The following article by Mikhail Khodorkovsky was originally published in the Russian newspaper Novaya Gazeta on 14 April 2012.  This is Mikhail Khodorkovsky’s second lecture for Novaya’s audience.  The first — «Social liberalism in Russia» — was published in No. 122 of 31 October 2011.  And the next lecture is planned for May.

Broad public opinion in Russia has, amazingly, managed to merge liberal and rightist views into one in its perception.

This — is in many ways an erroneous perception, inasmuch as just as there are enough people among liberals with decidedly “leftist” (social-democratic) predilections, so to there are not a few among supporters of autocracy for whom the “right deviation”, including in the economy as well, is close.

The liberal approach — this is recognising inalienable human rights and liberties as the highest value, their priority over all other values, standing up for the possibility of the free choice by all of their destiny, and this means also — rule of law, separation of powers, transparency and accountability of the power, in particular through democratic elections.

Countervailing against it is the authoritarian approach, or (in the extreme form) — the totalitarian, when an ever smaller degree of freedom accrues to an ever smaller circle of people, while the priority is the interest of the state, more precisely — the bureaucracy that personifies it.

In a radical situation “the leader decides for us” not only where to work and how much, where to live, how to think, but also dictates questions of private life, Faith.  In such a manner, liberalism — is the antithesis of authoritarianism, and not at all of social-democracy.

Without a doubt, liberal political predilections dictate a certain line of behaviour in questions of economics, however the essence of such an approach, as a rule, is found on different plane than the confrontation between “rightist” and “leftist” priorities in economic policy.

THE ESSENCE OF MODERN-DAY SOCIAL-LIBERALISM IN ECONOMIC QUESTIONS

Liberalism — is an ideology aimed at the retaining for the person the right and the possibility of free choice of his or her destiny from a broad spectrum of variants.  The quantity of variants had at the disposal of the individual depends first and foremost on his or her own personal characteristics, but along with this — also on the state of society itself, in particular — its economy (for example, the availability of jobs in modern-day industries requiring the highest level of intellect and good education) and the opportunities afforded by society for self-development (education, choice of job, of place of residence).

Such is the base (invariable and axiological) economic approach of the modern-day social-liberal.  The answers to many other questions depend on the concrete socio-economic situation.

That said, the social-liberals, in contrast with neo-liberals (another liberal trend of recent years), begin to approach the social-democrats when it comes to social support, taxes on excess consumption and even a more active role for government, at the same time, remaining in the position of supporters of free competition, as the main mechanism of development.

LIBERALISM AND STATE PROPERTY OWNERSHIP

The liberal approach — this is competition, many choices, equal opportunities.  From this point of view, in the general situation, state property is in no way better or worse than private or communal property.  At the same time, it would be absolute stupidity or hypocrisy to regard state property and public property as one and the same thing.  In exactly the same way, by the way, as joint-stock property and the property of shareholders.

In both the one situation and the other, in the absence of transparent and effective procedures real control over property and the use of the incomes from it very quickly and long-lastingly passes to the sticky fingers of a greedy bureaucracy.  Whether this bureaucracy is state or corporate is not important.

Which is better?  Both are worse!  However, for a corporation important (albeit not always working) levers of control are the market and the law.  But for a state bureaucracy these mechanisms work much worse because of its monopoly position.

In authoritarian countries the monopoly of the state, and in actuality — of the bureaucracy, aspires to the absolute, there are no systems of checks and balances, and this means the systems of control created by the bureaucracy itself are ineffective right from the start as well.  (Recall the subaltern’s widow who lashed herself.)  Officials not only feel themselves to be the real owners of state property, they are also its real beneficiaries, and strive in every possible way to strengthen and extend this state of affairs.  The arguments that they use to justify such a state of affairs — are hypocritical propaganda.

State property is dangerous because of the lack of an effective market mechanism for identifying real competitiveness; it strives to obtain non-market advantages on account of political and administrative opportunities, to create monopoly advantages and inevitably leads to lower efficiency, serves as a breeding ground for corruption.

Democratic states are capable of restricting the influence of these negative factors, making use of civic control and separation of powers.

Authoritarianism, on the contrary, creates a breeding ground for the decomposition of the bureaucracy and the use by it of state property for personal interests.

