Francis Fukuyama is an American political scientist and author, notably of The End of History (1992) and Trust: Social Virtues and Creation of Prosperity (1995). Now, in his new book, he offers liberalism as a solution to our current problems of social bifurcation, if paired with other functional institutions of a democracy. Bethany and Luigi sit down with Fukuyama to understand: What does liberalism even mean? What are its excesses and its critiques from the progressive left? How dependent is it on traditional notions of growth and prosperity, and can it be implemented effectively in an unequal society?
Francis Fukuyama: It’s not liberalism. It is, I think, capitalism, as it evolves and changes societies, that’s led to this kind of social bifurcation. But liberalism is not the source of this problem. And it’s also potentially a solution.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: For this episode, we wanted to talk to Francis Fukuyama, who has a new book out called Liberalism and Its Discontents, obviously a play on Freud’s Civilization and Its Discontents. And we wanted to talk to Fukuyama because he’s mounting a defense of liberalism, which is much under fire today, for reasons that have some merit but are perhaps not entirely thought through as well as they should be, or at least that’s his argument.
Luigi: One of the goals of this year’s programming was to explore different ideas of where the world is going and where capitalism is going. We have heard from people from the left, like (Yanis) Varoufakis, or from people on the new right, like Oren Cass. And we will hear from more of them, but we thought that it would be good to take a break and look a little bit in the middle.
For this week’s episode, we talked to a great defender of the center of liberalism. And in the next episode, we are going to talk with Glenn Hubbard, who maybe is the most neoliberal person we can think of today.
Bethany: It seems to me that part of the problem with liberalism is that many people don’t know what that word means. And it has blurred into other words, whether classic liberalism, what liberalism means to most people in America today, neoliberalism, and libertarianism. And so, I thought it might be helpful to set the stage with what those words actually mean and how it is that they came to be so blurred together.
Francis Fukuyama: That’s an important set of definitions. I’ll begin a little bit negatively by saying what liberalism is not, in my sense of the word. It is not the liberalism that’s used in American politics that designates left-of-center, progressive politics. It’s not the European version, which usually designates a center-right, pro-free-market type of party. And it’s certainly not libertarianism, which is basically driven by animus against the state or seeks to minimize state intervention.
I actually go back to the origins of liberalism in the middle of the 17th century, when Europe was coming off of 150 years of religious warfare. And early liberals like Hobbes or Pufendorf or Locke basically argued that societies should not build themselves around a vision of the good life as defined by religion, because people simply couldn’t agree on what the good life was. And therefore, they should lower the sights of politics to agree to disagree, that they would tolerate a variety of religious views in the name of peace and security, based on a view that all human beings as individuals were morally equal, and that the society should not make hierarchical distinctions between different classes of human beings.
A liberal society protects the autonomy of individuals by placing legal constraints on government power, government’s power to do things to individuals that impede their right to speak, to believe, to associate, and other things that are contained in the American Bill of Rights.
And finally, I would say that classical liberalism was associated with the scientific method, a certain mode of cognition that assumed that there’s an objective world outside of our subjective consciousnesses, that we could apprehend that world through an experimental method, and we could go on to manipulate it. So, that’s my understanding of liberalism.
Luigi: But one of the points you raised, which I think is very valid, is that economics tends to ignore the social dimension of human beings and human choices, because behavioral economics brought psychology into economics, but there’s not been enough importation of sociology and issues like human dignity and the importance of feeling recognized and not mistreated. And it seems that liberalism, in general, has not dealt very well with these issues, because you recognize that, for example, the notion of a country or state is something that liberalism is not very good at defining. Think about how Spain behaved with Catalonia. We have seen a very democratic society beating elderly people who are trying to go to the electoral booth, in the name of what? In the name of a greater Spain? I think that this is really a fundamental issue that we are still living with.
Francis Fukuyama: The national question is probably one of the biggest gaps in liberalism, because liberalism right from the beginning was based on a certain human universalism, that all humans are created equal, as the Declaration of Independence asserts. And that’s true regardless of what country they live in. The question, then, is how do liberals justify cutting the world up into nations and having rules that apply only to limited territorial jurisdictions? And why do they have the right to distinguish between citizens and noncitizens, people that are inside and outside the boundary? And, as you suggest with Catalonia, how do you draw borders? What justifies a border that includes Catalonia as part of a larger entity?
However, I do believe that the idea of a nation is compatible with liberal theory, and in fact, the idea of a nation is necessary to liberal theory. Liberals believe that rights are universal, but rights don’t have any meaning unless they can be enforced. And they have to be enforced by a state, legitimately enforced by a state. And states’ enforcement capability is necessarily limited. It’s territorially limited, and in fact, we would live in a pretty chaotic world if any given state felt it had the right to enforce liberal rights anywhere else in the world beyond its borders.
