Front Page Titles (by Subject) 4.: Redistribution - The State
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4.: Redistribution - Anthony de Jasay, The State 
The State (Indianapolis: Liberty Fund, 1998).
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Self-imposed limits on sovereign power can disarm mistrust, but provide no guarantee of liberty and property beyond those afforded by the balance between state and private force.
With its key always within reach, a chastity belt will at best occasion delay before nature takes its course.
In the state of nature, people use their life, liberty and property for purposes adopted by themselves. A long tradition of political thought holds that this sets them at cross-purposes, leading to loss of life, insecurity of property and inability to produce the “optimal” assortment of public goods. The extreme form of this view, i.e. that in the state of nature no public goods can be produced, is probably no longer widely held. The state of nature is coming to be viewed as capable and likely to produce some public goods, but not as many and perhaps not as much as civil society endowed with a coercive state.1 The presumption is that endowed with a state, society is enabled to make the sort of choices which lead to more resources being devoted to public and less to private goods. The modern idea that the state is a device whereby society can more nearly approximate the resource allocation which it really prefers, implies a much older belief that the “general will,” or social preference, or collective choice (or whichever species of the genus is invoked) has some ascertainable meaning.
In coercing them to realize the general will or to give effect to collective choice, the state is competing with its subjects for the use of the scarce resource that is the liberty and property of each. It restrains them in what they may or not not do and forces them to devote part of their efforts and goods to the state’s purposes rather than to their own. The same long tradition of political thought suggests that in doing this, the state is in fact forcing them to be happier (or better off) than they would otherwise be, for without at least latent coercion they could not resolve the notorious state-of-nature dilemmas of non-cooperation and free riding. At the same time, competition between the state (which successfully maintains the monopoly of force) and its subjects (whose one strong recourse is rebellion—usually risky, costly and hard to organize) is prima facie so lopsided, so grotesquely unequal, that if the state stops anywhere short of enslaving its subjects, cogent reasons are needed to explain why.
It is hard to formulate anything more crucial to political theory than this question, which has been implicitly answered each time historians have given a satisfying account of the fall of despotism, of stalemate and accord between a king and his barons, or of how a given state has ruled by custom and law, which constrained its choices, rather than by its own discretionary reason which did not.
This chapter is mainly devoted to the largely unintended consequences of securing political consent by redistribution. The pattern of redistribution develops as a result of both the state and its subjects pursuing, “maximizing” their ends, interacting with each other to produce redistributive outcomes. These must be such that neither party can for the time being further improve his position within them. Broadly speaking, they have to reflect the balance of forces and interests concerned. Formal agreements between the state and its subjects, such as laws and constitutions under which the state is supposed to be restrained from maximizing its ends, either reflect this balance or they do not. If they do, the limits of state encroachment on the private rights of liberty and capital are naturally set by the power of the owners of these rights and a constitution or other formal agreement merely proclaims accomplished facts. If they do not, any such agreement is precarious. In abiding by it, the state is not in equilibrium. Its needs and ambitions will eventually lead it to circumvent, reinterpret, amend or simply disobey laws and constitutions. The better to clarify their role, or rather the reasons for their conspicuous absence from the subsequent argument, I start this chapter with what may seem a digression about the rule of law and constitutions, considered as binding agreements limiting the state’s discretion to dispose of its subjects’ liberty and property as and when its best interest dictates.
Montesquieu thought, oddly, that freedom could be defined as a state of affairs where man’s actions were constrained by law only. Such a definition, besides other weaknesses, seems to rest on some implicit belief in the quality, the specific content of law. Unlike rules in general, characterized by their source and enforcement (By whom? Under what sanctions?), to be consistent with freedom law must also have some particular content—for instance it could be thought of as good, benign or perhaps just. Bad law either must not be called law, or it must be agreed to have the redeeming feature that at least it replaces arbitrariness and disorder by a rule. In the political domain, law—even bad law—has from time immemorial been prized as restraint on the sovereign, as the subject’s shield from the despot’s caprice. Impartial even when unjust, general and predictable, it provides some sense of security against the random use of state power. Significantly, the distinction republicans since Titus Livius have drawn between tyranny and freedom, runs not between good and bad law, but between government by men and the government of law. Hence the much too trusting definition of freedom in the Spirit of Laws. Subjection of the state to law, even to law of its own devising, has strangely enough been felt to be sufficient for disarming its tyrannical potential. Not till after the Jacobin experience did political theorists of the calibre of Humboldt, Guizot,2 and J. S. Mill think of the possibility of the clever state creating self-serving laws which it could safely obey, while retaining its capacity to override the purposes of individuals in favour of its own.
If the rule of mere law is not a sufficient condition for an acceptable reconciliation of conflicting claims upon the subject’s liberty and possessions and for protecting him from the powerful appetite inherent in the adversary nature of the state, one cannot aim at less than the rule of good law. Historically, two kinds of solutions have been pursued to the problem of how to get good law. One was not only to oblige the sovereign to obey his own laws, but to constrain his law-giving powers by getting him to agree to what republican Rome called legum leges—a super-law or constitution which can effectively make bad laws “illegal.” The other, more direct solution was to secure adequate participation by all concerned in the design of laws. Either solution, “constitutional monarchy” with the state alone making laws but only within the bounds fixed by the constitution,3 and democracy with the state striking ad hoc bargains with its subjects over legislation, is designed to ensure “fair and equal” competition between conflicting public and private ends. The latter ad hoc solution is roughly the one England stumbled into in 1688, liking it and pushing it to its logical fulfilment in 1767; since then, a majority in Parliament has been sovereign—it can make any law and govern any way it sees fit. Its sole constraint on law-making is a cultural one. This confluence of the constitutional and the democratic solution corresponds by and large to the American one, designed by the Founding Fathers with a rare combination of erudition and worldly wisdom, crowned by an astonishingly long run of success in which design must have played some part beside luck, and since copied in some of its features by many other states.
The point about having both belt and braces, i.e. a “fixed” constitution in a democratic state, where laws are in any case the outcome of negotiated bargains between it and civil society, is the relatively subtle one that the threat to people’s liberty and property can just as well come from the sovereign people as from the sovereign king. The danger, then, lies in sovereign power and not in the character of the tenant who holds it.
For obvious reasons, a sovereign assembly, a demos or its representatives, and a sovereign monarch or dictator tend to present rather different kinds of dangers. Which is worse is at root a matter of personal taste. The view that the assembly is liable to be more unjust than the king was quite prevalent at the Philadelphia Convention disgusted by Westminster, and in the secessionist South rebelling against a Northern majority. Ordinarily, however, it is easier to conjure up the image of a personal tyrant than Pitt’s “tyranny of the majority.” Liberal thought cannot readily reconcile its faith in the benignity of popular sovereignty with approval of constitutional devices which would shackle it, hamper it in doing good and in some cases in doing anything very much at all. No wonder that in the USA, for some decades now, there has been a tendency for the separation of powers to be overcome by reciprocal swaps of functions and attributions, if not by their unilateral usurpation. Thus the executure is making a great deal of administrative law, the legislature is making foreign policy in addition to running the economy, while the judiciary shapes social policy and directs the struggles of classes and races. If the three separate branches of the American federal government were finally all merged into the Harvard Law School, much of this might be performed in a less roundabout manner. (Paradoxically, that day might conceivably mark the beginning of the end of the ascendancy of lawyers over American society.)
There is something threatening and basically “unfair” in the very notion of the sovereign state competing with its subjects for the use of their resources—“unfair” in the simple, everyday sense of an almost obscene disproportion of size and force. No single person has much of a leg to stand on, while the idea of banding together to tame the state promptly raises one of the first questions in statecraft, Why ever should the state let them band together? With the odds looking so blatantly unfavourable to anyone the least bit mistrustful, it is as plausible to predict despair and pre-emptive rebellion by people likely to find themselves in the minority as to expect them peacefully to submit, under the democratic rules, to the appetite of the prospective majority.
Agreeing to constitutional guarantees, then, is an intelligent move, a gesture to reassure the minority that nothing really harsh is going to be done to them. As disarming the mistrust of the prospective minority is, so to speak, a condition for getting everybody’s signature on the social contract, there may very well occur historical conjunctures where it is rational for the state actually to suggest limits to its own power if its purpose is to maximize it. It has long been known that it can be rational for the wolf to put on sheep’s clothing and to refrain for a while from eating sheep. It is old wisdom that it can be rational to take one step back before taking two forward; it can also be rational to forestall an objection by stating it first, inoculate against a disease by infecting oneself with it, roll with the punches, spend to save, bend rather than be broken and take the long way round because it is quicker.
It is one thing to say that it is good for the state, or for the majority with whose consent it rules, to lull the minority into a false sense of security by offering constitutional safeguards. It is another to insinuate that states which do agree to constitutions typically have some such crafty motive in their conscious, calculating minds. The latter sort of allegation has its place only in conspiracy theories of history, and they are unlikely ever to be right. The recognition that constitutions limiting power can be positively useful for states seeking (to put it summarily) to maximize power may, however, still contribute to the proper historical appreciation of these matters. Those whose particular intellectual enterprise calls for seeing the state, not as the locus of a single will, but as the shifting and uncertain hierarchy of diffuse and sometimes partially conflicting wills, none of which can be said knowingly to make the state’s decisions, might like to suggest that the hierarchy will tend, albeit perhaps clumsily, to grope for the choices most likely to promote its composite good made up of elements of survival, stability, security, growth, and so forth. The fact that in lurching and groping, states do not always reach worthwhile objects but occasionally fall flat on their faces, need not invalidate such a view. It may simply indicate that if there is an institutional instinct conditioning the state’s conduct, it is not an unerring one, but nor would we expect it to be.
In his brilliant exploration of some paradoxes of rationality, Jon Elster suggests that a society binding itself by a constitution (in fact, it is the state that is bound, but the distinction between state and society is not pertinent to his purpose) follows the same logic as Ulysses having himself bound to the mast to resist the sirens’ song.4 If Ulysses were not tempted at all by the sirens, if he were sure of his strength to resist temptation, or else if he fully intended to yield to it, he would not want to be bound. Equipping himself with a “constitution” which forbids him what he does not want to do, is rational in terms of his wish for an assurance against his own changing states of mind, his own weakness of will. Whether Ulysses stands for society, or for the state, or for a generation looking ahead and trying to commit future generations, it is his own concern that moves him. He truly fears the sirens. Admittedly, he has shipmates but it is not to satisfy their concerns that he has himself bound.
My own view is different. It is that anything Ulysses-the-state volunteers to do to restrict his own freedom of choice is the result of his reading of the state of mind of his shipmates, their fear of the sirens and their mistrust of his character. It is not the calculus of one interest in the face of a given contingency, but the upshot of at least two, that of the governed and that of the governor. Ulysses asks to be bound lest his crew should want to get rid of so unsafe a captain.
The analogy with states and their constitutions is distorted by the bindings. Once bound, Ulysses cannot undo his shackles. Only his shipmates can release him. A state bound by a “law of laws,” being at the same time the monopolist of all law enforcement, can always untie itself. It would not be sovereign if it could not. The proper analogy is not with Ulysses and his shipmates approaching Scylla and Charybdis, but with the lady whose lord, reassured by her chastity belt, is safely off to the wars, while she, now mistress of herself, hangs the key of the padlock of the belt on her own bedpost.
The ultimate mastery of the state over the constitution is masked, in countries with a proper “fixed” Franco-American type of constitution, by the provision of a special guardian—the Supreme Court in the USA, the Conseil Constitutionnel in France—watching over its observance. This guardian is either part of the state, or part of civil society. It cannot be in a third place outside, “above” both. If it is part of civil society, it is subject to the state and can in the last analysis always be coerced not to denounce a breach of the constitution. Failing that, it can have its denunciation denounced by another guardian appointed to replace it. The question is obviously not whether this is feasible or whether a form of words can be found to explain that the constitution is thereby really being respected and on a “higher plane” than hitherto but, rather, whether the stake is worth it. Nature will take its course, and the padlock of the chastity belt will be opened, no doubt in the name of real (as opposed to artificial) chastity, depending essentially on the balance of political support to be gained and to be lost by the move (i.e. Can the state politically afford to do it? and Can it afford not to do it?) and on the contribution, if any, which acting outside the constitution can make to its ends other than to sheer political survival.
On the other hand, if the guardian of the constitution is part of the state, there is a presumption that it will not have a separate, sharply divergent conception of the public good or, what is in practice indistinguishable from it, a separate and sharply divergent calculus of the balance of advantages to be reaped from interpreting the constitution one way or the other. The “separation of powers” and the independence of the judiciary are, however, designed to undermine just this presumption. Their intended function is to make it altogether possible for such a divergence to emerge. The device, prior to the Crimean War, of making officers of the British Army independent by letting (and indeed obliging) them to own their commissions, was supposed to ensure that the Army’s interest would not diverge from that of property and hence would not become a tool of royal absolutism. The device of selling French magistrates heritable and transferable title to their offices had the effect (though a totally unintended one) of ultimately allowing a divergence of interests to develop between the monarchy and the parlements to such an extent that in 1771, finding themselves confronted by a strong-willed adversary in Maupeou, they were expropriated and the loyal and the complaisant among them became salaried officers of the state.
Evidently, when the guardian of the constitution is the creature of a previous tenant of state power, the emanation of a majority gone and past, there is quite likely to be a divergence. The American Supreme Court in the face of the New Deal, the French Conseil Constitutionnel in the face of the post-1981 socialist government of the Fifth Republic, are good cases in point. The Supreme Court obstructed or retarded some of Franklin Roosevelt’s legislation affecting the rights of property till 1937, when it backed off, sensing that even if the Administration’s bill to “reform” it was running into the salutary buffers of bicameralism, it was yet inadvisable for the Court to be seen consistently to oppose the democratic majority. (Legitimacy is obeyed if it does not command much or often.) In time and with average mortality of lifetime appointees, the Court will come to think the way the Administration thinks, though a sharp change of regime can create short-term problems. Even these problems, however, will only deter the benign sort of state which it is not desperately important to deter anyway, for it is unlikely to have unconstitutional designs of major short-term impact on the rights of its subjects. Plainly, no possible conflict with the 1958 constitution would have deterred the overwhelming socialist majority in the French Assembly from nationalizing banking and most large industrial corporations in 1981.5 It was perfectly understood on all sides that the Constitutional Council might well not survive if it threw out the bill.
A really radical conflict between the conception of right embodied in the constitution and that of public good proposed by the state, particularly at the “dawn of a new era” when there is a bad break in continuity, reflects a revolutionary situation, or a coup d’état (or, as in Russia in October 1917, one on top of the other). Sweeping away an old constitution is in such moments but a minor effort in the spate of other, more portentous ones. In the face of less radical divergences, a fixed constitution can remain fixed till it is amended.
