Reform liberalism modifies the meaning of liberalism’s key ideas of liberty and equality. Classical liberals focus on negative liberty – freedom as the absence of interference with the individual. Reform liberals certainly agree that the freedom to be left alone (‘negative liberty’) is important, but they add a more positive requirement: for an individual to be truly free, they must have an actual capacity to pursue their ends in life.
Similarly, where classical liberals see equality in terms of equal legal rights, reform liberals argue that, yes, equal rights are important, but we also have to have equal opportunities. Taking the same example, the ‘right’ to get a university education is worthless unless one has a meaningful opportunity to act on this right – e.g., through government subsidies to post-secondary education, paid for by taxation, which make it financially affordable to attend.
As this example suggests, the standard reform liberal answer to the question of how to create ‘positive’ liberty and ‘equality of opportunity’ involves a much more active role for government than imagined by classical liberals. This typically involves redistributing wealth: taxing those with higher incomes and directing that money into government-sponsored programs accessible to all (such as old-age pensions, unemployment insurance, subsidized higher education, publicly funded health insurance, and so forth). The assemblage of social programs intended to protect citizens from destitution ‘from cradle to grave’ came to be known as ‘the welfare state’ and by the mid-20th century had become a more-or-less consensus position in liberal democracies (Renwick, 2017). The role of the state expanded massively between 1900 and 1970, as governments influenced by reform liberal ideas became providers of a huge array of programs.
U.S. President Franklin Delano Roosevelt captured the spirit of reform liberalism toward the end of his 1944 State of the Union Address when he declared that ‘true individual freedom cannot exist without economic security and independence. Necessitous men are not free men.’ He went on to propose a new Bill of Rights that included the right to a good job, food, clothing, recreation, housing, medical care, good education, and economic security in old age. These aspirations capture very well the reform liberal view of the role of government.
Reform liberalism also took a different view of economics. Here, the key figure was the great economist John Maynard Keynes. Keynes argued against the laissez-faire preferences of classical liberals. Recessions and depressions caused enormous unnecessary suffering, and the Great Depression of the 1930s showed that the ‘invisible hand’ could not be trusted to end that suffering in a timely manner. The solution, again, was a much more active government. Governments could stimulate ‘aggregate demand’ for products and services through make-work projects, infrastructure development, and subsidies to individuals and companies (later Keynesians added tax cuts and lower interest rates to this formula). Stimulating demand would lift the economy out of recession and get things back on track. To pay for economic stimulus, Keynes thought governments should practice deficit spending if necessary during downturns. Once the economy picked up again, they should pay down the deficit. Such ‘Keynesian economics’ promised to smooth out the ‘business cycle’ of economic growth and contraction that had long bedeviled capitalist economies (Skidelsky, 1986).
This combination – welfare states plus Keynesian economics – defines reform liberalism, and it became the dominant liberal model during the postwar era (1945 to about 1980). Most liberal-democratic governments practiced some form of it. States came to oversee a suite of social programs, regulations, powerful labour unions, and what was often called ‘macro-economic management.’ This entailed a larger degree of economic planning and public ownership that had prevailed before the Second World War. Full employment was often the stated goal. The state, far from leaving people to fend for themselves in a dynamic but often merciless market, now had a direct responsibility for the economic welfare of its people.
By the 1970s, this semi-consensus had begun to break down. The western postwar boom seemed to have ground to a halt: a combination of high inflation and high unemployment (‘stagflation’) baffled economists and challenged governments, which found themselves running structural, that is, ongoing, deficits, and ratcheting up debt.