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Can libertarianism limit corporate statism?
Matt Yglesias opines (the piece is interesting throughout):
… the larger problem is that libertarianism, even at its very best, tends to suffer from an impoverished set of ideas about how corporate domination of the public policy space might be prevented. The political left has, by contrast, the tradition of community organizing, a set of public interest advocacy organizations, allies in the trade union movement, efforts to improve the quality and independence of the civil service, and various notions about changing the methods by which campaigns are financed in the United States. This is hardly a perfect toolkit, and it can be enhanced in some ways by drawing on libertarian insights, but it’s something. And libertarians tend to be either indifferent or hostile to it, campaigning against public financing, strong labor unions, and the civil service.
In practice, libertarianism seems to have little to say about how to bring about political change except to work hand-in-hand with business lobbies when the interests of business and free markets are aligned, or else when business interests are masquerading as libertarianism.
Here is Will's response. In my view at the margin it would be better to have both less corporate privilege and less labor union privilege. Maybe we have no good theory (much less a strategy) for how to get there, but surely some marginal improvements are possible and who knows maybe more. Chile is much less corporatist than it used to be and the relatively free economy of New Zealand was never that corporatist in the first place.
"Libertarianism in practice" will be excessively pro-corporate but so are most ideologies. Rahm Emanuel, for instance, served on the board of Freddie Mac and earned $16 million in a two-year stint at an investment bank. Wall Street has been the single biggest backer of his political career. He won't be pushing to destroy this sector but I don't take those facts to be some great refutation of Obama as a President.
Sometimes the left-wing tactics, especially supporting labor unions, are exactly what lead to greater corporatism. Look at the forthcoming GM bailout. Or consider France, which has strong labor unions but arguably it is also more corporatist than is the United States.
But let's say that turning America over to the labor unions would in fact limit corporate power. It's still difficult to get the unions more anti-corporate power, just as limiting corporate statism is difficult. And these two tasks are difficult for more or less the same reasons. The bottom line is this: ultimately the "feasibility objection" may cut against very radical change, but it doesn't cut against change in one particular direction more than the other.
Posted by Tyler Cowen on November 15, 2008 at 06:17 AM in Political Science | Permalink
Comments
Unions and Govt. subsidies are what killed GM and GM is what killed Detroit - even though Detroit was the cause of the subsidies.
Posted by: j at Nov 15, 2008 6:45:30 AM
Everybody is overlooking the elephant in the living room.
Corporations are every bit as much government constructs as unions. It's obvious CATO is a corporatist shill, otherwise it would be denouncing corporations as vehemently as it denounces unions.
Even individual wealth is a government construct: without coercive protection, nobody would be able to accumulate much wealth, and all would be much more equal (albeit very much poorer.) In general, libertarians want to overlook government action and (their term) coercion when it supports their preferences, and condemn it for others.
Posted by: Mike Huben at Nov 15, 2008 7:19:36 AM
Corporations are every bit as much government constructs as unions. ... it would be denouncing corporations as vehemently as it denounces unions.
Uh, "corporations" can have many purposes and be of many sizes. Like partnerships, LLCs, non-profits, etc. All kinds of ventures are "corporations", which are given the status of "legal person" by law.
So, what is your point? That all non-human forms of organizing activity (like corporations, LLCs, partnerships, etc.) should be denounced?
Posted by: at Nov 15, 2008 8:03:11 AM
Yglesias is right. Real, existing libertarianism would have to wrestle in a principled *and* pragmatic and strategic way with the fact of a political economy. Libertarians have an acute understanding of how it works, and are dismayed, and would wish that the world was otherwise. But it isn't. It was Bismark, pragmatic and strategic, who introduced social security. What answer would a libertarian have to political claims of this kind? That is to say, what answer would they have that was politically viable as well as effective policy?
Posted by: RS at Nov 15, 2008 8:21:53 AM
Bigger government = bigger NGOs (corps, LLCs, non-profits, unions, etc.)
More regulation of an industry by government = more lobbyists employed by the regulated industry (see 1st Amendment)
Highly regulated industry = industry capture of regulator (eventually)
Posted by: at Nov 15, 2008 8:22:20 AM
About unions, there's an old chinese story that goes as follows:
During a big flood, a fisherman risked his life taking his boat out to rescue people, but all he found was one body.
