Infographic from Ty Morteson. Image Source.
One might add "Governments consistently bails out corporate interests with tax-payer money" to the center of the diagram.

Several months ago I published a post that describes how the extreme partisanship emanating from Washington is a really just a surface veneer that covers a plutocratic consensus lying beneath. [1] Ashwin Parameswaran, blogging at Macroeconomic Resilience, concurs. He has written a wonderful post on the topic that dissects the nature of the establishment consensus and suggests an alternative political program. Here is his description of the problem: 
Pragmatic Centrism Is Crony Capitalism 
Neoliberal crony capitalism is driven by a grand coalition between the pragmatic centre-left and the pragmatic centre-right. Crony capitalist policies are always justified as the pragmatic solution. The range of policy options is narrowed down to a pragmatic compromise that maximises the rent that can be extracted by special interests. Instead of the government providing essential services such as healthcare and law and order, we get oligopolistic private healthcare and privatised prisons. Instead of a vibrant and competitive private sector with free entry and exit of firms we get heavily regulated and licensed industries, too-big-to-fail banks and corporate bailouts. 
There’s no better example of this dynamic than the replacement of the public option in Obamacare by a ‘private option’. As Glenn Greenwald argues, “whatever one’s views on Obamacare were and are: the bill’s mandate that everyone purchase the products of the private health insurance industry, unaccompanied by any public alternative, was a huge gift to that industry.” Public support is garnered by presenting the private option as the pragmatic choice, the compromise option, the only option. To middle class families who fear losing their healthcare protection due to unemployment, the choice is framed as either the private option or nothing..... 
Nothing illustrates the irrelevance of democratic politics in the neo-liberal era more than the sight of a supposedly free-market right-wing government attempting to reinvent Fannie Mae/Freddie Mac in Britain. On the other side of the pond, we have a supposedly left-wing government which funnels increasing amounts of taxpayer money to crony capitalists in the name of public-private partnerships. Politics today is just internecine warfare between the various segments of the rentier class. 
The Core Strategy of Pragmatic Crony Capitalism: Increase The Scope and Reduce the Scale of Government 
Most critics of neoliberalism on the left point to the dramatic reduction in the scale of government activities since the 80s – the privatisation of state-run enterprises, the increased dependence upon private contractors for delivering public services etc. Most right-wing critics lament the increasing regulatory burden faced by businesses and individuals and the preferential treatment and bailouts doled out to the politically well-connected. Neither the left nor the right is wrong. But both of them only see one side of what is the core strategy of neoliberal crony capitalism – increase the scope and reduce the scale of government intervention. Where the government was the sole operator, such as prisons and healthcare, “pragmatic” privatisation leaves us with a mix of heavily regulated oligopolies and risk-free private contracting relationships. On the other hand, where the private sector was allowed to operate without much oversight the “pragmatic” reform involves the subordination of free enterprise to a “sensible” regulatory regime and public-private partnerships to direct capital to social causes. In other words, expand the scope of government to permeate as many economic activities as possible and contract the scale of government within its core activities. 
Some of the worst manifestations of crony capitalism can be traced to this perverse pragmatism. The increased scope and reduced scale are the main reasons for the cosy revolving door between incumbent crony capitalists and the government. The left predictably blames it all on the market, the right blames government corruption, while the revolving door of “pragmatic” politicians and crony capitalists rob us blind.
There are two groups who consistently oppose this plutocratic "pragmatic" consensus: the far left and the far right. These two groups, seemingly divided, are united by their "radical" opposition to many otherwise unquestioned aspects of America's standing political regime. To name but a few:

  • The belief that the United States federal government should play a strong role in holding up the U.S. economy - particularly sectors deemed "Too Big To Fail." 
  • Strong support for subsidies or other forms of 'corporate welfare' for influential or strategic industries ("The Farm Lobby," "Big Pharma," and the energy sector - both the "Big Oil" and green energy varieties - are prominent examples).
  • commitment to America's global hegemony and globalization writ large. The chosen instruments for this are transnational economic agreements, financial interventions (as pioneered by the IMF), or offers of substantial military assistance. 
  • The use of drone strikes, special forces and other 'limited war' operations as the most effective response to international terrorist movements.
  • A disdain for the rule of law and governmental transparency. 
  • Prioritizing national security over privacy and individual rights.
  • Eclipse of the legislative branch in favor of an increasingly large, complex, and powerful executive. Outsourcing legislative policy making to congressional, think tank, or industry wonks.  

