This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.
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This essay considers the
information constraints confronting central planners and those political
entrepreneurs who have less ambitious aims to promote widely accepted economic
and social objectives. It is appropriate to begin by considering the motives of
political entrepreneurs.
Motives of political
entrepreneurs
Many assumptions that
economists make about motives of political entrepreneurs are clearly wrong.
Political entrepreneurs cannot maximize social welfare functions, even when
they seek to promote the well-being of citizens. They rarely set out to maximize the number of
votes they obtain, even though they seek to obtain sufficient votes to win
elections. They don’t necessarily set out to maximize the perks of office, or
to use their positions to maximize personal wealth, even though such behaviour
is common when the institutional context is conducive to it. The claims that many
politicians make to be motivated by concerns for the well-being of the
population they represent are not always deceitful.
Bryan Caplan suggests
that to get ahead in politics, “leaders need a blend of naïve populism and
realistic cynicism.” One reason why many politicians have legal training is
because “the electoral process selects people who are professionally trained to
plead cases persuasively and sincerely regardless of their merits”
(Caplan 2007, p.169).
The easiest way to give
the appearance of sincerity is to believe in the merits of the case you are
pleading. Leon Festinger’s cognitive dissonance theory predicts that when
people publicly advocate a position - especially if doing so requires effort or
commitment - they tend to adjust their private attitudes to align with their
advocacy to reduce internal psychological tension (Festinger, 1957).
Institutional context has
important implications for the character of people who are attracted to a
career in politics. Unscrupulous opportunists are likely to be attracted to
political and bureaucratic positions in which they can obtain personal benefit
by using discretionary powers corruptly. F. A. Hayek observed that “the worst
get on top” in totalitarian systems because “while there is little that is
likely to induce men who are good by our standards to aspire to leading
positions in the totalitarian machine, and much to deter them, there will be
special opportunities for the ruthless and unscrupulous” (Hayek 1994,
pp.166-67).
However, an institutional
context that is attractive to unscrupulous opportunists may also attract
potential political entrepreneurs who see opportunities for institutional
reform. More generally, reform-minded individuals may be motivated to enter
politics when they perceive that current practices are resulting in adverse
economic and social consequences.
Unfortunately,
reform-minded political entrepreneurs are not a panacea. As discussed below, those
who advocate further restrictions on individual liberty in their efforts to
promote economic and social objectives may make matters worse. And, as
discussed in subsequent essays, even when reform-minded political entrepreneurs
who advocate greater economic and personal freedom succeed in attaining high
office, they face substantial obstacles to achieving their institutional change
objectives.
The perils of central planning
In a famous article, F. A. Hayek explained that the data a national planning
agency would require to engage in rational economic planning exists only in a
dispersed form in the separate minds of millions of people. Hayek observed that
individuals possess unique knowledge of “the particular circumstances of time
and place”, which they can use for their own benefit, and that of others, only
if the decisions depending on it are left to them or made with their active
cooperation (Hayek 1945, pp.521-2). Hayek suggested that we should look at the
price system as a “mechanism for communicating information” because prices act
to coordinate the separate actions of different people (Hayek 1945, p.526).
In The Road to Serfdom, Hayek noted:
“The question raised by economic planning is … not merely whether we shall be able to satisfy what we regard as our more or less important needs in the way we prefer. It is whether we shall be able to decide what is more, and what is less, important for us, or whether this is to be decided by the planner” (Hayek 1944, p.100).
In later writings, Hayek noted that as the adverse consequences of central
planning became apparent, it came to have fewer defenders in the liberal democracies.
However, arguments were still being advanced in favor of the state’s taking
sole charge of providing various services that can be provided privately. He suggested
that this also entailed the risk that people would be prevented from using
their unique knowledge for their own benefit and would be denied the benefits
of competitive experimentation:
“If, instead of administering limited resources under its control for a specific service, government uses its coercive powers to insure that men are given what some expert thinks they need; if people thus can no longer exercise any choice in some of the most important matters of their lives, such as health, employment, housing, and provision for old age, but must accept the decisions made for them by appointed authority on the basis of its evaluation of their need; if certain services become the exclusive domain of the state, and whole professions – be it medicine, education, or insurance - come to exist only as unitary bureaucratic hierarchies, it will no longer be competitive experimentation but solely the decisions of authority that will determine what men get” (Hayek 1960, p.261).