But I think the more important thing gets to this sense of dignity and these nonmaterial motives that people have. They have emotional bonds to community because of this social side of human beings. You know, they want to be connected. They like following norms that are set by the people around them. They get very uncomfortable if they don’t conform. And, in general, the larger the group, the more attenuated the bonds. I would say that in the modern world, the largest unit that people can feel this direct emotional attachment to is these things we call nations. And, therefore, if you want to have social solidarity, that means making distinctions between citizens and noncitizens and applying your rules within certain limits.
Now, I guess the last thing to say is, that nation, if it’s going to be made consistent with liberalism, has to be itself liberal. That is to say, what binds the people together have to be liberal principles, and not a principle of ethnicity, race, religion, or some other fixed characteristic that will not include all of the people that are part of the social contract living in that territory. And that is, unfortunately, what nationalists have done for centuries. They say that we are Germans, or we’re Russians, and we have rights over other peoples, and we’re not going to include people. Like Viktor Orban has said that Hungarian national identity is based on Hungarian ethnicity. And that means if you’re not an ethnic Hungarian, you’re not part of the nation. And that’s a wrong form of nationalism that I think leads to violence and aggression.
But the good form of nation is one that actually builds on liberal principles to say, we are a free society that respects the rights of our citizens, and that’s really the principle that binds us together.
Bethany: I think this notion that liberalism needs to be paired with another functioning institution is really interesting, and maybe that’s part of the answer to this question. But I was struck by two observations in your book. One, you write early on that liberalism’s pairing with democracy tempered some of the inequalities created by market competition. And you also note later on that this charge that liberalism inevitably leads to neoliberalism and an exploitative form of capitalism ignores the history of the late 19th and 20th century.
And both of those observations beg the question, what changed? Was there something in the functioning of the institution that liberalism was paired with that caused a change, that meant that liberalism was no longer tempered?
Francis Fukuyama: Sure. This gets into a lot of historical sociology, but what happened with the rise of industrial capitalism is that it creates big inequalities. The early Industrial Revolution that Karl Marx observed left destitute a large working class, accumulated capital in the hands of a narrow class of capitalists. But that was not a sustainable situation, because the people that didn’t own property and didn’t own capital didn’t have rights. They couldn’t vote. They didn’t get social services. They were very marginal within their societies but also necessary.
And so, there’s a long struggle for social mobilization, the creation of trade unions, and then the building of social-democratic political parties on top of those trade unions, like the British Labour Party or the German Social Democrats. And then, using the political system, they start agitating for social protections, for regulation, for redistribution, the beginnings of the welfare state.
The social structures that tried to equalize people were not part of liberalism. You can have liberal societies without that. But I think that the growth that’s engendered by a liberal state tends to produce these social changes that then create a demand for these further social protections. And that’s the sense in which liberalism inevitably hops into bed with democracy, and the two become mutually supported. Because the liberalism protects the democracy, and the democracy makes the liberalism livable, by equalizing outcomes to some extent.
Luigi: Can I restate just slightly what you said? And tell me if I’m unfair. But the way in which liberalism was tempered was mostly through two wars and the threat of communism, because this played a gigantic role in creating redistribution. We know that massive redistribution takes place only through war, famine, or revolutions. And certainly, World War II provided an enormous mechanism of redistribution. And also, the Cold War was really instrumental in tempering a lot of the liberalism. You have celebrated the end of history with the fall of the Berlin Wall, but it was also the end of temporal liberalism. Because, as a result of the lack of an enemy, there was, I think, unbridled capitalism.
Francis Fukuyama: Well, you’re right. A lot of social change does not come incrementally, and it doesn’t come necessarily through liberal methods. And you’re right about the role of violence in promoting social change. I mean, you could have added to that the First World War that really created the demand for a welfare state. That’s when Britain, in the 1920s, there’s such a feeling of guilt for having sent all these working-class citizens off to the trenches in France that the elites in Britain were persuaded to create the foundations of a welfare state to try to take care of them.
And so, just like the nation is not a liberal creation, I think liberalism by itself does not produce these kinds of institutions. You do need these external shocks and pressures in order to get to the sort of system that then makes liberalism sustainable, because it kind of protects liberalism from its own worst tendencies.
One of the problems we’re suffering from right now is that since 1945, we’ve had, I don’t know, what? Seventy years of relative peace and prosperity in Europe and North America, and people just get used to that. They take those liberal institutions for granted, and as a result, they don’t think they’ve got to sacrifice particularly or struggle to maintain it. And that itself then destabilizes liberalism, because you have people like Vladimir Putin that want to take advantage of that passivity, and go ahead and do that.
Bethany: I want to ask a slightly different version of Luigi’s question, which is not, is liberalism dependent on a competition to liberalism. But how dependent do you think it is on growth and prosperity, in the sense that liberalism thrived during an era of growth when people felt there was plenty for everyone? If we’re heading into a world, or the world today is one of slower growth, where there isn’t enough for everyone, can liberalism still thrive, or does it require a fundamental redefinition?
