Keywords

A second group of counterstrategies concerns the need to defend, develop and improve the liberal institutions and policies in today’s liberal democracies. As explained in Chapter 4 changing economic and social conditions, especially if they turn into crises, often provide the background for why populist strategies may appear appealing to the voters. If the electorate is made to believe that their interests and identities are threatened by real or perceived policy failures, it is not surprising that they lose faith in the established parties, elites, and experts.

It may well be that liberals had become complacent, even if not naively believing in the end of history (Fukuyama, 1989; 1992) and had forgotten Karl Popper’s dictum about the necessity of continuous piecemeal reform to sustain open societies and liberal democracies (Popper, 1945). When economic and social conditions change, often institutions and policies need to change as well. In this sense, the populist critique may have been correct at least to a degree. To fight back liberalism needs a reform program.

It is easy to identify policy failures in all democracies. For example, there are legitimate complaints in many countries about the education system, law, and order, health care, welfare services, the cost of housing, infrastructure, energy prices, immigration policy, and many other areas—not to mention the challenges caused by climate change, the increasing share of elderly, etc. And perhaps worse of all when it comes to the support for populism: corruption.

Many of these problems should, could, and need to be fixed. While this is not the place to present a full reform program, a few suggestions concerning the promotion of social mobility, the strengthening of integration, and the restoration of public discourse will be outlined below. Importantly, the reforms needed to a considerable extent need to be adapted to the local conditions and challenges in the relevant societies and polities in question. However, it is crucial to distinguish between real and perceived or constructed failures, to understand why the problems have arisen in the first place, and by what methods or means they can be fixed.

Populists are, as argued above, often willing to promote simplistic answers to complex questions and advocate unserious, ill-founded policies said to handle problems like those mentioned above. And all populists directly or indirectly want to weaken and abolish the institutional framework presented above that liberals favor. These institutions need to be secured and given a better defense in almost all democracies.

Improve Liberal Literacy

An important counterstrategy is therefore to explain to policymakers and the public how liberal institutions contribute to prosperity and welfare, as well as to meaning, community, and virtue. We have already noted that this is far from intuitive to most people how the spontaneous orders of liberal societies work. Unfortunately, this liberal illiteracy includes many politicians and academics, also within the field of economics.

Constitutional democracy, the rule of law, private property rights, and civil rights, including the freedom of speech, are all public goods. They benefit everyone in the longer run, while there often is a temptation for different interests—also non-populists—to free-ride and seek short-term benefits by limiting freedom or refraining from providing the necessary funding for the agencies that uphold them. If the police, the courts, and other parts of the judicial system do not get the support they need, law and order will deteriorate. The same is true for the freedom of the media and the democratic institutions themselves.

These are all basic institutional requirements for the market economy, civil society, and the open society in general. If this basic institutional framework is not defended and upheld, as in societies with rent-seeking, corruption, firm subsidies, over-regulation, bailouts, welfare dependency, crony capitalism, and the like, prosperity, civility, and the quality of life will deteriorate. And the political scene will lay wide open to a populist takeover.

But it is not only necessary to uphold the liberal institutions, the liberal economy and society with their spontaneous orders must be better explained. Adam Smith in The Wealth of Nations (1776) used the metaphor of the “invisible hand” to explain how the wealth of nations comes about. He argued that the market economy worked “as if” an invisible directed the butcher, carpenter, baker, industrialist, supplier, consumer, and other actors on the market to coordinate their behavior and act in a way that in the end benefitted everyone. But of course, there was no hand. It was the price mechanism, the profit motive, the competition, and the incentives created by the liberal institutions presented above that produced benevolent results. They arose as the unintended consequences of human action, but not of human design.

Less well-known and appreciated is that he first used the term the invisible hand in the Theory of Moral Sentiments (1759) where he shows that our moral judgments and actions are products of processes in civil society and social psychology. Social norms and individual virtues such as justice and benevolence arise, he argues, through interpersonal interactions and our ability to reflect on the impartiality of our actions and our feelings of sympathy of empathy with the situation of others. In this way we are often “led by an invisible hand…without knowing it, without intending it, [to] advance the interest of the society.” (Smith 1759[1982]: IV.i.10).