After the flood he advertised to find the relatives. (By chinese tradition if a body does not get proper burial his ghost haunts his living relatives and botherse them greatly.) The relatives showed up and they discussed a price for the body, but there was no agreement.
The relatives suffered from the ghost. They went to a man who had a reputation for good trading advice and they told him their story. He collected his fee and puffed on his pipe, and he said, "He can't sell the body to anybody else. Wait. Sooner or later he must come down to your price."
The fisherman suffered from the body stinkin up his toolshed. He went to the man who sold trading advice and told him the story. He collected his efe and puffed on his pipe, and he said, "They can't get the body from anybody else. Wait. Sooner or later they must come up to your price."
When you have a big company making deals with individual employees, the company has a giant advantage. Most of them would have trouble finding jobs elsewhere but the company can easily replace them. When you have a big company making deals with a big union, they both have the big advantage. There's no market at all.
I would suggest a completely different approach. Have the government limit the maximum size for corporations, in number of employees and also in operating capital. And the change could be done gradually.
So for example, we could start by requiring corporations that have more than a million employees to split up. Only WalMart would be affected. Would we be better off with two WalMarts competing? Likely. Or they might split some other way.
Maybe four years later, time enough for the new companies to get organised and plan for the next change, make the maximum corporation size be half a million. Only WalMart would be affected, unless it ought to apply to the Post Office.
Four years later, make the maximum size a quarter million. This time it's WalMart, McDonalds, UPS, Sears, Target, GM, IBM, GE, Citigroup, Ford, Krogers, and Home Depot. Also some large foreign companies that have branches here would have to divest. Daimler/Chrysler, Volkswagen, maybe a few others. Assuming that these corporations are still so large in 12 years.
As smaller corporations learn to cooperate to get economy of scale, eventually we might get a maximum size down to maybe 300 employees. Or perhaps eventually even 20 employees. A libertarian's paradise.
Number of employees is a reasonably straightforward statistic that doesn't require tremendous bureacracy to enforce. But small corporations are far less capable of government manipulation etc than large corporations, and have far less negotiating clout when dealing with individual employees.
Posted by: J Thomas at Nov 15, 2008 8:30:39 AM
Have the government limit the maximum size for corporations, in number of employees and also in operating capital. And the change could be done gradually.
How about if we at the same time have a maximum size for government, in number of employees and also in annual budget?
I love the whole "have the government do something" thing. Forgetting that in the US, the government gets its power and authority from its citizens, not the other way round.
And the statement that "small corporations are far less capable of government manipulation etc than large corporations, and have far less negotiating clout when dealing with individual employees." is just naive.
Small businesses are far more susceptible to government coercion (and my local city government has demonstrated that on several occasions).
My negotiating power with individual employees is very dependent on the larger economy and who I am competing with for talent. My business's small size has several consequences: job candidates tend to be either 1) pencil pusher / chair warmer types who seem to believe they are entitled to a job where they "work" 30 to 35 hours per week, with numerous benefits and a six-figure salary, or 2) folks who recognize that in a smaller firm they are going to get incredibly diverse experience and responsibility in a short period of time.
But what is stunning is what some of my younger hires believe they are entitled to, such as: discretionary bonuses regardless of firm or their own performance; paid time off to vote ("But, it's a civic duty!" I kid you not.); generating value for the firm, etc.
Many of the younger hires over the last decade appear to have no clue that business revenue doesn't merely appear like manna from heaven, that the business must generate something of value to make money. So that I can pay their salaries, my taxes, their benefits, the rent, phone bill, buy new tools when needed, etc.
There is no endowment or endless stream of donors (or taxpayers) for my small business. Revenue must be earned in a competitive market. And I bear the risk of failure. Unlike the government (federal, state and local).
Posted by: at Nov 15, 2008 9:12:49 AM
Number of employees is a reasonably straightforward statistic that doesn't require tremendous bureacracy to enforce.
You're kidding, right?
Posted by: at Nov 15, 2008 9:13:59 AM
Does big business have very much political clout absent a political alliance with organized workers, regulatory authorities, or both? Not much. Are corporate political contributions primarily bribery or extortion? The evidence suggests the latter. The vast number of 'small' businesses in America have far more political influence than most big businesses. Think farmers, doctors, trial lawyers, builders, etc.
