 Several years ago when we presented the Milton Friedman Prize for advancing liberty to Hernando de Soto for his work in spreading property rights around the world, one of my colleagues said to me then, I was looking at Milton Friedman and Hernando de Soto up on the podium and thinking they're both men of some advanced years and who is going to replace them. And the first thing I said to her was, well, you know, Milton is 30 years older than Hernando, so they're not the same generation. They are clearly two different generations of thinkers, activists, libertarians. And since Milton at that time was about 90 and Hernando about 60, that means the people who might be in the next generation would be 30 years old and we may not know which of today's 30-year-olds is likely to win a Milton Friedman Prize for advancing liberty someday. So we have to hope that there are always new generations coming along and one of the things we like to do here at Cato is find people from rising generations and so we're glad to have a young scholar here today. Mark may say he's not that young but certainly compared to Milton Friedman and Hernando de Soto. He is a young scholar from a new generation. Mark Pennington, our speaker today, is reader in public policy and political economy. Now I know to Americans the term reader isn't terribly familiar but it does actually mean professor or the equivalent of what would be a professor in America so it is an impressive position at the Queen Mary University of London. He took his PhD at the London School of Economics. His previous books include Liberating the Land, The Case for Private Land Use Planning and Planning and the Political Market, Public Choice and the Politics of Government Failure. He's also the co-editor of Comparative Politics. His new book is Robust Political Economy, Classical Liberalism and the Future of Public Policy and in this book he offers a comprehensive defense of classical liberalism against contemporary challenges. So in the sense of generational change he is responding to ideas that in some cases were advanced as critiques of the ideas of people like Milton Friedman and Friedrich Hayek. The book sets out an analytical framework of robust political economy that explores the economic and political problems that arise from the phenomena of imperfect knowledge and imperfect incentives. And using that framework he defends the classical liberal focus on markets and the minimal state from the critiques presented by market failure economics and communitarian and egalitarian political theories. So please welcome Mark Pennington. Thank you very much. It's very nice to be here. I'm a little bit paranoid actually about my age having turned 40 last year. So I leave it for you to decide whether or not that counts me as part of the younger generation, the older generation or the sort of sagging middle. I'm not quite sure where I fit in. It's very nice to be giving this talk in the Hayek Auditorium here at the Cato Institute because in many ways this book, Robust Political Economy, is inspired by many of Friedrich Hayek's ideas. At the beginning of the Constitution of Liberty Hayek sets himself the task of piecing together the fragments of what he describes as a broken tradition. That tradition at the time was classical liberalism and Hayek saw himself as trying to recreate that tradition. Now I should say at the outset that I don't consider myself to be in the league of Friedrich Hayek, but nonetheless my book is inspired by the same sort of a vision, an attempt to, in my own way, piece together the fragments of a broken tradition. Now you may say why would you want to do this? What is there to fix? Haven't classical liberals in the fields of economic and political theory over recent years offered convincing defences of their ideas against various challenges which have come their way? Now I think this is true. If you look at some of the economic arguments advanced in favour of markets, economists have come up with good defences against various market failure theories. If you look at political theorists, they've come up with good responses to the kind of arguments that are made by egalitarians and by communitarians. However, what I think has been lacking in the recent past has been some kind of unified theoretical framework which can bring together all of these criticisms and the classical liberal responses to these criticisms. We don't have a unified framework which can actually respond not only to the economic objections which have been raised against classical liberalism, but also to the political and ethical challenges which have been raised against the tradition as well. Now there are three challenges which I set out in the book that I think classical liberalism needs to respond to. They are the challenges from market failure economics, what I describe as the challenge of neoclassical economics, the challenge of communitarianism and finally the challenge of egalitarianism. So those are the three challenges that I think face classical liberalism and the unified framework which I think we can use to respond simultaneously to all of these challenges is the framework of robust political economy that I set out in this book. So what I'd like to do in this presentation is to sketch out what I mean by the term robust political economy and then go through some of the ways that I apply this concept in the book. Okay, so what is robust political economy? Well, something is robust if it's actually able to withstand various stresses and strains. In the context of political and economic institutions, we can define something as being robust or political institution or an economic institution as being robust if it's able to withstand the stresses and strains that are wrought by various human imperfections. Now there are two human imperfections that I focus on in the book. The first is the idea of limited human rationality. The idea that human beings are not fully rational agents. They are not omniscient beings. Whenever they make decisions, they do so in a context of considerable uncertainty. There is always imperfect information when they're making decisions. We need therefore to evaluate institutions in terms of how well they cope, how robust they are in the face of this inevitable human weakness. More specifically, if decision making takes place in a context of imperfect