Francis Fukuyama: It probably does depend on growth. Liberalism, of course, and a capitalist system, economic system, never produce equal growth. And to the extent that these systems have been politically viable, the growth has to be shared sufficiently such that even though the rates of advance are not the same for all classes of people, enough people in the system are benefiting. And so that was really the situation during Les Trente Glorieuses in France or in Europe, ’50s, ’60s, ’70s, when there was shared prosperity. Working classes were doing well. They were seeing their living standards improve, even though at the top there is unequal distribution.
And I think that’s one of the big challenges that we are going to face with the kind of environmental constraints that we’re now facing. You know, there’s a part of the green movement that actually has been promoting the idea of degrowth, that somehow the only way that we can stop emitting carbon is by actually having negative economic growth, which I think is one of the most lunatic ideas I’ve ever heard, for the simple reason that you’re never going to get buy-in to that kind of a system where everybody’s actually getting poorer. Even if they get poorer on an equal basis, I don’t think that people are going to support that kind of a system.
So, I do think that we are, for better or worse, condemned to grow. I don’t know if that’s the appropriate phrase. But we just have to hope that the kind of growth that we get in the future is one that doesn’t consume such quantities of material resources that we cook ourselves to death, or end up in desperate fights, zero-sum fights, over resources.
Luigi: I don’t think it’s just a problem of growth, because if you look at aggregate growth in the United States—other countries are different—the United States was fine over the last 20 or 30 years. I think it was more the distribution of the benefits of that growth that has been very unequal. And I fear that the internationalism of liberalism is really colliding with a nation-state which is local. And so, we have an elite that is now very open to loving distant places. We all love the Ukrainians, but they’re far away. And I remember that when my kids were small, they were sent to do, like, a camp in an exotic place to help people in Latin America, when there are a lot of people who need to be helped south of the Midway Plaisance at the University of Chicago. However, we are sort of very liberal and open-minded with distant people, but we don’t share with the people next door.
That’s a problem that the internet has only exacerbated, because you were talking about nations, but the real nation now is the nation online. And they have their code, which is very different from the people who are not online. And they don’t talk to each other. We have a nation on the coast. You know, in Chicago, we call Chicago the Third Coast, because it’s kind of a coast. But besides that, there is the elite, the coastal elite, and then the rest of the country. And they have different norms. They don’t talk to each other. They are really living apart.
Francis Fukuyama: Well, you’re absolutely right. I think it’s not liberalism. It is, I think, capitalism, as it evolves and changes societies, that’s led to this kind of social bifurcation. But liberalism is not the source of this problem. And it’s also potentially a solution, to the extent that liberalism is a means of governing over diverse societies. And it is a new form of diversity that has emerged. Actually, a lot of people living in Chicago or San Francisco or New York or places like that think that they’re tolerant of diversity, but they’re actually not tolerant of the kind of diversity that you just described. They’re not so tolerant of people living in small towns with religious views and so forth. And I think they would do well to learn a basic liberal lesson about the need for tolerance of people that have different political ideas, different cultural habits, and the like.
Bethany: Is there any going backwards? Can you take people who have become intolerant in the ways you’re describing and somehow recreate tolerance?
Francis Fukuyama: Well, unfortunately, if you look historically at where tolerance came from, sometimes you have to experience really terrible intolerance before you kind of realize that this is important. Again, this history of liberalism, it first appears because of the intolerance, religious intolerance, during the wars of religion. Then it gets another burst of life at the end of the Second World War, when you have national intolerance.
And, at the moment, we seem to be heading back to a period where people are taking liberalism for granted. They’re assuming that peace and prosperity will be there always, but then, within their own societies, they’re developing new divisions that don’t really accept liberal principles. And externally, you have these very unliberal societies, great powers like Russia and China, that are trying to upset the liberal international order. So, maybe we have to go through a period when we experience the lack of liberalism before we develop an appreciation for the benefits.
Bethany: On a note that I thought at first was slightly lighter, except it really isn’t, you also highlight this really pernicious marketing of the idea of the inner self as completely sovereign. And this idea that is everywhere in contemporary culture, particularly oriented toward women, that you can find your joy, find your truth, find yourself, self-care. And you note in the book that our inner selves are not sovereign. And until I read that, I’d actually never thought that there is this more pernicious aspect to this constant marketing of inner truth and inner self that may be fragmenting us still further. I’d love to get your take on that.
Francis Fukuyama: Sure. You know, I developed this theme at greater length in my previous book on identity, where I trace the whole intellectual history of this idea of the inner self, which I actually take back to Martin Luther. Because Luther said that it’s not the external observance of the rituals of the Catholic Church that makes you a Christian, it’s your internal faith. And so, he said, there’s an inner man and an outer man, and it’s only the inner man that God looks at. And, you know, this idea then gets really taken up by Rousseau, Jean-Jacques Rousseau, who has a secular version of it, who says that early primitive man was authentic man, and civilization has layered on all of these norms, laws, rules that restrict that inner person and make that person unhappy. And that the source of happiness is to recover that authentic self that is living inside all of us.
