Part I: How is human flourishing linked to liberty?

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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As noted in the Preface, the purpose of the following discussion of the links between freedom and flourishing is to explain why this series of essays is focused on institutions relating to economic and personal freedom.

I adopt Douglass North’s definition of institutions as “the rules of the game in a society”, along with his more formal definition of institutions as “the humanly devised constraints that shape human interaction” (North 1990, p.3). North observed that institutions can be formal or informal. Formal institutions include constitutions, laws, and regulations. Informal institutions include codes of conduct, norms of behavior, conventions, and customs (North 1990, p.4).

The institutional changes that are of most interest for the purposes of this essay are changes in formal institutions that are reflected in levels of economic and personal freedom at a national level.

My understanding of the links between freedom and flourishing has been presented in Freedom, Progress, and Human Flourishing (Bates, 2021). In broad terms, the perspective adopted in that book is that institutional changes that result in greater freedom are generally desirable because they expand opportunities for individual flourishing. That perspective reflects my understanding of the nature of human flourishing and evidence of the importance of liberty to individual flourishing. A brief outline of the main points in that line of argument is presented below.

1. Human flourishing is the process by which individuals actualize the potential that is inherent in their human nature. It entails the exercise of one’s practical wisdom, with integrity, in the pursuit of happiness in an objectively worthwhile life (pp.4-5).
2. The basic goods of a flourishing human are a matter for ongoing reflection and discussion. I argue that individuals are flourishing when they are exercising wise and well-informed self-direction, accompanied by good physical health, psychological well-being and positive relationships with others, and are living in harmony with nature (pp.6-7).
3. Wise and well-informed self-direction is of central importance to human flourishing because of the nature of humans as creatures who have potential to direct their own flourishing, in pursuit of goals which they determine for themselves. The exercise of self-direction helps individuals to maintain other basic goods that are necessary for the pursuit of chosen goals (pp.7-8, 12). The Neo-Aristotelian viewpoint in the first three points builds on earlier work by several different authors.
4. Individuals flourish in mutually beneficial interactions with others. Adam Smith made a particularly important contribution in promoting that view (pp.49-50, 60-62, 68-9).
5. Given the nature of individual flourishing as an inherently self-directed process, it is not possible for individuals to flourish unless their natural right to self-direction is recognized in social and political structures (pp.22-3). This discussion references a conceptual framework developed by Edward W. Younkins (Younkins, 2019).
6. Norms of liberty solve the social problem of making it possible for individuals to flourish in different ways without the flourishing of one individual being given structural preference over that of others (pp.23-25). This discussion relies heavily on the views of Douglas Rasmussen and Douglas Den Uyl (Rasmussen and Den Uyl 2005).
7. International comparisons of opportunities to obtain the basic goods of flourishing humans point to the importance of liberty, a culture of trust and high incomes as common elements explaining why opportunities have been greater in some countries than others. Liberty is of utmost importance to provide opportunities for well-informed self-direction. High incomes appear to be the most pervasive element, but liberty and a culture of trust have played an important role in facilitating the underlying development process that has enabled incomes to rise. (pp.65-76). 

The existence of a positive relationship between economic freedom and economic development has been well documented elsewhere (for example, Gwartney et al. 2024, pp.27-33 and the chapter by Kevin Grier and Robin Grier, pp.35-49).

The preceding discussion has focused on links between formal rules of the game and human flourishing. Informal institutions are also of interest because they can interact in important ways with the formal rules that determine economic and personal freedom. North observes that a change in formal rules or their enforcement “will result in a disequilibrium situation” and “give rise to efforts to evolve new conventions and norms” (North 1990, pp.87-8). He also makes the more fundamental suggestion that “constitutional forms are typically derivative”. In response to the claim that “the reason we are a free people is that we have certain constitutional forms”, North suggests that “it may just as easily be the case that the reason we have these constitutional forms is that we are a free people” (North 1990, p.60). North notes that informal constraints “come from socially transmitted information and are part of the heritage that we call culture" (North 1990, p.37).

In the following essay, I discuss the extent to which international differences in levels of economic and personal freedom reflect differences in cultural values rather than the influence of political entrepreneurship and accompanying ideologies.

References

Bates, Winton, Freedom, Progress, and Human Flourishing (Hamilton Books, 2021).

