ralf dahrendorf - on liberty

ON LIBERTYThe Dahrendorf Questions

Edited by

Timothy Garton Ash

Front cover photograph: Ralf Dahrendorf in Venice © Leonardo Cendamo

Produced by the Medical Informatics Unit, NDCLS, University of Oxford

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ContentsPreface ...............................................................................................................................................................5

Seminar to mark the 80th birthday of Ralf Dahrendorf ....................................7

Markus Baumanns..................................................................................................................9Jürgen Habermas ..................................................................................................................11Fritz Stern....................................................................................................................................14Timothy Garton Ash..........................................................................................................19Contributions from the floor......................................................................................23

Colloquium to mark the 80th birthday of Ralf Dahrendorf .......................29

Liberty and the Current Crisis (Introduction: Martin Wolf) ..........30Liberty, Poverty and Development (Introduction: ParthaDasgupta) ....................................................................................................................................53Liberty and Diversity (Introduction: Gerhard Casper) ........................71

Contributors .............................................................................................................................................91

A select list of books by Ralf Dahrendorf .....................................................................93

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Preface

This is the record of a colloquium held at St Antony’s College, Oxford, to mark the8oth birthday of Ralf Dahrendorf on 1 May 2009. Lord Dahrendorf was himselfable to participate in the meeting, although he was already very ill. He died less thantwo months later.

This publication has therefore become not just the record of a memorableintellectual event, but also a memorial to one of the foremost social and politicalthinkers of the second half of the twentieth century.

The transcript has been lightly edited, but no attempt has been made to eliminatethe freshness of speech. I am most grateful to Dominic Burbidge and JonathanParreño for their assistance in transcribing and editing the text for publication. Weat St Antony’s are greatly indebted to the Aurea Foundation in Toronto and the ZeitStiftung Ebelin und Gerd Bucerius in Hamburg, who have generously supportedboth the original colloquium and the research programme for the study of freedomwhich prepared it. We are glad to be publishing this small volume jointly with theZeit Foundation.

Timothy Garton AshOxford, October 2009

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Seminar to mark the 80th birthday of RalfDahrendorf

1st May 2009

Professor Timothy Garton AshLady Dahrendorf, Warden, distinguished guests, ladies and gentlemen. Welcometo this very special event to celebrate the eightieth birthday of our third Warden,Lord Dahrendorf, which falls on this very day, the first of May.

I have to say, Ralf Dahrendorf made a rather interesting choice of birthday in 1929:to choose the first of May, of all days, to come into the world. This very specialevent is to celebrate his extraordinary life and work; a life that straddles academiaand politics, Britain and Germany, Europe and America, intellectual life, journalisticlife, high public office – both national and European – philanthropic activity; andacademic administration as the head of two great academic institutions.

His partial autobiography is entitled in German Über Grenzen, which for those ofyou who know German has a double meaning: ‘crossing frontiers’ but also ‘aboutfrontiers’. That says a lot about Ralf ’s work. A work which, by the way, is immense.We have on the table outside a select list of Ralf Dahrendorf ’s books, which has amere 35 books on it – so if you are just finishing your doctorate, you only have 34to go. Some of them are in two separate editions, because Lord Dahrendorf firstwrote the English book, and then, when he worked out what he really wanted tosay, he wrote the German one, or vice versa.

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This event is to celebrate that extraordinary life and work. It is also to discuss it; todiscuss at least some of what we have called the ‘Dahrendorf Questions’ aboutliberty. And to do that, we are really delighted to have with us two immenselydistinguished speakers: Professor Jürgen Habermas and Professor Fritz Stern.Professor Stern has crossed the great physical distance of the Atlantic to be with us,and Professor Habermas has crossed the somewhat smaller physical distance of theChannel. Whether the psychological distance across the Channel is not ratherlonger, we shall see.

Jürgen Habermas is, of course, one of the two most influential German socialthinkers of the last fifty years – the other being Ralf Dahrendorf. Both of them havean influence which is far beyond Germany; not only to Europe but to a much widerworld. And so it is a very special and indeed unique occasion to have JürgenHabermas with us to celebrate Ralf Dahrendorf ’s eightieth birthday. Fritz Stern isquite simply the Nestor of historians of modern Germany – acknowledged as such,not only in Germany and in the rest of Europe, but in fact, across the world. It is avery great honour and pleasure to have you both with us here today; thank you somuch for coming.

I would like also to mention a number of other distinguished guests who are withus today, from as far afield as Italy, Germany, Stanford, California, and the LSE – theLondon School of Economics. I would like particularly to welcome Sir HowardDavies, the Director of the LSE; one of Ralf ’s successors and the head of aninstitution which, I know, means a very great deal to Lord Dahrendorf.

We also have a group here who spent the last two days discussing ‘European stories’– how intellectuals discuss and debate Europe in their national contexts – so that isa particular serendipity.

We are most grateful to two foundations for supporting this event. The first is theAurea Foundation in Canada, through the Isaiah Berlin Fellowship. Secondly, theZeit Foundation in Hamburg; to give it its full name: the Zeit-Stiftung Ebelin undGerd Bucerius. This is particularly fitting because the whole milieu of Die Zeit, theNorth German liberal milieu of Die Zeit, so important in the history of the FederalRepublic, is one that has meant a very great deal to Ralf Dahrendorf, and of whichhe has been an important part. The Zeit Foundation is represented here by itsExecutive Vice President, Dr. Markus Baumanns, and before we move to the mainproceedings, I would like to ask Dr. Baumanns to say a few words.

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The Dahrendorf Questions

Dr Markus BaumannsDear Lord Dahrendorf, dear Lady Dahrendorf, dear Timothy Garton Ash, Warden,dear friends of Lord Dahrendorf,

A few weeks ago Die Zeit drew attention to the fact that a surprising number ofintellectuals and writers who made a decisive impression on post-War Germanystemmed from the year 1929: Michael Ende, Hans Magnus Enzensberger, AnneFrank, Jürgen Habermas, Walter Kempowski, Günter Kunert, Heiner Müller, PeterRühmkorf, Christa Wolf and, yes, Lord Ralf Dahrendorf, for whom we are gatheredhere today. All of those mentioned were ten years old when the Second World Warbroke out, and fifteen or sixteen when it ended – those of them who survived it. Allwere unable to join the crowd or become perpetrators. Not least because of theirearly experiences of fleeing, bunkers and ruins, they were the ones who, followingthe moral and physical low-point in East and West, shaped the cultural renewal inGermany and its moral and political identity. To have survived at all must have beenlike a rebirth in its own right. It is an age group that, despite – or perhaps becauseof – these horrifying experiences in their young years, found the inner strength andresilience to repeatedly identify, analyse, tackle and overcome the unusedpossibilities, untrodden paths and mammoth challenges of their days.

Perhaps it is this very factor that has driven Lord Dahrendorf, this exceptionalintellectual, politician and scholar from two European countries, to become what heis. Perhaps it is for this reason that he depicts in his book, Die Versuchungen derUnfreiheit, the ideal picture of an intellectual as one who is able to thinkindependently, who can resist the objection of society, who can express his thoughtsclearly, and who can accept reason as the basis of every theory.

And now this age group is experiencing a further profound turning point in history;an economic crisis that we contemporaries are only just beginning to comprehend;a crisis that you, Lord Dahrendorf, on the occasion of the 40th anniversary of theWissenschaftszentrum Berlin in February referred to as a ‘collapse of the structuresand mentalities of the economy and societies’. You conclude that we are witnessesof how our economic system has changed from a ‘Sparkapitalismus’ to a‘Pumpkapitalismus’, away from the Protestant ethic and towards loan-financedconsumer indulgence. You demand a new attitude, a correction in the mentality ofall of those involved, a ‘change in the spirit of the times’, that is characterized ‘by anew sense of responsibility amongst the leaders’.

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And it wouldn't be you if, at the same time, you didn't take the opportunity to pointa finger at the academic world. As you said, it has been surprised by the crisis. Asyou said, it is unfortunately all too true that academic understanding, like Minerva'sowl, tends to fly with the coming of the twilight hours. You challenge the academicsto be ‘public intellectuals’. Not only to publish in academic journals, but also to takea stand in the media, thereby accepting and discharging a greater involvement andresponsibility.

How important it is for us, we of the subsequent generations, that this special group,the ‘1929ers,’ takes a clear and very vocal stance – particularly you, dear LordDahrendorf. We live in an age that needs orientation, and you are able to set theevents of the day against the background of your eventful life. This is somethingfor which we must be endlessly thankful!

So however one looks at it, it is certainly an important day in an important age, this1st of May 2009. For the Zeit Foundation Ebelin and Gerd Bucerius, for its board oftrustees and for its Executive Board, i.e. my colleagues Michael Göring, Klaus Asche,Karsten Schmidt, and for myself, it is a great honour and privilege to congratulateyou and to bring you personally these best wishes from Hamburg.

Please allow me finally to assume the role of an ambassador for Hamburg, and I amcertain that, in the name of the city too, and those colleagues in the KörberFoundation and many other friends, I can express our congratulations! Hamburg,your place of birth, the city in which your father Gustav Dahrendorf lived andworked. The place described by you in your memoirs, in the chapter ‘Searching forthe Roots of the Dahrendorf Family’ (‘Auf Wurzelsuche der Familie Dahrendorf ’),as follows: ‘The Hanseatic city, with its public spirit and its open outlook to theworld, in the end houses the true roots of the Dahrendorf family.’ What acompliment to the city!

Against this background it is a special pleasure for me to be able to inform you thatthe biography series Hamburger Köpfe, published by our foundation and proposedby one of the members of our board of trustees, Helmut Schmidt, will in this yearpublish a volume on the life of Gustav Dahrendorf. Gustav Dahrendorf, the socialdemocrat in the Weimar Republic who, for his knowledge of the attempt toassassinate Hitler on 20th July 1944, was sentenced to seven years imprisonment.He survived the Berlin Gestapo prison and KZ Ravensbrück; your father, who in1946 was elected to the Hamburg city parliament and became party executive ofthe SPD. About whom you wrote in your memoirs: ‘I chose politically differentpaths, more Western-oriented, more liberal ones. But up to the present day, my

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father's world has remained for me the epitome of what is good in the Germantradition.’ We hope that, as a ‘Hamburger Kopf ’, Gustav Dahrendorf will be drawnto the attention and recalled to the memory of a wide readership in our city and inour country.

Dear Lord Dahrendorf, last week I happened to be in the photographic archives ofSpiegel in Hamburg’s Speicherstadt, the historical warehouse quarter of the city.Browsing through some of the old photos I came across this snapshot, which showsyou, in 1968, campaigning for the FDP in the election, accompanied by twodelightful ladies and well brolly’d by FDP sunshades. Quite apart from the partyyou were campaigning for, a photo says more than words: you have personallyaccepted the responsibility to engage yourself as a public intellectual, even to theextent of participating as an actor in res publica. Thank you for this shining exampleand I hope, along with many other fellow citizens, for many more young ideas andinspirations from you, since they are more important now than ever.

Professor Jürgen Habermas

Rationality out of Passion

For Ralf Dahrendorf on the occasion of his 80th birthday

Here, of all places, I feel what is for me a quite unaccustomed sense of patriotism,and would like to remind my colleagues that for Ralf Dahrendorf there was a lifebefore his life in London and Oxford – and that his double life in the Germanparallel world continues to echo strongly to this very day. Indeed, as an intellectual,as a scholarly author and sharp-minded publicist, who time and again provided adiagnosis of our times, Dahrendorf never left Germany. It was not until theprofessor of sociology became a lord that we were forced to take note of the factthat he, who was present in the rest of the world anyway, had a sideline in England.

Dahrendorf, also, did not first become a star in the English-speaking world. Healready was one when we first met 54 years ago. Back in 1955, Helmut Schelskyinvited young up-and-coming sociologists to Hamburg. I was only present as ajournalist who was to report on the young guard’s performance for the FrankfurterAllgemeine Zeitung. Many of the sociologists of our generation who were later tobecome known were assembled there. In what was, when looking back on the oldFederal Republic, an illustrious circle of young men, one lecturer from Saarbrückenfar outshone everyone else. This brilliant mind, who opted for clarity by

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constructing poignant ideal types rather than for the art of hermeneutics, quicklycaught the eye – no less by his powerful eloquence than by his uncompromisingdemeanor, one that already exercised authority. What made Dahrendorf stand outfrom among his peers was the avant-garde self-confidence with which he set out todispense with the old and usher in the new.

The lead he had already gained on the career ladder was impressive in itself. Agedonly 26, he had already successfully become a Privatdozent, having first, with aMaster’s in philosophy and the Classics, written a doctoral thesis on Marx and thenhaving completed what was for us back then a quite exotic degree, namely a PhD insociology at the London School of Economics; and very shortly thereafter he wasappointed the youngest full professor at the University of Tübingen. Yet, what trulyearned him the respect of his peers was his expertise, his familiarity with thesociological discourse in the English-speaking world and his critique of TalcottParsons, with which Dahrendorf was at the cutting edge of research – whereas webackbenchers had still to read Parsons, who dominated the international scene ofthe day. The thrust of the criticism was clear. Class conflicts that in the final instance arealways rooted in power relations drive social developments forwards; thus socialconflicts are something desirable and what is needed is not that they be solved, butthat they be institutionalised and coped with in a civil form. In the 1950s and early1960s, Dahrendorf set the standard for our professional debates. Without him therewould have been no discussion of role theory in Germany, nor the famous disputeover positivism. His first books, namely Class and Conflict in Industrial Society(1957), Homo Sociologicus (1961) and Gesellschaft und Freiheit (1961) have sincebecome classics. And they already contain the two core hypotheses that paved theintellectual path this liberal thinker was to follow all his life with quite admirabletenacity.

The first hypothesis deployed Kant and Max Weber against Rousseau, with Marxbeing the covert target: Social inequalities cannot primarily be explained in termsof the unequal distribution of property, but result from the necessity to use sanctionsto enforce norm-conforming social behavior. Inequalities are the byproduct of apower structure intrinsic to society as such. The second hypothesis turns on classicalsocial democracy and justifies the market as the central mechanism thatdisseminates freedom: The legal equality granted by democratic citizenship shouldbe read in the first place as an equality of opportunity and not as one generatingclaims to provisions; in the event of conflict, at least, the freedom for the privatepursuit of happiness weighs more heavily than the burden of social inequality. Ofcourse, Durkheim does not get completely forgotten: If the social world boils down

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to only those various opportunities among which we can choose more or lessrationally, then the social bond is severely in danger.

The anti-utopian drive of the moderate market liberalism, for all its democratic andegalitarian underpinnings, went against the grain of my own outlook. And yet againI was captivated by Dahrendorf ’s passionate commitment to the political traditionsof the Enlightenment. He appealed to his compatriots’ conscience, stating thatGerman questions had always tended to be national and social questions ratherthan the liberal and democratic ones of those nations who championed liberty. 1965saw publication of his book Society and Democracy in Germany – it was probablythe treatise that had the greatest impact on shaping the political mentality of thepopulation on West Germany’s long path to find itself – to a democracy that onlyin the course of the three to four decades following the Second World War managedto divest itself of the residues of authoritarian traditions.

For Dahrendorf, sociology has always meant social theory; in the midst of theaccelerating growth in social complexity he keeps utilizing his professionalknowledge as an instrument for updating his diagnosis of a restless modernity.Sociology once inherited from philosophy the task of ‘grasping its age in thought’.Today, however, most members of the profession have largely abandoned this waythe classic sociologists saw their role. At present any sociologist sticking to this taskof providing orientation and improving the self-understanding of society at largemust give good reasons for so doing. Now, Dahrendorf has always conducted hisacademic business as a homo politicus. He lives, thinks and writes from the vantage-point of the experience of a German generation that could not but take a positionon the epochal shift of 1945.

Dahrendorf ’s latest book, Die Versuchungen der Unfreiheit, is illuminating in thisregard. Taking as its examples a group of post-heroic heroes, he develops some kindof a political virtue ethics. I leave aside the issue of whether his selection for thegallery of heroes is completely convincing or whether the virtues of theseincorruptible but committed observers are especially exciting. But what I do findinteresting is the format that Dahrendorf the sociologist has given his virtue ethics.He describes the history of the countervailing political mentalities of a specificgeneration born between 1900 and 1910, for which Ernst Glaeser’s famous novelJahrgang 1902, stands model. The hero of that novel represents the ‘generation of theunwavering’, from which the hard-nosed and active members of the majorideological movements of the age were recruited during the 1920s and 1930s. Inother words, the novel presents the militant opposite to Dahrendorf ’s liberal icons,to the Arons, the Poppers and the Berlins, who unlike many of their peers kept their

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distance from the totalitarian movements on the left and the right. Of course,Dahrendorf ’s account lets there be no doubt as to the exemplary character of thatlatter stance. It is the love of freedom that immunised these intellectuals against thetemptations of the totalitarian century.

What is striking is a fact that the author does not mention. Irrespective of thedirection in which the generation born in 1902 marched or did not march, in onerespect their members grew up under similar circumstances to those of thegeneration born, like Dahrendorf, in 1929. Members of the two generations wereaged 11-12 at the beginning and 15-16 at the end of the First and Second WorldWar respectively. It was not polarising stances on the events of their day that fusedthe cohorts born around those two years into generations with a sharp profile, butrather the provocative character of the events, something which challenged them totake a stance. In his book, Dahrendorf leaves his own ‘untempted’ and morefortunate generation in the wings. Yet even without an express comparison, theparallels and, even more so, the evident differences must have informed his view ofthat earlier generation of intellectuals who had to prove themselves and could havefailed.

The generation born later was spared totalitarian temptation and could not havefailed at a similar level. This circumstance did of course tempt some of us effortlesslyto play through past constellations and to identify free of charge with the morallysuperior side. Yet here again Dahrendorf is an exceptional case. At the tender ageof 15, when others were still stuck in the private jam of their adolescence, he hadstuck his neck out politically so far that he got arrested by the Gestapo. So, doubtson radicalism after the fact can’t be his problem. If we can nevertheless discern atouch of regret about the unheroic nature of our own life-times, indeed perchanceeven about that tiny seed of quietism in the biographies of his admired Erasmusfigures, then the reason for that must invariably be sought in the impatient mindand the passionate commitment of an intellectual who has, for all his level-headedrationality, remained pugnacious. Would such a person ever, from the depths of hisheart, praise like Brecht a country that needs no heroes?

Professor Fritz SternLord and Lady Dahrendorf, Nicola and Daphne Dahrendorf, Warden, dear TimothyGarton Ash,

I want to thank Ralf for providing the occasion for this splendid event and alsothank all those who made it possible. My remarks will not presume to address his

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work, but they are meant as a tribute to a friendship. (I shall try to repress nostalgia;I was a visitor to St. Antony’s in 1966-7, a grateful guest of Bill Deakin and JamesJoll.)

Ralf and I first met in early September 1957 at the Center for Advanced Study of theBehavioral Sciences, an idyllic place in California. This was but 12 years after theend of National Socialism and I probably felt some awkwardness in the abstractabout meeting a German. But that awkwardness ended instantly. I invited him forlunch at home for the next Sunday, which was federal election day in Germany: theCDU-CSU won over 50% of the vote. We were dismayed. We both had roots in theSocial Democratic world: he because of his father, at the end of the Weimar Republica rising star in the party; I because of childhood memories of the party’s resistanceto Hitler. It was the beginning of a friendship that arose from many sources,obviously a common interest in German politics, but much more broadly in concernover the German Question: how had it been possible?Dahrendorf thinks we all keep to a certain age: his was 28 – that is how old he waswhen I met him. But what kind of a 28 year-old? The first impression: an intenseintelligence, burning with ‘This hard gem-like flame.’ One gradually understoodthat he had lived more fully in those 28 years, he had compressed more into thoseyears, than most people do over a long life.

He spoke two living languages with equal fluency and wrote in them with elegantprecision; other European languages he had picked up. As classical philologist, hehad mastered two dead languages as well; he felt critically at home in two countries,soon to be three countries, or much of the Western world; he had two Ph.D.s, he wasa philologist-philosopher-sociologist, he was not a Fachmann, a specialist, but auniversalist; he was that rare specimen: a brilliantly alive and serious scholar. Hewas a Wunderkind and has remained one.

He had had already the searing experiences with the two great temptations of thelast century: he had been a member of the Nazi Jungvolk, as befitted an innocentchild of the 1930s; he became an enemy of the regime, and as such was imprisonedin a concentration camp, as was his father earlier; it was the denial of freedom thatmade him a passionate defender of freedom. For his family, Communist persecutionswiftly followed Nazi persecution. He had seen how the Communists in 1945/46threatened his father, and he never wavered in his rejection of either temptation.So much of his life and work centered on freedom: life chances, the life of theunderprivileged, the great and wonderful revolution of 1989: freedom was his credo,he became the first sociologist-activist with the experience of National Socialismever present.

