Saturday, March 21, 2009

Why I am not a minarchist libertarian

I've been reading Charlotte Gore's wonderful weblog, having being directed there by the sublime People's Republic of Mortimer.

Gore describes herself as a "libertarian liberal democrat." This is fair enough, but she is also a minarchist (and especially here):

I used to think - that the alternative to what we had was Afghanistan or some African style government.

I've changed my tune on that. The most important part of any Government is the rule of law - the ability to enforce contracts, maintain a monopoly on force and be subject to the rule of law themselves.

...

I'm not an anarchist. I want a state - I just want one that acts as nothing more than a framework to make free and honest trade possible and otherwise keeps out of people's lives. Upholding the rule of law is more important than anything - consider Iraq with democracy but without rule of law, for example.

I want this because free trade is the key to creating wealth, which improves the quality of our lives, advances technology and makes things cleaner and more efficient.

Free trade, you see, makes everyone richer because when two people trade in their mutual self interest both are made wealthier as a result.

It is this the implicit assertion that the actions of the state (in addition the maintaining the rule of law) cannot add to the wealth1 of everyone that I intend to refute.

Consider the following two scenarios:

1. A person living in a minarchist, night-watchman state has a business idea. They know that if their business works they could change the world for the better; create hundreds of rewarding jobs; initiate a whole new industry; and make them famous and wealthy and respected for their inventiveness and brilliance.

But they're smart enough to realise that there is a risk their business could fail. They have a good job at the moment. They have a family to support. One of their children has a disease that, although manageable at the moment, could degenerate at any time into a much more serious condition that will require intensive, and expensive, medical care.

The prospective entrepreneur knows if they succeed they will get 95% of all the profits from their venture to keep for themselves, paying a small 5% tax on the gains to the night-watchman state.

2. A person living in a social democracy has a business idea. They know that if their business works they could change the world for the better; create hundreds of rewarding jobs; initiate a whole new industry; and make them famous and wealthy and respected for their inventiveness and brilliance.

But they're smart enough to realise that there is a risk their business could fail. They have a good job at the moment. They have a family to support. One of their children has a disease that, although manageable at the moment, could degenerate at any time into a much more serious condition that will require intensive, and expensive, medical care.

Taxation in this social democracy is high, to provide for the generous welfare payouts, state-funded R&D, high standards of education, and superbly generous national health service. The prospective entrepreneur knows he will have to pay at least 60% of all the profits he makes from his business to the state.

Now which of these two wannabe entrepreneurs d'you think is most likely to follow their dreams and set up their potentially wealth-creating business?

If you made your answer purely on the basis of their cost-benefit calculation then you probably agree with me that it would be the denizen of the social democratic state, but probably not for the same reason as I.

Do you think Steve Jobs is as rich as he is because he wanted to be a billionaire or because he loved making computers? Do you think Thomas Edison founded General Electric because he wanted some guy to take it over after he was dead and build the world's second largest company?

No! These geeks and misfits and entrepreneurs and Johnny Appleseeds did it for the love and adventure and sensawunda and because they couldn't help themselves.

Do you think Felix Dennis created Maxim magazine because he wanted a better skinmag for the sarky masses and also to make shedloads of moolah? Well yes, he probably did. But 60% of $240 million is $144 million more than 100% of nothing and a notebook full of good poetry.

A minarchist libertarian disputant would claim that I clearly know nothing of business: the individual entrepreneur may be doing it because they love it, but they need to get capital from somewhere. This will need to come from investors who want large returns to make up for the risky nature of business.

My answer to this is to be point out that in our hypothetical minarchist state where there is less propensity to start businesses there is less propensity to invest in the same. Why not stick it in a vault or buy land? Land isn't risky. Banks vaults are (no deposit insurance), but they're a damn sight less risky than investing in some nobody's idea for a business.

Further these libertarians might point out the bureaucratic monstrosity that social democracies inevitably end up as. The problem is that bureaucracy is not and has never been endemic to the public sector. Large corporations are as liable to it as anyone else.

At this point my hypothetical libertarian opponent might say that the only reason large companies are bureaucratic is because of state regulation. They might also throw in the point that bureaucratic companies will fail in the marketplace, as the costs of maintaining the bureaucracy lead to a lack of profitability.

To the first I say so be it. If bureaucracy is the price you pay for clean water and functioning aircraft then I'm fine with that. To the second I point out that if a company has to deal with particular regulations then so will all it's competitors.

