Monday, October 31, 2005

ON THE WORKINGS OF THE CLASS SYSTEM; or, its the state, stupid: Why it is the political process that creates the ruling class, not the other way round

Care of Mutualist.Blog, Anthony Gregory, at Lew Rockwell.com, has provided us with some interesting insights that can be added to another article care of Mutualist.org that I'll get to in a second, plus some stuff I wrote on Liberty Forum recently, to develop libertarian class theory.

A while ago, I said that so many on the left actually sell-out to the ruling classes by demanding greater state-intervention when this is precisely what the ruling classes want, and precisely where their power comes from. The objection is that the interventions the left want are there to benefit society. But, so what? Again, the ruling classes still favour it, and they benefit from the apparent "good-will" attached. For instance, favouring minimum wages is a great and wonderful thing that helps workers (yeah, right!!!). In practice, though, it helps cartelise industries by raising the entry costs into the industry for new competitors. Existing competitors bear costs as a result, but less so than new competitors. So favouring minimum help shut out would be competition. And low an behold Wal-Mart boss has come out favouring minimum wages. It helps them get a monopoly, whilst also making them look good.

Another example: African ruling classes love recieving our foreign aid, because the rulers spend it on themselves and their pet projects, and the masses that the public in the West want helped see none of it. So governments in the west say, "fine, we will peg foreign aid to efforts to fight corruption, and only give it to rulers that make efforts to fight corruption." But when it can cost somebody in Africa up to ten years and thousands and thousands of pounds to open up a business in accordance with the regulations governments have imposed, the only way that anybody can make any living whatsoever in Africa and much of the third world is by bribing officials. So corruption is the only way that anybody can make any living, unless they work for the ruling elite, and it is the only way of getting into business to compete with the ruling elite. So here we have rulers saying, "Yes, you can trust us with your foreign aid, look at how we fight corruption," and all we are doing is paying them to eliminate their competitor's only means of getting into business. Again, the ruling class benefits from what looks good.

So the left faces a problem quite simply in declaring that rather than favour laws to benefit private interests, they will support laws to curtail them for the public good. The problem is that the private interests, the ruling classes, use precisely the laws that the left favour in order to maintain their power. And so Anthony Gregory writes,

Politicians, too, are private interests. So are bureaucrats, social engineers, public schoolteachers, and policemen. They are all individuals, regardless of their spruce uniforms or tax-funded pension packages. The political class itself benefits anytime the government expands, and yet it is rarely recognized as a vested interest in politics.

The same private interests willing to cheat the consumer and worker in business are also willing to enter politics, to fund campaigns, to run for office, to bribe officials, to exploit every advantage the state offers to the dishonest entrepreneur. Further entrenching the monopoly of violence that is the state into the economy only ups the ante of the game over political influence. The more the state can regulate private interests, the more private interests will take control of the state.

The larger the state is, the more private individuals and groups have an interest in keeping the racket going. As the government expands to the detriment or assistance of specific sectors of the economy, collusion is inevitable. Those with power will use it to help the businesses they favor for whatever reason, and those in business will seek to deflect harmful legislation and encourage desired legislation. The more government intervention in the economy, the more the state and business classes coalesce, the more private interests can socialize their costs and privatize the profits to themselves. Socialism merely guarantees unearned profits and unjust power to whoever controls the state. And the state will be controlled by someone.


This ties in with something I was saying on Liberty Forum. A chap, "Ubertarian," something of an anarcho-socialist sofar as I can tell, said, "What I call the ruling class is that part of the population that has enough wealth to have an influence on the structure of society." My response was, "Surely any class that rules is a ruling class, regardless of whether it is because of how much wealth they have. If a group has between them, say, more votes than any other group, then it can effect the structure of society. Why would that not be a ruling class?" Ubertarian said, "A rather empirical criterium. In state capitalism, that would be those who can control the state through corruption, lobbying and infiltration. (note that my theory is the opposite of the one you presented - you said people use political power to attain wealth while I believe it's the opposite, though of course power later serves to gain yet more wealth.)" My response was as follows:

It can often require wealth, yes, but it doesn't need to. It can simply be the way government works. Politicians and political survive and prosper depending on whether they supply laws and policies that people are willing to "pay for." They are, then, like business men selling laws and policies to consumers. Consumers buy the laws and policies they want by spending votes and campaign support on them. But voting and campaigning are not costless activities. Somebody who votes or campaigns for one thing may not be able to vote or campaign so much for others. They are certainly not able to spend the time and other resources they use campaigning on other things. If they are to vote wisely, then they also have to spend time and other resources informing themselves of the policies.