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No stranger to adventure and ambition, he had an immense appetite: he had crossedthe Atlantic as a seaman on a freighter, he had travelled in Europe – he had had hisItalian journey, what Goethe had experienced as a 37-year-old Ralf had experiencedas a teenager and in him too it quickened a poetic vein. In every field he strove toexcel: one of the diversions of the Center was the game of horseshoe, and onemorning at an impossibly early hour I discovered Ralf in solitude practicing thesport. This is to say nothing of his fierce ping-pong serve – except to add that whilehe played with the great pros, he was gallant to put up with me as well. Perhaps itawakened what a few years later became a political-moral passion: to help thehandicapped.

At the Center he quickly grasped the limitations of the then prevailing kind ofAmerican sociology: its master was there, Talcott Parsons, and Ralf recognised theweakness of the abstractness, of imposing theory without an adequate study ofreality. He was as openly critical of the master – that is, of Parsons – as our Fellow- Fellow Bob Solow - was of Milton Friedman. At the Center, argument prevailedover deference and Ralf was a superb critic, as I very quickly discovered when Ibegan showing him some of my efforts: he read an early draft of my essay on ThePolitical Consequences of the Unpolitical German. I’ll never forget that he pointedto a passage on the gymnasium (secondary school) in Wilhelmine Germany: hethought it showed resentment – an emotion I particularly abhor. I had to learn thatintellectual distaste does not protect one from one’s own emotion.

In 1960, he published Homo Sociologicus, a searching critique of some of the basicassumptions of mostly American sociologists. In his taunting of abstractions, inhis insistence that the individual can’t be reduced to a bundle of roles, he citedRobert Musil’s notion of ‘passive fantasy’ as an unclassifiable element of the freeindividual. How rare to find a novelist amidst the great theorists of his discipline.That article is also his pladoyer for a sociology that recognises individual freedom.The essay, a late reckoning with the Center, also included an admiring critique ofMax Weber and the consequences of some of his contentions; Dahrendorf reachedout to Kant and the Greeks to bolster his argument. No wonder we thought of himas the potential Weber for our times.

In subsequent decades we continued to read each other’s manuscripts – or he readmy efforts (I couldn’t read as fast as he composed). At my home, there is no shelf ofbooks by a single author as large and crowded as Ralf ’s shelf and there is no file ofcorrespondence thicker than that with Ralf. Most of his letters are in his clear andunchanging handwriting, beginning on May 5th, 1958, an hour before he gave hisfirst lecture in Hamburg on the history of political ideas, and he reported on his

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trip across the U.S.: ‘New York is a magnificent, but also a dreadful place. Thegreatest thing man ever built – but, oh! What can it be like to live in?’ In 1960, hecame to Columbia and found out. And how often he came to the US in subsequentyears! And yet in July 1965 he retracted his acceptance to come to the PrincetonInstitute for Advanced Study in a remarkable letter to Robert Oppenheimer,explaining that his work on the founding committee of the University of Constancewould make his absence an act of irresponsibility. To me, who had pushed thePrinceton invitation, he wrote that this marked a turn-about: ‘Somebody said to mewhen one grows older one has got to close doors. It is a sad thing, that, because inall my life I have hated nothing more than closing doors – which perhaps is mygreatest vice.’ And of course it has also been his greatest strength: he went throughmyriad doors, ever ready for a new discovery and responsibility. As he wrote mefrom Tübingen in 1964 about some new offer from the U.S. he was seriouslyconsidering since, as everyone knows, he and Vera are not particularly ‘sesshaft,’not firmly settled. Whether in questions of education and its openness to theunderprivileged or in the design of a new University to the administration of greatand ancient institutions, he was always on the run, and yet always formidablygrounded, analysing the specific in light of the broadest political and moral context.

In the years after the Center, he became ever more renowned as a scholar andcitizen-activist and perhaps his most influential work, his half Tocquevillean book,Society and Democracy in Germany, characterised his form of engagement. I finda pleasing similarity between Ralf and Tocqueville, who after all started out withhis great book on Democracy in America and then went into politics and for a shorttime became foreign minister of his country, with one difference: Tocqueville hadbeen an aristocrat before writing his book, Ralf became one after. In the Preface tothe American edition he wrote: ‘Need I really state explicitly that this is a book ofpassion, much as I may have tried to filter emotion by information and reason?’Passion, controlled and often hidden, has marked his entire work. The book is agreat argument with other analysts, but one driven by the commitment to identifythe ‘virus of inhumanity’ in German society, a society that he thought had beenviolently forced into modernity by the triumph of inhumanity, i.e. by NationalSocialism. I believe he finds his history of the LSE his favorite book – well, he isreally an historian at heart, a detective, but also a poet of reality.

In 1967-8 he entered political life – in part, as he wrote me, as a test of the viabilityand effectiveness of parliamentary institutions. He wanted to test the constitutionof freedom, though restless curiosity and ambition propelled him as well. We tooksimilar positions in 1968 and had similar responses to the student unrest of ’68 –and are probably alike in regretting the mystification and the vilification of ’68. It

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was a trying time for me at Columbia, made easier by his intellectualcompanionship. In any case, Dahrendorf had done great work in the early 60s,demanding an academic system more open to the underprivileged. And Constancewasn’t and isn’t just a Harvard on the Lake but a radically different institution. Hebrought English and American touches to the new institution and helped to createan island of excellence. From its successes and failures we could probably learn agreat deal.

I could watch Ralf as he helped to fashion and guide the great and welcome changein German politics, the founding of the social-liberal coalition in 1969. His manycareers left me to indulge in ‘passive fantasy.’ From Bonn, where, if I remembercorrectly, he lived in a barn – if otherwise equipped with the then still modesttrappings of power – he went to Brussels, ever learning, observing, reporting, andreforming. He was an early analyst of the deficiencies of the Europe of Brussels andtaught us about its democratic deficit. We were at one in rejoicing over the peacefulself-liberation of Eastern Europe, it was the brightest political year in our lives. Ralfin myriad ways tried to anchor the newly-found possibilities of freedom ininstitutions.

Ralf: What an astounding career! Astounding and unique – perhaps a model forother 28-year-olds, fired by what used to be called ‘divine impatience.’

On Liberty has been at the center of our countless meetings, beginning with thevery first in 1957. We had shared in the deprivation of freedom: in Ralf ’s case, heprovoked deprivation, he challenged tyranny and paid for it. I suffered thatdeprivation without having earned it, but for both of us, the experience ofunfreedom was dispositive – for life and work. And how often we talked of thefragility of freedom, down to very recent times, when I feared the subversion of theconstitution of liberty in America, and we both were concerned about the threat toliberal traditions in the face of creeping authoritarianism in the context of spreadingterrorism. He has clung to the legacies of the Enlightenment. I once introducedhim as a thinker of the 18th century, endowed with the intellectual energies of the19th century, desperately relevant to the travails of the 20th century. He has noillusions about any inevitable survival of liberty; he believes it takes an activeminority to defend liberty and I would like to think that we will all go awaytomorrow fortified in our commitment to be part of that active minority.

Others will deal with ‘the Dahrendorf Questions,’ and how often we talked about therelationship of liberty and equality, about the limits of the state and the market,about Britain and Germany! But I also remember the private questions: ‘How can

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I combine my acceptance at the Woodrow Wilson Center in Washington with mycommitment to reform the educational system of Malta?’ Or he would ask me whatshould be his next book. I would dutifully make a suggestion and at our nextmeeting he presented me with his most recent and quite different work. In 55 years,35 books – not counting the myriad articles and official reports!

Let me end by making explicit what has been implicit in this whole celebration ofRalf ’s life: It had to be in Oxford. Ralf found a congenial home here; he said it bestin his maiden speech at the House of Lords: ‘Britain is a civic country, to which onebelongs by shared rights and values of citizenship and not primarily, as in ethniccountries, by blood and origin. …Civic countries tend to be open and civilized. I amgrateful to have become part of this tradition…’ England has been a home to manypersons seeking a free and open society; but I can’t think of another foreign-bornwho was so quickly entrusted with the responsibilities and endowed with thehonours as Ralf has been. His place in Britain is a tribute to the constant in his fulland changing life, his yearning for an open and liberal world, and a tribute to thecountry in which he found these ideals embodied.

And let me just add that today’s journey and his will to be here must be attributedto the spirit of the 28-year-old, quietly defiant and gallant, supported by gallantChristiane; two of his daughters are here as well. The search for freedom and the lureof active citizenship took him to many places and many posts – and everywhere heenriched the lives of others. He has been a mentor to all who have striven for aliberal world and a friend to many of its defenders. On all our behalf, I thank himfrom the bottom of my heart.

Professor Timothy Garton AshThank you very much Fritz, for that wonderfully rich and warm personal tribute tothe 28 year-old who we have with us today, and to the gallant fighter for liberty. Iam going to speak as briefly as I can about the St. Antony’s years and the last mere25 years in Europe, and then I hope we will have a little time for some commentsand questions.

I first met Ralf Dahrendorf at Passport Control at Brussels Airport. I am sorryabout that, there would be many more interesting places to meet, but such are thehistorical facts. It was a founding meeting of a remarkable initiative that Ralfchaired, called the Central and East European Publishing Project, or CEEPP forshort, which was about supporting publishing in Central and Eastern Europe in athen divided Europe. We funded translations between Western and Eastern Europe,

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ON LIBERTY

émigré publishing, unofficial publishing and samizdat publishing. This meant thatwe considered budgets from samizdat publishers, which said things like (budgetswere in Deutschmarks in those days): printing, 5,000 marks, translation, 4,000marks, Schmuggel (smuggling), 2,000 marks. So, if you remember, Ralf, we had aserious discussion about what is a reasonable percentage for Schmuggel. Would,say, 15 percent for Schmuggel be approved of by our funders? Indeed, I have to saywe engaged – some of us – in a little personal Schmuggel ourselves: greenbackscarried in to samizdat journals – and really, has one ever done a better day’s work?

That was the beginning of a wonderful conversation that has continued to this day,and I hope will long continue. It was about many subjects but about two above all:Europe and freedom and about how they might go together. It continued throughRalf ’s ten years as Warden here, and I think it is fair to say that, in a sense, central tothat period was the extraordinary year of 1989, which Fritz Stern already mentioned.Ralf celebrated his sixtieth birthday here, in a party on the first of May, 1989. Onthe second of May 1989, the iron curtain between Hungary and Austria was cut. Iam not suggesting any causal correlation here – that would be what social sciencecalls the cause-correlation fallacy – but it was the time we were in, and that yearaccelerated in an extraordinary excitement which most of us here will never forget.There were three main elements: reform from above, reform from the imperialcentre, and the leadership of Mikhail Gorbachev (with a little help from our St.Antony’s Colleague Archie Brown.) The social and political movements from belowin Central and Eastern Europe assisted by some of us here, and Western policy –both American and West European – which, led by people like Tony Nicholls, wealso studied in this college. And Ralf ’s wonderful book, Reflections on theRevolution in Europe, published in 1990, was a product of that time, and, notaccidentally, the book of his essays and lectures from his time as Warden was calledAfter 1989: Morals, Revolution and Civil Society.

Let me just remind you that what we now call the European Union did not existwhen Ralf became Warden of this college. There was a European Community ofjust twelve member states. Spain and Portugal had only joined the year before. Itis remarkable to remind oneself of that. So, part of the story of our conversationabout Europe and freedom is the extraordinary story of the successful enlargementof the European Union, what I think we could call the reunification of Europe in thelast twenty years. And the key moment in that was the great enlargement to includenine Central and Eastern European countries – ten if you count Cyprus as a Centralor Eastern European country – which happened precisely on Ralf ’s seventy-fifthbirthday, on the first of May 2004.

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Now, I want to raise just three Dahrendorf questions: questions to us, rather thanto him, which I think have new relevance today. First of all, reflections on therevolution in Europe twenty years later, and on Central and Eastern Europe in 2009.The central image of Ralf ’s Reflections on the Revolutions in Europe is of the valleyof tears. The message he sent to a friend in Warsaw is, ‘you will have to go througha valley of tears, but you will come out the other side’. And he talked about thedifferent time scales: constitutional reform that you could do in six months,economic reform might take six years or more, and the social foundations of liberty,which he optimistically put at sixty years. There was the problem of the differenttimescales.

There were, he said, many diverse ways of moving forward within the constitutionof liberty, and I quote, ‘a hundred ways lead forward’. Yet, the image is clearly offorward, of progress. That is to say: you went down into the valley, but then youwould come up the other side. That is what many people believed. The trouble isthat in 2009, in Central and Eastern Europe, people feel that they have reached theridge of that valley, and instead of seeing the sunlit uplands, they see a descent intoanother valley in front of them. So, the question is: how does that lead us to reflectupon the revolution in Europe?

In my view, the popular claim that 2009 is to capitalism what 1989 was tocommunism is absurdly hyperbolic. The question is rather: what does it tell usabout the particular models of democratic capitalism that were adopted in postcommunist Europe, how they were adopted and the crisis that they faced? Whatdoes it tell us about the expectation of European solidarity within the EuropeanUnion once you are inside it, which thus far has not been met? The hope was thatyou would reach the other side of the valley and you would find both some sort ofan achieved democratic capitalism and security in the European Union. Now you’re inthe European Union, and how exactly is that helping? In what way is Europe the answer?

The second Dahrendorf question I want to mention just briefly is an absolutelyfundamental one, that of Europe and freedom. The question that Ralf and I haveoften talked about: of the relationship between the two, and particularly between theEuropean Union and freedom. The observation that Ralf has made many times is,firstly, that freedom in the sense of political and civil liberties and human rights isinstitutionally more clearly anchored in the Council of Europe, the European Courtof Human Rights, even in the OSCE, than, until recently, it has been in theinstitutions of the European Union. And secondly, and this is a key statement of his,that so far individual liberty has been best secured within the framework ofthe liberal constitutional nation state – or, to be more precise, to avoid

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misunderstanding, l’État nation, the State-nation; the nation in which belonging isdefined by citizenship; the civic country of which Fritz Stern spoke a moment ago.

Now, I take this to be an empirical and analytical statement, and not necessarily anormative or predictive one. But the question remains posed: what is the directcontribution of the European Union as a guarantor and enhancer of individualliberty? I think that is a question very much still of our time, as one follows thedevelopment of the constitutional debate which many in this room haveparticipated in, persons such as Jürgen Habermas and Giuliano Amato – who was,of course, Vice President of the original Constitutional Convention. And I think itis relevant in contexts that are quite new. How do people called ‘Muslims’ – that isto say, people, particularly in the second and third generation, of Muslimbackground and of Muslim faith – come to feel at home in Europe, come toparticipate fully as citizens (what we call in short, integration)? So far, the answerhas been that it has always gone through national integration and only then to theEuropean. British Muslims are precisely British Muslims, and they are very British.And they defend their place in society in terms of a civic definition of Britain, andof Britishness. French Muslims are very French, German Muslims are very German.

I remember a conversation in the outskirts of Paris, Seine St. Denis, a couple ofyears ago, with a very articulate French Muslim speaking perfect French. His namewas Abdelaziz Eljaouhouri, and he said to me, ‘the only problem I have with Franceis that it does not deliver on the promises the French Republic makes to me as acitizen.’ And he said, ‘I have a message to Mr. Nicolas Sarkozy: moi, AbdelazizEljaouhouri, moi, je suis la France’. I will never forget that moment: ‘moi, je suis laFrance’. That is a very interesting reflection on the Dahrendorf question, and not apessimistic reflection at all. It is to say that in practice, so far, European Muslimsestablish and embrace their rights and duties as citizens in a free and open societythrough civic national integration, and only then move on to the European level.

My third and final Dahrendorf question relates to the second. It is about the growingdiversity of our societies: ethnic, cultural, religious, linguistic. Very often now, thedemand is made that in the name of respect or intercultural dialogue or communitycohesion we should minimise and even suppress these differences. Censorship iscalled for, or appeals are made to self-censorship in the name of ‘respect’ and‘community cohesion’ and diminishing conflict. In the 1959 English edition ofRalf ’s book, Class and Class Conflict in Industrial Society, in a quite differentcontext he concludes on the last page: ‘in a free society, conflict may have lost muchof its intensity and violence, but it is still there and it is there to stay. For, freedomin society means above all that we recognise the justice and the creativity of diversity,

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difference and conflict.’ That is a message also for our times, which is also in a waythe message of Isaiah Berlin: that actually you do no service even to social harmonyby this kind of forced suppression of conflict, which in the long term merelycatalyses and worsens that conflict. And so, here again, I think there is a Dahrendorfquestion from a quite different context, fifty years ago, which is very much aquestion for our time.

In conclusion, let me say just this. If you look at Ralf ’s biography and hisbibliography, you might think that it is quite chequered, in the sense that it doesvery many different things. It goes to very many different places, it tackles manydifferent topics. But the truth is that, when you understand his work and his life,there is an absolute consistency. There is a red thread that runs through it all. Thatred thread is his lifelong passion for liberty. Fritz talked about this and used theword passion, and it is the right word. The Reflections on the Revolution in Europeconclude very simply, I quote: ‘Liberty above all is what I believe in.’ It is as simpleas that. ‘Liberty above all, is what I believe in’, and I think that has been true eversince, as Jürgen Habermas said, the dissident schoolboy at the age of 15 was lockedup in a Nazi prison camp. And that, I think, is what makes Ralf one of the greatgenuine and consistent liberal thinkers of our time. For that inspiration, Ralf, forthat massive body of work, for all our wonderful conversations, for your friendshipand for much else, thank you – and happy birthday!

Contributions from the floor

Sir Howard DaviesThank you, and could I add my happy birthday from the LSE! If I could just add onebrief observation from the LSE perspective and then comment on one of the threeDahrendorf questions. You learn quite a lot about someone when you take over ajob they previously had. One thing you learn is that many things in the LSE areattributed to Ralf; whether he did them or not, I’m not sure [general laughter]. Thereare two striking things about the LSE: one is that people love being there, and if youask them why, they say it’s because they have a lot of freedom. And indeeddepartmental autonomy and educational autonomy is very marked. But the secondodd thing about the school is that it always seems to make a profit and, at leastfinancially, it is extremely sound; this is also traced back to Ralf. The financialdisciplines and management disciplines were very tight. So one thing he managedto create in the LSE, amongst the academics, is the illusion that they have freedom– for they are everywhere in chains, financially! So that was a rather clever trick,Ralf, for which I’m constantly grateful.

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A comment, however, on your first question about Europe, and it has a slightfinancial dimension which perhaps doesn’t surprise. It’s quite interesting, I think, ifyou look at the European response to the current economic crisis. It throws a sharpfocus on what is agreed at a European level and what we accept as European policy-making: we accept its legitimacy. That is to say, clearly we have rules and regulationsthat are in common – and that includes the UK. Outside the UK it is accepted thatinterest rates may be settled at European level. But, of course, when you get to afinancial crisis you don’t just need rules and regulations and interest rates, youactually need money. You need taxpayer support if you’re going to bail out a bank;you actually have to put the weight of the taxpayer behind it. And that of course wedon’t have. So at the centre of Europe there is no financial muscle to resolve thiscrisis at all, and so the financial muscle has had to be provided by domestictaxpayers and, in some cases – as in the case of Iceland and the European EconomicArea – the taxpayer is inadequate. So we were allowing different rules, allowingpeople to do what they liked, on the basis that there was a taxpayer behind them.But actually the taxpayer was a man of straw, or a man of ice as it may be in this case.

We lack a belief in the legitimacy of European political institutions which issufficiently strong to allow those institutions to commit taxpayers’ money. The vividrepresentation of that is the trivial size of the European budget. I think one thing thecrisis has exposed is how that budget and the financial capability of Europeaninstitutions is simply too fragile to cope with questions when you need the financialmuscle behind it. That is a big challenge we do need to address in Europe becauseclearly the absence of it has produced a lot of uncertainty and disappointment incountries that thought being a member of this union meant they would havesomething to fall back on. It has turned out that there hasn’t been very much forthem to fall back on, or what they had to fall back on has, in many cases, been rathera disappointment.

Sir Patrick CormackI would like, as a Member of Parliament, to say how refreshing it is to be here thisafternoon and to pay a tribute to somebody who gives parliament a good name!

I have been very privileged to work with Ralf Dahrendorf and to admire him overthe last 15 or 16 years. He helped to create one of the bridges crossing frontiers, towhich Tim referred in the very beginning, through the Visiting ParliamentaryFellowships here at St. Antony’s. That’s something that would never have happenedwithout Ralf Dahrendorf ’s inspired leadership and determination. I worked withhim too, on an award for responsible capitalism – something to which he has

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dedicated so much of his life and in which he believes so passionately. He mentionedhow the capitalist must be responsible, and he has given a lead in his writings andin his speeches, and in the work he did in the creation of that award. And also, hehas been, until recently when not so well, a regular attendee of a group I amprivileged to chair in parliament which is fighting to maintain a non-elected secondchamber. And if there was ever somebody who illustrates the desirability of havingpeople in parliament who are there because of their expertise and their knowledgeand what they can truly contribute, and who are not tied to a narrow party-politicalcreed, Ralf Dahrendorf is that man. He has adorned the second chamber in ourcountry from the moment he made that marvellous maiden speech which wasquoted from earlier. And I think that he is – and I speak in the presence of othermembers of the House of Commons and of the House of Lords, including his bossthe Convener of the Crossbench Peers – the most truly remarkable member ofparliament that I have ever met. He has given so much to our country without everdetracting from what he’s given to the country of his birth. If ever there was a manwho exemplified the virtues of dual citizenship, it is Ralf Dahrendorf. But, of course,implicit in everything that has been said by the others is that he is a citizen of theworld, a true renaissance man, a man whom everybody who experienced his touchwill always remember with gratitude and affection.

