Monday, March 15, 2010

Economics 15/03/2010: The failure of the state is a failure of society

Here is an unedited version of my article in the current issue (March-April 2010) of Village magazine.

Pull Quote: “Replacement of foreign élites with domestic elites was the main objective of Ireland’s change.”

“It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings…The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master”. Ayn Rand.

“”Sacrifices needed for recovery”, says Cowen.” Irish Times headline 5th Feb 2010

The fundamental problem with Irish politics is not our much-decried proportional representation electoral system or the absurd subatomic fragmentation of politics into parish-pump power brokerages. The most rotten aspect of our political environment is the culture of clientelism that underlies the foundation of society. To understand this, take a quick detour back in time. The American Revolution and the Irish struggle for self-determination had a common adversary – the British Empire. But this is where the similarities end.

American Model

The US was founded on the core idea that without British rule, the ordinary people could improve their own governance. The Declaration of Independence is rooted in the Enlightenment, which informs its outline of where the Brits have gone wrong: not so much in underwriting the entitlements of the people, but in directing the policies of the land. Although most scholars tend to focus on the opening lines of the Declaration, denigrating the remainder as a laundry list of British offences, in reality both parts of the Declaration are pivotal to the balance of power between the individual and the state. The Declaration clearly posits the state as the tool for implementation of the new order. Not as the order itself. In Ayn Rand’s terms, American statehood is not about sacrifice of an individual for the sake of the collective, but about removing the state from the position of delineating slaves from masters. The US was formed not as a sacrifice of the few for the sake of the many, but as a project for improvement of opportunities for all.

Irish Model

The Irish state was born out of a more limiting premise - that, without British rule, native elites can be just as effective (or ineffective). Replacement of foreign élites with domestic ones was the main objective of Ireland’s change. In religion, administration, property rights, culture, society and economics, the Irish Revolutionary movement, justifiable as it may have been, accomplished only the equivalent of a coup d’état, leaving ordinary people in semi-servitude to the new, this time around native, political and administrative master-class.

Out of the necessity to bow to modernity, we added a second tier to our traditional economic structure. Ireland Inc
- multinationals and exporters responding to global markets and incentives – is now juxtaposed against the clientelist domestic sector run on the back of parochial interests. Ireland’s gross public expenditure in 2009 reached €76.2 billion or 57.3% of our national output. Including our semi-states and state-licensed activities, over 70 cents of each Euro circulating within Ireland is now state-controlled. Irish domestic economy in thus equivalent to a teenager with a job at a fast-food joint who lives with his parents. Over 65% of the population is in some sort of direct dependency on the state – either as its employees or as the recipients of its subsidies. This in itself accounts for the weddedness of so much of the population to the strong state.

Constraining the State

Last month, MIT Professor Daron Acemoglu, published a paper entitled, Institutions, Factor Prices and Taxation: Virtues of Strong States?
As Acemoglu shows, strong states conduce to redistribution of resources and thus, to an even greater capture of the state powers. The fraught UK experience implies that efficient, functional states require more external checks and balances, not the vesting of more autonomy and power in the state institutions. This flies in the face of the Irish political ethos, which sees the state as a combination of a powerful autonomous bureaucracy and the clientelist political establishment. But it also puts into a historic perspective the serial failures of Irish society to revolutionise our state structures.

Ireland never had England’s Cromwellian experience of the renewal of élites. Nor did we have a full-blown industrial revolution to deny the idea of clan-based power. We missed out on the Thatcherite revolt against the ideological elevation of society over individual rights. Once again, Ayn Rand captures the point: “Individual rights are not subject to a public vote; a majority has no right to vote away the rights of a minority; the political function of rights is precisely to protect minorities from oppression by majorities (and the smallest minority on earth is the individual)”. Whatever position one might occupy in terms of party politics in Ireland, we must surely agree that any society based on the insistence of SIPTU-ICTU-CPSU that the Social Partnership overrides the individual, is simply incompatible with liberal democracy protective of individual rights.

