chapters, etc

Liberalism and Human Flourishing

4. Redistribution and the State under Liberalism

4.1. Liberty and Patterns

Nozick (1996: 160-4) advocates a principle of distributive justice based on entitlement, which derives from legitimate initial acquisition and subsequent transfer of property holdings. Thus the justice of a distribution depends on its history. He contrasts this with a principle of distributive justice based on a state of affairs at a particular time; such a principle might be to distribute according to a pattern, such as equal shares or according to merit. He does not see how anyone could reject the entitlement principle, because liberty would upset any “patterned” distribution, leading over time to a distribution based on entitlement. His argument proceeds as follows. Suppose people have shares according to a non-entitlement distribution, D1, which conforms to your favourite pattern, so that you consider it just. Suppose also that Wilt Chamberlain is a great attraction as a basketball player, so he is able to negotiate a contract where part of the admission price goes directly to him. People want to see him play and willingly pay an extra charge above the normal admission fee. By the end of the season, he has a much greater share than anyone else. Let the new distribution be D2. Nozick asks

If D1 was a just distribution, and people voluntarily moved from it to D2, transferring parts of their shares they were given under D1 [...], isn’t D2 also just? (1996: 161).

But this begs the question of what is just. Suppose a distribution is just only by virtue of its conformance to a particular pattern, then it does not follow that D2 is just, even though the transfers that transformed D1 into D2 were voluntary. For, in such a case, by definition, the steps leading up to the new distribution are irrelevant. If, on the other hand, justice was based on entitlement, the means, such as voluntary transfer, by which a new distribution is formed from another, are crucial, because entitlement depends on the legitimacy of those means and the preceding distribution. It is not self-evident that transforming a distribution, which is just according to one principle, by an action conforming to another principle, produces a just distribution according to either principle. If we imagine a slightly more realistic scenario, where people not only have initial shares but engage in economic activity, producing new goods and services as well as consuming them, then voluntary transfers will be part of that activity. Assuming only distributions of a particular pattern are just, all that is required are periodic adjustments to return to the pattern. Nozick says the general point illustrated by the Wilt Chamberlain example is that any pattern will be upset by the activity of people, so continuous interference with their lives is necessary to maintain the pattern. Well yes, maintenance of the pattern requires readjustment, but it need be neither continuous nor overly intrusive. A periodic tax assessment would be sufficient (assuming Nozickean objections to taxation can be overcome).

Thus, even if notions of legitimate property ownership and entitlement were secure, Nozick's argument would still fail to establish that a distribution based on entitlement is preferable or more just than one conforming to a pattern. There is a case for saying that states of affairs and histories are both relevant to justice and which is more morally urgent depends where the greatest departure from justice lies. Rawls' difference principle is redistributive without prescribing a fixed pattern.

4.2. Difference Principle

The picture of representative citizens in the original position, choosing behind a veil of ignorance what sort of society they want, does bring out the idea of fairness very well. Not knowing, until the veil is lifted, what their abilities, character and social position are in this society, the representatives choose prudentially out of self-interest. We may vary considerably in physique, intellect, experience and character traits, but we share much more than we differ. It is through this common humanity, above all the respect due as moral persons (Rawls, 1999: 442-3), that fairness finds expression in the first principle as equal liberties and equality before the law. Although shared humanity has a place in the second principle, so too do the differences. Rawls says the initial presumption, after the original position, is one of equality in society, but the variation in possession of natural talents leads over time, along with historical accidents, to increasing inequality in social position and wealth. In the second principle, Rawls does not seek to eliminate this inequality, rather to deal with it fairly, by requiring that it works to the benefit of everyone. The principle of fair opportunity, which is one part of the second principle, goes beyond formally opening the different positions in society to all. It applies a fair procedure which takes no account of existing social position or wealth. However, this could lead to a meritocracy were it not for the other part of the second principle, the difference principle, which demands that those “who have been favored by nature […] may gain from their good fortune only on terms that improve the situation of those who have lost out” (1999: 87). This echoes the overall theme of the difference principle which requires that social and economic inequalities are arranged “to the greatest benefit of the least advantaged, consistent with the just savings principle” (1999: 266). The just savings principle requires that each generation put aside some capital for future generations in order to achieve “a state of society with a material base sufficient to establish effective just institutions within which the basic liberties can all be realized” (1999: 256).