I take issue with one remark from you, Tim. You talked about the ‘red thread’ – youassociate Ralf with a red thread! I think it’s a golden one!

I think that my favourite Ralf story will be of when a couple of years ago he wasinvested with the highest of German honours, the Order of Merit. He told me withquiet pride that when he received the insignia and turned it over, he found that thefirst person to wear this particular insignia was Bismarck.

Ralf is a wonderful man in every sense, and it is a great privilege to be with you all andpay a tribute from parliament, of which I say he is the outstanding ornament of our time.

Lord (Adair) TurnerWell, I’d also obviously like to say a very fond happy birthday to Ralf. I’ve knownhim, I think, for fourteen years now. It has been an incredibly rich experience ofcontinually being challenged in my ideas in conversations with him. Unlike SirHoward Davies, I haven’t done jobs which Ralf has done before. Instead I tend toconcentrate on jobs which Sir Howard Davies has done. And so I don’t knowwhether I’d actually like to pick up on Howard’s comments, but they are verypertinent comments to the interchange of views that I’ve had with Ralf.

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I think of myself as pro-European. I think Ralf is a total European, but sometimeshe has points of view on the EU architecture and structure which are, perhaps, alittle bit more sceptical than I have been. It’s very interesting to think about what therole of the EU in Europe is, the legitimacy of European Union and the questionswhich Tim put forward. I think these are very important issues in this financialcrisis.

These are very complex issues because the financial crisis raises real issues aboutdemocracy, legitimacy and elitist technocracy. One of the things you have to do ina financial crisis is actually make some elitist technocratic things which don’t comeobviously to democratic processes. We actually have to do some things that mostparliamentarians would vote against, like bailing out banks in order to stop havinga domino effect across the economy. And, indeed, if you don’t do that, you have themost catastrophic impact on liberty. The Great Depression that drove the take-offof the Nazi party (and let’s remember in 1929 the Nazi party got 10% of the votes)was an avoidable mistake where mistakes were made not by politicians but by thetechnocrats operating the gold standard, the monetary system. It’s vitally importantin this present environment that we don’t make similar mistakes. I’ve just come backfrom 4 days in the U.S. talking with policy makers, and I think they’re doing a verygood job and they’re getting criticised for it. The Federal Reserve is getting criticisedfor doing things without congressional support, but they are the right things to do.Somehow, though they are being criticized, they will get away with doing thingswithout congressional support. It is concerning whether in Europe we have theinstitutions capable of doing the necessary elitist technocratic and rather technicalthings to stop the financial crisis from circling in a downward direction. When youhave these deep, technical things that you have to get right, how do you createinstitutions people trust enough to make the decisions – even though you’re notchallenging them on a democratic basis day by day and if you do it won’t help thequality of the decisions? Can we do this on a European level? And if we can’t dothat on a European level, are we doomed to the fact that in this recession and in allother recessions the U.S. will do a better job at pulling out of it quicker?

Professor Timothy Garton AshLadies and gentlemen, we have one last comment which comes from someoneknown to everyone here: Ralf Dahrendorf. Our honorand has, very unfortunatelyfor such an occasion, got a very sore throat, so his voice is somewhat diminished.But I hope that with the help of a microphone we can persuade Ralf to say a fewwords.

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Professor Lord (Ralf) Dahrendorf

I’m speechless! In more ways than one! In fact, I’m reminded of Karl Popper’s 80th

birthday which I organized at the LSE. I made a great speech praising my belovedteacher (in later years, friend) and everybody was looking at him, and in the end hegot up, and, he said ‘Thank you.’ Then he sat down. It was a great disappointment.And as he was leaving, he said: ‘Ralf, I have spent days writing this speech which Ihave in my pocket. I forgot about it.’ This thought enlivens my speechlessness.

I am deeply moved by what you’ve said. I’m deeply moved. I am not easily bowledover, and I can distinguish, I hope. The greatest social thinker of my generation andmore is Jürgen Habermas; and there’s no comparing me to my friend Fritz Stern. Heis one of the truly great scholars, and I am not a truly great scholar – though I’vetried all sorts of things! I do share with Tim the 1989 experience, and 1989 for thetwo of us – certainly for me – was the great moment of freedom. And of all that hashappened since, I still believe that 1989 marks one of these moments of progresswhich are only too rare. There is a lot more, but I would like to thank two others.One is Margaret, the Warden, for having made this possible with the help of Tim,and I am deeply grateful to St. Antony’s. It’s a great place, a wonderful place. WhatI said about ’89 would not have been possible without St. Antony’s, which welcomednew heroes almost every week. We did our little bit – though it was not me but Timwho had the courage to do the smuggling! And I’d like to thank Christiane, my wife,without whom I might not be here.

The questions, they are numerous. But I will say one word – a point which hasconcerned me in recent years. Jürgen Habermas has put his finger on it: I doincreasingly believe that without the rule of law our belief in the mechanisms ofdemocracy is just not good enough. The mechanisms of democracy are easilyintroduced but they don’t stick unless there are certain rules – basic rules of thegame that are observed and enforced. I can only recommend to everybody to re-read Jefferson and Madison, the authors of the Federalist Papers, who make thispoint forceful and clear. That, of course, is one of the greatest issues in east-centralEurope. And – Sir Patrick knows of this wonderfully – I am deep down aparliamentarian: for parliamentary democracy and the way it works. I have reasonsto be against an elected second chamber, but not against elections. Parliamentarydemocracy too needs the rule of law as a backbone, as one of the bases of liberty.

Thank you very much. Thank you all very much for coming. It is a wonderful dayfor us to be here.

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Colloquium to mark the 80th birthday of Ralf Dahrendorf

2nd May 2009

Liberty and the Current Crisis

Timothy Garton AshWelcome to the Dahrendorf room – suitably enough for the Dahrendorfcolloquium. I don’t propose to waste much time on elaborate introductions, butwelcome to the second part of our colloquium, which is more literally a colloquiumtoday because it’s a conversation in this select group. We have a short list ofparticipants here – very brief but, I hope, helpful for identifications. Frank Field,unfortunately, was taken ill yesterday so has had to go home. We will be delightedto welcome at some point our colleague Paul Collier, the development economist,to join us in discussing development, and Leszek Kołakowski will be joining us laterin the morning. Now, there are obviously at least fifteen themes on liberty thatemerge from Ralf ’s work, and indeed, we had a few other candidates initiallyproposed, including ‘liberty and security’ which is an obvious candidate, or indeed

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liberty in what one might call the new authoritarian capitalism. But Ralf and I havesimply chosen three subjects that we thought it would be interesting to talk about.I should just say – as you can see – this is being recorded. We may do some sort ofan edited transcript, so if anyone would like to say anything off the record, if forexample...

Giuliano AmatoPlease do it now. (general laughter)

Timothy Garton AshI’m sure everyone will respect it and it will be excised from the record. So if thechairman of the Financial Services Authority wishes, for example, to tell us thatBritain is broke, that will not appear.

Martin WolfEven if it is true. Or, particularly, since it is true. (general laughter)

Timothy Garton AshParticularly were it to be true. The format is very simple. We have a 10-15 minuteintroduction from one chosen speaker, and then we have 40-45 minutes for anentirely free-ranging conversation. To introduce our first session, which is on‘liberty and the current crisis’, we are delighted to have someone who is – I thinkwithout doubt – one of the most influential economic commentators in the world:Martin Wolf.

Martin WolfFirst of all I am immensely honoured and delighted to be here at this occasion.There’s a strange family connection which you probably wouldn’t know, but myfather, who was – you might well guess from my name – a refugee from Vienna,was for some substantial number of years the London correspondent and then acolumnist for Die Zeit – so we have a connection which I hadn’t realised.

I am going to try, because this is such a distinguished group, to stick very ruthlesslyto the shorter end of my remarks. And in the process, of course, I am going to doviolence to every form of subtlety and analysis of this incredible – to me incredible– phenomenon, because I hadn’t really expected to live through what I regard asquite possibly the most remarkable financial crisis – I distinguish here fromeconomic crisis – that we have ever had. What happened last autumn, I think, hasa global scale on no precedent; as a financial crisis it was vastly more severe than the30s. Essentially – Adair [Turner], of course, will be struggling with this – the entire

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global financial system at its core disintegrated. It ceased to exist altogether. And, Ihave to say, that is not something that I had ever expected to happen, and it hasforced us all to start thinking again about what we thought we knew about financialsystems and economics. So I am going to, nonetheless, have to deal with this in themost simple way. But I would like to stress the immense significance of this eventand, while I think we have avoided almost certainly a depression that follows it –although that is not certain – we have done so only because, essentially, the majorgovernments of the world have assumed, on their own balance sheets, the balancesheets of the entire financial sector. And it is not very difficult to imaginecircumstances in which that will break some or even all of them. So, this is a very,very significant event.

Now, I’m going to ask three questions. The first: did liberty cause the crisis, is it aconsequence of freedom? The second: does the crisis threaten liberty? And the finalone: where do we go from here?

So first, did liberty cause the crisis?

There is a very simple story which was, in essence, that decades of foolish andirresponsible deregulation by naive governments, supported by idiotic economists– of course, all from Chicago (general laughter) and not from Oxford – deregulatedthe system with the inevitable and shattering consequences we have just seen. I willgive a quote about the consequences from something written on September 5th,2007, ‘It took foolish investors, foolish creditors and clever intermediaries, whopersuaded the former to borrow what they could not afford and the latter to investin what they did not understand’ to create the conditions for the current credit crisis.In other words, it was a crisis of deregulated folly. Of course, I’m quoting myself.What I would think of as the Marxist-Minsky view is: well that’s what capitalismdoes, if you deregulate and let people behave in this way, and modern behaviouraleconomics in the hands of a man of extraordinary intellectual quality, Bob Schallerwould say we are, in fact, simply giddy fools who need to be protected fromthemselves. So this story is that liberty caused the crisis.

Now, I actually think this is part of the story, but is it all of the story? The answerto that seems to me quite clearly ‘no’. It is more complicated than that.

If Hayek were here at this table he would say of course that it is an inevitableconsequence of a fiat money system, an unanchored fiat money system with agovernment monopoly over the creation of money, with inflation targeting whichallowed a long period of setting interest rates — above all in the U.S., the most

important country in the system — well below anybody’s idea of the natural rate.And that is of course what did indeed happen in the early part of this decade. Thishad the inevitable consequences of an extraordinary combination of asset pricebubbles and credit explosion. In fact it is the case that the last period of comparablemonetary policy and credit explosion was the 20s. In fact, only in the last five yearsor so did private credit ratios in the U.S. match those of the 20s. And of course Iwould argue that not only is there much in that but this is also related — though Iwon’t have time to discuss it further — to the emergence of the global imbalancesand the extraordinary disruption caused by the nature of the Chinese growthpattern.

But beyond this fundamental critique of monetary policy – which of course issupported very strongly by a very non-Austrian economist, John Taylor of Stanford,who has written a book arguing exactly on those lines – there are other features ofour system in which government clearly played a big role in creating this crisis. Theencouragement to debt in all our tax systems is striking. The extraordinaryincentives provided to home ownership, particularly in the U.S. and particularlyhome ownership by people who could not in fact afford to buy a home. The basalrules, which again government regulation that were and are both pro-cyclical andignore significant risk. Most fundamentally, the fact that has been revealed yet again,and is in any case perfectly obvious, that creditors to major financial institutionsknow that they are perfectly safe, which means that there is actually no reason forany sensibly run financial institution to have next to any equity, because the equityrisk is borne by the state. And the fact is that they would do what any sensiblepeople would do. So, my own view on this, the biggest of all questions, ‘did libertycaused the crisis?’. As we step back and look at this more closely, we will come tothe conclusion that the scale of the breakdown, extraordinary though it is,essentially reflects acts both of commission and omission by governments, and whatis needed now is not necessarily vastly more regulation but a completely differentapproach to, and structure of regulation which pays much more attention to theincentives of the people operating within the system. Of course regulation willalways fail, since human beings, individually and even more it appears, collectively,make vast mistakes, especially about the inherently uncertain future, with nods toKeynes. And of course, the financial system is the part of the entire economicsystem, which is by its very nature, because of what it does, entirely oriented towardsmaking bets on an uncertain future. So, that’s what I have to say about ‘did libertycause the crisis?’

Does the crisis threaten liberty?

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I am going to suggest – though there may well be more – that there are four waysin which the crisis might threaten liberty. It may create not merely a much greaterpermanent presence of government, but a much more arbitrary government. I wasstruck by Ralf ’s remarks about the rule of law and you can certainly see in the US,some of the interventions that have been discussed are not yet enacted in the waythey were approaching pay, the scandals over bonuses, the whole framework hadvery much of the feel of arbitrary government.

The crisis may threaten globalisation, which is both a consequence of economicliberty and – more important I think – in very important cases has greatly increasedliberty. While we would not regard China as in a way a free country, there is not theslightest doubt that the amount of liberty enjoyed by Chinese people hasimmeasurably increased in the last three decades, and I would argue that theopening of the Chinese economy with all its consequences was one of the greatreasons for that spread of liberty, at a personal level at least, in China.

It will increase poverty, and it may well in the process undermine democracy andthe legitimacy of democracy, which is of course something that brings us back to ourdiscussion yesterday of the 1930s, and of course it is a devastating blow to Westernprestige, particularly for American prestige, and for all its enormous faults and thegreat mistakes of the last eight years, surely no-one would deny that the West, theUnited States, remains the closest thing we have to a full work of liberty in the world.

I won’t go further – because I think I’ve run out of time – in elaborating those fourpoints, I could easily do so, but it seems to me pretty clear that if we do not fix this,and fix it pretty well and pretty soon, that it does create a number of very significantdangers for what had previously been, to my mind, a very satisfactory spread ofdemocracy and more liberal political systems around the world, certainly since1989, and our own position in the West vis-à-vis the rest of the world will in theprocess be very significantly compromised. Thank you.

Paul CollierFinancial institutions are peculiar within the whole class of business institutionsand business organisations, in that they are sitting on these huge potentially liquidassets, and so we know that the managers of these organisations – if they are givena free hand – loot. They would be crazy not to loot. And that is very different from,say, a manufacturing company, or something like that, where there are muchstronger incentives to succeed by actually doing things that are good for theorganisation. I think the move to high powered incentives for managers over thelast two decades has been disastrous for the financial institutions. Economic theory


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very much believed in high powered incentives, it thought that was the solution tothe problem of low manager motivation; management would be tough. But whatit failed to appreciate was that the easiest way for a manager to make money in afinancial institution is to bend the rules, and they just did not appreciate how softthe rules were. And so institutions which had functioned perfectly well for 150years break within 10 years of high powered incentives being given to the managers.That’s my first point: the peculiar feature of looting in financial institutions, whichdoesn’t generalise across; it is not a problem of capitalism, it is a problem of finance.

My second point – I’ve only got three – is that the housing stock is the big block ofassets in the economy. The price of those assets is massively important as collateralfor everything else, and basically we have established that the financial systemcannot withstand a big fall in the price of this asset class, because it is collateral forso much. If we cannot withstand a big fall in the price of housing, the only thingyou can do is you cannot stand a big rise in the price of housing, because what goesup comes down, and so volatility of house pricing is a disaster for the financialsector. Clearly what happened in Britain and America was that the short termpolitical gains to allowing house prices to rise were what attracted politicians, andthere was a very simple way to get house prices to rise, which was to remove therestrictions which set a multiple of income and which set a maximum of share ofvaluation. Once you lift those, you get a one-off big increase in prices which thencreates a psychology of boom and momentum. So that is to my mind the secondpoint.

My third point, which I floated last night with Martin and Lord Turner – certainlyLord Turner disagreed – is that the intellectual bedrock for the deregulation of thelast 15 years was two things: one was the belief that regulators would always bebehind the curve, that regulation was forlorn. The information asymmetry betweenmanagers and regulators so favoured managers that regulation was forlorn. Theother intellectual pillar was that in any case, regulation was unnecessary because inthis panglossian world of rational and efficient markets, it didn’t matter, thereputation of firms, of banks was enough to protect. Now, that second pillar wasclearly, manifestly, wrong. I think the first pillar was right, that regulation willalways be forlorn. What we are now doing is swinging back to regulation, but what’san alternative? Suppose that regulation really is fundamentally flawed. I think thatwe need a system which can retrospectively trace back and pin responsibility onpeople and punish them, once a bank has blown up. You cannot have negativewages, and so you cannot use the system of financial rewards and penalties whichgets good behaviour. And so we have to criminalise that behaviour. To provelooting would be very difficult, but we do not need to. What I want to see is a law

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against bank slaughter, which will be the intellectual equivalent to manslaughter.Now with manslaughter, if I drive a car recklessly and kill somebody, nobody has toprove intention on my part. They just have to prove that an ordinary, reasonableperson behind that wheel would not have done what I did. I think it is the same withbanks. If we can show that reckless conduct of a bank would be a criminal offencethen even if it takes ten years for a bank to blow up, and these guys are happilyretired with their £8 million pension pots, you can still go back and jail them. That’sthe one incentive that will prevent reckless behaviour: bankslaughter.

Giuliano AmatoI know not whether we need bankslaughter as a new crime in our legal systems.For sure, what has happened in the financial markets has been something whichwould never be allowed in any other market of manufacturing products. I happenedto write my first comment on this crisis, when, you remember, Chinese milkproducers were caught putting glue in their milk. And I noticed, quite obviously,that what a milk producer is not allowed to do, financial institutions are. For thesimple reason that the structure titles include pieces of toxic assets that nobody canperceive and that remain and that somehow pollute the entire system.

Now, can I say – and this is really a question for Ralf – that polluting the system isone of the expressions of my liberty? Martin Wolf was somehow underlining thatthere is an interaction between individual conduct and public rules. Individualconduct is heavily affected by the incentives and disincentives that come from thelegal system. Now, our liberty is there, it is not before the rules. We do not need togo back to the old philosophical theories of the social contracts et cetera, but let usstick to our constitutional systems, to our rule of law-based systems. Liberty doesnot exist independently of the rules of the system it is a part of. Mostly ineconomics, I must declare my sort of convergence with the German ‘ordo liberals’.I worked on antitrust for several years of my life and I found the constitutionalbackground offered by the ‘ordo liberals’ an excellent background for understandingwhen there is liberty or private power, when there is an interaction of free initiativesand when there is an abuse of dominant positions.

Now, it is quite clear for me that the interaction that we had in these so-calledfinancial markets was the wrong one. So, my answer is the same as the one Martingave; it is not liberty, it is that interaction that has not worked because conduct wasadmitted that necessarily could lead to this kind of disaster. Let’s say, we think thatmarket freedom exists as long as the price of the good, or service that is being soldis the outcome of the balance between demand and supply in a transparent context.When you allow over-the-counter titles to be exchanged throughout the market

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with nobody actually knowing their value, it means that you are violating the basicrules of the free market. Because the market is free as long as the buyer is perfectlyaware of the price that has to be transparently declared. To the contrary there wereproducts that were supposed to be exchanged bilaterally between the seller and thebuyer, and that were offered to the savers throughout the world without any obstaclein the existing public regulations. This is the beginning of the troubled assets saga.When you reach the point that a company such as Lehman goes bankrupt becausenobody knows, not even its management, the real value of its assets, there issomething that has not worked – and this something is not liberty.

Gerhard CasperWell, it follows directly, because I thought, as we were talking about the variouspossible causes, besides foolishness and greed, ignorance was really a very, veryimportant factor. I was close to a troubled German bank last year, and whatimpressed me most was the ignorance at most management levels of what washappening at the bank. Not only did top management not understand the toxicassets it had and the quality of those assets, but actually understanding was mostlybeyond their reach. There is a governance problem here with respect to privateinstitutions, because so many decisions at this bank were made at a middle leveland management did not control them. And they had to be made with tremendousspeed, often, which leads me to one other factor, that I think we oftenunderestimate. Yes, greed was clearly there, the looting of assets may have been afactor, but I have been much more impressed by the sheer element of competition.Bank ‘X’ was having a fantastic rate of return, therefore Bank ‘Y’ also had to have afantastic rate of return. The shareholders wanted money and in that sense therewas an element of greed, but there was also simply the element of, ‘how are youpeople performing...why can they do so much better?’