Posted by: Fred Thompson at Nov 15, 2008 9:45:29 AM
Since when was Cato supposed to be a purist libertarian org? Their job is playing policy field position until the purists can field a touchdown capable team. The fact that their SS or carbon policy is not purist doesn't bother me a bit. It does bother me when they forget that they are playing prevent and start to think that theirs is a philosophy, but that's another story. The Institute for Justice simply occupies another role. There's no sense complaining that we don't have the players to occupy all the positions on the field at this point in time. We out here in the hinterland are working our asses off.
Incidentally, I don't support his furtherance of a carbon taxing scheme. The private property argument against pollution still rests on the idea that actual damage must be compensated, and where is the actual evidence that carbon dioxide is causing damage? Majority preference doesn't change anything. We don't prohibit undesirable photons from escaping my property to my neighbors because they do no damage. Show that CO2 actually does damage and you have a point. Not until.
Unions and governments are corporations. They stand on one side. Libertarianism stands with individuals making voluntary associations. All organizations should be denounced when they trample the individual.
It is only because corporations have been relatively more voluntary and more abused by involuntary organizations that libertarianism tends to take their side, pragmatically. When the situation is flipped, we will change sides. But, this is still a long way off. Google, for example, still has to kowtow to China's government. Understand that Chinese are better off with bad Google than no Google.
Corporations approach the ideal size to match their economy of scale. Most government regulations increase the fixed cost. They have to. In the words of Antonin Scalia, evenhandedness is not fairness. The biggest, most organized corporations will lobby for this out of self-interest. Regulator capture doesn't happen "eventually," it's that way from the get-go.
Corporations interest is not manipulating the government, or extracting largesse, they don't. They aim to limit competition. Fixed costs are a barrier to entry of competition. First, do no harm and first, remove all government mandated fixed costs. Regulation, pragmatically and philosophically should correlate with an organization's ability to do harm, which is directly related to size.
Don't limit corporations to inefficient, wealth-destroying sizes. Limit government to fair regulations.
Posted by: Andrew at Nov 15, 2008 9:55:15 AM
J Thomas: it might be the case that employees have a hard time finding other work under a few limited circumstances.
For instance, certain types of Ph.d. chemists have extremely limited demand for their skills, and only one employer in a given geographic area.
But that's a very atypical situation. It is certainly not the case for low skill workers. So how do you justify unions in that case? In that case, they are merely a government granted monopoly.
Posted by: Ninja Zombie at Nov 15, 2008 9:59:30 AM
"Number of employees is a reasonably straightforward statistic that doesn't require tremendous bureacracy to enforce."
You're kidding, right?
Unfortunately, yes. Partly.
There are lots of ways for corporations to fudge on their employee count. But some of them are what I'd want. Like, many corporations now do their low-level hiring through separate internet companies that collect online applications, schedule interviews, etc and pass the best of the choices on to the company for final approval. This can reduce HR employment and provide various ways to cut redundancy and get economy of scale in dealing with the large number of applications that unemployed people make.
To the extent that it works for corporations to outsource whole categories of their work, they can reduce their size and also comparison-shop for alternative contractors to do the same work. Functions that otherwise are buried within a single corporation turn into markets. But that tends to fail when the work depends on long-term relationships.
In the worst case we'd have just what we have now except most employees get called contractors and work by contractor rules. That wouldn't be a big problem but it wouldn't be as much improvement as I'd like.
Posted by: J Thomas at Nov 15, 2008 10:23:27 AM
Perhaps Cato, or the "Free Staters" in NH, could demonstrate their "anti-corporatism" by assisting a government (city, county, state) in lowering the barriers to free markets preferred by "big business" and "big labor". As suggested in Roderick Long's piece (http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/) there are many anti-free-market regulations that favor status-quo and ever-larger corporate interests over the new tiny business. Three opportunities pop to mind immediately.
