Revisiting the Tension Between Classical Liberalism and the Welfare State

Abstract

A classical liberal market order relies on competition which, in a neoliberal perspective, should be supported by a government regulating the admissible degree of market power. Market competition itself is seen as an engine of innovation and growth. The downside of such a classical liberal market order is a lack of economic security for market participants. It is the very core of such an order that it enforces consumer sovereignty, but the demand articulated by consumers vis-à-vis single suppliers can be volatile. In this article, we revisit the classical liberal debate on means of providing economic security. We then discuss the problem in a contractarian framework that allows for conflicts between individual absolute values. We argue that political institutions that facilitate an open debate on these conflicting values are essential, and that attempts to derive optimal sizes of welfare states in a technocratic fashion are futile.