The liberal approach is simple:  state property can exist in those places where, and to the extent that, it ensures people greater freedom of choice.  Of course, this thesis assumes the maximum exclusion of monopolism.  It is precisely for this reason that the liberals see as a key question not the dispute about the proportion of state property (if monopolisation does not occur), but about ensuring equal conditions of functioning for all forms of property in reality, first and foremost — by way of separation of powers, separation of power and property and the creation of a working system of civic control.

A DEFICIT OR BALANCED BUDGET?

An absolutely situational decision, depending on many intervening conditions, and, to be honest, the choice of that or the other variant does not say a thing about either the liberalism or the authoritarianism of a politician, or about his leftism or conservatism.

In today’s Russian situation, for example, with its talk about a balanced budget the authoritarian regime is in actuality undermining discussions about the content and priorities of budget policy, masking its unreadiness to bear social obligations corresponding to the country’s wealth.  This is not happening by chance — after all, its (the regime’s) own inefficiency and corruptedness restrict the possibility not only of attracting investments, but even of using the country’s resource potential for the purposes of development.

This is why in Russia today many liberals, need to understand the reasons for which the competent part of government officials and experts, functioning in the paradigm of an inefficient state machine that has been imposed upon them, nevertheless does not support the idea of a balanced budget as something to which there is no alternative.

If a person deems it possible to restrain corruption, even if it is just in some concrete area, then additional budget expenditures in today’s situation can be of use.  For example, in housing construction.

A HIGHER OR LOWER LEVEL OF TAXES?

It is imperative to note that the overall level of taxation and tax policy — are two different questions.

Furthermore, the overall level of taxes withdrawn from the economy is a peripheral question within the more general problem of the scales and objectives of redistribution of funds through the state budget.  It is precisely about this, broad problem that it makes sense to speak, inasmuch as, in the general situation, the ways that funds are withdrawn and redistributed (taxes, duties, excises, nationalisation of a part of profitable enterprises etc.) have far less significance for a person’s well-being in comparison with the proportion of funds from GDP withdrawn into the budget.

But even this, “broad” question is profoundly situational, and the answer to it depends on the ability of the state to make efficient use of the redistributed resource.  Of course, for now we are not talking about the factual monopolisation of investment activity by the state on account of depriving all other economic subjects, including citizens, private enterprises, regional and municipal territorial formations, of the opportunity for development on their own.  After all, additional tax withdrawals can also lead to such a result, but it is unacceptable from the point of view of the liberal.

Today’s regime is so inefficient and corrupt that any additional withdrawal gets “sucked up” into it, like into a black hole.  As a result, that negative effect that additional taxes exert on the economy turns out to be significantly higher in Russia than in other countries.  However, this is another conversation — about the efficiency of state administration and the political system.

But as concerns the allowable scales of redistribution of funds proper, they are not a “sacred cow” for a social-liberal.

Much more significant is the question of tax policy.

THE LIBERAL VIEW OF TAX POLICY

Being consistent supporters of competition, demonopolisation, broad and free choice, as well as opponents of excessive administrative coercion, liberals, in a natural manner, deem tax policy to be one of the most important tools for attaining these objectives, as well as the objectives of development of civil society and local self-administration, stimulating the quality of economic growth, granting people greater opportunities for self-development and entrepreneurial activeness in the broad sense.

Tax policy, as a liberal sees it, must be directed at solving these problems.  It is precisely their solution, and not the convenience of the fiscal agency in the execution of a budgetary task, that is the priority.

In particular, speaking about today’s Russian situation, the tax system looks overly complex, requiring an unreasonably large diversion of labour resources and not aimed at stimulating entrepreneurial activeness.

Tax policy looks as if its architects were faced with a task — to create maximum opportunities for corrupt officialdom to exert pressure on business on account of ambiguous interpretations of the Tax Code.  The impression is likewise formed that tax policy is aimed not at encouraging, but at suppressing regional initiative, to say nothing of municipal formations.

Taking account of the opportunities had by our country, in my view it would make sense to transfer into the sphere of responsibility of the regions the powers of formation and realisation of tax policy in relation to business (naturally, on the basis of all-federal principles, as the Constitution requires), as well as the corresponding incomes, having retained for the federal power policy and administration in the realm of VAT, excises, export and import duties, as well as, at the current stage, — all questions of taxation of a series of system-forming enterprises of federal significance (ones like Gazprom, key enterprises of the military-industrial complex).

The last — is important, because for now parochial local interests may prevail over state-wide ones, and besides the regions do not have enough experience yet.

