Sunday, September 24, 2006

Against the statist left

[By Chris Dillow]

Last week, I argued for leftism against classical liberalism. This week, I'll take the other line, and argue why leftists shouldn't be statists.

1. Patterned conceptions of equality are inadequate. It's not good enough to take a snapshot of the distribution of income and declare it to be too unequal.
I say this for three reasons. The first, as both Hayek and Nozick argued, is that it justifies endless ad hoc interventions, an incessant busyness. Too many leftists fail to see that political activity should stop somewhere.
Secondly, it reduces justice to a question of taste. You say a Gini coefficient of (say) 0.4 is too high. Someone else thinks it acceptable. How do we adjudicate? It's a simple slip from patterned conceptions of equality to woolly-minded post-modernist relativism.
Thirdly, it fails to see that what matters is how inequality arose. I have no problem with the fact that Thierry Henry earns 100 times more than I do. He hurts no-one (of importance) in his work, exploits no-one. His income comes from a fair process - subject to the proviso that we would, in a veil of ignorance, contract to pay out insurance if we were lucky enough to have such a high income. But I do have a problem with incomes - even much lower ones - that arise from the exploitation of power inequalities. The incomes of rent-seeking managers, or those of the beneficiaries of historic injustices, are more troubling.

2. Information is limited. Hayek was right. Central agencies just don't have the knowledge to intervene well in the economy.
Take, for example, New Labour's anti-poverty policies - the minimum wage and tax credits. How can we set a minimum wage that reduces poverty wages without destroying too many jobs? What withdrawal rate do we apply to tax credits to maximize the relief of poverty whilst reducing disincentive effects? Can complex tax credits be administered efficiently?
These questions make enormous demands upon our knowledge - too enormous.

3. Markets work. If information cannot be centralized, the case for a market economy - which makes best use of dispersed knowledge - emerges naturally. The case for free markets is not that they maximize static efficiency, but that they increase the potential to find new, better ways of doing things, and of producing new goods and services.
Simple empirics prove that markets are fantastic at giving us newer, cheaper, better goods. Just compare shops today with 20 years ago. Has innovation in state-provision really kept pace?
The question, then, is: can we make more use of this tool for increasing innovation? Can we introduce it into education and health? Can we use markets to spread economic risks, rather than rely purely upon a welfare state and macroeconomic management? A serious left would investigate these questions without prejudice.

4. There's a trade-off between big government and redistribution. In the UK, the top 10% get 32% of all UK pre-tax incomes (pdf here). Even if we could tax these at 75% and suffer no adverse incentive effect upon their labour supply, we'd only raise 24% of GDP in taxes. But actual spending is around 40% of GDP.
Simple sums, then, tells us that financing big government requires taxes upon people who aren't rich. And means the tax system can't redistribute income.
This problem is exacerbated by the fact that the rich have the power to shift the tax burden off their own shoulders. They can threaten to move offshore. They have more access to politicians to press their case. They can exaggerate the adverse incentive effects of high taxes. And their newspapers pretend that the wealthy are really only on "middle incomes", thus increasing public opposition to redistributive taxes.
The upshot of this is that the tax system is not redistributive. In the UK, the post-tax Gini coefficient is the same as the pre-tax one. And not just the UK. Vito Tanzi and Ludger Schuknecht say:
Public expenditure may often be a relatively inefficient instrument for equalizing incomes...Transfers are much better targeted in countries with small public sectors. In countries with big public sectors, only 22 percent of transfers benefit the poorest quintile. In France or Sweden, more than 20 percent of transfers go to the richest 20 percent of households. In countries with small governments, one-third of transfers reaches the poorest quintile.

