Courtesy Everett Collection
This election will be one of the most consequential in recent history. One issue, above all, has surfaced as the dominant question before the electorate: What should be the role of government in American life?
The GOP ticket is an assault on the role of government and an embodiment of the view that markets must be left alone if they are to operate for the benefit of the collective good. This attitude ignores the lessons of history, namely that free markets require supportive and effective governments.
Rarely do we think that foreign policy can teach us something about the role of government in our domestic life. But it can. The cold war would not have been won had US leaders and their allies in Western Europe and Japan not learned how to use the “state” to make free markets operate effectively. Largely forgotten today is that at the end of World War II—after two global wars and a great depression—capitalism was in disrepute in much of the world. In The Road to Serfdom (1944), Friedrich Hayek lamented, “If we take the people whose views influence developments, they are now in the democracies all socialists. Scarcely anybody doubts that we must move towards socialism.” A decade later, journalist Walter Lippmann wrote, “We are living in a time of massive popular counterrevolution against liberal democracy. It is a reaction to the failure of the West to cope with the miseries and anxieties of the Twentieth Century.”
As the guns fell silent in the summer of 1945, American policy-makers worried that pestilence and famine would spawn revolution. In Europe, membership in the Communist Party was soaring, the role of the state was expanding, experiments with nationalization were spreading, and enchantment with “planning” was growing. In free elections in France, Italy and Finland, for example, the vote for communist parties was 20 percent or more by 1946.
Elsewhere around the globe, revolutionary nationalist movements were forming against the colonial powers. These movements clamored for independence and sought transformative changes in political economy, national identity and race relations. Planned economies, many of these revolutionary leaders believed, might rapidly propel their emerging nations into modernity and deliver to their people the dignity they yearned for.
Western leaders such as Franklin Roosevelt and Harry Truman in the United States, Clement Attlee and Ernest Bevin in England, Robert Schuman and Jean Monnet in France, Alcide De Gasperi in Italy, and Konrad Adenauer and Ludwig Erhard in West Germany grasped the challenges ahead. “People who are hungry, people who are out of a job,” Roosevelt said in 1944, “are the stuff of which dictatorships are made.”
These leaders realized that governments had to innovate in order to revive faith in free markets and social democracy. In Britain, the Labour government passed legislation giving cash payments to poor families, benefits to the unemployed and healthcare to everyone. Over time, social services as a percentage of GNP rose from 11.3 percent in 1938 to 23.2 percent in 1970; total public expenditures rose from 30 percent of GNP in 1938 to 47.1 percent in 1970.
Similar trajectories occurred all over Western Europe. The French government insured citizens against the perils of sickness and old age and provided generous family allowances. So did Italy, West Germany and others. Between 1950 and 1973, the public sector in the average Western industrial country went from 27 to 43 percent of GDP, while social transfers rose from 7 to 15 percent of GDP.