On the free-market, say whenwe are buying cars, we also have to inform ourselves of benefits of different cars. But we tolerate this, because in the end it is us as consumers who get most of the benefits of the cars. The same with resources we have to give up in order to get the cars - we get most of the benefit of getting the car, so we can decide whether it is worth spending resources that way. With laws or policies supplied by governments, though things are different. Laws and policies are provided not just to those who vote or campaign for them, but to everybody, whether they vote or campaign or not. In short, the benefits can be obtained without incurring the costs. This means that where a law or policy is a public good, where its benefits are non-excludable and indivisible and so have to be supplied to a group of people, the law or policy will be under-demanded. Votes and campaigning for it will be under supplied. On the other hand, where laws or policies confir benefits that are excludable, that are divisible, that are "private goods", support for them will not be under supplied. Given, then, that politicians and political parties prosper and survive in accordance to their ability to supply the laws that there is most likely to be support for, and given that there is most likely to be support for laws and policies that confir benefits that are private goods rather than public goods, democratic governments will undersupply laws and policies that work in the public good, and over-supply laws and policies that are in the private good.

Now add to this the observation that special interest laws are more nearly private goods than non-special interest laws. This is because they are, practically by definition, laws whose benefits are excludable (they are structured to benefit the secial interest in question) and more easily divisable. The implication of this is that simply because of the incentives involved, democratic government will tend to write laws and produce policies that favour special interests.

For instance... you would be hard pressed to find an economist who did not support free trade against protective tariffs. So accept for the sake of arguments that tariffs are worse than free-trade - the country is better off with the latter than the former. Now, suppose that the imposition of a tariff protecting the steel industry against foreign competition has two effects: It costs one million consumers £1 a month more, and it delivers $10,000 a month to fifty steel producers. That means that we have a net loss, so imposing the tariff is worse than not imposing it.

However, because the costs are widely dispersed, whilst the benefits are highly concentrated, there is likely to be more lobbying in favour of the tariff than against it. After all, how much more would you spend to try and get $10,000 a month more than you would spend to avoid $1 less a month? Organising support for any political action, be it imposing or revoking a tariff, is a public good. If the tariff is imposed, it is impossible to exclude any steel producer from its benefits, whether they spent anything lobbying for it or not. Likewise, if the tariff is defeated, it is imposible to exclude any consumer from the benefits whether they lobbied againstt he tariff or not. However, the "public" in the public good problem faced by consumers opposed to the tariffs is highly dispersed. It is difficult to identify them, and the cost to each person of the imposition of the tariff is relatively small. Meanwhile, the "public" in the public good problem faced by supporters of the tariff is small, concentrated, and beneficiaries are easily identifiable. This means that in the latter case it is much easier to organise provision of the public good than it is in the former. Or, in other words, we can generally expect less free-riding in the latter case than in the former, whilst simultaneously in the latter case.

Also, because the gains to each person are much larger under the imposition of the tariff than to each person in opposing the tariff, supporters of the tariff are more likely to try to prevent free-riding than opponents of it.

Now, my point is that there is, in this analysis, no mention of whether or not the members of a special interest group are tremendously rich. The special interest can have more "political pull" not because it is wealthy, but simply because it faces fewer "market failures" in arranging the supply the laws and policies from the government than its opponents do. It can simply be a matter of using votes - the members of a special interest have more incentive to go out and use their votes in favour of special interest laws than anybody else has to go out and fight special interest laws. Wealth may be an important factor, but it is not a necessary one - a ruling class arises anyway.


An important point here is that this analysis accepts the possibility of "market failure." Market failures are what moderates and leftists use to justify state intervention. The trouble is, as the above analysis shows, government action is rife with "market failure," only here it is government failure. The example is of so called "public goods." When economists usually speak of such things, they don't mean public services. They mean goods whose benefits are "public" as opposed to "private." The important features being that the good is non-excludable, and indivisible. The result is that if the public good is supplied to one member of this "public" who benefit, it has to be supplied to all of them. Hence, if only one person foots the bill, everybody gets the benefits, even though not everybody paid the costs. And since people act so as to get the greatest benefit at the lowest cost, everybody will try to be one of the guys that benefits but doesn't put up the costs. This means that it will be impossible for a private company to charge anybody for a public good it provides, and so, it is held, the free market will under supply public goods.

The reverse is a public bad. This is where the costs of the action are public, not private. In other words, it is impossible to privately enjoy a good whilst privately consuming the costs, since the costs are necessarily imposed on the public, even though they get no benefit. An example may be smoking, wherein the smoker gets the benefits of the cigarette, whilst all those around him get the second hand smoke. It is held that public bads will be over supplied on a free market.

