Hayek's The Constitution of Liberty - Institute of Economic Affairs

h ay e k ’ s t h e c o n s t i t u t i o n o f l i b e r t y
s o c i a l s e c u r i t y, t a x a t i o n a n d t h e r e d i s t r i b u t i o n o f w e a lt h
what is in the community’s interest, which is preventing harm to
its members. Compulsion is justifiable in this case because people
who neglect to make provision ‘would become a charge to the
public’ (286).
Hayek’s proposals, as summarised above, are embedded
in a scathing critique of unitary, government-controlled social
security systems, the original of which was the ‘social insurance’
arrangement that Otto von Bismarck’s government enacted in
Germany in the 1880s. Although Bismarck did not ban the private
relief agencies that then existed, he decreed that the state would
henceforth be the sole provider of such social services through a
unified organisation to which everyone protected had to belong.
The German plan went beyond compulsory insurance to require
‘compulsory membership in a unitary organization controlled by
the state’ (287).
The German model spread because it was presumed to be the
most efficient and economical way to provide universal coverage.
Hayek grants that this might be true when centralised plans are
first introduced, but holds that relying ‘on the gradual evolution
of suitable institutions’ is a better solution in the long run, even if
for a time some needs receive inadequate attention. A centralised
design for social services shuts off ‘the constant re-evaluation of
available resources’ and leads to long-term inefficiencies (287; cf.
232).
Hayek goes on to argue that compulsory social service
monopolies were mainly attractive to socialists not because of
their presumed efficiency, but because they provided a means of
egalitarian redistribution. The socialists recognised that a monopolistic
government service could distribute benefits according to
perceived need and also redistribute income from one group to
another, as might seem desirable. These compulsory monopolies
were represented to the public as ‘social insurance,’ but this claim
was deceptive.
Insurance, properly speaking, grants protection only to those
who can claim it through their contributions. Monopolistic social
security programmes, by contrast, enrol those who have not
yet had time to establish a claim. People receive ‘as a matter of
right what they have only to a small extent paid for.’ Benefits are
not limited to a contractual amount, or even to some necessary
minimum, but reflect a political judgement as to an amount that
would be adequate, regardless of a person’s need or contribution.
Unlike genuine insurance, government plans can transfer income
from one group to another. Pension claims, for example, are paid
out of the taxes of those currently working, and not from income
on capital set aside to honour these claims. Wealth is thus transferred
from the young and productive members of society to the
elderly, a result which leads Hayek to speculate that the burden on
the young may in the future become greater than they are willing
to bear (288–9, 292 and 295–7).
Hayek gives several reasons why unitary state systems of social
security, as they have developed everywhere, pose a critical threat
to freedom. First, these programmes are necessarily coercive.
They designate government as the monopoly provider of certain
services and give administrators broad discretion to distribute
benefits to individuals according to what they are thought to
deserve. Systems of state medicine transform doctors into paid
servants of the state, subject to instruction by authority as to
the provision of medical services (288–90, 300). Second, these
programmes are at odds with a healthy democracy. This is partly
because their very complexity defeats democratic deliberation
152
153