How does Entangled Political Economy help us to understand political entrepreneurship?

 

After I finished reading Richard E. Wagner’s book, Politics as a Peculiar Business, the thought crossed my mind that I should encourage people to read what I was about to write about it before reading the other essays I have recently written about political entrepreneurship. The titles of the other essays are:

Can the concept of political entrepreneurship help us to understand authoritarianism?

What role does political entrepreneurship play in institutional change?

Should we expect our political leaders to be great and good?

I have been writing essays about political entrepreneurship to improve my understanding of the topic. In the process I have felt like that a blind man trying to build up a picture of an elephant in his mind by approaching it from different angles. After I finish writing this essay, I might be able to turn my mind to considering how best to present my understanding of the concept and its relevance to liberty and human flourishing.

Entangled Political Economy

The full title of Richard E. Wagner’s book is Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016).  

Wagner refers to the ancient Indian parable of the blind men and the elephant in suggesting that political economy is best approached from the standpoint of plausible reasoning rather than demonstrative reasoning.

Plausible reasoning starts from the standpoint that the object of inquiry cannot be known in full detail to the inquirer.

By contrast, demonstrative reasoning begins with a set of assumptions about human behavior, and then analyses the implications of those assumptions. The conventional welfare economics approach to the role of government - with its assumption that government acts like an omniscient and benevolent dictator attempting to maximize the well-being of citizens by correcting externalities and providing public goods – provides a relevant example of demonstrative reasoning.

The analytical framework of Entangled Political Economy recognises that both “polity and economy are areas of practical action that operate in similar but not identical fashion.”

The author suggests that human nature has “a bi-polarity about it that generates both polity and economy.” The political side of human nature entails recognition that we are social creatures who live in close proximity and engage in cooperation and conflict. The economic side entails recognition that we need “to make a livelihood” and desire “to be self-directed as against being conscripts in someone’s army”.

I am not persuaded that “bi-polarity” is the best way to capture the idea that humans are “political animals” whose interactions with other members of the species are not always motivated by personal benefit. It seems to me that human nature inclines individuals to seek to flourish by making wise and well-informed choices about all aspects of their lives that they are able to influence, including their interactions with others. 

However, as public choice theorists have noted, most people lack sufficient motivation to allocate the time and effort required to make well-informed choices in relation to national politics because their individual choices are unlikely to have much impact on national outcomes. Wagner’s view of entangled political economy draws on that public choice literature.

I certainly agree that political economy should focus on the full range of interactions among persons and entities within society. As Wagner notes, that perspective has important implications for social change:

“The framework of entangled political economy accommodates recognition that societies change only through individual action inside those societies, and with those actions spreading within the society according to the receptivity of other members of that society to those changes.”

Although Entangled Political Economy is based on a description of different kinds of interactions among individuals in the real world, it represents a departure from the way many economists have previously thought about the interaction between politics and economics. Wagner reminds readers that it has been customary to “envision a polity as a kind of lord of the manor who overseas what is denoted as economy.” He points out that discussion is usually in terms of “additive political economy” in which polity and economy are denoted as independent entities and polity intervenes in economy to correct “market failure”. He argues:

“The Progressivist vision of political presence and dominance throughout society is abetted by the vision of additive political economy because that vision provides rationalization for unlimited political action.”

Political entrepreneurship

 Wagner argues that it makes sense to view politics as a peculiar form of business because it has many characteristics in common with business. Both are sources of livelihood for people, entail competition, and are supported by administrative educational organisations. Both must attract investors to provide capital. Both involve entrepreneurship.

The main difference between political entrepreneurship and market entrepreneurship arises because of the difference between dyadic and triadic relationships. Dyadic relationships involve two people; triadic relationships involve three. Wagner observes that market relationships can be reduced mostly to a set of dyadic relationships where both parties benefit. Political relationships typically require a set of triadic relationships where two people exchange mutual support and a third is forced to provide financial support.

Wagner explains:

“Within the triadic relationships associated with electoral competition … a political entrepreneur can construct a supporting coalition by crafting a transactional structure that entails gainers and losers, while at the same time generating a supporting ideological cover that softens and conceals the redistributive character of the transaction.”

The difference between market and political competition has implications for the qualities required for successful entrepreneurship in different contexts. Wagner suggests that while puffery is an understandable part of market competition, “electoral competition is mostly about puffery”. Systemic lying is a feature of political competition. Sentiment tends to play a larger role, relative to reason, in political competition because of the absence of a direct connection between the individual elector’s choice and the outcome obtained. Voting is like ordering a meal at a restaurant and being served the same meal as everyone else, irrespective of what you ordered. Wagner notes Vilfredo Pareto’s view that ideological articulation can induce people to support measures that they might have opposed in a market setting. Voters generally embrace policies that enable them to feel good about themselves.

Wagner argues that little substantive work is accomplished through elections and political campaigns. The substantive work of policy choice takes place “outside electoral politics and entails the interactive elements necessary for constructing and maintaining deals.” He suggests a parliamentary assembly can be viewed as an “investment bank” because it is “a hub for making deals” involving selection and funding of projects. In that context:

“Entrepreneurs are thus competing among themselves to seize the future. Successful entrepreneurship offers both fame and fortune.”

In reading Wagner’s account of political entrepreneurship, it occurred to me that the significance of electoral competition in the United States is greater than he portrays it to be. That perception is based partly on my (somewhat cursory) observation of the presidential election in 2024 and the performance of the Trump administration in its first 100 days in office.