The process he describes is similar to how, in the last chapter, we explained conditions necessary for the emergence and sustenance of social norms, namely informal, direct, long-lasting, and multi-dimensional relations within fairly small groups of people in communities in civil society.

While the benefits of the spontaneous orders of markets are well-known through empirical and historical research, there is also increasing evidence that the same is true of civil society. As shown by Elinor and Vincent Ostrom, and other scholars from the Bloomington school, communities and social norms in many situations make it possible to voluntarily solve various kinds of public goods problems and avoid the “tragedy of the commons” (Ostrom, 1990). Even in situations of natural disasters, this kind of decentralized, voluntary, and polycentric cooperation has been shown to be superior to centralized interventions. The role that government can play in the recovery is primarily to secure the basic liberal institutions such as private property rights (Chamlee-Wright & Storr, 2010).

Many, if not all, social and economic problems in today’s democracies are likely to have been caused by policy interventions in markets and civil society. Non-classical liberal policymakers, for purportedly benevolent reasons, often favor policies that unintentionally destroy the spontaneous orders of liberal economies and societies.

One reason, as Bastiat (1850) famously argued, is that when people ponder the merits and demerits of government interventions, they too often are blind to the bulk of the interventions’ consequences. Some are easily seen; others are not seen because they are indirect and occur over time. Often such unintended, unforeseen consequences are negative, they may even be contrary to the initial intentions.

Two typical examples are rent control and security on the job legislation. The former, intending to make housing cheaper and more available, leads to a lack in investments, ques, and shortages of housing, which often leads to demands for further regulation of input markets, subsidies, and further problems, rising costs in housing, etc., especially for the groups that originally was supposed to benefit. The latter, with the intention to make jobs safer and the risk of unemployment lower, often leads to the opposite through a less dynamic economy, a decreased willingness of employers to take the risk of employing, a dual labor market with insiders and outsiders, etc., in the end causing increased insecurity (Karlson, 1993 [2002, 2017]).

Good policies account both for the effects one can see and for those one must foresee. An implication of this analysis is that the demand for increased public spending and redistribution that frequently is heard, not only from left-wing populists and progressive politicians of various brands but also from populist scholars like Mounk (2018) and Fukuyama (2022), is likely to be misled. It may instead cause populism by undermining the liberal economy and society. As argued in Chapter 4, it should come as no surprise that welfare states are failing.

Understanding spontaneous orders requires education, it must be explained and communicated. Consequently, it is essential that resources are devoted to improving liberal literacy through public education but also through private initiatives. I shall return to this below.

Secure a Strong, Limited, and Decent State

Another important strategy is to secure a strong, limited, and decent state. In fact, a small but adequate state is likely to provide a better defense against populism than a larger, more interventionist state.

Classical liberals prefer limited government. That does not mean that they dislike or are against the state. What they want is a state that has the capacity to enforce the rule of law and the rights of individuals, uphold law and order, defend the country against foreign aggression, and support a limited set of genuinely collective goods.

As noted, there is some disagreement about what exactly should be included in this latter category, but almost all classical liberals would agree that education for all children, basic research, a well-functioning infrastructure, support for the vulnerable, weak, and unfortunate, various kinds of environmental protection, and perhaps other so-called “essential services” should be included. Galston (2005) has summarized this into what he calls “basic decency”. But for example, Hayek favors public support for education and even an “equal minimum income for all” (Hayek, 1960: 427). Others would argue that also health care and other types of social services should be guaranteed, if not necessarily publicly provided, by the state. Such support, however, should have clear limits in order to avoid an unintended expansion of the state and infringements of the free market and civil society. Exactly where to draw the line would differ depending on the specific circumstances at hand. As shall be more fully explored below, classical liberals do not favor such systems because of social justice, but because of decency, and to promote social cohesion in society.

There are at least seven important arguments for why the government should be limited, which is not the case in most democracies today. The first well-known argument put forward by Nozick (1974) and other rights theorists is of course that a larger state may undermine the fundamental rights of individuals. He even views taxes beyond a certain level as being equivalent to slavery—you are forced to work for others without having given your support. While many classical liberals may not defend Nozick’s account of rights, many would nevertheless agree that there are ethical limits to taxation (Buchanan, 1984).

