Issue #49 February 2022

The Ethical Leviathan – The state in times of social and economic fragility

The conversation on the role of the state is central to understanding the moral-philosophical ideas of liberty and tyranny, as well as the political-philosophical ideas of democracy and autocracy. Because of its centrality, this conversation inevitably expands outside of merely utilitarian and into ethical grounds. On such grounds the role of the state in society has been under diligent examination from the times of the Reformation for restricting the religious liberties of the individual. From the 17th century onwards the state has been under continuous assault for restricting the economic and civic liberties of the individual. Evidently the state has endured, not so much because of its virtues, but simply because of the lack of alternatives. The strategy of surviving by simply being irreplaceable has prevailed over various reductionist and nihilistic tendencies. Nonetheless the debate of the moral justification of the role of the state in society has not withered away. In a new age of global and interconnected risks of a climatic, pandemic, and financial nature, the ethical justification for the intervention of the state in society, aiming to protect or restrict its liberties, becomes of critical importance. This essay revises some aspects of the contemporary understanding of the moral judgement of the state in the context of anglophone experiences and philosophical tradition.


Sound the Retreat

In the first quarter of the new century this debate continues to engage vigorously both the academic and the wider public domains. This expansion of intensity of thought and discourse today is driven by the conditions of four systemic and entangled crises – in credit worthiness, population displacement and migration, climate change vulnerability, and human health. In all of these crises the state has stepped in to a different degree to regulate, remediate, compensate and sanction. This renewed vigour of activity comes after some notable retreats and, most prominently, from its role of economic activity manager and regulator. From the late 1970s the ability of the state to regulate and restrict the economic liberty of both the individual and the corporation has come under intellectual and political attack by the proponents of neoliberal market philosophy. At its core this is an ideological contest on the optimal approach to protecting and promoting the concepts of individual liberty and of the public good. 

The critical proposition of the philosophy of liberal markets is twofold. Firstly, it maintains that the economic liberty of the individual is a necessary and irreplaceable condition for the realisation of their civic liberty. Secondly, the economic liberty of the individual is a major creative and constructive force which enhances the protection of the public and societal good. When undesirable externalities and conflict may occur as a result of such arrangements of economic liberties, then such issues are always secondary and manageable through the risk redistributive forces of the market. Furthermore, restricting and regulating the creative forces of economic liberty is detrimental to all individual civic liberty and to the societal good in general. 

On the opposite end of the spectrum, the statist philosophical tradition of economic intervention maintains that the economic liberties of the individual are optimally ensured and protected by the institutions of the state. This tradition further claims that the economic endeavours of the private citizen will inevitably enter into conflict with the wider public good. As a rational and self-interested party, the individual operating within this framework will maximise and retain their benefits and externalise their costs into the social domain as much as possible. In a society with finite natural resources and capabilities to absorb and remediate negative externality a conflict of burden and shortage emerges. The state, with its tools and mechanisms of remediation, regulation, and sanction, is the only fair arbitrator, and the only entity capable and equipped to protect the societal good. However, the configuration of political and intellectual forces in the late 1970s was such that it drove into retreat this doctrine of the economic role of the state in society. The prevailing understanding of the utility of this role was in practical and ideological retreat for 30 years until the arrival of the first shocks to the sovereign, corporate and personal credit markets in the first decade of the new century.


Systemic Interdependence and Transformation

The arrival of systemic economic shocks from 2008 onwards bucked the trend of the retreat of the state from its involvement in market management and regulation. The distributive properties of the liberal market system were clearly not sufficient to prevent the concentration of risk and ruin in some well-established corporate and sovereign institutions. These institutions were significantly large and deeply interconnected in economic networks such that their collapse would threaten widespread social damage. At times of regular economic growth, of smooth and undisturbed operations of markets and corporate institutions, the riskiness of interdependence does not seem evident or essential. At such a time interdependence serves as a mechanism, which channels and allocates risk and resources in what is clearly an efficiently operating market system. This quickly changed during the economic shocks and the extreme and catastrophic developments in the financial system taking place by the end of the first decade of this century. Systemic interdependence rapidly transformed into a source of risk contagion across all aspects of civic life. The fragility of social networks during shocks severely restricted the economic and civic liberties of the individual in aspects of credit worthiness, wage earning potentials, purchasing power and entrepreneurial initiative. The financial crisis itself with all of its impacts across the socio-economic fabric of society became the overwhelming violator of the economic liberty of the individual and the corporation – a charge which traditionally was levied on the restrictive and regulatory actions of the state. The full exercise of economic liberty by a small group of individuals and financial firms in its most exuberant form had produced a systemic externality in the form of a large accumulation of risk and ruin in critical corporate and sovereign institutions. The extreme fragility of the system was evident and threatening to drive already existing societal fractures into a full systemic collapse. At that moment, and arguably and literally in the 11th hour, the state entered the fray and lent its resources to prevent such a catastrophic eventuality. 