information, what kind of institutions facilitate learning over time and what kind of institutions minimize the consequences of what will be inevitable human mistakes or human errors. The second human imperfection that we have to take account of is the problem of what I describe as limited benevolence. The notion that people may, under certain circumstances, act out of self-interested motivations, that they may be opportunistic in certain circumstances. On this kind of a view, we need to evaluate institutions in terms of the incentives they provide to channel potentially opportunistic actors to behave in a way which actually increases the overall level of well-being in society that improves the public good, if you like. So those are the two human imperfections that robust institutions actually have to deal with. Now, in the first part of the book, I claim that challenges to classical liberalism, the various challenges to the classical liberal tradition, fail to meet the criteria of robustness. Their particular alternatives to the classical liberal ideal of a minimal state and open markets do not address how their own favored institutions will deal with the problem of limited rationality and the problem of limited benevolence. The classical liberal case for a minimal state framework with an open market economy based on the dispersed ownership of property is based on the claim that these institutions are more robust in the face of limited rationality and limited benevolence. A competitive context is the best context to deal with the fact that people are imperfectly informed. When we have lots of different decision makers making different sorts of decisions, we can facilitate a process of trial and error learning which minimizes the consequence of any particular errors. If you centralize decision making in one place and people make mistakes, then the consequences are much more far-reaching than if that decision making power is more dispersed. Likewise, a classical liberal framework which provides for exit enables people to escape from the depredations of potentially predatory actors. If people are acting opportunistically, the capacity to exit from relationships with these actors is what provides a disciplinary check on potentially self-interested behavior. Now what I claim is throughout the book that the challenges to classical liberalism, whether it's market failure economics or communitarian and egalitarian variants of political theory, lack an account of how their favored institutions can deal with these problems of limited rationality and limited benevolence. And I want to work through now in the rest of my presentation a few examples to illustrate this particular point which lies at the heart of this book. Okay, let's start off with market failure economics. Market failure economics or, for one of the better phrase, mainstream neoclassical economics, evaluates market institutions against the benchmark of full information equilibrium. Any departures from this full information equilibrium are described as market failures which is considered a right for some kind of corrective government action. Now, if we take the perspective of robust political economy and focus first of all on the idea of limited rationality, then this notion of perfection or full information in this particular context simply isn't a valid standard against which to evaluate either market institutions or any other institutions for that matter. The case for markets isn't that they are perfect institutions, the case for markets is based on the view that they are best placed to cope with the inevitability of imperfect information and limited rationality. So, for example, take the notion that neoclassical economists focus on of imperfect competition which is often considered to be ripe for some kind of corrective government action. If we're in a world of limited rationality, of imperfect knowledge, then knowledge of what should be produced and how it should be produced isn't going to be evenly distributed. It's going to be unevenly distributed. Some firms are going to judge the market better than others. Some firms are going to make more profits than others. Other firms are going to make losses. It's precisely through these imperfections or inequalities that a learning process is set in motion so that people can learn over time to copy the more successful firms and to avoid the business models that are adopted by the less successful firms. Any market which is based on imperfect information, unevenly distributed knowledge, is going to look imperfect when judged against a standard of perfection. The question is what is the alternative to this imperfection? Is it a world where regulators somehow magically are supposed to know what the ideal market structure is? If we're in a world of limited rationality, there's no reason to suppose that government regulators that are in a monopolistic position are in a position to know what the ideal market structure is. Now you may say that this kind of analysis is somewhat old hat. That there are new market failure theorists such as, for example, the Nobel laureate Joseph Stiglitz who are well aware that government is likely to fail in the way that markets fail. When push comes to shove, however, if you actually look at what writers such as Stiglitz do, they always hold markets against a different standard to public policy interventions or to government regulators. Stiglitz is fond of saying that the price system because of its various imperfections is too coarse a decision making instrument to enable people to make effective decisions. What he lacks is an account of why government regulators should be assumed to be in a position to correct for these market imperfections. Now if I may, I'd like to quote from a little piece of scripture to illustrate this particular point. This is what Stiglitz says. Now bear in mind he believes that he's arguing that government can improve on the results of an imperfect market. This is what he says. A full corrective policy would entail taxes and subsidies on virtually all commodities based on estimated demand and supply elasticities for all commodities and all cross elasticities. This is the key phrase. The practical information required to implement the corrective taxation is well beyond that available at the present time. Supposedly though, given all of this, we're