Amending the law of laws is an undertaking quite possibly different in degree, but hardly different in kind from amending a law or some other less formalized arrangement of society (and if there be a law laying down how the law of laws can be amended, that law can be amended, for it is ultimately always possible, by proposing a particular distribution of the resulting benefits and burdens, to assemble preponderant support for the amendment). At worst it may involve a good deal more fuss and legislative time and it may require a wider margin of consent over dissent. If so, a constitution intended to protect the freedom and property of the subject against certain kinds of encroachment by the state, does provide security against lukewarm attempts by an only marginally motivated state. This much, however, is true of any status quo, whether constitutional or just a fact of everyday life, for every status quo represents some frictional obstacle.
The task of every state, from the most repressive discretionary dictatorship to the purest legitimate commonwealth, is the reciprocal adjustment, to its best advantage, of its policies to the balance of support and opposition they engender. Though this degree of generality almost renders the statement trivial, at least it helps dissolve the notion of the “law of laws” as some sort of ultimate rampart or “side constraint” where the state pulls up hard, and behind which the individual subject can safely relax.
Majorities must be paid for out of minority money; this condition leaves the state little choice about the redistributive pattern to impose.
In competitive electoral politics the winner’s reward is profitless power.
A given state-of-nature society unmarked by a state, can be told apart from others by its given set of initial distributions of all the unequal attributes which distinguish its members. These are, as we have seen in another context, virtually countless in number. The various distributions, ceaselessly shifting in historical time, are “initial” only in the sense that logically they precede the activities of the state. A relatively small number of them may yield to attempts at levelling. If a state is superimposed on this society, and if it relies on its subjects’ consent to stay in power, it may, and under competitive conditions it will, find it advantageous to offer to change some “initial” distribution in such a way that the redistribution will gain it more support (in terms of clout, or votes, or whatever “mix” of the two it considers relevant to power).
Such a redistributive offer is obviously a function of the initial distribution. For instance, in a society where some people know a lot and others only a little, where knowledge is prized by both and (tall order!) absorbing knowledge is painless, the state might gain support by obliging the knowledgeable to spend their time, not in cultivating and enjoying their knowledge, but in teaching the ignorant. Likewise, if some people own a lot of land and others only a little, the former might advantageously be obliged to give land to the latter. A redistributive offer in the opposite direction, involving transfer of a good from the have-nots to the haves, would presumably prove to be inferior inasmuch as there would be much less to transfer. Poor-to-rich transfers would, in typical democratic circumstances, produce a less favourable, indeed a downright negative balance between support gained and lost.
If there are any number of inequalities (though only a few will really yield to levelling), the state can at least propose or pretend to level a number of them. If so, it is impossible to predict the most efficient redistributive offer from the initial distributions alone. Even the presumption that transfers from the haves to the have-nots (rather than the other way round) are politically superior, may not stand up if clout matters much more than votes and it is the haves who have the clout.6
In order to make a determinate solution possible, it would help to have a political culture where most inequalities were accepted as untouchable, so that neither the state nor its competitors would include them in a redistributive offer. In such a culture, for example, children would be allowed to be raised by their own (unequal) parents; non-income producing personal property would not have to be shared; people could wear distinctive dress; unpleasant work would be done by those who could not get any other, etc. Obviously, not all societies have this sort of culture, though those we call consent-based by and large do. Culture, then, would severely narrow down the possible variety of political offers. However, to rule out any freak programme and cultural revolution, it will be best to consider first a society where only one inequality is “politically” perceived at all: the amount of money people have.
Money looks the natural object for redistribution because, unlike most other interpersonal differences, it is par excellence measurable, divisible and transferable.7 But it has a subtler advantage, too. At least conceptually, there are political processes which run their course, achieve their objective and comes to an end. The class struggle between capital and the proletariat is conceived in Marxist thought to be such a process. Once this terminal conflict is resolved and there is no exploited class left for state power to oppress, politics comes to a full stop and the state withers away. Likewise, if politics were about latifundia and landless peasants, or the privileges of the nobility and clergy, or other similar inequalities which, once levelled, stayed level, the state’s purchase of consent by redistribution would be an episode, a once-for-all event. At best it could be history made up of a succession of such episodes. However, with money as the object, democratic politics can make sense as a self-perpetuating static equilibrium.
Why this is so is best appreciated by recalling the facile distinction that people so readily draw between equality of opportunity and of end-states. Moderate egalitarians sometimes suggest that it is opportunity that ought to be equal while end-states arising out of equalized opportunities ought to be left alone (which could only be done with mirrors, but that is now beside the point). Peter and Paul should have the same chances of attaining any given level of income or wealth, but if in the end he were to make more, Peter should not be robbed to pay Paul. Inequality of income or wealth is in turn, however, the resultant of a large universe of prior inequalities, some of which can be equalized (but then at least some end-states must be permanently interfered with; compulsory free education must be paid for by somebody), while others cannot. If Peter has in fact made more money, some prior inequalities in his favour must have subsisted.
A little reflection shows that there is no other test of the equality of people’s respective opportunities to make money, than the money they do make. For once inheritance of capital is abolished, everybody is made to go to the same school and every girl is given cosmetic surgery at eighteen, there are still ninety-nine well-known reasons why one person may be materially more successful than another. If these known reasons (notably one’s parents) were all abolished and it were impossible to inherit more ability than the next fellow, we should be left with the unknown residuals habitually subsumed under “luck.”
This need not stop anyone from choosing some stipulative definition of equal opportunity, making it an arbitrary subset (to include, say, equal attendance at school, “careers open to talents” and provision of fixed-sum unsecured loans for starting a business, and to exclude everything else such as happening to be in the right place at the right time) of the set of reasons which make end-states unequal. One might stipulate that all who have danced with the most coveted girl at the ball are deemed to have had an equal opportunity to win her. If she gave her affections to one, rather than equally to all, that was luck.
The point is not only that equality of opportunity is conceptually dubious, nor that as a practical matter serious egalitarians must deal with end-states—for that is how you go about equalizing opportunities—though both points are valid enough. It is, rather, that each time end-states are equalized, sufficient underlying “inequality of opportunity” will subsist rapidly to reproduce unequal end-states. They will not be identically the same ones. Redistribution must, intentionally or otherwise, have some influence on the causes of a distribution, if only through its much-invoked effects on incentives—the idea being that if you keep taking away the golden eggs, the goose will stop laying them. Nevertheless, some new unequal distribution will almost instantaneously come about. It will require redistribution to be recurrent (an annual assessment?) or fully continuous (pay as you earn). In any case, there is no danger that the state, by vanquishing the inequality of money, would unwittingly depreciate its own role and “work itself out of a job.”
In looking at the conduct of the state in competitive politics, we will for some of the above reasons make the large simplifying assumption that it rules over a society which is an amorphous collection of people lacking any pattern. It does not coagulate into groups, occupations, strata or classes on the basis of material and moral inequalities. It is the ideal democratic society in Rousseau’s sense in that it does not break down into sub-societies, each with a general will of its own, in conflict with the general will proper. There are no intermediaries, historical or functional, personal or institutional, between the individual and the state. Though people are thus homogenous, I will nevertheless take it that they have significantly different amounts of money due to “unequal opportunity” or, less controversially, to luck.
Quite unrealistically but expediently, I will also suppose that everybody’s political choices are entirely determined by their material interest, and in a narrow sense at that: there is no altruism, no false consciousness, no envy and no idiosyncrasy. When given the chance, people go for the policy which gives them the most money or takes away the least, and that is all.
The other simplifying assumptions we need are less demanding. The basic democratic rules apply. Tenure of state power is awarded to a contender on the basis of a comparison of open competitive tenders describing redistributive policies. The actual tenant is the state. If another competitor were awarded tenure, he would become it. Tenure is for a specific period. There is some provision for premature termination—“recall”—in case the conduct of the state is in gross breach of the terms of its tender offer. If there were no recall, and the period of assured tenure of power were long enough, the state might promise one thing and do another, inculcating in society the corresponding new tastes, habits and addictions and developing support for what it was doing rather than for what it had said it would do. Though this is obviously happening in real politics, for government would become quite impossible otherwise, our analysis would grow immensely complicated if we did not exclude it by postulating easy recall. Award of state power is to be decided by simple electoral majority, one-man-one-vote and secret ballot. Entry to politics is free, i.e. anyone may tender.
Under these assumptions, towards the expiration of each period of tenure there will be competitive bidding for votes by the state and its opposition. The highest tender will, at the appointed time, earn the award of fresh tenure. Which, however, is the highest tender? Neither the state nor its competitors have any money to offer which does not already belong to somebody in civil society. Neither can, therefore, offer to civil society a total net sum greater than zero. Yet each can offer to give some people some money by taking away at least that much from others. (It makes for ease of exposition if collecting taxes is, at this stage, taken to be a costless operation.) The redistributive policy such an offer represents can be regarded as a tender with discriminatory pricing, some votes being bid positive, and others negative, prices—with the crucial proviso that if the tender in question wins, the people whose votes have been bid negative prices will have to pay them no matter how they voted. (As is perhaps obvious, people offered a negative price for their votes may rationally vote either for or against the tender in question, depending on how much a competing tender, if it prevailed, would make them pay.)
Our argument will lose nothing if we simulate the two-party system and consider only two rival tenders, one submitted by the incumbent state and the other by the opposition (which may of course be a coalition), while assuming sufficient ease of entry of potential competitors to prevent the state and its opposition from reaching collusive agreements to share spoils and underpay votes. (The American political system, for one, has in recent years been showing symptoms of incipient collusion, in the form of the bipartisan commission taking over from the adversary-type legislature, where competition had led to stalemate over such questions as the budget deficit or the lack of control over social security expenditures. Despite the attractions of collusion, ease of entry and many other built-in elements of competitiveness make it in my view unlikely that government by bipartisan commission should get very far in superseding the basic rivalry of “ins” and “outs.”)
If society is differentiated by riches only, state and opposition have only two roles to divide between them, that of champion of the rich and champion of the poor. Who takes which role may be decided by historical accident; for our purposes, it may as well be decided by spinning a coin. The winning tender must attract 50.1 per cent of the votes. There are thus always 49.9 per cent of the people whose money can be used to buy the votes of the 50.1. Any greater percentage bought would be wasted. No rational tenderer should under these assumptions bid positive prices for more than 50.1 per cent. If he did that, he would by implication be taking money away from less than 49.9 per cent. He would be proposing to redistribute a lesser total sum among more people. In trying to get too many votes, he would be reduced to offering a lower price for each. He would be outbid by his competitor who (as future generals are taught to do) concentrated his fire to get the necessary and sufficient bare majority. In this streamlined political contest, any election result other than virtual dead heat would be proof that at least one competitor had not got his sums right and had handed victory to the other.
So far, so good; this simplified schema duly reproduces the complicated real world’s tendency to make close-run things out of democratic elections in two-party systems where competent professionals on both sides strive to be all things to all men and fine-tune their electoral promises. What, however, seems left unpredicted is the winner. We know that the highest tender wins. But we do not know the terms of the competing tenders.
Let us arbitrarily suppose (the argument will gain no unfair advantage if we do) that you can get, say, ten times as much tax from the rich half of society as from its poor half, and that either competitor for state power can propose to tax the rich, or the poor, but not both at the same time. The latter condition makes redistribution conveniently transparent, though it is of course quite possible to redistribute without respecting it. Let us also suppose that both competitors have the same idea of taxable capacity, more than which they will not attempt to extract from either half of society. “Taxable capacity” is an embarrassingly nebulous concept, to which I shall have to return later in dealing with the causes of “churning.” It is usually employed in the sense of some economic capacity, having to do with the effects of varying degrees of taxation on taxable income, output, effort and enterprise,8 the implicit assumption being that everybody’s willing performance of their tasks depends, inter alia, on how hard they are taxed. I am employing the concept in both this sense and also in a parallel one, as a relation between taxation and the subjects’ willingness to abide by the rules of a political system under which a given share of their income or wealth is taken away from them, the implicit assumption being that the greater this share, the less the subject feels bound to respect rules under which he is made to surrender so much. “Capacity” suggests that there is some limit beyond which the economic or political tolerance of taxation declines, perhaps quite abruptly. Both the economic and the political senses of the concept are shrouded in fog. No one has yet convincingly depicted the shape of the relation, nor did anyone measure its limits. Discussion of it is apt to degenerate into rhetoric. However, unless we are prepared to take it that for a society at any point in its historical career, there are such limits, and that it takes history, i.e. the long period or large events in the short period, to shift them by a lot, much in social affairs must fail to make sense. In the context of the problems we are pursuing there would, for instance, be no intelligible reason why, spurred on by democratic competition, the state should not subject large sections of society, possibly fully one-half of it, to marginal tax rates of 100 per cent.
(If there is no such thing as a “taxable capacity” which taxation cannot exceed without bringing about a high likelihood of political or economic anomie, turbulence, disobedience and breakdown of some possibly obscure kind, unpredictable as to its specifics but unacceptable in any case, it must be feasible as of tomorrow to tax everybody at 100 per cent—“from each according to his ability”—and to subsidize everybody at the state’s discretion—“to each according to his needs”—without first having to put society through the phase of the dictatorship of the proletariat. Despite its apparent convenience, this programme cannot really appeal to socialists who, if they had to choose, would probably rather agree that taxable capacity is limited than give up the requirement of fundamentally changing the “relations of production,” i.e. abolishing private capitalist ownership.)
Since the winning tender is one which is “accepted” by not less than 50.1 per cent of the voters, the two competitors will seek to hit upon the winning combination of positive and negative “prices” for the richest 49.9 per cent, the poorest 49.9 percent and the middle 0.2 per cent of the electorate.
(1) The rich party might propose to tax the poor, redistributing the money so collected to its own constituency and (in order to form a majority coalition) to the middle. The poor party might symmetrically propose to tax the rich and transfer the proceeds to its own poor constituency and the middle. Table 1 shows us what we would then have.
(2) The rich party, however, would immediately realize that its offer under (1) is bound to be rejected, for there is always more money available for buying the votes of the middle out of the taxes of the richer half than out of those of the poorer half. It must, therefore, steal the poor party’s clothes and turn upon its own constituency. (This is, of course, what rich parties do in real-life democracies.) Table 2 shows how the two tenders will then compare.
(3) Under (2) the rich party would win. It would get the acceptance of the rich who would prefer to be taxed 9 instead of 10, and of the middle who would prefer to get all the pay-off rather than having to share it with the poor. However, “going for the middle ground” is a game two can play; to stay in the race, both must. So the outcome is as in table 3.