5. States get captured. This highlights a more general problem - states, like any monopoly, encourage rent-seeking. The pushy and the powerful benefit at the expense of the poor. We see this in the EU's proposed imposition of tariffs on Asian shoes. Powerful and rich-ish European shoe manufacturers win. Poor European consumers and even poorer Asian shoe workers lose.
But it's also true on a bigger scale. Remember the 1950s. White trades unionists got a goodish deal from the state. But racism and sexism were rife. Blacks and women didn't benefit much (initially) from social democracy, as they weren't organized. And even today, families with children do better from the state than do the single unemployed or the mentally ill - not to mention, of course, the genuinely poor in the developing world.

6. Hierarchies are inefficient. The state is a steep hierarchy - more so, I guess than private companies; I've heard of firms delayering management but not the state doing so.
This should deeply offend all egalitarians. For one thing, inequalities of status and power are inherently bad - at least as much so as income inequalities - on top of the fact that they are, literally, deadly.
And hiearchies just don't work. As Kenneth Boulding said in this great essay:
Almost all organizational structures tend to produce false images in the decision-maker, and that the larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary matter who is the role occupant, the decisions will be much the same.The inference of this theory, of course, is that fools in high places will make just the same decisions as wise men.

One big problem with hierarchies is that they are brittle - when weight is put upon them, they break horribly. We saw this most spectacularly with the fall of the Soviet Union. But a similar thing happened in the UK in the 1970s, when the post-war social democratic settlement collapsed. As unemployment and inflation both rose, statists had no good answer to the Thatcherite critique. The upshot was that workers who had looked to the state to guarantee them jobs were horribly disappointed.
The contrast here is with cybernetic principles, whereby feedback mechanisms allow systems to be stabilized by self-regulating forces, not external "expert" intervention.
What sort of policies would all this lead to? I suggest the left should support simple redistribution - a citizens' income - over complex interventions such as tax credits and minimum wages - and should consider ways in which public services can be delivered not by a monolithic state, but by competing co-operatively run schools and hospitals.
But policy-wonking is second order. The bottom line here is that the egalitarian left should oppose the state more and the market less.


  1. But some of us love woolly-minded post-modernist relativism. We can't wait to woolly-mind the next post-modern relativist.
    Take this enumerated example for instance 1. Patterned conceptions of equality are inadequate. Yes, take it encapsulated because unless you are experienced (Are you experienced?) [Can this be debated?] running over, say, Gini coefs with this Inadequacy Steam-roller is bound to make a mess. Yes, the professional mess which barks "I know and you woolly-minded are so inadequate."
    I think it was the enumeration that got to me.

  2. The idea that the left should be anti-statist is of course no news to the many of us who are left-libertarians already. But I think your comments should be put in historical context. In the late 19th Century most of the left, including the social democratic parties did not look to empowering the state as an answer to the poverty and oppression of the farmers and workers. Most looked toward an extension of democracy and the development of voluntary associations like trade unions and cooperatives. Legislation had mainly to do with working conditions, health, hours etc. Most socialists, including Marx feared the idea of "state socialism." The anarcho-syndicalists, who at this time had millions of members world-wide were ideologicaly opposed to statism.
    Somehow around the time of WW1 this all began to change under the influence of Fabianism and Bolshevism, which were state socialist in nature

  3. Another point is that the sort of statist social democracy that in varying degrees became universal was the result of a compromise. It was the price paid for keeping corporate capitalism. If the state is going to privilege certain economic actors through corporate law, patents, eminent domain, gifts of real estate, cheap loans, gunboats to keep the colonial suppliers in line, etc. it must also deal with the consequences of corporate capitalism. Corporate capitalism without social democracy would be complete barbarism and this is something most of the ruling elite realized in the 1930's. This said, it doesn't mean that a left-libertarian should be a cheer-leader for social democracy. No, what we should seek to do is to take away the privileges granted to the corporation by the state. Anti-statism from the top down.

  4. On 1:

    the first reason pretends that one type of property regime is more interventionist than another. All property regimes need someone to enforce them though. Is the taxman taking Wilt Chamberlain's money really any different from the policeman preventing me from taking it?

    the second reason is again a criticism drawn far too wide, if indeed its a coherent criticism at all. People disagree about the content of theories of justice, therefore this particular kind of theory of justice, but not the kind I prefer, is but a step away from woolly-minded post modernist relativism. Yeah, right.