supposed to trust still that government regulators are going to be improving on the market outcome. Stiglitz doesn't give any justification for this assumption whatsoever. He fails, in my view, to meet the standards of a robust political economy. Now there are other examples where Stiglitz commits the same sort of error in terms of incentives. Stiglitz is fond of pointing out various instances where there is asymmetric information in markets, where there are problems of high transaction costs or principal agent problems which lead to various market failures. What he doesn't do though is explain again how a public policy alternative can somehow be immune from the very same deficiencies. It's very interesting if you look at the way he completely misrepresents the work of Ronald Coase in this context. Anybody who knows anything about Coase will know that his whole work is focused on the problem of transaction costs. This is Stiglitz, and again, I'm going to quote from some scripture, speaking about Ronald Coase. Coase went wrong in assuming that there are no transaction costs and information costs. But the central contention of this book, and the book he's referring to here is his book with a socialism, is that information costs are pervasive. Assuming a way information costs in an analysis of economic behavior and organization is like leaving Hamlet out of the play. Now that's Stiglitz describing what he thinks is Ronald Coase's view. This is actually what Ronald Coase says about the matter. The reason why economists went wrong was that their theoretical system did not take into account a factor that is essential if one wishes to analyze the effect of a change in the law on the allocation of resources. This missing factor is the existence of transaction costs. The whole of Coase's analysis, or case for the market economy, is based on the recognition that yes, there are principal agent problems within markets, which lead to so-called market failures, but that we always have to compare these to the alternative. Anybody who knows anything about public choice theory, and the way it analyzes the way that governmental structures actually operate, would know that controlling a government is the mother of all principal agent problems. There's no incentives in most contexts for voters to try to inform themselves about what politicians are doing, because the chance that any one individual voter can affect the result of an election is infinitesimally small. The case of private enterprises, precisely that, principal agent problems are more pervasive in the public sector than in the private sector alternative. Conclusion? Stiglitz's approach does not meet the standards required by a robust political economy. Okay, that's the market failure economics out of the way. I want to apply the same type of analysis now to look at the challenges which are derived from communitarian political theory and egalitarian political theory. Let's take communitarianism first. There are many different claims that communitarians make. There's only one that I want to focus on for the purposes of this very brief talk. Communitarians challenge classical liberalism on the grounds that we shouldn't evaluate institutions on their capacity to respond to or to satisfy given individual preferences. On a communitarian view, we should evaluate institutions in terms of whether or not they have the capacity to challenge the preferences that individuals have. What they're getting at here is the notion that liberalism lacks any account of how we can elevate people's preferences. How we can encourage people or educate them to have a more informed or enlightened set of preferences to the ones that they currently happen to have. Now, this is a particular concern if you believe that the existing set of individual preferences are based on various prejudices which can exclude various sections of the population. Whether it's prejudices to do with race, gender, sexual orientation or any of those other sorts of issues. On a communitarian view, democracy is better placed than the market to challenge irrational or prejudiced preferences that people may have. Precisely because it's based on majority rule. On a communitarian view, people's preferences should have to be justified to the majority before they can be put into practice. And this majoritarian check will provide the context within which bad preferences can be weeded out and that we can have an overall elevation in the quality of the preferences that individual actors happen to have. Now, this kind of view, if we think about it in terms of robust political economy, I argue in the book, is based on a hopelessly romanticized view of how any democratic or majoritarian process can actually operate. It's based on a complete failure to understand how most people learn in most situations in life. The most important form of learning in society, especially if you take Hayek's ideas seriously, isn't the kind of learning that takes place when we argue with one another in a public forum and come to a majority decision about which particular view is best. The most important form of learning takes place from seeing what other people do in their lives and learning from the experiences of other people. Now, in order for that learning to take place, it's absolutely imperative that the widest possible number of experiences or experiments in living, if you like, can actually take place. Majoritarianism, by its very nature, squelches the process of experimentation. The way we get value change in most fields of life is by entrepreneurs, whether in the economic domain or in the moral domain, breaking from the majority position and doing something different. Then, gradually, through a process of incremental change, the majority view changes. Hayek puts this very well when he states that it is only by allowing the minority to act in ways different from what the majority would prescribe that the majority in the end learns to do better. A system of private property rights which allows people to carry out experiments in living is much more likely to challenge existing prejudices and preferences than is any socialist or collectivist alternative. Now, it's not only in terms of this knowledge problem or the problem of limited rationality that the communitarian view fails. It also fails in failing to take into account adequately