Gwartney, James, Robert Lawson, and Ryan Murphy, Economic Freedom of the World: 2024 Annual Report (Fraser Institute, 2024).

North, Douglass C., Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990).

Rasmussen, Douglas B., and Den Uyl, Douglas J, Norms of Liberty (Pennsylvania State University Press, 2005).

Younkins, Edward W. ‘Freedom and Flourishing’, Chapter 2 in The Dialectics of Liberty: Exploring the context of human freedom, edited by Roger Bissell, Chris Matthew Sciabarra and Edward W Younkins (Lexington Books, 2019).

What impact does political entrepreneurship have on freedom and flourishing?

 

Preface to a Series of Essays

“Entrepreneurship necessarily takes place within culture, it is utterly shaped by culture, and it fundamentally consists in interpreting and influencing culture.”

-        Don Lavoie (Lavoie 2015, p. 50)

A few months ago, a kind person told me that “Freedom and Flourishing” had become more than just a blog. With that thought in mind, I have decided to try something new. I am proposing to present here a series of linked essays that can be read in much the same way as a journal article. Readers who wish to do so will be able to start at this Preface and read all the way through to the end, or alternatively, just read the essays that are of most interest to them. There will be links at the end of each essay to help readers to find their way to the next one and links at the beginning of each essay to help readers to find their way back to this Preface.

Some readers may notice that some of the material presented here has been published previously on this blog. The views presented in this series of essays have been more carefully considered but are still subject to revision.

As always, I welcome comments from readers.

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Some readers will come to this series with the prior belief that political entrepreneurship has a negative impact on freedom and flourishing. Those of us who believe that people tend to flourish most fully when governments refrain from interfering with their lives may hold that belief. We certainly have good reasons to be skeptical about the impact of political entrepreneurs on human flourishing.

Nevertheless, if we are serious about promoting libertarian ideals, we cannot avoid considering the possibility that political entrepreneurship might have a role to play in getting us from where we are now - or where we seem to be heading - to a political and legal order that is more conducive to human flourishing.

In my view, it is important to obtain a better understanding of political entrepreneurship at this time because many voters in liberal democracies seem to have become increasingly dissatisfied with conventional centre-left and centre-right political leaders. Unfortunately, there seems to be increasing support in liberal democracies for leaders who propose rule changes which are likely to have detrimental impacts on prospects for freedom and flourishing. That support seems evident on both the progressive and conservative sides of politics.

In that context, it is particularly important to understand the contribution that political entrepreneurship has made to the problems that voters perceive, and the likely consequences of the alternative approaches to political entrepreneurship that are currently on offer.

The analytical approach adopted here has been influenced by entangled political economy as explained by Richard E. Wagner. According to that approach, both “polity and economy are arenas of practical action that operate in similar but not identical fashion” (Wagner 2016, p. 64).

Wagner’s approach recognizes the importance of individual action:

“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” (Wagner 2016, p. 138).

As Chris Matthew Sciabarra has suggested, to understand institutional change we need to recognize interactions between personal, cultural and structural (political-economic) considerations. Sciabarra has discussed the nature of those interactions using a Tri-Level Model which builds on Ayn Rand’s conceptual framework (Sciabarra 2000, pp. 379-83). He emphasizes that although the personal, the cultural, and the structural can be analyzed separately, they can never be “reified as wholes unto themselves” (Sciabarra 2000, pp. 379-80).

I believe that the concept of political entrepreneurship is necessary to an understanding of institutional change for much the same reason that the concept of economic entrepreneurship is necessary to an understanding of technological change. The focus of the series is on how political entrepreneurship shapes the formal rules that govern economic and personal freedom across jurisdictions.

These essays draw heavily upon the insights of Don Lavoie in considering the nature of political entrepreneurship. In the passage quoted in the epigraph, Lavoie was writing about economic entrepreneurship. He argued that the “seeing of profit opportunities is a matter of cultural interpretation” (Lavoie 2015, p. 51). However, the idea that entrepreneurship consists in “interpreting and influencing culture” seems particularly relevant to political entrepreneurship.

What Lavoie means by culture is “the language in which past events are interpreted, future circumstances are anticipated, and plans of action are formulated.” (Lavoie 2015, p. 49).