A second, perhaps more general and in our context more relevant argument is that the state cannot know, and should not interfere with, the good of the individual. In contrast to populists of left and right, as well as socialists and conservatives, according to classical liberals, as far as possible the state should be neutral to the good life of its citizens. That is what liberty is about. A liberal society will be a pluralistic society with diverse values and different conceptions of the good. In fact, it can credibly be argued that only a liberal society with a liberal state can accommodate pluralism.

A third important argument is that a limited government gives larger room for markets and civil society, which will give higher prosperity and more innovation, but also stronger communities, voluntary organizations, social norms, and so on. This will strengthen the prospects for people to have lives with meaning, community, and virtue.

A fourth argument is that a limited government diminishes the amount of rent-seeking, lobbying, and corruption—the smaller the government the less interest for different special interests to try to influence it (Karlson, 1993 [2002, 2017]). The larger the government gets, the bigger the risk the public goods of the classical liberal institutions will be crowded out. A state that takes on too many functions faces the risk of creating political or policy failures that are more serious than the purported social and economic failures they may have been intended to fix (Karlson, 1993 [2002, 2017]; Buchanan & Tollison, 2009). The state needs to be limited and robust to be able to solve both incentive and information problems (Boettke & Leeson, 2004; Pennington, 2011).

A fifth fundamental argument is that a limited government with free markets and a civil society has epistemic advantages. In complex, culturally diverse societies a smaller, constitutionally bound state provides for better use of knowledge compared to its alternatives. Tebble (2016) critically examines multicultural, nationalist, and liberal egalitarian approaches and argues that an epistemic account of liberalism, that emphasizes social complexity rather than cultural diversity or homogeneity, is the most appropriate response to the question of justice in modern culturally diverse societies. Hence, society must ensure that all citizens have individual liberty to act upon their beliefs.

A sixth argument, made famous by Friedman and Friedman (1980), but also developed by Dahl (1983), is that a free society needs counter-wailing powers in the private sector, in markets, and in civil society, to balance the power of the state. Without such resources, it is hard to see how a pluralist democracy and a strong, limited, and decent state could be sustained.

A seventh, and perhaps decisive, argument is that it directly limits the scope for populism. A liberal, constitutional democracy, obviously, makes it a lot harder for populists to achieve their authoritarian ambitions. With a division of power between the executive, legislative and judicial branches of government, independent power centers, and minority veto it will be harder for charismatic, plebiscitary leaders and their supporters to create a direct relationship with the ‘people’ by circumventing representative government, controlling courts, restricting media freedom, manipulating elections, etc.

It is also likely that the quality of political decisions will increase, as argued by Berggren and Karlson (2003), and will be improved with a liberal, constitutional democracy of the kind described above. The higher transaction costs regularly associated with the model of liberal democracy will often be a good thing—the deliberation introduced in governmental decision-making are likely to increase the quality of the political decisions. Moreover, it will not always be the case that liberal democracies have higher transaction costs than the more centralized, unitary, and populistic democracies. Given, of course, that the relevant institutions are wisely designed, a liberal democracy will have low decision costs, because of the partitioning of the domain of political decisions, and a high capacity to act in areas where it is appropriate, as well as a slow and more tedious decision process in areas where it is not appropriate to act without further deliberation. Overall, a strong, limited, and decent liberal democracy should, according to this analysis, be more in the long-term public interest of the voters.

Support Federalism and Decentralization

A related strategy against populism is to support federalism and decentralization. Federalism, or vertical division of power, has the advantage that decisions will be taken closer to the voters. The decentralization of political decision-making will lower the distance between the democratic representatives and their principals, the voters. It will increase institutional competition and make politicians more alert to the demands of the voters. And it will provide a stronger constitutional defense against unwanted or unintended centralization of politics (Karlson et al., 2008; Ostrom, 1973).

There are empirical results that support these views, even though a lot more work needs to be done in this area. For example, several studies show that the rate of inflation is lower, the size of the public sector smaller and the rule of law stronger in federal states than.

in unitary states. Certain types of referenda and bicameralism, furthermore, have a lowering impact on public spending. Factors such as bicameralism and presidentialism seem to contribute to higher wealth. Moreover, there are indications that the quality of democracy itself may be enhanced by an elaborate system of division of power. In his seminal study of thirty-six stable democracies Lijphart (1999: 301) found that, what he calls, consensus democracies (which in most respects correspond to Riker’s liberal-democracy type) outperform majoritarian democracies concerning the quality of democracy and democratic representation.