Neither competitor can further improve its respective tender. Logically, both are equally apt to secure the consent of the majority. The rich party’s tender is voted for by the rich, the poor party’s by the poor. The middle is indifferent between the two offers. It is equally rational for it to join the top half or the bottom half of society or to toss a coin.9
The astute reader will have divined that the simple mechanism laid bare above, through which democracy produces redistribution, would continue to operate, mutatis mutandis, in a setting where a constitution forbade redistribution. (The Fifth and Fourteenth Amendments of the American constitution were, for a time, held to do so.)10 If there is no way round it, perhaps by taming the guardian of the constitution, it must be amended, brought up to date, adjusted to changing circumstances. Instead of 50 per cent, it is then the qualified majority which the constitution requires for its own amendment, that becomes the dividing line in society between top and bottom, rich and poor. The pay-off out of which to fashion a redistributive offer which will, at least under the assumption of consent being solely a function of alternative offers of public money, secure support for amending the constitution, is the money that can be taken from the blocking minority if it is amended.11
The artificial mechanics of competitive political tendering, which produce the equally artificial result of finely balanced electoral indeterminacy, must of course be taken with a pinch of salt. Neither the state nor its opposition, no matter how coldly professional and competent at engineering electoral platforms, could possibly formulate patterns of seduction with anything like the precision required for our result. Nor would all voters correctly understand and evaluate the prices that were being bid for their support, i.e. the incidence on their income of complex redistributive policies. Many of these might be presented to look more lucrative to the gainers or less costly to the losers than the probable reality. Ignorance, the unpredictability of true incidence and the opacity of social and economic matter, would handicap not only the electorate but also those seeking to gain its support. Even if both competitors used the same data, the same surveys sold by the same pollsters, they could not risk sailing this close to each other. In reality, the coveted middle ground, too, must be much broader than in our illustration, and its benefits from redistribution more diluted.
Nevertheless, for all their artificiality, observing the workings of our schema of electoral democracy is more useful than looking at the mere spinning of wheels. It confirms in the simplest possible manner an intuitively plausible presumption: that material interest alone is insufficient to determine the award of power to one contender rather than another, for the contenders, even if they carry different flags, end up by appealing to substantially the same interests, which they attract by holding out much the same pay-off. The more familiar corollary of this is the “convergence of programmes,” the tendency (which some consider a strength of democracy) to narrow down the range within which policies (as well as the images candidates for high office must project) remain electorally viable. The obverse of this coin, of course, is the complaint of the non-conformists that electoral democracy precludes genuine, distinctive alternatives; the very principle of popular choice leads to there being little to choose from.
Our account of the “pure,” rich-to-middle tax-and-transfer kind of redistribution which the state, confronted by rivals in electoral democracy, would adopt under certain simplifying assumptions, is to a general theory of redistribution as, in economics, perfect competition is to a full theory of producers’ behaviour. It is a stepping stone or heuristic device without whose help more general propositions might not emerge clearly enough. Though I neither claim, nor require for my arguments, to propose a general theory of redistribution, I do sketch some likely looking components of such a theory in the rest of this chapter. Their intent is to explain some of the dynamics of how civil society, once it grows addicted to redistribution, changes its character and comes to require the state to “feed its habit.” From benefactor and seducer, the role of the state changes to that of drudge, clinging to an illusory power and only just able to cope with an inherently thankless task.
We have learnt that consent is, by and large, not bought with acts of once-for-all state help to the majority at the expense of the minority. Help and hindrance must be processes, to maintain a stipulated state of affairs which, without such maintenance, would revert to something rather (though never exactly) like what it was before. The beast must be fed continually. If this must be performed under conditions of open democratic competition, whatever of its subjects’ liberty and property the state manages to appropriate, must be redistributed to others. If it does not do so, the redistributive offer of its competitor would beat its own and power would change hands. Tenure of power, then, is contingent upon its not being used at the state’s discretion. The resources over which it gives command must be totally devoted to the purchase of power itself. Thus, receipts equal costs, output equals input. The analogy with the firm which, in equilibrium, can by maximizing profit do no more than earn its factor costs (including the entrepreneur’s wages), is compelling.
We are nearing the heart of the matter, bumping as we do at this juncture into the theory of the state. If the point in being the state were to have power (that is, if that were the state’s maximand, its end), it would mean very little to say that the state has maximized it in the situation whose equilibrium conditions we have deduced above. Social power, as we know from Max Weber, is its holder’s capacity to make, by recourse to combinations of physical force and legitimacy, another do what he would not have otherwise done. The quintessential democratic state has the capacity to make given subjects in civil society surrender to it given parts of their good. They would not have done it without its “power.” But it has no capacity to make them surrender any more nor any less. It would lose “power” if it tried. It must tax the subset S of society an amount T, and it must distribute T’ to another subset U. It cannot alter either S or U, it cannot vary T nor have T’ fall short of it. It must not indulge its sympathies, follow its tastes, pursue its hobbies, “make policy” and generally promote the good as it conceives it, on pain of being booted out.12 Though it can make another do something the latter would not have done, it cannot choose what it will make him do. It lacks the other essential attribute of power: discretion.
If power as an end in itself meant “being in power,” it would not matter to the power-holder that he must use it in one unique way, only for this and not for that, as long as he held it. But it would make for shallow theory to put this in the role of maximand. By the same token, we would get only a theory of snobbery if we were to put holding a title of nobility as the purpose of the noble’s existence, stripping out estates, privileges, ethos and social and economic functions. The state could not use this residual sort of power, nor seek more of it. It could only have or not have it. If it were satisfied with it, pure electoral democracy would be a sort of terminal stage of political development, and our argument would be substantially at an end.
But while relief from further labours might be a pleasant by-product for the writer and his reader, allowing the state to be motivated by such a shallow, near-empty concept of power would grossly misrepresent historical experience. It would contradict, or at least leave unexplained, the state’s evident striving over most of modern history for more autonomy, for discretion in deciding what it will make people do. Only the will to have power as a means can properly explain that. The logic of competition, however, is such that democratic power in the limit becomes the antithesis of power as a means to freely chosen ends.
That the wheel thus comes round full circle is yet another illustration of the distant consequences of actions in and upon society being mostly unintended, unforeseen or both. A state seeking to govern mainly by consent instead of by repression cum legitimacy, may have fallen victim to lack of foresight, weakness of will or inconsistency. But it might equally well have been rational, when seeking greater freedom of manoeuvre, readier obedience, lesser reliance on narrow class support—in short, when seeking more discretionary power—to look for it in democratic reforms, in increasing reliance on consent. At the outset, it positively provoked its subjects to make demands upon it, as a vendor might drum up custom for his wares by passing out samples and testimonials, in order to create a political market in which consent could be earned in exchange for state provision of utility and equality. At the end of the day (most such days lasting about a century), such states found themselves, in a special but quite precise sense, virtually powerless, having their policies decided for them by the need of competitive electoral equilibrium and generally running hard to stay in the same place. It is academic to ask whether they could have foreseen this sort of result. Plainly, they have not. In exoneration, they had less warning than Adam before he ate from the tree of knowledge.
Help and need feed upon one another; their interaction can give rise to uncontrolled cumulative processes.
By helping to create entitlements and to form interest groups, the state changes society in its image and at its peril.
Redistribution is potentially addictive in two distinct though related respects. One concerns the behaviour of persons and families—society’s fine-grained basic stuff. The other acts upon groups, affecting in so doing the coarser, more visibly “structural” features of society. Fusing the two into a single group theory (since we could always say that families are small groups and isolated individuals are incomplete groups) might have had the elegance of greater generality, but the split treatment seems to me clearer.
The root ideas concerning the habit-forming effects of redistribution on persons and families are old and well worn. Their public acceptance reached its zenith with Cobden and Herbert Spencer (to whom one might add the peculiarly American phenomenon of W. G. Sumner). For no better reason than the boringness of virtue, they have since lost much of their currency.13 Victorian homilies about self-reliance, about God helping those who help themselves and about the corrupting effect of charity, have practically disappeared from public discourse. On the other hand, the fully fledged welfare state has now been functioning long enough, and it has permeated the life of broad enough strata in society, to make it possible for theorizing to take the place of moralizing about these matters. A general sort of hypothesis would suppose that a person’s behaviour over some period is affected, in a number of unspecified ways, by the receipt of unrequited help in the past or present period. Filling the empty box, it would be reasonable to assume, for instance, that receipt of help makes people consider future help more probable. Some of the self-reinforcing cumulative features of the provision of social welfare would inspire the more specific hypothesis that the more a person is helped in his need, and the higher he rates the probability of the help forthcoming (until, in the limiting case of certainty, he ends up by having entitlements), the more his conduct will be reliant on it.
In line with the normal relation between practice and capacity, therefore, the more he is helped, the lesser will become his capacity to help himself. Help over time forms a habit of reliance on, and hence the likelihood of a need for, help. Habit, moreover, is not simply temporary adjustment to passing conditions. It implies more than changes in momentary, short-term behaviour. It involves a longer-term, quasi-permanent adaptation of the parameters of behaviour: it changes character. These changes may to some extent be irreversible. Withdrawal of the help in question becomes progressively harder to bear and adjust to; at some stage, it attains the proportions of personal catastrophe, social crisis and political impracticability. The noise and turmoil provoked by contemporary Dutch, British, German, Swedish and American attempts (I am listing them in what seems to me their order of seriousness) marginally to rein in welfare expenditures as a proportion of national product, lend themselves well to being interpreted as “withdrawal symptoms” in a condition where the addict requires a progressively larger dose of the addictive substance to “feed his habit.”14
There are straightforward ways in which the adaptation of behaviour and character to the public aids that are forthcoming, is capable of setting off the self-feeding processes which can be discerned in heavily redistributive societies. For instance, a degree of public care for the welfare of mothers and children relieves, if it does not remove altogether, the most pressing material need for family cohesion. Reassurance about the minimum needs of mother and child will induce some (not necessarily substantial) proportion of fathers to desert them who might not have done so otherwise. (As connoisseurs of the American Great Society era will recall, publicly diagnosing this phenomenon has brought much undeserved abuse and charges of racist arrogance on Daniel P. Moynihan’s head, though his facts stood up very well to the attacks.) Their desertion, in turn, disables the truncated residual family unit, greatly reducing its capacity to look after itself. Hence a need arises for more attention and more comprehensive assistance to one-parent families. Once reliably provided, such aid in turn encourages some (initially perhaps small) proportion of unmarried young women to have children (or to have them early). In this way, additional incomplete families are formed. They have little capacity for fending for themselves. Hence the need for public assistance further expands, even as reliance on it becomes widespread enough to cease to offend class or community standards of respectable conduct.
Much the same kind of reaction may be set off by public care for old people, relieving their children of a responsibility and contributing both to the self-sufficiency and the loneliness of grandparents who, but for state care, would be living with their descendants as a matter of course. By the same token, some of the people who would have produced and reared children as the most basic form of old-age insurance, now rely on the state insuring them instead. Whether the consequent reduction in the birth rate is a good thing or not, it sets off demographic shock waves which can unpleasantly rock society for a couple of generations, among other things by endangering the finances of the Ponzi-letter scheme of unfunded public old-age “insurance.”
Analogous processes, where effects become causes of further effects of the same Janus-faced kind, may be at work in (or at least are consistent with) many other areas of redistributive action. Their common feature is the adaptation of long-run personal and family behaviour to the availability of unrequited aids, which are first passively accepted, then claimed and ultimately, in the course of time, come to be regarded as enforceable rights (e.g. the right not to be hungry, the right to health care, the right to a formal education, the right to a secure old age).
Such adaptations are obviously liable to leave some people happier and others, perhaps even some among the beneficiaries of state help, unhappier, though it looks very problematical to say anything more than this. Something, however, can be said about some wider political implications, notably in terms of the environment in which the state operates and seeks to attain its ends. Functions which used to be performed by a person for himself (e.g. saving for retirement) or by the family for its members (e.g. looking after the sick, the very young and the very old) in a decentralized fashion, autonomously, more or less spontaneously if not always lovingly, neither will nor can any longer be so performed. They will be performed instead by the state, more regularly, more comprehensively, perhaps more fully and by recourse to coercion.
The assumption of these functions by the state carries with it side-effects of some momentum. They affect the balance of power between the individual and civil society on one side, the state on the other. Moreover, the addictive nature of social welfare and the fact that its beneficiaries can generally “consume” it at nil or negligible marginal cost to themselves, powerfully influence the scale on which it will be produced. It seems plausible to argue that as the disabling, dependence-creating effects of aid are unintended, so is in the last analysis the scale of redistribution to produce social welfare. It is yet another example of the disconcerting habit of social phenomena to get out of control and assume shapes and sizes their initiators might never have envisaged. In the face of the habit-forming feedbacks at work, it is doubly unsatisfactory to apply to this particular form of redistribution the fiction of some deliberate social choice.15
Partial loss of control over the scale of production of social welfare, and over the corresponding expenditure, is an important aspect of the predicament of the adversary state. I will revert to it when considering the phenomenon of “churning.” However, I have only just begun to look at addictive redistribution and have yet to consider the workings of the sort of redistribution which fosters the proliferation of distinct, cohesive groups in society that, in turn, exact more redistribution.
Let us now put behind us the simplifying assumptions of an amorphous, structureless society which gave us the neat equilibrium solution of the preceding section on “buying consent.” Society is now more like it is in reality, with its members being differentiated from each other by countless unequal attributes, among which the source of their livelihood (farming, lending money, working for IBM), their domicile (town or country, capital or province), their status (worker, capitalist, lumpen-intellectual, etc.) are but a few of the more obvious ones. People who differ from others in a number of respects can be sorted into groups according to any and each of these respects. Each member of society can be simultaneously a member of as many groups as he has attributes in common with somebody else. All members of a given group resemble each other in at least one respect, though differing in many or all others.
There is, thus, a very large number of potential groups, each partially homogenous, into which the heterogenous population of a given society could, under propitious circumstances, coagulate. Some of these groups, though never more than a tiny fraction of the potential total, will actually be formed in the sense of having a degree of consciousness of belonging together and a degree of willingness to act together. Happily, there is no need here to define groups more rigorously than that. They may be loose or tightly cohesive, ephemeral or permanent, have a corporate personality or remain informal; they may be composed of persons (e.g. a labour union) or be coalitions of smaller groups (e.g. a cartel of firms, a federation of unions). Finally, they may be formed in response to a variety of stimuli, economic, cultural or other. We will be interested in those groups which form in the expectation of a reward (including the reduction of a burden), to be had by virtue of acting as a group, and which continue to act together at least as long as that is needed for the reward to continue accruing. Defined in such a way, all groups I wish to consider are interest groups. All need not, however, be egoists, for the concept I have chosen can accommodate altruistic pressure groups or groups of eccentrics, plain cranks who act together to obtain a putative benefit for others (e.g. the abolition of slavery, the promotion of temperance and literacy, or the putting of fluoride in everybody’s drinking water).
In the state of nature, members of a group, acting cohesively, obtain a group reward, i.e. a benefit over and above the sum of what each would obtain if acting in isolation, in two ways. (1) They may jointly produce a good (including of course a service) which, by its nature, would not be equally well, or at all, produced otherwise. It is not certain that there are many such goods. Streets or fire brigades are likely examples. The group reward is secured for the members, so to speak, autarchically, without making anybody outside the group contribute, and without making him worse off. (2) They may jointly extract the group reward from outside the group, by changing the terms of trade which would prevail between non-members and the members when acting singly. Guilds, trade unions, cartels, professional bodies are the most prominent examples of proceeding in this way. In the state of nature, such tilting of the terms of trade, making the group better off and others presumably worse off, would not be based on custom (for how did “tilted” terms come about before becoming customary?), nor on sovereign command (for there is no political authority). Their only possible source is contract (without this presupposing markets of any particular degree of perfection). Hence, they connect to notions of alternatives and of choice.
