The ideas of Friedrich August von Hayek have left a significant footprint on economic thought and policy debates of the last century. But do his ideas still matter? In the wake of the 2008 financial crisis there has been a resurgence of interest in Hayek’s work on business cycles, but its policy lessons have been largely ignored by policymakers. Much of his other scholarly work remains largely ignored or, worse yet, misunderstood.
This year, prospective participants were invited to submit an essay discussing the links between Hayek’s scholarly work and contemporary policy.
[Download Selected 2013 Charles Street Symposium Essays]
The day began with an introduction by Legatum Institute CEO and President, Jeffrey Gedmin. He drew attention to the fact that politicians from across the political spectrum often quote Hayek to support their policy prescriptions, yet some show little evidence of having properly engaged with his work. To remedy this, he argued that more reading of the texts of important thinkers such as Hayek is needed and that due to this, the Symposium was timely. Videos from each session are available below.
[Download 2013 Charles Street Symposium Programme]
PANEL 1 - Hayek as a Foundational Thinker – Chair Dalibor Rohac (Cato Institute)
The first panel began with Zachary Caceres from Startup Cities (Essay – The Problem of Possibility: Competitive Governance as a Discovery Procedure) who described how Hayekian markets can help solve the ‘problem of possibility’. In essence this problem is at the heart of all complex systems; those where successful choices (be they the choice of government structure, business model or biological organism) are difficult, if not impossible to know ex ante and so can only be discovered through a process of trial and error. Markets, rather than monopolistic systems, are best disposed to sort through possibilities and this is just as applicable in the governmental sphere as in the economic or biological ones.
Eszter Nova from the Financial Research Institute (Essay – Can The Law Rule? The Need to Consolidate Third and Fourth Wave Democracies During Economic Recession) followed Zachary and described the pitfalls of democratisation and how Hayek’s work can shed light on the issue. In particular Eszter highlighted the contradiction of imposing democracy upon previously authoritarian states. Those that advocate such an imposition, she argued, make the same mistake as authoritarian leaders in that they seek to impose a ‘rational’ order on society rather than allowing democracy to emerge through a process of trial and error.
Pythagoras Petratos of the University of Oxford finished the session by opening the discussion up to questions from the floor and drew attention to the fact that decentralisation, and harnessing the power of dispersed knowledge, can address the two problems outlined by Zachary and Eszter.
PANEL 2 - Finance and Business Cycles – Chair Professor Philip Booth (Institute of Economic Affairs)
Wolf Von Laer a Ph.D. student at the Department for Political Economy, King's College London opened the second panel (Essay – Hayek's The Sensory Order, Crises, and Resilience) by describing how economic crises cause a reclassification of expectations; business people rethink business models, politicians rethink regulatory orders and economists rethink their work. He argued that when this occurs all should be done to mitigate the knowledge problem, as Hayek described it, and that the evidence is that public institutions are least well-equipped to respond to the new environment. At such a time dispersed knowledge should be harnessed to find solutions to problems, and the public sector can facilitate this by setting clear rules (such as respect for private property) for private sector actors to experiment within.
Josef Mládek, a Ph.D. candidate at University of Economics, Prague and Department of Financial Markets, Czech Ministry of Finance (Essay – Hayekian Cure for Financial Crises—The General Principle of Property Rights) discussed a Hayekian solution to some of the problems of financial markets. His overriding point was that regulating finance is not a natural science and so complex regulation is not an adequate solution. In essence we should apply a Hayekian scepticism to our efforts, realising that well-intentioned reforms may be detrimental, and that promoting property rights should be the driving force of financial regulation.
Mathieu Bédard, a Ph.D. student in economics at Aix-Marseille Université, and Attaché temporaire d'enseignement et de recherche at Toulouse School of Economics, (Essay – A Hayekian Critique of the New Financial Institutions Insolvency Policies) made the last presentation of the session, discussing the specific issue of bank insolvency resolution rules. Commenting on the current support for mandatory bail-in mechanisms, whereby bank creditors are forced to swap their creditor claim on the bank for equity, Mathieu argued that the approach suffers from a number of deficiencies, clear once the problem is viewed through a Hayekian lens. In essence the problem is that the mechanism does not contain a market mechanism by which the correct value of the firm can be gauged. The solution would be to allow for all market participants to bid for parts of the failing bank, this would create a market price for the institution and help guide thinking as to whether it was worth saving or not.
Pascal Salin, of the Université Paris-Dauphine closed the session by drawing attention to some key themes. In particular; the pitfalls of centralised solutions to crises, embodied in the new European banking union and in the resolution rules, and the erosion of responsibility, that both a lender of the last resort and deposit insurance creates. Both, he argued, prevent the virtuous effects of market discipline operating.
PANEL 3 - Wicked Problems – Chair Sam Bowman (Adam Smith Institute)
The third session of the day addressed a range of ‘wicked’ problems, particularly the issue of adoption, violence against women and minorities and intellectual property rights. Helen Dale from MBM Commercial (Essay – Hayek and the 'Wicked Problem' or, When Welfare is Necessary) drew attention to the problem posed by unwanted children and suggested that over time science (in the form of birth control) and Hayekian solutions had helped mitigate it. Particularly Hayekian solutions were more emphasis on decentralised decision making (the mother herself deciding if she was capable of raising a child), less state involvement and social security in the form of direct financial aid. Helen argued that all three have reduced infanticide and improved the system for dealing with unwanted children.
