone than others to limit the arbitrariness of political power, but none of them ends the perverse incentives that characterise any state: generally, voters are victims of the electoral and ideological propaganda of great political forces, as their incentives to find out about political reality are really scarce; this is what is known as the principle of ‘rational ignorance’ of voters: the cost of accessing, processing and finding out about the whole volume of information on political news is huge compared to the influence of an individual voter on the outcome of an election. Moreover, not even an educated and informed voter is usually a guarantee of a balanced, impartial and wise judgment; this is what is known as the ‘myth of the rational voter’’ (p 12).
However, Dr Rallo rejects the idea that healthcare services consumers lack information (asymmetrical information) which justifies some type of state supervision: ‘asymmetrical information, as Dr Rallo says, is a fairly less serious problem than it could seem to be at first sight, as the market itself usually develops the necessary institutions and products to sort it out’ (…) ‘the reputation of healthcare services providers is the result of a long process of prior contractual, social and institutional interactions where not only patients take part, but civil society as a whole. It is this reputation that allows to forge a relationship of confidence between providers and patients, thus turning the latter ones into ‘informed patients’, i.e., patients who are able to choose among the different possible treatments, after receiving enough guidance and reliable information’ (p 183).
In my opinion, Dr Rallo forgets that, despite his heroism and his willingness to make sacrifices, man is a victim of original sin. This reversible trend towards selfishness and wickedness does not affect politicians only, but also economic agents and the functioning of the market itself.
Mr Alberto Cornejo agrees with me on this last idea, yet he adds that ‘precisely for this reason, as those who can access the coercive machine and those who cannot are equally human beings, such coercion shall be avoided. Asymmetrical information can be found in almost all situations, the key difference lies in the case of private relations where no party is entitled to impose their decisions on the others. As regards effectiveness, what is decisive in order to attain it, is the consumers’ ability to choose and it is almost always larger when it is them who finance the service, but not always: In Finland, the education system is almost 100% financed by the State and notwithstanding, there is great competitiveness arbitrated by city councils that hire teachers in all freedom and school financing depends on the number of parents who choose to take their children there, among several competing schools. The fact that the State takes part in such business deal does not take away any freedom from the system’.
III. Sectorial analysis
The chapters on ‘the liberal revolution, case by case’ are, in my opinion, the most interesting part of the book. Dr Rallo analyses the deficiencies of public action sector by sector and describes how a ‘minimum state’ could be benefitial.
All chapters are of great interest and all of them offer really valuable ideas. I fully agree, for example, with Dr Rallo’s criticism of the functioning of the Spanish electricity market (supposedly privatised, but with great interferences of the Stateleading to huge distortions). His criticism of the – clearly unsustainable – current system of pensions and social contributions(and, according to Mr Alberto Cornejo, ‘immoral’) – is also convincing. Furthermore, Dr Rallo deals with extremely complex issues skilfully and clearly, uses numerous examples as arguments and does not avoid the various objections that could be raised to his viewpoints.
In my view, Dr Rallo shows that civil society should be much more active and that reducing both the State and its regulatory action could be benefitial as well. However, his ideological assumptions lead, in my humble opinion, to wrong views.
For example, I agree with Dr Rallo that parents are the main responsible for their children’s education and that far more freedom is needed in education. Nevertheless, more freedom does not imply a total absence of general rules, as the author appears to suggest. As Mr Alberto Cornejo points out, the author does not oppose any action rule, but ‘he does suggest not to impose rules on parents coercively. He advocates for rules or contracts voluntarily accepted by parents. Those rules shall bind them as a law from the moment of their approval/acceptance/signing’. In my opinion, greater responsibility on the part of the parents is not incompatible with certain minimum ius cogens rules in education.
The idea that free market would ensure a better education for the poor does not prove to be convincing (according to Dr Rallo, if the State would not spend anything on education, the teachers’ salaries would drop, so those more in need would be able to access quality education, as it is the case in India, Nigeria, Ghana and Kenya, according to a study by James Tooley, mentioned by the author).
This study is worth being considered and, as Mr Alberto Cornejo points out: ‘They are experiences in the most miserable parts of the world. Through them, one can see how well small schools work. Such schools were spontaneously set up, regardless of any control by the State’. However, according to data from the CIA World Factbook (2012), India’s literacy rate is 61% (and 47.8% for women); Nigeria’s, 68% (and 60.6% for women); Ghana’s, 57.9% (and 49.8 % for women); and Kenya’s, 85.1% (and 79.7% for women).