The freedom of others not to enter into a contract with the group, no matter how unpalatable it may be to exercise it, makes group reward a matter of bargaining. This is most explicit in negotiated, one-of-a-kind transactions but routine, repeated transactions in organized markets with large numbers of contracting parties and corresponding to various configurations of monopoly, monopsony or competition of greater or lesser imperfection, all represent at least implicit bargains where the element of negotation is latent.
At least for our immediate purpose, which is to understand the difference between the group structure of the state of nature and the group structure of civil society, the critical determinant of group behaviour is the “free rider” phenomenon. Free riding manifests itself both within a group and in its relations with others. Its basic form is well known from everyday life. The passengers in, say, a cooperative bus must over some period jointly bear the full cost of running it.16 Otherwise the bus service will stop. However, any full allocation of the cost (defined with proper regard to the period) will do. The bus will go on running even if one passenger pays all and the others all ride free. There is no obvious, most-logical, most-efficient, most-egalitarian or most-fair rule for sharing out the total burden to be borne. If all passengers were cost accountants reared on the same accountancy textbooks, they might all grope towards a fare structure reflecting, for each trip taken by a passenger, the length of his trip, the number of stops offered along the route, the average frequency of the service and its peak vs off-peak pattern, the density of other traffic, physical wear and tear and a host of other variables entering into the long-period marginal cost of the trip in question. However, while all may regard it as technically correct (i.e. good cost accounting), there is no reason why they should all agree that the fare structure thus constructed is equitable, nor why they should wish to adopt it even if they did think it equitable. Altruism would make each want to pay for the others. A sense of equity might make them charge higher fares to those who profit most from the service, so as to capture and share out some of the “consumers’ surplus” accruing to the latter. A certain conception of social justice, as distinct from equity, might make them fix high fares for rich and low ones for poor people.
Sorting out in some manner a suitable fare structure to cover the cost of a given service, however, is only half the battle. If variations in the service are feasible, the cooperators must also reach agreement on the variant to be provided. If the bus stopped at every front door, nobody would have to walk but it would take ages to get downtown. If it is only to stop at some front doors, whose shall they be? Should the passengers favoured in this way pay more for the greater benefit they enjoy, compensating those who have to walk a way to the bus stop? No single “right” way seems to emerge which the members of the group would all want to adopt for allocating the group burden and sharing out the group reward, either on grounds of ethics or of interest, let alone both. Vague rules like “all pulling their weight,” “all paying their way” and “all getting their fair share” can only be understood in relation to what they have in practice agreed, for there is no other common standard for one’s proper “weight” to be pulled, one’s “fair share” to be got. This is the more so as some members of the group may disagree with the others on what ought to have been agreed in fairness, good logic or justice without, however, opting out of the cooperative. Finally, whatever route and fares may have been fixed, each selfish passenger, on boarding the bus, might reasonably take the view that his hopping on it makes no difference to the cost of running it; the cooperative group as a whole is looking after the books and if there should be a shortfall, he would prefer not to be the one to make it up.
If all members of a state-of-nature group were selfish in the above sense, they would all want to minimize their burden and, in the borderline case, to ride free. For the group reward to accrue—for the bus to go on running, for a strike threat to be taken seriously in collective bargaining, for market-sharing quotas to be respected in defence of a cartel price, etc.—a given group burden must nevertheless be fully borne. It is widely believed that the free-rider problem, as an obstacle to cooperative solutions, is more acute for the large than for the small group because in the large group the free rider’s anti-social behaviour has no perceptible impact on the group reward and a fortiori none on his own, hence it pays him to ride free, while in a small group he perceives the feedback of his anti-social conduct upon the group’s reward and his share of it.17 However, while it is probably true that people behave better in small than in large groups, the feedback effect is unlikely to be an important reason. A member of the small group may perfectly well perceive the reduction in group reward due to his misbehaviour. It is nevertheless rational for him to continue to misbehave as long as the incidence of the consequent reduction of group reward upon his share of it just falls short of the share of group burden he escapes by free riding.18 This condition may easily be satisfied by any group regardless of size, up to the point where free riding causes the group to fail altogether. Most of the reasons why small groups are easier to form and to maintain than large ones, have to do with the greater visibility of each member’s behaviour. Moral opprobrium, solidarity, shame have less chance to sway people lost in a mass.
Consequently, if state-of-nature interest groups do get formed and the whole group burden is being carried by somebody or other, despite the incentive selfish group members have to ride free, at least one of three conditions needs to hold (though they may not suffice without other circumstances being propitious too).
(a) Some members of the group are altruistic and actually prefer to bear the “others’ share” of the burden or let the others have “their share” of the reward. The others can accordingly ride free to some extent, though not necessarily scot-free.
(b) Though all members are selfish, some are non-envious. If they must, they will carry more than their share of the burden of group action rather than allow the group to fail altogether, because the burden they assume does not, at the margin, exceed the reward accruing to them, and they do not grudge the free riders’ getting a better deal still.
(c) All group members are both selfish and envious. Free riding must somehow have been kept below the critical level at which the grudge felt by the envious “paying passengers” against the free riders would have outweighed the net benefit they derived from carrying on with and for the group.
Case (a) corresponds to volunteer civic action, self-sacrificing pioneer effort, “leading your troops from the front,” and, perhaps, also to political activism and busybodyness; other satisfactions than the good of the group may also not be totally absent.
Case (b) underlies, for example, the creation of external economies, which would not come about if those whose (costly) action calls them forth would greatly resent their inability to keep others, who bear no cost, from also benefiting.
Case (c) is the most demanding; here the free-rider problem becomes critical to the formation and survival of the group. A cooperative solution must here repose upon two supports. To start with the second, there must be in the cooperative solution reached by selfish and envious members of an interest group, enforcement involving an effective threat of punishment, retaliation.19 Where access to the group reward is technically easy to control, enforcement is passive. It resembles a coin-operated turnstile. If you pay your coin, you are in; if not, not. More awkward situations call for the invention of active, possibly complex methods of enforcement. Social ostracism of the blackleg, harassment of the employer, “blacking” of his goods and his supplies may be necessary before a new (or old but not very strong) union can impose the closed shop. Retaliation against a price-cutter and cartel-breaker may take the most cunning forms. Even so, it is not invariably effective. John D. Rockefeller, who was a great practitioner of these cunning methods, had so little confidence in their reliability that he eventually resorted to amalgamation of ownership instead—hence the creation of Standard Oil. Summary justice in the American West against violators of vital group understandings (e.g. that range cattle and horses are not stolen, mining claims are not jumped and lonely women are not molested), was an attempt to shore up a precarious way of life whose viability greatly depended on no “free riding,” on everybody playing the game.
Before enforcement, there must be understandings, agreed terms to be enforced. What will be the share of each in the group burden, and how will the common reward be shared out (unless, of course, it is totally indivisible)? The immediate reflex for most of us would be to say “equitably,” “justly” or “fairly.” As these are not descriptive but evaluative terms, however, there is no assurance that most group members will judge any given allocation as equitable, just, etc. Still less is it certain that if they did, the equitable, etc. set of terms would also be the most likely to secure adoption in the “cooperative solution,” i.e. to ensure group cohesion. Strategically placed members, “hold-outs” or bargaining sub-groups may have to be conceded very much better terms than members who “have nowhere else to go.” Manifestly, the better the terms a member or sub-group can extort from the rest of the group, the more nearly will it have approached free-rider status and, hence, also the limits within which the group can carry free riders without breaking down.
It may be thought that once it was up against such limits, threatened with breakdown, the group would seek to preserve itself by recourse to new, more effective methods of enforcement of group understandings, cost and reward allocations or codes of conduct and would retaliate more vigorously against its free riders. Some such tightening up may in fact be feasible. But the group is not the state; it lacks most or all of the state’s repressive powers; its ascendancy over its members is different in kind, as is their faculty to opt out if pressed.20 A group’s capacity to develop enforcement is heavily conditioned by the nature of the reward it is designed to produce, and of the sort of burden that must be carried to make the reward accrue. There is no presumption that it will be always, or very often, adequate for controlling the free-rider problem and enabling the group to survive or, indeed, to form in the first place.
If so, it is reasonable to impute to the state of nature—as to an ecological system containing prey, predator, and parasite—some equilibrium in the group structure of society. Equilibrium hinges on the destructive potential of the free-rider phenomenon. The latter limits the number and size of interest groups which manage to form. The resulting universe of groups, in turn, determines the tolerated number of free riders, and the actual volume of their “parasitical” gains consistent with group survival.
Interest groups extracting rewards not available to single individuals from transactions with others, are benign or malign depending principally on the observer’s values. If their transactions are wholly or mainly with other interest groups, the extra rewards secured by one group may be seen by the disinterested observer as being at the end of the day broadly compensated by the extra benefits the other groups manage to secure at its expense. This is roughly the “pluralistic,” “end-of-ideology” view of how modern society works. Instead of classes struggling for dominance and surplus value, interest groups bargain each other to a standstill. Though modern society does not actually work like this, there is perhaps some presumption that state-of-nature society might. If it is comprehensively organized, net gains and losses due to cohesive group action can be hoped to be small (though “on paper” everybody gains as an organized producer at the expense of his own alter-ego, the un-organized consumer). Moreover, “excessively” hard bargaining by a group vis-à-vis other groups in poorer bargaining positions, is liable to set up some of the same sort of self-regulating, self-balancing effects as “excessive” free riding does within a group, so that as group formation remains within limits, so does the inordinate exploitation of group strength bordering on free riding.
Our framework is now ready for inserting the state. We want to answer the question, What difference does the functioning of the state make to the equilibrium group structure of society? Clearly, where a state exists, sovereign command is added to contract as the means for extracting group reward from others. In addition to market-oriented groups, rational incentives arise for state-oriented ones to be formed, or for groups to start facing both ways, towards their market and towards the state. The greater the reach of the state, the greater is the scope for profiting from its commands, and as Marx has not failed to notice, the state was “growing in the same measure as the division of labour within bourgeois society created new groups of interests, and, therefore, new material for state administration.”21
When society consists only of persons, families and at worst perhaps very small groups, they give or withhold their consent in democracy to the state’s rule in response to the available incentives. They are, so to speak, perfectly competitive “sellers” of their consent—in George J. Stigler’s clever term, “price-takers.” The “price” they accept or decline is contained in the global redistributive offer the state designs to buy a majority in the face of rival offer(s). A state-oriented interest group, however, instead of merely reacting to the going offer, actively bargains, and trades the votes and clout it represents against a better redistributive deal than its individual members would get without coalescing. The group reward, then, is the excess redistribution it manages to extract by virtue of its cohesion. Like any other “price-maker,” it can to a certain extent influence, in its own favour, the price it gets. In the political context, the price it sets is for its allegiance, support.
The reward—a subsidy, tax exemption, tariff, quota, public works project, research grant, army procurement contract, a measure of “industrial policy,” regional development (not to speak of Kultur-politik!)—is only in a proximate sense “given” by the state. This is plainly visible in the pure, taxing-Peter-to-help-Paul type of redistribution, but becomes more masked in its more impure (and more usual) forms, particularly when the redistributive effect is produced jointly with other effects (e.g. industrialization). The ultimate “donors”—taxpayers, consumers of this or that article, competitors, rival classes and strata, groups or regions which might have been, but were not, favoured by some policy—are hidden from the beneficiaries both by the insoluble mysteries of true incidence (Who “really” ends up by paying, say, for price control? Who bears the burden of a tax concession? Who is deprived of what when the nation’s athletes get a new stadium?), and by the very size and thickness of the buffer that public sector finances constitute between the perceptions of the gainers and losers.
A given group which, by lobbying and bargaining, succeeds in extracting some advantage from the state, would typically and not unreasonably, consider that its cost is infinitesimal by any sensible yardstick that men used to public affairs might apply:22 the aggregate of all such special advantages already conceded to others, or the great good it will do, or the total state budget, etc. Like the cartoon tramp holding out his hat—“Could you spare 1 per cent of gross national product, lady?”—the group will feel induced to formulate demands by the perfectly sensible recognition that granting them is a matter of small change to the state. It might never put a demand for unrequited aid, even of a much lesser order of magnitude, to persons or other groups, for it would not care to ask for charity. At the same time, if it did bring itself to do so, how far would it get with 1 per cent of the income of Peter and Paul? And how would it go about successfully begging from enough people to make it worth-while? Given the choice, it is an inferior tactic for a group to address its claims to another group rather than to the state. The reasons have to do with the nature of the “quid pro quo,” as well as with the fact that the state alone disposes of the panoply of “policy tools” for diffusing and smoothing out the incidence of the cost. There is only one instrument, the state, whose position of universal intermediary enables the successful postulant to get, not at some suitably modest fraction of some people’s income, but at that of a whole nation.
There are yet more potent ways in which the chance of obtaining rewards “from” the state rather than through the market, directly from persons or groups in civil society, transforms the environment in which interest groups get organized and survive. A given pay-off may be significant enough to a potential group to incite it to form and engage in the joint action required to get it. Its corresponding cost, by virtue of the intermediary role of the state, is apt to be so widely diluted across society and so difficult to trace as to its incidence, that “nobody really feels it,” “everybody can afford it.” The state-oriented group, by extracting a benefit whose cost is borne by the rest of society, is acting out the role of the free rider vis-à-vis society in precisely the same way as the member of a group vis-à-vis the rest of his group.
Unlike the individual free rider who beyond a certain point either meets some resistance, or destroys his group, however, and unlike the market-oriented “free-riding” group which is resisted by those who are expected to concede its excessive contract terms, the state-oriented group meets not resistance, but complicity. It is dealing with the state, for which condoning its free-rider behaviour is part and parcel of building the base of consent on which it has (whether wisely or foolishly) chosen to rest its power. Consent-building by redistribution is closely moulded by the pressure of political competition. The state, competing with its opposition, will have only limited discretionary choice about whose demands it will grant and to what extent. It will rapidly find itself presiding over a redistributive pattern of increasing complexity and lack of transparency. When another “free rider” is allowed to come on board, the “paying passengers” have every chance of remaining oblivious of the fact, as well as of its incidence on the “fares” they have to pay. Though they will hardly fail to gain some general awareness of free riding going on and may even have an exaggerated idea of its extent, in the nature of the case they will fail to perceive specific marginal additions to it. Nor can they, therefore, be expected to react defensively to the incremental free rider.
While the dilution of costs via the vastness and complexity of the state’s redistributive machinery attenuates resistance to free riding by groups, free riding within state-oriented interest groups is rendered relatively innocuous by the special nature of the burden group members must carry in order to reap the group reward. A market-oriented group must fully (though not necessarily “equitably” nor “justly”) allocate among its members the burden of group action—the cost of running the group bus, the discipline and loss of pay involved in obeying a strike call, the lost profit of restricted sales, the self-denial needed to respect a code of conduct. Unless one of the conditions sketched above in this section (altruism, non-envy and ample surplus of group reward over group cost, and successful restraint of free riding) is met, the free-rider problem will abort that caused by the interest group before it can arise: the group will decay, fall apart or fail to reach its cooperative understanding in the first place.
