The Open Society and its Friends

It is barely more than a year since the Poles installed their first non-Communist government for forty years. The anniversary of the breaching of the Berlin Wall is still to pass. Yet it is already clear that 1989 was a turning-point in European history, worthy of comparison with 1789, 1830, 1848, 1870, 1917, 1945. A political order is marching off the stage just as the clerics, the Bourbon nobles, the Prussian Junkers and the Fascists once did. General Jaruzelski is a figurehead who is shortly to resign. Erich Honecker has retired in disgrace. Nicolae Ceausescu is dead. Only one of Eastern Europe’s Communist Parties – the Bulgarian – survived the test of free polls. Everywhere else, there are new forms of politics, not all of them pleasant, wrestling with the future. It is almost certain that the old Communists have been exorcised for good. As the Russian armies return home, there can be no re-establishment of the status quo ante.

Eastern Europe’s freedom is due to the replacement of the Brezhnev doctrine with what Gennady Gerasimov called the Sinatra doctrine: they can do it their way. This enormous shift in Soviet policy is one of the most mysterious changes of the last two years. Why did the regime which invaded Hungary in 1956 and Czechoslovakia in 1968 not invade Poland in 1989? The most plausible explanation is that the Kremlin lost its faith in its own capacity and right to govern, a weevil of doubt which was to bore into the timbers of every other Communist regime in Eastern Europe. This was greatly facilitated by a generational change at the top. Mikhail Gorbachev, who came from the KGB, is the first Soviet leader without adult experience of foreign military invasion. His attitude to the West was bound to be less suspicious. For the élites, whose access to Party stores stocked with Western goods was a constant reminder of their own backwardness, the evidence of the failure of central planning was steadily accumulating.

The growth shown by official figures was increasingly a mirage. It overstated income by understating price rises. Services, the most rapidly growing part of most Western economies, stagnated. As Abel Aganbegyan said, in one of the first honest appraisals from within the Soviet Union: ‘In the period 1981-2, there was practically no economic growth. Unprecedented stagnation and crisis occurred, during the period 1979-82, when production of 40 per cent of all industrial goods actually fell.’ The crisis of Communism had arrived. Economic reform was needed, but for that to happen there had to be an increase in investment, which would in turn require a shift from high defence spending, and an opening to the free world, which is where the technology is.

Why did the crisis take so long to mature? The principal reason was the growing complexity of modern economies. Countries can dispense with the use of markets as the principal instrument of economic organisation if their objectives are clear and simple: rural electrification; basic housing; heavy industry. It is not a pleasant strategy, since a country which adopts it also needs to coerce its workforce, as the usual market incentives are not available. During the Thirties, Stalin pursued exactly this policy. Forced saving and forced labour allowed the Soviet Union to build an industrial capacity at a remarkable speed. In its own brutal terms, Stalin’s ‘socialism in one country’ worked. Such a centralised, planned system cannot be durable, however. The more complex products and processes become, the less possible it is to pull off the same trick. The sheer number of decisions and amount of coordination cannot be centralised in one planning organisation without making the system grind to a halt.

Central planning also involves a growing problem of corruption. In a competitive market economy, producers must compete to meet consumer needs. If one firm fails to please, its customers will shift to others, rewarding those which provide what the customer wants and undermining those which do not. The lack of markets under Communism means that economic decisions are left to bureaucrats and politicians – an unaccountable power which in turn means that there is a great temptation to bribe. Decision-makers pursue their own interests rather than those of the state or the consumer. In short, complexity and honesty require competitive markets. History is on the side of economic pluralism.

These essentially economic origins of the changes in Eastern Europe have led many to argue that the revolutions of 1989 represent the final triumph of the Western idea, including Western capitalism. This is, indeed, the central theme of Francis Fukuyama’s notorious article ‘The End of History?’. For Fukuyama, no fundamentally conflicting ideas of the state or of order remain. Instead, we will live in an era of the anti-hero. ‘The end of history will be a very sad time. The struggle for recognition, the willingness to risk one’s life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination and idealism will be replaced by economic calculation, the endless solving of technical problems, environmental concerns and the satisfaction of sophisticated consumer demands.’ One of the themes of Sir Ralf Dahrendorf’s Reflections on the Revolution in Europe is that this view, perhaps the dominant one in both the West and the post-Communist East, is simple and wrong.