In a book first published in 1985 Don Lavoie further explained the fundamental
knowledge problem that political entrepreneurs are confronted with when they
seek to plan economic activities. The most obvious implication is that it is
impossible for markets to be replaced by comprehensive economic planning.
However, more modest attempts to steer the market towards outcomes which
planners consider to be desirable also obstruct the source of knowledge which
is essential to rational decision-making (Lavoie 2016, p.56-7).
Lavoie points out that the only way we can know whether we are
squandering resources by over- or under-investing in microprocessors or steel,
for example, is via “the messages contained in the relative profitability of
rival firms in these industries”. He adds:
“But this is precisely the information we garble when we channel money toward one or another of the contenders. Deprived of its elimination process, the market would no longer be able to serve its function as a method for discovering better and eliminating worse production techniques. Without the necessity of responding to consumers’ wants or needs, businesses would never withdraw from unprofitable avenues of production” (p.181).
Lavoie notes that advocates of industry policy disagree on the
directions in which the market should be steered. For example, Felix Rohatyn
wanted to funnel aid to sunset industries while Robert Reich wanted to funnel
it to sunrise industries. He sums up:
“It is the main conclusion of the argument that I have called the knowledge problem … that there are no rational grounds on which Reich could ever convince Rohatyn or vice versa on such matters as are involved in economic change. As a result, such battles are sure to be fought with weapons other than carefully reasoned argument” (p. 200-201).
Lavoie notes that Rohatyn and Reich both argued that it is the
responsibility of a strong leader to coordinate the actions of
the rest of us (p.190). The coordination they had in mind seems to be more akin
to the coordination that military leaders impose by giving orders to
subordinates than the coordination among individuals that occurs voluntarily
and spontaneously in a free market.
Lavoie argues that economic planning is inherently militaristic:
“The practice of planning is nothing but the militarization of
the economy”. In making that point he notes that the theory of economic
planning was from its inception modeled after feudalistic and militaristic
organizations (p. 230).
Some would argue that a degree of militarization is a price worth
paying, or even desirable, to achieve a range of national objectives. Indeed,
the conventional theory of democracy seems to entail top-down direction. Prior
to elections, political leaders tell voters about their plans for education,
health, social security etc. and are expected to implement those plans after
they are elected. That view seems to imply the existence of some kind of necessary
tension between democracy and markets. I will discuss that view later in this
essay.
Knowledge required for governance
Gerry Gaus’s final book discusses, among other things, the question of
whether the Open Society has evolved beyond “our” governance. Gaus
seems to adopt F. A. Hayek’s view of the Open Society (or Great Society) as a
society in which coercion of some by others has been reduced as far as possible
and individuals are free to use their own knowledge for their own purposes.
Gaus alludes to the knowledge problem when he observes that “we seek to
devise policies to improve” the functioning of the Open Society. However, “we
do not have the knowledge and competency to do so, hence we are constantly
disappointed by the last round of interventions and we blame the last
government for its failures and broken promises” (Gaus 2021, p.13).
Gaus points out that when people do not endorse a policy imposed by
planners, some tend to evade it. In commenting on the “passive population
model”, he writes:
“Unfortunately, this view has been resurrected by those elites who continue to believe that the public is too ignorant to make its own decisions, and so should submit to “epistocracy,” or rule by those who know (aka, them). Not only, however, is such expertise essentially nonexistent in complex systems, but most actual agents in the Open Society are anything but passive materials to be guided by the elite: they are active, reflexive agents who make their own choices. When citizens do not endorse a policy, many will employ their resources to evade it” (Gaus 2021, p.244).
Gaus considers three
levels of governance – macro, meso, and micro- and three dimensions of
governance – goal directed, strategic, and rules-focused. A goal-directed
governor identifies preferred states and seeks to move society toward them. A
strategic governor seeks to solve strategic dilemmas to assist citizens to
secure outcomes they all want. A rules-focused governor seeks to structure some
of the rules of self-organization.
Gaus’s analysis leads to
the following conclusions:
- There is little prospect for a
governor to successfully pursue macro-level goals in a complex society.
For example, efforts to promote development in particular societies are
often unsuccessful because institutions cannot readily be transferred from
on society to another.
- Attempts to structure the “rules of
the game” at a macro level are more promising. In cooperation with the
self-organized normative framework of society a governor may effectively
shape the rules of self-organization e.g. via civil rights legislation.