And as time goes on, this enters into the popular culture, that all of us have these deep inner selves, that we’re unhappy because we’re not in touch with that authenticity, and therefore, we need to rebel against all of the social rules. So, this harks back to Freud’s Civilization and Its Discontents, from which I took my title. You know, this idea that you’ve got this inner ego that’s being suppressed by social rules, and happiness lies in breaking through all of that. And so, now, that idea has, as you say, been marketed, and every cosmetics company or health-food company now wants you to experience the inner you, because it’s authenticity and not obedience to social rules that really makes a person happy. And that’s the world now. That’s part of the world we’ve inherited.
Luigi: Sorry, I would like to bring you back to economics, and that you live in Palo Alto, which is not only one of the most liberal societies, it’s also one of the most unequal societies, especially if you extend it to San Francisco. I’m a bit surprised that, given that you experience this inequality firsthand, inequality doesn’t play a bigger role in causing some of the problems that we observe today in liberalism. Is it because you’re not an economist, you don’t want to talk inequality? Or you don’t think it’s that problematic? Or what is the reason?
Francis Fukuyama: No, I think it is highly problematic. You know, the origins of populism and the populist attack on liberalism really do lie in this very unequal, globalized economy that we’ve created, where a corporation will ship jobs off to a distant, developing country to get the slightest competitive advantage over its rivals. And that has led to a politics of backlash where people resent the elites that make that kind of decision.
So, it’s definitely there as part of the explanation for why liberalism is regarded as a failing doctrine. You know, we actually haven’t talked very much about the progressive left, but if you look at what their critique of liberalism is, it has everything to do with inequality, that liberalism is very procedural. It’s slow. It’s open to lobbyists and to dissonant voices, and you have to listen to all of them and talk things through. And all of that ends up slowing down the quest for social justice.
And, indeed, African Americans were theoretically given equal rights after the Civil War, the 13th, 14th, 15th Amendments, and a hundred years later, they’re still living in segregated cities because the liberal, democratic political system—actually not very democratic, really—failed to move forward on these equality issues. I think that is really the fundamental beef that many progressives have with liberalism and one of the reasons liberalism is in trouble.
Luigi: I have to say that reading your book made me more pessimistic about the future of liberalism. You have a very interesting, brief historical excursus about the evolution of cognitive relativism. I didn’t realize that it started with Nietzsche, who says that there are no facts, only interpretation. It goes through Foucault, arrives to the left and then is taken by the right. But now we are in a world in which it really is very difficult to have a marketplace of ideas, because as you said, a marketplace of ideas needs some form of hierarchy of sources. And without that hierarchy, you are completely covered with—and I won’t say the substance, because I cannot say it on the radio. But you understand what it is.
Francis Fukuyama: Yeah. Yeah.
Luigi: And I think that this is really a big, big problem that we’re facing, because the big successes, in my view of liberalism, have been the Industrial Revolution, the scientific method, and all that came with it. This is undoubtedly an enormous result—not to short-sell the tolerance and the peace we’ve had. But I think that, in terms of the benefits to humankind, probably the scientific revolution has been the greatest thing we achieved.
Now, we are at risk of giving that up, and also giving that up with some theories that have some resemblance of truth or some appeal, because at the end of the day, all the philosophies that you described, they’re not stupid. They have a point. So, there are relations of power and there are issues that affect our cognitions, but is there a way forward for us?
Francis Fukuyama: Well, that’s a big question. I do not see an obvious way forward. In a way, this underlies quite doubly the importance of these antitrust conferences you’ve been holding annually at the Stigler Center. Because one of the things that has made free speech very problematic is actually the existence of big internet platforms with a huge capability of amplifying speech and also silencing it. Because if you’re not on Twitter, you can’t communicate.
The self-interest of these platforms has not just led to economic harms—well, we’ll see, consumer welfare and so forth—but it’s led to tremendous political harms, because what’s in their self-interest is not carefully vetted, curated, accurate, reliable news. It’s things that are sensational, that get a lot of clicks and attention, which is almost always bad for public discourse in a liberal democracy. And I don’t really see a way forward in terms of mitigating that.
Luigi: You make a criticism about the so-called consumer-welfare approach to antitrust. Can you explain, first of all, your position? And then maybe I will follow up with some specific questions.
Francis Fukuyama: The basic idea is that there are economic and social goods other than consumer welfare by which you can judge the goodness of a particular economic policy. Just to give you a very specific example, in both France and in Japan, you have a culture that’s built around . . . in France, it’s built around cafes; in Japan, it’s built around small sushi bars and family-owned restaurants. Both of those countries actually take measures to protect those producers, because they’re seen as part of a cultural tradition. And so, even though you can get a cheaper cup of coffee at an American chain cafe, the French are willing to pay a higher price for their coffee to maintain that ambience. And something similar can be said about Japan. And it does seem to me that simply making consumer welfare the standard misses something about the quality of life that people seek.
