3.3 Why the State Grew Gigantic
3.3.3 Dysplasias of the Patronising State
Since Downs (1957) presented his economic analysis of democracy, it has been a widely accepted view that the decisions and actions of politicians are driven largely by their private interests. This explanation led to the identification of two major forces that contributed significantly to the expansion of the state in the post-war period. These are the self-interest of politicians and the propensity for rent-seeking by organised minorities.23Below we look briefly into their consequences.
3.3.3.1 The Self-Interest of Politicians
Section 2.2 of the previous chapter explained how the relationship of representation leads politicians and citizens to ignore their allegiance to society and seek to satisfy
21It is worth noting that up to 1929, public expenditures as a percentage of GDP in the USA never exceeded 12 % and that in 1928, they were only 3 % (Friedman and Friedman 1980, 58).
22Although after the war and until the early 1970s rapid economic growth had alleviated the crises of unemployment and increased markedly per capita incomes, these results could be attributed to endogenous economic growth mechanisms, such as entrepreneurship and technological progress, rather than Keynesian policies. Also, Hicks (1974, 3) notes that these results did not come about from the pressures of socialists to increase public spending.
23The review paper by Roniger (2004) leaves no doubt that, even in the so-called advanced democracies, patronage among organised minorities and politicians is quite strong and that it gives rise to many detrimental effects to general welfare.
their personal interests. Citizens have limited ability to accumulate wealth com- pared with politicians, many of whom become obsessed with the so-called syn- drome of leadership.24Once autonomous from the control of citizens, politicians may expand their power through public spending and more generally through the expansion of the state’s activities into the economy.
The question remains how the self-interest of politicians was controlled prior to 1929, namely, during the long period of classical democracy when the state was small? One explanation may be that the values and the living conditions that prevailed in the societies under consideration obliged politicians to remain more committed to pursuing the public interest. Another may be that after the Second World War, re-election campaigns became expensive, and this made politicians prone to using the power of the state to help themselves by giving in to the demands of various private interests. Finally, a third explanation is that, with the shifting of government policies towards statism, various small groups of citizens became aware of the opportunities to organise and, by using their money and political clout, they managed to extract various benefits from the state at the expense of the tax-paying citizens. Thus, rent-seeking took roots and flourished as a significant dysplasia of contemporary democracy.
3.3.3.2 Rent-Seeking
Rent-seeking may be pursued by all sorts of citizen groups. The objective of those who do so is to use various means to convince governments to grant them services at favorable or no cost. This does not imply that the citizens who benefit give nothing in return. What they give is received by politicians and the political parties rather that the state. As such, providers and recipients benefit at the expense of the general public, who often bears the cost of the illicit privileges exchanged in the process of rent-seeking. A typical example is the imposition of, say, tariffs to protect certain businesses or whole sectors of the economy from foreign competi- tion. In particular, instead of investing to improve the productivity, and hence the competitiveness, of their businesses, entrepreneurs often manage, through lobbying and other pressure means, to induce governments to impose duties on competitive goods imported from abroad. As a rule, the results are that (a) the domestic prices of the protected goods are maintained at higher levels than their prices abroad, thus harming the consumers and (b) the protected businesses do not develop the neces- sary competitive advantages and to a large extent, they endure losses and eventually close down. Thus, if we recall from the first chapter that rent-seeking was already present in ancient Athens, then we may conclude that this dysplasia is inherent in
24An interpretation of this syndrome is given by Froelich et al. (1971). According to them, its source is the pursuit by some people to become leaders in society because of the “leadership surplus” they may enjoy, which is not necessarily material (i.e. income) but may be psychological, as the fulfilment of ambition and vanity.
democracy and the only issue that needs explanation is why it may have been limited before 1929 but flourished afterwards, contributing significantly to the expansion of the state.
According to Olson (1965), rent-seeking activities are most successful when pursued either by small and tightly organised groups of citizens, whose size allows them to pass unnoticed by the general public, or by groups with clearly defined objectives and recipients of the benefits (e.g. workers in a particular business or sector of economic activity). Less successful are large groups which give rise to a noticeable “free rider’s problem” and groups that aim at a wide diffusion of the expected benefits (e.g. all workers). In light of this analysis and the technological changes in the transportation and communication industries that occurred after 1929, organised lobbying of the government and politicians for rent-seeking purposes was embraced by small local and regional groups. With little extra cost, insignificant population groups could elicit important benefits from the government at the expense of the general public, causing the phenomenon to flare up in the post- war period.
To what extent the expansion of the state in representative democracies is due to the self-interest of politicians and political parties cannot be determined. Most likely, there is a reciprocal relationship between various organised minorities who press for the satisfaction of their demands and the self-interest of politicians which induces them to give in at the expense of taxpayers. This explains why a better mechanism of representation needs devising, one that will influence the incentives of politicians to give higher priority to the interests of the general public rather than to that of their constituents.
3.3.3.3 Manipulation of and Acquiescence by Citizens
After the Second World War, politicians realised that by amassing large amounts of resources under their control, they could improve their chances of re-election, while at the same time satisfying their megalomania. In the army, it is said that the value of a commander depends on the number of the soldiers he commands. In an analogous way, in politics, one acquires power and glory depending on how many people or assets he handles. Of course, the state could not have expanded to the degree it has, if large numbers of citizens were not persuaded that a large state offered a brighter future for themselves and their children. Citizens were seduced and bought into this vision through factors and mechanisms like the following.