He explains that he views culture as a discourse. In that context: “entrepreneurship is the achievement not so much of the isolated maverick who finds objective profits others overlooked as of the culturally embedded participant who picks up the gist of a conversation” (Lavoie 2015, p. 51).

Essays in this series will discuss the implications of significant differences that exist between political and economic entrepreneurship. In politics, voter choices are weakly linked to individual outcomes, decision-making often involves triadic relationships, and political marketing allows greater scope for deception. Moreover, political deal-making lacks a clear success metric comparable to profit in markets, and institutional incentives may attract opportunists rather than principled leaders.

I acknowledge, however, that many political entrepreneurs are motivated by a desire to achieve economic and social objectives that are widely supported in the communities they live in. They are confronted by information constraints. It is often impossible for a central authority to possess and process all the knowledge needed to achieve social and economic objectives without producing adverse, unintended consequences. As new policy initiatives are implemented to reduce those adverse consequences, economic freedom is often further reduced, and adverse economic and social impacts tend to multiply.

Political leaders seeking to restore economic freedom face challenges including entrenched interests and institutional path dependence. Changing formal rules is insufficient without corresponding changes in norms and incentives. I maintain that institutional reform is not solely about electing better leaders at a national level.

In advocating that the social sciences should pay more attention to the role of political entrepreneurship, I am certainly not attempting to promote a “great man theory” of institutional change. Political entrepreneurs rarely act alone, and their influence is constrained by a range of factors that are present to varying degrees in the societies in which they function.

Crucially, libertarian political entrepreneurs are unlikely to have a lasting impact on freedom and flourishing if their influence is confined to national politics. A national leader may play a pivotal role in sweeping away accumulated regulation but a culture supporting liberty and individual flourishing cannot be established and maintained unless many individuals undertake frequent acts of political entrepreneurship in their day-to-day interactions with others.

The structure of the series is as follows:

Part I provides a brief discussion of the links between freedom and flourishing to explain my reasons for focusing on institutions relating to economic and personal freedom. It also explains the meaning of institutions, institutional change, and political entrepreneurship.

Part II considers the extent to which differences in economic and personal freedom in different countries can be attributed to differences in underlying cultural values. It concludes that prevailing culture at a national level offers only a partial explanation of differences in economic and personal freedom levels. There is much left to be explained by other factors, particularly the influence of political entrepreneurship on the ideologies adopted by governments.

Part III discusses similarities between political and economic entrepreneurship.

Part IV discusses the incentives that political entrepreneurs are faced with in the context of the characteristics of politics that make it a peculiar business.  

Part V discusses the motives of political entrepreneurs and the impact of information constraints on pursuit of economic and social objectives.

Part VI considers the consequences of institutional path dependence, first in slowing the emergence of interest group politics and associated detrimental impacts on economic dynamism, and second in making it more difficult for reform-minded political entrepreneurs to restore economic freedom.

Part VII considers whether heroic political entrepreneurship has potential to promote freedom and flourishing. It urges that political entrepreneurship be perceived more broadly than in terms of government leadership.

Part VIII summarizes the series and concludes.

Acknowledgement

I would like to thank Chris Matthew Sciabarra for helpful comments on earlier drafts of some of the material presented in this series. The usual caveat applies. Please do not assume that Chris endorses the views presented here.

References

Lavoie, Don, “The discovery and interpretation of profit opportunities: culture and the Kirznerian entrepreneur”, in Culture and Economic Action, edited by Laura E Grube and Virgil Henry Storr (Edward Elgar, 2015).

Sciabarra, Chris Matthew, Total Freedom: Toward a Dialectical Libertarianism (Pennsylvania State University Press: 2000).

Wagner, Richard E., Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016).

What does Gerald Gaus tell us about the implications of the knowledge problem for political entrepreneurship?

 

This essay is the latest in a series that I have been writing about political entrepreneurship. It is the second that I have written on the implications of the knowledge problem for the plans of entrepreneurs who seek to improve economic and social outcomes. The first essay discussed Don Lavoie’s contribution to our understanding of the implications of the knowledge problem in that context.

The Complexities of the Open Society

This essay is based on my reading of Gerry Gaus’s final book, The Open Society and its Complexities. Gaus was a prolific author. This book, published in 2021, has been described by Chandran Kukathas as “his most ambitious work”. Gaus adopted an interdisciplinary approach to political philosophy and saw himself as being in “the truth business” rather than a proponent of any ideology. Nevertheless, it is obvious from the book that he valued the norms of liberty of the Open Society and detested authoritarianism and totalitarianism.

