Lao-tzu, thought to have been an older contemporary of Confucius, may have been the first libertarian. In the Tao Te Ching ("The Classic of the Way and Its Virtue"), he argued that if government followed the principle of wu-wei (non-intervention), social and economic harmony would naturally emerge and people would prosper.
That message is one China's leaders need to hear as the cracks in market socialism get wider and wider. The recent backlash against Chinese imports, due to concerns over product safety, can't be corrected by executing public officials. What China needs is a system based on free markets and the rule of law, or what might be called "market Taoism" rather than pseudo markets tainted with government corruption and the lack of private property rights.
The essence of Lao-tzu's liberal vision is stated concisely in Chapter 57 of his book: "The more restrictions and limitations there are, the more impoverished men will be....The more rules and precepts are enforced, the more bandits and crooks will be produced. Hence, we have the words of the wise [ruler]: Through my non-action, men are spontaneously transformed. Through my quiescence, men spontaneously become tranquil. Through my non-interfering, men spontaneously increase their wealth."
That passage, written more than 2,000 years before Adam Smith's call for a "simple system of natural liberty," is a reminder that China's legacy is not the commands of Mao Zedong Thought but the freedom of Lao-tzu Thought.
Although Lao-tzu did not have a fully developed theory of the spontaneous market order, as did F. A. Hayek, the above quotation clearly shows that he recognized the importance of limited government and voluntary exchange for wealth creation.
The corruption that plagues China today stems from too much, not too little, intervention. When people are free to choose within a system of just laws that protect life, liberty and property, social and economic harmony will occur naturally. Top-down planning cannot impose spontaneous order; it can only evolve from decentralized market processes.
Good government must be in harmony with each person's desire to prosper and to expand the range of choice. By emphasizing the principle of non-intervention, Lao-tzu recognized that when government leaves people alone, then, "without being ordered to do so, people become harmonious by themselves." He thus understood, at least implicitly, that central planning generates social disorder by destroying economic freedom. When coercion trumps consent as the chief organizing principle of society, the natural way of the Tao and its virtue (Te) will be lost.
Disorder arises when government oversteps its bounds -- when it overtaxes and denies people their natural right to be left alone to pursue their happiness, as long as they do not injure others. Lao-tzu saw taxes, not nature, as the primary cause of famine: "When men are deprived of food, it is because their kings [rulers] tax them too heavily." Likewise, he recognized that rulers could easily destroy the natural harmony people cherish by destroying their liberty: "When men are hard to govern, it is because their kings interfere with their lives."
Mao's destructive policies during the "Great Leap Forward," which abolished private property, imposed central planning and led to crippling taxes on farmers in the form of compulsory grain deliveries, caused mass starvation between 1958 and 1962. The "Great Helmsman's" disregard for private property and human rights still haunts China. Conflicts between developers and farmers over land-use rights are still causing social turmoil in China today. Rather than creating private property rights in land, the government continues to treat peasants as serfs, though land-use rights have been extended. The internal passport (hukou) system also interferes with individual freedom and leads to economic inefficiency.
Hong Kong's motto "Small government, big market" is in tune with Lao-tzu Thought. And Lao-tzu's advice to China's early rulers is pertinent today: "Governing a large country is like frying a small fish. You spoil it with too much poking."
Freedom requires some boundaries if it is to be socially beneficial and not lead to chaos. Lao-tzu understood the need for rules but, unlike later liberals, did not develop the ideas of private property and freedom of contract that underpin a market-liberal order.
China's present leaders call for a "harmonious society," but such a society is impossible without widespread freedom and a rule of law that limits the power of government to the protection of persons and property. They could learn much from the teachings of Lao-tzu.