notions of incentives. Now, I draw in the book here, in this context, on Brian Kaplan's work. Kaplan makes the point very persuasively, following people like Brennan and Lemasky in the past, that the institutions of democracy do not actually provide people with adequate incentives to challenge the preferences that they have. Why? Because if you try to revise your preference in a majoritarian context, it actually makes no difference to the final outcome that you personally will experience. That is going to be determined by whether everybody else challenges their preferences. In a market context, you can profit personally by challenging the prejudices that you may have. If you're an employer who's got racist or sexist prejudices, you can profit by breaking from those prejudices and therefore expanding your market. But nobody in a democratic arena can actually profit personally from challenging their own views when they can't change the outcome until they've persuaded everybody else to expect some kind of a change in the law. So again, in this case, the communitarian view fails to meet the requirements of a robust political economy. It doesn't have an account of incentives to challenge people's preferences in a majoritarian context. Finally, let me move on to the egalitarian challenge and see what robust political economy has to say about this view. Now, there are a number of egalitarian thinkers that I address in the book. And again, I don't have time to discuss all of these, so I'm going to focus on just one in this context of robust political economy, and that's John Rawls. People who are influenced by Rawls's thinking are concerned about what kind of institutions manifest a notion of impartiality. So Rawlsians are concerned about having social rules which seem to be impartial, rules which anybody could actually be willing to accept. Now, there are various theoretical devices, of course, which Rawls derives to try to get people to think about what impartiality would actually require. The most famous of these is the Rawlsian veil of ignorance. Behind the veil of ignorance, people are supposed to know nothing about their own particular place in society. Their economic status, their social status, they're supposed to know nothing about where they're going to be in a particular pecking order. The purpose of that veil of ignorance is to try to make them reason impartially, to choose rules that everyone, irrespective of their social standing, would actually be willing to accept. The only information that people are allowed to have behind the veil of ignorance is what Rawls describes as basic facts of social theory, so facts to do with the way economic systems or what have you actually operate. Now, for Rawls, the impartial rule that will emerge from behind this veil of ignorance type experiment is the difference principle. The rule that inequality should only be accepted in society if they operate in such a way as to maximize the position of the worst off. That's the distributional rule that Rawls claims will come from this particular thought experiment. Now, there are many people who've challenged Rawls' conclusions here. John Hassanyi famously argued that actually from behind the veil of ignorance, people wouldn't choose the difference principle. They'd opt for something like maximizing average utility. Many people have argued that the veil of ignorance smuggles in notions of extreme risk aversion into the account. It's only extremely risk averse people who would actually choose a rule of maximizing the position of the worst off, as opposed to say maximizing the average level of well-being in society. These are common kind of rejoinders which have been raised against the Rawls' view. But from the perspective of robust political economy, there's a much more fundamental objection which can be raised against Rawls' reasoning. If one of the basic facts of social theory that we have to take into account in devising impartial rules is a recognition that human beings are not omniscient beings, that they are not perfectly rational actors, that they're operating in a context of highly limited rationality, then it is utterly implausible to suggest that people would ever opt into a once and for all set of distributional practices. On impartial grounds we can argue that people would choose to be an environment which enables them to learn about the effects of different distributional principles. It would allow for competition between different distributional rules so that through an evolutionary mechanism we can discover which type of distributional rules people actually prefer. The Rawls' view assumes that people have the rationality to decide what an ideal set of distributional principles is. But if we take into account that people are limited in their rationality, this has got to be abandoned. We need to facilitate learning in these particular contexts. Learning is ruled out in the Rawls' model because behind the veil of ignorance people are assumed to be choosing rules for a closed society. Now there's a justification that Rawlsians give for making this assumption which is kind of an attempt to deal with the problem of imperfect incentives. The argument is that you assume that people are choosing rules for a closed society because you want to imagine a situation where the rules are being devised almost by your worst enemy. What kind of rules would you choose if it was your worst enemy who was actually deciding these rules? If people are self-interested, as Rawls recognizes they might be, then allowing an exit option, he claims, is unsatisfactory because opportunistic actors may try to bargain for an unfair advantage against other people who are operating behind the veil. His way of dealing with the problem of opportunism is to specify the requirements of this veil of ignorance as taking place in a closed society. Now this has always been a rather odd move if you think about it. If you take seriously the notion that incentives matter, which was one of these key factors in a robust political economy, then surely when we're devising institutional principles, thinking about what might happen if our worst enemies are going to be in charge, then we'd actually allow an exit option for people because that's the best protection that people can have in situations where they may be ripped off by opportunistic agents. So on