Ever the good Popperian liberal, Sir Ralf believes passionately that the fundamental mistake in the Fukuyama view is to suppose that the American, or British, or French, or German societies are systems. ‘The countries of East Central Europe have not shed their Communist system in order to embrace the capitalist system (whatever that is); they have shed a closed system in order to create an open society, the open society to be exact, for while there can be many systems, there is only one open society. If any creed has won in the last year, it is the idea that we are all embarked on a journey into an uncertain future and have to work by trial and error within institutions which make it possible to bring about change without bloodshed.’ This is not the only echo in Sir Ralf’s work of Edmund Burke, that great Whig purloined by Tories. The title of the book itself, together with many of the sentiments, mirrors Burke’s Reflections on the Revolution in France, which appeared in 1790.

Sir Ralf’s book is full of stimulating and clear-headed distinctions between types of society and approaches to politics. His own generous liberalism rarely lapses (although Fukuyama stretches his tolerance: ‘It is doubtful,’ he says, as if silencing the St Antony’s high table, ‘whether he has even read Hegel, whom he likes to quote by way of Kojeve’). If there is a fault, it is the lack of the tangible Anglo-Saxon example in his writing; his case against Fukuyama would certainly benefit from it. Later, and in another context, he quotes the American political scientist Samuel Huntingdon: ‘all in all, apart from Eastern Europe, two dozen countries shifted from strictly authoritarian regimes to primarily democratic ones during the 15 years after 1974 and in 1989 about fifty countries had some form of democratic institutions.’ Before the Eastern European revolution, we had the Southern European one: Greece, Portugal and Spain all adopted or re-adopted democracy within the last two decades. These Southern European countries were capitalist, but were not democratic. Capitalism can successfully inhabit societies whose spirit is far from open: almost all the Asian ‘dragons’ are a case in point. Even Japan is not ‘open’ as Americans or Western Europeans understand the word.

Just as telling is the enormous difference between the varieties of so-called ‘capitalist’ experience within the Western democracies. It is of only dubious usefulness to describe the Swedish and the American economies by the same adjective. Sweden elects to pass 61 per cent of its national income through the Government’s hands, albeit much of it in the form of transfer payments which allow the ultimate decisions about spending to be taken by individuals. In the United States, the same proportion is 31.5 per cent. The word ‘capitalism’ is even more of a nonsense when considered historically. It traditionally refers to the ownership of capital by a restricted class of entrepreneurs. What does the capitalist Britain of the second railway boom, where the ownership of wealth was concentrated entirely in the hands of individuals, have in common with a modern Britain where, despite Mrs Thatcher’s best efforts at promoting individual share ownership, the proportion of quoted equities held by institutions for the support of working people in their infirmity or retirement continues to rise and now exceeds three-quarters of the total? In many so-called capitalist societies, life assurance and pension funds have socialised ownership without anyone noticing (except, of course, C.A.R. Crosland, unfashionable though he has become).

There is another sense in which Sir Ralf does not want anything to do with a capitalist ‘system’. Friedrich von Hayek provides Sir Ralf with some excellent sport, which is all the better because they agree about constitutional politics: that is to say, about the rule of law and about the protection of individual liberties against the state. Hayek goes on to argue that there must be similar constitutional guarantees against state involvement in the economy. For Hayek, there can be no major role for the government in economic policy-making without the infringement of liberty; there can be no substantial taxation of the rich to give to the poor. In his view, Sweden is only footsteps from Communism. Sir Ralf, however, argues that the attempt to remove anything that may be disagreeable – such as relatively high rates of tax – to the status of a constitutionally untouchable subject is in itself illiberal. ‘Whatever is raised to that plane is thereby removed from the day-to-day struggles of normal politics, until in the end a total constitution emerges in which there is nothing left to disagree about, a total society, another totalitarianism.’ If capitalism is a system, Sir Ralf says, it needs to be fought as hard as Communism. ‘All systems mean serfdom, including the “natural” system of a total “market order” in which no one tries to do anything other than guard certain rules of the game discovered by a mysterious sect of economic advisers.’