At this point my assumptive adversary will presumably posit that the state is not accountable. Well, this is certainly true. But governments are (that's why they're called social democracies) and governments are nominally in control of the state. If bureaucracy really starts to irritate the people then they will elect a government that aims to put an end to it.

I'm all in favour of markets. They create wealth and foster innovation. And I'm all in favour of making markets as free as possible. But the notion that the state is always inimical to the creation and maintenance of free markets and innovative industry is nonsense. In many cases the state is necessary to foster industry in ways far beyond simply providing for the rule of law.

Look at South Korea in the last century. Look at industrial development in Britain during the Elizabethan period.

In both cases the state stepped in with tariffs and subsidy to protect industry at home2.

Look at what came of ARPANET and the World Wide Web. Look at what came of Global Positioning System and the Liverpool and Manchester Railway.

The idea that the state is somehow "getting in the way" of economic growth is absurd.

The state needs to support economic growth through the provision of extensive civil amenities just as a poorly-educated, under-insured, and uncertain entrepreneur is likely to fail whereas a well-educated, healthy, well-informed entrepreneur is likely to succeed.

1: I get the free market, I do. My argument is not that the free market is a bad idea, just that it is wrong to think that there is more to the creation of human happiness than the creation of wealth and more to the creation of wealth than free markets.

2: I also get globalisation and maximum advantage. I won't go into that now as it would be a long and involved conversation that is orthogonal to my main point: a minarchist state is not a state that enhances economic growth OR human happiness.

2 comments:

Charlotte Gore said...

I feel like you deserve a longer response than this. :)

My initial reaction to the hypothetical situation is as follows:

In the minarchist state, the individual would be wealthier than the individual in the social democratic state because half their before-tax salary would not taken as tax.

You said she had a good job, so she would have more savings, medical insurance and has the support and help of her husband and family.

Because of this it is more likely that the individual in the minarchist state would be able to raise the capital to start the business, and would be more financially secure during it.

The costs and running and setting up the business would be significantly less, too: The probability of success increases because the overheads are smaller.

Finally the price of the finished product would be less, and because more people have more money in their pockets there's more customers. Because the business is successful, because she makes more money and because she gets to keep that money she can afford to pay off the loans she's taken out to pay off any medical expenses not covered by insurance.

All of this assumes, of course, that anyone with a seriously ill child would consider taking on this sort of burden at all. A Social Democratic state might make the medical care free at the point of use.

In the social democratic state, there's additional barriers to entry that come from regulation and it is harder for wage earners to save and raise additional capital. The costs of the product sold will be more, the number of people who can afford the product less, the ability to reinvest the profits in expansion less. The ability to get a factory built harder and more expensive, the cost of equipment more expensive... and so on.

The only advantage the hypothetical individual has is that they won't have to worry about medical expenses, but in all other situations she's at a disadvantage, and chances are the risk and complication and difficulty of starting the business will put the social democrat off first.

Take away the sick child

Of course entrepreneurs do it for the love of it, because they feel the energy of creation, but these people are the ones I admire the most - they should be able to keep the fruits of their efforts. After all, it's theirs.

I really do see the social democratic style state we have as, overall, having a negative effect. It's the laws of unintended consequences, I believe we live in a state that is shackled and oppressed and that's why I'm an economic and civic liberal - wanting economic freedom is the same moral imperative as wanting freedom for people's minds, bodies and consciences. How can anyone support free speech but not free trade?

Ah, looks like you got a full length response after all. I haven't seen your blog before I'll add you to my reading list :)

Bryan said...

Human creativity, ingenuity, initiative and the human spirit are not friends of state welfare. If we are to grow as spirited, creative people, it will not be because we didn't earn our livelihoods.

How do you quantify human happiness or presume to know the conditions under which it is realized by anyone other than yourself? For me, happiness is fleeting, but true joy is derived from achievement. Freedom to achieve (or fail)is a requisite for me to realize achievement.

Generous welfare and the necessary exorbitant taxation breeds bureaucracy. Bureaucracy is not a natural human state. It kills profits, suffocates creation and defies the human will to succeed, under the false guise of humanitarianism.

It may not be ethical in a modern sense to govern according to Natural Law, but my idea of dignity and "happiness" is to never be reduced to a cigarette smoking, morbidly obese, middle aged man electric-scootering home from Wal-Mart, having just spent his food stamps and welfare check on cigs, porn and booze. My idea of government does not enable this scenario, either; at least not on my dime.