both of these counts, in terms of failing to take into account the notion of limited rationality and failing to take into account the problem of limited benevolence, the Rawlsian perspective, I argue in the book, fails to meet the tests of a robust political economy. Okay, now in this presentation quite deliberately, I focused on the abstract theoretical arguments that I raise in the first part of the book, which addresses these various challenges to classical liberalism. In the second part of the book, I try to apply the lessons learned from responding to these challenges in three empirical contexts. One of them is the context of poverty relief and the supply of public services, the issues that the welfare state is normally thought to be best placed to deal with. A second set of issues I deal with are concerns to do with international development and the third set of policy issues I deal with are concerns about environmental protection. So I apply the robust political economy framework to derive specific classical liberal approaches to these particular problems in the second part of the book. I'm not going to go into any more detail about those now because I don't have time to do so. And besides, I'd actually like you to buy the book and to read about those solutions. So I hope I've given you enough of a flavor of what this book is about and the kind of ideas it uses to challenge the enemies of classical liberalism and I hope on that basis that you might be interested enough to think about buying the book. Thank you very much. Thank you, Mark. Mark, I'll let you stay up there and call on questioners and when you're called on, please wait for a microphone to come and Mark, don't overlook the young man in the front row with the worldwide questions. Questions? Yeah, there's a gentleman up there. Good afternoon. I've wondered if you illustrated any or been tempted to illustrate any of your concepts and some of them seem that they could be graphical. Sorry, I'm not quite clear. Can you just explain that again? I didn't quite understand what you mean by that. In organizational management it often helps to have a flow chart and understanding of the juxtaposition between various aspects. So is there a way you could explain this graphically to someone? Probably not because drawing has never been my strong point. That's really the only answer that I can give to be quite honest. When you've got a new generation of... No, I'm not. The new generations all do graphics. Yes, the gentleman at the front. I was wondering about your position on the sort of deontological consequentialist debate that occurs whether you fall completely on the consequentialist side or if you think that it's now time to resuscitate these ideas via consequentialism. Well, it should be obvious, I think, listening to the kind of framework that I'm using, that I'm coming from a broadly consequentialist perspective in terms of defending classical liberalism. However, I think even people who want to come from a rights-based or so-called deontological view have got much to learn from this kind of a perspective. What this perspective is basically saying is that before we can come to absolutist conclusions about what is right and wrong in a moral sense, we have to take into account the constraints that characterize all human action. And in my view, the most important of these constraints is the idea of limited rationality. The problem of limited benevolence is another one, but I think in many ways that that is a secondary issue. The problem of limited rationality is fundamental to any sort of framework. So what I'd want to say is that before we're in a position to specify and pin down in the way rights theorists want to do a stripped-down set of rights that people should have, that kind of an account has to take into account this notion of limited rationality. Many rights-based theories, I don't believe, actually do that. They think you can derive logically some pristine set of rules which are meant to reflect those rights. That kind of an approach is something that I'm not particularly sympathetic to. Yeah, the gentleman in the front. Hi, Martin Hutchinson. My colleague Kevin Dowd and I wrote a book last year, Alchemists of Lost, which looked at what went wrong on Wall Street in 2008. And in particular, the sort of troubling failures of classical economics in the areas of risk management is one thing, and also insider information. If you have these computers which are sort of two microseconds from the stock exchange, they're getting trading information before anybody else, and that looks like insider trading to me. I wonder what conclusions you've come to in thinking about the Wall Street or global financial crash and what the implications were. Well, it's interesting. I'm very glad you raised this question because I flew over here last Tuesday and on the plane I was actually reading your book. I didn't read all of it, but I got a good way through. I think you can certainly make the case that in the financial services sector there are very severe principal agent problems. And my understanding from reading your book was very much that those are reinforced by things like deposit insurance and by rather more radically suggesting but by limited liability sorts of rules as well. Now, I certainly think using this sort of a framework that you can make a case for getting rid of deposit insurance. On the grounds precisely that you are wrecking the incentive structure that many actors face. Whether you could actually be as radical or I would want to be as radical as to say you should abandon limited liability as well, I'm not quite so sure. I'm certainly sympathetic to the idea that we should try to limit move further in that direction by making people more liable for the actions that they're taking. But how far you push that I think is open to debate. I mean, being a true Hayekian as I like to think of myself, I don't want to be a constructivist rationalist and to come up with pristine models for how we can actually address all the problems in the financial sector. So I'd probably like to move in your direction but perhaps not quite as far as you suggest in that book, at least not in the immediate term. Gentleman here on the front. We have a question from online here. It says, can we argue for a classical liberal interpretation of Rawls' difference