Luigi: But in order to defend the Chicago School, at least a bit, I don’t think that, at least in a broad interpretation, they said that the only economic policy that you have should maximize consumer welfare. They were saying that to administer antitrust in an effective way, because you want to delegate judges to make decisions. I think that we both fear political decisions made by arbitrary and capricious presidents—no name mentioned. And so, I think we want some objective standards. The tricky part is that if you ask judges to trade off the benefit for consumers to have cheaper coffee with the idea of protecting the quintessential taste of downtown Paris, judges don’t have any expertise on that.
And so, one sort of reasonable objection to your statement would say, let antitrust do its role, and then have the government intervene to protect certain neighborhoods or certain activities when they think they are valuable. In a sense, not everything can be done through antitrust. And, to some extent, the problem that we have seen since the ’90s has not been that antitrust was looking at consumer welfare. It is that the democratic system was not producing the proper balances.
Francis Fukuyama: No, that’s right. I actually think we don’t disagree. And I think, in my book, I actually said that the consumer-welfare standard was an efficient way of adjudicating between producers and consumers, because it gives you a single standard, and if you are going to leave this in the hands of judges, you probably need something like that.
But I don’t think it should be left in the hands of judges. This is actually a political decision as to what kind of goods a society wants to privilege. And it’s something that ought to be done through a democratic political process and not delegated to the courts, because you’re right that the courts have no particular expertise or legitimacy in deciding whether a pleasant cafe is worth a more expensive cup of coffee.
Bethany: This is going to be a couple of comments that I hope lead to a question. If part of the ongoing questioning of rational thought, which you write about in your book, also leads itself to default to supposed sources of authority . . . But as we question rational thought, maybe it goes hand-in-glove with that, that we look to a figure like Musk to come up with the answers for us. And then I thought, I particularly liked this observation in your book that you wrote that this questioning of rational thought, when you combine it with modern communications technology, it lands us in a cognitive wasteland. And you quoted the Russian scholar Peter Pomerantsev, who said, "Nothing is true and everything is possible."
I thought that it’s very interesting how these things intersect, particularly in possibly dangerous ways, and I don’t know if you’d agree with that.
Francis Fukuyama: Oh, no, absolutely. I think that the truth of the matter is that we actually do need hierarchy, especially with respect to speech, because it is so easy to get alternative views, which, if you’re not actually socialized in the tradition of these disciplines, the authority of those sources is simply not going to matter very much to you. And I think we’re seeing this now in this complete epistemological wasteland that we’ve seen over vaccines, over who won the last election, and so forth. And, yeah, it’s very, very troubling.
Luigi: But I fear that many of these authoritative sources make mistakes, and sometimes these mistakes are even dramatic mistakes or biased, systematically biased. And with the internet, it is much easier to expose these mistakes and then to plant the seed of doubt that this is going to continue forever. There is no doubt that Twitter, the New York Times, and all the established sources made a mistake in ignoring, for example, the story of Hunter Biden’s laptop that turned out to be absolutely true. And now, because we can see that they made a mistake, and a predictable mistake, now people think that everything is wrong, and they can challenge everything.
So, we need to find a way to improve the existing institutions rather than discard them. And I fear that we are in a world in which either you take them as gospel or you burn them. But you don’t fix them.
Francis Fukuyama: Well, that’s right. You know, I live in an extremely liberal neighborhood in Palo Alto. And so, a lot of my neighbors have these lawn signs that say, “I trust science.” You know, this came out of the pandemic, when Trump was trying to trash the public-health authorities and so forth. And in a way, that’s a very naive statement. It kind of assumes that science actually delivers the truth, that a scientist speaks and that’s it, whereas science, in fact, is an open-ended process. You could see that going on during the pandemic, where the guidance on how to protect yourself from COVID just shifted from month to month and year to year. And people take that as a defect in the science itself, or else evidence of bad intentions, that someone is deliberately changing these instructions because they want to manipulate people. And convincing people that that’s simply a byproduct of the way that science is done is very difficult.
They don’t want to listen, because they actually have motives in believing a more conspiratorial version of why this stuff happened. Jonathan Haidt has this term “motivated reasoning,” which I must say, watching American politics in the last few years, I’ve now replaced rational choice with motivated reasoning. Because it seems to me that it’s a very naive model to think that human beings walk around, they take in empirical information, they make inferences from that information, and that’s why they come to believe the things they do.
The motivated-reasoning model says that they actually start with the conclusions that they would like to believe, and then they use their cognitive ability to gather empirical information that supports that conclusion. And I just see this all around me these days. It’s very important to defend the classical liberal understanding of how we arrive at the truth, but it’s really been under considerable attack.
Luigi: I really appreciated in the book the analysis of the degeneration of liberalism, but at the end, I was a little bit disappointed that you don’t seem to have a silver bullet to restore liberalism. Now, I know this is a tall order. It’s very difficult. But what is your best argument for defending it, or what can we do to fix liberalism and give this opportunity to everybody?
