The Tyranny of Obsolete Political Labels

orThe Capitalist-Slacker-Hippy

ManifestoDon Ross

University of Alabama at Birmingham

University of Cape Town

Rights-based libertarianism

Philosophically, there is more than one way to be a libertarian. One common approach is Robert Nozick’s, in which a libertarian organization of society is justified on the basis of strong imputed rights of various sorts, including rights to property. I don’t favor this approach.

Nonsense upon stilts

In such good company as Jeremy Bentham, Adam Smith and David Hume, I regard rights (except in specific constitutional contexts, where rights are just legal safeguards to be justified on pragmatic grounds) as empty metaphysical abstractions.

Rights and rent-seekers

Strong rights are open to easy co-option by rent-seekers of all ideological persuasions. Every rent-seeker can construct a case that he has a right to his rents.

Bureaucratism

The ism made by rent-seeking is `bureaucratism’. This is the prevailing form of political organization in contemporary industrial democracies. It’s not as destructive to welfare as socialism is, but because it’s both more prevalent and much harder to combat, I think it should be the principal target of critical attention from those of us interested in enhancing human welfare and freedom.

Tyranny and ideology The philosophical base-camp from which I’ll argue is

strong subjectivism about values. That is, I’ll assume that people – both individually and as members of cultures – have different conceptions of their own flourishing, that `the good’ consists in allowing these different conceptions to guide their proponents’ lives as far as possible, and that `the bad’ – tyranny – consists in attempts by proponents of some values to impose these on proponents of others. I’ll call this ideology. When it comes out of my mouth, the word `ideology’ always means something pejorative.

Agenda From this base-camp I want to do two things. First, I want to

say how capitalism connects to my philosophical base-point. It’s obvious how it connects to Nozick’s base-point, but that’s not mine. So I’ll get different preferred principles under the kind of `capitalism’ I endorse than he does. Second, I want to relate this to political debate in terms of the standard `left-right’ spectrum, and give you reasons for regarding this framework as badly obsolete and best abandoned by people who value freedom in the (non-Nozickian) way I do. Finally, time permitting, I want to apply this thinking specifically to the circumstances of developing countries.

Ideology promotes bureaucratism Practical political-economic thinking still goes around in circles

because it’s trapped in a box, inherited from the late nineteenth and twentieth centuries, according to which our fundamental political choice is between socialism and what I will call Calvinist capitalism. I think that neither has much to be said for it, and that when we frame our important social choices in terms of these ideologies, we drive sensible people into the arms of what looks like a compromise, bureaucratism, that wins politically because it’s less tyrannical than either socialism or Calvinist capitalism. But it’s the leading contemporary contributor to unnecessarily high levels of corruption and poverty.

Socialism

By `socialism’ I mean a political-economic program according to which people’s private preferences should not be allowed to freely determine the points at which they exchange marginal leisure for marginal wealth. Instead, the `collective’ – meaning the government – determines this point by reference to a prior, higher, value of equality.

… is hopeless Socialism is an economically hopeless program, for two

basic reasons. First, no one could possibly process enough information to guess how chosen trade-off points will actually influence production, consumption, allocation, savings or growth. This was Hayek’s critique, which we can now use game theory to sharpen technically as follows: socialists can’t locate `equilibrium paths’, even to their own preferred objectives. A political program can’t get more hopeless than that. But socialism is not my target today. My target is confusion over different ways of understanding the philosophical relationship between capitalism and its rivals.

Capitalism Defining capitalism is trickier, because `capitalism’ has

different, and conflicting, definitions. By `capitalist’ I will just refer to any system in which the cost of, returns to, and allocations of capital (financial, physical and human) are determined by the interactions of people’s private choices of leisure / income trade-off points. On this definition, capitalism is a purely negative thesis: merely the rejection of central planning. So it isn’t yet an ideology, and I endorse it as simply the only system of economic information-processing that’s technically feasible. But …

Calvinist capitalism

Capitalism becomes ideological when it’s linked to the moral view that those who have a strong preference for leisure over income should starve (or at least be very miserable). This is `Calvinist capitalism.’ It oppresses people in the sense that it over-rides their freedom to live according to their own preferred trade-off point between income and leisure, just as socialism does.