Like Don Lavoie, Gerry Gaus was strongly influenced by F. A. Hayek. In The Open Society, Gaus re-considers some of Hayek’s views in the light of developments over the last 20 years in theories of evolution and analyses of societies as complex systems. He focuses on the following three challenges based on his interpretation of Hayek’s views:

• First, do “our evolved moral sentiments constantly cause us to rebel against the Open Society and resort to a “tribal” moral outlook”?
• Second, given that “an evolved complex culture requires fidelity to … evolved norms, what type of justification” of the norms of the Open Society is open to us”?
• Third, has the Open Society “evolved beyond our governance”?

I will provide here just the briefest possible summary of Gaus’s responses to the first two questions.

First, humans “are certainly not inherently groupish creatures”. Humans are “fit for the Open Society”. However, they have not been optimized for it or any other social order, including tribal society.

Second, because the diversity of moral perspectives is fundamental to the moral life of the Open Society, the existence of increasingly diverse moral perspectives can enhance justification of the Open Society. The Open Society is characterized by self-organized social morality, entailing moral rules that lead toward extended cooperation rather than conflict and division. Public justifications of those moral rules must be as accommodating to diversity as possible. Effective governance requires widely justified norms and policies.

Knowledge required for governance

In this essay I focus on the Gaus’s view of the knowledge problem in his discussion of the question of whether the Open Society has evolved beyond “our” governance. He 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” (p. 13).

The passage quoted in the epigraph is from page 244, a point in the book where Gaus was summing up his argument. After noting that the passive population model often supposed that people would act against their own judgments, Gaus adds:

“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.”

In considering whether the Open Society has evolved beyond our governance, Gaus introduces the concept of “self-governance”.  Self-governance is not the same as spontaneous self-organization, although Gaus suggests that the two concepts are not necessarily incompatible.

Self-governance requires that there be a “controller” who collects information at the system level and then uses that information to fuel a decision procedure that plays a role in guiding the systems behaviour.

Gaus refers to those aspiring to be controllers as governors. The roles that governors seek to perform may include the functions of political entrepreneurs. As I have discussed elsewhere, that function includes listening to the discourse of potential customers (supporters) to sense what they are likely to find attractive, and on that basis producing new products (policy proposals) and selling them persuasively.

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. (p. 240)

Summing up

In The Open Society and its Complexities, Gerry Gaus provided insights about the circumstances in which political entrepreneurs may be successful in pursuing goals.

Gaus was highly critical of the passive population model which assumes that people will follow policies dictated by governments rather than acting as self-governing agents. Such considerations made him highly skeptical about pursuit of goals at a macro level in a complex society.

He viewed pursuit of environmental, economic and welfare goals as problematic but acknowledged that some success may be achieved by “muddling through” i.e. adjusting policies in response to outcomes.

He was more optimistic about cooperative efforts to modify the “rules of the game” in which self-organization occurs. He also acknowledged that a focus on problem-solving tends to facilitate effective governance when people are confronted by pressing strategic dilemmas.

Gaus seems to have been most optimistic about micro-level governance that is able to garner the endorsement of “actual citizens”.

Addendum

Readers might also be interested in a later series of essays on political entrepreneurship.

Is it too soon to be asking in what part of the world will the next golden age be located?

 

The question posed above occurred to me as I was reading the final pages of Johan Norberg’s latest book, Peak Human: What We Can Learn from the Rise and Fall of Golden Ages.

Johan Norberg is a senior fellow at the Cato institute. He is a historian of ideas and a prolific author. If Norberg has a fan club, I might qualify for honorary membership. I have written about some of his previous books on this blog (here and here) and have read others.

Norberg explains what he means by a golden age in these terms:

“A golden age is associated with a culture of optimism, which encourages people to explore new knowledge, experiment with new methods and technologies, and exchange the results with others. Its characteristics are cultural creativity, scientific discoveries, technological achievements and economic growth that stand out compared with what came before and after it, and compared with other contemporary cultures. Its result is a high average standard of living, which is usually the envy of others, often also of their heirs.”