Francis Fukuyama: Well, I deliberately wasn’t writing a policy book with a laundry list of ways of fixing liberalism. I believe that, ultimately, politics, policies, and final outcomes are downstream of both ideas and culture. And you’re not going to get to good outcomes if you don’t fix the upstream part of that chain. This happened with neoliberalism. I mean, if it weren’t for these great economists, Nobel prize-winning economists, writing about market economics, I don’t think you would have gotten the deep embedding of these market principles into the law, into public policy, into the way that students think about how to solve their problems and so forth.
So, I guess my strategy is to start in that upstream place with the ideas, and begin by simply articulating to a new generation of people that may not have thought about it, what is liberalism? Why is it a good thing? Why is it much more likely to produce good results than its alternatives? And then lay out an agenda for walking back what I regard as some of the excesses of liberalism.
We may be helped by external events. Things like Putin’s invasion, I think, have reminded a lot of Europeans and Americans of one of the alternatives to liberalism and why it’s not such a great thing. But it’s probably going to take a lot more than that.
Bethany: I worry, as you pointed out earlier, that the idea that this is fixable is fundamentally in conflict with history, and with the history of liberalism, which has arisen out of a desperate need for something else, that we’re not yet at that place of desperation, and that it will take a crisis far bigger than the one we’re in for liberal values to reassert themselves.
Francis Fukuyama: Well, let’s hope that’s not true, but you know, historical experience suggests that it may be.
Bethany: On that optimistic note.
Luigi: Yes, really. You made our day.
I have to say, and I said it also in the interview, that I feel much more pessimistic after I read this book and after I talked to Frank than before. How do you feel?
Bethany: I did as well, because something I didn’t know, or hadn’t really thought through, is that liberalism emerged out of some pretty horrific moments in history, namely when religious crackdowns were causing people to lose their lives in all sorts of horrible ways. In other words, liberalism is born out of crisis. And he himself is not convinced that it can be redeemed in something other than a crisis. And I think that there’s nothing optimistic about that.
Luigi: The other thing, and maybe I’m too much of an economist here, but I see his criticism of the neoliberals, but I don’t see a clear alternative to that.
Bethany: Particularly in an era going forward, where there may be far less opportunities. In other words, the decades where liberalism has thrived have also been decades of immense economic progress in the world. And if—and I say if—we are headed into a time where that notion of economic progress and growth is far more fraught, can liberalism thrive in those times?
Luigi: I’m actually more optimistic than you are about the future of technology. I don’t see that, from a technological point of view, we are so limited in our future growth. I’m more concerned about the political and the redistributive aspect of that growth, and how to deal with that. It seems that liberalism is very much a philosophy for the elite that has not been adapted to work for the vast majority of the population.
Bethany: Yeah, I think that’s true. And I wondered, in reading his book, if that was inherent in the birth of liberalism itself. He points this out, that even though some of the most profound liberal thought in the world has had really grand verbiage behind it, like in the United States, “All men are created equal,” it’s never been implemented that way. Its implementation, its execution, its application to the real world has not been what it does best, whether it was racism in the United States, or the fact that women couldn’t vote. All men are created equal, I suppose you could argue that doesn’t include women. But in other words, can it actually be implemented in a way that lives up to its supposed values? Or is the difficulty of doing that, the contradiction of doing that, an inherent contradiction in it?
Luigi: Yeah. Paradoxically, the best example of liberalism in action has been Western Europe after World War II. However, the dirty secret is that those were all very ethnically homogeneous nations, where even if you did not stress the ethnic identity, you had a very strong natural bond based on a combination of ethnicity, language, culture, even food, and everything.
That is a very powerful tie that binds nations together, and I think that the struggle is how to recreate this in a world that is ethnically diverse, culturally diverse, and religiously diverse. With the diversity and intolerance, there is only one direction, which is civil war, and unfortunately, it seems we’re going in that direction. But the birth of liberalism after the religious wars should be a warning. If we can adopt a liberal view of the world before we go into civil war, that would be great.
Bethany: Obviously, I agree wholeheartedly. Maybe part of the solution is in acknowledging that this is the rebirth of liberalism, and it means implementing it in a way that has never been implemented before. It isn’t a continuation of something. It isn’t a perpetration of something. It’s a rebirth of something.
Liberalism as an ideology, as a philosophy, untouched by reality, I think is great. Liberalism, as implemented, has always been done so in a way that is pretty hypocritical. And so, it’s the implementation of the ideas that needs to be rethought, rather than the ideas themselves.
You know, I do worry about that a little bit, though, because when you look at human history, we do seem to have this very deep need to feel superior to other groups. It goes to the founding of religion. I’m better than you, because my God is better than yours. You can trace that all the way through to today. I’m better than you, and I show it by having a flag in my yard about who I’m voting for. I’m better than you, because I wear a mask and you don’t. We have all these ways of defining our superiority versus other people. And if the founding idea of liberalism is that we’re all equal, I just wonder if that goes too strongly against the grain of human nature to ever be implemented in a consistent way. Which isn’t to say we couldn’t strive for that.