The 2024 U.S. election and its aftermath may be atypical, but similar political entrepreneurship has been on display in some European elections.  As discussed in a previous essay, political entrepreneurs tend to focus on niches in the marketplace of ideas. They seek to attract support from people who are discontented with current economic and social outcomes by emphasizing alleged problem-solving capacities of their ideas. Their success in attracting a loyal support base of customers who are willing to help them to sell their narrative depends to a large extent on the strength of competition from politicians selling different narratives, and on the extent of resistance by journalists and members of the public who consider their narratives to be incorrect, or that their policy proposals are unworkable, unconstitutional, unethical, or otherwise unhelpful.

I also observed that the discussion of entangled political economy in Politics as a Peculiar Business seemed more relevant to countries with parliamentary systems of government than to those with presidential systems, where much business seems to be done via “executive orders”. However, that is not intended as criticism. It may reflect the greater role of “executive orders” in the U.S. in the years since the book was published.

How can entanglement be contained?

One of Wagner’s aims in writing the book was “to explain how an entangled political economy can generate its own momentum to transform a constitution of liberty into a constitution of control”. He refers to the credit market as providing an example of how this occurs. Private ordering of credit markets is vulnerable to entanglement for two reasons. On the demand side are market participants who are dissatisfied with how they fare in privately ordered credit markets. On the supply side are “political figures who want to catapult themselves from background to foreground in the cosmic drama that is human society”.

Another example relates to the Fifth Amendment of the U.S. Constitution which provides for just compensation when the government takes private property for public use. However, Wagner observes that “history over the past century or so has increasingly run in the direction of governments taking property for what are private uses and paying only partial or token compensation”. A clear constitutional provision is not necessarily “sufficiently strong to deter rapacious interest groups from using government as an instrument of predation”.

Wagner refers to Vincent Ostrom’s observation that government involves a Faustian bargain: “instruments of evil – power over other people – are to be employed because of the good they might do, recognizing that evil might also result.” 

How can we minimize the potential for evil to result? Wagner suggests that the alternatives are “parchment” and “guns”.

“Parchment” refers to constitutional rules. Constitutional rules may remain effective if supported by public morality – sufficient numbers of people being willing to refrain from use of the powers of the state to enrich themselves at the expense of others. This approach relies on education and related processes to cultivate virtue and wisdom.

“Guns” refers to an approach that looks primarily to “a kind of opposition of interests to limit government predation”. Wagner suggests that “guns” may complement “parchment”. He writes:

“The basic principle behind this approach is for governmental action to require some concurrence among different participants with opposed interests.”

Wagner suggests that when it becomes habitual for people to use politics in a predatory manner that may “promote alternative beliefs as to what comprises just conduct”. He concludes that “parchment and guns … would seem to be nonseparable ingredients of constitutional order in the final analysis.”

Wagner tells us that his reference to guns is metaphorical, so what he has in mind may not necessarily be violent. For example, those who believe themselves to be victims of predation have an incentive to form associations to protect their interests in the courts and may be able to exert countervailing power the political arena.

While I believe that entangled political economy offers important insights about interactions between participants in politics and markets, I would have liked the author to explore more fully the macroeconomic consequences of increasing entanglement. Perhaps that would have led to a more optimistic conclusion.

In Freedom, Progress, and Human Flourishing I suggested that although most liberal democracies are heading for major economic crises in the years ahead there are reasons to be optimistic “that governments will eventually introduce institutional reforms to enable the drivers of progress to restore growth of opportunities.” (See Chapter 6, particularly p. 120)

My optimism presupposes the emergence of political entrepreneurs who understand the nature of the problems that need to be addressed and can marshal the political support required to carry out appropriate institutional reforms to correct those problems.

Conclusions

The discussion of entangled political economy in Richard Wagner’s book, Politics as a Peculiar Business, is helpful to an understanding of the context in which political entrepreneurship occurs in the liberal democracies.

Entangled political economy focuses on the full range of interactions among persons and entities within society. It emphasizes that societal change occurs only through individual actions. Entangled political economy represents a departure from the view of those economists (and governments) who have envisioned a polity as a kind of lord of the manor who overseas an economy.  

Wagner argues that politics has many characteristics in common with private business, but it is characterized by triadic relationships rather than dyadic relationships. Market relationships can be reduced mainly to sets of relationships between two people, both of whom benefit. Politics typically requires sets of relationships where two people exchange mutual support and a third is forced to provide financial support.

The author suggests that the main work of political entrepreneurs – interactions to construct deals - takes place outside electoral politics. He suggests that parliaments can be viewed as kinds of investment banks because they are hubs for making deals involving selection and funding of projects.

In my view the significance of electoral politics and deal-making by executive arms of governments is greater than Wagner portrays it to be. However, my view has been strongly influenced by events since 2016, when his book was published.

Wagner argues that entangled political economy generates its own momentum to transform a constitution of liberty into a constitution of control. He is pessimistic about the prospect for entanglement to be contained via constitutional rules and moral conduct. He suggests that habitual use of politics in a predatory manner promotes an alternative view of what constitutes just conduct.

In my view, Wagner might have come to a more optimistic conclusion if he had more fully explored the macro-economic consequences of increasing use of the powers of the state for predatory purposes. Economic crises may eventually bring about appropriate institutional reforms if political entrepreneurs emerge who can marshal the political support required to implement them.