First, state and local licensing barriers should be lowered. Spending 2,000 hours in training classes before you can braid hair (using IJ's famous example) is ludicrous. Having to be a licensed private investigator to back up a hard drive in a broken computer is absurd (see Texas). A concerted effort should be made to lower these state-imposed barriers. (www.ij.org)
Second, states and localities should simplify and lower the cost of business combinations that make sense. Legal and filing fees to form "ordinary" business arrangements should be as close to $0 as possible. There are a few well-known business structures that occur in times like we are about to experience... Someone with time on their hands and a skill needs an arrangement with someone who has a bit of money and little time. There's no reason a state can't have a web site with a few questions that spits out a standard form requiring signatures and a de minimus filing fee that would cover the first 2 years of existance, say.
Third, all the other "annoyances" need to be reduced or eliminated. Zoning that prohibits garage shops, for example. Or having to learn employer tax law to take on a little extra help. Or elimination of the dozens of "notice" and more substantive requirements states impose on business in favor of employees. Again, a forward-looking state could host a web application that did payroll "for free" (the hope of getting the Feds to waive payroll and income taxes seems too much to hope for, even for a short time.)
The free-market, libertarian goal is to free individuals with skills to use them without having to "find a job" or learn a ton of law or otherwise incur a lot of unnecessary costs.
Whether we're likely to have 10% unemployment soon or not, simplifying the nightmare that is establishing a business these days will greatly help both the libertarian brand and the political subdivisions that do it. It won't give "the little guy" an advantage over "big business", but at least it will open a few minds to the possibility starting a small business instead of looking for a job with someone whose latent skill is navigating red tape.
Posted by: at Nov 15, 2008 10:42:56 AM
Start with getting rid of the corporate income tax. Switch it to something else. If they don't have taxes to pay they don't need lobbyists to skew the tax code.
Posted by: Brian Shelley at Nov 15, 2008 10:46:02 AM
So how do you justify unions in that case?
Ninja Zombie, unions are good for union members. They are not particularly good for anyone else, except that when they negotiate workplace safety and payscales for open shops etc then there is a trickle-down benefit for other employees.
If you're employed by a corporation that has 10,000 employees, and you negotiate over your compensation, usually the company has a whole lot more leverage than you do. It's usually a lot easier for them to find somebody who can do your work than it is for you to find another 10,000-employee company that needs you. The corporation usually has the advantage.
I regard unions as a punishment for corporations that drive too hard a bargain. Treat your employees right and you are far less likely to be burdened with a union. Treat them too bad and you'll get a confrontational union and in the long term you'll suffer (and so will your employees, but they were suffering already).
Rather than reduce the number of sellers to match the number of buyers -- one against one -- I think it would be better to reduce the discrepancy other ways. If you're one of a team of twenty that together provides a service, you have far more bargaining power to get your share of the money the group brings in. Unless they think you aren't contributing much.
Your corporation with 20 employees can bargain with some other group or groups to provide services that your corporation gets paid for. If you're doing something that would otherwise be done by 20 employees, you have more bargaining power than any one of those 20 would have. But you could get swapped out as a group, too.
Say your group contracts with somebody that's organising 20 groups like yours. They bargain to do the functions that 400+ people do. They have more clout than 400 employees would have individually. Etc.
It might be possible to do away with employees altogether. This would interfere with the stability that employment provides, though. Employees get a stable income and stable jobs. They get the assurance that they will not be fired without good cause, if the corporation can afford to keep them. Employees get the same security that slaves used to get, but less so. Contractors have none of that, officially. Traditionally employment gave the sort of stability that people needed to raise families. One parent has a job, one parent manages the home and nurtures the children. It would be a shame if a new-style economy failed to provide long-term security for those who need it.
Posted by: J Thomas at Nov 15, 2008 10:53:44 AM
.
...so what is the fundamental issue here, again ??
Yglesias says libertarians are "impossibly utopian" ... and wants them to get down & dirty in practical politics -- like the leftists successfully do.
Libertarians, as the name implies, believe that liberty is the most important political value not democracy nor democratic politics. In a 'liberal' society you make the choices about your life -- in a political society someone else makes those choices. Democracy and Liberty are not identical.
Apparently libertarians would be more politically successful if they changed their fundamental values (?)
Posted by: Harris at Nov 15, 2008 11:27:06 AM
So, what is your point? That all non-human forms of organizing activity (like corporations, LLCs, partnerships, etc.) should be denounced?