principle by itself? I think you can. I think you can. I think there are problems though in terms for Rawlsians if they believe that the difference principle implies support for the welfare state. Now I've been saying in my talk that if you take the notion of limited rationality seriously, people wouldn't actually pick any one distributive rule. This is actually a conclusion which isn't only made by myself and Marty Asen in his recent book, The Idea of Justice, comes up with pretty much the same sort of an idea. However, let's imagine just for the sake of argument that people do agree or would agree on choosing the difference principle. The question then is how do we achieve the difference principle? Now again, if you take into account the notion of limited rationality, then the knowledge of how we actually maximize the position of the worst off isn't going to be something that's available to some central organization. We're only going to be able to discover whether or not we're fulfilling the requirements of the difference principle if we allow some kind of evolutionary learning process to take place. If we allow the discovery of who should give what to whom in order to actually achieve this particular principle. Now I would want to say on the grounds of robust political economy, and this is a point that I make in the book, that this actually implies the case for a classical liberal alternative, that people should be able to decide for themselves how much money they give to the poor, whether they give money to the poor, whether they think actually the best way to help the poor is to invest in an enterprise which could employ poor section of the population, whether they think that it's better to spend time with the poor rather than actually giving them resources. These are all things that we don't necessarily know the answers to in advance. Most people who support a welfare state, and I'm including Rawls himself in this as he did, assume that somehow answers to how you actually achieve this principle can be given to the administrative arm of government. There's no more reason to believe that politicians are in a position to know how to achieve the difference principle than they are to engage in any kind of efficient form of industrial planning. So you can make a strong classical liberal case for saying that the best way to achieve the difference principle is to allow people to spend their own money, whether investing in enterprises or in giving to the poor in different sorts of competing ways. Notice that we do have people back in this back part of the auditorium. My eyes are kind of being stripped by the lights. There's a gentleman in the front row the back of the auditorium. The front row? The front row actually here. He's wearing a red shirt, I think. Stanley Kober with the Kato Institute and also London School of Economics. Did you look at the Soviet experience and for example in the market economy because when the Cold War was ending, I was struck by some of the leading Soviet officials admitting that the command economy didn't work and one of my papers here, I cited Alexander Yakovlev to that effect that you just have too much wasteful investment which gets back to your market failure and I was wondering if you looked at that to inform your discussion. Certainly, I mean I don't look at it in great detail. When I look at the market value economics arguments I take it for granted that most actually mainstream neoclassical market failure economists as I described them such as Stiglitz would recognize that the Soviet system was a disaster and they look at, they would look at the evidence to support that particular contention. So I don't go beyond that in looking at the Soviet experience. What I'm concerned to address more are people who are trying to make arguments on comparative institutions grounds which is what Stiglitz does for the mixed economy model because the kind of argument you get now is that nobody's actually seriously proposing even in the context of the recent financial crash nobody's seriously proposing socialism thank heavens perhaps unless you're Michael Moore as a serious alternative to capitalism. People are claiming however that the recent crash demonstrates the case for a mixed economy model where you've got some degree of market competition but also you've got heavy amounts of government regulation to cope with so-called information asymmetries principal agent problems and various other market failures. Those are the arguments that I'm really sort of going for in this book because I think that's where the debate has actually moved on to. Thankfully, we don't really need to take Michael Moore that seriously. There's another guy on the back half of the... Oh, too far back. Yeah, there we go. The name is Kevin Dool from the George Washington University. I really appreciated your mention of Rawls but I did think that your discussion of the discussion principle or the difference principle was lacking reference to another principle that he brings up in his book which is the rights principle. In fact, in the book he writes that the rights principle actually precedes the difference principle. That's correct. On the lines of one of the last questions regarding a classical liberal interpretation of Rawls it is in fact the case that Rawlsians most often misinterpret Rawls' own ideas by largely excluding the rights principle and not bringing up the point that the rights principle precedes the difference principle then why is it necessary to create a counter position to the Rawlsian argument if the Rawlsian argument is just being misinterpreted? No, that's a fair point to make. What I would be questioning though even in terms of the notion of liberty perhaps and maybe this is a bit more controversial is the kind of notion of liberty perhaps that Rawlsians and actually for that matter some libertarians actually have. I mean you get into issues where will people necessarily in these situations choose liberty? Some people may not choose liberty some people from behind some kind of veil of ignorance or whatever you might want to say could choose socialism they could choose authoritarianism. What I'm trying to suggest is that in those situations where you take seriously the notion of limited rationality it's not clear what people should actually choose so I'm trying to justify people sort of