Populism and Hayek

The rise of populism is one of the key concerns in the development field today, as many new leaders gain wide support with promises of removing corrupt, crony elites and making political and economic institutions work for the people.  While the idea is a noble one – corruption and close political regimes do exclude people from development and benefit few at the expense of many – the approach is often questionable, because populist leaders tend to substitute market institutions with the ones that resemble command economies (such as price controls and subsidies). 

The reality, however, is that much of the corruption, cronyism, and uneven development is based on too little democratic governance and too few market institutions and the solution, therefore, lies in more democracies and market institutions.  These points echo some of the concerns expressed by Alvaro Vargas Llosa in his CIPE article on the development of free markets and democratic institutions as a solution to Latin America’s problems.

I thought of these problems while looking over F.A. Hayek’s Constitution of Liberty, where he deals with problems of justice and freedoms.  Hayek notes that in thinking about justice there is often a tendency to link distribution of resources to moral merit.  This is not the way to think about justice, because

…in a free system it is neither desirable nor practical that material rewards should be made generally to correspond to what men recognize as merit and that it is an essential characteristic of a free society that an individual’s position should not necessarily depend on the views that his fellows hold about the merit he has acquired. 

Hayek goes on to describe the difficulty in assessing merit as well as market and political foundations of justice and equality.  The lesson here for populists is that you must distinguish between distributive justice (equal distribution and re-distribution of resources) and justice in a sense of equal access to opportunities and fair applications of laws.  As such, as long as populist leaders will focus on the ends (equal distribution) rather than the means of achieving those ends (equal opportunities) they will fail to deliver on promises!