I saw it, for instance, from a university perspective. At Yale, David Swensen didextremely well in managing the endowment through investments in sophisticatedassets. Well, other elite American universities decided to follow similar strategies,and now we all have see large declines in our endowments because of the nature ofthe assets we invested in.

I am not sure I know how to resolve the liberty aspect, and we will hear more aboutthis, but very simply, ignorance is a very major factor, and to punish ignorance isalmost impossible for the legal system. Therefore there will not be realaccountability.

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Robert SkidelskyOne of the things that struck me when Martin was speaking was that a lot of thedebate about the causes of this crisisis a rerun of the debates about the causes of theGreat Depression itself. It somehow makes one wonder whether there is progressin economics. I do see that there is a lot more maths involved in the modern debate,but the principles are very similar. One of the key debates about the causes of the1929 crisis was the debate between what we might call the money glut and thesavings glut theories of the crisis. Now, Martin referred to Hayek, the Hayekians andtheir take on the current crisis, but the original Hayek, Hayek himself, had this viewabout the causes of the 1929 crash. The Fed, he thought, was holding the market rateof interest below the natural rate, and in fact what should have been happening inthe United States was that prices should have been falling to allow for thetechnological innovation taking place, but in fact they had an inflation target if youlike, which was to keep prices steady, and that meant that there was inflation goingon. Now Hayek believed that the cause of that was fiat money, and the only remedyfor that was to have a 100% commodity standard, I mean a proper gold standard,and it was the abandonment of that which enabled this monetary incontinence todevelop.

Now, on the other side, of course, the Keynesian analysis of this kind of crisis wouldbe a tendency for saving to run ahead of investment, I mean that’s putting it notvery technically. And again, one has that take on this crisis by those who believe thatit was somehow a disturbance between the global savings and global investment,and particularly Chinese saving and American investment, that lay at the cause ofthe present crisis. Now, that could be combined with a monetary bluff thesis in theway that Martin has said, which is that the excess surplus Chinese savings forcedown world real interest rates and thus enable the credit explosion in the UnitedStates, but basically there are these two views on the crisis and I think they are justa rerun of the way that people tried to analyse the earlier depression. So that is myfirst point, I think that is interesting, it raises the question of how much progressthere is in economic understanding.

My second point relates to regulation. I rather favour the British common lawtradition in this, which is that everything is allowed that is not explicitly forbidden.I would be against the tendency to increase regulation, I would rather try to drawa line, which I think was very much in Keynes, between risk and uncertainty. Ithink the role of government is to basically guard against uncertainty, and to takeprecautions against uncertainty, or in language that is now very familiar, takeprecautions against black swans, try to mitigate their impact as far as you can. In

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risky activities however, I think it is up to the people to take the risk themselves, andI would not want to extend the sphere of regulation into activities which are risky.People should suffer the consequences of their bets. Where the consequences oftheir bets are individual failure or individual ruin, well that is just part of the system;we live like that. I would say that uncertainty is something that is the function ofthe state to guard people against, because that is outside the area which can beaccurately priced in any way.

Timothy Garton AshThe question of law and what law can or cannot do in this circumstance is clearlyon the table; the position taken by Paul Collier and what Gerhard Casper said. Whosets interest rates, to put it in absolute layman’s terms, and on what basis, also seemsto me an interesting one. Then, the broader question, a very broad question, whichI think will go through the whole morning: the role of the state.

Adair TurnerWell, I wanted to pick up Paul Collier’s points because they made me think aboutvarious things: one, this thing about financial institutions and incentives, and theother about should we, sort of, hang the bankers or put them in prison.

On incentives, I do think it is fundamental, I think trying to understand the use ofyour term, ‘looting’. There is undoubtedly the potential in financial institutions, Ithink more than other sectors in the economy, for rent extraction, for the size ofthe sector to grow beyond its economically useful function of services to the realeconomy. And of course, for some economists, particularly those from Chicago,this is difficult to understand because why could it possibly occur where there wasn’ta scarce resource like land or mineral resources, how do you get rent extraction,and it’s something to do with the asymmetry of information between producers andconsumers, and the opacity et cetera. And then of course, it has this particularfeature that there is something about banks where a large amount of that rentextraction does not actually end up in the hands of the shareholders of those banks,it ends up in the hands of the individuals of those banks, and this is the fact that theway that we get paid a lot in life has always been to attach yourself to somethingwhere the return can apparently be immediately identified, and we all know thatthroughout history a lot of people got very, very rich by getting very smallpercentages of very large figures. You know, people who introduced you to theSheikh who had the oil and said, ‘Oh, I’m going to take a quarter per cent’, and endedup as very rich people. That in a sense is what bankers do, they attach themselvesto something where there is apparent transparency that by the end of the year I havemade you a lot of money in a way that is not clear for, you know, a research scientist

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of a pharmaceutical company – have you made the money yet or not, you cannotmeasure it, and you do it in an area where there is a large amount of rent extraction.I think this is the sort of theory of why bankers get paid quite such huge amounts ofmoney.

But what can we do about it? I do absolutely agree that there is something about thephilosophy of the way the world has gone down the route of high-poweredincentives. I do not think it is just a problem within banking, and it is quite a majorissue about whether we have been quite so right to itemise bonuses andperformance-related pay. It is a problem, I think, across a lot of industry.

An awful lot of incentives for top management take the form of explicit or implicitoptions, and if you are paid with an option, what you ought to do is to seal yourbets. Basically, if you are a senior executive of a company and you have an optionwhereby if it goes up you will do well, but if it goes down nobody takes the moneyoff you, you just bet, and sometime in your career, one of these will pay off. I thinkthat is why, for instance, not just in banking but in the rest of the economy, you geta deal orientation. You focus on doing the transformational deal, rather than simplyrunning your company well. But there are some general problems across theeconomy to do with incentives, options and incentives, and they are particularlyimportant in banking.

Do we deal with this by trying to identify the people who caused it, or do we dealwith it by trusting regulators and, can you trust regulators to get it right?

Now, I am going to take a different point of view, and I start with the observationthat when we try and understand what went wrong in 1929, history does notactually record a set of individual bankers – I mean it does sometimes, for justanecdotal stories of ‘they made a lot of money and they chucked themselves offwindow ledges’ – but there’s actually almost no serious economic historian whotried to trace it back to ‘banker ‘A’ was incredibly greedy, and bank ‘X’ was veryrecklessly run’. We actually tried to work out what occurred in terms of the technicalmistakes which were made within the operation of the gold standard, the policymistakes which were made by the Federal Reserve, et cetera. I suspect that that’sright. That in a sense, within the causation of history, the actual individual bankerswere working within a system which they did not significantly influence. I certainlythink that just as an operational thing, that this recklessness will not work.Let me give you an example, we recently had one of our building societies gobankrupt, actually it has not gone bankrupt and this is an important point to realise.We had resolved it, we had decided that it might have problems in the next two

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years and therefore we would need to take it into public custodianship. But why didthey get into trouble? Well, they got into trouble because they extended their loanbooks into commercial real estate. They were not allowed to do that before 1997,but parliament passed an act in 1997, saying that it was a good idea that buildingsocieties should be allowed into commercial real estate, because they thought thatthis would introduce competition into the commercial real estate market, andindeed, that this would be useful diversification of building society balance sheets,because previously they were entirely focused on primary residential real estate,well, when all that goes well they wanted to diversify.

So the management of this building society made loans to hotels in Glasgow and toshopping precincts in Edinburgh, et cetera. Now, who was reckless in this area?Was it the management of this particular building society? Or was it, rather,parliament? Who frankly made in retrospect what was a really silly decision, and Isuspect it’s really parliament who was to blame for this, I think the policy was wrong,not the individual behaviour of the management of that bank, who, within thecontext of it, made what were not completely daft decisions. I mean, they may havebeen slightly less good decisions than some other building societies, but thefundamental problem was the freedom which was allowed to them.

So, I do think that actually it is the overall rules of the game and Paul, you are sayingthat the regulators will always be behind the curve; they never get it right. I thinkwe can, by some very strong measures, spread more capital across the system,counter-cyclical capital simply loan-to-value ratios in mortgages et cetera, I thinkwe can simply reduce the volatility of the overall system, and I think we are morelikely to by a set of designed high-impact levers where we know that what we aredoing is we are simply taking a system which has volatility, we are identifying somethings that would tend to reduce volatility, and we are pulling those levers to reducethe volatility of the system. I think that is what we have to do.

Timothy Garton AshAdair, can I just pursue your first point, when you said there is this problem abouthigh-level incentives, betting options, deal orientation. What is to be done aboutthat, if not using the law, or, what Martin said at the beginning, arbitrarygovernment intervention? If you rule out both of those, what is left...?

Adair TurnerIt is intriguing, this, because almost every intervention that we have made so farhas made this worse. I think it is absolutely clear that the processes which were

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pushed very strongly in the mid- to late-nineties in Britain, which depended onincreased disclosure of top management incentives, generated a comparative statusprocess. It produced a race for the top. Absolutely clearly. It is clear that disclosurecompletely backfired, because fundamentally, very high-paid business people aredriven, up to a certain level, by absolute income, but they all get to that level prettyquickly. Beyond that, they are driven by comparative status. This is thefundamental thing that drives them, and it is quite extraordinary. When you getreally, really rich people saying it is unfair that ‘X’ is paid five million and I am paidfour million, and they actually use words like ‘unfair’ to adjust wage conceptsapplied at the level of four million a year. And they are like that.

Therefore, if you produce league tables which enable you to see where you are, andof course, what you get is that every Chief Executive says, ‘well, of course, I and myfellow executives ought to be paid in the top quartile because we are very goodpeople. How could you possibly say that I am not in the top quartile?’ It does nottake a genius to realise that if every remuneration committee in the country is tryingto pay their people in the top quartile, you have an automatic computer acceleratorwhich year by year will increase the total number of remuneration. So, the answeris, I don’t know; it is very difficult.

What we are trying to do in the Financial Services Authority, and what has beenagreed across the world is to force financial institutions to integrate riskconsiderations into their design of incentive structures. So we are trying to say thatif you do pay somebody a bonus, you have got to have a claw-back capability; youhave got to be able to not actually pay it to them for three years, and you have gotto, in that three years, really work out whether the money that looked as if it wasthere on December 31, 2007, is there, or whether it turned out post-facto to be toxic.This is the concept that we are trying to use, but we will have to see how effectivewe will be on that.

[Seminar Participant]You’ll pay and then claw back, rather than say that you’ll only pay after a few years?

Adair TurnerOh no, you will be told that you have a bonus, but it will be separated off and it willbe subject to claw-back on the basis of what subsequently occurs. But our ability toenforce that, as you can understand, depends on getting an international agreementto this, because otherwise it is as easy as anything for somebody, you know, wherewere they getting paid; they were moving between different financial centres. The

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world has just agreed: the Financial Stability Forum has agreed a set of principles ofremuneration, and we have all sat around the table and we have said that we aregoing to impose these across the world, and we will try our best, but it is...

[Seminar Participant]It is still a one-way bet.

Adair TurnerYes, which is why I go back to… We will try something on that, but it will be lesspowerful than more capital across the system. One of the most fundamental thingsthat went wrong in the last ten years is that we did not demand enough capitalagainst the trading activities of banks.

Now that partly gets to the ‘has there been progress in economics?’ question,because part of the reason why we did not demand a lot of capital against the tradingbooks of banks was that lots of very, very clever financial economists, running allsorts of mathematical models, were convinced that there was not much risk in thetrading books of banks, because you had this trading position but you would alwaysbe able to sell it within ten days, therefore you only needed enough capital to coverthe ten day movement in prices. I think that one of the interesting things that Iwould certainly be interested in hearing Partha on, is that there is a generalproposition that some of economics took a significant wrong turn into an incrediblymathematically focused path, finance-focused and apparently mathematicallysophisticated, but actually mathematically not sophisticated because it was notmaking the distinction between risk and uncertainty, it was assuming that thingswere mathematically modelled on risk when they were actually inherentuncertainties.

Giuliano AmatoIf you allow just a word: rating agencies, that we have ignored this morning, weregiving their rates on the basis of mathematical models and on the basis of pastperformances and completely ignored the titles and their prices. This is nothing todo with liberty again.

Partha DasguptaAs we are here to talk about Liberty, I’m not about to take up the challenge ofdefending economics today. Let me instead comment on the risk/uncertaintydistinction that comes up often in discussions. In recent years, economists haveshown that even within the confines of ‘risk’, there are serious institutional problems

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societies need to attend to. The insurance industry pays particular attention to‘moral hazard’ and ‘adverse selection’. As you all know, those problems arise becausepeople don’t possess the same information. The presence of either moral hazard oradverse selection is a form of market failure (e.g., the phenomenon of ‘regulatorycapture’). A frequently discussed example of moral hazard arises from the fact thatthe risks a fund manager takes are ‘unobservable’ to those who contribute to thefund. Economists advocate that remuneration should be based on observableperformance. In agriculture ‘piece rate’ wages are an example. In earlier times piecerates were a commonplace because it was found too costly by landowners to monitorworkers’ effort. With mechanization machines set the pace even in agriculture. Sopiece rates were not needed. In financial markets a different problem arises: how areinvestors to know the risks fund managers are taking. Like agricultural piece rates,remuneration according to performance suggests itself. The tricky part, however, isto specify ‘performance’. That’s what Adair was, rightly, alluding to. A fund managertakes actions that have consequences this year, next year, the year following, and soforth. Economists would recommend that bonuses should be spread out over manyperiods, not just one. Otherwise the fund manager would invest in high short termreturns allied to large future risks in the return. We have seen that at work in recentmonths. So you shouldn’t fault economists if the financial sector chooses to rewardits employees on the basis of their short run performance only.

The mathematical models deployed for analysing and forecasting the performanceof financial markets (e.g. the markets for derivatives) have been greatly fashionedby people who have never studied economics (e.g. ex theoretical-physicists) andfinancial econometricians. If you read standard texts on the economics of finance,you will get a very different picture of how economists go about trying tounderstand financial markets. It is a commonplace to complain about the extent towhich mathematics is deployed in economics. Interestingly, over the years theeconomics profession as a whole has become less mathematical, not moremathematical. The problem is not the need for reliance on mathematics (economicsdeals with quantitative objects, you can’t possibly avoid mathematics), what youshould be complaining about, when you come across them, are bad economicmodels. Economists in recent decades have become a great deal more catholic(some would say ‘bold’) in their taste. We now work on applied problems (evenwhen doing theory) that were once the domain of anthropology, ecology,demography, geography and the nutrition and political sciences. I know that factwill please Ralf, who used to be bemused by the kinds of problems I and mycolleagues in the Economics Department at the LSE used to work on in the 1970s.

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Martin WolfWhat is wonderful about this discussion is that it has allowed us to see how manydifferent ways there are of looking at and thinking about this crisis, and its scale, andwhat we should do about it.

I would actually want, as I did not have time to discuss this, to introduce anotherthing that worries me which is related to Robert’s point about what the state is for.I am reasonably sure that it is unfortunately impossible to design a system, I can’tthink of a way of doing it, which allows the state to intervene only to deal withuncertainty, and not risk, i.e. if enough people engage in risky ventures and they allblow up, the state will intervene. I would just like to focus on this issue, it seems tome we have not stretched it enough.

The main characteristic of the financial system, the central part of any marketsystem is that when a set of bets are made, and we do not really need to define forthe moment why they made these bets – maybe related to monetary policy mistakes,all these sorts of things, and we have talked about incentives. And they go wrongon a sufficiently large scale and they have gone wrong on a simply sensational scale.The entire system is picked up by the state; i.e. by tax payers. Directly, the cost ofthis will be seen in future high taxes for a generation, which is certainly, I would say,a significant diminution of freedom. It is going to be difficult to know at themoment how much this is going to cost, we will not know at the end. It is actuallyquite normal in other financial crises, just looking at the impact on public debt, andignoring recessions and so forth, both the direct cost of bailing out the financialsystem, and the indirect cost of the debt induced by the recessions that followed thecollapse, to increase public debt ratios by 50 percentage points of GDP or muchmore. So, this is a massive public cost. It seems to me the starting point, therefore,is that you have to regard the financial system as in some fundamental sense partof the state; it is ineluctable that it is part of the state. And this is very worrying ifyou are a liberal, because you do not want the public sector to be such a huge chunkof the economy but it is.

I have made this joke many times, I made this remark ten years ago, after the Asiancrisis: you should always take the view that a man – it is always a man I’m afraid –who is running a bank is actually a civil servant. Unfortunately a civil servant withsome very defective incentives, but that is actually, who they are working for. Now,Adair has been appointed, as it were, our civil servant, to look after these other civilservants with a very small number of people. Now, I do not have an answer to this,and I have thought about this a lot recently, and I think there are a number of ways

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of thinking about it. But I think it creates actually a very profound problem for ourthinking about what the market system is, because it means that here we have thisset of institutions, which have made, as it were, the fundamental decisions abouthow we should allocate our resources towards the future, which every seriousanalyst of the economy would say is the core decision in a dynamic economy, andthey are actually all doing it ‘at the expense’, at the risk of the taxpayer in general.

So they are, as I say, a branch of the state. Either we change that in such a way thatwe can create a credible system which allows the state to say, ‘you are going to allcollapse’, which we have not been able to do for a hundred years, roughly, and thisis why Hayek was so intensely involved in this debate of course, for fairly obviousreasons. Or we have to say that is in fact the case, in which case we really have togo through pretty ruthlessly and start asking ourselves, well, to what extent are theincentives under which they operate, or the asymmetric information, such that theyare likely to take our interest into account, and is it enough just to raise their capitalrequirements, I think there are some problems with that. I just want to put this inthe very broadest sense. What we are talking about here is in the most profound waythe relationship of the core of the market system to the state, and what we have beenreminded of in this crisis is that the interrelationship; they are siamese twins and inthat fundamental respect, we are not merely nowhere near, we are in a completelydifferent universe from the universe in which the government does its thing, setsrules in a general way, and the market goes and does its thing. That is not how itworks. And the fact that that is not how it works should be very troublesome toserious liberals.

Timothy Garton AshCan we spend a moment on that; it is such an interesting thought. Could one at leastpartially reformulate your question to say, ‘can you have democratic capitalism withnationalised banks?’

Martin WolfWe have quasi nationalised banks, now they are actually nationalised. The answerto that is that it’s a very, very good question; I do not know the answer. In the caseof the US, and I would expect it to happen here – that does leave one of many, manyconsequences – is of course, inevitably, the government will be tempted, and I putit very gently, to use its power, which is now absolute over the allocation ofresources, to favour those whom it wishes to favour. This is not a liberal situation,and it is why there is quite understandable reluctance in the US to nationalise banks,but in fact they are nationalising banks.

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Giuliano AmatoI call this the animal spirits of public ownership. And it is unavoidable.

Ivan KrastevA very short question from somebody who does not know anything abouteconomics. Is it the case that the welfare state was dismantled or is it the case thatit was radically transformed, with the banks taking the role played by the welfareinstitutions two or three decades ago? The only way not to get credit in the US inthe 1990s was if you were dead. So, the easy and cheap credits created a parallelwelfare system that kept the social peace and kept the system going. What we seetoday is the collapse of this shadow welfare state centred on the loose lendingpractices of the banks. So, nationalization of the banks was nothing else butnationalization of this second welfare system.

Martin WolfSo it is an ex-post welfare system?

Ivan KrastevYes, exactly.

Fritz SternJust a very quick footnote, really; a comment. I have learnt a great deal in thediscussion, and I have only one question in the back of my mind. Is it really correctto talk about what has gone on in the last couple of years or so merely as a financialcrisis? Of course it is a financial crisis, but does it not involve much more, and inretrospect, let’s say, in a few years, are people not going to say that it was also a kindof moral and psychological crisis, which somehow we have to deal with, explain topeople, and so on.

In other words, it does seem to me that the conversation, enormously important asit is, leaves out the fact that you are dealing with people. With people, particularlylet’s say, in the United States, who have developed certain attitudes towards debt,towards wealth, towards honour – in other words it is a far-reaching humanproblem, I think, which was revealed by this economic crisis.

Timothy Garton AshI am very glad, Fritz, that you mentioned the word ‘moral’. Wen Jiaobao gave anextraordinary interview to Fareed Zakaria on CNN, some of you may have seen it,in which he said, I think probably untruthfully, but nonetheless interestingly, thathe always travelled with two books by Adam Smith the second being The Theory

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of Moral Sentiments – and that the Chinese model attempted to combine the two.The second Adam Smith should perhaps be with us at the table.