Moralized fetishes

Socialism makes a fetish out of equality. Calvinistic capitalism makes a fetish out of dessert. I regard moralistic fetishes as, by definition, tyrannical. Everyone gets just one life to live, and if someone ruins another’s life by imposing his own standards on it, this more or less defines political immorality for me.

Muddled debate Most contemporary people are neither consistent socialists

nor consistent Calvinist capitalists. They just retreat to these ideologies as baseline points when they’re arguing over idealized arrangements. Most people are, in practice, bureaucratists. They combine elements of both socialist and Calvinist ideology, beginning from the moral assumptions of the second and then softening their impact by paying a large and benevolent bureaucracy to tinker and fiddle around with the resulting macroeconomic variables.

… and muddled policy

Though this is less tyrannical than either of the pure ideologies – which is why it wins if you frame political choice in terms of the two ideologies – it doesn’t allow many people to get rich. And in a country full of very poor people, like South Africa, getting rich ought to matter a very great deal.

History of bureaucratism in 1 bullet What I’m calling `bureaucratism’ was first put into

deliberate political motion by Bismarck. He built it as a defense against socialism. He was not thereby defending capitalism against socialism; he was defending the rents of the particular coalition of property interests he represented. Later, fascists inherited his form of socio-economic organization, and combined it with militant nationalism, with principles of party organization borrowed from communists, and with explicit anti-capitalism.

The spectrum from one fetish For most of the twentieth century, politics in the industrial

world was a battle between socialists and bureaucratists. Examined from the perspective of an equality-fetishist, bureaucratism, as the practical denial of the fetish, gets placed on the right-hand side of the standard spectrum. This can include both anti-capitalist bureaucratism like that of Mussolini and contemporary greens, or bureaucratism that sees markets as crucial for productivity, like Keynes’s version.

The spectrum from the other fetish One can, alternatively, construct a different left-

right spectrum by emphasizing attitudes to the dessert fetish rather than to the equality fetish. This is what Hayek did. Then fascism swings over to the left side and Calvinist capitalism goes on the right. On this organization of ideas, bureaucratism slides into the middle. This helps its intellectual attractiveness, since it then looks like the dwelling place of the sensibly moderate person.

Capitalists should avoid the spectrum Let me state an historical-sociological thesis. I think that

until roughly the 1970s the left-right spectrum was popularly conceived in the first way. It is now more often troped, though fuzzily and inconsistently, in the second way. And now I want to argue that although the first way was obviously problematic, making capitalism look like a non-option altogether, the second way is also problematic, since if one defends capitalism in this ideological framework one encourages the permanent triumph of bureaucratism.

Don’t argue so as to hand the game to bureaucratism

Before I continue with the main argument, I must briefly digress to indicate why bureaucratism is a fate to which we should try to avoid resigning ourselves.

Keynes: intellectual bureaucratism Keynes was bureaucratism’s only truly rigorous

intellectual advocate. Like Bismarck, he was a conservative, in that he placed highest political value on stability. (In the nightmare of the 1930s, I think I would have too.) His political ambition was to rescue the established order from the sense of widespread insecurity that made people prone to panic-stricken responses like starting revolutions or voting for Hitler.

Keynes’s mistake Keynesian macroeconomics is supposed to be a recipe

telling bureaucrats and politicians how to manage markets on a large scale, so as to prevent people from succumbing to panic. His economic theory is often thought to have been refuted by the stagflation of the 1970s. However, I think that there’s nothing in Keynes’s technical reasoning as an economist that can’t be fixed by technical improvement; it’s his political premises that were flawed.

Keynes’s mistake II Keynes knew that if governments indulged in continuous

deficit spending then his recommended policies would fail. He believed that governments would manage their spending appropriately because he identified government action with benevolent maximization of the public interest. Good aristocrat that he was – just like Bismarck – he didn’t foresee the tendency for democratic government to evolve into an enormous rent-broker, in which regulations are manufactured to divide rents between corporations and labor unions, with politicians collecting their brokerage fees in (at best) increases in their regulatory power and (at worst) straightforward bribes.