The author suggests that the most important precondition for a golden age is “an absence of orthodoxies imposed form the top about what to believe, think and say, how to live and what to do.” He doesn’t present the golden ages he has identified in utopian terms. He acknowledges that countries concerned all practiced slavery, denied women basic rights and “took great delight in exterminating neighbouring populations”.

As implied in the epigraph, Norberg argues that civilizations decline when they lose cultural self-confidence. He suggests that episodes of creativity and growth are often terminated because of the perceived self-interest of people who fear change and feel threatened by it. Free speech is replaced by orthodoxies and free markets are replaced by increased economic controls. The fears of those seeking stability and predictability often become self-fulfilling.

 In my view, Norberg has done an excellent job in explaining why golden ages have emerged and disappeared at different times in different parts of the world.

However, I think there may be an omission in the author’s identification of golden ages. I will briefly discuss that before focusing on the question of whether the Anglosphere is in decline.

Identifying golden ages

Norberg discusses seven golden ages in his book. Since he doesn’t provide a summary timeline showing their duration, I asked ChatGPT to construct the following:

• Athens: 480–404 BC
• Rome: 27 BC–AD 180
• Abbasids: 750–950
• Song dynasty: 960–1279
• Renaissance Italy: 1490–1527
• Dutch Republic: 1609–1672
• Anglosphere: c. 1688 onward.

If that timeline is broadly correct, it suggests that the largest gap between golden ages occurred between the end of the golden age of Rome and the beginning of the golden age of the Abbasids. What was happening at that time? Although the golden age of Rome may have ended around 180, following the death of Marcus Aurelius, the decline and fall of the Roman empire took a few more centuries. The last emperor of the Western Roman empire was deposed in 476. Plato’s Academy in Athens apparently continued to function until 532, when the seven last philosophers left to seek refuge with the Persian king. Interest in Greek philosophy grew in Persia during the 6^th and 7^th centuries, partly because of the presence of scholars associated with schismatic Christian sects.

As I was pondering what was happening between 180 and 750, I began to wonder whether India’s golden age might have been worth discussing in this book. While visiting India last year I read William Dalrymple’s book, TheGolden Road: How Ancient India Transformed the World. As well as discussing India’s impact on religion and culture throughout much of Asia, Dalrymple. points out that over the period from about 250BC to AD 1200, India was an important centre of commerce and trade, and an innovator in fields such as astronomy and mathematics.

India was the source of the numerical system with 10 digits including zero, that we use today. Norberg mentions that important contribution, but Dalrymple discusses it at greater length.

Another fascinating topic discussed by Dalrymple is the close relationship between the merchant classes of early India and the Buddhist monastic movement. Dalrymple emphasizes the importance of trade between India and the Roman empire. He notes that as the Roman empire crumbled, India’s trade with Europe was replaced by expansion of its trade with south-east Asia.

Is the Anglosphere in decline?

The Anglosphere refers to those nations where the English language and cultural values are dominant. Few would dispute that over the last couple of centuries the Anglosphere, first led by Britain and then the United States, played a leading role among nations in demonstrating the benefits of liberal democracy, free markets, technological innovation, and free international trade. Life in the Anglosphere has been far from ideal even in respect of those criteria, but there can be no doubt that we have been living in an age of widespread prosperity that is without historical precedent. As Norberg points out, the whole world has benefited from the spread of golden-age conditions fostered by the Anglosphere, with global extreme poverty declining from 38 to 9 percent in just the period since 1990.

However, Norberg notes that “many ominous signs of decline are clearly present in our time”. He mentions the “hubristic overreach” of U.S. attempts to reshape the Middle East through military interventions in Afghanistan and Iraq, the financial crash of 2008, and the growth of “crippling public debt”. He suggests that a series of crises, including the Covid pandemic, have fostered “a sense that the world is dangerous and that we need to protect ourselves from it”. He writes:

“Most worryingly, rich counties have experienced a major backlash against globalization and trade, and immigrants have become scapegoats, just as they were in so many other eras of decline, potentially shutting us out from our most potent source of constant revitalization.”

Norberg notes that both China and Russia “have recently taken a totalitarian turn and are working hard to devastate neighbours”. He suggests, nevertheless, that Russia and China will have a hard time trying to challenge the Anglosphere-led world order because it will be difficult for them to find reliable friends among advanced states. 