Adair TurnerTwo points, the first one is: amid this crisis are we overstating how big thefundamental crisis is, or our inability to put it right? Let me just throw out thisthought. For sixty years, up until last year, the Western economies, the developedeconomies had an evolving private banking and private financial system, whichworked not badly, which did the allocation of credit and the intermediation of creditand maturity transformation. It undoubtedly had its ups and downs, it had itscycles, it has played its roles in its cycles, it has had individual bank failures; but itwas not perceived as the self-generating driver of our major economic problems.We, correctly I think, thought that our major economic problems derived fromover-powerful trade unions or under-disciplined financial or fiscal policy, or, youknow, rigidities in markets et cetera, this is the first one in sixty years where we havesaid that the fundamental driver was inside the financial system.

So we must be very, very careful of assuming from a one in sixty year event that itis a one in sixty year event – because the longer the period, the less certainly you canderive the probability distribution from the observation – but it is certainly aninfrequent event, and it is an infrequent event from which we can learn. And we canlearn what it was that we did wrong in the last fifteen years. And maybe we canrestructure another system now, which will give us another century before it doesit again. And maybe, if it is another century before it does it again, although whenit happens it is a big cost, actually, it is better to have the private enterprise systemdoing this, and then once a century we have whatever the costs are, and maybe thesocially optimal result, seen over many centuries is that once every century you dohave a problem which you have to mop up.

I mean, you quoted from Ralf yesterday the thing about conflict, that we have toaccept conflict. Well, maybe we have to expect an element of turbulence, maybe wehave to accept that, you know, we are not going to have a perfect system, and if theimperfection is a one in a century blow-up which produces a fall of GDP per capitaof three or four per cent, but not more than that, maybe seen in a century-wideprofile that’s a perfectly good trade-off. So, let’s just be careful of ending up with ‘thewhole system is bust, it is the end of the world’.

Secondly, I think the moral and psychological thing – it does raise some veryintriguing things about capitalism. Is it important that entrepreneurs and managersbelieve that what they are doing is morally useful, or is it ok that large numbers of

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people, when explaining ‘why did you do what you do?’, can simply say, ‘well,because people pay me for it’. Is it ok for a large number of people to fundamentallysay, ‘there exists a poker game in town called debt interest trading, it seems to be alegal poker game, I am quite good at it, you know, I did maths at university, youknow, the payoff is a couple of million a year, so I’ll go and do it.’ Or is theresomething corrosive if very large numbers of people are doing that? I do not know,but I think it is quite an interesting question to ask.

Martin WolfI just want to comment on that because I am very with you on this, and it links tothis asymmetric information stuff and all the rest of it. You know, why don’t we livein Somalia, which is by the way, a completely rational profit maximising society.But one answer is that they don’t have any government, of course.

But the point I want to make is that if you live in a world of extremely complexfinancial and economic relationships – I am not going to talk about things otherthan the world we live in – in which asymmetric information type problems arepervasive, there are many ways for societies to cope with them. But it seems to me,it is pretty obvious to any normal human being, that the best way to cope with thisis a rational belief that you are dealing with trustworthy people. That is to say, theyare not going to cheat you. And if you are convinced that they will cheat you, andI think there are places in the world where people are rationally convinced of this,lots of profitable trades will never happen. And you will be very poor. In fact themost certain way to be very poor – it seems to me, and Paul Collier has written veryinteresting stuff in this area – is to live in a society where you are absolutely sure thatthe person on the opposite side of the table is only thinking about how to maximisehis or her gain against you.

So, I believe that values are very valuable. This is pretty trivial and obvious banalstuff, and I should have thought that this is Weber, isn’t it? Then other great peoplein your [Ralf Dahrendorf ’s] intellectual tradition. So, it seems to me that if we havecreated as the dominant ethos of our economy the view that the right thing to do iswhatever is in your interests and the devil take the hindmost, and everybody in theeconomy starts to believe that is the case, we will impoverish ourselves, and that isvery damaging, and it is why I take a very different view from Adair.

If we now find that as a result of these activities hundreds of millions of people feelthey are unjustly impoverished, which is what I think they are going to feel, thebitterness associated with that will be yet another dimension of this, so yes, I dothink that economists, by the way they taught people to behave... Then we will

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know there is very good research on the fact that people have been taughteconomics as opposed to other more civilised disciplines and emerged fromuniversity much more amoral than others. There is some very good research on thisby the way. One of the things economists have done, and Chicago in particular, hasbeen to pollute the moral universe, and this is a very big issue, I really do think it isa very big issue.

[Unidentified Participant]It is a conspiracy to turn people into the kind of people who believe the models thatthe Chicago school turn out ...

Martin WolfAnd then when they do it, of course, the model does ultimately blow up, so it doesdisprove it. But I believe Professor Stern’s point is absolutely central.

Ralf DahrendorfDirectly related to that: a simple question. Are we talking about a worldwide or aglobal issue? In my view, climate change is a global issue which affects everybody,and which requires global action. Is this global, or is it something that startedsomewhere and which can be ended somewhere and where therefore we do notneed a Big Bang – what we need is action in certain strategic places. It seems to mea distinction which, for the policies we adopt, is absolutely crucial, and in my viewthis is the intellectual mistake Gordon Brown made with G20: to argue that it isglobal. I do not believe it is in the same sense global as climate change. I would beparticularly interested in Martin’s and Adair’s comments. Adair said somethingearlier about this. Fortunately for you, I cannot explain in greater detail what Imean; but for the issue of liberty, this is quite crucial.

Adair TurnerIt is a very interesting way to put the question. I think the answer is that the extentto which it is a global issue rather than a worldwide issue is one of the choices thatwe make, and that we have trade-offs to make here. Unlike with climate change,which is inherently global because of the nature of the physical problem, it wouldbe possible for us to say that we wish this problem as much as possible to be nationby nation or continent by continent, and that in pursuit of that, we are perfectlywilling to do things which actually slightly decrease the degree of global flow ofcapital or trade etc.

And this is a very real debate. For instance, we at the moment have large globalbanks which up until now we have fundamentally allowed to operate as global

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institutions and to move money around the world, and we have looked to theirsoundness on a global basis, and that is what the FSA [the UK Financial ServicesAuthority] did in relation to Lehman Brothers. We relied on the Americanregulators to tell us whether Lehman Brothers were fine, and one of the responsesto what has occurred is that we are not going to do that in the future, we are goingto demand the local operation of each global bank to be effectively separatelycapitalised, with separate liquidity, such that it can survive. And this issue ofwhether we, as it were, say ‘you can be a global holding company but they areseparate banks’ is quite important.

I think the thing that we do not understand – and I said this at a speech just lastMonday – is: is there a macro-economic disadvantage of that? The moment you saythat to these banks, they will say, ‘no, but you are decreasing our costs, you aredecreasing our flexibility and you are getting in the way of the global flow of trade’,and the thing that I have not got my brain around is, is that true? Is there somethingabout it? It is undoubtedly true that a fundamental problem that we are strugglingwith is a global financial system without a global government.

There’s a wonderful phrase of Mervyn King’s: ‘global banks are global in life butnational in death’. When they die they are supported by national governments, andwhen they die national bankruptcy laws, which national entity you had your specificrelationship with matters to your position. So one of the fundamental problems wehave been struggling with is global finance without a global government, or withoutglobal governance, or even without a global treaty organisation like the WTO. Thereis then one of two directions to go. One of which is to increasingly renationalise it,which is more local capital, more local liquidity, more focus on the local entity, andthe other is more global, more intense supervision of supervisors, more intenseagreement on global rules. And what do we actually do? Well, we are doing a bitof both. We are doing a bit of, sort of, belt and braces. We are trying to intensifythe global cooperation on these issues, both in terms of policy and in terms of whatwe actually do month by month in the supervision of large global institutions, butwe are also increasing the extent to which we try to make sure that our own financialsystems have a robustness even against problems in the rest of the world. So we aregoing in both directions simultaneously.

Martin WolfWell, all I want to say is that I think this brings us very well to the big question ofthe future of a global economy. The biggest point in my book on globalisation – apretty obvious one – is we have created a global economy without global institutionsor global politics, and it is underpinned by nation states, and such coordination as

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there is comes indeed, as Professor Habermas has said, from treaties and some fairlyweak international institutions. The WTO is probably the most effective of these,and in the area of finance the institutions we have are not very effective. But ingeneral, the reason that is worth saying is that we only realise that this is a bigproblem when something really goes wrong – most of the time it isn’t. It is clearlynot global like global warming, in the sense that it is not something we cannotpossibly deal with without all agreeing to do something, but it is clearly not nationaleither, because as Adair has said, these institutions clearly provide global services,i.e. they provide services for much of the world.

And the reason we have discovered that this is a problem is that they are indeednational in death, in other words, as I think Professor Habermas said yesterdayultimately it is national taxpayers that bear the burden, as we have discussed, andwhen they do so, they expect them to provide national services. That is not goingto change. We are not going to create a global ‘fisc’ – that means we are going todeglobalise the financial global system. We have to deglobalise the financial system,and the question is how we can do that with minimal damage to the global economy.

That is a very big challenge for Adair and his colleagues in the global financialsystem. But to give just one aspect of that: one of the things – I haven’t writtenabout, but I have been thinking about – it follows logically from what I was saying,and this is the last point I am going to make, that only countries with very big taxresources can afford global financial institutions, and that basically means, I amafraid, the United States. Because they can bankrupt any other country if they makea big enough mess. Now this time, our bank balance sheets were only five timesGDP. And as the world grows, and China grows, and HSBC becomes the biggestbank in China – I am not saying it will, but it might – then we might becomeIceland.

The Eurozone as a whole could do so if it became a fiscal authority, but it is very farindeed from that, for reasons that Ralf knows better than I do. Now, of course, ifthe United States did become the home of all the globalised banks, the United Stateswould object passionately to London’s continuing its game of having the sameregulatory regime as the US, but looser. Since this is simply a way of underminingthe American fiscal position. And they will quite rightly say, ‘this is a hostile act, youare not allowed to do this’. I think we are just at the beginning of this game, but ithas the most profound implications for the way the system will work, and all ofthem are very uncomfortable to people like me.

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Liberty, Poverty and Development

Partha DasguptaI have been given the task of discussing what we know about the links, if there areany, between political and civil liberties and economic development in poorcountries. There are many ways to open a discussion on this most intriguing ofproblems in the social sciences. Here I follow the one I took in the late 1980s. Whenteaching at the LSE, I was greatly influenced by Ralf ’s writings on the subject; butit took me some years before I studied democracy and development.

You should know that for many decades (until the early 1990s), political and civilliberties sat uneasily in development discourses. Historians of economic thoughtwill not be kind to professional development economists for that neglect. All sortsof ghastly regimes held sway in sub-Saharan Africa through the 1960s-80s, but theonly ones development economists denounced were South Africa and Rhodesia.Textbooks had nothing to say about political freedom and civil liberties. ‘Foodbefore Freedom’ was a frequent slogan. Given that it was a slogan, it must have beentaken for granted that there is conflict between freedom and development.Development was taken to mean increases in material wellbeing – GNP usually –never mind how outrageous a country’s political authorities or civic culture.

It is possible that differences in social and economic developments in China andIndia had a lot to do with the viewpoint I have just recalled. In view of their sheersizes, those two countries can’t but dazzle the intellectual eye. I am circulating atable that summarizes contemporary figures for economic performance andpolitical and civil liberties in China and India (figure 1). The table suggests thatsocieties, at least when they are materially poor, face a cruel choice: betweeneconomic development, on the one hand, and political and civil liberties, on the

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other. The last two rows, containing figures for the two types of liberties during themid 1990s, are taken from Freedom House, an organization that publishes suchfigures annually. By the way, for those who are not used to the Freedom Houseindices, the higher the number, the worse it is. The indices run from 1 to 7. 7 is badnews, while 1 is outstanding news. Notice that India scores well, relative to China,on political and civil liberties. India also does reasonably well in terms of incomeinequality. However, India lags behind China in all other indices of well-being,including income per head, life expectancy, and literacy. So there would seem to bea tension between political and civil rights, on the one hand, and socio-economicrights, on the other.

Figure 1Contemporary China and India: Comparative Statistics

Population (billions) 1.32 1.17 China IndiaGDP per head in international dollars (PPP) 4,660 2,460(For comparison: Sweden: $40,850)Annual % growth rate in GDP 11 7.8Gini coefficient of income 0.45 0.33Literacy rate (male/female) per 100 adults 95/87 73/48Ratio of girls to boys in primary & secondary schools 1 0.99Doctors per 1000 people 1.4 0.6Total fertility rate 1.8 2.5Life expectancy at birth (years) 73 65Infant mortality rate (per 1000 infants) 24 76% of children under 5 underweight 7 43% of population below $1 a day 16 35% of population below $2 a day 47 81Corruption index* 0.73 0.48Media freedom index (rank out of 173 countries) 167 118Political/Civil liberties index, 1996. Range: 1-7 7/7 2/4

* % of private firms who paid bribes to government officials.Data Sources: (i) World Development Indicators (2008), World Bank. (ii) World Development Report (2008),World Bank. (iii) Freedom House, 1998.

Many years ago Seymour Martin Lipset argued that economic development (e.g.,growth of GDP per capita) helps to promote democratic practice. The converse,that political and civil liberties might promote material prosperity has also beensuggested by social scientists. But as mentioned earlier, development economistshave tended to think otherwise.

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Matters are different now. Societal transformation in 1989-1991 is the big reason.Freedom is now often seen as a precondition of development. Amartya Sen has evenrebranded development as freedom. I don’t believe rebranding a concept illuminatesit. In the case of freedom I remain unconvinced it does, because it makes you thinkthat a multi-dimensional object like freedom can be straight-jacketed into an allpurpose human good. And by the time you have reduced every human good intofreedom, you have converted it into a sort of fluff. There are intellectuals who don’tgo in for rebranding, but nevertheless see the instrumental worth of freedomeverywhere. In 2002 a political scientist wrote that ‘it has been demonstratedrepeatedly that non-democratic regimes are unfailingly detrimental to human rightsand wellbeing’. If only that was so. There are many counter-examples of recentvintage.

So, the intellectual pendulum has swung enormously in the past 20 years. But whatif you were a citizen of an arbitrary country? Suppose you were about to help draftthe Constitution, what kind of Constitution would you favour? It’s no good pointingonly to India and China, because they offer only a pair of observations. It seems tome a statistical study is what is required.

In early 1989 I made a crude statistical study of what, in 1970, were 51 countrieswith the lowest GDP per capita. I found that those nations whose citizens hadenjoyed greater political and civil liberties among those poor countries had also onaverage performed better in terms of growth in GNP per capita and improvementsin life expectancy at birth. (In the case of literacy, the correlation was just thereverse.) The correlation was not strong, but it was positive and significant. Ofcourse, correlation isn’t causation, but as I was relating average figures for politicaland civil liberties in the 1970s to changes in GDP per head, improvements in lifeexpectancy at birth and literacy, I was pursuing the right animal, if you see what Imean.

The finding pleased me (but the one on literacy, which went the other way, didn’t),but I can tell you I was apprehensive while the computer was calculating thecorrelation coefficients. What if they turned out to be negative?

I can’t resist giving you a personal anecdote. It’s prompted by Professor Stern’sremarks. The paper I have just summarised was prepared in 1988 (and published inthe Economic Journal in 1990). As I was not a card-carrying developmenteconomist, I was able to bring myself to enquire whether there was statisticalevidence of a link between political and civil liberties and economic development.And I used Freedom House indices. When I studied their publication for the first

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time, I found their indices to be based on as objective a set of criteria as you couldask for. They sought data on the suppression of the press, number of days one couldbe jailed without being charged, the fairness of elections, and so forth. To me thecriteria were at the heart of what we generally mean by civil and political liberties.Nevertheless, when I presented my findings, I got a pretty rough treatment fromfriends and colleagues, who then regarded Freedom House to be a ‘reactionary’organization. They told me not to trust their data. Now though, Freedom Housedata are used routinely by development economists.

Subsequently, Robert Barro at Harvard carried out a wider study, not just on poorcountries, but in all, 96 countries around the world. And he found that amongcountries with low very restricted political and civil liberties, there is a positivecorrelation between political and civil liberties and economic performance (percapita GDP growth); but among countries that enjoy a good deal of freedom, thecorrelation is negative. In short, the relationship between freedom and economicgrowth is bell shaped.

These are only two empirical studies. Robert Barro’s publication was in 1996, andthere aren’t that many studies on the subject. Importantly, Freedom Houseaggregates a multitude of freedoms into a scalar index. When I say a ‘multitude’, let’sremind ourselves that democracy – I’ll use that as a shorthand for political and civilliberties – means many things at once: regular and fair elections, governmenttransparency, political pluralism, free press, freedom of association, freedom tocomplain about the degradation of the environment, and so forth. What if you takethem one at a time and relate them to economic development? Philippe Aghionand his colleagues have done that. They have studied the relationship between thevarious components of what we regard as freedom and economic growth in a largesample of countries. They have found that some of the components are positivelyrelated, others not so.

One problem I have with these findings is that they regard economic developmentto be synonymous with growth in GDP per capita. There is no mention ofenvironmental issues, no mention of the inclusive wealth of a nation; that is, wealththat includes natural capital. There is a recent literature that has shown that humanwell-being is related to an inclusive notion of wealth. By inclusive wealth we meanwealth that includes not just reproducible capital (buildings, roads, machines), butalso human capital (health and education), knowledge (the differential calculus), andnatural capital (ecosystems). So we should be asking whether political and civil libertiesare positively related to growth in inclusive wealth. I have no idea whether it is.

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So, what do we take from the literature? It seems to me we have far too littleempirical understanding of which aspects of political and civil liberties are mostpotent in bringing about Sustainable Development, by which I mean developmentalong which inclusive wealth grows. That is why for the moment we should favourdemocracy. We ought to favour it because it is intrinsically a good thing; and it’snot known to be in conflict with other things that we care about and may possiblyeven help to bring about those other things we care about. We should be alert to thepossibility that there may be trade-offs between certain components of democracyand those other things we care about.

That said, I am increasingly aware that we economists haven’t following Ralf ’s adviceon these matters. One of the things I learnt from Ralf while he was my boss at theLSE was the supreme importance of what one can only call ‘decency’, in not onlyprivate life, but also in public life. In a book published a couple of years ago – AVery Short Introduction to Economics (OUP) – a copy of which presented to Ralfyesterday, the first chapter is headed, ‘Trust’, not ‘Demand and Supply Curves’. AndI want to elaborate a little bit, for five minutes, as to why I think it is such an elusivebird and why Professor Stern’s interjection, I thought, was really profound.

Ralf has talked of the primacy of the rule of law. The rule of law, however, isconsistent with many forms of government; it is not simply a political democracyin the Western mode that can be expected to protect and promote it. Practice of therule of law, more generally, an expectation of decency in the public domain, createstrust among citizens, as they go about their daily lives. Mutual trust is to my mindthe lubricant that makes for economic development. And in my very shortintroduction to economics I have tried to explain why it is so.

Without trust the millions and millions of transactions that are possible would notbe undertaken, and all parties would be the worse off for that. Imagine two islands,which are visibly identical. For every person in island B, there is a correspondingperson in island A, and vice versa. And for every piece of capital equipment in Bthere is corresponding capital equipment in A. Imagine that the property rightsregimes are identical. Imagine, in fact, that even an anthropologist cannot tell thetwo islands apart. A mutually consistent set of beliefs in A could be that you cannottrust each other, while in B, there could be a mutually consistent set of beliefs thatyou can. The islands start off identically, and yet a pair of disjointed set of mutualexpectations and beliefs, each of which is self-confirming, would mean that overtime the islands would diverge: B would prosper, while A would remainundeveloped.


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How does a society tip from one ‘belief system’ to another? That seems to me to bethe fundamental question in the social sciences, to which we economists really donot have much answer. What we do know is that mutual trust involves a lot ofcoordination among the actors, whereas mutual distrust doesn’t. That is whydestroying a society is a lot easier than rebuilding it. You can establish as fine a setof institutions as you care, but it will all come to naught if people don’t trust oneanother. The institutions won’t work. The deepest question in the social sciencesremains unanswered: how does decency develop among a wide and disparate groupof people?

Timothy Garton AshThank you very much for a wonderful talk, which I think follows on remarkablywell from the earlier discussion. Your last point about the ease of destroying and thedifficulty of rebuilding trust: in 1989 – at the time of the end of communism – thejoke was: we know that you can turn an aquarium into fish soup, the question iscan you turn fish soup into an aquarium? And I think Ivan would agree with methat twenty years on, actually the question is still posed. And the reason it stillposed, or a reason it is still posed is precisely the issue of trust, which, to rephraseit, is Ralf ’s social foundations of liberty. It is his sixty year horizon, I would suggest.

Frances D’SouzaI have to say that for someone who was an anthropologist and then worked ongenetics and finally, a human rights activist, this is really a completely wonderfuldiscussion and I have to start by admitting that I am starry-eyed about it. But someof the questions I have, which are by no means new and have come up in manyguises in the discussion that we have had today, but nevertheless seem to me to bepressing and indeed, have links to all those disciplines which I have just mentioned.