Nick Cowen, a Ph.D. student at the Department for Political Economy, King’s College London (Essay – What Would Hayek Say About Gendered Violence?), argued that Hayek’s work can shed some light on how to address the issue of gender violence and violence against minorities. He argued that classical liberals do not discuss these issues enough and yet they should do so because the orthodoxy on the progressive left is to address such issues by defining and providing rights for marginal groups, a solution that can beget further conflict as people struggle to fit into state-determined categories. Rather, Nick argues, we should encourage a polycentric order where people can decide what community they wish to be part of. Private association, coupled with a robust defence of individual rights, can help minorities to express themselves as they see fit, rather than as the state defines them.
Adam Martin, Department of Political Economy, King’s College London (Essay – Abolition as a Positive Program: A Hayekian Perspective on Intellectual Property), made the final presentation of the third panel, grappling with the important and pressing issue of intellectual property rights. He argued that the current intellectual property laws are ill-suited to modern industry and that this was the result of their being imposed in the past by the state to suit an economic order that no longer exists. A solution would be to repeal current rules and encourage the evolution of new laws that arise from the spontaneous interaction of practitioners. Such an approach would also allow for the constant evolution of a set of laws that need to deal with constantly changing technologies and business models.
Acting as a discussant on the panel David Skarbek provided each panellist with further thoughts on their work. He asked Helen whether or not other factors had contributed to the improvement of the system of adoption in developed countries. Nick was asked how his schema can address the problem of ingrained intolerance and finally Adam was quizzed on how easily his solution, which involves private market participants, could be scaled-up to create public rules.
PANEL 4 - Healthcare and Education – Chair Edo Omic (Legatum Institute)
The fourth and final panel of the day focused on themes related to public sector provision of education and healthcare—with the latter topic centred around the current issues regarding President Obama’s “Patient Protection and Affordable Care Act”. Will Duffield an undergraduate student at the London School of Economics (Essay - A Hayekian System of Health Insurance) began the session by discussing the policy debates surrounding the Affordable Care Act in the USA. He highlighted how politicians and pundits on both sides of the political spectrum, mis-cited Hayek either in his support of a basic social welfare safety net or his critique of policies which are centrally planned and price distorting. Duffield argued that little attention was paid to showcase what a Hayekian health insurance system would look like. He believes that the current law ignores the power of the market, where the patient is not the consumer of healthcare, rather it is the insurer. The Hayekian alternative would be either (1) taxes could be paid into a common pool, where funds could be drawn upon when individuals face a catastrophic healthcare crisis, or (2) an annual cash payment to help those who cannot afford healthcare. The provision of the money to the poor would be mandated to spend this money on healthcare. Ultimately, Duffield believes that this second option, of redistribution based on a mandate, would potentially offer the best healthcare coverage for the widest number of people, with the fewest number of price distortions.
Martha Podemska-Mikluch, a visiting assistant professor of Economics at Beloit College (Essay - On the use of knowledge in the U.S. Health Care System) continued the discussion on the Affordable Care Act, by addressing the inefficient nature of the third-party payment structure that is central to the US healthcare system. She argued that laws passed in in the 50s and 60s, that created the third party structure, established a system in which the insured patients were not financially responsible for their healthcare choices. This has resulted in a structure that has allowed healthcare costs to spiral out of control and an inability to use prices to aggregate information necessary for the efficient allocation of healthcare services. She argued that Hayek understood that government played a role in helping with healthcare provision, but that this role needed to be minimised so that prices have a coordinating effect on healthcare provision. Podemska-Mikluch believes that Hayek would have supported a consumer-driven healthcare system, with well-defined property rights, which would give prices meaning for consumers when choosing healthcare services.
The last speaker, Gabriel H. Sahlgren, a research fellow at the Institute of Economic Affairs and Director of Research for the Centre for Market Reform of Education (Essay - Hayek on Education: Designing Markets for Spontaneous Orders) deviated from healthcare to discuss a Hayekian perspective on how to improve primary and secondary educational systems. He argued that most systems in the developed world today are highly centralised, with little scope for choice and competition. Sahlgren believes that Hayek would have supported a certain level of government spending on education, due to the positive externalities (ex. well-functioning democracies and overall societal health) as well as the government playing a role in setting minimum quality requirements and ensuring the dissemination of quality information regarding schools. However, education should be left to private provision, which would allow parents to move their children towards higher-performing schools. This would in turn allow good schools to gain market share, while bad ones would be gradually eliminated. Sahlgren argued that Hayek would have clearly supported moves towards privatisation of the educational system, while still keeping the government involved in financing and setting minimum requirements.
About the Charles Street Symposium
The Charles Street Symposium is an annual forum for the world’s leading young economists. Our aim is to bring together the best and brightest economics scholars to address issues of relevance to public policy that are inadequately addressed and understood in existing economic research. More information here.