Yet the difference principle does not prevent a widening in inequality, for although the least advantaged may receive the greatest benefit possible, others better placed can receive still larger shares. The "greatest benefit possible" is normally limited by Pareto's criterion of not making others worse off, but Rawls does allow that where the basic structure is unjust the expectations of the better off may be lowered (1999: 69). This matters, because transforming a highly unequal society to a more equal one would normally require redistributing from the rich to the poor. The difference principle contains no explicit provision for moderating the disparity between them, but Rawls specifies background institutions for distributive justice. The "distribution branch" attempts to prevent concentration of wealth and power through taxation and adjustments to property rights. However, as will be discussed, Rawls' tax proposals are not quite adequate. The "transfer" branch sets and provides a social minimum through transfer payments, because "A competitive price system gives no consideration to needs and therefore it cannot be the sole device of distribution" (1999: 244). The difference principle sets the minimum at a point that, including wages, maximises the expectations of the least advantaged, taking account of the just savings principle. The correct level for the minimum is the point beyond which adequate savings for future generations cannot be made or the tax level damages efficiency. I suspect the demotivating effect of taxation is exaggerated. In a developing country, such factors may limit the minimum payable, but in a rich country, they should not affect the essential criterion of meeting needs.

Over time, then, despite conforming to the difference principle, the cumulative effect can be to produce a cumulative divergence between the fortunes of the least advantaged and those more fortunate, albeit less rapidly than in libertarian environments. Picketty’s analysis of economic data over two centuries, reveals the return on capital generally exceeds that for national income, so the private owners of capital receive more income than non-owners, concentrating capital into fewer hands (2014: 164-98). Taxation is perhaps the simplest way of putting the difference principle into effect.

4.3. Redistributive Taxation

For Nozick "Taxation of earnings from labor is on a par with forced labor" (1996: 169). To support this assertion, Nozick points out that tax is backed up by the coercive power of the state. However, such coercive measures require the process of law and are less than would be employed for forced labour. Taxpayers are not forced to work on particular tasks. To the extent that they can choose occupations and terms, taxpayers can decide how much they earn and hence their liability to tax. As Christman argues (see 3.3) a social right to income does not infringe ownership. Nor does an enforceable non-contractual obligation, like paying taxes, involve a relation of slave-ownership (Cohen, 2003: 5.7:2-6).

Rawls favours a proportional expenditure tax because

it is preferable to an income tax (of any kind) at the level of common sense precepts of justice, since it imposes a levy according to how much a person takes out of the common store of goods and not according to how much he contributes (assuming here that income is fairly earned) (1999: 246).

Rawls does concede that progressive rates may be better where necessary to preserve justice, in terms of the first principle and fair equality of opportunity, preventing concentrations of property and power likely to undermine it. Proportional taxes are part of an ideal scheme for a well-ordered society. However, given actual injustice, even steeply progressive rates may not be unjustified. The distribution branch taxes inheritance and income, progressively when necessary. But proportional expenditure or income taxes provide revenue for public goods and the transfer branch. Justice rather than ability to pay determines taxation (1999: 246-7).

Unfortunately, expenditure taxes are highly regressive. On any commodity, rich and poor pay the same proportion of the price, that is, the same amount, in tax. A poor person may spend all her income on essentials, whereas a rich person may spend only a tiny proportion of income on such items. In market-driven economies, income is a very unreliable measure of contribution to society (compare incomes of carers, nurses, teachers, slum landlords and vulture-fund managers). Such taxes are fair only when income and wealth are equally distributed or, arguably, when applied only to luxuries. Expenditure taxes would fall disproportionally on the least advantaged in Rawls' well-ordered society, since that tolerates any inequality conforming to the principles of justice. Although he allows progressive taxes where there is injustice and suggests the possibility of such taxes on inheritance and income, he still advocates proportional taxes to pay for public goods. But irrespective of its purpose, taxation is fairer if it is progressive, because: (i) as one's income increases, the proportion of surplus to essential income rises steeply; (ii) the higher one's income, the greater is one's obligation to the society that made it possible. In this sense, justice must take account of ability to pay.