Unfortunately, in the short time since the book was written, the government of the United States has adopted an international stance that seems to be inconsistent with the continued existence of an Anglosphere-led world order. Countries that have long regarded themselves as allies of the U.S. are now forced to contemplate seriously how they can best protect their own interests if the U.S. pursues isolationist policies.

The book ends on a somewhat optimistic note. The author observes that there are roughly fifty prosperous, open societies around the world. If one of them fails, “that will not stop others from picking up the torch”. He adds:

“That prompts the question of where the next golden age will come from.”

After considering various possibilities, however, he suggests that “perhaps this is the wrong way to look at it because we now have a “truly global civilization” in which every literate person anywhere in the world can draw upon the accumulated knowledge of humanity and learn skills in any field. In that context, “no one country can hold a monopoly on the ideas that can make them prosper”.

I agree with the general thrust of that argument. The technology required for future golden ages is not deposited in a library that can be easily destroyed. However, the geographical location of societies that are open and prosperous is still an issue worth considering. It isn’t much consolation for citizens in the United States, Britain or Australia to know that their children and grandchildren may be able to draw upon the accumulated knowledge of humanity and learn skills in any field, if institutional change impinges adversely on their incentives to do such things. Opportunities for human flourishing depend on whether political entrepreneurs will restore and maintain sufficient economic freedom.

It is in that context that I ask: Is it too soon to be asking where the next golden age will be located?

I suggested an optimistic answer to that question in Chapter 6 of Freedom, Progress, and Human Flourishing. Looking beyond looming economic crises, I am still optimistic that the governments of most liberal democracies will eventually introduce institutional reforms to enable the drivers of progress to restore growth of opportunities.

Addendum

Readers may also be interested in a recent article by Johan Norberg, entitled “From Athens to Sparta: How Trumpism is Accelerating America’s Decline”, published in The Unpopulist:

https://www.theunpopulist.net/?utm_source=navbar&utm_medium=web .

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.  

Addendum

Readers may also be interested in a later series of essays on political entrepreneurship.

What role does political entrepreneurship play in institutional change?

 

One of the reasons I quoted that passage by Douglass North is because it mentions political entrepreneurship. I went looking for a quote from North in Institutions, Institutional Change and Economic Performance because I was particularly impressed by that book when I first read it about 30 years ago. (The quoted sentence appears on page 87.)

As defined by North, institutions are “the rules of the game of society” that shape human interaction. He argued that formal institutions—such as constitutions, laws, and regulations—make up only a small proportion of the sum of constraints that shape choices. Informal constraints include codes of conduct, norms of behavior, conventions, and customs. They may be internalized in personal values, rather than imposed by others.

North acknowledged that political entrepreneurship plays a role in institutional change. He doesn’t have much to say about political entrepreneurship, but his analysis implies that political entrepreneurs may play an important role in reducing transactions costs associated with institutional change.

Path dependence and institutional stickiness

The transactions costs of institutional change are high because of the path dependence of institutions. As institutions evolve, ideologies tend to evolve to support them. Organizations and interest groups that have grown up under existing institutions often have a stake in maintaining them.  

The most important point I had remembered from reading Institutions … is that countries with similar formal institutions – constitutions, property rights etc. – can have vastly different economic performance outcomes if informal institutions (cultural settings) are different. Governments and international agencies that have sought to transplant formal institutions to foreign countries have been slow to recognize that point.

The implications of path dependence have been further explored by Peter Boettke, Christopher Coyne, and Peter Leeson in “Institutional Stickiness and the New Development Economics”, Chapter 6 in Culture of Economic Action, ed. Laura E. Grube and Virgil Henry Storr (2015).  The authors contend that the ability of a new institutional arrangement to take hold when it has been transplanted depends on that institutions status in relations to indigenous agents in the previous time period. They suggest that institutional transplants are unlikely to stick if they are inconsistent with indigenously introduced endogenous institutions.

The analytical framework used by Boettke et al is also relevant to considering the challenges faced by endogenous political entrepreneurs in bringing about institutional change.

Entrepreneurship (political and economic)

As discussed recently on this blog, political entrepreneurship has characteristics that differ from economic entrepreneurship. I suggested that it might be reasonable to assume that political entrepreneurs are motivated largely by the satisfaction they obtain from constructing ideological narratives and selling them, and from exercising the political power required to implement policies.