    The third is a little better, but still rather poor. A historical theory of property rights has two very serious problems. The first is that it's unclear why the fact that one group of people, all now long dead, robbed some other group of people, all also now long dead, should have any effect on distributions in the present. Who exactly suffers from the alleged wrong which is being rectifed: long-dead people? The second is that if a historical theory of justice is motivated by the thought that coercion is wrong, then it needs to pay attention to patterns in the present, to look out for further examples of it.

    2 and 3 depend on not only the claim that centralised bodies lack information, but also on the claim that markets do not. This itself isn't argued for. I don't know whether it's true, although the prevalence of large, often centralised, companies in markets, and the problems with various wisdom of crowds style projects, I'm skeptical.

    4 depends in part on the view that only the top 10% in the UK are wealthy. I would dispute this. Further, leaving aside whether or not their measure of inequality is sensible, I note that Tanzi and Schuknecht grant that the average income of those in the bottom two quintiles is higher in countries with large governments.

    5 and 6 are better, but still. Your practically oriented arguments are against large organisations, not the state exclusively. Markets produce large organisations as well, so why trust them any more?

  5. RobbJudd wrote, "The first is that it's unclear why the fact that one group of people, all now long dead, robbed some other group of people, all also now long dead, should have any effect on distributions in the present. Who exactly suffers from the alleged wrong which is being rectifed: long-dead people?"

    Not at all Robb. The dispossion of millions of their property has had a lasting and negative effect upon society. It lies at the root of present inequality and racism as well. The basis of capitalist inequalty lay historically in feudal inequality. Feudalalism was little more than a protection racket which allowed bandit chiefs to divest the peasants of their land. In the 16th and 17th centuries former feudalists became corporate investors and also used their land for market production. They added to this wealth with the Enclosure Acts another legal theft. After that they dispossessed the Aboriginal peoples of the Americas of their property and kidnapped Africans to work as slaves on much of this stolen property.

  6. rob jubb, just a quick note: You write that "Markets produce large organisations as well, so why trust them any more?"

    Well, in markets, if the size of an organization is so large that the organization becomes inefficient, then that organization's owners bear the costs of the inefficiency. They can try to sluff those costs onto others with varying degrees of success, but they lack the unique options that governments have: the threat of systematic violence to get unwilling people to absorb those costs, debasement of the money supply, etc.

    As well, it's incorrect to think that the large size of many corporations is strictly a product of the market. Some corporations probably are the size they are because that is the size at which they can operate most efficiently. But plenty more are only the size they are because they use the state as an instrument by which to force others to bear the costs of their inefficiencies.

  7. Its worth pointing out that a basic minimum income, which I believe Richard favours as much as I do, avoids the problems associated with #2. You don't need specific knowledge if you unconditionally doll out an equal measure of money to everyone.

    It's also worth pointing out that with regards to #3, markets also have severe failures. For one thing, market success is measured in terms of consumer preference satisfaction, but very few people take this to be a sensible normative ideal. For another, and perhaps you mentioned this in your previous post, externalities are a huge and severe issue with modern day markets.

    #4 names a problem with markets which lack sufficient regulation, and takes it to be a reductio of those same markets. You can prevent things like capital flight with a well organised international set of labour and taxation laws. Media influence from the rich is a real problem - one that needs to be rectified, not taken as a given. Finally, this is a complete non-sequitor: "financing big government requires taxes upon people who aren't rich. And means the tax system can't redistribute income.". You can redistribute at the same time as placing some taxes on the poor. Indeed, as far as I can see you're only taking into account income tax, which no doubt has significant supplements from things like VAT, business taxes, environmental taxes, and so on.

    I'm against statism when all else is equal. But often all else isn't equal, especially when markets are often just as flawed as states are.