I was talking recently in the post South African election context with some of themembers of the ANC government, who express the concern that there was in SouthAfrica an increasing gap between those who have access to income, wealth andservices, and that the worry is that at one point this gap is going to becomeunbridgeable, and what happens, what are the consequences then? And of course,one could say that this was true of countries not just in South Africa, but you alreadymentioned India and you have mentioned China, but I think also Brazil and indeed,many others, and emerging democracies as well. And I think that by any measurethat one has this is clearly going to be unutterably destabilising and in another studythat I was looking at recently, it would seem that crime figures per hundred-thousand in the population can undoubtedly be related to things such as an

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inequality in access to services and wealth but also a lack of trust in politicalinstitutions, and that is what came up in this discussion very clearly.

And it seems to me that what these ills in the world require is massive intervention,whether that be intervention on a national or international, even global level, inwhich case, what sort of intervention and by whom, and what kind of early warningwould we have of the gap between those who have and haven’t becomesunbridgeable, and indeed, what are the consequences of not dealing with it. Andthese are the concerns that I think all of us have in one shape or form, and indeedhave been reiterated here, but I would really like to see whether anyone has anyconcrete answers to those questions.

Robert SkidelskyYes, I enjoyed that talk very much and I agree about the importance of mutual trustsystems, but I just want to explore a little bit the question of why we need trust,which I think you alluded to at the start by referring to information problems.

Now, obviously, if we have perfect information, which is the assumption of theChicago type of economic models, we would not need any trust because I wouldknow whether you would keep your promises; I would know everything relevantabout you; I would know whether you are the sort of person who would keep yourpromises. And if I knew that you were the sort of person who did not keep yourpromises I would be able to insure against that. So trust is connected with lack ofinformation, but does the information problem have to be one of asymmetricinformation: what about the problem of symmetrical ignorance? In other words,people will make promises which they intend to keep, but then they are not in aposition to keep them. It is not that one person is, in a sense, trying to get the betterof another person, but that you actually have a situation of genuine uncertainty. So,I just wondered whether you could explore a bit further why mutual trust systemsare essential in order to make any kind of economic activity successful.

Partha DasguptaI would like to respond to that. There is a common perception that informationasymmetries are at the heart of societal problems. Partly it’s a semantic matter,because you can always define information in such a broad way as to make it thebasis of any analysis of societal interactions. But that move is unhelpful. The deeperproblem a society faces is an absence of trust. Classic examples are coordinationfailure. Imagine that Martin Wolf comes to me seeking a loan and offers me afavourable interest. We both agree that the deal is mutually beneficial. But there is

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timing problem: Martin could in principle refuse to repay me when the time comes.Imagine that legal channels are unreliable, though not absent, and imagine that thesituation where Martin comes to me for a loan arises every year. We are in realmsof a repeated game. In any single year there is a time lag between Martin receivingthe loan (should I make him one) and he repaying me (assuming he repays me).Such games harbour ‘multiple equilibria’. There is an equilibrium in which I trustMartin to repay the loan and he intends to repay. So the deal goes through. Andthe deal is expected to go through each year. But there is another equilibrium inwhich he doesn’t intend to repay and I simultaneously don’t trust him. The dealdoesn’t go through in the first year and will never go through. Notice that there isno information problem, in the conventional sense of the term. It could be that Iknow Martin’s character well, the circumstances he faces, and so forth. The game weare engaged in is one of complete and perfect information. In the formerequilibrium, however, we both coordinate on a pair of mutual beliefs involving trust.In the latter equilibrium we coordinate on a pair of beliefs involving mistrust. Bothpairs of beliefs are self-confirming. The former equilibrium sustains a mutuallybeneficial outcome; while the latter is bit of a disaster. And there is no way theobserver can tell in advance which equilibrium will prevail.

I think we social scientists have hit a road block in not being able to reallyunderstand why people trust one another in some situations, while not in others,even when the underlying circumstances are similar. We have all sorts of anecdoteson the matter; that trust begets trust, that face to face encounters are good for thecreation of trust; and so forth. We can even invoke evolutionary psychology to backsuch claims. But in any particular instance we have little to go on. There are all sortsof noise and cues in the background that probably influence our dispositions (totrust the other party or not), of which we are unaware. I don’t think it helps to lumpall such problems under the label ‘information asymmetries’.

Paul CollierTrust is endogenous to the rate of growth in the economy and to the structure ofsociety. Homogeneity helps trust. If you have no growth in a society, and the sortof societies I work on in Africa have had forty years of no growth, everything isperceived as zero-sum. So you cannot get trust in that environment. It is simplythat these societies are completely fractured; there is no common identity becausenational identity has never been forged. Sub-national identities triumph, and thatis again the death of trust and cooperation. Both of those contrast with China. InChina you have got fast growth, you have got very strong national identity. And thatis a very false steer – the Chinese model – for the sort of societies I work in. Now,

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China has got scale, and scale helps to produce accountable government, becauseit makes personalised power much harder.

Tiny societies are personalised societies. It is no surprise to me that the mostmisgoverned society in Europe is Iceland; it has tiny personalised relationships.But, I think we have underestimated the difficulty of building accountable societies.After 1989, the interpretation was elections. And I saw elections spread all aroundAfrica. They became socially de rigeur; it was like the spread of Christianity in AD.1000. And then people learnt how to cheat; how to really cheat. And so where weare now is everybody holds elections and incumbents always win them, and so wehave elections without democracy. And so, to get democracy properly you needstrong checks of balances, but they cannot be produced within these tinyfragmented societies. So, I advocate a phase of international supply ofaccountability. Not accountability to us, but accountability to citizens. That is whathas been missing.

Timothy Garton AshAnd who would supply it?

Paul CollierThe international community has to enforce it as best it can. I have various ideasthere.

Timothy Garton AshAnd who is the international community then?

Paul CollierIt is the democracies. It is not the United Nations, because China is not interestedin enforcing accountability.

Timothy Garton AshSo it is the state?

Paul CollierYes.

Timothy Garton AshThat is clear. I would like to welcome Leszek Kołakowski, who has just joined us.Ivan Krastev.

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Ivan KrastevTrust or the lack of trust is a very serious issue for Central and Eastern Europe, soI should start with a joke. It is the 1930s; the place is Warsaw railway station. Twotextile merchants meet. One asks the other, ‘Where are you going?’ And the firststarts to think and calculate: ‘If I am going to tell him that I am going to Krakow, heis going to know that I am going to Lublin, so basically he is going to know what Iwill do there.’ So he says, ‘I am going to Lublin,’ and the other, after someconsideration, responds angrily, ‘Why are you lying to me? You are going to Lublin!’

The state of trust in Central Europe today resembles the state of trust in Warsawrailway station. Central European transitions are successful in terms of economicoutcomes. The integration of the region in the European Union and NATO was amiracle that happened. In terms of trust building, Central European democraciessimply did not manage to produce trust; it was even that they destroyed trust. Andthe question is, to what extent are democratic institutions preconditioned on acertain level of trust; and to what extent can they build trust? Paradoxically, the19th century nation-state democracies were better in building and preservingsocietal trust than the new EU anchored ones.

A closer look at Central Europe’s obsession with corruption will reveal that anti-corruption discourse is much more of a discourse on the trust lost; it is a discourseregarding elites, rather than a discourse on the proliferation of the specific practicesand attitudes we define as corrupt. Data shows that there is a negative correlationbetween personal experience with corruption and one’s judgement of how corruptone’s society is. So here is my point: I do believe we have reached this very criticalmoment in which we try to re-tell the story of liberalism not as a story of trustbuilding but as the story of a management of mistrust. My fear is that the newdemocracies of mistrust – built on this assumption – are a very different species.

Joao Carlos EspadaWhen I first read Dahrendorf ’s Reflections on the Revolution in Europe, one of thepoints that most struck me was precisely the crucial importance of trust and thelink between trust and civil society. What Dahrendorf says is that civil society is theanchor of the constitution of liberty. But then he adds that, whereas you can makepolitical institutions by design (you can make constitutions, you can have elections,political parties, etc.), you cannot make civil society by design. Civil society grows,it is not made. Therefore, the problem of course is that, if you consider civil societyto be the anchor of the constitution of liberty, but on the other hand, if you can seethat that civil society cannot be made, it has to grow, how can you square the circle,

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so to speak, how can you make the anchor of the constitution of liberty? I think, asI understood it, that Dahrendorf ’s approach was that there are things that you cando to encourage and strengthen and promote civil society, even though you cannotmake it by design. Among those things you can do, I would stress two, according tomy own experience of my own country [Portugal] which has had a relatively recenttransition to democracy.

One is precisely the idea of the rule of law. You need to create an atmosphere wherepeople really believe that they are obeying general rules and not particularcommands, and where people can understand the difference between the two. Inour experience previous to the transition to democracy in Portugal [1974], we wereall submitted to particular and arbitrary commands, not to the rule of law. This wasactually very detrimental to the idea of trust. Particular commands are detrimentalto trust and civil society. By contrast, I would say the rule of law is very congenialto the promotion of the spontaneous growth of civil society and trust.

The other point is the question of political culture. You need a political culturewhere trust is valued and stressed, and where civil society – not only the state or thegovernment or political decisions – are important. How can you foster this politicalculture? Well, I don’t know exactly. If you believe in trust you certainly have toargue for trust, and that is important in itself. I would add that an open atmospherein a society, open to external exchanges and external influences, open to commerceand trade, is a crucial element conducive to this political culture of trust. A closedsociety is not conducive to high levels of trust, even though this might seemparadoxical at first. Therefore, I do not think that liberalism is about managing theabsence of trust. Liberalism has to be based on a higher level, a sort of spontaneoustrust. And, even though Liberalism cannot create trust by design, it can foster anatmosphere which is congenial to trust: an atmosphere of general rules, as opposedto particular commands.

Timothy Garton AshI am getting alarmed at the number of times people have said, ‘this is what we needto do, but I do not know how to do it’. I have heard that at least four times thismorning. Martin Wolf.

Martin WolfA few very brief points. First, I think it is wonderful – as is clear from this discussion– though in a very peculiar way, just as you would expect that economics has finallydiscovered that the subjects, the themes of sociology are actually important. So we

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will make a mess of it of course, because we will do it in a very reductive andmechanical way, introducing notions of multiple equilibria and all these otherthings, but they are actually quite useful.

I think there has been a real revolution in this and Partha discussed this in the lastten to fifteen years particularly since 1989 and the discussion of governance, rule oflaw and institutions as a central theme with economics, and it was one of the manyextraordinary failings of economics in the middle of the twentieth century that itbecame so mechanistic. So profoundly anti-social or asocial. So that is the firstpoint.

The second point is I want to support Partha a bit more. My sense of the literature– and I am not as much of an expert on this as he – is that we know something very,very important about dictatorship as opposed to democracy: it is a very highvariance system.

Quite often things go seriously wrong. I do not think that is a point that needs tobe stressed. But if you take off from the starting point that the single most importantthing is to avoid egregious harm, even if we ignore all the other many reasons whywe would legitimately and properly hate dictatorship, that makes a pretty powerfulreason in my view to oppose that sort of sloppy development economics which I canremember very well, which is what I think of as the ‘well at least he made the trainsrun on time’ view of development. In fact, in most cases, and particularly in verypoor countries, the rulers did not even do that, and in fact they murdered manypeople, and so I think there are terribly powerful reasons for us in general and in ex-ante to favour some form of democracy.

The third point, of course, is democracy can be highly liberal. We know this, andthis is very, very important. That leads us to the question which has been raisedwhich is, ‘can we do anything to shift the equilibrium from the low trust to the hightrust?’ I am not completely despairing of this, it is obviously incredibly difficult, butit is important to remember that it has been done many times, and it is surelypossible for us if we are sufficiently modest to look at the origins, the ways this wasdone. I will make one final comment on this and this links to our previousdiscussion.

One of the things I have come to the view of, one of the things that reinforces anexisting favourable equilibrium on trust, is outrage. One thing that I always thinkabout when I look at society is, if people are corrupt, does society as a whole getoutraged, or does society as a whole say, ‘well, what else do you expect?’. That is a

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really important difference. So one of the healthiest things that has happened in theUnited States, which is a remarkable achievement in some ways of creating areasonably high trust society out of incredible diversity, is that right now, thepopulation at large think that the bankers should be hanged. And even if theyshould not be – and I think they should be – the fact that the public think that theyshould be shows that they are outraged, and the fact that they are outraged meansthat they have recognised that they [the bankers] have violated fundamental norms,and that is how fundamental norms are maintained.

Timothy Garton AshJust on that point: of course one of the ways outrage is best expressed is through freeand independent media, and there is in fact a very clear correlation [here].

Martin WolfIndeed, that is another way we could generate more trust.

Gerhard CasperI will be very brief. Just picking up on Sir Partha Dasgupta, I just want to remindall of us, that one way to manage mistrust is by the rule of law. It is actually one ofthe basic functions of the rule of law. Of course, rule of law is easily said, but thequestion is the rule of what law? To that question we have some reasonable answers.For instance, I would assume everyone at this table will agree that an independentjudiciary is prerequisite. How we get there is of course another question.

Margaret MacMillanThank you for letting me sit in on this wonderful discussion. Just a couple of things:I agree that sin is inevitable and I do think the rule of law is enormously important.I think also time is important if you want to build trust. If you think how long ittook to build trust in Victorian Britain, for example: there was a moral revolution,there was a legal revolution, there was a constitutional revolution. They allhappened very, very slowly, and I think you could destroy that so much morequickly than you can build it.

I think there is also something we might want to explore in the role of elites. Ifelites themselves do not have trust in their own system and do not believe in it, thenthe system is in trouble I want to pick up on Frances D’Souza’s point about thetremendous gap that opened up, even in democratic societies between the very richand the very poor, which seems to me absolutely corrosive when you get peoplewho run companies earning a hundred times as much as the people working on thefactory floor. That helps to destroy hope, I think, which is a very important part of

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trust. Hope that your children, if not you, will have a better life. And I think eliteshave something to answer for in countries like the United States and the UnitedKingdom. And I am wondering – this is only speculation – whether part of theirabandonment of the feeling that morality was not important in the system issomehow tied to the tremendous explosion of computers and information, the sensethat we could manage risk, that everything could be built in. We had all these very,very clever people building systems where it did not seem to matter that you hadtrust, that morality did not seem to matter, that you can insure against all risk, sowhy did it matter what individuals were doing? So, it seems to me that part of theway we began to think about ourselves was very much affected by the computerrevolution, and we began to think that all things could be managed somehow, if wecould just get the models, get the information right and that therefore the individual– to go back to Fritz Stern’s point – the individual’s reactions and thinking andmorality were much less important somehow, because we could insure against alleventualities.

Fritz SternI will try to be brief. If economists are looking for other disciplines to help them, Iwould also recommend history. Secondly, I would say that already years ago I wasconcerned about the decline of trust in the United States. The gradualdisappearance of trust in very different areas in the United States, and thatcollectively will bring about a reaction. And then I am going to ask for yourindulgence; I will try to do this in a minute or two. A huge historical analogy, whichhas all the possible faults of analogies and yet, it does not go out of my mind.

In the fifteenth century, the Roman Catholic Church was full of corruption. Out ofthat corruption, in part, came a Reformation, came a mental, intellectual, moralbacklash, and so on. And what I am afraid of is that out of the corruption, a verydifferent corruption that has been diagnosed around the table and exists, and in acertain sense, you have put it more under the category of financial crisis, whereas Isee it as something larger. Out of that corruption, one sees already a moral backlashin fundamentalism and so on. So, I think we are confronting a very, very seriousmatter and I am simply throwing in the word ‘Reformation’ to show how deep abacklash like that can be. Thank you.

Adair TurnerI think that Martin’s point that dictatorship or lack of democracy is clear and thatestablishes an ex-ante proposition in favour of a more democratic and more liberalsystem. But I think we do have a worrying fact here, but I think it is a fact, which

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is that ex-post it is clear that it is quite possible to have a successful economicdevelopment model without freedom, and with quite a significant lack of freedom,and the case is China. And I think we really have to be clear that when you arelooking at this issue you cannot just say, ‘well, China is one country and Sierra Leoneis another country’. China is 1.3 billion people and I do sometimes worry that whenwe run these correlations and try to do freedom versus growth and work outregressions, well, should we do it? One country one dot, or, to really understandwhat it is, should we put 25 dots for China, proportional to the population. Becausethe fundamental fact is that China’s story of economic growth is very significant, itis the most extraordinary story in an environment where the ability of othercountries to follow the successful Western leads is still not clear. We have thisamazing breakthrough to growth of Western Europe, the Anglo-Saxon colonialoffshoots and Japan, and actually since then, you know, we had the successfulbreakthrough of some things which were relatively small, the East Asian countries,the city states etc., but great big continents getting that breakthrough; we do notknow that we have got a clear path and the most likely one looks like being China.

So, it is fundamental and I would like to say one thing: one of the reasons that it isfundamental is a very particular form of restriction on freedom that we do not oftentalk about. You could say that one of the most fundamental freedoms that peoplehave and in particular that women have is the decision as to how many childrenthey have. Now, the right to decide how many children you have can be restrictedin two directions. It can be restricted because you live in a country which will notallow you to use contraceptives, or where the husband will not allow you to usecontraceptives, or the priest tells you it is a bad idea, or you do not have enougheducation. And you can also be restricted by being told that there is a one-childpolicy. Sadly, I think the one-child policy, although I do not like it, has been farmore fundamental to the breakthrough of the Chinese economy than we like toadmit, because although we moved on from crude early 1950s developmenteconomics which moved large aggregate variables like capital formation as key toit, and then we move onto trust and entrepreneurship, actually, capital formation isfundamental to the development process. I mean, we are richer than poorercountries because we have got more. We wake up in the morning and there is morecapital working for us, and if you can have a higher rate of capital formation andhand on that capital stock to a next generation which is roughly the same size as you,so there is not a dilution effect, you get a higher rate of growth. And this is the greatbit of work on national income accounting is Allyn Young in the early nineties, whoillustrated that there is nothing magic about the East Asian growth path; it wasactually fundamentally driven by a higher rate of capital formation. I find this very

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worrying, but I think the Chinese growth path has quite a lot to do with thesignificant restriction of freedom entailed in the one-child policy, and I do not knowwhat to do about it. But I think it is a fact.

Timothy Garton AshAnother ‘I do not know what to do about it’. Sir Partha.

Partha DasguptaI think Martin Wolf has been short-changed by Adair Turner. Dictatorship is acomplicated notion. Freedom has many dimensions. Party dictatorship is a differentpolitical system from individual dictatorship. There are grounds for thinking thatthe ruling party in China does entertain debates (within the party leadership) overalternative policies.

Martin is correct that there is an outrage in today’s air. But the expression of outrageis itself a co-ordination problem. I can be outraged, you can be outraged, but if wedon’t co-ordinate our sense of outrage and speak collectively nothing will happen.And I think we should not be sanguine about the possibilities of collective action,if you like, through this common outrage that we are experiencing.

The rule of law most likely is a necessary condition for the creation of trust. In myremarks I have been alluding to sufficient conditions. We don’t know what they are.You can establish as good a set of institutions as you like in a particular place, butif people don’t trust one another, if they are not willing to behave decently with oneanother, those institutions can be guaranteed to fail. Every institution harboursmultiple equilibria – some desirable, others thoroughly undesirable. It’s anybody’sguess which one will prevail. We social scientists may claim we know that historymatters, that traditions matter, and so forth. They probably do. But we don’t knowhow they matter, nor why.

Timothy Garton AshThank you very much; well I think that was a wonderful conclusion. I think it hasbeen a fascinating couple of hours, which has obviously raised more questions thanit has produced answers. I do think that two themes which are constant in Ralf ’swork have constantly re-emerged. One is that complex which one might describe astrust, rule of law, the morality and ethos of elites, and I do think that Margaret wasright to raise the word elites because actually that is what we have been talking abouta lot of the time, and maybe we do not talk enough about it.

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The second theme that strikes me – very suitably for universities – is data andknowledge. The number of times, whether in discussing the financial system –where it is not just asymmetry of information but simply ‘ignorance’ as you put it–, whether it is in the problem of trust, or whether it is in the correlation betweencivil and political liberties and socio-economic development. Where, as Partharightly said, a lot of this stuff we just do not have the basic data over sufficient yearsand the reason people use the Freedom House indices is that they are the only oneswe have got, however imperfect. And so I think that that too – the measurement ofwhat needs to be measured – is something which we need to focus our attention on.

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Liberty and Diversity

Timothy Garton AshOur third session has a slightly different theme: liberty and diversity. I’ll introducehere Gerhard Casper. He is in my view one of the truly outstanding universitypresidents of our time and transformed Stanford, I would say, raised Stanford tobeing one of the truly outstanding world universities. And we thought that it wouldbe particularly interesting to ask Gerhard to introduce this session, because asPresident of Stanford, he was confronted with this set of issues that is calleddiversity, or diversity policy. In a certain tension, perhaps, with the classicalunderstanding of liberty, and we thought that might be an interesting way into whatis obviously a really important subject of our time.