There are no philosopher-kings But this is what bureaucratism, our prevailing form

of political organization, amounts to. Philosopher-kings of the sort necessary to make it benign do not, and cannot, exist. One thing you can’t call bureaucratism is ideological. However, in the absence of philosopher-kings, it’s a forlorn form of organization for lifting large numbers of people out of poverty, because stifling novel, efficiency-enhancing allocations is what it’s all about.

What options remain? In this room, I don’t expect to hear defenses of

either socialism or bureaucratism. But I suspect there are some here who will think that I’ve just stated a nice argument for Calvinist capitalism, as the only position left standing. So let me now say what’s so wrong with that, in order that I can motivate a form of capitalism that is genuinely non-ideological, and doesn’t fit at all on a version of the left-right spectrum.

Hippies and slackers

Every society, always, will include substantial numbers of people who are relatively incompetent in competition (note the common root of these words), and/or who greatly prefer leisure to income on the margin.

Tolerating hippies and slackers As someone whose personal preferences don’t lead me to

consume much leisure, I don’t want the market on which I sell my services to be clogged with these people, forced by a Calvinist moral order to put in more unproductive labor hours than they’d like. If I were entirely selfish, I’d want to find just the marginal level of televisions and pizzas and beach holidays that would incentivize them not to try to steal - using their voting power or their pistols - the fruits of my investments. Then I’d hand over my share of the contribution to fund their leisure and ask them to get off to the beach and out of the way.

Hippies give better parties But if I really take my dislike of tyranny seriously I should

not be so selfish. I have no justification for regarding my personal preferences as morally superior to theirs. Indeed, I’m pleased that somebody’s out there having a good time. Shouting at them to pull their weight doesn’t seem to me, philosophically, any more seemly than socialists shouting that we all have a duty to equate our personal utility functions with the common good.

Real respect for freedom

My point here is that fully consistent respect for freedom consists in learning not just to tolerate, but to celebrate, everybody’s living as close to their own ideal leisure / income trade-off point as our conditions of scarcity allow.

Incentives

So how do we organize our institutions to find the optimal set of such points? The trick lies in incentivizing people to reveal their true preferences, and not to over-state their preferences for either leisure or income. A little applied game theory can show this to be surprisingly easy. Here’s what you do:

UBI and a free market First, give every citizen a regular subsistence grant,

unrelated to means or needs. Unconditional Basic Income respects Hayek’s principle that government measures should be non-discriminating, so as not to be a basis for bureaucratism. If it is combined with (i) a flat proportional income tax, and (ii) a truly free market in labor, then it can incentivize revelation of true preferences. Furthermore, in developed countries it could replace the welfare state in an incremental way that is stable along an equilibrium path. In developing countries, it could be our goal instead of a welfare state.

A truly free market

A `truly free market in labor’ here means two things: (i) closed union shops are prohibited, and (ii) non-monetary returns associated with jobs are treated as assets and subject to market competition. The first measure is aimed at abolishing rents associated with unionization. The second measure is aimed at abolishing rents hoarded by networked professionals.

Long-haired capitalists? These may be shocking ideas to many people. I

nevertheless think they’re the political-economic principles that take the value of freedom most truly seriously. I can’t, in a short lecture, go into the technical arguments. Since this is likely the first time some of you have been asked to imagine a system that is not either socialist or Calvinist-capitalist in its underlying philosophy at all, I am content here to simply put the notion on the table with a declared list of some of its salient virtues, with a question to you: Do you think these things are virtues?

Some payoffs

High UBI in a free market: 

(i) allows people to choose consumption / leisure ratios – lifestyles – according to their individual tastes.

(ii) frees people to launch risky business ventures without fearing starvation or destitution if they fail.

Payoffs II (iii) gives everyone in society a common

incentive to see aggregate productivity maximized (relative to the distribution of actual preferences for non-productive uses of time). It thereby undermines incentives and opportunities for rent-seeking.