know you can probably see this from a mile away I'm trying to justify a kind of Nozickian metayutopia as what should really emerge from behind this genuine veil of ignorance experiment and in that context you have to recognize that many people may not choose liberty you could say at some level that liberty is the meta-organizing principle in the sense that there are different visions that compete with one another but within that you have to recognize that people may choose to live in authoritarian societies. When we get to the international development chapter in the book I think this is very relevant because I run a very strongly non-interventionist line in the context that we shouldn't be trying to promote a particular model of private enterprise or the market economy in developing countries because there are different traditions that people are actually immersed in and it's inappropriate on evolutionary grounds to go into other places telling them what particular economic models they should actually be following. Gentleman here and then the lady over there. Hi I'm Mike Dial from Truman State University early in your presentation you I guess illustrated the fallacy of comparing markets to the perfect competition model would you further support as a defense of those imperfect models the imperfect markets that those imperfections might be like an adaption to those uncertain circumstances and will provide greater benefits in time. Oh absolutely I mean if you're making the point that at any point in time most consumers when they make purchasing decisions in markets in a sense settle for what's available it may be that a particular producer is offering you a product which on most dimensions is superior to the competition but which isn't superior in all dimensions. In those situations you don't have perfect exit because you're not indifferent to the options that are actually out there but what is the alternative? I can't think of any alternative in those situations where consumers are always going to have to satisfy themselves with imperfect products but my argument is that these imperfections are going to be more tolerable in a context where there is a plurality of options which facilitates some level of innovation change and learning than in an alternative scenario where you've got one decision making body regulating from the centre there's no evidence at all or theoretical reason to suppose that central regulators are in a position to learn in some kind of evolutionary process because there are no competitor models out there. Regulation operates by squelching competition that's the very purpose of regulation. The lady at the back is that the one I should... Sorry My name is Lee Yang I just wonder if you try to justify all irrational behaviour to include all kind of unlawful or criminal act or to justify the freedom and privatisation of social services or social program benefits I try to think unlawful of law or crime or official mechanism that should be corrected that should not be just kind of part of the irrational behaviour just irrational it's not right by education we have to change that Okay well the type of framework that I identify has a rule for law and order what I'm concerned about in the book is identifying what the scope of formal legislation law and order if you like should actually be. Now on the grounds of the kind of argument that I offer in the book I think that should be a very limited set of functions the number of issues that we decide to deal with should be relatively limited it should be confined to the prevention of force, theft, fraud which are the basic things that any classical liberal or libertarian would be concerned about those are the things that absolutely we should be preventing. Now if you're asking me on the grounds of the argument presented in my book do I support the privatisation of social security actually yes I would support the privatisation of social security and many other privatisation measures I think can be justified in terms of the kind of arguments that I put forward in this book now obviously some people will not be happy to hear those kind of arguments but I would like to put forward a case to show why people who are concerned about these issues would actually get a better deal out of a genuinely free market model than they do under the existing alternatives. Any online questions? Maybe not. We've got a cue going. So this is in response to the follow-up question specifically addressing Buchanian public goods does RP allow for the provision of public goods through the state or collective and would such public provisions be limited to local governments via the table mechanism or would successful public good provisions be scaled up to federal provisioning? Okay this is a good question so in the book I certainly make the argument especially in the chapter on environmentalism that many environmental collective goods which it's normally assumed can only be provided by the state either at the federal level or at the local level can actually be supplied through various private mechanisms so I draw on a lot of Eleanor Ostrom's writings and people who focus on the idea of private proprietary communities gated communities if you like in the central gated communities as ways of actually addressing many of these problems. However there are some collective goods where I think there is no classical liberal solution not only at the local level but also at the federal level now the ultimate example of this that I discuss which is kind of like the worst case scenario for any classical liberal or libertarian is the issue of anthropogenic climate change now I'm willing to accept I am a skeptic if you like about some of the arguments which you put forward here but I'm willing to accept that there is such a thing as anthropogenic climate change and in the book I try to work through what is a robust political economy solution to this sort of problem. Now many people if they're serious about tackling climate change on the grounds that you need to solve the collective action or free rider problem if you push them would make the argument that the logic of their position is that they should support a global government because it's no use one individual country acting to try to tackle climate change you're going to have a free rider problem it's going to be in no individual