Gerhard CasperLike the Warden said yesterday, I just got a lot of credit for things I didn’t do. Iwould reformulate the topic as ‘liberty, equality and diversity’. I will speak from thevantage point of somebody who had to conduct his affairs also as a homo-politicus,as it were. Many have said that we are honoured to be at this event, and of course,so am I. I did not understand until this morning what a pleasure it would be to behere – just a very great pleasure. And we thank you, Tim, for what you have donein preparation.

Ralf, in 1963, published a book that, curiously enough, has never been translatedinto English: Die angewandte Aufklärung – ‘Applied Enlightenment’. It is one ofmy favourite among his books, I should admit. In Die angewandte Aufklärung,Ralf stressed that equality in the American context is first of all and primarily theequality of ‘citizens qua citizens’ – the equality of their civil rights. Ralf also makesreference to the social preconditions of civil rights – soziale Voraussetzungen – butuses that concept primarily with respect to the European welfare state. And I think

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it is fair to say that at the time Ralf ’s book was published, the social preconditionsof equal citizenship became the pre-eminent issue in the United States.

Now, let me provide you with a little historical context. In 1954, the Supreme Courtdecided Brown v. Board of Education, and outlawed school segregation. But ofcourse, what qualifies as equality of opportunities in schools remains to this very daya most elusive issue. Then, in 1964, Congress enacted the Civil Rights Act thatoutlawed discrimination on the basis of race, gender, etc. That had a very dramaticimpact in many ways: there is an Equal Rights Commission and so on, but thedifficulty of our subject is well symbolised by the fact that the Civil Rights Act,couched in neutral terms, has, in recent years, frequently been invoked by whitesagainst affirmative action. And so it forms the basis for something that, in manyways, it was not intended to deal with. Affirmative action: a really deep governanceproblem for any democracy. In 1965, Lyndon Johnson issued Executive Order11246, which required affirmative action in employment decisions of federalcontractors, and that of course included universities, because all the research grantswe receive from the federal government are structured as contracts. Thus, thefederal government laid down rules for affirmative action in employment of, forinstance, universities, for anybody from a secretary to a faculty member. And Ithink the big governance issue is: Congress never enacted any of this. This was alldone by the executive branch. Now, Congress could have in theory overruledJohnson, but Congress certainly did not even remotely attempt to do that. Congresswas very happy to be off the hook. The executive had taken on a big issue, and itsregulations were a surprisingly non-partisan thing. After Johnson it was actuallyNixon who not only re-affirmed the Executive Order on affirmative action, but gaveit more teeth. Thus on a very important societal issue concerning freedom, equalityand diversity, it was mostly the executive branch at the federal level, the federalgovernment, that acted

Things moved slowly with respect to affirmative action, with respect to equalopportunities. But then, in 1968, came a traumatic event: the assassination ofMartin Luther King. And I think it is fair to say that the assassination of King gotall kinds of people to begin to ask whether their ways of thinking were actually right.

I shall give you one example. The first time I encountered the issue directly was in1966 when I became a professor at the University of Chicago law school – by theway, somebody will eventually have to defend the Chicagoans, though it will not beme. They have a few more things going for themselves than you all admitted thismorning! But I was only at the law school.

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The law school dean appointed a special committee on the admission of blackstudents – I was still a foreigner at that time, not an American citizen – and I wasasked to chair this committee. It is important to note that in the five years before1969, the law school, which admitted about 150 students a year, had admitted fourblacks. Why? Not because they were racist, but because they were obsessed withquantitative predictors of law school performance, law school aptitude tests,undergraduate grades, and so on. There were certain thresholds, and below thosethresholds nobody was considered. My committee recommended a specialadmissions category to gain about 15-20 minority students in the population of 150students per class. Now why did we do this?

We saw this as a contribution to the ideal of an open society, and our concern was,of course, the nature of citizenship in a highly stratified society. And in many ways,as open as the United States is by comparison with many other countries, we were,and still are very stratified. We also wanted to further the educational experiencethrough a diverse student body. How can you have elites, who never, in their eliteeducation, encounter people from far-removed ranges of society?

I think it is fair to say that, by the time I became President of Stanford in 1992,affirmative action had been pretty much accepted in American higher educationas concerns undergraduate admissions. It was and remains very difficult forgraduate admissions, and of course quite difficult for faculty recruitment. Theseissues existed when I became president, they still exist. When you look at ourfigures for undergraduate admissions, we have a very diverse student body.Probably Stanford’s is slightly more diverse than most of its direct competitors. Asto graduate students, it is much more difficult, in particular in the sciences,engineering, and so on, though things are getting a little better, but very, very slowly.

However, in 1992, a new set of issues had emerged under the heading‘multiculturalism’. The call was for showing respect to different cultures, recognisingtheir separate identity, not only in the civic world at large, but also in the universities.That, in turn, brought about the phenomenon that the right baptised ‘politicalcorrectness’. Never mind that this was a term most frequently encountered inconservative media; the fact of the matter is that ‘political correctness’ was a realityand, indeed, it continues to play a, somewhat subdued, role even now.I was very concerned, as I encountered all of this, about the implications ofmulticulturalism – and the demands flowing from it – for the university. So, in1993, I decided to face parents and incoming students with a speech that I called‘Concerning Culture and Cultures’. The central point of my 1993 speech was thefollowing – and in some way you would all say it is obvious, and it should go without

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saying, but it was not obvious and it did not go without saying, and I repeated itover and over again in later years. I said, students were admitted to Stanford asindividuals, not in groups, and I emphasised that no university could thrive unlesseach member is accepted as an individual, and can speak, and will be listened to,without regard to labels and stereotypes. The university, I said, has no right to tellyou who you should become, with what groups to associate, or not to associate. Butuniversity citizenship entails the obligation to accept every individual member ofthe community as a contributor to the search for knowledge; in a university nobodyhas the right to deny another person’s right to speak his or her mind, to speak clearly,without concealment and to the point. You understand that this reflected my angst,as it were, that people had become too circumspect, in speaking, because they didnot want to run the risk of offending or showing disrespect.

In 1995-96, something happened that became extremely controversial – the so-called ‘California Civil Rights Initiative’, that had been proposed by a conservativeblack member of the Californian legislature, a senator, who sought to prohibit usingrace, sex, colour, ethnicity, or national origin as a criterion for either discriminatingagainst, or granting preferential treatment to anyone in public schools, employment,or contracting. This initiative was submitted to the sovereign – California is ascomplicated as Switzerland; we vote on almost everything all the time. The initiativepassed by a 54% margin – it is still the law of the land, and it has caused, for instance,one of the greatest public universities in the world, the University of California, toengage in a fair amount of pretense because it is, of course, bound by the rules, butnevertheless cannot live with their consequences.

I decided to address this whole matter of affirmative action in a statement that Isimply called ‘Statement on Affirmative Action at Stanford University’. Its bottomline supported affirmative action, though my focus was on the autonomy ofacademic institutions, especially private ones.

The statement got considerable attention, because of my support for affirmativeaction. However, almost nobody mentioned the many qualifications I put forth.I just want to give you one paragraph from this very lengthy statement:

‘I am of course fully aware of the fact that my view of the matter leads meto take into consideration criteria that are very problematic. There is,first of all, the utter arbitrariness of racial and ethnic labelling. Boxes tobe checked may look neat on paper, but there is little underlying orinherent sense. What is race? What is a race? What is ethnicity? How dowe deal with racial or ethnic mixing? Why is a child of a black parent

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and a white parent classified as black? Why does one fourth AmericanIndian ancestry qualify a person as Indian, while slightly less does not?Are the classificatory laws of apartheid South Africa what we end upemulating? Is our way out, self-classification, something to be fairly reliedon?

These reservations, however, do not diminish my belief that institutionssuch as Stanford . . . need the discretion to do as best they can in theirefforts to find and educate the leaders of tomorrow. As we pursue ourgoals, there is no room for categorical preferences, there is no room forquotas, there is no room for preferring the unqualified over the qualified.However, there is also no room with respect to any applicant for makingquantitative, scaleable admissions criteria the sole touchstones ofintellectual vitality, talent, character, and promise. That has never beenthe case at Stanford, and I hope it never will be. It is Stanford's verycharacteristic that it has never been one-dimensional and yet it has beenable, especially over the last four decades, to become one of the world'smost selective institutions. Our capacity to pursue many excellences willremain undiminished as long as we continue to get the balance right anddo not waver in our commitment to quality’.

My basic message in this lengthy paper was that the pursuit of affirmative actionneeded to be tempered by an understanding of its dangerousness; its dangerousnessfor equality, and for the equal protection of the laws. And we should rememberthere is a linguistic point here that is subtle but has important consequences. TheUS constitution does not, as does, for instance, the German constitution, guarantee‘equality’ – it guarantees ‘the equal protection of the law’, thus a white person whowas not given a job because somebody else was preferred says, ‘I was denied theequal protection of the law’.

Now a couple of remarks on rule of law. The Supreme Court stayed away from theissue for quite a while (it had addressed it early on). Then, in 2003, in a caseinvolving the University of Michigan law school, the court actually legitimisedaffirmative action on the part of universities, but then went on in an opinion byJustice O’Connor – who is not any longer on the court:

‘We are mindful, however, that a core purpose of the FourteenthAmendment was to do away with all governmentally imposeddiscrimination based on race. Accordingly, race-conscious admissionspolicies must be limited in time.’


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And she puts forward the prospect that:

‘One day there will be the happy day when we can do without affirmativeaction.’

It is my personal impression that O’Connor’s time horizon was something like 25years.

Now, rule of law. Partha Dasgupta, I totally accept your point – the precariousnessof rule of law in this context has also to do with the fact that it depends very muchon human beings as its oracles, and saying, ‘rule of law’ does not do an awful lot –the Supreme Court could have come out the other way very easily and created avery major problem for us.

I came out – Ralf, this goes to many of your concerns – very much in favour ofsomething about which I nevertheless had many reservations. But as a homo-politicus, as the president of a major institution, I thought it my responsibility. Onecannot possibly have a fair multi-racial, multi-ethnic society, such as the UnitedStates, without members of different minority groups participating in thegovernance of the country.

Yesterday there was much talk about historical moments. The one historicalmoment that we should also begin to focus on is Barack Obama’s election. What anincredible breakthrough! Obama, of course, poses the very problem that concernedme: he is called ‘black’ although his mother was white. Perhaps an even moreinteresting aspect of Obama’s election is that he is so ‘diverse’ in terms of hiseducation and his personality. I think Ralf some time, somewhere used aformulation such as ‘connected but yet diverse’: that is the case of Obama!. He isconnected diversity incarnate: a Mid-Western background on his mother’s side, aKenyan father, growing up in Hawaii, then Indonesia, then Occidental College inCalifornia, Columbia University, Harvard, finally Chicago. I do not know what roleaffirmative action played in Obama’s career. I assure you nobody ever talks aboutit. Whatever role it may have played, the outcome is a great outcome.

Leszek KołakowskiGerhard may I ask you something? I haven’t heard really. What is affirmative actionin the sense you uphold? Not only at university, but anywhere.

Gerhard CasperWell, Leszek, that’s a fair question, as I did not really address the general issue.. The

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Executive Order 11246, for instance – which, by the way, does not apply toundergraduates or student admissions; there we set our own policy – basically saysyou should develop a new outreach; you should develop new criteria for people youconsider taking into your institutions and so on. It also says you should establishtimetables and you should establish goals. Goals means quantitive goals. Thuswhen the Department of Labour looks at Stanford’s employment, and wants to knowwhether we have done enough affirmative action, it will actually consider thecomposition of the labour market, the local labour market, for secretaries and otheremployees, and will then determine whether that particular group is representedin our labour force to the extent to which one might expect. In reality, this getsmore complicated because you do have job qualifications, and you can make yourcase concerning them. For me, the very difficult and indeed often distressing aspectof goals has been that goals turn into quotas. So, if you take this year’s number ofminority students at a university: ‘x’ percent African Americans, ‘x’ percentChicanos and so on. This year. Now, if next year the number of African Americanswere to be substantially less than this year, critics would say, ‘you have abandonedyour commitment’. In reality goals tend to become quotas and that is veryproblematic. But you asked what do I approve of?

When I first encountered this issue in 1969, at Chicago, the point was simply to tryto determine the qualifications of the candidate beyond the quantitative measuressuch as LSAT scores (Law School Aptitude Test scores) that were allegedly ‘colourblind’. But they are not really ‘colour blind’. So you try to find out whether aparticular person shows other elements in his background and upbringing thatwould suggest that he might succeed in law school, or in anything else for thatmatter. Having said that, I have always been very unwilling to compromise onfaculty appointments. Though, even there some pretense is occasionallyunavoidable. On the whole, I believe universities such as Columbia and Stanford,have gotten it right. We tend to be very careful and conscientious in what we aredoing.

Leszek KołakowskiIn other words, it would be fair to say, that according to you, if there is a privilegegiven, say, to a minority race, that their privileges are acceptable on the conditionsthat: first of all they are relatively small and secondly that they are not transformedinto quota systems.

Gerhard CasperWell, ‘relatively small’ I would not say. The more the better. In reality, they arerelatively small.

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Leszek KołakowskiSo privileges exist; for instance, black people may be assessed in the entranceexamination slightly more leniently?

Gerhard CasperYes, no doubt. That is what is happening, there is no question about it, and withoutit we would not get anywhere in a very hierarchical society.

Leszek KołakowskiSo you are against quota systems?

Gerhard CasperYes.

Leszek KołakowskiYes, of course, I agree with you. Any quota systems?

Gerhard CasperYes.

Timothy Garton AshSorry, Gerhard, can I just follow through on that? So, when you say you’ve ‘got itright’, more or less, Stanford or Columbia, I totally agree with you on theindependent side, but by what criteria?

Gerhard CasperBy the criteria that are so important to Ralf. Trying to do the good thing in apragmatic way without being ideological about it – just working very, very hard.

Giuliano AmatoI have some other angles to suggest, to consider liberty and diversity. Let us thinkof the not yet solidified societies the Europeans are dealing with in relation todiversities that are frequently newcomers in our society. Actually the rise of thenewcomers in our societies is much more difficult than the rise of the blacks andother minorities in the United States.Let me go back to something that some of you here know a lot more about than Ido. When, in this country, a couple of years ago, there was a survey on students ofprimary and high schools, it came out that blacks were performing much poorerthan whites. The proposal was advanced to provide them with something more bysegregating them into separate classes. Immediately afterwards, quite happily,

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somebody realised that it was not due to race, but poverty. The low standards ofthese black students were substantially the same as white students coming fromfamilies of the same sections, the same income. So, when we think of the socialpreconditions of equal citizenship we have to realise that sometimes, the diverseones suffer, not from their diversity, but from the poverty that their diversity imposeupon them in the countries of their new lives. But what strikes me about liberty anddiversities in the European context – and I am also speaking from my experienceas Minister of the Interior dealing with immigration – is the fact that diversitybecomes a source of fear both for the newcomer and for the hosting community. Istill remember a survey that I had from low sections of Italian cities. Several oldwomen reacted to the newcomers by saying:

‘I cannot feel free to go out anymore, because when I walk out, I listen tothem – they are there, they speak a language I don’t understand, and I amscared.’

‘I am scared’ – only for the reason that she does not understand what they are sayingand so she is not used to diversities. Therefore, they are being limited in theirfreedom. Consider that in one of our cities, Padua, there is a wall dividing theimmigrant section from the other parts of the city due to drug trafficking, tocriminal acts that are being committed – it is not something without any reason atall, but it is sort of a refined reaction to that kind of frequent misconduct. And atthe same time, the liberty of the Italians, the French, the Germans, seems to belimited. So, we have to face a fact of life, which was clearly explained in the lastresearch by Bob Putnam on integration and similar – in universities it is much easierthan with uneducated and poor communities.

So, the synergies of diversities with each other apply to universities – Palo Alto,electronic engineers, etc. In poor communities there is a conflictual reaction. Thelevel of trust Putnam testifies decreases: the more the diversities in a community, theless the level of trust. So, there is this gigantic problem of policies of integrationjust to make liberty compatible with diversities. In the sense, and I go back tomutual trust, that is not only a prerequisite for economic development, but also for,let’s say, community life. If we mistrust each other there is no community life, andthere is no freedom, each of us toward the other. So, there are several chapters thatenter into the scene: what are immigrants supposed to do when they enter? Howdo we build a two way process? Don’t forget that in our European Union, formallyand officially by the European Council, the process of integration is defined as atwo-way process. Both of us have to adapt; not only the newcomers, which is animportant ingredient for the necessary transformations which are the prerequisites

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for granting citizenship. How can you have equal citizenship if you are not even acitizen? And we have enormous differences among us. In this country, childrenbecome citizens, which is something I like. To the contrary, in several Europeanlegislations, the ius sanguinis still plays a paramount role. The ius sanguinis is thebest evidence of inequality, because it implies that unless you already belong to thatcommunity, it will be extremely difficult for you to become a member of it. Actually,in my country it takes 10 years to become a citizen. Children, despite being bornor studying in Italy, are not considered Italian. I had cases of children that grew upin the country, were educated in the country, and when they reached the age of 18,they had to be expelled, which is incredible. At least for us Europeans therelationship between liberty and diversity has to pass through all these very difficultattitudes.

Ivan KrastevMy comment is very much provoked by a small and thoughtful article on the perilsof meritocracy that Professor Dahrendorf published four or five years ago. In myview, it is fair to claim that the current global economic crisis is among many otherthings the crisis of the meritocratic-elites’ worldview and their relation to society.The best and brightest who used to run places like Lehman Brothers are a specialtype of elite. Because they ‘made it’ through talent and personal effort, they do notfeel any special obligation to those who did not make it. Paradoxically, the story ofthe last twenty years can be narrated as the story of the emancipation of the elites.The elites broke free; they liberated themselves from the constraints of ideology,territoriality and national loyalty. They emancipated themselves in every possibleway. For the first time, you have elites who don’t feel uneasy about their success.And I do believe this is a major problem. It’s a problem because it goes against themajor principle of democracy: representation. You have these elites who are nolonger representatives for anyone. As a result of this, the major dividing line is notbetween the left and the right (of course, in my part of the world you can see thisvery easily); the major dividing line is between the elites and the people. In thediscourse of new populism democracy has been betrayed and the nation-statescaptured by two privileged minorities: cosmopolitan elites and immigrants – or, inthe case of Central Europe, the Roma minority. If you analyse the discourse of thepopulist parties in a country like Bulgaria, you find they hate two groups: the elitesand the Roma. And they do believe that these groups are a kind of pair: both ofthem are not like us, both steal and both are supported by the West. In this sensethe new populism represents a new version of the policy of nationalization; it is notabout the nationalization of industries but about the nationalization of the elites.

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Timothy Garton AshAnd I would just add to that, that the elites, particularly in Central and EasternEurope, are identified with Europe, with the European Project, and in both MiddleEurope and Middle America, they are identified with liberalism. Something wealso have to confront.

Martin WolfThank you very much. I had not intended this, but I will tell a story, which Iwouldn’t wish to be repeated. Very unwise, perhaps, but very relevant and you willfind it quite amusing. About a year ago or so, I was at a very, very high levelconference organised by Goldman-Sachs, which had all their partners. And I wason a panel discussing globalisation, protectionism, inequality, and one of theparticipants was Larry Summers, before his present incarnation. The high point ofthis for me, was a really remarkable moment in which essentially Larry said: Theproblem with you people, is you don’t know to what you belong; and above all, youdon’t realise you are an American organisation; and this is very problematic forother Americans.

And this is, I think, a big part of your elite point. In a very large way, they are inHuntington’s famous phrase: ‘Davos Men’. And they are, of course, the world elite.And if they don’t belong to countries, and they don’t feel they belong to countries,democracy is in threat. However, that is not what I wanted to talk about. You havenot raised a certain issue – Giuliano got very close to it but he didn’t get there all theway. We’re talking about diversity, and really I am going to ask a question of you,and how you think about this now – which is religion and ethnicity, and of course,quite specifically, since I have no real reason to be politically correct, the questionof the role of Islam in a democratic society, which is a new form of diversity we arenecessarily having to adapt to, because I think the things you discussed are old, andactually we’ve sort of managed them. I tend to your view. I’m not very happy withaffirmative action, but we seem to have managed it. I thought it was perfectlylegitimate for blacks, then it ineluctably extended to lots of people for whom it wasn’tlegitimate, but we can live with it.

Now, religion it seems to me, is a much more central issue for us, because it is a setof ideas. It is not about people’s origins, it is a set of ideas – linked of course, withethnicity. And some of these ideas – this has always been true of religion, but it iscertainly true in its present form within some of the immigrant communities – seemto me, at least, to be intensely illiberal. Not merely intensely illiberal; antidemocratic, anti intellectual, indeed hostile to every single value I hold dear. And

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as a result, people who adhere to these ideas – which are by no means all of theseimmigrant communities – will necessarily find it impossible, if they believe in theseideas, not to be part of our political community, as described by Ralf Dahrendorf,namely a liberal democracy. Now, having a large number of people who find thevalues, political systems and legislation of the society in which they livefundamentally inconsistent with their basic values is pretty problematic, it seems tome, for the future of a liberal democracy, and actually raises the question of whetheryou’ve got to a point of diversity at which actually the whole becomes dysfunctional.And I would like to know what people think we should do about this. If we can doanything.

