How Libertarianism Fails

Modern libertarianism is founded on ideas of the prevalence of individual rights, privacy, and respect for private property and the absolute negation of coercion and involuntary restrictions toward sovereign individuals.  Traditionally, compulsion is associated with the institution of the state, which libertarians consider a necessary evil.

However, we should not forget that the emergence of the state logically follows from the libertarian philosophy itself.  It recognizes that humans are lawful owners of their bodies and consciousness and varying in their physical and mental abilities.  At the same time, all humans are born free and equal before the laws of the land; they are endowed with natural rights in their pursuit of happiness.  The delicate interplay of nature and nurture results in a whole pallet of skills that differentiates people in their commercial undertakings.  It feeds the specialization and division of labor at different levels, from the primitive division between the sexes to the global division of labor.

As social beings, humans strive for self-organization, which they carry out by stratification of society and imposition of rules that minimize violence within a community.  The emergence of power that establishes and enforces a set of behavioral rules and norms prevents a total war, with everyone against everyone for scarce resources and others' property.

Therefore, the urgent problem of protecting private property and the sovereign life of an individual creates an institution of defense and justice, which eventually becomes a state.  In other words, the state is the making of economic necessity.  However, the appearance of the state has one significant side effect: the state becomes a factor in the economy.  This is primarily due to the fact that the state has the exclusive right to taxation, control over imports and exports, the ability to incite wars for territorial gains, and superiority in international affairs.  The question is not whether a state should exist.  The crux is how much of the state is allowed in private life and economy.

The development of society is a constant struggle between productive and non-productive spheres of the state.  The libertarians insist on the minimization of non-productive strata of the nation and keeping government intrusion into economics at bay, whereas socialists rely on the regulation of the entire economic life by the state.  Libertarians are categorically against even a fraction of government intrusion into the private life of an individual.  The libertarian point of view is right in its principles; however, its whole philosophy, like any scientific theory, has its particular area of application.  At some points, the theory does not adequately describe observable phenomena or suggests weak decisions.  I would like to dwell on these special moments.

1. Libertarianism works well if all economic partners are friendly and honest and adhere to all its provisions.  That is why it is easier to follow its tenets within the boundary of a nation rather than between countries.

2. Libertarianism does not show a good solution at times of war or acute social unrest, where vital decisions must be produced quickly, and all resources must be concentrated on and managed by the authority rather than by the market forces.

3. Libertarianism has weak solutions in some extreme points, such as the maximal concentration of capital that leads to the monopolization of industries or unchecked international divisions of labor.

Libertarians envision an ideal situation where one country produces "bread" and another "butter" and happily trade with each other.  This division of labor is fair and economically beneficial for both countries.  The citizens of both countries enjoy high quality and low prices of goods.  Libertarianism works just fine in case of the division of labor between friendly democratic countries, which have similar economic capabilities and cultural and moral values.  However, in the expression "division of labor," the key word is "labor."  It assumes that the "division of labor" does not lead to a sharp decrease or even disappearance of the opportunity to perform labor in one country and, on the contrary, a rise of employment in another.  The jobs are supposed to remain in both countries.  The division of labor is optimal when both counterparts keep employment on a high level.

The libertarians do not put a limit on the degree of permissible division of labor, thus they allow it to go to infinity.  Libertarianism does not model a situation where a single country behaves like a black hole, sucking in capital and material from the rest of the world — e.g., China.  The jobs have been going to China for several decades already, and in the initial stages, the U.S. did not feel the heat.  Restructuring the economy helped to absorb freed labor in service and other newly created branches such as I.T.  But the flow of capital into low-wage areas has been continuing and soon affected all sectors of the economy.  Libertarians consider this process healthy and natural, even though runaway capital leaves whole factories closed.  In the long run, the United States has lost entire industries and gotten an enormous trade deficit. 

The libertarians need to adjust their point of view to consider trade with the authoritarian countries with military ambitions.  It is a matter of national security to keep enough know-how, production capabilities, and economic diversity in case unfriendly regimes decide to stop trading.  Besides, libertarians do not consider the fact of cheating by their counterparts.  It is not a secret that China is involved in protectionism, currency manipulation, prisoners' labor, and violations of intellectual property. 

The decision proposed by the libertarians is to wait until the cost of labor in China rises to such an extent that capital will lose its incentive to flow there.  This is a weak solution that requires considerable time to implement.  It is like waiting for all the hot objects in the universe to give their heat to cold ones, according to the second law of thermodynamics.  Meanwhile, the United States will be at risk of economic instability and social unrest caused by unemployment, loss of purchasing power, community devastation due to the closure of city-forming enterprises, and a significant trade deficit.

Financial instability for the sake of unilaterally playing according to gentlemanly rules, while partners use a different approach, is irrational behavior.  Moreover, social unrest and economic impoverishment usually lead to the power of populist leftist regimes, which means the closure of libertarianism.

That is why the current trade war with China should not be considered a violation of libertarian principles.  On the contrary, these are measures that level a playing field, forcing the counterpart to behave according to the rules, thus creating conditions closer to the libertarian ideal.  In this case, the action of the state should not be described as an outright intrusion into economic affairs as it is directed to demolishing imbalances that threaten the well-being of the nation.  The state simply performs the functions for which it was created in the first place: ensuring national security.

However, it is essential that the national security pretext should not be abused by the state arbitrarily.  After the successful completion of the assignment, the state should be forced to shrink to its minimum size and scale of influence.