The point, since you need it to be said, is one of consistency. If libertarians want to denounce unions, fine. But in the interests of consistency, they must also then be prepared to denounce corporations.
They don't, and for a 'philosophy' that is touted for its axiomatic approach and logical consistency, this is doubly damning. Of course, CATO is known to be completely untrustworthy; most people know by now that it's primary function is as a propaganda mill.
I've asked this question many times and have yet to receive a good answer. Many years ago, in the mid-70's, I was very sympathetic to Libertarianism. Back then, it was much more philosophical, and the discussions were oriented around personal freedoms vs government intrusions like spying, obtaining credit reports, etc. But something happened somewhere between 1975 and 1980. The old guard of theorists vanished (graduated mainly) and were replaced by people much more concerned with corporate freedoms and 'free enterprise', unrestrained capitalism, etc. My question, is, does anyone have any idea what happened, and can anyone recommend good source material on the (actual) history of libertarianism? I've heard it said, for example, that the deliberate injection of institutions like CATO were the cause of this very abrupt rightward shift.
Posted by: ScentOfViolets at Nov 15, 2008 11:34:48 AM
I think corporations are a big problem. They are too socialist. I recently got hired at a very large financial services firm. During the orientation they told me their benefits package. I was amazed at how many benefits they provided and how completely they accounted for all possible contigencies.
After a few weeks or working I was amazed at how incredibly inefficient and bureacratic the corporation was. Things that could be done in a week at smaller organizations would take years or never be done at all. For example: My group needed infrastructure to be upgraded by our IT group or we would lose a client. The IT group responsible for the upgrade informed us that we SHOULD LOSE THE CLIENT because they simply refused to do the upgrade. I was amazed....I thought clients would always come first. But then I realized that clients don't come first. Rules, rules and more rules come first. Bureaucratic inflighting comes first. Everything else second.
I have worked other jobs and seems like every corporation is incredibly dysfunctional. I know of a financial software corporation that have been around for 15 years, have a successful, expensive, and widely used product and have have never been profitable (too many employees doing too little work). I worked in an investment bank (one of the original big five) that didn't have bonds, CDOs or CDSs implemented in their risk system as of 2007. Their risk system was software junk as far as I could tell.
Posted by: assman at Nov 15, 2008 12:03:25 PM
It would be good to have threaded conversations. There's a lot of text here which might just be one or two threads.
But overall, it seems like there are two basic viewpoints on this question:
1) Governance is like a pool with a lot of sharks swimming around (unions, women's rights groups, pro-life lobbies, big corporations, etc.) Theory #1 about effecting change is: feed the sharks that want some approximation of what you want. The sharks will get more than that, because they're sharks, and it might be something you don't care about, or even something you don't want them to have, but you'll get something out of it too.
2) Theory #2 says you should yell at the sharks and not feed them until they do what you want. The risk is that they never listen to you because enough others will feed them. But if enough people want the same thing, they can all agree to withhold feed until their conditions are met. In this way you can tame the sharks.
Theory #2 may be becoming increasingly possible due to the internet.
The risk is that the collaborating humans become just like another shark. After all, labor unions probably started off as a very noble idea.
Is there such thing as a non-corruptible interest group? Or is corruption indistinguishable from the self-interest that drives all politics? Hard to say.
Posted by: mk at Nov 15, 2008 12:04:59 PM
"Corporations approach the ideal size to match their economy of scale."
No. Corporations approach the ideal size to maximize CEO salary.
Posted by: assman at Nov 15, 2008 12:19:06 PM
"Corporations approach the ideal size to match their economy of scale."
No. Corporations approach the ideal size to maximize CEO salary.
Often the most profitable corporation approaches the ideal size to squelch competition. And that size *is* their economy of scale.
Occasionally that size may approximate their economy of scale for production of whatever it is they officially produce. But there's no particular reason it should.
People tend to assume that in free competition businesses optimise some function of quality and price of their official product.
But compare with ecology. A population of any species survives in an ecological niche. There is usually some limiting factor that determines the population size. For birds that limiting factor might be nesting sites, or food supply, or predation, or in some seasons the number of mites in the nests or the relative toxicity of their food or other species which compete for the same kind of nesting site or the same kind of food etc.
