2. Looking back on his career as a statesman, Guizot (in the 1855 Preface to his re-edited Histoire de la Civilisation en Europe) sees his role in government as an attempt to render the struggle between authority and liberty "avowed," "overt," "public," "contained" and "regulated in an arena of law." In retrospect, he feels that this might have been wishful thinking.
3. An outrageous yet masterly historian of the eighteenth-century French absolute monarchy describes royal power as "all-powerful in the spaces left by the liberties" of the estates and corporations (Pierre Gaxotte, Apogée et chute de la royautée, 1973, vol. IV, p. 78). These spaces—often mere interstices—seem analogous to the space allowed the state by constitutional bounds. The pre-revolutionary privileges and immunities in most of Europe west of Russia, and post-revolutionary constitutional guarantees, both limited the prerogatives of the state. However, the former were upheld by, and shifted backwards or forwards with, the balance of forces in society between state, the nobility, the clergy, the commercial interest, etc. The latter were "fixed," and it is not at all clear what forces upheld them at any one time.
5. In response to opposition claims that the bill was unconstitutional, André Laignel, socialist deputy of the Indre, gave the reply which has since become celebrated, and might be preserved in future political science textbooks: "You are wrong in [constitutional] law because you are politically in the minority." Events proved him right.
6. The latter need not be the case. In the winter of 1973-4, the British coal miners proved to have enough clout to break Edward Heath's government; yet with respect to the inequalities which would be liable to figure in a redistributive offer, they would clearly count as have-nots.
8. If there were no such effects, taxable capacity would be equal to income, i.e. the very concept would be perfectly redundant. People could be taxed at 100 per cent of their income, for doing so would not adversely affect either their ability or their willingness to go on earning it.
9. With the same rules and the same players, Robert Nozick, in Anarchy, State and Utopia, 1974, pp. 274-5) reaches the contrary conclusion; he sees the rich party as the sure winner. Nozick's argument is that "a voting coalition from the bottom won't form because it will be less expensive to the top group to buy off the swing middle group than to let it form"; "the top 49 per cent can always save by offering the middle 2 per cent slightly more than the bottom group would." "The top group will be able always to buy the support of the swing middle 2 per cent to combat measures which would more seriously violate its rights."
I cannot find the reason why this should be the case. An identical pay-off is potentially available to either the top or the bottom coalition. It is what the bottom coalition gets, or the top coalition keeps, if it succeeds in forming. (In my example, the pay-off is 10). Rather than become the minority, both the top 49 per cent and the bottom 49 per cent would gain by offering some of the pay-off to the middle 2 per cent to make it join a coalition. The middle group would agree to the higher offer. The potential maximum offer is, of course, the entire pay-off (10 for both parties). But if either half did offer to give the whole pay-off to the middle for the sake of becoming part of the majority coalition, it would end up no better off than by resigning to become the minority. The game would not be worth the candle. The highest offer to the middle which it would be rational for either the top or the bottom half to make, therefore, would be the whole pay-off less the sum needed to make it just worth either half's while to coalesce with the middle rather than passively accept defeat.
This sum may be, for all we know, large or small (in my example, I used 1). Whatever it is, if it is the same for both halves of society, the top and the bottom coalitions are equiprobable and the result is indeterminate. For the contrary conclusion to hold, the poor must require a greater inducement to coalesce with the middle than do the rich. There seems to be no particular reason for supposing that this is more likely to be the case than not—at least, I cannot see one.
Let us note, before passing on, that in Nozick's scheme the top group and the bottom group would have to take the trouble of negotiating a coalition with the middle. In our scheme, the state and its opposition relieve them of this trouble by each presenting a ready-made deal, an electoral platform which they can simply vote for or against.
13. Herbert Marcuse may be credited with reviving a somewhat elliptical version of the old-time belief in redistribution degrading the beneficiary's character. He saw the individual injuring himself in acquiescing in his own dependence on the welfare state. (An Essay on Liberation, 1969, p. 4.)
14. The OECD reported in 1983 that over the period 1960-81, public expenditure on health, education, old-age pensions and unemployment benefits rose from an average of 14 per cent to 24 per cent of GNP in its seven largest member countries. This rise was not primarily due to greater unemployment, nor to demographic bad luck (the effect of the latter is still mostly in the future). The OECD states that "populations which have become increasingly dependent on the welfare state will continue to expect support" and in order for continuing support to absorb no more than the actual proportion of GNP, i.e. for its relative weight to be stabilized, some quite ambitious assumptions about the future growth of the cost of existing entitlements and of the economy would have to hold true. The OECD refrains from pronouncing on the likelihood of actual performance measuring up to these assumptions.