IV. A decentralised and property-based government
In Dr Rallo’s view, the Government must be decentralised as much as possible and the making of decisions shall be based upon property and free negotiation: ‘Private property does not only exist in its individual dimension, but also in its communal one: if a human group settles down in a place, it seems reasonable that each of its members becomes the individual owner of their home and, at the same time, co-owner of all common spaces or property(streets, street lighting, sewer system, etc…). An element of such propertyis the City Government: the body in charge of establishing private coexistence rules, as well as of determining which common services shall be rendered and how to pay for them (home owner fees, resident fees, fee per square metre of individual property, rateable value fee, etc…). Actually, the absence of a state would lead to the emergence of cities (in a broad sense: including housing estates or home owners’ communities of a very different size and structurefrom those in current state cities) ruled by private governing bodies (Beito et al., 2002). Such bodies would have certain similarities with current city councils, but with a key difference: those cities would be the outcome of a free and voluntary agreement among the parties and not of the unilateral imposition of some of them’ (p 43).
In my view, it is a deeper issue. A government solely based on property and free negotiation poses a risk to the political prevalence of economic power without the right control instruments. In Dr Rallo’s view, that control is not necessary, as the market’s rationality and the absence of coercion would work in a far more efficient way than any kind of political representation (necessarily uninformed and showing a tendency towards corruption). I do not share this idea and do not find it proven enough in Dr Rallo’s book.
In Mr Alberto Cornejo’s opinion, ‘the notion of economic power is recurrent in the collective imagination, however, its essential feature is that it is a power which is wholly subject to the wishes of consumers: from the very moment a ‘disruptive innovation’ appears and makes the supposedly most powerful companies lose the consumers’ support, these companies disappear (where is the power of all these supposedly so powerful companies only few years ago such as Nokia?). Such economic power becomes really dangerous when it addresses the State, so that the State uses coercion for its own benefit, setting entry barriers for new competitors, under the excuse of protecting consumers’ rights, public healthcare, the environment or any other subterfuge’.
In my opinion, and I might be wrong, wealth is a source of power which comes into play even in the case that the state system is so reduced that its manipulation proves impossible. Therefore, it is advisable to establish democratic counterweights to the power arising from property.
V. Rejection of patents and royalties
Although Dr Rallo is a stalwart supporter of private property, he is against both patents and royalties. In his view, such institutions are coercive on the part of the State and are unnecessary in order to boost research or intellectual creativity. According to Dr Rallo: ‘Even though it is common to rank patents as ‘intellectual property’, it is an abuse of the term ‘property’: a patent is not aimed at allowing its inventor to use and enjoy his invention, but at coercively preventing other agents from enjoying it, thus making use of his property’ (p 102).
‘Let us imagine, says the author, that two companies invest large sums of money in developing the same product separately, but one of them develops it one day earlier than the other one and manages to patent it. What is the reason for the former to obtain all the profits from it? None’ (p 106). I find the argument convincing, but, in my view, it contradicts the radical defence of the ‘finders-keepers’ (he who finds it, keeps it) criterion by the author at the beginning of his book.
Dr Rallo uses a similar argument to that of copyright: ‘It is often believed that it is relevant for the author to make his work profitable and, therefore, to get enough incentives to carry on with it. But, like in the case of patents, intellectual monopoly is unnecessary so as to inspire the structure of books or music composition, as both Boldrin and Levine clearly state (2010). There are numerous alternatives for the author to exploit his work without forbidding its editing by third parties: Instalment sale, the author’s seal of approval of a publishing house, sale of signed copies, exclusive distribution agreements, concerts, lectures, etc’.
I agree with this argument and am convinced that there are alternative mechanisms to copyright allowing to make the author’s payment compatible with free access to thinking and culture.
With a view to being fully consistent with this approach, I think that Dr Rallo could have renounced his right to copyright on his book, which he has not done. Obviously, the book is well worth 9,49 euros (the electronic version that I have purchased) or 17,05 euros for the printed version. Besides, surely personal circumstances or the author’s relationship with the publishing house justify his failure to renounce to copyright. All in all, I think Dr Rallo’s aim – to spread his ideas among people – would be achieved to a greater extent and more convincingly if he had spread them in digital format with a Creative Commons licence.
The book offers many other highly interesting ideas, as well as his considerations on communal private property, the way to solve market distortions (externalities), to protect the environment or solve problems regarding the labour market and social assistance based on mutual help societies and private assistance companies for those in need. Also, his considerations on how to attain the transition from the current state to the ‘micro-state’ are really interesting.
Even though I disagree on some key points, I think Dr Rallo’s book provides very valuable material so as to encourage reflection and debate and I hope it is possible to organise one or several seminars on this topic at ECJ Leading Cases.
Dr Pedro M. Herrera