There are many technical stories and definitions of the intervention of the state in the financial and economic events of 2008–2013. The definition which allows for examination of the ethical judgement of the state is that of corporate and sovereign debt mutualization. The ethical nature of the intervention of the state is quite evident. The state explicitly redistributes a negative externality of economic ruin concentrated within one small group of individuals and corporate actors across all of society by means of its fiscal and monetary mechanisms. This is an explicit moral judgement openly executed by the state on behalf of the wider societal good. From the perspective of the state as a civic actor, the redistribution of the ruinous burden of excessive debt across society becomes a preferable outcome than a deep societal fracture and collapse. Stability and preservation of social order become paramount. This is an undeniable ethical judgement which the body of the state has explicitly embraced and exercised on behalf of society. The threat associated with the role of the state in socio-economic activity in these circumstances is now entirely transformed and has transgressed from fear of overreach and of restricting liberty to fear of the failure to engage and to provide support. The risk emerging in society at this moment is no longer that the economic liberty of the individual and corporation are being restricted by the state, it is rather that the state may fail to act in time or that its action may not be sufficient to prevent a complete economic collapse. The ethical judgement of the state, and the state’s intervention based on this judgement, are now demanded and fully welcomed by social consensus. It is then only the commitment to the common good, and to its pure survival as part of this concept, which drives the formulation of the ethical judgement of the state and consequently of its actions. Since economic and civic liberty of the individual are two of the key components of the societal good, the actions of the state are now fully inverted: from curtailing economic liberty to now protecting and promoting this human condition.

A Moral Sentiment Revised

The intervention of the state on moral and ‘common good’ grounds, and the consensual acceptance of such actions by society, creates an apparent contradiction with the classical theory of liberty, which cannot be left unrecognised. Two fundamental schools of thought – of Thomas Hobbes and of Adam Smith  – define this classical tradition.  The liberty of the individual is at the fulcrum of contention. 

Hobbes’ conclusion is that the only action which the individual could take to ensure his liberty, both civic and economic, is to fully submit to the state. It is the state’s task and destiny to protect and ensure the freedom, rights, and dignity of the individual. Individual actions of civic and democratic nature, pursuits of economic and entrepreneurial substance cannot improve on these three essential human conditions. In fact, they are likely to create only discourse, conflict and rupture among social classes, which are to the detriment of the whole of society. The state on the other hand is the only civic institution which is both entitled by its contract with society and capable by virtue of its resources to improve upon these human conditions. 

Adam Smith is no less concerned with the civic and economic liberty of the individual. In fact, it is his primary concern. He questions not the entitlement of the state and its contract with the individual in particular, and with society in general, nor the resources of the state. The concerns raised by Smith are about the depth of knowledge of the state, of its intellectual know-how, which, if insufficient, would severely impair the effectiveness of its intervention to enrich the liberty of the individual. Much more than this, such an intervention may prove to be detrimental to the cause of civil liberty. The concern raised by Smith is towards what extent such intimate and detailed knowledge accompanied by moral judgement could possibly be possessed by a single person, and by association by the body of the state. On the other hand, Smith observes that the actions of the common entrepreneur, through the free flow and exchange of goods, services, and ideas, create social conditions under which the civic liberty of the individual is most thoroughly guaranteed.

In the last quarter of the 18th century, craftsmen, manufacturers, traders, entrepreneurs, or, more generally, the middle classes, were the champions of civic and economic liberty. They contended with the formidable powers of the state and of the landed aristocracy. Their ingenuity in producing goods and their inexhaustible energy in distributing and trading them provided these social classes with incomes and position in society, which ensured their economic and civic liberty in a system where they were by far not the dominant political force. It was unimaginable to scholars and moral philosophers of the time that the economic actions of the common entrepreneur would cause a deep and degradative crisis in society. Rather the opposite: Adam Smith was convinced that vigilance was needed to guarantee that the encroachment of the state and of the large landowners did not threaten the survival of the goods-producing and trading middle class. The preservation of economic liberty, a foundation for all civic liberties, was at stake. 