Stimulate Social Mobility

Another quite different area, where institutions and policies should be improved to counter populism concerns social mobility and equality of opportunity. This may perhaps seem more controversial for some classical liberals, but not only are such policies likely to support equal dignity to the members of society, but they may also contribute to the social cohesion that the support for liberalism requires. A socially mobile society is moreover central to the liberal spirit.

However, equality of opportunity is not easily defined. Classical liberals favor procedural justice but are often critical of so-called social or distributional justice. In particular, the idea of equality of outcomes, or egalitarian social justice, is often advocated by left-wing populists, and is hardly compatible with a free society and a market economy (Hayek, 1976).

According to the procedural view of justice (Karlson, 1993 [2002, 2017]), all people should have equal rights regardless of gender, origin, and morality. That is what liberty and equal dignity are about. The rule of law and the equality of all before the law are central. From this perspective, the protection of economic, civil, and political rights and freedoms is the hallmark of a just society. From a procedural perspective also significant differences in income can be fair, as also Rawls (1970) acknowledged.

This does not mean that differences in income or wealth are uninteresting or unimportant. Large disparities in income and wealth can be detrimental to societal cohesion, individual health, and a range of other social problems (Wilkinson & Pickett, 2010). In addition, there is a risk that groups that perceive themselves as losers in such developments turn against established parties and elites and instead support different types of populist parties (Iversen & Soskice, 2019).

To make an open, liberal society inclusive and gain broad support, many liberals, therefore, promote policies that support social mobility. This includes basic social protection, education, and the like, or what I above have called decency. Even in this case, some redistribution and political interference are undeniably required, but to a much lesser extent in comparison with the egalitarian distributional claims. Promoting social mobility is more about compensating for poor conditions and lifting the foundations of all people, rather than seeking to reduce differences in themselves. Some differences, even major economic inequalities, can thus be fair.

The idea is that there are certain basic conditions or circumstances which the individual himself cannot influence or take responsibility for, and therefore should be reasonably equally distributed. While the result of what one can take responsibility for, such as work effort, skills, education, individual preferences, and the like, is something that the market and other societal processes are allowed to decide. Dworkin (1981), for example, analyzes what the individual himself has moral responsibility for and what fundamental circumstances can be considered to be beyond his or her control.

According to John Tomasi (2012) in Free Market Fairness, classical liberals should both be committed to limited government and the material betterment of the poor. It extends the notion that the protection of property and the promotion of real opportunity are indivisible goals. Similarly, Nick Cowen in Neoliberal Social Justice (2021) argues that the institutional framework of the market economy and the free society is probably the most important requirement for the achievement of real civic egalitarianism, rather than large-scale redistribution policies that most often result in cronyism and policy failures due to incentive and information problems.

It is not, of course, entirely simple to determine what should be included in these circumstances, and there is hardly any consensus among the above-mentioned thinkers, even if the starting point is somewhat similar. Biological differences, IQ, and similarity are circumstances that are difficult for the individual to influence, but they are also hard to influence through political efforts. And how do you draw the line towards aspects like self-drive, ambition, propensity towards risk, and savings, where the individual's choices and personal responsibility are greater but may still be influenced by upbringing and genetic factors? And how are the latter affected if we try to compensate for disadvantageous circumstances through redistribution policies and the like? There is a risk that the incentives for self-development will be taken away.

There is growing empirical literature that tries to measure how fair societies are from an equal opportunity perspective. This literature assumes that income inequality is fair if it has arisen as a result of toil, risk-taking, saving or education, but unfair if conditions beyond the control of individuals differed too much. While variables and methods used in the various studies vary greatly (Hufe et al., 2018), an important finding in (Checchi et al., 2010) is that education is what strengthens fair opportunities the most, or, conversely, reduces unfair income inequality. Also, in Hussey and Jetter (2016) the central finding is that education over time has become increasingly important in explaining income dispersion, although much else also comes into play.

One problem with these types of studies is that the results are entirely dependent on the variables used or available to measure fair opportunities. There is also a plethora of unobservable factors that can come into play. Moreover, as already mentioned, it is far from obvious what “circumstances” should be equal for everyone and what should be the individual's own responsibility.