- Goal pursuit at the meso level is a
dubious enterprise. Pursuit of environmental, economic and
welfare-targeted variables is a hit-and-miss affair because our social
world is a complex system. It is not linear and determinate, as is often
assumed. Successful goal pursuit in a complex world is usually a matter of
“muddling through” (sometimes described as learning-based governance).
- Polycentric governance studies show
that a focus on problem-solving tends to facilitate effective governance
when publics share pressing strategic dilemmas.
- There may be grounds for more
optimism about the prospect for micro governance than governance at other
levels.
In writing about micro
governance, Gaus makes a favourable reference to the work of Abhijit Banerjee
and Esther Duflo. Gaus justifies his optimism about micro governance as
follows:
“When changes come up from the more micro levels, not only are they apt to garner the moral endorsement of actual citizens, but the Open Society will possess a diversity of normative networks. Because what works today may be dysfunctional tomorrow, a diversity of approaches is always critical. This itself upsets the moralist, who believes she speaks for the truth about justice, and sees most deviations from her plan as shades of immorality. But many of the diverse publics will not take up her solutions—many citizens will see different problems and possibilities, and their normative beliefs will lead them to different solutions” (Gaus 2021, p.240).
Can democracy be consistent
with freedom?
Gaus and Lavoie offer similar views on the compatibility between democracy
and freedom. Gaus suggests that “so far from being opposed or in tension,
democracy and freedom need each other to thrive.” He suggests that a critical
task of the democratic order is to ensure the equality and fairness on which large-scale
human cooperation depends. However, unless it is “animated by a spirit of public
justification, democracy itself becomes a mechanism by which some seek to
impose their valued goals on others in the name of the people” (Gaus 2021, p.
245).
In his discussion of the view that there is some kind of necessary
tension between democracy and free markets. Lavoie notes that we tend to think
that “taking democracy too far undermines markets and that taking markets too
far undermines democracy”. He attributes that view to “liberalism’s gradual
drift into compromises with conservatism and socialism” (Lavoie 1993).
He suggests that liberalism
needs to reinterpret its notions of markets and democracy so that they are seen
to be essentially complementary. Our economics needs to take account of the
cultural underpinnings of markets and our politics “needs to move beyond the
model of the exercise of some kind of unified, conscious democratic will and
understand democratic processes as distributed throughout the political
culture”. The force of public opinion is best perceived as the distributed
influence of political discourses throughout society rather than as “a
concentrated will”.
Lavoie argues that what we should mean by democracy is a distinctive
kind of openness in society rather than a theory about how to elect the
personnel of government:
“Democracy is not a quality of the conscious will of a representative organization that has been legitimated by the public, but a quality of the discursive process of the distributed wills of the public itself” (Lavoie 1993, p.111).
It seems to me that those
who see merit in the view of democracy presented by Lavoie and Gaus have good
reasons to be skeptical about the worth of top-down planning to achieve
national objectives. Individuals have different priorities and objectives that
deserve to be recognized. Top-down planning cannot give appropriate recognition
to those individual differences. Moreover, given the peculiarities of the
business of politics, as discussed in the preceding essay, well-meaning
attempts to pursue economic and social objectives that are widely supported
within communities are prone to diverted to serve narrow interest groups.
In the following essay I
consider the consequences of institutional path dependence, first in slowing
the emergence of interest group politics, and second in making it more
difficult for reform-minded political entrepreneurs to restore freedom and enhance
opportunities for human flourishing.
References
Caplan, Bryan., The Myth of the Rational Voter (Princeton University Press, 2007).
Festinger, Leon., A
Theory of Cognitive Dissonance (Stanford
University Press, 1957).
Gaus, Gerald., The Open Society and its Complexities
(Oxford University Press, 2021).
Hayek, F. A., The Road
to Serfdom (University of Chicago Press, 1994).
Hayek, F.A., “The Use of
Knowledge in Society”, The American Economic Review, XXXV, 4 (1945).
Hayek, F.A., The
Constitution of Liberty (The University of Chicago Press, 1960).
Lavoie, Don., National
Economic Planning: What Is Left? (Mercatus Center, 2016).
Lavoie, Don., “Democracy, Markets, and the Legal Order: Notes on the
Nature of Politics in a Radically Liberal Society” in Ellen Frankel Paul, Fred
D. Miller, Jr., and Jeffrey Paul (Eds.) Liberalism and the Economic
Order (Cambridge University Press, 1993).
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