A state-oriented group, however, typically carries a featherweight burden. It need ask little of its members. It suffices for dairy farmers to exist as such for the state, with the opposition at its heels, to devise a policy for milk (and butter and cheese) which will provide them with better returns than the market, unassisted by a milk policy, could do. In return, the group need not even prove performance of the implicit political contract by “delivering the vote.” Dairy farmers have wide latitude to “ride free” in two senses: they can vote for the opposition (which, if known, might simply cause the state to redouble its efforts to devise a more effective butter policy), and they can fail to pay membership dues to help finance dairy industry lobbying.
Neither type of free riding is likely greatly, if at all, to reduce its effectiveness in extracting a redistributive reward. Even when an interest group has politically “nowhere else to go,” so that the implicit threat of its throwing its support behind the opposition is ineffective because not credible, or when its bargaining strength is for some other reason less unbeatable than that of dairy farmers, so that it does need an effort to get its way, the money it can usefully spend on lobbying, political contributions and the like is generally very small beer compared to the potential pay-off. If all group members do not chip in, a few can (and a few sometimes do) effortlessly cover the necessary costs for the whole group. Much the same is likely to happen when group interest requires its members to wave banners, to march, to link arms or to throw stones. Many free riders might stay at home but the normal group will usually contain enough willing members for the conditions of case (b) (p. 237) to be fulfilled and a nice and loud demonstration to have the required impact. In sum, as political action is on the whole extraordinarily cheap, state-oriented interest groups are very nearly immune to their own free-rider problem.
With the state as a source of reward for interest groups, free riding loses most of its destructive potential as a check on group formation and group survival. In terms of the “ecological” parallel used above, prey, predator and parasite no longer balance each other out. The defensive reactions of the prey are blunted: there is no market mechanism to signal society that a given interest group is raising its claims upon it; its exactions are screened from it by the size and complexity of the state’s fiscal and other redistributive apparatus. Moreover, while the mechanism of bilateral contracts between consenting parties works symmetrically, in that it is as efficient in concluding acceptable as in rejecting unacceptable terms, the democratic political process is constructed to work asymmetrically, i.e. to concede a large variety of group claims rather than to deny them. Hence, even if the “prey” were specifically aware of the “predator,” it would have no well-adapted defence mechanism for coping with it.
Moreover, “predator” groups, in terms of my argument about the relative cheapness of cohesive political action, can survive and feed upon society almost no matter how infested they may be with their own free-rider “parasites.” As a corollary of this, the parasite can prosper without adverse effect on the predator’s capacity to carry and nourish it. More of one thing does not bring in its train less of another. Any large or small number of free riders can be accommodated in a population of interest groups which, in turn, can all behave as at least partial free riders vis-à-vis the large group that is society.
The above might suggest the sort of unstable, weightless indeterminacy where interest groups can, at the drop of a hat, just as soon shrink as multiply. Having no built-in dynamics of their own, it takes stochastic chance to make them do the one rather than the other. Any such suggestion which would, of course, run counter to the bulk of historical evidence (to the effect that more often than not, interest groups increase in number and influence over time), is as good as barred by two further features implicit in the interaction of group and state. First, whether or not the granting of a group reward is successful in winning the support of the group and reinforcing the state’s tenure of power, it will generally increase the state’s apparatus, the intensity and elaborateness of its activity, for the granting of each group reward requires some matching addition to its supervisory, regulatory and enforcing agencies. By and large, however, the more the state governs, the greater tend to be the potential rewards that can arise from successfully soliciting its assistance and hence the greater the pay-off to group formation. Second, each grant of a group reward shows up the “soft touch” character of the state caught in the competitive predicament. Each grant, then, is a signal to potential groups which consider themselves similarly placed in some respect, improving in their eyes the likelihood of actually managing to obtain a given potential reward if they organize to demand it.
On both these scores, therefore, the bias of the system is to cause interest groups to proliferate. Whether the process is first set off by the state’s offer of a favour or by a group’s demand, is a chicken-and-egg question of very limited interest. Regardless of the initial impulse, the incentives and resistances appear to be arranged in such ways as to cause redistributive policies and interest group formation mutually to sustain and intensify each other.
Interactions between group pressure and redistributive measures need not be confined to matters of narrow self-interest. Groups may form and act to promote the cause of a third party, e.g. slaves, mental patients, the “Third World,” etc. Such “persuasive lobbies” may not possess enough clout to let them trade their political support directly against policies favouring their cause. However, they may succeed in influencing public opinion to the point where state, opposition or both will consider it good politics to include in their platforms the measure demanded. Once adopted, such a disinterested measure both widens the accepted scope of state action and the apparatus for executing it, and serves as a precedent inciting other persuasive lobbies to organize and promote the next cause.23
Behind every worthy cause there stretches a queue of other causes of comparable worthiness. If cancer research deserves state support, should not the fight against poliomyelitis also be assisted, as well as other vital areas of medical research? And don’t the claims of medical research help to establish a case for supporting other valuable sciences, as well as the arts, and physical culture, and so on in ever-widening ripples? It is easy to visualize the rise of successive pressure groups for research, culture, sport, while an avowedly anti-culture or anti-sport pressure group seems simply unthinkable. Once again, the bias of the situation is such that its development will be onward and outward, to embrace more causes, to press home more claims, to redistribute more resources, hence stimulating more new demands—rather than the other way round, backward and inward, to a less pronounced group structure and a less redistributive, more “minimal” state.
Anchored in the subconscious of educated liberal public opinion, there has for long been a sense of distinction between good and bad redistribution, between the honouring of just deserts and the currying of favours. In a recent, thoroughly sensible book, Samuel Brittan has done much to make the distinction explicit.24 It is on the whole good to redistribute income so as to produce social justice and security, health and education. It is bad to redistribute to favour special interest groups. Farm subsidies, “industrial policy,” rent control, accelerated depreciation, tax relief on home-mortgage interest or on retirement saving are on the whole bad, because they distort the allocation of resources—in the sense of making national income lower than it would otherwise be.
Two observations should briefly but urgently be made. One is that (unless we first define “distortion” in the way required to produce the answer we want), nothing really allows us to suppose that taxation to raise revenue for a worthy objective or to dispense distributive justice, does not “distort” the pre-tax allocation of resources. A priori, all taxes (even the one-time Holy Grail of welfare economics, the “neutral” lump-sum tax), all transfers, subsidies, tariffs, price ceilings and floors, etc. must generally change the supplies and demands of interrelated products and factors. When we say that they distort them, all we are really saying is that we do not approve of the change. It is mildly self-delusive to assure ourselves that our approval is much more than the reflection of our prejudices, that it is an informed diagnosis, a function of some “objective” criterion such as allocative efficiency reflected, somehow or other, in national income (rather than in the more controversial “total utility” or “welfare”). Whether the after-tax, after-welfare subsidy, after-tariff, etc. allocation of resources has given rise to a higher or lower national income than the pre-tax, pre-tariff, etc. one would have done, is an index number problem which has no wertfrei “objective solution.” It is not a matter of knowledge, but of opinion, which may of course be “sound opinion.” Most reasonable men might share the judgement that if all state revenue were raised by, say, a heavy excise tax on a commodity like salt which people simply must have, and all of it were spent to gratify the whims of Madame de Pompadour (an engagingly simple view of the bad old days to which few would own up though many still half-believe in), national income (let alone utility) would be less than under most other redistributive configurations known to history.25 Less fanciful revenue-expenditure patterns, however, might give rise to genuine perplexity as to their incidence on the national product. Even those least inclined to agnosticism might honestly question the “non-distortive” nature of some revenue-raising tax, however virtuous the cause in which it was levied.
The other observation is plainer and more important. It is simply that it really makes no practical difference whether we are able “objectively” to tell good from bad redistribution. If we have one, we will have the other, too. A political system which, by virtue of competitive bidding for consent, produces redistribution we regard as conducive to equality or justice, will also produce redistribution we will regard as pandering to interest groups. By no means is it clear that there are “objective” criteria for telling which is which. Still less evident are the means which could possibly constrain or stop the one while letting through the other.
To sum up. While in a political system requiring consent and allowing competition the state seems logically bound to engender redistribution, it does not in the everyday sense “determine” its scope and scale. Once begun, the addictive nature of redistribution sets in motion unintended changes in individual character and the family and group structure of society. Though some may be regarded good and others bad, no selective control over them appears practicable. These changes react back upon the kind and extent of redistribution the state is obliged to undertake. Probabilities increase that a variety of cumulative processes may be set in motion. In each such process, redistribution and some social change mutually drive each other. The internal dynamics of these processes point ever onward; they do not seem to contain limiting, equilibrating mechanisms. Attempts by the state to limit them provoke withdrawal symptoms and may be incompatible with political survival in democratic settings.
Inflation is either a cure or an endemic condition. Which it is depends on whether it can inflict the losses required to accommodate gains elsewhere.
Governing them helps to make the governed ungovernable.
No phenomenon has more than one complete explanation. A complete explanation, however, can be encoded in more than one system of expressions. Yet in English, Japanese or Spanish, it must remain much the same explanation. Alternative theories explaining a properly identified social or economic phenomenon are often fiercely competitive and insist on mutual exclusiveness. Yet they are either incomplete and wrong, or complete and identical in content to each other. If the latter, they must lend themselves to translation into each other’s system of terms.
Alternative theories of inflation are a case in point. They are notoriously competitive. One conducts its argument in terms of excess demands for goods, summing it up as a shortfall of intended saving relative to intended investment. This is in turn linked to an excess of the expected return on capital over the interest rate, or words to that effect. Another posits some relation between present and expected future prices and interest rates on the one hand, and attempts by people to reduce (or increase) their cash balances on the other, the attempts driving up present prices. For those who like a dose of physics in their economics, the “velocity” of some suitable variant of the “quantity” of money will rise, or perhaps a broader variant of money will prove to be more suitable to which to apply a constant velocity. Whichever way it is put, the idea of people adjusting the real value of the money they hold to what they think they had better hold, expresses in terms of the excess supply of money what other theories put in the form of the excess demand for goods. Yet another theory would make the distribution of real income between high-saving capitalists (or the corporations they own) and low-saving workers, conform to whatever distribution is needed to provide just the amount of saving that will match investment. Inflation is to reduce consumption and boost profits by devaluing wages while, if cost-of-living indexation or agile wage bargaining prevents it from doing so, inflation will just go on running round in circles and accomplish nothing. The translation of this theory into the language of either of the others is perhaps a little less straight-forward, but well within the capacity of the economically literate. (He may need some nudging. He is likely to have his favourite “language,” and may detest translating.)
One object of these musings is to underpin my contention that putting two theories of price levels (and embarrassingly calling one of them “monetarism”) in the centre of excited controversies of a near-religious kind, is beneath the intellectual quality of certain of the protagonists. The controversy is either spurious, or it is implicitly about other things and the debate would gain by making them explicit.
My other object in insisting on the essential equivalence of the reputable theories is, however, to make sure that no pretence of innovation shall be read into the nutshell explanatory scheme I am about to put forward. It is merely another brutally abridged “translation” of received theory, largely running in the terminology used in the previous section of this chapter. Why it may be just worth making, and how it has its proper slot in the entire argument of this book, should become clear as we go on.
Take a society composed, for simplicity, only of organized interest groups. Each sells its particular contribution to the well-being of the others and buys theirs. The number of such groups is finite, hence each can influence its selling price, and we shall assume that all have done so in such a way that none can better its position. Let the advent of the millennium transform the membership of each group into like-minded altruists, who now engage in collective action to make the members of the other groups better off (without minding that this may impoverish their own fellow group members). They lower the price of the good or service they contribute, trying to improve the terms of trade for the others. However, as the others have become similarly inclined, they “retaliate” by lowering their prices, not just to restore the original position, but to overshoot it since they want the first group to become better off than it was to begin with. The first group then retaliates, and so on. There is no built-in reason why the leap-frogging process should stop at any particular place, after any particular number of inconclusive rounds. The several “price-makers,” competing to make their contracting parties better off, will generate a rush of falling prices.
The near-perfect obverse of this millennium is, of course, some approximation to modern society as it has been taking shape in the last half-century. Over this period, while prices of assets have been known to move both up and down, the price “level” of current goods and services has never fallen. Much of the time it has risen, and the tone of current discourse would suggest that this is now quite widely accepted as an endemic condition, to be lived with and kept within bounds by one means or another (without serious hope of eradication). Endemic inflation would, of course, be generated by a society of self-seeking interest groups where vain attempts to gain distributive shares produced interaction in an upside-down mirror image of the imaginary interaction of the altruists described in the preceding paragraph.
Progressively better articulated versions of an explanation running in terms of attempted gains and refusal of the matching losses, can be easily conceived. We could take a state-of-nature society where interest groups, having bargained and reached stalemate, are merely seeking to protect (rather than actually enlarge) their absolute and relative shares. Though they would accept windfall gains, they refuse to take windfall losses. (Perhaps unfairly, this would be my concise reading of the idea found in much of modern Panglossian macro-sociology, of pluralistic equilibrium resulting from the reciprocal adjustment of all major adversary interests, with no one ending up very angry.) Any exogenous shock (unless it is a windfall gain, by a fluke enriching everybody in the same proportion) must consequently set off an inflationary spiral. The theory provides no reason why, once started, the spiral should ever stop, and no element governing its speed (or its acceleration). However, it accommodates reasonably well the classic war-and-harvest-failure type of causation, while ascribing to the structural features of society the reasons why price stability, once lost, cannot be regained (i.e. why inflation fails to do its job).
Making the customary one-way passage from state of nature to political society, such a theory can spread its wings and fly. Instead of being an exogenous shock, here the tug-of-war about distributive shares is not set off by a shock from outside, but is generated by the system itself, endogenously. It is what the interaction of the state and interest groups (including single business corporations at one end of the scale, entire social classes at the other), is mostly about. From here, it is a natural step to go on to some heavily politicized variant of the theory, with redistributive gains, due to state-oriented group action, setting off either market-oriented or state-oriented counter-action or both by the losers, including such lusty hybrids where a losing group acts against some section of the neutral public (e.g. truckers blocking highways and streets) to force the state to make good its loss.
A properly articulated theory might further incorporate such elements as inertia, money illusion or the differential power of various groups over their own terms of trade. It should allow for the stealthy nature of much redistribution due to the vastness and sheer complexity of modern fiscal and economic policy “toolboxes,” the frequently uncertain incidence of policies, as well as the seductive optical trick whereby incremental budgetary expenditure effects “real” redistribution in the present while the incremental budget deficit ostensibly shifts the “financial” burden to the future. The stealth inherent in the mechanics of many forms of redistribution—overt to the gainers, covert to the losers—for all that it is largely fortuitous and unplanned, may be supposed to lead to delayed or only partial counter-moves on the part of the losers; so that inflation may not nullify all redistribution. Once no one who can help it will give any more way, however, further redistribution at their expense is ex hypothesi bound to fail. As long as the attempt to do so continues, inflation to frustrate it must continue, too. If the nature of democratic politics is such that the attempt is endemic, so must be inflation.