Leszek KołakowskiI know the solution. There was a Russian ideologist, socialist, but he was notBolshevik, but he was working in the period of the Russian Revolution. He wasPolish, actually, but he published in Russian. He was so interested in equality thathe came to the conclusion – seems quite Russian – that if you want to liberate peoplefrom conditions that produce inequality, you have to take every child, separate themfrom their parents, and let them be educated in common, so that all conditions oftheir rights would be identical. And therefore inequality would be avoided. Now,this idiotic and absurd proposal was perhaps only one solution if you think thatequality, we accept might be something else in a legal sense. Now, I should say thatthis writer was not an ideologist of Bolshevism, on the contrary, for some years, hewas negatively stereotyped. After the revolution, he was condemned by theideologists of Bolshevism who, after all, were not as stupid as to accept this sort ofabsurdity. But this absurdity is, I think, the most consistent doctrine if you takeequality quite seriously as a universal ideal.

Timothy Garton AshThank you Leszek. At last we have an answer. Gerhard, I suggest I take a few morecomments, and then perhaps come back to you.

Partha DasguptaI would like to make a general observation. Many of the issues we have beendiscussing this morning have to do with the effects of early experiences in a person’slife on their ‘life chances’ (to use a phrase Ralf made prominent many years ago).Much of my own work has been on food deprivation, so I know something aboutthe subject. Nutritional stress at infancy (at the prenatal stage even) has far reachingeffects on adult life. Positive feedback between malnutrition and infection in one’searly years has horrendous implications in adulthood. The pathways involved arenow well understood. Less understood (at least at the physiological level) are the

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pathways by which a child’s cognitive development is impaired by nutritionalinsults. Even less well understood are the pathways that involve human psychology.Social confidence, self-determination, and such attitudes that help to make lifesomething of a success involve early nurture (books in the home; confident andcaring parents; and so forth). We have excellent statistical evidence of suchpathways, but not an understanding of the pathways. In any event, what we do knowis that one’s history matters. And it’s not possible to make up for early deprivation,at least not in all dimensions of one’s being. Our lives suffer from hysteresis.

Martin’s allusion to cultural deprivation and Dr. Casper’s observations fit in with thepoint I am making here. The rot starts at the very earliest stages of the lives of thedeprived. The pathways Martin and Dr. Casper are referring to, and the ones I havejust mentioned, lead to ‘poverty traps’. It’s no good pump priming higher educationif primary- and secondary education are allowed to languish. We economists havea good name for inputs in production that do not substitute for one another, butinstead complement one another. We call them ‘complementarities’! Education andhealth inputs are complementarities in a person’s life. The cost of making up in lateryears for education deprivation in early years is enormous. Trying to solve society’seducation problems by making universities responsible is quite absurd. But thatseems to be what political leaders in the UK frequently expect universities here todo. They demand that universities make up for early deprivation in books, thought,and sociability.

Timothy Garton AshI’ve been working precisely on this topic and the more one looks at it, the key is inthe schools. Schools, schools, schools. Not universities, because it is too late.University is only a way of treating the resulting symptoms, not the core.

Joao Carlos EspadaVery briefly, two words. One on meritocracy, the other on diversity.

I would like to say something in favour of meritocracy, but in a sort of Burkeianunderstanding, in the sense that being the member of the elite gives you a dutytowards the public, and not that sense of arrogance against the public. So, eventhough meritocracy certainly has many problems, I would give it two cheers – notthree, just two – because most of the other alternatives seem to be morecomplicated.

Anyway, the main point I would like to make is about diversity. I would like to goback to a point that Tim made last night about this new tendency of attacking or

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condemning free speech and free criticism of other views, namely religious views,in the name of ‘respect’, respect for diverse views: you should show respect for otherpeoples’ views. I of course think that one should respect other people’s views, butthat does not mean one has to agree with them, or that one cannot criticise them,or that one ought not to criticise them, sometimes very emphatically. For thisreason, I think that this new idea of respect for other people’s views cannot andshould not be opposed to the older, and better, idea of liberty, liberty to criticiseother people’s views.

The point I would like to raise is that this new idea about respect for diversity comesfrom a different understanding of diversity; different from the traditional, liberalone – the one I learnt from Dahrendorf. In the traditional view, diversity andconflict and pluralism are natural by-products of liberty and of equal protection bythe law. In an atmosphere of liberty – which is basically founded on the rule of lawand equal protection by the law – people have different views, these views clash, orengage in a conversation. They actually influence one another and things evolve inan unpredictable way. Strictly speaking, the way they will evolve is not predictable.The only thing we can know is that they will evolve under the equal protection ofthe law. This, I think, is diversity as an unknown by-product of liberty.

Another view is that diversity is an end-state to be promoted. If one starts sayingthis, one enters into a very complicated discussion about what is the right percentageof the right diversity. It is really complicated: how can we know the right percentageof diversity? The main problem, though, is not the complication, but the collateralconsequences. If you look at diversity as an end-state to be achieved by design, thenyou start to think that it is natural to limit liberty in order to achieve a particularend-result. You then end up having to condemn free-speech, if and when free-speech is perceived as a threat to diversity (that is, diversity as a particular end-stateto be achieved by design).

I would like to say that I am very much in favour of diversity in the first sense, asan unknown by-product of liberty and the rule of law, and very much againstdiversity in the second sense, as a known particular end-state to be achieved.

Margaret MacMillanI think there may perhaps be a useful side of the financial crisis in such issues. Thecrisis is forcing us in countries where there are these issues over large communitiescoming into liberal societies and who may not respect the views of their newsocieties to confront this. The crisis and the tensions are forcing liberal societies

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themselves to define what it is they think is important, and it seems to me that wehave been having a discussion which we really haven’t had in previous decades.Someone mentioned the Obama moment – which I think is enormously important– and one of the things he did in the election campaign (for which he got muchcriticised by the Right and the famous Joe the Plumber who appeared everywhere,saying he didn’t want to pay taxes, and it turned out that he was quite successful inthat – he hadn’t paid them for years); but what Obama said, which I think waspicked up was that you do pay taxes because you get something back out of them,and he reintroduced the notion of responsibility and that we all as a citizenshipcontribute to society.

I think that is important, and the whole financial crisis may make us look again atthe rules and the ways in which we protect what it is we value in this society. I hopethis will be a positive outcome. The other thing I think with the presence of largeimmigrant communities – this is something that for obvious reasons we’ve beendealing with a lot in Canada and people like Charles Taylor have written a lot aboutit – is that it has forced Canadians, among others, in what I suppose you would callthe majority of society, to define again what it is we think are important, and thereare very important clashes.

I agree again on affirmative action – I think it is necessary to undo particularinjustices. The difficulty is that affirmative action will be continued too long, orthat it will not include the right categories, and I think that such policies are waysto reach ends, but the danger is they will become somehow permanent inthemselves. What a lot of the affirmative action has left out, both in Canada and theUnited States was class, which is something we don’t talk about which is veryimportant. And some of the people that are now benefiting from affirmative actionin fact come from middle classes who do not need the benefits of it and there arethese silly things, where people find they get benefits they don’t really need. I havenephews and nieces who have gone to very good schools in England and who are,I think, one quarter native Canadian. They could get, although they do not needit;. all sorts of special breaks from the Canadian federal government, including freescholarships here, there and everywhere.

So yes, there are absurdities at times when you carry on a principle for too long, oryou try and define it too carefully, so I think you have to be prepared to change. Ithink the other thing that liberal societies have to do, is say to communities wheretheir ways, in fact do not fit in. One of the big issues in Canada has been gender,and in a number of immigrant communities women have been treated in certain

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ways – and this also happened in native communities where native women havelost their property rights in the banned lands when they marry someone who is nota native, whereas native men do not.

And so I think that what is happening is, certainly in Canada, we’re saying ‘we havecertain things we think that are absolutely fundamental; individuals get treated asindividuals, women have the same rights as men, and we cannot tolerate, and norshould we tolerate women – because of whatever cultural values – being treated inthis way.’ I think what we’re doing is having a very interesting debate aboutprinciples, and in some cases one principle must trump another, and so I think I seesome positive signs in all this.

Timothy Garton AshI think that’s absolutely spot-on, and that’s precisely the conversation we need tohave. In all our societies, what are the liberal essentials that are simply non-negotiable? And what are the things on which there can legitimately be negotiationand compromise? I think that’s the way to frame it, actually.

Giuseppe LaterzaYes, I just wanted to say that as a publisher, this has been a wonderful opportunityto hear some very interesting and thought-provoking things. I remember the firstbook I copy-edited when I joined the publishing house in 1980, a book in which Ralftalked about life chances. It gave me a great start in this profession and it seems tome that it resonates with a lot of the things you spoke about earlier, in particularwhat you said about education providing life chances and opening new and biggerdoors. So it has a lot to do with this idea of life chances, while other things you saidhave to do with how intellectuals can, in a pluralistic way, help a number of peopleto feel themselves part of the community or society. Let me give you just oneexample: I don’t see the fact that somebody earns much more than somebody elseas a major problem, so long as reputation is not only made on money. Andreputation has to do with the relationship between people and the conceptionpeople have of themselves and of the society that they live in. And this, I think, hasto do with the same things that a liberal, pluralistic and lively intellectualcommunity has to do with...

This is the sense in which I believe Ralf ’s ideas have made a major contribution topeople like me in their work, by giving us some of his strength and transmitting tous some of his passion and perseverance, qualities that both Timothy Garton Ashand Margaret MacMillan – to whom I extend my heartfelt thanks for this wonderfulopportunity to be here today – also have in abundance. Many thanks.

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Jonathan Adair TurnerWell, I’m very sad that Partha disappeared, because I was actually stimulated by hiscomments, and I wanted to ask him a question. I wanted to pick up on this absoluteinsistence, as he said, on the role of the state in education, and the important role.He came to that from the early level at which cognitive development occurs, thestimulus that people have, the hysteresis and life of a person, and therefore in asense, without going as far as taking all babies away and educating them jointly, wehave to find mechanisms of, as it were, freeing people if necessary from theconstraints of their own background in order to have the liberty of the developmentof their life chances, etc.

But then I wanted to link that to Martin’s point about ideas and values. Becausenot only is cognitive development, in a sense, of the ability to have life chancesdetermined early, but also what you believe and what your values are, aredetermined early, as in the classic Jesuit ‘give me a child until 7 and he’ll be aCatholic for life’. Well, actually people are very determined by what they are toldearly on.

So, the question then becomes: if we have an absolute insistence on the state ineducation, how does it relate to the values and ideas? Is it the overt aim of that, andI would say, in answer to this one: yes, is that if there were a Muslim girl from a verydevout background, they are giving her an education such that if she wants thechoice, she would be capable of saying: I have ceased to be Muslim. But that, tomost of the Islamic community, is an incredibly offensive statement. Large amountsof the Islamic community would just not accept what I have said.

First of all, in a lot of Islamic areas, the whole idea of apostasy – leaving the faith –is absolutely unacceptable. Islam is tolerant of those who never had the faith, butif you read the Qu’ran, it is totally intolerant of those who were born into the faithand left it, and is certainly, therefore, intolerant of any state education system whichsays: one of my overt aims is to make sure that anybody who comes from abackground with one set of beliefs has the freedom If they want to choose anotherset of beliefs. And I think we have to realise that we do face that conflict, and wehave to debate it. Now, I am in this, a French Republican, laïque etc, but that is avery particular point of view.

Timothy Garton AshI don’t think you need to be a French Republican! It is a liberal essential to offerhuman beings that minimal autonomy in which they can make informed choices.

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That is a minimal essential which we have conceded in this country. We haveabsolutely conceded it, whilst quarrelling about less important things.

Giuliano AmatoJust on this question, because, Adair, it is very dangerous to tell Muslim people: ifyou want to accept liberty and the basic values of our societies, you have to stopbeing a Muslim. This is really disruptive. I mostly appreciate the goal of thoseIslamic intellectuals who are now trying to read the Qu’ran compatibly with ourtimes. There are principles we don’t accept that may depend on the word of theMuslim God, but there are others that just depend on backward traditions. Mostof the gender issues in Muslim culture do not depend on religion but on thosetraditions. Once I happened to say that my family comes from Sicily, and decadesago the treatment of women in Sicily was not very different from theirs. I spoke ofa long standing Sicilian and Pakistani tradition when our public opinion was underthe shock of a Pakistani father who had killed his daughter for she wanted to livelike any other girl in Italy. My God. I had reactions from Sicily – incredible! – andalso the Ambassador from Pakistan! So, this is the point: there are several aspectsof that culture that depend on backwardness, and in the same way as Sicilianschanged, Muslim people in our societies may change...

Timothy Garton AshAnd the Word of God is interpreted in diverse ways.

Ralf DahrendorfWell, it seems to me, the education points are important, but there is one otherpoint. Where does the rule of law emphatically apply? Where do we not makecompromises? And here my answer, Martin, would be in what I call the ‘publicspace’: in ‘public spaces’ narrowly defined, but once defined quite unambiguouslydefended.

I think we should insist on certain values. But I repeat ‘narrowly defined’; that isto say we should not get into what happens to the families and in the homes. Weshould get into people’s behaviour where it is relevant to others. That is the directionin which I would look if I were asked to define those areas in which I am notprepared to compromise, and where I insist I do want us to accept thesefundamental values.

Frances D’SouzaCould I just add to that? I think there may well be a fundamental dilemma here.Several participants, but particularly Martin Wolf, have said that the media is a

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vehicle for the expression of outrage and thereby entrenches fundamental norms,but I think we have a tremendous crisis in the media. And not just the print media;obviously also in electronic media, and as everyone will know, this is a wonderfulpublic space for expression of views: quite free, blogging, and twittering, and all therest of it, but we also know that there are a number of bloggers who are expressing,to put it mildly, hugely politically incorrect views, and they are gaining ground.

Now, this operates entirely outside the rule of law, and I wonder therefore, in viewof what Ralf has said, whether or not there ought to be some kind of mechanism fordealing with the so-called ‘irresponsible press’.

Timothy Garton AshIt also operates outside the bounds of the nation state.

Frances D’SouzaExactly.

Fritz SternThree very quick points. Discussion in the last hour or so reminded me simply ofRousseau: man is born free, he had never worn chains, and Rousseau himself afterall developed, in Émile, the notion of how important education was, for somebodyto then enter into the social contract and so on. And that combination, it seems tome, is something that we have paid insufficient attention to.

Secondly I wanted to say, as far as university life is concerned, what hasn’t been saidexplicitly, but I’m sure was implicit in Gerhard’s remarks – the position of womenin universities has changed fundamentally. And basically, I’m glad to say, withoutmuch disturbance or trouble. It took a certain amount of conviction, commitmentand so on, but we are in the process of doing it. On the other hand, one other thingI wanted to say is that I have an enormously difficult subject, but I have certainly toagree with what Gerhard said about affirmative action. And the fact that it has apolitical fallout does not deter me at all. But I think one ought to be aware of thefact – perhaps not everyone in the room might not even be aware – of the fact thataffirmative action in the United States was closely related, has been closely related,to the rise of what we call the ‘Neo-Conservatives’. In that light, we paid for progressand it was a heavy cost, but part of the [Obama] victory may be that the Neo-Conservatives had to fall back on their think tanks.

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Gerhard CasperWell, there were so many interesting comments, and it is about time for us to breakup. Let me just refer to something that I have been working on in a wholly differentcontext over the last couple of years and that came up in almost every comment inthe last hour. It is the issue of how we understand citizenship. It is very intriguingthat a 1795 statute – it is still the law in the United States – provides that a newcitizen, as the new citizen is sworn in, has to foreswear allegiance to his/her countryof origin. And yet, since a Supreme Court decision in the 1960s, the United Stateshas come to accept dual citizenship. People can now diversify their citizenshipportfolios. I think it is fascinating what has happened in Britain over the last 10years, mostly beginning with the Blair government, and that is: you are takingcitizenship seriously, in a way you never have done. You are beginning to imitatethe United States. There are now swearing-in ceremonies. It used to be that youwould just get your naturalisation papers in the mail. There is much discussionabout education for citizenship, which leads us eventually to the role of schools.

Every conference always ends by saying ‘schools have to remedy the problems wehave identified’. But I would like to say that teaching values in schools, which we areoften afraid of for being ‘illiberal’, is unavoidable in order to deal with these basicissues. It is completely unavoidable.

Timothy Garton AshGerhard, thank you for beginning and ending what I think has been anotherfascinating session. Before we break for lunch I want simply to say that this hasbeen a quite wonderful morning’s conversation, after a wonderful session yesterdayafternoon. And the reason for that, as we all know is Ralf. The wonderfulconversation is because of him, animated by him, inspired by him and characteristicof him. And so, I think we might have a round of applause: both to thank ourselvesand above all to thank Ralf.

Ralf DahrendorfAnd a round of applause for you.

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Contributors

Professor Giuliano AmatoPrime Minister of Italy 1992-1993, 2000-2001

Dr Markus BaumannsExecutive Vice President, Zeit-Stiftung, Ebelin und Gerd Bucerius

Professor Gerhard CasperPresident of Stanford University 1992-2000

Professor Paul CollierProfessor of Economics, University of Oxford

Sir Patrick Cormack MPConservative Member of Parliament for South Staffordshire

Baroness Frances D’SouzaConvenor of the Crossbench Peers, House of Lords

Professor Sir Partha DasguptaFrank Ramsey Professor of Economics, University of Cambridge

Sir Howard DaviesDirector of the London School of Economics and Political Science

Professor João Carlos EspadaDirector of the Institute for Political Studies, Catholic University of Portugal

Professor Timothy Garton AshProfessor of European Studies, University of Oxford; Isaiah Berlin ProfessorialFellow, St. Antony’s College

Professor Jürgen HabermasEmeritus Professor of Philosophy, Goethe University, Frankfurt am Main

Professor Leszek KołakowskiEmeritus Fellow, All Souls College, Oxford

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Mr Ivan KrastevChair, Centre for Liberal Strategies, Sofia

Mr Giuseppe LaterzaPublisher

Professor Margaret MacMillanWarden, St. Antony’s College, Oxford

Professor Lord (Robert) SkidelskyHouse of Lords

Professor Fritz SternUniversity Professor Emeritus, Columbia University, Provost of the University, 1980-83

Lord (Adair) TurnerChairman, Financial Services Authority

Mr Martin WolfAssociate Editor and Chief Economics Commentator, Financial Times

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A select list of books by Ralf Dahrendorf

There have been numerous editions and translations of many of these books.Only translations made by the author himself are included in this list.

Marx in Perspektive. Die Idee des Gerechten im Denken von Karl MarxJ.H.W.Dietz Nachf.: Hannover [1953]. 2nd ed. [Die Idee des Gerechten imDenken von Karl Marx] Verleg f.Literatur und Zeitgeschahen: Hannover1971.

(Ed., with an introduction) Gustav Dahrendorf: Der Mensch das Mass aller Dinge.Reden und Schriften zur Deutschen Politik 1945-1954Verlagsgesellschaft deutscher Konsumgenossenschaften: Hamburg 1955.

Industrie-und Betriebssoziologie De Gruyter: Berlin 1956, 4th ed. 1967.

Soziale Klassen und Klassenkonflikt in der industriellen GesellschaftF.Enke: Stuttgart 1957.

Class and Class Conflict in Industrial SocietyStanford Univ.Press/ Routledge & Kegan Paul: Stanford/London 1959.

Homo Sociologicus. Ein Versuch zur Geschichte, Bedeutung und Kritik derKategorie der sozialen Rolle Westd.Verlag: Köln-Opladen 1958.

Homo Sociologicus Routledge & Kegan Paul: London 1973.

Sozialstruktur des Betriebes Th.Gabler: Wiesbaden 1959.

(Ed., with H.-D.Ortlieb) Der Zweite Bildungsweg im sozialen und kulturellenLeben der Gegenwart Quelle & Meyer: Heidelberg 1959.

Gesellschaft und Freiheit. Zur soziologischen Analyse der GegenwartR.Piper: München 1961. Several editions.

Die angewandte Aufklärung. Gesellschaft und Soziologie in AmerikaR.Piper: München 1963.

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Das Mitbestimmungsproblem in der deutschen Sozialforschung. Eine Kritik SoziolSeminar: Tübingen 1963.

Gesellschaft und Demokratie in Deutschland R.Piper: München 1965.

Society and Democracy in Germany Doubleday: Garden City 1966.

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Fragmente eines neuen LiberalismusDeutsche Verlags-Anstalt; Stuttgart 1987.

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