15. There is, in all circumstances, a general reason for regarding social choice as a fictitious concept, namely that while majorities, leaders, caucuses, governments etc. can make choices for society (except in unanimous plebiscites about simple proximate alternatives), choices cannot be made by society. No operative meaning can be credited to such statements as "society has chosen a certain allocation of resources." There is no method for ascertaining whether "society" preferred the allocation in question, and no mechanism by which it could have chosen what it supposedly preferred. It is always possible to agree to some question-begging convention whereby certain actual choices made for society shall be called "social choices," for instance if they are reached by the mechanism of a state mandated by majority vote. The convention will create a fictitious concept, whose use cannot fail to bias further discourse.
There may, in addition, be other reasons for objecting to the concept in particular circumstances. If a certain pattern of redistribution is addictive like drug-taking, it is a euphemism to say that society "chooses" to maintain or accentuate that pattern. At bottom, this is the general problem of today's wants substantially depending on their satisfaction yesterday and through all previous history (cf. also pp. 20-1). We should, however, recall that addiction is not the only conceivable relation between what we get and what we want. There is a range of possibilities between the extremes of addiction and allergy. The proper field of choice theories is the middle region of the range. But even in the middle, it is not "society" that chooses.
16. I am choosing the example of the bus because it makes the free-rider problem more palpable, and not because I believe that buses can only be provided cooperatively. A universe where all buses are run by private operators for a profit is conceivable. A universe where this is true of streets may not be conceivable.
17. This thesis is put in Mancur Olson, The Logic of Collective Action, 1965, p. 36. Cf. also the same author's The Rise and Decline of Nations, 1982, for the argument that "encompassing organizations," e.g. the association of all labour unions, all manufacturers or all shopkeepers in a corporative state, "own so much of the society that they have an important incentive to be actively concerned in how productive it is" (p. 48), i.e. to behave responsibly. The encompassing organization is to society as a person is to a small group.
19. It is perhaps tempting, in this light, to regard interest groups as miniature states and the theory of the state as a case in some general theory of interest groups. If we did this, the traditional dividing line in political theory between state of nature and civil society would get washed away. There are major objections to such an approach. (1) The state has a unique attribute—sovereignty. (2) The approach is question-begging. It treats as axiomatic that for the potential members of the "group" (i.e. all members of society), "group reward" exceeds "group burden," i.e. there is a pay-off from tackling the free-rider problem. But how does the pay-off manifest itself? It is usually accepted that the pay-off from forming a trade union is higher wages or shorter hours, and the pay-off from forming a cartel is excess profits. The pay-off from the social contract is the realization of the general will, obviously a different category of pay-off; even its algebraic sign depends entirely on the values of the interpreter of the general will—the Sympathetic Observer of the "social welfare function." (3) The theory of interest group formation may have room for the state which only imposes cooperative solutions that make some better off and none worse off. It has not enough room for the state that imposes solutions that make some better and others worse off, i.e. that is a group redistributing benefits within itself. Nor is it suited to accommodate the state that has its own maximand, pursues its own ends in opposition to its subjects.
The very enumeration of what could or could not be adequately handled by assimilating the state to interest groups with coercive features shows what a strait-jacket the contractarian approach is for the theory of the state.
20. For the fundamental difference between "groups" (including political communities) where people can "vote with their feet" and others where they cannot, see Albert Hirschman, Exit, Voice and Loyalty, 1970.
22. Like the American senator, referring to the deliberations of the Senate Finance Committee: "A billion here, a billion there and before long you are talking real money." My source is hearsay, but "se non e vero, e ben trovato."
23. Cf. W. Wallace, "The Pressure Group Phenomenon," in Brian Frost (ed.), The Tactics of Pressure, 1975, pp. 93-4. Wallace also makes the point that causes feed on the mass media and the mass media feed on causes, from which it may be possible to infer further that some kind of cumulative process might get going even in the absence of the state. Would, however, people in the state of nature watch so much television? That is, isn't the habit of prolonged television-watching a product, in part, of people being less interested in doing state-of-nature things, either because it is no fun any more or because the state is doing them instead?
