“So, according to Hayek, once you allow a little control, you will always need more to make it work. Small planning inevitably leads to big planning, and protecting people from the vagaries of life eventually leads to people becoming dependent upon government. That is the idea that many of Hayek’s conservative followers fervently believe. And that is why they so fear any government involvement in the economy.
It’s an interesting theory, and given the state of the world in 1940, certainly one worth taking seriously. But how did Hayek do? As he noted at the beginning of the book, “we can in a measure learn from the past to avoid a repetition of the same process.” So what does the past, which was Hayek’s future, teach us about Hayek’s predictions?
The book was published during a worldwide trend toward central economic planning. Some of it was due to the rise of communism, some was the Western response to the Great Depression, and some was the rise of Fascists and their drive to world domination. So the book certainly fit the times. And, in the immediate aftermath of the war, many western European nations embraced cradle-to-grave welfare, nationalized industries, and created employment boards, and government managed industrial cartels. Many others fell behind the Iron Curtain, and had communism and totalitarianism imposed on them. It was a dark time, and Hayek’s ideas seemed prescient.
But by the early 1950s, economic conditions began to improve, particularly in Western Europe, and nations began to weaken government control of their economies. Some nationalized industries were sold off, many countries abandoned employment boards, others removed government control over industrial cartels. The Western world was not following Hayek’s model, and so he had to adapt. In a new introduction to the book in 1956, he admitted that no country had apparently taken his road to serfdom, and suggested that it wasn’t some kind of iron rule (though he’d been pretty adamant that it was).
“It has frequently been alleged that I have contended that any movement in the direction of socialism is bound to lead to totalitarianism. Even though this danger exists, this is not what the book says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate there policies will not want.”
He modified his argument to fit the new reality. Now he said that the first step on the road to serfdom was a “soft” socialism, in the form of government regulation of aspects of the economy, wealth-transferring welfare programs and high taxes to pay for it all. Hayek said that these programs would protect people from the consequences of their actions, which would erode individual initiative and make people increasingly dependent on a paternalistic government. (If this sounds familiar it’s because it could have come from the stump speech of virtually any recent or present-day Republican candidate for president.)
So how did this revised theory pan out? Well, again particularly in the West, as economic conditions began to improve in the late 1950s, and increasingly in the 1960s and into the 1970s, governments continued to scale back on their government control of the economy. The wave of nationalization of industries crested in the late 1960s, labor boards eliminated in the UK, and a wave of deregulation began in the United States. The tide of “centralized planning” receded. A few countries, particularly the Scandinavian countries of Northern Europe, retained exceedingly generous welfare programs, and the necessary high taxes, and retained some aspects of centralized planning, but they never abandoned democracy.
The United States never nationalized industries, but did have the War Production Board during World War II, which helped manage and coordinate industry to supply material for the war effort. It was abandoned in 1945. The United States did have a number of government management boards for various industries, like airlines and trucking, but those were eliminated during a wave of deregulation in the late 1970s. Banking and financial regulations were also scaled back in the 1990s (with a minor effort to re-regulate after the crash of 2008).
A number of countries in South America have lurched from incompetent socialist states to equally incompetent fascist and right-wing police states. And with recent examples of Venezuela and Bolivia, the lurching continues. But none have followed Hayek’s road from soft socialism to hard socialism to totalitarianism. Many Mideast countries have strange hybrid economies, with many large industries, particularly the petroleum industry, controlled by the government. Some provide government support for their citizens based on oil revenue, but they don’t have Western-style welfare systems. And they are largely autocratic, but none have embraced communism or even socialism.”