(iv) aligns the incentives of rich people and poor people, thereby contributing to social stability.

Don’t just privatize

On developing countries: I don’t favor the `Washington consensus’ view that the best policy is wholescale crash privatization of productive capacity, in hopes that the rule of law will automatically follow in capitalism’s wake. Recent experience in many countries suggests it doesn’t.

Don’t encourage the mafia While people are very vulnerable to catastrophe, their

capacity to take the risks necessary for efficient allocation of resources through markets collapses. In such circumstances, people seek to maximize security rather than leisure or income. This encourages the growth of large monopolies, which, like large governments, are primarily rent-seeking vehicles. Promoters of economic freedom should be especially wary of rent-seeking private enterprise, because its tendency to outright criminal behavior may culturally discredit capitalism.

Encourage risk-taking The suggestion here is that as a country embarks on market

reform it should ensure that enhancement of basic security is the priority destination of any new wealth generated by more efficient enterprise. The basis of a healthy economy is entrepreneurial activity. This cannot be encouraged if people cannot rationally take risks. Economically, high levels of structural risk aversion will be reflected in high interest rates; and environments with structurally high interest rates are breeding grounds for over-concentration of capital into rent-seeking monopolies.

In developed countries

In rich countries, the argument for UBI is simply that, in its absence, labor markets are somewhat inefficient, and freedom is not maximized. But this is consistent with both relatively efficient labor markets and quite substantial psychological freedom. Developed countries have both.

America and Europe Most Americans can no doubt tolerate their departure from

optimality for a long time, perhaps forever. In advanced welfare states, the political argument for UBI is stronger, but only because Europeans will otherwise notice and be increasingly bothered by their growing lack of competitiveness relative to Americans and others, and because unemployment rates are high enough to make the inefficiency of the labor market socially vivid. Even here, however, shorter-term methods of protection can postpone the need for fundamental political change, perhaps for generations. The case for fundamental structural reform in the developing world is much more urgent.

In developing countries Of course, plausible UBI levels in developing

countries would necessarily be low at first, and for many years. However, all developing countries can feed themselves in the absence of large-scale rent expropriation; and this is simply another way of saying that their UBI levels could be high enough to guarantee subsistence. They should be set as high as is possibly compatible with long-term growth.

Incentives again Given commitments to raise UBI levels with increases in

productivity generated by market incentives, individuals could thereby be incentivized both to try to increase their incomes through productive activity, and to perceive themselves as stakeholders in increased aggregate productivity. To the extent that people are not made stakeholders in this way, they are incentivized to try to steal the productivity gains of others. (Don’t mention `property rights’ in telling me they shouldn’t do that.)

Getting there Labor unions, bureaucrats and members of cartels can’t be

expected to support UBI if it is linked to free labor markets, as its efficiency and very point requires. However, politicians may find that promotion of it serves their selfish interest in power well, by broadening the support bases of leaders who institute it. Africa’s economic future probably turns on the extent to which politicians forge effective alliances with small farmers and entrepreneurs against entrenched rent-sharing coalitions.

… from the least likely places

Ironically, this is most likely in collapsed economies such as Zambia’s, where few substantial rents remain to be had and the power of rent-seeking coalitions to hold their cartels together against external pressure is thereby diminished.

Neither left nor right In what I have argued, the traditional `left-to-right’ conception

of the political spectrum has played no role. That spectrum is a holdover from earlier battles, which most people have failed to discard as its terms of debate have become irrelevant. Both the traditional left and the traditional right seek to impose a set of moralized values on people: the left says that people must maximize equality at all costs, and the right says that people must maximize property-rights at all costs. Neither view is compatible with maximization of freedom. Furthermore, neither ideology is justified by economic analysis. And both are deeply inappropriate for development.

Capitalism …

Should not be your mother telling you to eat your vegetables and straighten up your posture.

Should be risk-taking, fun, loud, fast … It should be rock n’ roll.

Freedom, that is.