Redistribution: Not if, but how

Many people assume that classical liberals are ardently opposed to redistribution of income in principle, and that this usually overrides other concerns. It is certainly true that we are sceptical of it, but many of us are actually very relaxed about it in principle, and reserve most of our scepticism for the way it’s done.

Consider three different education systems. 

In system one, the government spends £6,500 per year per child through a centrally-managed school system where many aspects of the curriculum are decided by the Secretary of State for Education. In system two, the government gives parents a voucher for £6,500 per child to pay for their education in any school they like. In system three, parents are legally required to send their children to school but they do not receive any money from the state to help them do so.

Or three different healthcare systems. 

In one, we have an government-run and -provided National Health Service. In two, the government pays for health insurance for people too poor to afford it, but the private sector provides the care. In three, you’re on your own.

In both examples, system one is what we’ve got at the moment. System two is what I would characterise as a moderate classical liberal stance. System three is what I would characterise as a hardcore libertarian stance. 

People like Milton Friedman and FA Hayek spent most of their lives advocating system two-like policies, and these are generally the sorts of policies that the Adam Smith Institute and Institute of Economic Affairs advocate for too. 

If the state ended up spending less money under these policies, this is incidental to changing the way money is spent. The real goal is decentralising decision making to the level of the individual, and allowing firms to profit by satisfying people’s individual needs efficiently, and fail when they do not do so. 

I think a similar approach makes sense for welfare. The system we have at the moment is highly complex and relies on the people who run the system being near-omniscient about what’s best for people on benefits. That’s why I’m in favour of radical simplification of the welfare system along the lines of straightforward cash payments to the poor. Even if that means not cutting the welfare bill.

Redistribution isn’t costless, especially when it’s done badly. Taxes on the incomes and savings of the rich depress investment, and hence economic growth – making the pie smaller overall. On the other hand, taxes on consumption seem much less economically harmful. Again, the focus for me is on making the state cause less harm in the redistribution it does.

Does this mean I don’t want a ‘small state’? I’d say no.

The scope of the state is much more important than the simple amount it redistributes by. A government could raise very little tax, but still prohibit alcohol, tobacco, cannabis and any sex outside of the missionary position. This would be a much bigger state than a very liberal one that nevertheless had a £10k basic income – at least in the sense that it matters. 

Thatcher’s reforms revolutionised Britain not because they cut state spending as a percentage of GDP, but because they got the state out of key industries and opened them up to competition. It was rolling back the scope of the state that mattered.

So I don’t think it’s incoherent to say that you’re a pro-redistribution classical liberal. In principle, I don’t mind redistribution. The problem is how bad the state is at it.