When an individual bird competes with other birds, it's competing over its ability to deal with whatever the limiting factor is. The limiting factor doesn't have to be any one thing.
Similarly, corporations only occasionally must compete on price, quality, or quantity of product. They can compete on advertising, kickbacks, chokepoints in the distribution chain, subsidies and other legislation, employees (particularly great salesmen), prestige (companies can compete for prestige with projects that tend to drive all competitors into the ground -- the survivors win), etc. They can compete for changing market niches.
So for example there's been a repeated pattern for motels. There's always room for a big motel chain that offers cheap moderate-quality rooms to travelers. Each chain that does so then tends to find that it can make a lot more money if it also caters to business conferences and such. Some businesses like a nice cheap motely that supplies their minimal needs. The more extras it adds the better it competes for the high-paying business, which many other chains already compete for, until it finds it has left its original niche and another motel chain takes that niche away.
One of the most important tasks for CEOs is to notice just what they're competing over. It might likely turn out that what works for corporate survival and prosperity does not involve anything that an outside observer would think contributes to the economy.
Posted by: J Thomas at Nov 15, 2008 12:48:26 PM
Why is anyone surprised that the growth in scope and power of corporations is highly correlated with the growth in scope and power of governments? Yglesias and others suffer from the fatal and fallacious belief that increased government power is fine as long as the "right" people wield this power- but history shows that such "right people" don't exist. Granting power to government is equivalent to granting power to the most organized and passionate factions within society. Corporations and government both suffer from the same disease of diluted ownership. We, as citizens, have granted too much power to government- and the management of corporations, having been granted too much power by shareholders, capture the powers of government for their self-interested benefit. Unions operate on the same principle, but their survival is dependent, for the moment, on the profitability of the corporations to which they are allied. That profitability limitation is about to be breached in a number of union dominated, but unprofitable industries.
If the citizens limited the role of government to just the prevention of coercion and damages against individuals and their property, you wouldn't have so much corrupting power to be co-opted by different factions. However, it is a continuous battle to keep government small and focussed. Once citizens start allowing for the possibility that government could do this or that outside that narrow band of responsibility, then the path is one of constant aggregation and corruption of power by those most interested in grasping and wielding it.
Posted by: Yancey Ward at Nov 15, 2008 1:12:44 PM
I offer this competing vision: Extreme transparency in government, combined with very informed and intrinsically bloggers like the good folks at calculated risk, can give us effective goverment that isn't as captured. Some day, our modern communication system could enable us to replace large parts of representative democracy with a hybrid of direct democratic and market mechanisms.
To get the ball rolling on transparency, Democrats should take the following steps:
1. Make public the reports from the Treasury regulators that were at AIG all those years. I'll ber dollars to doughnuts that those regulators saw a big disaster a brewin'.
2. Make all gpovernment agencies involved in these financial bailouts our another reveal all of the specifics on what assets they're buying at what price from what banks, and what positions they're taking at what price in what businesses.
Posted by: Keith at Nov 15, 2008 1:39:39 PM
"But let's say that turning America over to the labor unions would in fact limit corporate power."
I could see how, if progressives really *were* socialist, that their agenda would be "turning over America" to labor unions.
In practice, though, nearly all progressives, like at least small-l libertarians like Matt, or me, just want to make sure there's as much open space between interest groups to have a functioning civil society.
Tip: If big-L Libertarians demonstrated creativity sufficient to distinguish that there are more possible choices than a) "turning America over to the labor unions" and b) "turning America over" to unregulated business there might be more big-L Libertarians.
figleaf
Posted by: figleaf at Nov 15, 2008 1:55:32 PM
In my view at the margin it would be better to have both less corporate privilege and less labor union privilege. Maybe we have no good theory (much less a strategy) for how to get there, but surely some marginal improvements are possible and who knows maybe more.
Here's a suggestion on strategy: When the former CEO of Goldman Sachs asks for $700 billion to dish out as he pleases, in light of an alleged disaster that he had no idea was coming just two months prior to the request, then all libertarians say "HECK NO!"
Posted by: Bob Murphy at Nov 15, 2008 2:03:40 PM