What then are the ingredients of the open society? What should be locked in the realm of constitutional politics, and what should be up for grabs in the rough and tumble of everyday debate? Sir Ralf uncontroversially cites, as constitutional issues, private property, the sanctity of contracts and the existence of anti-monopoly laws to break up economic concentrations of power. Open societies can survive without increased prosperity, though they may find it difficult. Both the United States and Britain have done so for long periods. Sir Ralf suggests that the availability of incentives is probably part of the open society: freedom to choose one’s profession; freedom of movement; and, arguably, limits on the progression of taxes. This is more contentious. It may be more liberal for people to find out the hard way that penal rates of taxation immiserate those in whose interests they are imposed, rather than have anything proscribed in a constitution.

Sir Ralf’s book is punctuated by some amusing and revealing diversions into intellectual and political history. Why has social democracy, the dominant political force in most open societies during this century, been thrown into eclipse? ‘The simplest answer is victory. Like the British Liberals in 1911, social democrats had conquered Europe by the end of the 1970s ... for social democracy it was fatal.’ As social democracy’s traditional base in the industrial working class simply melted away, class conflict was transformed into individual social mobility. Another effect of victory was the growth of government, so that social democracy became increasingly associated with bureaucracy. It became the mouthpiece of publicly-paid professionals and bureaucrats. The story is one of embourgeoisement and decrepitude. Sir Ralf is unfortunately taciturn on the alternatives. He merely notes that ‘constitutional liberalism and social reform need to build a new alliance.’

There are interesting thoughts on the process of reform in the Eastern European countries. Sir Ralf describes the reforms in West Germany after the war, underlining just how close liberalisation came to being reversed at the ballot box and the considerable hard-headedness which was necessary to push it through its four or five-year-long ‘vale of tears’. The Eastern European experience is bound to be more traumatic, if only because memories of an entrepreneurial economy are far more dim than they were in Germany in 1945. The Fascist economy was a capitalist, market economy on which dirigiste controls were imposed. By contrast, no one knows how far the Communist economies are from what free markets would have created had they been allowed to do so. Many products will be in intensely short supply, and their price is bound to soar as rationing by queues gives way to rationing by price. Other products will be virtually unsaleable whatever the cut in their price. The immense shift in the fortunes of different products must inevitably lead to an equally immense, and in human terms altogether more painful, shift in the fortunes of companies and people. Ludwig Erhard’s price liberalisation after the war survived a vote of no confidence by precisely one vote. What are the odds on sustained liberalisation in the calcified economies of Eastern Europe?

Sir Ralf is more sketchy on the international aspects of these changes. His book was written before the Gulf crisis, whose outcome is likely to reshape our perceptions of the new world. If the Soviet Union continues to stand shoulder to shoulder with the Western democracies in upholding international law, the implications for the world will be breathtaking. For the first time since its foundation, the United Nations will be able to operate as that great-hearted liberal Franklin Roosevelt intended. What is liberal about the United Nations? Its charter is an attempt to establish a constitution for the relations between states which is exactly analogous to the constitution of a Western liberal democracy (except, of course, backward Britain) in protecting individual rights against the state. The United Nations’ court of appeal is the Security Council, implicitly backed by the coercive power of enough important countries to ensure that the constitution is upheld. The United Nations’ post-war problem has been that the coercive power was never theirs because the superpowers preferred to use regional conflicts as a proxy for their own Cold War. With that period over, we will for the first time be extending a constitutional umbrella over the relations between independent and sovereign states.

If this analysis is correct, it seems churlish of Sir Ralf to dismiss Russia from a place in the new European home. He gives three reasons why the Soviet Union should be excluded from the new Europe – implicitly, the European Community. First, he argues that there is something suspicious about yesterday’s hegemonic power wishing to set up house with those whom it occupied. Second, the Soviet Union is a vast developing country which has a much longer way to go than others in its European orbit before it becomes a full part of the modern world. Third, and most important, the concept of Europe – of small and medium-sized countries attempting to determine their destiny together – is, for Sir Ralf, not merely geographical but political. A superpower with the capacity to blow the world to smithereens has no place in their midst – even if the superpower is no longer an economic or even a political giant.

‘Never’ is a big word in politics. There are plenty of circumstances which could undermine the force of Sir Ralf’s argument. He begs the question of whether the Soviet Union will remain in anything like its present shape. It is possible that the Soviet Union will gradually disintegrate, undergoing a prolonged post-colonial crisis not dissimilar to that of France when it withdrew from Algeria. At the end of the process, Russia might emerge looking much more like a modern European state, albeit a poorly developed one. It is true that Russia, if it were Russia alone, would number maybe 150 million Russian-speakers and would therefore still be the most populous European state. But the united Germany numbers 77 million. If the Eastern Europeans join the Community, as logic and sentiment indicate that in time they must, Russia would represent less than a quarter of the Community’s population.