Liberalism Vs. Statism

Rand’s scepticism about the compatibility of state interests and universal personal liberty separates the liberalism (that Ireland’s national institutions never managed to learn) from neoliberalism (to which we have developed a cross-party devotion). Stephanie Lee Mudge of the European University Institute defines neo-liberalist politics as “struggles over political authority that are bounded by a particularly market-centric set of ideas about the state’s responsibilities… and the state’s central constituencies (business, finance and middle class professionals)”. Of course neoliberalism is nothing more than a conservative, status quo preserving ideology - it's struggles against authority are a form of resistance against a change of elite, not in favor of change. Unlike neoliberalism, liberal principles do not identify specific interest groups as the pillars of society. Liberty and reliance on central constituencies – whatever the latter might be – can coexist in a democratic society if and only if society has an advanced system of political, administrative, judicial and social checks and balances.

In Ireland, no such checks and balances exist. NAMA and the rescue of bank shareholders and bondholders at the expense of taxpayers could never have happened in societies with modern state infrastructures. It did not happen in the US, where TARP was instantaneously altered to a much more robustly enforceable direct lending and equity takeover. It did not happen in the UK, which adopted a similar approach. It did happen in Ireland and other parts of Europe. Why? In Europe, the judiciary is a function of the political establishment that appoints it, the state is subjugated to the interests of the permanent civil service, and the political realm is dominated by the cartel of vested interest groups i.e. the Social Partners. In Europe, neoliberalism today is an a-ideological deus ex machina
for continued propagation of the élitist State in exactly the same way as fascism and socialism were engines of elitism in their turn.

Ironically for their promoters, minorities, the poor and the downtrodden would do much better in a society based on liberal (or in American terminology libertarian) ideals than in their gold-gilded cage of Social Partnership. As Rand noted, libertarians believe that all minorities - rich and poor alike - are the same. To our political élites on the other hand, minorities are divided into Leninesque ‘useful idiots’ (the Social and Environmental Pillars) whose consent to the status quo can be bought for tuppence worth of State subsidies; and ‘powerful conservators’ (Big Business and the Unions) who can provide the power and money necessary for perpetuation of this status quo.

To An Ever Braver World

The maze of interchanges in a small country between sectoral vested interests – political and executive, social, environmental and economic – is informing our ideological and electoral positions. The state is seen as an (at least occasionally) benevolent defender of the interest to which one is aligned. The stronger state, therefore, is just that, a stronger defender. From the intellectual laziness of our academics, to the nearly unadulterated parochialism of our regulatory and legislative interests, to our clan-based politics, the ills of our society are traceable to the historically conditioned inability of Irish society to accept the basic tenet of liberty. We have never learnt that any vested interest, no matter how small, must be treated at a political level as a monopoly-seeking cartel. This, of course, coupled with the recognition that the state itself is a collection of those vested interests, means that the pursuit of liberty for all, requires a coherent limit on the State. The power and financial privileges that have accrued to nearly all of us, as vested interests, have prevented us seeing that.


Anonymous said...

Thanks Constantin, this was an excellent piece and a stimulating read.

John said...

>> the state is subjugated to the interests of the permanent civil service, and the political realm is dominated by the cartel of vested interest groups...

That succinct indictment of our captured public policy "ecosystem" (I couldn't resist) says it all really.

Keep up the good work Constantin -- I'm an avid reader.

Anonymous said...

People like Rothbard and Hoppe argue that limited government, as advocated here, is impossible, for the task of limiting government is entrusted to itself. Hence the inexorable growth of State power we have seen since the rise of 20th century total governments. An article by Hoppe:

TrueEconomics said...

@Anonymous - what Rothbard and Hoppe say is an even stronger indictment of the monopoly power of the state. And the more important are the 'revolutionary' cuts on state remit and power that Regan and Thatcher did. Remember - the core idea of Enlightenment is not that anarchy and gain in political/bureaucratic entropy are the end states of the game of pursuing liberty. No - the core idea is that pursuit of liberty leads to episodic corrections of the state power and to the ongoing process of checks and balances. The longer these episodic corrections are delayed, the more disruptive is the adjustment path to restoring checks and balances. What we are experiencing right now is the case in point - after 20-25 years of the state regaining power (both via Left and Right expansionism), the corrective process is awesome in its destructive strength. God is free marketeer, one might quip, and his wrath is what we are seeing right now unfold. The sad part is that the naive and ideological statists (again - both from the Left and from the Right) are still operating under the illusions that State intervention can undo or prevent this damage. Both - the monetarist and fiscal/Keynesian interventions are futile attempts to ignore the inevitable.