Tea-party and Occupy members are opposed to most, if not all, of these things. However, identfying the real problem does not ensure the two sides will agree on solutions. What party program could unify the two sides? Mr. Parameswaran outlines one possible solution. He labels it "radical centrism:"
Radical Centrism: Increase The Scale and Reduce The Scope of Government 
The essence of a radical centrist approach is government provision of essential goods and services and a minimal-intervention, free enterprise environment for everything else. In most countries, this requires both a dramatic increase in the scale of government activities within its core domain as well as a dramatic reduction in the scope of government activities outside it. In criticising the shambolic privatisation of National Rail in the United Kingdom, Christian Wolmar argued that: “once you have government involvement, you might as well have government ownership”. This is an understatement. The essence of radical centrism is: ‘once you have government involvement, you must have government ownership’. Moving from publicly run systems “towards” free-enterprise systems or vice versa is never a good idea. The road between the public sector and the private sector is the zone of crony capitalist public-private partnerships. We need a narrowly defined ‘pure public option’ rather than the pragmatic crony capitalist ‘private option.’

Barbell Approach: Conservative Core, Aggressive Periphery
 
Radical centrism follows what Nassim Taleb has called the ‘barbell approach’. Taleb also provides us with an excellent example of such a policy in his book ‘Antifragile’, “hedge funds need to be unregulated and banks nationalized.” The idea here is that you bring the essential utility-like component of banking into the public domain and leave the rest alone. It is critical that the common man must not be compelled to use oligopolistic rent-fuelled services for his essential needs. In the modern world, the ability to hold money and transact is an essential service. It is also critical that there is only a public option, not a public imperative. The private sector must be allowed to compete against the public option.
The idea of radical centrism is not just driven by vague ideas of social justice or increased competition. It is driven by ideas and concepts that lie at the heart of complex system resilience. All complex adaptive systems that successfully balance the need to maintain robustness while at the same time generating novelty and innovation utilise a similar approach.... [2] (Emphasis in original)
I advise my readers to read the whole thing

This is exactly the kind of conversations we need to have - many have picked holes in the current mess. Fewer have presented potential solutions. Allow me to add a few of my thoughts to the discussion. 

I approach this topic from an unabashedly insular, American perspective.  Mr. Parameswaran's vision is broader, but I will not to attempt to tidy another's house until my own is clean. 

Writing in the March 2013 issue of American Interest, Morris Fiorina presents evidence that the Republican and Democratic parties poorly reflect the actual opinions of self identified Republicans and Democrats. After reviewing recent pulling data Barry Rihotlz concluded that almost 90% of Americans favor breaking up Wall Street's twelve largest banks. [3] Americans are ripe for change and the "radical right" and "radical left" are the most probable agents of change the American political system offers. However, invoking "complex system resilience" (however persuasive it may be to intellectuals like me) will never have an appeal broad enough to found a viable political movement, much less one that must unite the radical left and radical right. The American Republic was founded in pursuit of an ideal. Her people are still idealistic; they demand that their politicians at least give lip service to "vague ideas" and values. If Radical Centrism is to succeed it be seen as and truly be a fight over more than systems theory.

The late Christopher Lasch's  essay, "Populism or Communitarianism?," might be a good starting point. [3] Mr. Lasch wrote his essay two decades ago. His ringing condemnations of both the market and the state proved prescient. The Third Way championed by Lasch is 'Populism," its goal the empowerment of the common man. This is not defined as equal access to the globe-spanning meritocracy of the ruling class, but the destruction of privileged meritocracy  altogether. Economic and political independence are the central measures of individual empowerment; the enemy is not the government or the market, but concentrated power. Pulling down power and distributing it across the populace is the goal. Equality, independence, and opportunity are the ideals worth fighting for. 

Any political program that seeks to empower America's apathetic citizenry must start with decentralization. This would not be easy. For the last century America's political institutions have become increasingly centralized. Townships have been eclipsed by states, states by the central government. Population growth and urbanization has further increased the distance between power brokers and the average citizen. Even the ratio of citizen to school board members has decreased significantly. [5]

Ending this state of affairs is about more than increasing individual political power. It is a central piece in any resilient "Radical Center" policy program. Parameswaran suggests that a radical centrist should increase the scale of the government while reducing its scope, i.e. reducing government involvement in the economy across the board, but fully nationalizing the industries in which the government remains. I am willing to accept this sort nationalization scheme if it means the destruction of crony capitalism. However, I suspect that few members of the radical right will be willing to accept this solution if the typical problems with government services are not accounted for: the inefficiency and lack of innovation that marks so many government organizations. 

Government employees are not intrinsically less motivated, efficient, or innovative.   There is no magic aura that makes organizations incompitent or unimaginative the minute their pay roll is placed on the public budget. The real problem is not that government monopolies have no incentives to innovate or provide first rate services, but that there are no consequences for failing to do so. In truly competitive systems (like markets) organizations that do not provide useful services have a limited shelf life. People use, contribute, or pay the organizations that meet their needs. When organizations fail to meet these needs they lose this support. [6]

The sin of crony capitalism (and the pragmatic politics that support it) is that it allows institutions that meet no one's needs to survive without fear of destruction - and make a killing while doing so. Simply getting rid of profit only partially solves the problem. If state run enterprises and organizations do not face competition they will produce little value.  