Luigi: I agree and disagree. It seems to me that there is a logical flaw in liberalism that is hard to fix, which is precisely the fact that it tries to pretend we are universal in a way that we’re not. It’s assuming that people have this universal nature. In practice, we don’t, and that’s where the hypocrisy, the contradictions, et cetera, arise.
So, we need a theory that is a little bit more factual about human nature. I think that one of the things that emerges from Fukuyama’s book is that all these theories are based on either assumption or observation about the nature of humans. Some of these assumptions were too optimistic, and maybe, as you said, aspirational. But we’re not there yet. And on the positive side, liberalism is an evolution because society starts from kinship and develops more abstract principles. But that’s a process through millennia. It’s not something that you do overnight, and we’re still struggling. So, we are able to elevate above the kinship to maybe a nation of people that look like us. I think we are not there to be universal with everybody of every culture, every religion, and every race.
Bethany: And I wonder if human beings are capable of that. I was just visiting my parents, and so, I was talking to my dad a lot about this. This is one of his favorite themes, which is this idea that you can trace back to Rousseau, which Fukuyama mentions in his book, and maybe earlier than that. That there is this native self, this individual, this human that is perfectly good, and if you could strip the individual out of all the horrors of the world, the human at its core would be this perfectly good, good creature. And I think that carries through to Thomas Jefferson and his belief in the agrarian farmer, the perfect soul untouched by the corruption of urbanity. And the question is, is that ever true? Don’t we all have some capacity for bad in us?
I’m thinking about this more, because there is an interesting essay by someone who mentioning his name is going to get me in trouble in certain segments, but there is an interesting Wall Street Journal weekend interview with David Mamet, who is not people’s favorite person. But he mentioned this notion of believing that you are really good is part of our culture of victimhood today. Because if you are really good and your group is really good, well, then all evil in the world must be emanating from somebody else and must be perpetrated on you.
And so, I’ve been thinking a lot about this notion that if you can just get to the core of yourself, the core of humanity stripped away from all the ugliness of the world, this perfect shining thing, and I’m not really sure that’s true. And so, it seems to me that a modern interpretation of liberalism also involves recognizing that we all have some ugly aspects to ourselves.
Luigi: The level of tolerance that liberalism expects from human beings can be achieved when you have a feeling of superiority as a class. So, the international class, which is liberal, feels very nonracist, very encompassing of all differences of culture, et cetera, because they have a class bond that makes them feel together. But you can’t bring that same level when you go down in the social strata, because there is not a sense of superiority that gives you the confidence of accepting people who are very different.
Bethany: Yes. I couldn’t agree with that more. I guess to put it a little differently, maybe a little more bluntly, is that when life is going really well for you and you have plenty to eat and everything is great, it’s really easy to feel accepting of other people’s differences. When life is not going so well for you, and some of those people with differences may be taking things from you, whether in a real or imagined way, it’s a lot harder to feel tolerant.
Luigi: And that’s a case where you cling to your religion and guns?
Bethany: Yeah, I guess it is. But I think I would say that not in a critical way. Well, in a critical way, but also in a way that accepts that we’re all one step away from clinging to our religion and our guns, whatever those may be. Right? And if you really think you’re above that, that may be a reflection of your strata in life, rather than a real reflection of your moral superiority.
In this week’s capital-is, capitalisn’t, Luigi and I wanted to talk about the topic on everyone’s minds . . . well, particularly on the minds of new parents or anyone who has ever been a parent, which is the shortage of baby formula.
Speaker 9: Panicked families are struggling to find formula to feed their babies. A devastating shortage has left supermarket shelves empty across the country.
Bethany: It’s funny. I was thinking about how to frame this as a capital-is or a capitalisn’t. And there’s obviously nothing “is” about this—it is a complete and total “isn’t.”
But Luigi and I thought we’d discuss the broader ramifications of what happened, or the broader conversations about our system that perhaps it should spark.
Luigi: Who is to blame? Is it capitalism or is it not capitalism? I realized that between half and two-thirds of baby formula is actually purchased through a special supplemental nutrition program for women called WIC. This is actually run by the states, and the states auction off an exclusive contract that saves the state a lot of money but also creates a system that doesn’t respond very well to shortages.
So, in a market when something is not available, prices go up. That increasing price tends to naturally generate more supply. This is not possible here for a big chunk of the market, because women are forced to use their vouchers only with the predetermined producer, and that predetermined producer cannot increase the price, because it’s been fixed through a bidding contract with the state.
Bethany: I’m still sort of shocked. The underlying problem is that for capitalism to function, the market and the state need to interact in a way that is productive. And in this case, the market and the state are interacting in a way that’s incredibly unproductive. Because on top of the inability to increase supply and to respond to market conditions, that’s had the effect of creating monopolies in these markets where you have only four big baby-formula companies dominating the market. So, if one of them runs into trouble, you’re going to have a problem.
Luigi: And in addition to that, as you know, there are tariffs on imports. There are nontrade buyers. Most of the baby formulas cannot be sold in the United States. Not because they are unhealthy. In fact, European baby formulas tend to be healthier than the American ones, because they use more real milk and they don’t use corn syrup, which is not good for you. However, they’re not properly labeled, which I guess is important, because you need to actually read the formula to know how to manage it.