A less abstract scenario would have a role written in for some unorganized section, stratum or function of society, captive bond-holders, small savers, widows and orphans (and all sufferers from “liquidity preference”), which would have to end up losing if the gainers agreed to by the state were to gain, yet the designated losers manage to recapture the loss they were supposed to undergo. Inflation will, so to speak, “search out” and wrest from weak hands, if there are any such, the resources the gainers were intended to gain. It will have acted as a cure of the resource imbalance. Having dealt with its own cause, it could then abate. The corollary is that once everybody is equally worldly-wise, organized, alert and absolutely determined to defend, in the market, in the picket line, in the party caucus or under banners out in the street, whatever he holds, inflation becomes powerless to change distributive shares. It becomes instead one of the more powerful means by which such shares are defended against pressures originating either in the political process or in nature.
A theory of inflation couched mainly in terms of the bulwarks the democratic state helps build around the very distributive shares whose manipulation is perhaps its principal method of staying in power, need not offer an explanation of why these shares are what they are to start with, nor why interest groups have a particular degree of price-making power. It can, of course, be plugged into the main corpus of economic theory which does contain such explanations. The plugging-in would in fact be the natural sequel to the “translation” of this sort of vaguely sociological and political discourse into more rigorous economics of one kind or another. The exercise, however, would only serve to lay bare the relative lack of novelty of the present approach, whose real claim to a raison d’être is not that it helps understand inflation but that, through looking at the use or uselessness of inflation, it helps understand the mounting contradiction between redistribution building consent for state power and promoting the very conditions where society becomes refractory to its exercise.
In the section on addictive redistribution, I proposed the thesis that as democratic values are produced, ever more people get, use and come to require public aid, whose availability teaches them to organize for getting more of it in various forms. A consideration of inflation readily furnishes the antithesis. Redistribution changes personal, family and group character in such a way as to “freeze” any given distribution. In breeding “entitlements” and stimulating the rise of corporatist defences of acquired positions, it makes redistributive adjustments ever more difficult to achieve. Ringing the changes, “making policy,” erecting any novel pattern of gainers and losers overtaxes statecraft. If some overriding fact of life makes it imperative that there be losers, withdrawal symptoms start to show, tantrums are thrown, latter-day Luddites yield to the death wish and wreck their own livelihood rather than see it diminish, while misinvested capital moves heaven and earth to be rescued. If the state finds society “ungovernable,” there is at least a presumption that it is its own government that has made it so.
A cascade of gains whose costs must be borne by the gainers themselves, ultimately breeds more frustration and morose turbulence than consent.
Democracy’s last dilemma is that the state must, but cannot, roll itself back.
Whether by simple-minded tax-and-transfer, or by the provision of public goods mostly paid for by some and mostly enjoyed by others, or by more roundabout and less transparently redistributive trade, industrial etc. policies, some of the state’s subjects are on balance being hindered so that others may be helped. This holds true regardless of the aim of the exercise, i.e. even if the redistributive effect is an incidental, indifferent, unintended and maybe unnoticed by-product. The general common feature of these transactions is that on balance the state is robbing Peter to pay Paul. They are not “Pareto-optimal”; they would not get unanimous assent from a self-interested Peter and Paul. In this sense they rank below “social contracts” of the type where sovereign coercion is called in only in order to assure everybody of everybody else’s adherence to a cooperative solution, so that Paul can gain without Peter losing (in Rousseau’s infelicitous phrase, so that both can be “forced to be free,” i.e. better off than either could be without being forced to cooperate).
They rank below the some-gain-and-none-loses type of arrangements, not because we always prefer an arrangement where Paul gains without Peter losing, to one where Paul gains a lot and Peter loses a little. Some would regard it as positively good to take Peter down a peg or two. There may also be some other ground for favouring one over the other even if we do not believe that deducting one’s loss from the other’s gain to find the true balance of good makes sense. The some-gain-and-some-lose type of arrangements are inferior to the some-gain-and-none-loses sort only because the latter are ipso facto good (at least if envy is ruled out of the calculus), while the former require a ground on which to base the claim of their goodness. Gainers-only arrangements requiring coercion are interesting intellectual constructs. It is a moot point whether they really exist in reality, or that, if they do, they play an important part in the relations between state and society.26 Some-gain-and-others-lose arrangements, on the other hand, are what consent and the adversary relations between state and subjects mainly revolve around.
Before having one last look at the dead end the state seems fated to manoeuvre itself into in the course of dealing out gains and losses, it seems to me necessary, and more than just pedantry, to protest against a spreading misconception of the very mechanics of robbing one to pay the other. For some time now it has been the custom to consider the fiscal functions of the state under the headings of allocation and distribution.27 Under allocation are subsumed the who does what decisions about providing public goods, “steering the economy” and making sure that markets perform their work. Distribution as a fiscal function deals with who gets what, with undoing the markets’ work. The conceptual separation has led to treating these functions as a sequence, inducing social engineers to roll up their sleeves and set to work: “First we allocate, then we distribute what the allocation has produced.” The supposition that, in a system of strong inter-dependences, distribution depends on allocation but allocation does not depend on distribution, is remarkable.28 Those who so blithely make it, would in fact get quite cross if it turned out to be valid. If robbing Peter did not result in his consuming less champagne and fewer dancing girls, and paying Paul did not lead to his getting more health care and to his deserving children staying longer at school, why did the social engineers bother at all? What did the redistribution accomplish? The decision to let Paul get more and Peter less, is implicitly also a decision to allocate ex-dancing girls to teaching and nursing. This fails to be true only in the freak case of an impoverished Peter and an enriched Paul jointly requiring the services of the same total “mix” of dancing girls, hospital nurses and schoolteachers as before.
Carrying on from the allocation-distribution dichotomy, liberals consider that politics is about two different sorts of domains. One is the basically non-conflictual one of allocation, giving rise to “positive-sum games.” The other is the grimmer, conflictual who-gets-what domain of “zero-sum games.” (Note again, as in chapter 3, pp. 176-7, 180, that as these are not games, the invocation of game theory language is a little trendy, but let that pass.) I have insisted, perhaps more than sufficiently, that these alleged games cannot be played separately, and that allocative decisions are at the same time distributive decisions and vice versa. A who-gets-what decision conditions what shall be provided and hence who does what. Emancipating one decision from the other recalls the Marxist ambition to distinguish the “government of men” from the “administration of things.”
While it may be legitimate to view changes in allocation as capable, if all goes well, of yielding positive sums so that mathematically nobody need lose as a result of the change, what do we say if somebody did lose? It is no use saying that the loss is really attributable to an attendant zero-sum distributional decision, and that if only the distribution had been different, the loser need not have lost; since a different distribution would have entailed a different allocation. The statement about the two decisions would be incoherent even if it ran in terms of sums of money, or apples, for we could not just suppose that the allocative gain would have been preserved if we had tried to distribute it differently. It would be doubly incoherent if it ran in terms of mixed bundles of goods, let alone utilities, for this would strike many people as an attempt to seek the residual balance between more apples for Paul and fewer pears for Peter.
The burden of this argument, if there is one, is that redistribution is a priori not a zero-sum game (for it has effects on allocation) and that it seems very difficult to tell empirically what it is. Calling it “zero-sum” evokes a false image of the state’s redistributive function as something neutral, harmless, leaving intact the interests of parties other than Peter and Paul. The evocation is false for two reasons. First, even if (abstracting from the cost of administering and policing these arrangements) the resource cost of Paul’s gain in some accounting sense exactly offset the resource cost of Peter’s loss, the two could still be held to be unequal from a “welfare” or class war angle. Second and more important, resource allocation must correspond to the new distribution. Contracts, property relations, investment, jobs, etc. all have to be adjusted.
Greater or lesser repercussions must impinge on everybody’s interest, though some interests may be affected only imperceptibly. These repercussions are themselves redistributive—perhaps unintentionally and perversely so.29 The total effect is to extend and magnify, well beyond the interests of the parties ostensibly concerned, the secondary turbulence of allocation-cum-distribution induced by a given act of primary redistribution.
At least conceptually, we must keep track of three separate elements of turbulence. The first is direct redistribution, where the state imposes an arrangement making some interests better off at the expense of others (whether intentionally or not). The second is the unintended reallocation-cum-redistribution induced by the first. Let us label this secondary turbulence, which absorbs some energy and involves some trouble of adjustment (and not only to dancing girls), “indirect churning.” “Direct churning” describes fairly fully the third element. It is, from the accounting point of view, gross redistribution leaving either no or only some incidental net balance. This occurs when the state grants some aid, immunity, differential treatment or other gain to a person or an interest, and (quite possibly willy-nilly, only because no other way is more practicable) meets the resource cost by inflicting a more or less equivalent loss, normally in a different form, upon the same person or interest. Superficially, this may look absurd though I hope it does not. The state has a quite compelling rationale to churn this way. The argument for sheer churning has a good many strands. Following but a few should suffice for seeing its force.
It is not absurd to suppose, for a start, that there is some lack of symmetry (somewhat akin to critical mass or to the justly despised “change of quantity into quality”) between people’s perception of their large and small interests. Many of them just do not notice, or shrug off, gains or losses beneath some threshold. Having arrived at this diagnosis, the state must rationally apply the calculus of political support-building in its light. In certain situations, its rational course will be to create a few large gainers (whose support it can thus buy) matched by many small losers (who just shrug it off). This is why it may be good politics to put a heavy duty on foreign wheat to oblige the growers, and let the price of a loaf rise just that little bit,30 and more generally to favour the producer interest over the more diffuse consumer interest, independently of the fact that the producer is organized to extract a price for his support while the consumer is not, or is so less effectively. It is needless to remind ourselves that if the state, in making the running or just by keeping one step ahead of the opposition, goes round every producer group to exploit this benign asymmetry, every one of its subjects playing a double role as producer and consumer will make one noticeable gain “financed” by a large number of quite small losses. The net balance of redistribution, if any and if it can be ascertained, will be submerged under large flows of gross gains and gross losses impinging on much the same people; “direct” churning will be going on. The quantities of resources churned through indirect taxes, subsidies and by price-fixing, may well dwarf any net transfer associated with the churning.
An equally commonplace argument leads from “industrial policies” to churning. Whether to promote its growth or to save it from decline and extinction, the political benefit from helping a business firm or an industry (especially as it “provides jobs”) is likely to exceed the political damage caused by a small and diffuse increase in the costs faced by other firms and industries. The upshot, then, is that it is good for the democratic state to make every industry support every other in various, more or less opaque ways.31 There results a broad overlap of self-cancelling gains and losses, leaving perhaps only narrow slivers of some net gain here, some net loss there. Quite where any such slivers are located must itself be in some doubt. Given the intricate nature of the social and economic stuff that is being churned, it is altogether on the cards both that the industry which was meant to be helped was actually harmed, and that nobody can tell for sure which way any net effect went, if there was any at all.
Another strand of the argument about churning is the apparent asymmetry between the capacities of democratic states to say yes and to say no. Resisting pressure, rejecting the demands of an interest or simply refraining from doing some good for which there is much disinterested support, more often than not has an immediate, indisputable and perhaps menacing political cost. The political benefit of saying no, on the other hand, is usually long-term, speculative and slow to mature. It is devalued by the discount that insecurity of tenure places on distant pay-offs, as well as by the trivial “drop in the bucket” nature of most individual yes-or-no choices.
In a richly differentiated society with a large variety of concerns and interests, the state is constantly making numbers of small decisions in favour or against some such interest, each merely involving “a million here and a million there.” Admittedly, their sum soon runs to billions and, with “a billion here and a billion there, soon you are talking real money.” Yet none of the individual decisions takes the state in one leap from the realm of millions to the realm of real money. The day of reckoning is in any case more than a week away (“a long time in politics”), and as compromises and the fudging of issues have a sui generis advantage over “polar” solutions, the state usually ends up by at least partially satisfying any given demand. However, both Peter and Paul have frequent occasions for making various demands upon the state; the more times they have successfully demanded in the past, the more often are they likely to present demands now. As the bias of the system is such that the state tends to say at least a partial “yes” to the bulk of them, the major result is bound to be churning. Both Peter and Paul will be paid on several counts by robbing both of them in a variety of more or less transparent ways, with a possibly quite minor net redistribution in favour of Paul emerging as the residual by-product.
A corollary of the above is that some people or groups will gain from some direct or unintended redistributive arrangements while losing much the same sums from others. Not all can, let alone will, see through this and recognize their net position, if indeed a net position has objective meaning. Since economic policy causes prices and factor incomes to be other than what they would be in a policyless capitalist state, and since it may in any case be inherently impossible to “know” the ultimate incidence of the total set of directives, incentives, prohibitions, taxes, tariffs, etc. in force, a subject need not be stupid to be mistaken about where the churning around him really leaves him.32
It is in the state’s interest to foster systematic error.33 The more people think they are gainers and the fewer who resent this, the cheaper it is—crudely speaking—to split society into two moderately unequal halves and secure the support of the preponderant half. With free entry into the competition for state power and hence the extreme unlikelihood of collusion among the rivals, however, the opposition must seek to dissipate systematic error as fast as the state succeeds in inducing it, in fact to induce systematic error of the opposite sign by telling the gainers that they are losers. Whoever is in power in democratic states, it is the steady endeavour of the opposition to persuade the broad middle class that it is paying more in taxes than it is getting back, and to tell the working class (if such an old-fashioned category is still admitted to exist) that the burden of the welfare state really rests on its back. (When in opposition, “right” and “left” both arrive at some such conclusion from opposite premises, roughly as follows: living standards of working people are too low because profits are too low/too high.) Whatever the real influence of these debates, there is no good reason to assume that they simply cancel each other out. It seems a priori probable that the more highly developed and piecemeal is the redistributive system and the more difficult it is to trace its ramifications, the more scope there must be for false consciousness, for illusions and for downright mistakes by both the state and its subjects.
Contrary to the sharp-edged outcome of a pure rich-to-middle redistributive auction in a homogenous single-interest society (see pp. 218-23), complex, addictive, heterogenous interest-group churning seems to produce a much fuzzier pattern. Very probably it can produce several such patterns and we cannot really predict which one it will be. Since there is a large number of alternative ways in which a highly differentiated, disparate society’s multiplicity of interests can be lined up on two nearly equal sides, there is no longer a presumption (such as I have established for a homogenous society) of one best, unbeatable pattern of redistribution which a political competitor can match but not outbid. Hence, there need be no strong tendency either for the convergence of programmes or the disappearance of genuine political alternatives. A somewhat rightist and a recognizably leftist policy can be serious rivals of each other.
