The rise of populist critique of the status quo in our time has multiple reasons – some in deep-rooted cultural frustration and disillusionment with the American dream, others in frustration with policy choices that have made the perception of their lives less prosperous and less secure.
To address a problem requires the admission of a problem. It is my contention that pointing out that these perceptions might not be the reality, while important facts to get right, is perhaps not the most productive response. If problems exist, we should look for the institutional reasons. Institutional problems demand institutional solutions, and liberal political economy has institutional solutions to offer.
To address a problem requires the admission of a problem.
The problem with the establishment elite in the democratic West is that the answer to social ills for over a century has been more government programs, and especially more government programs run by a trained policy elite who were largely immune from democratic feedback from the very populations these programs were designed to assist.
Vincent Ostrom in The Intellectual Crisis of American Public Administration (1973) detailed the transformation from democratic administration to bureaucratic administration during the Progressive Era. With this basic philosophical shift also came an institutional shift as not only did the Progressive Era see the rise of the regulatory state, but also the rise of the administrative state, and in particular independent regulatory agencies, with trained experts at the helm. More recently, David Levy and Sandra Peart thoroughly argue that this demand for, and more importantly claim to, expert rule resulted in an argument for the Escape from Democracy (2017).
The consequences, as Hayek identified in his Nobel address and discussed earlier in this paper, were significant for the self-understanding of political economy, and the practical affairs of public policy and economic performance.
Unfortunately, the critique of the liberal order that the Progressives peddled to justify the shift from democratic administration to bureaucratic administration was treated by intellectuals as separate and as such to be acceptable even if the proposed solution of expert rule was disappointing.
The capitalist system was responsible for instability through industrial fluctuations, inefficiency through monopoly and other market failures, and injustice through income inequality and unfair advantages due to the accumulation of wealth.
In populist economic nationalism – of both left and right – only government intervention can serve as the necessary corrective. So today, we find ourselves in a strange position where the populists are critiquing expert rule, but believe what the experts told them was the problems that plagued society and resulted in their disillusionment with the promise of progress.
The populist rhetoric argues that industrial workers are displaced by machines and lower cost foreign labor whether through firms relocating overseas or immigrants competing with them in the domestic labor market. And, not only do these immigrants cut into their standard of living; a subset of them, we are told, are criminals and terrorists who threaten their very safety and the safety of those they love.
The populist rhetoric argues that the middle class and working class population have been made to suffer through the irrational speculation of the investment bankers which destroyed the livelihood, the homes, and the communities of ordinary citizens. The world as we know it, they are told from various corners, is one of privileged few, where monopoly power dictates the prices they have to pay, and monopsony power limits the wages they can reasonably expect from the market.
In populist economic nationalism – of both left and right – only government intervention can serve as the necessary corrective, we must restrict the free flow of capital and labor, we must counter monopoly power, and forcibly raise wages. Yet, the populist criticizes the establishment elite in public policy while advocating an increased role of the government and its agencies to counter the social ills of instability, inefficiency and inequality.
There is a fundamental contradiction in the populist critique of the establishment, both left and right, which is that government is failing them, but it is failing as it grows larger in scale and scope of activities. Yet precisely because it is failing, it must grow in scale and scope to address the failure. Governments everywhere in the democratic West have grown bloated, and have deviated significantly from any constitutional principles of restraint.
Beware the Growth of Government
Government fails because it grows, and it grows because it fails.
The progressive elite’s critique of capitalism was grounded in a fear of the unhampered predatory capability of powerful private actors, but to curb private predation they enlisted a powerful centralized public authority. In doing so, they enabled the possibility of wide-scale public predation. But while it may be acknowledged at different times that the social ills that plague society manifest in public debt and inflation, they are tied less to over-regulation, over-criminalization, over-militarization etc., which are other manifestations of an ever expanding scale and scope of governmental authority in the lives of citizens throughout the democratic world.
The truth is that the social ills that are faced throughout the world can be traced to this growth of government, which leads to the erosion of a contract-based society and to the rise of a connection-based society, entailing the entanglement of government, business and society.
We have policies that don’t promote competition, but instead protect privileged individuals and groups from the pressures of competition. We have financial institutions that have been able to privatize their profits, while socializing their losses. We have governments (and their service agents) at the local to the federal level that face extremely soft budget constraints in fiscal decisions precisely because the monetary system places weak to non-existent constraints.
Government over-reaches and over-steps everywhere and in everything so that pockets of liberalism provide growing freedom on some margins, while “the road to serfdom” is literally being manifested on other margins, such as mass incarceration in the US and the biases evident in the criminal justice system. Again government fails because it grows, and it grows because it fails.
The reconstruction of the liberal project must begin with a recognition of the problems that plague the societies of Europe, the US, Latin America, and Asia. Under the influence of the progressive elite, the democratic countries have asked too much of government and in the process crowded out civil society, and constrained the market society. An answer is to be found in mechanisms to once more restrain the predatory capabilities of the public sector, and unleash the creative entrepreneurship of the private sector.
In the debate, this can be accomplished to some degree by convincing those in the progressive elite as well as those in the populist left and right that to engage in rigorous comparative institutional analysis we must recognize that we are dealing not only with erring entrepreneurs but with bumbling bureaucrats. The main institutional differences are that erring entrepreneurs pay a price for their failures, and they either adjust in response, or some other entrepreneur will enter to make the right decision.
There really is no direct analog to this with respect to the bumbling bureaucrat – once bumbling, they continue to bumble. Public sector activity seemingly just repeats the same errors over and over again, yet with the expectation of different results. Not much learning going on in that, at least not much learning if the ultimate goal of ameliorating or eradicating the social ill-targeted is to be achieved. This is most evident in our military affairs, but also in other “war” metaphors deployed from the “War on Poverty” to the “War on Drugs” to the “War on Terror.” It truly is the case that “War is the Health of the State,” but these “Wars” are definitely not a reflection of true liberal radicalism.1 Militarism, even in metaphor, is at odds with liberalism.
- Among contemporary liberal political economists Christopher Coyne’s work on military affairs is in my opinion the most insightful. See Coyne, After War (2008); Doing Bad By Doing Good (2013); and Coyne and Hall, Tyranny Comes Home (forthcoming).
Excerpt from a paper prepared for the special meeting of the Mont Pelerin Society in Stockholm, Sweden, November 3-5, 2017.