25. Madame de Pompadour would spend all her income on Sèvres china, and the rest of the people all their income on salt if the salt tax was set high enough to leave them no money for anything else. Note that since the demand for salt does not vary with its price, taxing it (rather than articles in more elastic demand) should not cause much distortion! Nevertheless, as all the national income is spent on salt and china, we may judge that it would be reduced by the salt tax.
26. It is anyway difficult to think of a pure public good which could not at all be produced in the state of nature, though it is arguable that goods with a high degree of "publicness" would be produced on a "sub-optimal" scale. However, the very notion of an optimal scale is more fragile than it looks, if only because tastes for public goods may well depend on how they are produced, e.g. politics may breed a taste for political solutions, and make people forget how to solve their problems by cooperating spontaneously.
29. Contrast the position taken by Nozick, Anarchy, State and Utopia, p. 27: "We might elliptically call an arrangement 'redistributive' if its major... supporting reasons are themselves redistributive.... Whether we say an institution that takes money from some and gives it to others is redistributive depends upon why we think it does so." This view would not recognize unintentional, incidental, perverse redistributions, and may or may not regard our "direct churning" as redistribution. Its interest is not in whether certain arrangements do redistribute resources, but in whether they were meant to.
The distinction may be interesting for some purposes. It recalls the one the courts make between premeditated murder and manslaughter, a distinction which is more significant to the accused than to the victim.
30. The calculus seems to work out the other way round in states, notably in Africa, where the rural population is physically too cut off from politics and it is best to sacrifice agricultural interests to the urban proletariat, the state employees, the soldiers, etc. by a policy of low farm prices.
31. P. Mathias, The First Industrial Nation, 1969, pp. 87-8, lists British policies to help the textile industry; the Corn Laws; the ban on the export of sheep and wool; the bounty on the export of beer and of malt; the ban on the import of the latter; the Navigation Acts, etc. as examples of measures where one industry was helped at the expense of another and vice versa. Professor Mathias remarks that this would look inconsistent and irrational if the economic policy of the era were to be regarded as a logically organized system.
A crazy quilt of cross-subsidization, etc. may, however, have a perfectly adequate political logic of its own, for all that it is self-contradictory as an "economic" policy.
32. Even the most basic, direct "net" redistributive arrangement can mislead, causing mischief all round, as Tocqueville has noted. The landowning nobility of continental Europe attached great value to their tax exemption, and commoners resented it. True to form, Tocqueville recognized that in reality the tax came out of the rent of the noble's land, whether it was technically he or his serfs or farmers who paid it. Yet both the nobles and the commoners were led and misled, in their political attitudes, by the apparent inequality of treatment rather than by its real incidence (L'ancien régime et la révolution, 1967, pp. 165-6).
33. Randall Bartlett, Economic Foundations of Political Power, 1973, makes the related point that governments seek to mislead voters by producing biased information about public expenditures, taxes, etc. It seems fair to add that the cost-of-living indices and unemployment statistics of some modern states are not above suspicion either. One might reflect further on the conditions under which a rational state would choose selectively to publish truthful statistics, lies and no statistics, allowing for the effort needed to keep secrets (especially selectively), the inconvenience of the right hand not knowing what the left is doing, and the risks involved in coming to believe one's own lies. The right mix of truth, falsehood and silence looks very difficult to achieve—even the Soviet Union, which chooses its preferred "mix" more freely than most other states, seems to have mixed itself a poisonous brew.
The fostering of systematic error by mendacious statistics, however, is kid's stuff compared to some of its other forms. In the development and propagation of a dominant ideology, defined as one favourable to the state's purposes, systematic error is generally being fostered without conscious design, i.e. far more effectively and durably than by mere lying. For instance, the powerful notion that the state is an instrument in the hands of its citizens (whether of all citizens, of the majority or of the propertied class) has certainly not originated in any Ministry of Propaganda. Educators inculcating doctrines of the state producing public good, and the requisite norms of good citizenship, are doing so in all sincerity.
34. As I write (1984), the jury is still out on the Reagan administration and Mrs Thatcher's government. Both seem at the same time to be rolling and not rolling back the state. Comparing their strong commitment on the one hand and the slightness of the result on the other, one is reminded of the irresistible force meeting the immovable object.