And if this is not enough, under the Trump administration, baby formula from Canada was inserted into the US-Mexico-Canada agreement, which is the new formula for NAFTA, where they set up a tariff quota. That means that once Canada starts to above a certain level, there is a tariff that makes it unprofitable to sell. And this, in principle, was targeting a Chinese manufacturer in Canada, but the result is that we stopped importing baby formula from Canada.
Bethany: Would you actually argue that this is not the failure of the market and not the failure of capitalism, but this is purely the failure of the state or mostly the failure of the state?
Luigi: Actually, I’m in doubt, because I don’t know to what extent the consolidation is the result of this particular arrangement, the fact that there are tariffs, and the fact that there are these particular contracts that basically favor only one producer. We have reached, I think, an unhealthy level of consolidation. But this consolidation is not necessarily the “natural” outcome of the market process. It has been very tainted. So, to what extent, in the absence of this, would we have a more competitive market? That’s a counterfactual that I would not be able to make effectively even if I studied this for a year .
Bethany: The other part of the argument that I don’t know the answer to, and maybe some of our listeners do, do the baby-formula producers like it this way? Do they lobby to keep it this way? Or are they stuck in a business they don’t particularly want to be in because they have these contracts with the government? And is that part of what went wrong with this Abbott plant? That it’s a business they don’t particularly want to be in, don’t care about, has low profit margins, but they’re kind of forced to be in it because they’re one of the few suppliers to the US government? Are they at the mercy of government, or is government at the mercy of them?
Luigi: Generally, there’s always some codependency. It’s very hard to blame only one of the two. And what I do know is that apparently the producers did lobby the US government to stop a declaration of the WHO that breastfeeding was best, because they wanted to increase the demand for their product. And so the Trump administration even threatened to withdraw military assistance to Ecuador if Ecuador did not vote against this proposition at the WHO meeting. So, that’s pretty scary.
Bethany: It is, and it isn’t. I’m going to do a contrarian approach to your contrarian approach. My sister is a neonatologist, so she takes care of preemies in the hospital and is trained as a pediatrician. And there’s a great deal of pressure on women to breastfeed, to the point where women sometimes are reluctant to give their babies formula, even when they can’t produce enough breast milk, because they’re told it’s absolutely terrible to do anything other than breastfeed. And the reality is, babies need food first and foremost. So, I don’t think the message about breast milk being better isn’t getting out there. If anything, it’s almost getting out there too much. But that is a bit of a tangent, and I have a whole diatribe on this. I’ll keep that to myself. But you can email me, listeners, if you’re curious.
Anyway, the other part of the supply-chain issue that I found fascinating was that dairy consumption has gone up so dramatically in the pandemic. There’s a shortage of milk, and that’s one of the problems with producing enough baby formula. And I had no idea. I don’t know. The pandemic caused me to do a lot of things, but it did not increase my dairy intake. What about you, Luigi?
Luigi: I don’t drink a lot of milk. I eat a lot of cheese, but I don’t drink a lot of milk. But one thing that occurred to me reading about this is that we should actually have concentration-contingent regulation in the following sense. If I am the FDA, and I’m overseeing Abbott, who is a producer of formula, the largest producer of baby formula, and I am concerned about safety, I should use a double-hard standard, because they’re so important in the market that if something wrong happens, like happened this time, the market is severely disrupted. By contrast, if I am a small producer, even if I were to screw up and my plant would be closed for a year, that would not be a big issue, because I don’t represent a big market share.
I’ve never seen that implemented, except maybe in the banking industry, where they said that if you’re a systemically relevant institution, then the standards are different. This is a nice way to discouraging concentration without being too interventionist, by saying, “Look, if you have too big a market share, we’re going to apply stricter rules for you, because you are becoming systemically relevant.”
Bethany: I guess the only challenge to that point of view comes back to my question about who has the power in this market. Do the companies actually want to be in this market? The companies in this business are paid a pretty low margin. And so, if you’re going to have intensive regulation on top of a really low-margin business that companies don’t want to be in, then you may end up with the inadvertent impact of having nobody to make your baby formula.
Luigi: First of all, let’s eliminate tariffs and see whether we can import European baby formula at the lower prices. That would be my first step. And second, I think that this is a case in which some regulation is needed. Because in this case, for example, two babies apparently died from drinking the formula. So, you want to make sure that safety is a priority. You want to have some form of regulation. If they cannot produce a safe product at a competitive price, they shouldn’t be in the business. So, let’s import from Europe.
Bethany: And the other capitalisn’t aspect of it, of course, which is also TBD. But if the whistleblower’s lawsuit from inside the Abbott plant complaining of terrible conditions there, if there’s any truth to that, and if Abbott is liable in any way for what happened, and this isn’t just a tragic accident, then that obviously is a huge capitalisn’t as well. But that’s another part of the story that I think is still TBD.
Luigi: I agree.