To joint competence must be attributed taxation of individuals with the gradual introduction of a differentiated scale and the maximum possible expansion of the circle of taxpayers falling under taxation in the amount of 15—-20 percent.  It is imperative likewise to determine a special rate of “tax on luxury items”, or “excess wealth” (yachts, private airplanes and the like), and large inheritance — up to 40 percent.  A mechanism not allowing such inheritances to be transferred through offshores is sufficiently simple.

Large inheritance — exceeding by several times that amount of property that is characteristic for the western middle class.  Likely now it makes sense to speak of 30 mln rubles over and above the value of a sole residence found in ownership.

People must know and sense their right to ask of the bureaucracy about their money.  Today’s concealed (through excises, duties and other payments) withdrawal into the budget of nearly 40% of income does nothing to promote this understanding.

LIBERALISM AND TYPES OF ECONOMY

Many experts agree that “in pure form” in the modern-day world one can identify the raw-materials, industrial types of economy and the knowledge economy.

Naturally, in real, modern-day life “pure” forms are practically never encountered, but by the main (or extremely significant) source of added value one can define a raw-materials economy — as living at the expense, in the broad sense, of ground rent, an industrial one — at the expense of the replication of output with a small proportion of the intellectual component (incl. when the intellectual component is withdrawn by an outside rights holder) and, finally, a knowledge economy — as the production of output with a high proportion intellectual, highly skilled labour.

I shall note in passing:  the term “post-industrial economy” (i.e. the predominant production not of goods, but of services) defines another aspect of business activity, not significant for the question under consideration.

From the point of view of the social-liberal, a modern-day knowledge economy, outside of a liberal political paradigm is impossible.

The production of intellectual output is connected with a need for deep international integration, and consequently — unavoidable mobility of personnel with competition for their choice of place of sojourn.

The attempt to substitute the quality of life and state of social milieu that especially this category of persons demands with material compensation inevitably leads to uncompetitively high costs of production of the output.

Moreover, the very possibility of material compensation for a lack of political liberties in conditions of bureaucratic arbitrariness and inefficiency of the management process is extremely doubtful.

Even the best minds are helpless in conditions of an inefficient system.  Furthermore, they lose their personal competitiveness.  The genius exceptions do not change the general practice.  Free creativity in an un-free country — an accident of chance, a mutation rejected by life.

It appears that liberals can and must be expressers as well of the interests of those who for the reason of this impossibility have forsaken their country or are getting ready to do this.

Both liberals and the reasonable (literate) part of modern-day conservatives acknowledge:  Russia has no prospects outside of a knowledge economy.

The potential of raw-materials growth is practically exhausted, while high competition on the market of replication of industrial output on the part of countries with a lower standard of living makes this direction of development of little prospect for us.

In such a manner, the liberal choice for Russia — this is the knowledge economy.  The knowledge economy, it its turn, unavoidably demands a liberal political choice.

THE LIBERAL APPROACH TO THE ECONOMY AND RAW-MATERIALS RENT

We often get to hear about the “oil curse”, about the need to neutralise excess oil incomes, amass them in special funds.

In some situations such a macroeconomic policy is right, in others — not, but this choice has nothing to do with the liberal approach.

As a rule, the authoritarian regimes of countries that possess rich natural resources get the main influx of foreign investments exclusively into the raw-materials industries.  The backward structure of the economy is frozen in place, the quality of economic growth is restricted.

Indeed, the raw-materials incomes of authoritarian regimes are vandalised and spent on large-scale, economically not justified projects much more frequently than this happens in democratic countries.  But this — is not a problem of “raw-materials incomes”, this — is a problem of authoritarian regimes with their inevitable corruptedness, inefficiency, inability to create conditions that are favourable and competitive with other countries in industries that are not connected with the extraction or raw materials.

And indeed increased inflation — is also a result of an insufficiency of entrepreneurial activeness, enfettered by the bloated and inefficient bureaucracy customary for an autocracy.

The liberal approach is simple:  an authoritarian regime is not efficient, it is not capable of restraining, furthermore — it does not desire to restrain the bureaucracy, which comprises its essence and foundation.

To blame excess oil incomes, the raw-materials curse — is laughable.  For a normal economy they — are a boon, while for a corruptional-bureaucratic one — everything is a misfortune.  Things are bad without money, and not good with money either.

