Cooperation only works for small groups

Like Adam Smith, Hayek took a kinder view of human nature than other writers in the liberal tradition. He asserted that within small groups, cooperation is the instinctive mode of human interaction. Such groups depend on altruism and loyalty to survive; at that level, those traits are successful. But as the range of interaction extends, this sort of cooperation is no longer feasible. Cooperation makes impossible demands on the ability of large groups to gather and process information; competition is the only way to regulate interaction on this scale. The attempt to extend cooperation beyond its natural limits is not just doomed to fail, it is also extremely dangerous. Competition requires no designer; cooperation on the large scale does. Socialism, the most ambitious and misguided form of large-scale cooperation, cannot be implemented without a strong central authority.

Hayek's greatest weakness was that he had almost nothing to say about market-failure. In cleaning up the environment, for instance, the state must indeed intervene on behalf of society: externalities mean that free markets are unable to discover the outcomes that individuals seek.