35. Historiography tends to deal more satisfactorily with states appearing in the shape of kings and emperors than with states which are faceless institutions. All too often, the latter are confused with the country, the nation; the historical driving force springing from the conflict between state and civil society is left at the edge of the field of vision. When the game is Emperor vs Senate, the king and his burghers vs the nobility, or the king vs established privileges and "ancient freedoms," historians are less apt to make us lose sight of which interests make the state do what it does.
36. In modern parlance, the labourer has "maximized" when accepting to work for subsistence wages. No better alternative was offered to him. A different, more "strategic" sense of maximization, however, would have him attempt to influence the available alternatives. He could try to organize a union and bargain collectively, or strike. He could seek redress in "distributive justice" through the democratic political process. He could also fall in behind the "vanguard of the working class" and join the struggle to modify the "relations of production."
37. If it takes the application of a fixed "amount" of power to stay in power, with the surplus (if any) available for exercise at discretion, anything which maximizes power must also maximize the discretionary surplus. The fastidious may therefore wince at "discretionary power" as the maximand; why not just plain power?
However, the convenience of a built-in separation between "being in power" and "using power to freely chosen ends" seems to me to outweigh the inelegance of the solution. If the maximand is discretionary power, we can describe competitive equilibrium in politics as the position where discretionary power is nil. This has the didactic merit of rhyming with the position of the perfectly competitive firm whose profit is nil after it has paid for all its factors of production.
38. Political theory, as we have seen, asks questions of a teleological nature and treats the state as an instrument: What can states do for their citizens? What ought they to do? What are the obligations and limits of civil obedience?, etc. I know of only two serious precedents of attributing a maximand to the state itself. Both do so in the context of theorizing about the production of public goods. One is Albert Breton, The Economic Theory of Representative Government, 1974. He postulates that the majority party will behave so as to maximize a function increasing in some way with the chance of re-election, power, personal gain, image in history and its view of the common good. The other is Richard Auster and Morris Silver, The State as a Firm, 1979. Here the maximand is the difference between tax revenue and the cost of the public goods produced by the state. Auster and Silver hold that unlike monarchy or oligarchy, democracy amounts to "diffuse ownership" among politicians and bureaucrats, and hence there is no residual income-recipient to profit from a surplus of taxes over the cost of public goods (leading to their over-production). I would interpret this to mean that in democracy there is no "maximizer."
Note also, as examples of an approach which proceeds, so to speak, from the "producer's" motives rather than those of the "consumer," W. A. Niskanen Jr, Bureaucracy and Representative Government, 1971, where "bureaux" seek to maximize their budgets, and B. S. Frey and F. Schneider, "A Politico-Economic Model of the United Kingdom," Economic Journal, 88, June 1978, who find that when the government is unpopular, it pursues popular policies and when it is popular, it indulges its own ideology.
40. Such proposals reach beyond the bounds of the simple sort of electoral competition set out earlier in this chapter. In addition to promising the majority the minority's money (equalizing incomes), they might, for instance, include the equalizing of schools (Gleichschaltung of education) or the equalizing of "economic power" (nationalization of the "means of production"), or some other property, privilege, immunity of the minority, including its creed (Huguenots, Mormons) or race (Jews).
Chapter 5. State Capitalism
48. Even Lenin's own creature has come a long way towards affecting this sort of consciousness: in the 1977 Soviet Constitution, it calls itself "the state of the entire people," serenely unworried by the absurdity, at least for Marxists, of a state being everybody's state!
49. Weak medieval kings and strong territorial lords both exercised near-sovereign political power only over the land they "owned" (though this was but a quasi-ownership), the patterns of dispersed political and dispersed economic power coinciding as they have never done since. On the other hand, centralized political and economic power have often coincided. They still tend to go hand in hand in "second" and "third world" countries.
50. Jean Elleinstein, Lettre ouverte aux Français de la République du Programme Commun, 1977, pp. 140-51. Like the gentleman in the Park who mistook the strolling Duke of Wellington for a certain Mr Smith ("Mr Smith, I believe?"—"If you believe that, Sir, you will believe anything"), Elleinstein manifestly believed that nationalization would do these things rather than their opposites. It is this trusting simplicity that best suits the state (and of course its leaders) in the difficult transition from democracy to socialism.