LIBERALISM AND INCOME INEQUALITY

A huge income gap continues to exist in the modern-day world between the best and worst off parts of the population, between the middle class and the upper (in the economic sense) stratum of society.

Furthermore, the transition to a knowledge economy aggravates the situation in a certain sense, inasmuch as demand for creative personnel grows, and for less skilled labour — it drops.  A separation takes place within the middle class.

The liberal position is based on that very same general principle of ensuring equal starting conditions and freedom of choice.

This means that all children, irrespective of origin, place of residence, the family’s material opportunities, must be ensured equal conditions for getting a good education, and subsequently — for choosing their destiny.  In such a manner, liberals can not object to a universal free system of health care and education.

The knowledge economy, whose principal resource is — the creative person, promotes precisely such an approach, encourages it through the enhancement of personal competitiveness.

The obtaining by inheritors of giant wealth of advantages, even though they be legitimate, yet achieved not in conditions of open competition, contradicts the social-liberal view of a fair social order.  On the contrary, ensuring every person support on the part of society in a difficult moment of his life, allowing him or her to acquire personal competitiveness, — corresponds to this view.

LIBERALISM AND FUNDING THE LAW-ENFORCEMENT SYSTEM

Not a single responsible political force casts doubt on the need for the existence of an effective law-enforcement system in modern-day society.

But to discuss this topic is senseless if the question of reasonable sufficiency and correct criteria is not raised.  The liberal view, confirmed by the experience of many countries, shows:  the security of citizens is ensured to a greater degree by living conditions than by the number of policemen.  It is known that the greatest security from criminals in and out of uniform exists there where citizens are the most highly self-organised, while prevention is the principal form of fighting violations of the law.

A law-enforcement system that is excessive in its scales and powers, dependent on a corrupt bureaucracy and itself corrupt, merely allows the “steam pressure” to build up longer in society, diverts funds from real problems, strengthens the bureaucracy that is contraindicated for a modern-day economy and, at the end of the day, itself turns into a threat to security.

Furthermore, excessive special services replace criminality in the sphere of pressure on business and citizens.

Law-enforcement agencies must have relatively not-large numerical strength, good technical support, be sufficiently motivated for stable, honest work and engage only in fighting real crime and dangerous violations of law and order, and not serve as a mechanism of force impact on society and political opponents.

A high salary, allowing one to lead a worthy way of life, plays an important role in the creation of truly law-enforcement (i.e. safeguarding law, and not the power of the officials) agencies.  But that said, one can hardly consider a situation to be normal when the incomes of junior officers of the forces of law and order, just starting their service, exceed the average for the country by 2.5—3 times, and the salary of young teachers, judges, scientists — even more.  Such an approach discredits the very thesis of transition to a knowledge economy, creates absolutely distorted incentives in the heads of young people resolving the question of the choice of a life path.

Expenditures on maintaining an army — yet another question about which people speak, reproaching liberals for irresponsibility.

In actuality, social-liberals have never cast doubt on the necessity for sufficient expenditures for national defence.  At the same time the security of our country in the modern-day world depends, first, on the development of the economy, on demography, on the health (physical and spiritual) of the nation, and only second — on how this potential will be realised, including — in our armed forces.  A weak country will also have a weak army.

The concept of patriotism, love for Motherland, readiness to defend it is not alien at all to modern-day liberal.

As we can see, social liberalism has clear-cut and comprehensible answers to all the fundamental questions standing before our society.

Liberal approaches have shown their effectiveness on the example of all of today’s most developed countries.  At the same time in the global contest there exist challenges for which a satisfactory solution has not been found yet.

One such challenge, for example, is the impossibility of providing with the Earth’s resources, at today’s level of development of science and technology, for the growing needs of the population of the developing countries, in particular in the energy sphere.

My personal choice would be a rejection of the consumption paradigm that has dominated in the world for the past couple of centuries.  However this — is a topic for another conversation.

Without a doubt, liberals have committed and will yet commit many errors.  Without a doubt, liberalism is improving and developing.  Yesterday’s, and all the more so — the day’s before yesterday’s solutions look completely different today:  like a post stagecoach in the era of mobile communications.

What remains unchanged is the main thing — liberal views are a based on a faith in the best in people, on the premise that freedom is indeed better than un-freedom, that a society of free people deals and will deal best with the challenges constantly arising before humanity.

Original source of article