An alternative option is to study intergenerational social mobility. By this is here meant the movement of individuals regarding occupation, social background or income compared to their parents. For example, the U.S. has a high level of mobility in terms of occupations and social class, but lower mobility in terms of income. European continental countries have low levels of mobility both in terms of occupation and income (Corak, 2013).

In a society that affirms equitable opportunities and social mobility, the education system has compensatory significance. That all citizens have the opportunity for high-quality education at an early age is crucial to be able to make responsible decisions later in life, develop their life projects, support themselves, earn money, start a family, etc. Education is also an area, alongside the fundamental liberal institutions discussed above, where politics really can play a constructive role, as already Smith (1776) recognized.

Unfortunately, politics does not deliver well in this regard in many countries. Probably, as argued above because the state has expanded way over its limits. Improving basic education for all is no doubt one of the most important counterstrategies against populism.

Strengthen Integration

There is also an apparent need in many democracies to strengthen the integration of immigrants. Most classical liberals favor the free movement of people across borders for many reasons, not the least because it promotes economic growth and prosperity for the world at large, but also in receiving countries (Caplan, 2019; Powell, 2015). Moreover, liberals embrace pluralism and cultural diversity. Even more important is that the right to exit one’s country of residence is fundamental to liberty itself Kukathas (2003). Also, for those already living in liberal democracies and open societies. As argued by Kukathas (2021), there is moreover a risk that restrictions on mobility and border controls infringe the liberties of the very citizens they aim to protect.

However, also in tolerant, pluralistic societies, immigrants need to be sufficiently integrated economic-socially and culturally to support social cohesion and to avoid social and economic problems. Labor market participation is here crucial to the development of language and social skills. In fact, labor immigration may also support the integration of refugees and asylum seekers.

As we saw in Chapter 4, the public perceptions of the size of immigration differ considerably from reality. In countries like Hungary and Poland, where the right-wing populist rhetoric around the threat of immigrants is especially intensive, the actual number of immigrants is very low. This is not very surprising given Allport’s (1954) well-tested interpersonal contact theory which states that direct interpersonal contact with members of minority and other social groups is one of the most effective ways to reduce stereotyping, prejudice, and intergroup conflict.

In an interesting study, Fleming et al. (2018) used the Migrant Acceptance Index (Espiova et al., 2018) to see whether direct interpersonal contact with migrants reduces stereotyping and prejudice against them. The index is based on three questions that were asked in 138 countries. The questions ask whether people think migrants living in their country, becoming their neighbors, and marrying into their families are good things or bad things. Several EU countries are among the least accepting countries of migrants globally including Hungary, Croatia, Latvia, and Slovakia. Many of the most-accepting countries have a long reputation as receiving countries for migrants—like the U.S., Australia, Canada, and New Zealand. The results show a near-universal relationship between self-reported interpersonal contact with migrants and personal attitudes toward them.

It is interesting to note that these Anglo-Saxon countries differ from many others in at least two ways: their labor market models are more flexible, and they have prioritized labor migrants as well as refugees and asylum seekers. Canada, Australia, and New Zealand all welcome labor migrants through scoring or merit systems. In Canada, immigrants from countries with a high level of education are prioritized and each individual is tested against the conditions for self-sufficiency. The applicant's education, language, and work experience are valued in relation to Canada's need for labor. The applicant must first achieve some minimum standards in the form of having graduated from high school or equivalent, demonstrating proficiency in English or French, worked at least one year continuously in a qualified profession, and possessing sufficient financial means to be able to support themselves and their family during the start-up period. The applicant is then scored based on other variables such as education, age, work experience and whether the applicant already has relatives in place (Canadim, 2022). Australia introduced a similar scoring system in 1989 and New Zealand in 1991. These, unlike Canada, have chosen to more take into account in the scoring system the identified shortage of occupations in the labor market. In Australia, applicants who have a profession that is on a list of highly qualified shortage occupations receive a work permit (Emilsson & Magnusson, 2015).