Any rivalry, however, still entails competing offers of some net transfer of money, services, favours or liberties from some people to others, for with other things equal, he who makes some such offer can, under simple everyday assumptions about why people support a policy, generate more support than he who makes none. This is the case even if there is much fuzziness about the shape of the winning offer (note that a deterministic reliance on “natural constituencies” and on the programmes which either constituency imposes on its champion, will not do; many interests no longer fit into any natural constituency, left, right, conservative or socialist, but swell the “swing middle” which must be bought). Our theory becomes blurred, as it probably should in its descent to a progressively less abstract level.
The central thrust of the theory, however, does not get altogether lost. With tenure heavily dependent on the consent of its own subjects, competition still drives the state into some redistributive auction. The comparability of rival offers is more limited than in the abstract rich-to-middle tax-and-transfer version. There is no longer one simultaneous tender offer of a coherent set of positive and negative payments for support, addressed to particular segments of society. Instead, there is a prolonged cascade (perhaps ebbing and flowing with the electoral calendar), of quite diverse aids and fines, bounties and bans, tariffs and refunds, privileges and hindrances, some of which may be difficult to quantify. The opposition cascade is promise, the state cascade is, at least in part, performance. Comparison of the two is evidently not a light undertaking for a person with manifold concerns ranging from civil rights to the mortgage on his house, fair trade in his business and poor teaching at his children’s school, to name but a few in random order.
Rival offers need not be closely similar, nor need they completely exhaust the whole potential “pay-off” available for redistribution. The concept of the potential pay-off itself must be reinterpreted in a less precise manner. It can no longer be treated as co-extensive with taxable capacity, the less so as a good deal of redistribution is an indirect result of various state policies and totally bypasses taxes. When all this is duly said, however, political competition still means that neither rival can afford to content itself with offering much lower net redistributive gains than its tentative estimate of the net loss it can safely impose on the losers.
The interdependence, within any differentiated social system, between who gets what and who does what, and the few common-place assumptions about psychology and the working of consent-dependent political regimes, introduced in this section, steer the issue from competitive equilibrium to what I propose to call the last democratic dilemma.
Over and above any direct redistribution, a great deal of indirect churning will be generated. The state will also engage, off its own bat and responding to piecemeal political incentives, in additional direct churning. The addictive effect of (gross) gains under churning, notably the stimulus provided to interest group proliferation, is likely to cause churning to grow over time despite the absence and quasi-impossibility of further net gains. False consciousness, systematic error, a degree of producer-consumer schizophrenia and some free-riding bias in group action in favour of extorting gains (and never mind that after every other group has extorted its gain, the first group’s share in the resulting total of costs will have wiped out its gain)—all these deviations may suffice to offset, up to some point, the inconveniences and costs of churning and still produce political benefits on balance. The more churning there is, however, the more the balance is liable to tip over, both because more churning takes more government, more overriding of mutually acceptable private contracts, more state influence over the disposal of incomes and the rights of property (which may upset one half of society), and because of some perhaps dim, inarticulated frustration, anger and disappointment that so much redistributive ado is at the end of the day mainly about nothing (which may upset the other half).
Rather like the individual political hedonist who finds that as the state increases the pleasure it bestows, after some point (which he may or may not have actually reached yet) the accompanying pain increases faster and it would be best if one could just stop before quite getting there, society is also likely to reach some point of marginal pleasure-pain equivalence where “it would like to stop.” However, there is no operative meaning in this “would like to.” Society cannot call a stop, nor can it make any other decision (though majorities can make a limited range of decisions in its name and the representatives of the majority can decide additional matters in its name, and the state may carry them out in their name, none of which is in dispute here). Should it find too much of its arrangements churned more than it feels is congenial or indeed tolerable, society has no obvious recourse against the democratic political process which yielded this result. It may respond with uncomprehending rage, with what former French President Valery Giscard d’Estaing aptly called “morose turbulence” and sullen cynicism. Its frustration will obviously threaten the political survival of the state which, by inadvertence, line of least resistance and the pressures of the social structure called forth by its own consent-seeking, has pushed churning too far.
On the other hand, net goes with gross, genuine redistribution is accompanied by churning. If continued tenure of power dictates a certain genuine redistribution, a growing volume of churning on top of it is nearly certain to be induced for one good reason and another. Yet if the former is consistent with political survival, the latter may be excessive for it. There may consequently no longer be any possible political equilibrium position, not even one of unrewarding state drudgery. A genuine existential impasse may be reached: the state both must and must not redistribute.
It is this contradiction which conditions the mixed-up, disoriented split personality of many present-day democratic states.34 Ideology must go hand in hand with interest. In recent years, the dominant ideology of Western democracy has been cautiously co-opting a sprinkling of previously rejected elements of theoretical anarchism, libertarianism and traditional individualism; before we know where we are, Herbert Spencer will be radical chic. On a less cerebral plane, deeply felt claims mount for “rolling back the state.” As the quarter-turn of ideological fashion unfailingly signals, it has in a sense become clever policy for the state to roll itself back.
Torn between a rational interest to go on producing the “democratic values” that the beneficiaries have taught themselves to depend on (and at least to continue upholding if not furthering the group interests whose support it cannot afford to forgo), and an equally rational interest to respond to the mounting poujadisme, frustration and ungovernability of much the same people and much the same interests by doing virtually the opposite, the state twists and turns and explains away its own incoherent evolutions with incoherent rhetoric. In two minds, by fits and starts fighting its own nature, it resists its own attempts to make itself shrink.
Towards a Theory of the State
It would be rational for a state pursuing its own ends to escape from the treadmill where its power is used up in its own reproduction.
Did Plato’s Republic “degenerate” on the way from democracy to despotism?
This is the place for drawing some of our threads closer together. Depending on the scale and perspective of the analysis, it is possible to regard the state in several ways. One is to take it as an inanimate tool, a machine. It has no ends and no will; only persons have ends. Explanation and prediction of its movements must, therefore, deal at one remove with the persons who wield the tool and shift the levers of the machine. Another is to merge the machine and the people who run it, and consider the state as a live institution which behaves as it would if it had a will of its own and a single hierarchy of ends; as if it could choose between alternatives and in doing so seemed to conform to the rudiments of rationality. We have throughout adopted the latter view, not because it is more realistic (neither is), but because it looks the most fertile in plausible deductive consequences.
Once we think of the state as having ends and a will of its own, theories and doctrines which have the state serve the interests of Hobbes’s seekers after eminence, Rousseau’s myopic deer-hunters or Engels’s oppressor class, take on a strongly question-begging quality: for however convincing the accounts they give of how the state could or does serve such interests, they furnish no reason why it should serve them. Yet while the supposition that a will seeks the fulfilment of its ends can be taken as read (it is implicit in rationality; besides, it is hard to think of a will floating freely, not associated with any end), a supposition that it seeks to serve the ends of others needs justification, explicit support of some sort. There is, in my view, no such support for it in either the contractarian or the Marxist theory of the state. It may, in fact, be a misnomer to call either one a theory of the state, though they are both theories of the individual (or class) subject’s interest in the state. Moreover, as I have contended in chapter 1, even if it had good reasons to, the state could not pursue the interests of its subjects unless they were homogenous. Its adversary relation to them is inherent in its having to take one side or the other between conflicting interests if it is to have any “policies” at all.
A successful theory of the state should not have to rely on the gratuitous assumption that the state is subservient to some interest other than its own. It should lend itself to the explanation of the state’s role in political history in terms of its interest interacting, competing, conflicting with and duly adjusted to the interests of others.35
What, however, is the proper view of the interests of the state? When do we say that it is using its power to fulfil its ends? I have from the outset reconciled the possibility of “minimalness” and rationality by laying down the “marker” that a state will choose to be minimal (“capitalist,” “policyless”—alternative terms I consider to have substantially the same effect as “minimal”), if its ends lie beyond politics and cannot be attained by the use of power—if they are not the satisfactions of governing. On the other hand, all the policies a non-minimal state does adopt are, tautologically, in its interest, in the fulfilment of its ends, except when it is being foolish. Some of these policies, however, can yet be told apart from the others. Into this split, the thin end of a theory of the state might be wedged.
Certain policies, and the specific measures they call for, can at least conceptually be singled out as having a common negative feature: they appear to contribute to no plausible end, satisfy no manifest taste, augment no conceivable enjoyment of the state other than the maintenance of its tenure. They just help keep it in power. They use power in order to reproduce it. If it is right to say that Roman senators felt no altruistic love for the plebs, yet gave them bread and circuses, they “must have” done so because it seemed to them necessary for the maintenance of the existing order. If one can take it that Richelieu did not actually prefer townsmen to nobles, yet favoured the former and sought to weaken the latter, he “must have” done so in order to consolidate royal power. (The “must have” is in inverted commas to invite the reader’s complicity and indulgence. So much of historical explanation is, inevitably and I think properly, no more than the elevation of the least unreasonable hypothesis to the rank of the true cause.)
Some measures, in addition to reproducing the state’s power, may contribute to its other ends as well. Their nature is such that no presumption stands to the contrary. When a President Peron or a contemporary African government pampers the urban masses, we can say that it “must” be doing so because it has staked its political survival on their support (or acquiescence), but it is not absurd to allow that it likes them, too. Hence, it may be actually pleased to make workers, clerks and soldiers better off at the expense of haughty cattle barons or obtuse tribal villagers. The shape of these measures reveals their support-buying, power-maintaining function, yet it permits the supposition that some other end is being fulfilled, too. Much of the redistribution undertaken by the modern democratic state has this shape.
There is sufficient historical evidence, however, of a clear-cut class of other policies and acts of state which use state power without intelligibly, plausibly visibly contributing to its maintenance. The religious policies of James II, Charles XII of Sweden’s campaigns or the profligacy of the Naples Bourbons have, if anything, weakened their hold on power. Gladstone’s failed attempts to give Home Rule to Ireland, the Kulturkampf fought by the Second Reich, or American near-belligerence on Britain’s side in 1940 used up some of the support enjoyed by the respective governments. Though they may have been the right thing to do, it is hard to argue that they were good politics. If such policies are nevertheless pursued, they “must” fulfil an end other than the prolongation of the tenure of power. When Peter the Great brought in Germans to run Russia, made himself odious and ruthlessly upset the old ways, he was using up power in the short run (he had a margin to spare) even if the longer-run effects strengthened the throne (which is arguable).
A parallel should make the distinction clearer still. Conceptually, we are used to the idea of “subsistence wages.” Marx has built his whole unfortunate theory of value and capital on the idea of the labour-time “socially necessary” for the reproduction of labour. Only a part of the labourer’s time is used up to produce the subsistence he needs to go on labouring, and subsistence is all he gets.36 No matter that subsistence turns out to be impossible to pin down. As an idea, it is simple and powerful and it leads straight to surplus value and the class struggle. In our framework, the use of the power necessary for its own maintenance takes the place of the subsistence wage spent on the maintenance of the labourer. The surplus value that his labour time has produced in addition, accrues to capital as the pay-off to domination. In our scheme, “surplus value” would correspond to whatever satisfactions the state can afford to procure for itself over and above the maintenance of its tenure of power. Another, less “analytical” parallel is that between income and discretionary income, power and discretionary power.
Discretionary power is what the state can use to make its subjects listen to Bach and not listen to rock; to change the course of mighty rivers and transform nature; to build presidential palaces and government offices in keeping with its taste and sense of proportion; to deal out rewards and privileges to those who deserve it and to keep down those who deserve that, regardless of political expediency; to do good and aid causes its subjects care little about; to pursue national greatness; to invest in the well-being of a distant posterity and to make others adopt its values.
Our theory would not be a social theory if it had no sting in its tail, no indirect, roundabout secondary effects and no “feedback loops.” Thus, it is entirely likely that once the state has made people observe the cult of Bach, and they have in due course taught themselves to like it, they will “identify” better with the state which gave them their tastes. Likewise, the splendour of the presidential palace, the achievement of national greatness and “being first on the moon” may in the end implant in the public consciousness a certain sense of the state’s legitimacy, a perhaps growing willingness to obey it regardless of hope of gain and fear of loss. Hence, they may serve as a cunning and slow-acting substitute for buying consent. Like Peter the Great’s administrative reform, however, they require a discretionary margin of power now even if they are certain to yield greater legitimacy or a stronger repressive apparatus or both later.
Instead of saying, tautologically, that the rational state pursues its interests and maximizes its ends, whatever they are, I propose to adopt, as a criterion of its rationality, that it seeks to maximize its discretionary power.37, 38
Discretionary power permits the state to make its subjects do what it wants, rather than what they want. It is exercised by taking their property and liberty. The state can appropriate people’s money and buy things (including their services) with it. It can also override their spontaneous intentions and order them to serve its purposes. When the state is defending its tenure in open competition, however, all the property and liberty it can take is, by the definition of competitive equilibrium, absorbed in the “reproduction” of power, i.e. in the maintenance of its tenure by redistribution. The existence of a discretionary surplus would contradict the assumption of competition, under which it is impossible so to rearrange or enrich the redistributive pattern as to obtain more support for it (cf. the earlier section of this chapter on the “profitless,” break-even character of equilibrium). This condition loses some of its precision and rigidity as we move to lower levels of abstraction; we introduce fuzziness, a margin of error, but no novel set of reasons to render likely the emergence of an appreciable discretionary surplus.
At this point, the state has completed its unwitting transformation, from being the seducer freely offering utilitarian improvement, one-man-one-vote and distributive justice, to being the drudge only just coping with its self-imposed redistributive obligations. Moreover, it has entrapped itself in several predicaments at once. One is competition, being on the treadmill. Another is the changing character of society in response to its own redistributory activity, notably addiction to aid, free-rider behaviour by each interest group towards all others and progressive loss of control over redistribution. An extreme form of this predicament is to be up against an “ungovernable” society. Finally, as direct redistribution is overlaid by ever thicker layers of churning, in the ultimate democratic predicament there is no possible equilibrium: society both demands and refuses the state’s redistributive role. The latter, in maintaining consent, ought both to go on expanding and to “roll itself back.”
Were we to dismiss this terminal self-contradiction as mere dialectic word-play and allow equilibrium to persist, however, the latter would still not represent a proper maximum for the state, except in the tenuous sense in which the earning of the subsistence wage is a “maximum” for the labourer. With no, or negligible, discretionary power, the state is better off than in any other available posture, in each of which it would lose power altogether and be replaced by its opposition.39 It is rational for it to cling to this position. It may well content itself with it and just soldier on. Nevertheless, if it could deliberately change some of the available alternatives, i.e. modify in its favour the social and political environment to which it adjusts when “maximizing,” it could make itself better off. Recognition of some such possibility (though not necessarily any action to realize it) may in fact be regarded as a criterion of another, higher order of rationality. Making itself less dependent on its subjects’ consent, and making it harder for rivals to compete, would amount to improving the environment instead of adjusting to it.