3.3.3.4 Propaganda
In Western style democracies, proponents of social democracy in the universities and media succeeded initially to instil doubt and confusion in the minds of citizens
regarding the virtues of democracy with a free market economy and a small state.25 They managed this feat by hiding or distorting the results wherever, whenever and however the free market model of governance was adopted over the course of the centuries. They convinced citizens that their individual freedoms, opportunities, hopes and aspirations should be subordinated to those of the totality, that is, the state, whose rights trumps those of the individual. In this way, terms with vague meaning, such as social rights, social partners, social market economy and social justice, passed into everyday language and were accepted as doubtless entities.
Proponents of social democracy hid behind the ideas and proposals of Keynes. They played up the rosy visions of democratic socialism, exaggerating about the useful- ness of the indicative planning of the economy, thus gaining widespread tolerance of the masses to policies that favoured the expansion of the state.
Social democracy succeeded by hiding the truth about the situation in the communist countries. Namely, that walls and borders had been built, not to repel the enemy, like thousands of years people did, but to cage their own friends, relatives and compatriots. All of them knew about the gulags and labour camps.
Instead of speaking the truth about these issues, the focus was placed on the achievements of the Union of Soviet Socialist Republics on the basis of statistics that had been largely cooked up by state agencies. How was it possible for citizens in the West to withstand the temptation of the sermons by social democrats, who even in the early 1980s claimed that in many of these countries, particularly in Russia, GDP growth and desirable social characteristics (e.g. meritocracy and full employment) trumped those in Western countries? How was it possible not to succumb to the allure of the allegations that economic mechanisms, such as entrepreneurship, capital accumulation and the development and diffusion of tech- nology, could be replaced beneficially for society by central planning?26If these claims were true, a wave of migration from the West to the East would have occurred. Instead, there were numerous escapes in the opposite direction.
3.3.3.5 Incomplete Information
In addition to the deliberate spreading of misinformation through propaganda, in representative democracy, there is the inherent problem of incomplete information to citizens. Governments manipulate the media to advertise their successes, while concealing their failures. Citizens who are not interested in public affairs or history often dispense with critical thinking and believe that whatever governments do, they do well. As a result, citizens become tolerant and acquiesce to even the most flagrant restrictions of their personal freedoms, including voluntary transactions in the realm of the economy.
25This point has been made by Brittan (1973a, b) on the basis of evidence derived from a questionnaire sent to specialists, civil servants, students and ordinary people.
26Such claims were made, for example, by Wilczynski (1970, 53, 80–1, 161 212–6 and 1973).
This weakness of representative democracy was discussed by Schumpeter (1942, 348–9) who cited two consequences: the brainwashing to which professional politicians subject the voters and the lack of sufficient knowledge and competence to govern since the only skills of politicians may be confined to the ones necessary for getting re-elected. Schumpeter believed that these shortcomings could be ameliorated, if voters cared to elect competent and ethical politicians. As argued by Karayiannis (1995) and Drakopoulos and Karayiannis (1999), there is no mechanism to guarantee this result. Education may be effective because it can develop what Schumpeter (1942, 355) called “democratic self-control”. However, there is no incentive for politicians to pursue it. It is to their benefit rather that voters remain without sharp judgement for assessing their performance and turn into spineless and dumb followers. This explains why Pincione and Teson (2006) argue that in order to reduce errors in democracy, the state should abstain from heavy public-policy interventions and instead strengthen the role of markets.
3.3.3.6 Systematic Policies of Ambiguity
Ambiguity is generated when an immoral act is justified in such a way so as to be perceived by people as nearly moral. By blurring the distinctions between moral and immoral behaviour, moral principles are neglected. The policies pursued in contemporary democracies offer many instances where ambiguity is purposely employed by governments to achieve their objectives. An example of this can be seen in the apathy of the Greeks, in the face of far-reaching constitutional encroachments by recent governments, in stark contrast to their sensitivity regard- ing the cuts in pensions, the rise in the minimum retirement age, the opening of closed professions and the curbing of corruption. Their judgement has become so blurred that they cannot distinguish the moral from the immoral. This has allowed successive governments to expand the size of the state at the expense of property rights and, therefore, of individual liberties.
Generating ambiguity has facilitated the continued expansion of the state in the post-war period and has been consistently used by all political parties when elected to govern. Returning, once again, to the example of Greece, the government in 2009 submitted legislation to the parliament for the permanent closing of tax returns that had not been audited during several previous years. The Minister of Finance in 2010, who in 2009 was the speaker for the opposition, denounced the bill as immoral because it pardoned tax dodgers and enhanced corruption. A year later, the speaker who was now the Minister of Finance submitted similar legislation to parliament with far more lenient terms for tax dodgers, arguing that his objective was the salvation of the country from bankruptcy. Presumably, this made his proposed legislation less immoral. Incidents, such as the one described, make it difficult for citizens to distinguish whether or not a decision is ethical. Eventually, they will give up trying to make sense of government actions. This is exactly the governments’ intent: to blur citizens’ moral criteria and insulate themselves from accountability to citizens. The state may then expand its size at will, without
interference. Ambiguity may, very well, be an underlying factor in the flourishing of political parties in contemporary democracies.