Buchanan and market Leninism (re-re-post)

Summer[1] is the best time for reruns. A tweet from Kieran commenting to Matt Yglesias on the work of the late James Buchanan points to this 2003 post, which is itself a rerun of an article published back in the early 1990s. For added nostalgia value, it links to CT, before I joined. Thanks to Twitter, everything has a DD-style “Shorter” version now, and Kieran does a nice job “Buchanan allowed Economists to have a Marxist-Leninist theory of the capitalist state”.

The article was originally published in an Australian libertarian magazine, and annoyed plenty of readers. I expect that some readers here will be annoyed, for different reasons, and I wouldn’t write the article quite this way for a different audience (I would have qualified some points, and emphasized others, for example), but I don’t see any reason to change the basic argument.

Repost over the fold.

Henry Farrell at Crooked Timber posted some critical remarks on public choice theory, and Kieran Healy chimed in with a piece on “Shake’n’Bake social theory” of the general form “A is really B”. For example, public choice theory can be stated as “politics is really a market for votes”. All of this can be applied at the metalevel, in the form “Theory A is really Theory B, with a change of names”. As it happens, I’ve used precisely this move to argue, that “Public Choice theory is really the Marxist-Leninist theory of the state, and the associated political program is really Leninism”.

The central points of the Marxist-Leninist theory are

(1) Politics is about struggle between economic classes. The state acts in the interest of the capitalist class as a whole, and arbitrates differences among ‘fractions’ of capital;
(2) Political ideas (except Marxism-Leninism) are ‘ideologies’ designed to rationalise class rule;
(3) The masses acquiesce because of ‘false consciousness’ associated with submission to a dominant or ‘hegemonic’ ideology.

Translating to public choice theory, we get:

(1) Politics is about the struggle between interest groups. The state responds to the pressure of organised interest groups, typically tight coalitions of producer groups. Logrolling between these groups produces an outcome which benefits them collectively at the expense of taxpayers and consumers;
(2) Political ideas (except free-market ideas) are ideologies designed to rationalise policies serving various interest groups;
(3) Voters acquiesce because of ‘rational ignorance’ which leads them to take little interest in politics and makes them easily subject to manipulation by political interests.

On the Leninist implications of both theories

If ideas do not matter, free speech is at best a luxury and at worst a distraction. Even if speech is not actually suppressed, it is debased. When political debate is seen as a charade by its participants, it naturally becomes one. Furthermore, since the system cannot be changed by reason, some form of ‘short sharp shock’ is required. The result is a cult of ruthlessness (the catchphrase here is ‘tough decisions’). Since opposition to one’s policies is interpreted as a sign that interest groups are being hurt, it may be taken as evidence of correctness. The correct response is not to persuade one’s opponents, but to override them.

This was in a piece published in, of all places, the Centre for Independent Studies journal, Policy. The editor in those days, Michael James, was an interesting person – too interesting for the CIS in the end, as I recall.

I’ve done one piece of historical revision. I didn’t explicitly identify authoritarian Marxism with Leninism in the original piece, and I owe the idea of ‘Market Leninism’ to New Zealand economist Brian Easton.

If you want to read the entire article, it’s posted below.

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The Private Interest Theory: Liberal or Authoritarian ?

In articles on the economic analysis of political processes, it is customary to begin with the claim that there are two schools of thought concerning these processes. The first, described as the ‘public interest’ theory, is said to hold that political actors are motivated by benevolence and a desire to promote the public good. No representatives of this school are ever cited. Attention is turned to the ‘private interest’ theory, which is based on the assumption that political actors pursue their own self-interest. Not surprisingly, it is the latter theory which is invariably used as the basis for analysis.

The rise of the private interest theory has been closely associated with a resurgence of free-market economic ideas, and it is natural to see it as a liberal theory. Nevertheless I shall argue that it represents a break with the classical liberal democratic tradition as represented by J.S. Mill, and that it shares many elements in common with Marxist-Leninist theories of the state, and with authoritarian views going back to Hobbes and Machiavelli.

The foundations of Mill’s theory were methodological individualism and utilitarianism. Although Mill stressed the fact that people display a mixture of self-interested and altruistic motives, he assumed they were the best judges of their own interests, and derived the corollary that the utilitarian ideal will be best served by democracy. Given the inefficiency of direct democracy, Mill examined the problems of a system of representative democracy. His work was concerned, first, with the problems of majority rule, and, second, with the problem of ensuring that representatives keep faith with their constituents.

Mill regarded these difficulties as soluble. The central problem for a democratic society lay, not in ensuring that the rulers pursued the best interests of the ruled, but in determining where those best interests lay. The core of Mill’s theory was the belief that only in a liberal political order, characterised by freedom of speech and political activity, could truth be advanced and error exposed.

Mill’s support for free markets was not of a piece with his support for political freedom, but was contingent on the belief, supported by classical political economy, that market arrangements yielded higher social utility than any feasible alternative. Later variants of the liberal political tradition, such as Fabian socialism and Keynesianism rejected this view while remaining essentially within the political framework laid down by Mill.