Nevertheless, there are similarities between political and economic entrepreneurship that become apparent when economic entrepreneurship is considered in a cultural context. In his article, “The discovery and interpretation of profit opportunities and the Kirznerian entrepreneur”, reproduced as Chapter 3 of Culture and Economic Action (cited above), Don Lavoie writes:

“Entrepreneurship necessarily takes place within culture, it is utterly shaped by culture, and it fundamentally consists in interpreting and influencing culture.” (p. 50)

He suggests:

“entrepreneurship is the achievement not so much of the isolated maverick who finds objective profits others overlooked as of the culturally embedded participant who picks up the gist of a conversation.” (p. 51)

Later, he observes:

“Most acts of entrepreneurship are not like an isolated individual finding things on beaches; they require effort of the imagination, skillful judgements of future costs and revenue possibilities, and an ability to read the significance of complex social situations.”

In the following chapter of Culture and Economic Action, Virgil Henry Storr and Arielle John suggest that rather than viewing Lavoie’s contribution as a critique of Kirzner’s theory of entrepreneurship it is more appropriate to view it as a suggestion as to how that theory may be fruitfully amended. The amendments suggested by Lavoie seem to me to make the role of the economic entrepreneur seem similar in some respects to the role of a political entrepreneur.

Max Weber’s understanding of political entrepreneurship

Douglass North seems to have given minimal acknowledgement of Max Weber’s work as a social theorist, even though there was considerable overlap in their areas of interest.  Francesca Trivellato has noted that in one publication North does refer to Weber as a scholar of “the role of belief and values in shaping change”. Weber is, of course, most often remembered for his theory of the Protestant ethic but he also made other important contributions.

Weber’s writings on charismatic and demagogic leadership shed some light on the nature of political entrepreneurship in democracies. The following points summarize an article by Xavier Márquez, entitled “Max Weber, demagogy and charismatic representation”, published in the European Journal of Political Theory (2024).

• Weber argued that effective leaders must be able to fight for ‘causes’ beyond the narrow immediate interests of economic groups or party organisations and thus to struggle against the impersonal forces of bureaucratization (the subsumption of politics under bureaucratic and technical imperatives). Effective leaders must therefore have a charismatic form of authority – the only form of authority capable of overcoming the constraints of organisation, legality and tradition.
• The need to appeal to mass publics in modern democratizing societies selects for leaders who have a talent for mobilising large groups of people through rhetorical means. In the context of mass politics, charismatic authority manifests as demagogy. Weber thinks of the masses as unorganized and irrational and argues that even ‘democratically’ elected leadership is a form of ‘dictatorship which rests on the exploitation of the emotionality of the masses.
• Weber's praise for charismatic and demagogic leadership is tempered by the worry that political leaders must also be responsible. This is so in a twofold sense: objectively, a political system must be able to hold leaders accountable for their actions; and subjectively, leaders must display an ethics of responsibility, and thus be able to ‘take responsibility’ for their actions.
• Elections formalize the recognition of charisma. If charismatic leaders capable of mobilizing and representing broad masses will tend to arise in any case, it is better if the recognition of their charisma is subject to periodic formal tests rather than informal, extra-legal events.
• Charismatic authority in the broadest sense tends to appear in moments of deep, even existential crisis, where the charismatic leader performs a ‘miracle’ for a group that feels otherwise impotent and deeply threatened, and can sustain itself only when the leader can provide such ‘miracles.
• The charismatic demagogue produces a wondrous or miraculous representation of the people as a charismatic community but also a ‘wondrous’ representation of himself.
• Weber argues that charismatic leaders must provide evidence of benefiting their charismatic community if they are to retain their authority. The implicit ‘bargain’ between leaders and followers that exists even in cases of strong charismatic authority allows us to speak of a degree of accountability and influence.
• Instead of distinguishing between the ‘mere’ demagogue and its antithesis, the statesman, in terms of whether or not they deceive the demos or act for the common good, Weber stresses the ethical distinction between the politician who is responsible for their cause, and thus capable of intentionally and rationally directing state power towards its achievement (in what is, strictly speaking, a value–rational way), and the politician who is not.
• Lack of objectivity (wishful thinking, extreme overconfidence, ignoring inconvenient information) in assessing a situation leads to irresponsible political action, insofar as it leads to a misunderstanding of the means necessary to achieve particular ends and the physical, social and political constraints on the use of such means. All leaders are susceptible to these vices, but the situation of the charismatic demagogue, surrounded by adoring followers and capable of summoning the adulation of crowds, makes these vices extremely common occupational hazards.
• Weber hoped that training in committee or party work would hone the political judgement of leaders so that they would be more likely to see the consequences of their decisions and to take responsibility for them. 