country's interest to introduce the right policies unless they are forced at the global level to actually adopt some kind climate change strategy now there is no classical liberal solution to this problem you can't have a market solution because you cannot privatise excuse me the global atmosphere however I think the fact that this is the worst case scenario for classical liberalism also can expose some of the inattention to these robust political economy issues that is often characteristic of people who want to argue for more intervention to believe that a global state is actually going to deal with the problem of climate change you've got to make some pretty ludicrous assumptions you have to assume that the people in that state are effectively omniscient in terms of knowing how to manage the global climate that's point number one so you're failing to take into account this problem of limited rationality but also you're failing to take into account the problem of limited benevolence because the state which has got that kind of power you know and it would have to be able if people are breaking the terms of treaties it's going to have to invade other countries forcing them to actually abide by the terms of the relevant treaties or the relevant regulations a state that has got that kind of power can abuse its power and what chance of individual voters got of holding to account an authority at that level if voters in organisations existing international organisations such as the European Union for example are already being screwed effectively by politicians through various forms of corruption what hope is there that some kind of supranational authority isn't going to be even more subject to these kind of problems I think it's very significant I always use this example to illustrate the point that two years ago the United Nations appointed Zimbabwe to be chairing the sustainable development commission now if you're putting Robert Mugabe in charge of that what hope is there that this kind of you know a united super state at the sort of global level would actually be making sensible decisions I think on grounds of robust political economy you can make a case that although there is a market failure here which can't be resolved it may simply be better to do nothing about climate change and simply to adapt through more economic growth to whatever problems that climate change may bring about I think whether you make that call or whether you still think it's worth creating some kind of global structure ultimately depends on how severe you think the problem might be I'm not saying my view wouldn't change if somebody gave me evidence that the problem is really potentially cataclysmic then I might change my mind but at the moment I don't see any reason to go down that particular route Captain, right at the very back Hi, Michael Willey, Georgetown University I was wondering if in your book you address applying robust political theory to education Yes I do in the chapter on the welfare state I have quite an extensive discussion of the work of James Tooley which is demonstrating the case for private enterprise and education and I compare it to the alternatives both in a developed country context and in the developing world so I think you can make on the grounds of these kinds of arguments a strong case for the privatisation of education Yeah, why don't we take one more question after this one and then break Okay I always like to ask people from the classical liberal perspective about civil society Alexis de Tocqueville said that this was something especially unique about America and of course before the welfare state through voluntary action a lot of the needs of the most needy in society were in fact taken care of libertarians, I always like to make this argument and of course we know the state grew in power and as markets are deregulated and as taxes are lowered the market economy can heal but I'm wondering if you believe that civil society can heal if miraculously we were able to get significantly smaller government in this country do you think that civil society could heal itself or is pulling up that carpet as their only mold the short answer is yes, I do believe that so in chapter 4 of the book I look at a lot of the arguments written about social capital again discussing Elin Rostrom's work some of Putnam's work but I'm actually quite critical of Putnam on the grounds that he arrives at totally the wrong conclusion basically Putnam argues that because civil society is good voluntary organisation is good that it ought to be subsidised by the state now we have the same kind of debate I don't know whether any of you are familiar with what's going on in Britain at the moment but David Cameron the British Prime Minister has got this idea of the big society which I think is actually from a classical liberal perspective the idea of wanting more voluntary organisation not just the commercial market to supply goods and services is a very good thing the problem is the way that this is interpreted and by many people it is interpreted as meaning that the government should promote civil society through these groups resources now that argument is one that I challenge in the book on the grounds of robust political economy because the minute you start having the government funding these associations they lose many of their benevolent characteristics they become in effect rent seekers who are going to be looking for the state for more and more support and the voters who are going to be funding these associations instead of being able to hold them to account for their political contribution are going to be faced with a massive principal agent problem that the only way you can try to get rid of funding from these bodies once they have government funding is to vote in elections but we know how ineffective that is as a mechanism for actually withdrawing funding from failing organisations relative to a situation where you just look at an organisation yourself and think well no I don't like what it's doing I'm taking my money somewhere else I'm taking my government intervention and when the state actually tries to subsidise or promote something that would grow organically in a classical liberal environment and that's very much the argument I make in chapter 4 of the book Is that it? Should we have a break? Sure, thanks very much Mark