Because the outcome of debate cannot be prescribed in advance, Mill’s version of liberal political theory does not provide a secure basis for liberal (or any other) economic institutions. The basic belief is that free discussion and democratic processes will yield rational outcomes in the long term. Hence no particular set of views, such as liberal economic theories, can be given any special standing. By contrast, a major project for some advocates of the private interest theory, such as Buchanan, has been the creation of a special constitutional status for liberal economic institutions, to protect them from the vagaries of majority rule.

For economists, Mill’s framework implies that the appropriate task is to determine those economic arrangements which will advance social welfare, so that the process of open debate and democratic decision-making will, in the long run, move society towards those arrangements. It is this approach which is often caricatured as the ‘public interest’ theory. As can be seen from the outline above, it does not depend in any way on an assumption that politicians and bureaucrats are altruists.

For most of the 20th Century, the main challenger to the liberal democratic theory has been the Marxist-Leninist theory of the state, advanced by theorists such as Gramsci, Miliband and Poulanczas. Although there are many variants, the key tenets of this theory are:

(1) Politics is about struggle between economic classes. The state acts in the interest of the capitalist class as a whole, and arbitrates differences among ‘fractions’ of capital;

(2) Political ideas (except Marxism-Leninism) are ‘ideologies’ designed to rationalise class rule;

(3) The masses acquiesce because of ‘false consciousness’ associated with submission to a dominant or ‘hegemonic’ ideology.

In the Marxist-Leninist framework, opposing arguments are not errors, but represent class interests. The appropriate response is not to refute these arguments, but to show how they are derived from your opponent’s class interests. Correct analysis is the exclusive property of the working class (or rather its intellectual representatives),and given the right class position, the truth is self-evident. Marxist-Leninist theory is openly antithetical to liberal democracy.

This theory flourished in a period during which the general trend in both ideas and policy was socialist. It had particular appeal to intellectual and social elite groups, which adopted socialist ideas more rapidly, and more completely, than the broader society. These groups were frustrated by the slow pace of change and the failure of avowedly socialist parties to undertake a fundamental transformation of capitalism.

Marxist-Leninist political theory is now confined to an academic fringe, but there has been no resurgence of political liberalism, at least among elite groups. Instead, its place has been taken by an interest group model. As with Marxism-Leninism, there are many variants of the interest group model, some of which are more sophisticated than the version which has achieved dominance in the broader economics profession and the policymaking elite at large. With few exceptions however, these variants are elaborations on, or qualifications of, the basic themes presented here.

The private interest theory is similar to the Marxist-Leninist theory in a number of respects. The key notions are:

(1) The state responds to the pressure of organised interest groups, typically tight coalitions of producer groups. Logrolling between these groups produces an outcome which benefits them collectively at the expense of taxpayers and consumers;

(2) Political ideas (except free-market ideas) are ideologies designed to rationalise policies serving various interest groups;

(3) Voters acquiesce because of ‘rational ignorance’ which leads them to take little interest in politics and makes them easily subject to manipulation by political interests.

It follows that arguments for government intervention in the economy should be refuted, not by welfare analysis, but by demonstration of the way in which they are produced by dominant interest groups.

The appeal of the private interest theory is similar in kind to that of the Marxist-Leninist theory, and is similarly greatest among elite groups. In its early phase, the theory appealed to economists and others who rejected the general expansion of government up to the mid 70’s. As free-market ideas came to dominate the intellectual and policy elites, the theory explained the limited success of free-market governments in reining in the public sector share of GNP.

In fact, the private interest group model is not very well adapted to explaining broad political outcomes of this kind. The model may explain why some interest groups receive greater benefits from tariffs or regulation than others, but it has essentially nothing to say about the political feasibility of across-the-board liberalisation (or socialisation). Even in the more limited domain, its record of empirical success is unimpressive.

Private interest theorists failed to predict the substantial deregulation and privatisation of the 1980’s. Moreover, this event invalidated most of their explanations for the earlier growth of government. Typically these explanations were based on two kinds of arguments. The first, essentially static in nature, showed that the size of the public sector in political market equilibrium would be larger than the socially optimal level. The second category were arguments showing an inherent tendency to expansion of the public sector. An example is Olson’s model of the accumulation of interest groups. (It should be noted, however, that Olson is careful to avoid a facile equation between the accumulation of interest groups and the growth of government). None of these models involves any significant role for ideas or beliefs about the working of the economy.

It is impossible to explain the postwar growth of government without reference to the perceived failure of market institutions in the interwar period and the appeal of Keynesian ideas. Similarly, the retreat of government in the 1980’s must be explained in large measure by the failure of Keynesian demand management to live up to the expectations created by its advocates and by the resurgence of free-market ideas, initially in macroeconomics and then in microeconomics.