Anonymous said...

Thanks for this amazing article Constantin.Have you the percentage that governments control in other states so that we can compare the degree of state control elsewhere.
It is horrific what has been forced on us as a nation since our "revolution".There was a very interesting film made in 1969 titled "what happened your revolution" about the Irish situation.Conor Cruise O Brien was prominent in it.
When Jean Kennedy Smith was leaving here in the 1990s as US ambassador one comment she made was that we the Irish don't do outrage.
Is this part of the reason that we are so good at accepting propoganda?

We will fight on the beaches.... said...

Your right Constantin, put very simply; our little State cannot support itself at the rate its going. That's as plain as the nose on your face. The 'corrective process' is going to be 'all hell breaking loose'. And thats just the economics. What about the real shortages to come. Oil?

paul quigley said...

Your post is long and complex. The following thoughts are for your consideration. I encourage you to consider them, so that you can begin to play a more effective part in resolving the problems of your adopted (at least for the moment) country.

We have a long memory in Ireland. Our Cromwellian experience was not about renewal of elites. He may have represented political progress in England, but we remember his campaign of extermination against us. We missed out on Thatcher’s destruction of industrial Britain, but what we remember is the dead bodies which piled up in Belfast during her bigoted and divisive regime. While your concern for the failings of the Irish state is widely shared, the founding of that state, and the bloody resolution of its relations with Britain and Northern Ireland, have not been achieved without great effort and sacrifice. Of course some people abuse the goodwill of others, but giving to others is central to any decent or viable community.

As an economist, you must recognise that it is important to compare like with like. The American revolution was a political movement by colonialists against their mother country. The native population were not given the status of ‘citizen’, so they were mostly displaced and exterminated. Our independence movement was, like so many others outside Europe, a movement of the native population against the colonial regime. We may have been assimilated in may respects, but we were not exterminated.

Our institutions were inherited from the British and we have operated them in our own ways. Given the armed refusal of the Ulster colonists to enter, it is natural, although unfortunate, that our new state should have become rather inward looking. We have been influenced, as you say, by our traditional clan structures, but also by the paternalistic and secretive ethos of the Catholic Church. It is notable that the struggle for the emancipation of the school system from religious control is not yet over here. I suggest that this has a retarding effect on entrepreneurship and creative thinking more generally.

As the British had suppressed native Irish crafts and industry through the Act of Union, our evolving elites grew from landownership, small trade and the liberal professions. Entry into the service of the state became an important route of clan advancement, so the state was naturally shaped to serve the interest of powerful families. The legal system here is a case in point. In the absence of an industrial working class, Trade Unions also had to build their countervailing power base more and more within the public sector.

Our economy has always been marginal and peripheral in British or European terms. The opening up to EU funding and foreign offered the prospect of an escape from repeated cycles of unemployment and emigration. It was in the interests of the leading, middle and lower groups to expand the functions state in an elastic manner. There was ‘something for everyone in the audience’ from lucrative state contracts, to secure jobs, all the way to social welfare arrangements.

It’s obvious now that the pot of gold is running low, and that many of the suggested remedies are rather ‘academic’. We need ideas, but with respect, your concept of liberty is not well adapted to the Irish environment. We are witnessing the sad consequences of the policies implemented by Alan Greeenspan, an enthusiastic disciple of Ayn Rand. The myth of the ‘free individual’ has served to justify the growth of a thoroughly irresponsible financial service industry, which concentrated power beyond any democratic control. As long as there are no meaningful checks and balances on the likes of Goldman Sachs, the citizens will remain sceptical of ‘neoliberalism’.