Liberals were once accustomed to viewing their social order as a set of mutually reinforcing rules and practices in which all good things go together. In the past two decades, however, latent contradictions have emerged in the liberal international and domestic orders making the system’s core principles now seem self-undermining. Neither the invisible hand of free competition nor the visible hand of democratic regulatory policy, the two strong suits of the liberal order, has been able to re-establish the stable equilibrium of liberalism’s basic operating systems.
We identify systemic contradictions at the core of the liberal order and also discuss contradictions in societies like China that are struggling to accommodate liberalizing market reforms as they face the middle-income trap.
These tensions have existed within liberal systems since their earliest days, but they have come to the fore in recent decades in part because of the shift from the liberalism of the democratically managed Keynesian welfare state to the libertarian style of liberalism. Three invisible-hand mechanisms have historically been at the core of liberalism’s success: the invisible hand of the free market aligning individual interest with social efficiency, free competition for votes empowering the practical wisdom of the median voter, and the free marketplace of ideas allowing better ideas to come to light. A fourth invisible hand mechanism is the balance of power, which has enabled allied liberal states to win of six out of the last six hegemonic wars. In all these realms, however, the success of these seemingly self-regulating systems has depended on strengthening the visible hand of norms, laws, and institutions that embed these self-adjusting mechanisms in an effective regulatory structure.