The effectiveness of a socio-economic system, and the robustness of civic liberty which it enables, matters not only in times of prosperity and growth, but also in a time of crisis and threat. A systemic catastrophe and economic collapse with massive impoverishment and dislocation of populations would destroy the foundation of civil liberty. In our own time, entangled and interdependently destructive forces of financial and credit ruin, health, pandemic and climate vulnerabilities have the potential to bring about such catastrophic futures. When preventing or remediating such outcomes proves to be beyond the powers of market forces the institutions of the state are called upon to intervene. The thrust of such intervention upon society in modern times is impossible without an explicit moral judgement by the state on assumption of its role as guardian of the public good. The concept of the greater public good once again is at the centre of ethical provisioning among private and public actors and institutions. The dual nature of the state precipitates the need for explicit definition of its moral judgement and for examination of the justification of its actions. By its Hobbesian nature the state would be willing to offer protection to the individual from calamity, in return it would require a full surrender of their liberties. This is a contractual relationship between the state and the individual, or more generally between the state and society, but clearly it is of an unequal nature. The State in a Hobbesian framework assumes that all civic good and liberty equates with the stability and the health of its institutions and thus that all civic good flows from its own deliberations. In this paradigm, more relevant to the continental European experiences, the interests of the state and society merge seamlessly and perfectly, while the state holds the definitive prerogative of formulating these interests.  

By its duality, and by its liberal nature, in parallel the state would recognize that the traditions of Adam Smith and the forces of economic liberty, entrepreneurship, and trade are the ones to create the true conditions for material and moral prosperity as core premises of civic liberty. This is the paradigm closer to the political experience within the Anglosphere. Yet in the last 70 years, we have many examples of both traditions failing the common good of society. The hard, theoretical application of either statist or liberal market principles in a dogmatic manner may not be sufficient to address the formation and emergence of multiple and dependent societal risks today. The notion that institutional tools, mechanisms, and policies need to be selected and implemented upon their merit and upon their fitness for purpose for solving particular civic problems rather than on pure ideological grounds is not new. The critical question, though, remains: if the state with its network of institutions is capable of making such selections and deliberations effectively on behalf of the societal good. We have now come full circle as this is the same question which Adam Smith posed in the Wealth of Nations nearly 250 years ago. The historical reality and the ethical grounds of the question however have changed entirely. In its originality Adam Smith initiated the conversation in order to encourage the individual drive for economic and civic liberty and to caution against the intervention of the institutions of the state, based on their insufficient knowledge to act on behalf of the common good. Smith doubted the cognitive ability of the Hobbesian state to be an effective moral arbitrator of the societal common good. 

Now, some 250 years later, the frailty of cognition is not limited to the institutions of the state. The recent catastrophic events of the sovereign credit and financial crisis were not the first banking and economic crisis to descend upon society. Despite a rich historical experience, well-studied and well-documented, the corporate financial sector, as well as some sovereign borrowers, found themselves fully unprepared to shore up a multi sector-wide economic meltdown. At that time the charge of failure of cognition, business reasoning, and moral judgement could have been effectively levelled at both private and state economic actors and institutions with the same validity. Deeper inside the decision-making processes of economic actors (individual, corporate and sovereign) such decisions, which proved to be detrimental to the wider civic good, may be due entirely to lack of knowledge and to information sparsity and asymmetry. Such decisions may very well be fully optimal and well informed from the perspective of a single economic agent. Economic action also comes about as the result of the setting of priorities, defining hierarchies of expected and desirable outcomes, based on hierarchies of values, by all the critical actors involved.

Rather than an issue of information asymmetries and market inefficiencies, the argument turns more urgently to organising priorities of moral sentiments, hierarchies of values in the perception of the public good. The task of structuring the priority of moral sentiments and ethical values would be more equally met if it were to be taken on not only by the institutions of the state but also by the wider civic orders. After all, recent events and historical examples show that this task is too important to be left to one order of society. When such a singular formation of the priority of values occurs, whether we rely on the mechanisms and channels of the markets, or on the prerogative power of the state, the outcomes are oftentimes less than desirable. The institutions of the state, the corporate sector, and civil society can work in synchronicity on this hierarchy of moral sentiments only within a stable and democratic political framework conducive to this purpose. A framework which will allow the various orders of society to raise the definition of the public good to the top of the agenda: a revitalised and ethical Leviathan.

Ivelin M. Zvezdov is a financial and insurance economist. He has masters’ degrees from the Universities of St. Andrews and Oxford. He works on natural and man-made catastrophe modeling and product development for the (re)insurance industry. His research interests include climate change and environmental risk, network contagion, and propagation of systemic risk. He is currently looking into applying these modeling principles to sustainable and ecosystems approaches to managing of natural resources. Mr. Zvezdov has published research papers on financial and insurance quantitative methods for risk management, and on environmental and biodiversity risk estimation.


February 2022


Intact Bodies: The Ambivalence of The Natural and The Normal

John C. Brady in conversation with Clare Chambers

Walter Benjamin and the Language of Disability

by Riley Clare Valentine

The Ethical Leviathan - The state in times of social and economic fragility

by Ivelin M. Zvezdov

Limitations of the Limitless: In response to “Reality+” and our VR future

by Heba Yosry