Although private interest theorists make formal obeisances to methodological individualism, the most popular variants of the theory ignore individuals in practice and treat interest groups as the real actors. The shift from individualism to an interest-group model is usually justified by reference to Olson’s (1965) Logic of Collective Action. Olson argued that the collective interests of particular groups would be pursued only if individuals would benefit from joining actions aimed at furthering those interests. Hence, small concentrated interests are likely to be better represented than large diffuse interests. A number of problematic issues in Olson’s work, such as the notion of selective incentives, are generally overlooked, as are more sophisticated treatments of the role of ideas by Olson himself. Moreover, groups such as the environmental movement, which are organized to seek highly diffuse benefits, are uncritically included in interest group analyses.

My main concern, however, is not with the theoretical and empirical deficiencies of the model, but with its implications for a liberal democratic order. The purely political implications are not drawn out or agreed upon, but are generally abridgements of democracy. First, the model yields suggestions for constitutional limitations on the power of government as discussed above. Second, there are changes which would make the system less democratic and, supposedly, less vulnerable to interest group pressure. The most notable example, in the current policy debate, is the proposal for longer terms for governments, thereby insulating them from electoral pressures. This idea enjoys almost universal support among the political elite. The underlying assumption is that everyone who counts knows what the correct policies are, and that the only thing required is the “political will” to implement them.

To a certain extent theories of government are self-fulfilling prophecies. If it is generally accepted that democratic politics is nothing more than a battleground for competing interest groups, then reality will come to resemble the model. An example arises with conscious attempts to manipulate the so-called political business cycle (a strategy closely associated with the idea of extended terms of office). The basic idea is to seek election on the basis of electorally attractive policies. On gaining office, these policies are dumped in favor of a program which is supposed to be economically correct. As the next election approaches, the rigor of this program is relaxed, and if all goes well, reelection is secured on the basis that conditions are improving. The adoption of this strategy implies a degree of contempt for the electorate which arises naturally from the interest group model’s view that the electorate is ‘ignorant and greedy’ (the characterization is from Mueller’s survey Public Choice, and is taken from Bagehot’s attack on proposals to enfranchise the working class).

An important part of this strategy is the making of election promises with the conscious intention of abandoning them after the election. Indeed, the refinement of targeted election campaigns, notably by the Hawke and Greiner governments, is such that, even as promises are made, code words are given out to assure elite groups that the promises will not be fulfilled. The untrustworthy nature of political promises has long been proverbial. However, the interest group theory makes a positive virtue of dishonesty. Since election promises are merely bribes to interest groups, they should be broken whenever possible.

An even more fundamental cleavage with classical liberalism arises from interest group theorists’ disdain for ideas, which draws on a long tradition going back through Marx to Hobbes and Machiavelli. When the view that ideas are a cloak for vested interests forms part of a critical analysis of the state by outsiders, it may be useful, though it yields the curious spectacle of professional dealers in ideas arguing strenuously that ideas and arguments are of no importance. However, when such an analysis informs the thinking of political and bureaucratic elites, it is positively dangerous.

If ideas do not matter, free speech is at best a luxury and at worst a distraction. Even if speech is not actually suppressed, it is debased. When political debate is seen as a charade by its participants, it naturally becomes one. Furthermore, since the system cannot be changed by reason, some form of “short sharp shock” is required. The result is a cult of ruthlessness (the catchphrase here is “tough decisions”). Since opposition to one’s policies is interpreted as a sign that interest groups are being hurt, it may be taken as evidence of correctness. The correct response is not to persuade one’s opponents, but to override them.

Not all interest group theorists have followed this line of reasoning. The most important exception is Buchanan. Unlike many advocates of efficiency-oriented policies, Buchanan takes seriously the notion that efficient policies yield potential Pareto improvements, and concludes that a move toward such policies should be able to command universal consent. In Buchanan’s view, however, the ordinary workings of democratic politics do not permit the potential gains from trade to be realized, and it is necessary to enshrine limits on interest group activity in a constitutional framework. However, Buchanan’s arguments as to why liberal institutions would command universal assent in a constitution-making setting and not in a democratic legislature are unconvincing. In the recent period of socialist retreat, it has been more common for legislatures to introduce market institutions into societies with socialism enshrined in their constitutions.

An intermediate position is expressed by Douglas. Like Buchanan, he assumes that an across-the-board assault on interest group privileges will lead to a Pareto-improvement. Hence, a short sharp shock will arouse less opposition than piecemeal reform, and will receive unanimous endorsement ex post. The main problem with this position arises when the short sharp shock turns into a long march. As the realization of Pareto improvements is postponed, there is more and more a temptation to fall back on the interest group model as a ground for dismissing distributional concerns altogether.

The cynical appeal of the interest group theory cannot be denied, but it should be resisted. Contrary to the predictions of interest group theorists, the intellectual predominance of free-market ideas has been translated into political outcomes, just as the previous predominance of socialist ideas was reflected in the expansion of government. However, in a liberal democratic order, no victory is ever final. The resurgence of free market ideas was largely due to the failure of socialist and mixed economies to live up to expectations. It remains to be seen whether free markets can deliver the goods.

fn1. Writing this, I realize it’s winter in the antipodes. It must be strange to have snow in January!