And for all this, the solution is held to be government - you force people to pay for public goods, so that nobody can free ride, and you force beneficiaries of the public bad to either cover the costs of their activity, so they have incentives to "internalise" them, or you prohibit it entirely.

But the trouble is, as I showed above, that governments face, far more than real markets, "market failures." As Jim Henley wrote,

The liberal critique of voluntarism is that it is piecemeal and inadequate to momentous tasks like flood prevention and disaster relief. The coordination problem is too large and the horizon of individual interest too limited. Only government has the size and public-spiritedness to tackle such momentous tasks. However, liberals also argue that it’s crucial to have the right people in charge of the government to achieve these things. The problem is that, in a democracy, getting those “right people” into office is itself a monumental problem of voluntary coordination and outreaching the horizon of self-interest. The track record of liberal success at this in recent decades casts doubt on the automatic superiority of government action to achieve liberal goals.


And Gene callahan says, perhaps more clearly,

Libertarians in favour of a minimal state typically base their case for the state on a public goods argument, e.g.: "Everyone would like to be protected by defense and law enforcement. But it's not possible to make those goods exclusive, so that only those who can pay for them are able to use them. Therefore, they must be provided by a state that taxes everyone for their provision, or there will be too little of them. To keep the resulting state minimal, we need a watchful populace."

But this case crumbles like a house of cards at the slightest touch of a finger to its weak point: Minarchists are asking the populace to solve a much worse public goods problem than the one they started out with. If people cannot work out a solution to the problem of petty criminals' depredations that handles the issue of free riders, then how in the world are they going to solve it when it involves defense against a state to which they have surrendered all of the large weapons, all legal authority, and tremendous resources (from taxation)?

Of course, people can ad do solve these problems, otherwise the 1989 revolutions in Europe would have beeen impossible. And, just so, they can solve the initial problems as well.

As Anthony de Jasay put it, the minimal state is either unnecessary or impossible.


Returning again, to the issue of whether it is the wealthy that make the state or the state that makes the wealthy, Ubertarian said to me, "You need money to campaign, and to get that money you need connections in the wealthy circles and you need them to be sure you will primarily serve their interests. You also need to communicate with them on their own terms, i.e. share their culture. You also need support from them (esp. media owners)." I responded, "Not necessarily. Take the tariff example. Some of those harmed by the tariff may be very rich indeed. And some of those benefitted may be poor. But the fact that those benefitted by sepecial interest laws face less of a public problem organising support for the tariff than those who oppose it means that they are more likely to get the law they want, than those who oppose it are to defeat it."

The idea that the state is a hapless victim of takeover by rich interests is false. It is a crony. It is a part of the system, and more than anything, it probably engenders the system.

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Anonymous Julius Blumfeld said...

"An important point here is that this analysis accepts the possibility of "market failure."

Libertarians need to challenge the whole notion of market failure, root and branch. It is no more meaningful a notion than critisising statism on the grounds that Governments are not perfect. We do not criticise them because they are imperfect. We criticise them (inter alia) because markets are better. Markets should be judged by the same standard. Not "are they perfect?", but "are they better than the alternative?"

The current notion of market failure entails measurement of market outcomes against those which would be produced by some omnipotent and omniscient god-like entity (the notion of 100% efficiency). But "Failure" is only a useful/meaningful judgment when it refers to an outcome that is less good than one that could have been produced by a plausible alternative arrangement.

But the only alternative to markets (by which I mean the spectrum of voluntary arrangements) is Statism (i.e. the spectrum of coercive arrangements). To say "X is a case of market failure" is thus empty unless the observer is saying that coercive arrangements would produce an overall better outcome, after taking into account all side effects and unintended consequences of the mooted coercive arrangement.

Otherwise, a market "failure" is not a "failure". It is merely the best achievable result, given the constraints of the real world.

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Julius,

Libertarians need to challenge the whole notion of market failure, root and branch. It is no more meaningful a notion than critisising statism on the grounds that Governments are not perfect. We do not criticise them because they are imperfect. We criticise them (inter alia) because markets are better. Markets should be judged by the same standard. Not "are they perfect?", but "are they better than the alternative?"

From what I can tell, though, the public choice school, and my comments, were doing exactly that. Welfare economists favour state intervention on the grounds that market failure renders the market imperfect. Public choice theorists simply say two things: "but the state is also imperfect, so all we can do is choose the least imperfect"; and "oooh look, the same things you say of the market can be said of political action, and are problematic to a greater degree."

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