53. If only it bore more lightly the burden of the influence of György Lukács, whose hermetic and foggy style its authors tend to follow, The Road of the Intellectuals to Class Power, 1979, by the Hungarian sociologists G. Konrád and I. Szelényi, would be a very worthwhile contribution to an eventual answer to this question. Their original ideas can only be approximately discerned through the swirling Lukácsist obscurity.
55. J. S. Mill, On Liberty (ed. by A. D. Lindsay), 1910, p. 165. It is edifying to reflect that it was none other than the Levellers who, in their democratic fervour, proposed to withhold the franchise from servants who, "depending on the will of other men," could not be trusted with the vote. Cf. C. B. Macpherson, The Political Theory of Possessive Individualism, 1962, pp. 107-36.
56. Free entry, secret ballot and majority rule, combined with preponderant state ownership of capital, means that tenure of state power and hence the role of universal employer, is awarded to the party offering higher wages and shorter hours than its rival. Productivity, discipline on the job, consumption, investment are all determined on the hustings. Political competition ensures their greatest possible incompatibility, resulting in a total shambles.
The "Yugoslav road to socialism" can be interpreted as an attempt to get round the contradiction between state capitalism and bourgeois democracy, not by the obvious method of suppressing all political competition, but by taking it out at the level of the state and putting some of it back at the level of the individual state enterprise. Employees cannot elect the government, but they elect a workers' council and have some indirect say in the choice of the enterprise manager, the level of wages and profit-sharing bonuses and, hence, more indirectly still, in output and prices.
To the extent that this is so, the enterprise tends to maximize value added per employee, i.e. it will generally try to use more machines and materials and fewer people, than are collectively available. The resulting tendencies to chronic inflation accompanied by unemployment, are fought with complex administrative means. Politically, the system breeds insider cliques, caucuses and deals. Economically, it is prevented from being a total shambles by individual enterprises having, at least in principle, to compete for a living with each other and with imports on a spontaneously operating market; there is "commodity production for exchange."
Capital is said to be in social rather than in state ownership. It is impossible to find out what this means. It does not mean syndicalism, cooperative ownership or municipal socialism. It seems to me that it is intended to mean "good state ownership" in opposition to "bad state ownership" (in much the same way as "social" planning means good and "bureaucratic" planning means bad planning). Most of the owner's prerogatives are in practice exercised by state bureaux calling themselves "banks" rather than, as in orthodox socialist countries, "ministries" or "planning offices."
If this hybrid system is less suffocatingly totalitarian than the thoroughbred state capitalist world to the northeast of it, this is perhaps due as much to history, character and accident as to "systemic" differences.
57. One of the weakest of several weak reasons advanced by Trotsky why there is not and "there never will be" such a thing as state capitalism, was that "in its quality of universal repository of capitalist property, the state would be too tempting an object for social revolution" (Leon Trotsky, The Revolution Betrayed: What Is the Soviet Union and Where Is It Going?, 5th edn, 1972, p. 246). He has, however, a more compelling reason: in his order of ideas, state capitalism must be privately owned; the state, like some giant corporation, must belong to shareholders able to sell and bequeath their shares. If they cannot sell and their sons cannot inherit, the system is not state capitalism. (While being sure of what it was not Trotsky had some changes of mind about what it was. See also A. Ruehl-Gerstel, "Trotsky in Mexico," Encounter, April 1982.)
It is sad to see a Marxist reduced to such a position. For Trotsky it ought to be "commodity production," the alienation of labour, its domination by capital and the mode of appropriation of surplus value which define the "relations of production," not whether shares are sold or inherited.
It must be added that Lenin's use of "state capitalism" to designate a system of private enterprise under close state control, was no worthier of socialist respect. In particular, it is hard to see how the state, which (despite some "relative autonomy") must, by virtue of the relations of production, be controlled and dominated by private enterprise, nevertheless controls it.
58. Some of these and related ideas are formalized in the powerful essay "La logique de la frustration relative" by Raymond Boudon in his Effets pervers et ordre social, 2nd edn, 1979. Prof. Boudon seeks to establish that the good observed correlation of discontent and frustration with improved chances, need not depend on some particular psychological assumption, but can be deduced from rationality alone, along the lines of utility-maximization in the face of risk.