Labor immigration is important in two respects. First, labor immigration can lead to more support for immigration policy among the population. In Australia, for example, refugee immigration is a minus item for government finances over a 10-year period, but immigration policy overall contributes positively to government finances because labor immigration is so profitable and extensive (Cully, 2011). Second, there are several indirect effects that labor migrants can contribute to improving integration for refugees.

Since it is likely that refugees and labor migrants often live in the same neighborhoods (especially in the early years of the country), labor migrants could have positive spillover effects on refugees who have traditionally found it more difficult to enter the labor market and society. Åslund and Fredriksson (2009) show that lower levels of welfare dependence in refugees’ immediate areas reduce the risk of them taking out income support themselves. Similar conclusions can be drawn for the integration of children and adolescents. Edin et al. (2003) show that a higher proportion of immigrants in the residential area leads to poorer school results for refugees’ children, but that a higher proportion of their compatriots who are highly educated in the immediate area improves school results, especially for boys. Thus, if labor migration leads to a higher degree of education in areas with a high proportion of immigrants, this could help to improve the school performance of refugee children.

The other way that Anglo-Saxon countries differ from many other developed countries concerns their labor market models (Karlson & Lindberg, 2012). Compared to the other European models the Anglo-Saxon model has a more market-based view of the labor market. But it still provides for flexicurity, although with lower compensation rates for unemployment (Eamets et al., 2009). There is only a low level of government involvement and less comprehensive welfare policies. The coverage of collective agreements is low, just as the levels of membership in unions and employers´ organizations. Moreover, the model is based on the system of common law rather than on legislation. At the heart of this model, alongside a small amount of regulation, is the notion of a flexible labor market ruled by the price mechanism. In this model, there is greater freedom provided to individual employers to hire and fire personnel, and the freedom to set pay and employment terms and conditions. Consequently, this greater flexibility makes it easier for low-skilled immigrants to be integrated into the labor market, and hence their ability to support themselves and their families, which diminishes all kinds of social problems and welfare costs. Also, on-the-job training will support language and social skills, all to the benefit of integration.

Hence, to support the integration of immigrants in general, also low-skilled asylum seekers, labor immigration but also institutions that lowers the barriers to the labor market are important, rather than subsidies and welfare benefits. Again, the classical liberal institutions with a strong limited, and decent state that protect individual and minority rights and support the creation of jobs and prosperity are the way forward.

Restore Public Discourse

A last critical area for reform that needs to be raised concerns the role digital social media seems to have in the deterioration of public discourse and the rise of populism, as we saw in Chapter 4. While I am no expert in the topic of algorithms and the business models of digital platforms, it clearly is a problem if media consumers increasingly, especially in younger generations, are exposed only to information that confirms their preexisting values and beliefs. It will undermine the ability to respectfully disagree and the quality of public discourse; the “tribal mind” may get hold.

How to fix this is not without complications, however, since digital media at the same time is a fantastic technology that makes information and new knowledge available to almost everyone, everywhere, any time. In that sense, it is genuinely democracy-enhancing. Moreover, it is a young technology that is still evolving through competitive technological advances.

For example, algorithms could just as well be designed to provide upgraded digital “town squares” that encourage consensus rather than division, downgrade misinformation and deep fakes, and support high-quality public discourse. Supporting such a development should be in the interest of both users and platform businesses. The public is also likely to become more accustomed to using social and digital media for their long-term benefit.

While some form of regulation—possibly upgrading similar regulations that apply to traditional media such that platforms to a larger extent are made responsible for the content on their sites, but also giving people more control over their personal data—is likely to come, the downside is similar to what was discussed above in the context of the benefits of limited government. The risk is that policy failures are created that are worse than the problem that the regulation was supposed to fix in the first place. The regulatory process could, which is not unlikely in the present political environment, be captured by special interests or the populist politicians themselves, stifling innovation, and free speech.

One way to think about this could be to be inspired by the German ordoliberal tradition, which emphasizes the government’s role to provide, protect and enforce non-discriminatory general rules of the game for economic and social interaction, especially to uphold competition, without intervening in the process itself or becoming a player itself (Dold & Krieger, 2019; Kolev et al., 2020). Especially the distinction between market-conforming and non-conforming state intervention holds some lessons in this area as well (Siems & Schnyder, 2014). “Public discourse-conforming rules” that protect and enforce non-discriminatory general rules of the game may be needed for digital media as well.