It is not, of course, actually irrational for the state not to do this. I am not arguing some historical necessity, some inexorable dynamics which must cause any state, if sound of mind, to become totalitarian. On the other hand, I would not accept that, like Plato’s Republic on its way from democracy to despotism, the state “degenerates” in the process. If it has improved its ability to fulfil its ends, it has not degenerated, though it may well have become less apt to serve the ends of the observer, who would then have every reason to be alarmed by the change. I am arguing, though, that it is rational in a higher, “strategic” sense of rationality different from the “tactical” sense of optimal adjustment, for the state generally to become more rather than less totalitarian to the extent that it can get away with it, i.e. maintain majority support at the stage where it still needs it. It is also rational for a rival for power to propose, under democracy, a more totalitarian alternative if this is more attractive to the majority though more unattractive to the minority.40 Hence, there is in competitive, democratic politics, always a latent propensity for totalitarian transformation. It manifests itself in the frequent appearance of socialist policies within non-socialist government and opposition programmes, and in socialist streaks in the liberal ideology.
Whether or to what extent this potential is realized is a matter almost of hazard, of the fundamentally unpredictable historical setting. By neat contrast, no potential the other way round, for the democratic transformation of a totalitarian state, can be logically derived from any maximization assumption that would admit of the state having the kind of ends, whatever they are specifically, whose attainment calls for the discretionary use of power.
[1. ]Cf. the Rawlsian view of the state of nature as a society which fails to produce the public good “distributive justice.”
[2. ]Looking back on his career as a statesman, Guizot (in the 1855 Preface to his re-edited Histoire de la Civilisation en Europe) sees his role in government as an attempt to render the struggle between authority and liberty “avowed,” “overt,” “public,” “contained” and “regulated in an arena of law.” In retrospect, he feels that this might have been wishful thinking.
[3. ]An outrageous yet masterly historian of the eighteenth-century French absolute monarchy describes royal power as “all-powerful in the spaces left by the liberties” of the estates and corporations (Pierre Gaxotte, Apogée et chute de la royautée, 1973, vol. IV, p. 78). These spaces—often mere interstices—seem analogous to the space allowed the state by constitutional bounds. The pre-revolutionary privileges and immunities in most of Europe west of Russia, and post-revolutionary constitutional guarantees, both limited the prerogatives of the state. However, the former were upheld by, and shifted backwards or forwards with, the balance of forces in society between state, the nobility, the clergy, the commercial interest, etc. The latter were “fixed,” and it is not at all clear what forces upheld them at any one time.
[4. ]Jon Elster, Ulysses and the Sirens, 1979.
[5. ]In response to opposition claims that the bill was unconstitutional, André Laignel, socialist deputy of the Indre, gave the reply which has since become celebrated, and might be preserved in future political science textbooks: “You are wrong in [constitutional] law because you are politically in the minority.” Events proved him right.
[6. ]The latter need not be the case. In the winter of 1973-4, the British coal miners proved to have enough clout to break Edward Heath’s government; yet with respect to the inequalities which would be liable to figure in a redistributive offer, they would clearly count as have-nots.
[7. ]I prefer naively to talk of “money” and leave it to others whether it is income or wealth or both that should be redistributed and what difference it makes.
[8. ]If there were no such effects, taxable capacity would be equal to income, i.e. the very concept would be perfectly redundant. People could be taxed at 100 per cent of their income, for doing so would not adversely affect either their ability or their willingness to go on earning it.
[9. ]With the same rules and the same players, Robert Nozick, in Anarchy, State and Utopia, 1974, pp. 274-5) reaches the contrary conclusion; he sees the rich party as the sure winner. Nozick’s argument is that “a voting coalition from the bottom won’t form because it will be less expensive to the top group to buy off the swing middle group than to let it form”; “the top 49 per cent can always save by offering the middle 2 per cent slightly more than the bottom group would.” “The top group will be able always to buy the support of the swing middle 2 per cent to combat measures which would more seriously violate its rights.”
[10. ]Cf. F. A. Hayek on the “Curious Story of Due Process,” in The Constitution of Liberty, 1960, pp. 188-90.
[11. ]If 25 per cent can block the amendment, the pay-off is whatever 24.9 per cent can be made to hand over to 75.1 per cent.
[12. ]Cf. the essay of J. G. March, “The Power of Power,” in D. Easton, Varieties of Political Theory, 1966.
[13. ]Herbert Marcuse may be credited with reviving a somewhat elliptical version of the old-time belief in redistribution degrading the beneficiary’s character. He saw the individual injuring himself in acquiescing in his own dependence on the welfare state. (An Essay on Liberation, 1969, p. 4.)
[14. ]The OECD reported in 1983 that over the period 1960-81, public expenditure on health, education, old-age pensions and unemployment benefits rose from an average of 14 per cent to 24 per cent of GNP in its seven largest member countries. This rise was not primarily due to greater unemployment, nor to demographic bad luck (the effect of the latter is still mostly in the future). The OECD states that “populations which have become increasingly dependent on the welfare state will continue to expect support” and in order for continuing support to absorb no more than the actual proportion of GNP, i.e. for its relative weight to be stabilized, some quite ambitious assumptions about the future growth of the cost of existing entitlements and of the economy would have to hold true. The OECD refrains from pronouncing on the likelihood of actual performance measuring up to these assumptions.
[15. ]There is, in all circumstances, a general reason for regarding social choice as a fictitious concept, namely that while majorities, leaders, caucuses, governments etc. can make choices for society (except in unanimous plebiscites about simple proximate alternatives), choices cannot be made by society. No operative meaning can be credited to such statements as “society has chosen a certain allocation of resources.” There is no method for ascertaining whether “society” preferred the allocation in question, and no mechanism by which it could have chosen what it supposedly preferred. It is always possible to agree to some question-begging convention whereby certain actual choices made for society shall be called “social choices,” for instance if they are reached by the mechanism of a state mandated by majority vote. The convention will create a fictitious concept, whose use cannot fail to bias further discourse.
[16. ]I am choosing the example of the bus because it makes the free-rider problem more palpable, and not because I believe that buses can only be provided cooperatively. A universe where all buses are run by private operators for a profit is conceivable. A universe where this is true of streets may not be conceivable.
[17. ]This thesis is put in Mancur Olson, The Logic of Collective Action, 1965, p. 36. Cf. also the same author’s The Rise and Decline of Nations, 1982, for the argument that “encompassing organizations,” e.g. the association of all labour unions, all manufacturers or all shopkeepers in a corporative state, “own so much of the society that they have an important incentive to be actively concerned in how productive it is” (p. 48), i.e. to behave responsibly. The encompassing organization is to society as a person is to a small group.
[18. ]For a review of various authors’ contrasting conclusions about the effect of group size on free riding within the group, cf. Russell Hardin, Collective Action, 1982, p. 44.
[19. ]It is perhaps tempting, in this light, to regard interest groups as miniature states and the theory of the state as a case in some general theory of interest groups. If we did this, the traditional dividing line in political theory between state of nature and civil society would get washed away. There are major objections to such an approach. (1) The state has a unique attribute—sovereignty. (2) The approach is question-begging. It treats as axiomatic that for the potential members of the “group” (i.e. all members of society), “group reward” exceeds “group burden,” i.e. there is a pay-off from tackling the free-rider problem. But how does the pay-off manifest itself? It is usually accepted that the pay-off from forming a trade union is higher wages or shorter hours, and the pay-off from forming a cartel is excess profits. The pay-off from the social contract is the realization of the general will, obviously a different category of pay-off; even its algebraic sign depends entirely on the values of the interpreter of the general will—the Sympathetic Observer of the “social welfare function.” (3) The theory of interest group formation may have room for the state which only imposes cooperative solutions that make some better off and none worse off. It has not enough room for the state that imposes solutions that make some better and others worse off, i.e. that is a group redistributing benefits within itself. Nor is it suited to accommodate the state that has its own maximand, pursues its own ends in opposition to its subjects.
[20. ]For the fundamental difference between “groups” (including political communities) where people can “vote with their feet” and others where they cannot, see Albert Hirschman, Exit, Voice and Loyalty, 1970.
[21. ]K. Marx, “The Eighteenth Brumaire of Louis Bonaparte,” in K. Marx and F. Engels, Selected Works in One Volume, 1968, p. 169.
[22. ]Like the American senator, referring to the deliberations of the Senate Finance Committee: “A billion here, a billion there and before long you are talking real money.” My source is hearsay, but “se non e vero, e ben trovato.”
[23. ]Cf. W. Wallace, “The Pressure Group Phenomenon,” in Brian Frost (ed.), The Tactics of Pressure, 1975, pp. 93-4. Wallace also makes the point that causes feed on the mass media and the mass media feed on causes, from which it may be possible to infer further that some kind of cumulative process might get going even in the absence of the state. Would, however, people in the state of nature watch so much television? That is, isn’t the habit of prolonged television-watching a product, in part, of people being less interested in doing state-of-nature things, either because it is no fun any more or because the state is doing them instead?
[24. ]Samuel Brittan, The Role and Limits of Government: Essays in Political Economy, 1983.
[25. ]Madame de Pompadour would spend all her income on Sèvres china, and the rest of the people all their income on salt if the salt tax was set high enough to leave them no money for anything else. Note that since the demand for salt does not vary with its price, taxing it (rather than articles in more elastic demand) should not cause much distortion! Nevertheless, as all the national income is spent on salt and china, we may judge that it would be reduced by the salt tax.
[26. ]It is anyway difficult to think of a pure public good which could not at all be produced in the state of nature, though it is arguable that goods with a high degree of “publicness” would be produced on a “sub-optimal” scale. However, the very notion of an optimal scale is more fragile than it looks, if only because tastes for public goods may well depend on how they are produced, e.g. politics may breed a taste for political solutions, and make people forget how to solve their problems by cooperating spontaneously.
[27. ]Explicitly, I think, since 1959, the publication of R. A. Musgrave’s basic textbook The Theory of Public Finance.
[28. ]I have noted (p. 172), dealing with Rawls’s distributive justice and the “background institutions” that go with it, a particularly stark form of this supposition.
[29. ]Contrast the position taken by Nozick, Anarchy, State and Utopia, p. 27: “We might elliptically call an arrangement ’redistributive’ if its major... supporting reasons are themselves redistributive.... Whether we say an institution that takes money from some and gives it to others is redistributive depends upon why we think it does so.” This view would not recognize unintentional, incidental, perverse redistributions, and may or may not regard our “direct churning” as redistribution. Its interest is not in whether certain arrangements do redistribute resources, but in whether they were meant to.
[30. ]The calculus seems to work out the other way round in states, notably in Africa, where the rural population is physically too cut off from politics and it is best to sacrifice agricultural interests to the urban proletariat, the state employees, the soldiers, etc. by a policy of low farm prices.
[31. ]P. Mathias, The First Industrial Nation, 1969, pp. 87-8, lists British policies to help the textile industry; the Corn Laws; the ban on the export of sheep and wool; the bounty on the export of beer and of malt; the ban on the import of the latter; the Navigation Acts, etc. as examples of measures where one industry was helped at the expense of another and vice versa. Professor Mathias remarks that this would look inconsistent and irrational if the economic policy of the era were to be regarded as a logically organized system.
[32. ]Even the most basic, direct “net” redistributive arrangement can mislead, causing mischief all round, as Tocqueville has noted. The landowning nobility of continental Europe attached great value to their tax exemption, and commoners resented it. True to form, Tocqueville recognized that in reality the tax came out of the rent of the noble’s land, whether it was technically he or his serfs or farmers who paid it. Yet both the nobles and the commoners were led and misled, in their political attitudes, by the apparent inequality of treatment rather than by its real incidence (L’ancien régime et la révolution, 1967, pp. 165-6).
[33. ]Randall Bartlett, Economic Foundations of Political Power, 1973, makes the related point that governments seek to mislead voters by producing biased information about public expenditures, taxes, etc. It seems fair to add that the cost-of-living indices and unemployment statistics of some modern states are not above suspicion either. One might reflect further on the conditions under which a rational state would choose selectively to publish truthful statistics, lies and no statistics, allowing for the effort needed to keep secrets (especially selectively), the inconvenience of the right hand not knowing what the left is doing, and the risks involved in coming to believe one’s own lies. The right mix of truth, falsehood and silence looks very difficult to achieve—even the Soviet Union, which chooses its preferred “mix” more freely than most other states, seems to have mixed itself a poisonous brew.
[34. ]As I write (1984), the jury is still out on the Reagan administration and Mrs Thatcher’s government. Both seem at the same time to be rolling and not rolling back the state. Comparing their strong commitment on the one hand and the slightness of the result on the other, one is reminded of the irresistible force meeting the immovable object.
[35. ]Historiography tends to deal more satisfactorily with states appearing in the shape of kings and emperors than with states which are faceless institutions. All too often, the latter are confused with the country, the nation; the historical driving force springing from the conflict between state and civil society is left at the edge of the field of vision. When the game is Emperor vs Senate, the king and his burghers vs the nobility, or the king vs established privileges and “ancient freedoms,” historians are less apt to make us lose sight of which interests make the state do what it does.
[36. ]In modern parlance, the labourer has “maximized” when accepting to work for subsistence wages. No better alternative was offered to him. A different, more “strategic” sense of maximization, however, would have him attempt to influence the available alternatives. He could try to organize a union and bargain collectively, or strike. He could seek redress in “distributive justice” through the democratic political process. He could also fall in behind the “vanguard of the working class” and join the struggle to modify the “relations of production.”
[37,. ]If it takes the application of a fixed “amount” of power to stay in power, with the surplus (if any) available for exercise at discretion, anything which maximizes power must also maximize the discretionary surplus. The fastidious may therefore wince at “discretionary power” as the maximand; why not just plain power?
[38. ]Political theory, as we have seen, asks questions of a teleological nature and treats the state as an instrument: What can states do for their citizens? What ought they to do? What are the obligations and limits of civil obedience?, etc. I know of only two serious precedents of attributing a maximand to the state itself. Both do so in the context of theorizing about the production of public goods. One is Albert Breton, The Economic Theory of Representative Government, 1974. He postulates that the majority party will behave so as to maximize a function increasing in some way with the chance of re-election, power, personal gain, image in history and its view of the common good. The other is Richard Auster and Morris Silver, The State as a Firm, 1979. Here the maximand is the difference between tax revenue and the cost of the public goods produced by the state. Auster and Silver hold that unlike monarchy or oligarchy, democracy amounts to “diffuse ownership” among politicians and bureaucrats, and hence there is no residual income-recipient to profit from a surplus of taxes over the cost of public goods (leading to their over-production). I would interpret this to mean that in democracy there is no “maximizer.”
[39. ]Formally, discretionary power would have become negative in such postures, hence (total) power would be inadequate to ensure its own maintenance; the tenancy of the state would change hands.
[40. ]Such proposals reach beyond the bounds of the simple sort of electoral competition set out earlier in this chapter. In addition to promising the majority the minority’s money (equalizing incomes), they might, for instance, include the equalizing of schools (Gleichschaltung of education) or the equalizing of “economic power” (nationalization of the “means of production”), or some other property, privilege, immunity of the minority, including its creed (Huguenots, Mormons) or race (Jews).