But how do we ensure that government institutions operate in an environment of competition? This is where decentralization has an important role to play. Decentralization allows multiple political structures to do the same thing and to try different methods at the same time. Such a diffuse political economy would not just give every day citizens a larger voice in determining affairs - it would allow them to "vote with their feet" and leave behind institutions that were not meeting their needs. Moreover, a decentralized political system is more difficult for a few vested interests to capture and turn to their own ends. It should be a goal of any radical centrist's political program.   



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[1] T. Greer. "Ominous Parallels: What Antebellum America Can Teach Us About Our Modern Political Regime." The Scholar's Stage. 26 February 2013.

The post includes links to many other essays devoted to the same topic.


[2] Ashwin Parameswaran. "Radical Centrism: Uniting the Radical Right and the Radical Left." Macroeconomic Resilience. 8 April 2013.

[3] Morris Fiorina. "America's Missing Moderates" American Interest. March/April 2013; Barry Rihotlz. "Only a Tiny Percentage of Americans Opposed to Breaking Up The Big Banks." The Big Picture. 5 April 2013. 

[4] Christopher Lasch. "Populism or Communitarianism? The Ethic of Compassion and the Ethic of Respect" in Revolt of the Elites. (New York: Norton Publishing). 1995. p. 92-117.

[5] Kathryn Rooney and John Augenblick. An Exploration of District Consolidation. (Denver: Augenblick, Palaich, and Associates). 2009. p. 4-5

[6] For a fuller explanation of this point, see "Institutions, Instruments, and the Innovator's Dilemma." The Scholar's Stage. 1 March 2013 

This entry was posted on 10 April, 2013 at 10:06 PM and is filed under , , , , , , . You can follow any responses to this entry through the comments feed .

4 comments

Few Points:

-Great book by Luigi Zingales called "A Capitalism for the People" which proposes that money is what destroys Washington by creating crony capitalism. Campaign Finance Reform is the only way to go.

http://www.amazon.com/Capitalism-People-Recapturing-American-Prosperity/dp/0465029477

-I consider myself on the left, but I would not advocate nationalizations. You covered the arguments against it pretty well.

-James Robinson from Harvard has a very good book on institutions that deserves a read as well called "Why Nations Fail". He proposes that in some societies wealth is made from extractive means there is poverty because of a lack of innovation. In society where market innovation is the key to wealth, the societies are better off. Political institutions are key, and he goes into the history of the development of those institutions in his book.

April 12, 2013 at 12:34 AM

Interesting. The Amazon.com review pages has a starred review from the National Review. on Zingales' book, which notes "“Zingales offers more than rehashed Friedman or Hayek. It’s a book that should appeal to tea partyers and the Occupy Wall Street crowd."

Everybody but the anarchists advocates nationalization. It is just a matter of scope and scale. Few argue (Blackwater withstanding) that we should privatize our military. Parameswaran's broader point is that if the government should be involved in an industry, then it really should be involved in it instead of contracting out its work to whoever pays politicians the most. Get out of most industries, but stop outsourcing public funds in private hands. (One would not have to privatize an entire industry to do this - take schools. Running along the public school system are a host of private competitors. Notably, the schools do not give their support to whatever private school gets the most votes, nor do they bail out private schools that are having trouble staying afloat.)

April 12, 2013 at 6:44 AM

Also, another thought - sometimes America's recent economic history is described entirely in reference to the government. This is flawed. As we should expect in even a nominally a free market system, some of the most important things happen outside the scope of government entirely. So many explanations have been penned to explain why there is increasing inequality, why corporations keep downsizing, and why there is little job insecurity, etc., often in reference to regulation, deregulation, crony capitalism and the like. One of the most important variables in all of this - the rise of shareholder value as the main end of business strategy - is ignored or never considered.

I on't imagine one can stress enough how destructive the share-holder value ideology that arose in the 1980s has been to the American economy and indeed to most American corporations themselves. By turning corporations into a commodity, power was taken out of the hands of the consumers and placed into the hands of the traders. The financialization of the U.S. economy has done just as much to run it into the ground just as much as its cronyism.

This article in Forbes does a good job of describing the problem. (I will probably devote a post to the issue at a later time):

"The Dumbest Idea in the World: Maximizing Shareholder Value"
Steve Denning. Forbes 28 November 2013.

April 12, 2013 at 7:28 AM
Bozhidar Hristov  

Mike Konczal has a similar view to this, calling on both the left and right to find their similarities in order to build an anti-rentier agenda.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/30/ow-an-anti-rentier-agenda-might-bring-liberals-conservatives-together/

June 16, 2013 at 10:24 AM

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