  8. I would suggest there are some key dangers the world will face in the next millennium
    For example off the top of my head...

    1) The ability to make a weapon that could bring a nation to its knees in your backyard. (basically weapons get smaller and stronger - one day they are so small and so strong that Joe the crazy terrorist kills 100 million people not just 1 person)
    2) The concentration of power.
    3) The superiority of the Chinese model and as a result everyone else falling under their influence.
    4) more efficient competition resulting in more work.
    5) the confusion resulting from genetic engineering
    6) environmental damage (in all senses)

    Some of these will place great importance on the collective (effectively statist) viewpoint if one cares at all about consequences.

    If anyone has read the "foundation" series....

    Besides I think it is POSSIBLE to have a benevolent state even if others have not achieved it or that it is very difficult to set up.

  9. Alex, note that the "citizens' income" Chris recommends in his conclusion is just another name for an unconditional basic income. This is arguably a non-statist form of redistribution (since it requires only minimal gov't involvement).

  10. Larry,

    fine, thefts hundreds of years are casually linked to bad things now. But those things are bad quite separately from the fact that they were caused by thefts. If no-one is currently suffering from the effects of a particular act of enclosure, for example, then I fail to see why it ought to trouble us. If someone is suffering as the result of a particular act of enclosure, then what compels us to act, if we are indeed compelled to act, is the suffering now, not the ancient theft.

  11. Robb, the historical dispossession (combined with corporate laws) was one of the foundations of the present situation where 80% or more of the population work for someone other than themselves. Society is thereby split into a minority who control and own most of the important sectors of the economy and a vast majority who control almost no aspect of it and own very little. Such a society can only suffer from continuous internal strife. How much better it would have been where the vast majority were independent owners who organized cooperatives where economies of scale were needed.
    Consider that the capitalist system is like a rigged marathon. Everyone is supposed to run, yet a minority is given an hours head start (stolen property, laws that favor it etc.) Rationalizing these crimes as capitalist apologists do (and I am NOT saying that this is what you are doing) is a tactic to make it difficult to rectify the situation and create a marathon that is not rigged. (ie a genuine free market economy.)

  12. "80% or more of the population work for someone other than themselves. Society is thereby split into a minority who control and own most of the important sectors of the economy and a vast majority who control almost no aspect of it and own very little."

    My point Larry, which you're not addressing, is that if this situation is bad - which I have no particularly firm views on - it is bad pretty much whatever its casual ancestry is (at least for parts of its casual ancestry which involve no-one who is currently alive). If it is bad for most people to lack control over the means of production, then it's bad for them to lack control over the means of production whether or not that lack of control results from particular processes of capital consolidation in the early modern period.

  13. Robb, I think it can be shown that the historical acts of dispossession and the setting up of priveleges by law were the major factors in creating a situation where most people work for somone else. I don't expect you to agree with this, of course, but suggest you read Kevin Carson's excellent work "Studies In Mutualist Political Economy" found at While others have written about this, his is the most up to date analysis.

  14. Larry, you still haven't addressed Rob's point at all. No-one is disputing that historical wrongs may be causally relevant in bringing about certain present states of affairs that are bad. The question is whether the history is essential to their present badness. Consider the hypothetical: if our actual state of affairs were to come about in a historically innocent way, would that make it any better? Rob claims not. You change the subject.

  15. What I am saying is with the question in point, the history IS relevant and I have given him something to read that backs up my contention. And true, if the cause was innocent, the outcome would not be any better. But I challenge the idea that what happened, happened innocently.

    Part of the problem is that the apologists for capitalism like to sweep this history under the rug and pretend that their system arose purely and innocently from the action of market forces. I am not saying that Rob is doing this, by the way...

  16. "if the cause was innocent, the outcome would not be any better"

    Thank you for conceding my point. I expect you'll be giving up on the idea that rectification of hundreds-of-years-old crimes is a pressing political concern too.


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