Russia’s economic backwardness, and the fact that its economy tends to complement rather than compete with the economies of Central and Western Europe, suggest that there is a natural partnership. What could be more natural than the development of trade between a vast, resource-rich mineral and oil-exporting country like Russia and the labour-intensive, high-value-added, manufacturing and service economies of Western Europe? If trade is to develop, why not put it under precisely the same protection as is afforded to companies within the Community? Russia was the fastest growing economy in Europe during the last decade of the 19th century, outstripping the growth rates even of similarly undeveloped economies like Italy. It has high literacy rates, and enormous opportunities. Providing it gets its politics right, Russia may develop much more quickly than many suppose. Another reason not to bar Russia from the European Community on principle is the fact that on all the traditional criteria – geography (at least west of the Urals), Judaeo-Christian tradition and Indo-European language group – the Russians are undoubtedly European.

There is one other implication of the revolutions in Eastern Europe about which Sir Ralf is coy, but which may prove one of the most enduring and dramatic. Mrs Thatcher has argued that the first priority must be to extend the Community to include the new members, and not to make it a cosy and exclusive federalist club of true believers. But this is an entirely false British dichotomy. The Community has, in the past, taken steps to resolve any conflict between broadening and deepening. Indeed, a result of the enlargement of the Community to include Spain, Greece and Portugal was the new impetus behind majority voting (and the tempering of the national veto) in the provisions of the 1985 Single European Act. Mrs Thatcher opposed the dilution of national sovereignty tooth and nail, and then gave in because of the overwhelming support for it from other member states who could see the need for ways of breaking the log-jam created by the national veto. If enlargement to include Eastern Europe threatens to paralyse the Community’s decision-making, exactly the same process is likely to recur. Broadening will mean deepening.

The revolutions in Eastern Europe have also unleashed powerful new forces making for supra-nationalism. By re-uniting Germany, the 1989 revolution has inevitably rekindled old fears of German revanchism. Sir Ralf thinks that the most likely outcome in Germany will be something like the Fifties: there will be large majorities for the Christian Democrats, and a country will emerge looking very like the Federal Republic. But he does not dismiss the possibility of some other outcome. He quotes Gunther Grass with agreement: ‘Whoever thinks about Germany at present and seeks answers to the German question, must think of Auschwitz as well.’* Similar considerations are clearly guiding the policy of that former French prisoner-of-war and thrice escapee President François Mitterrand. German reunification has galvanised all of France’s diplomatic efforts behind closer economic and political union with Germany within the Community. By sharing sovereignty, France aims to ensure that it cannot be used again by a German nation state.

The most serious test of France’s strategy will be the success of the Rome inter-governmental conference on European economic and monetary union, which begins on 13 December. There are formidable practical difficulties in arriving at a single European currency. There are also considerable political obstacles, not least the insistence of the West German Bundesbank that the new European central bank should be at least as anti-inflationary and at least as independent of politicians as the Bundesbank itself. German ardour may cool as the full implications of what is proposed sink in. All the indications, however, are that 11 of the 12 member states are prepared to accept the objective of a single currency (with only Britain dissenting). Most crucially, the signs are that Germany will agree, if only because the issue is so important to the French that a failure to agree would imperil the foundations of German European policy. There will be differences over timing and over what measures ought to accompany a single currency. But the chances of a treaty committing members to monetary union from the outset are immeasurably higher precisely because of what has happened in Eastern Europe.

The full extent of the reverberations from Europe’s revolution will only become apparent in decades. As Mao Tse-Tung said, when asked to describe the implications of the French revolution of 1789: ‘It is a little too early to say.’ Already, though, the list of changes which have been set in motion is extraordinary. Democracy and the rule of law are being introduced in most of Eastern Europe. Germany has been reunited. The Russian empire is crumbling. The market economy is being extended to the Urals. The United Nations is becoming a genuine instrument for upholding international law. The European Community has been set firmly on a path to greater integration, including a single currency. Last but not least, we may be witnessing the apotheosis of the open society. For Europe and for its intellectual traditions since the Enlightenment, we may be on the threshold of the best of times.