4.4. Limited State

Libertarians, like Nozick, support a minimal state to enforce the protection of rights, provide a legal framework for contracts and maintain a defensive force. The taxation required to pay for these activities might seem to contradict a libertarian precept. Nozick justifies his position by explaining how a minimal state would develop from a Lockean state of nature, starting here to avoid building into his account any presupposition of a state. The initial position is one of anarchy, but not an unfavourable one, since people within it generally act according to the constraints of natural law. The argument for a state is stronger if it arises from such a relatively benign position (1996: 6-7). Some people, though, overstep the limits and in response the injured have the right to seek compensation and punishment. In judging their own case, some victims want disproportionate redress. Others lack the power to enforce their rights. Mutually protective associations are a partial solution, but there are drawbacks which can be avoided by paying for protective services from a commercial protective agency. This private agency relieves its clients of protecting other members and evaluating claims. It can even seek compensation and apply punishment, avoiding the excesses of self-enforcement (1996: 10-5). Eventually, in disputes between agencies, one agency will become dominant. Such a dominant protective association is not a minimal state as: (i) it does not protect those in its domain who do not pay; (ii) it allows some people to enforce their own rights (1996: 15-25). Intermediate between a dominant association and a minimal state is an ultraminimal state, which has a monopoly in enforcement but does not protect non-clients. Viewing rights as side-constraints, the ultraminimal state is correct not to force clients to pay for the protection of others. How then might a monopoly in enforcement be justified? People who wish to enforce their rights independently of a dominant protective association may have a higher risk of punishing the innocent or being disproportionate. A large number of such independents constitute a threat to the clients of the association. No person has the right to prevent another exercising his right to self-enforcement, nor does the association since it has no rights beyond those of its clients. Nonetheless, in protecting its clients against the unjust acts of independents, the association does have the right to determine and enforce what procedures may be used against its clients. Procedures of independents deemed unfair, unreliable or unclear will be prohibited. Without claiming any extra right, the association, being dominant, will eventually acquire a de facto monopoly in enforcement; it will have become an ultraminimal state (1996: 26-33, 51-3, 88-110). But this leaves independents unable to enforce their rights and vulnerable to clients who violate them. As clients benefit from the prohibition, they must compensate the independents accordingly. The least expensive solution is for the clients to pay for the protection of independents by the ultraminimal state. All in the state’s domain are covered, so the transformation to a minimal state is complete and legitimate, because it was by an act of compensation rather than redistribution (1996: 110-5). However, to go beyond a minimal state, would violate people’s rights (1996: 149), for example if it redistributed property holdings.

Besides the problems already discussed, regarding assumption of natural law, a narrow set of rights as absolute constraints and a question-begging argument against patterned distributions, the account has other difficulties. In the transition from dominant association to ultraminimal state, although no right to a monopoly in enforcement is claimed, a monopoly develops by virtue of the association’s dominance, its might. Apparently, this is not illegitimate because it happened unintentionally by an invisible-hand process. If we accept this, it is not illegitimate for powerful individuals and corporations to deny the rights of others provided this occurs unintentionally and without invoking special rights.

If paying for independents is compensation rather than redistribution, the same could be said for paying taxes to provide welfare benefits. Much of the wealth of the rich is predicated on the efforts of a low-paid workforce, so in-work benefits and a higher minimum wage could be seen as compensation for a market that favours proprietors over employees. Even unemployment benefits could be interpreted as compensation where surplus labour is used deliberately to keep wages low. In considering the functions of the state, Nozick concentrates on the enforcement of rights. A legal framework for contracts and a defensive force are extensions to that enforcement. But assuming Nozick’s characterisation of separate persons following their own interests, might such persons, out of self-interest, want more than protection of rights? For example, the minimal state could maintain public health, providing sanitation infrastructure and immunisation programmes. This would not be effective if it was limited only to those who could pay their share of the cost; all must be covered or else epidemics would sweep through the population, killing rich and poor alike. Yet to avoid such a redistributive measure, since no compensation explanation is available here, the self-interest of all must be denied.

Liberals are mistrustful of the state because of its oppressive potential. This preoccupation has historical roots. Locke sought protection from arbitrary monarchical power and the American founders wished to resist demands from their colonial master. However, checks and balances can be built in to the public sphere, through the operation of independent institutions. Ultimately, state oppression is countered by accountability to an extensive, well-informed electorate, for whom good education provision, an independent press and regular elections are essential. In concentrating on an oppressive potential which can be mitigated, liberals fail to recognise the state's potential for good. The effect is to prevent much needed action by the state, as outlined in 2.2-3. Similar oppressive potential applies to large corporations, yet liberals do not betray similar concerns. Prevention of corporate oppression requires a strong state that can investigate and regulate.