At the other, non-rational end of the spectrum of human motives, Norman Cohn's classic work on medieval revolutionary mystics finds the same correlation between better conditions and prospects and revolutionary action. See his account of the German Peasant War of 1525: "The well-being of the German peasantry was greater than it had ever been... [the peasants] far from being driven on by sheer misery and desperation, belonged to a rising and self-confident class. They were people whose position was improving both socially and economically" (Norman Cohn, Pursuit of the Millennium, 1970, p. 245).
There is by now a sizeable body of literature in support of the thesis that revolutions typically follow the relaxation of pressures, the brightening of outlook, reforms. It seems to me important to stress that there may well be other good reasons for this than the supposition that reform is a symptom of the state being "on the run," getting weaker, hence becoming fair game for prudent revolutionaries who calculate risk-reward ratios.
59. It is interesting to find expressly non-Marxist reasons for defining state capitalism in the Leninist spirit as "the symbiosis of state and corporations" (in P. J. D. Wiles, Economic Institutions Compared, 1979, p. 51). What, then, is private capitalism, and how do we tell it apart from state capitalism? Wiles considers that the latter term is "abusively applied" to the Soviet Union because it "certainly has an ideology which sets it quite apart from real state capitalism." Real state capitalism, being "more or less indifferent about property" is devoid of a proper ideology.
This is true only in terms of a convention to define real state capitalism as one which is indifferent about property. Which actually existing systems, which countries would such a definition cover? Take the testimony of a prominent state capitalist, a member of one of the Grands Corps at the summit of the French civil service, later to become Minister of Industry: "no amount of dirigisme is worth a powerful public sector." (J-P. Chevènement, Le vieux, la crise, le neuf, 1977, p. 180, my translation.) His state capitalism is certainly not indifferent about property. If there are state capitalisms that are, they are not conspicuous. Are they, perhaps, too easy to mistake for private capitalisms?
61. The word is used here in a very general and non-pejorative sense, to include the category of hired managers and administrators who man the bureaux. It refers to a role in society and is not meant to express any like or dislike for it.
62. Cogitation and field research have, as I understand it, jointly established that the technostructure is composed of people who make the decisions which require knowledge. (Obviously, few decisions are left for the rest of us to make.) The technostructure removes from ownership all reality of power. The "liturgical aspect" of economic life induces the technostructure to affirm the sanctity of private ownership. It is, however, equally adept at keeping in its place the private and the public shareholder. (Why, in that case, does it prefer to be faced by private shareholders, if only "liturgically"?) In any case, it would be "supreme foolishness" to fear one's shareholders. The technostructure is more interested in growth than in profit. And so on. These revelations are drawn from J. Kenneth Galbraith and N. Salinger, Almost Everyone's Guide to Economics, 1979, pp. 58-60.
66. A political philosopher of quiet distinction, whose "socio-economic origin" was at least consistent with some insight into these matters (for his father was the Premier of his country of origin) has disposed of the question in the following "holistic" terms: "Why should we suppose that... [institutions], when they have to choose between their corporate interests and the interests of the classes from which their leaders are mostly recruited, will ordinarily choose to sacrifice their corporate interests?" (John Plamenatz, Man and Society, 1963, vol. II, p. 370).
67. The exiled Trotsky's social theory of the Soviet Union is that in it, capital belongs to the workers' state (or, as he ended up by putting it, "the counter-revolutionary workers' state"), but the working class is prevented from exercising the owner's prerogatives by the bureaucracy, which has won control of the state. The reason why the bureaucracy succeeds in usurping the role of the ruling class is scarcity. Where people have to queue for what they need, there will be a policeman regulating the queue; he " ';knows' who is to get something and who is to wait" (The Revolution Betrayed, p. 112).
That abundance is not the consequence but the enabling cause of socialism has always troubled socialist thought. It has led to much uneasy theorizing about the "transition period," classes in a classless state, the state withering away by getting stronger, etc.
Readers are no doubt aware that making explicit a doctrinal inconsistency or awkwardness, as I have occasionally been moved to do, is severely condemned by Marxists as "reductionism."
68. Gordon Tullock, in a paper of great clarity dealing with some of these issues ("The New Theory of Corporations," in Erich Streissler et al. [eds], Roads to Freedom, Essays in Honour of F. A. von Hayek, 1969), cites findings to the effect that apparent managerial deviation from profit-maximizing behaviour is greatest in regulated utilities and mutual savings-and-loan associations which have, so to speak, no owners or where regulatory barricades shield the sitting management from the owners.