Márquez argues that Weber's conception of charismatic authority allows some demagogues to play a genuinely democratic role in modern societies when viewed through contemporary theories of representation. He suggests that a Weberian analysis of democracy points to the need for strong accountability mechanisms and for institutions that socialize potential leaders into productive habits of adversarial conduct and responsibility, while preventing easy ‘buck passing’.

Márquez observes that although Weber provides a stronger sense of democratic possibility than did Joseph Schumpeter, he is very much the ancestor of the ‘minimalist’ model of democracy that Schumpeter first articulated explicitly in Capitalism, Socialism and Democracy. (I wrote about Schumpeter’s model of democracy here in 2012.)

Directions of future research

This essay is the second in a series in which I am attempting to obtain a better understanding of political entrepreneurship. The first essay can be found here.

My next step is to read Robert Faulkner’s book, The Case for Greatness (2007). I am wondering whether the ancients thought it was possible for a charismatic demagog to also be a "great-souled" leader who is keen to promote liberty and opportunities for individuals to flourish. 

After that, I will consider how the concept of political entrepreneurship fits in with modern public choice literature.

Summary and Conclusions

This essay briefly considers the context in which political entrepreneurship is most relevant, some similarities between economic and political entrepreneurship, and the role of charismatic and demagogic leadership in political entrepreneurship within democracies.

The essay begins by considering the role that Douglas North saw for political entrepreneurship in bringing about institutional change – i.e. change in the rules of the game of society. Political entrepreneurship is required to overcome high transactions costs of change that arise from the path dependent nature of institutions. Building on the concept of path dependency, Peter Boettke, Christopher Coyne and Peter Leeson developed an analytical framework to consider the consequences of institutional stickiness for foreigners engaged in institution building exercises that seek to transplant institutions from one country to another. That framework is also relevant to considering the challenges faced by political entrepreneurs seeking to bring about institutional reforms in their own countries.

The essay then turns to consideration of the relevance to political entrepreneurship of Don Lavoie’s view of economic entrepreneurship. Lavoie suggests that entrepreneurship takes place within culture and is concerned with interpreting and influencing culture. He makes the role of the economic entrepreneur seem similar in some respects to that of the political entrepreneur.

The other major topic considered in the essay is the contribution that Max Weber makes to our understanding of political entrepreneurship through his writings on charismatic and demagogic leadership. Weber makes the case that charismatic and demagogic leadership may be required to overcome the impersonal forces of bureaucratization within democracies. He also sheds light on the circumstances in which demagogic leadership can be consistent with democracy.

North and Weber both add to our understanding of the role of the political entrepreneur in overcoming obstacles to institutional change. However, the fundamental question that both leave aside is how to ensure that institutional change enhances liberty and opportunities for individuals to flourish. 

 

Addendum

Do ideas play a larger role than interests in bringing about institutional change, or is the opposite true? Prominent economists have been associated with opposing views on this question. Keynes and Hayek emphasized the role of ideas; Stigler and Becker emphasized the role of vested interests.

Perhaps the respective influence of ideas and interests depends on the narratives constructed by political entrepreneurs. The role of political entrepreneurs in constructing narratives has been discussed briefly in an earlier essay.

Some recent research suggests that political entrepreneurs discover “memes” (narratives, cues, frames) that invoke voters’ identity concerns (interests) or shift their ideas about how the world works. (Ash E, Mukand SW, Rodrik D, Economic Interests, Worldviews, and Identities: Theory and Evidence on Ideational Politics , Research Paper, May 2024). The authors identify a potential complementarity between worldview politics and identity politics and illustrate how they may reinforce each other. The authors develop a model which predicts that adverse economic shocks will lead to a greater incidence of ideational politics in affected regions. The results of empirical work using televised political ads seem to be consistent with their model predictions.

Further Note

Readers may also be interested in a later series of essays on political entrepreneurship.