69. Cf. Peter F. Drucker, "Curbing Unfriendly Takeovers," The Wall Street Journal, 5 January, 1983. There is ample evidence of the tendency, noted with some alarm by Professor Drucker, that American corporate management is increasingly motivated by fear of the bidder. It is thus driven to instant profit maximizing behaviour, living from one quarterly earnings report to the next and having no time for the long view.
This is a far cry from the contention that "owners want profit, managers growth," or "peer approval," or some other, discretionally chosen "managerial" maximand. In fact, the contrary contention is, if anything, closer the mark. Only owner-managers can afford to choose idiosyncratic ends. No hired chief executive could have ruled, as Henry Ford is supposed to have done, that "customers can have any colour car as long as it is black."
72. If the inputs of all butter-making and gun-making efforts depended on the output of butter alone, there would be (at least) one ideal allocation of the labour force between the dairy and the armaments industries (which, incidentally, would have to start way back with the training of young people to be dairymaids and gunsmiths), ensuring the maximum output of guns. Putting too many people in the armaments industry would reduce the outputs of both butter and guns.
However, gun production is only one of the ends entering into the maximand of the totalitarian state; some of its other ends may conflict with giving people the amount of butter they want, particularly if eating butter makes them more rebellious, or raises their cholesterol level and hence the costs of health care. Beyond these pragmatic considerations, the state may feel that indulging people is bad, and it is not for them to say how much butter they should have.
73. It could be argued that managers of private capitalist enterprises are also serving two masters, the owner and the customer. However, those who are very successful at serving the latter do not, by their success, endanger the tenure of the former. Managers are not the owners' rivals.
74. The case of Hungary which despite occasional backtracking has, since the late 1960s, gone quite a way towards decentralized profit maximization, meaningful prices and even the toleration of an undergrowth of private enterprise, is paradoxically enough a possible confirmation of this thesis. If the country is living proof that "market socialism works," it is so by virtue of the trauma of the 1956 rising, suppressed by Russia, which has created a tacit understanding between the regime and its subjects. After its reinstatement by Soviet armour, the Hungarian state had the intelligence to grasp that its security of tenure is assured by geography and need not be doubly assured by the belt-and-braces of a social system where everybody's livelihood is precarious. Civil society, having learnt its lesson, is treating politics with a shrug. Thus, although more and more managers of enterprises and spurious cooperatives, professional people, small businessmen and peasants are building independent livelihoods, there is no parallel rise in demands for political participation and self-government.
In these rare and propitious circumstances, the Hungarian state can safely afford to concede as much economic freedom as it can get past its neighbours and especially, of course, Moscow. The one real constraint is Russian devotion to a number of socialist principles and the mounting irritation of Russian visitors at seeing their conquered colony wallowing in superior standards of life.
Moscow, which has no larger neighbour's friendly tanks to invite in and "normalize" matters should the leading role of the party be challenged by self-confident technocrats, fat peasants, perpetual postgraduates and all the other independents who proliferate without control when the vestiges of decentralized economic power begin to reappear, would no doubt be rash to listen to all the expert advocacy of "economic reforms." It has more at stake than the greater efficiency of a self-regulating economy.
On the other hand, it is less clear why Czechoslovakia, whose peoples received in 1968 an albeit bloodless but no doubt nearly as effective lesson in political geography as did the Hungarians in 1956, refuses to let in the invisible hand to wake up the economy from its comatose sleep. It must be supposed that the national propensity to stay on the safe side, is attracted by the double security of dependent subjects and fraternal aid.
75. "Merit goods" are considered by the state good for people. If A is a merit good, its supply is to be arranged in such a way that no one should be able to increase his consumption of any non-merit good B by reducing his consumption of A. It must not be possible, for instance, to swap school milk for lollipops, nor for beer for the child's father. This is achieved when school milk is on tap, with every child drinking as much as he wants.
When beef cattle are fed from self-filling feed bins, they are believed to eat just enough. Likewise, when merit goods are on tap, the presumption is that people will consume just what they need. With some important merit goods, this leads to ambiguous outcomes. Free health care and free university education are notorious cases in point. Because of emulation, jealousy or other reasons, the consumption of these goods tends to get out of hand and seems almost impossible to stabilize, let alone to reduce.