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Does Economic Success Require Democracy? — AMERICAN.COM: A Magazine of Ideas, Online

The unfree governments now understand that they have to provide a good economy to keep citizens happy, and they understand that free-market econ­omies work best. Also, nearly all of the unfree nations are developing countries. History shows they grow faster, at least for a while, than mature nations. But being unfree may be an economic advantage. Dictatorships are not hamstrung by the preferences of voters for, say, a pervasive welfare state.



So the future may look something like the 20th century in reverse. The unfree nations will grow so quickly that they will overwhelm free nations with their economic might. The unfree will see no reason to transition to democracy.



Meanwhile, democracies may copy many of the market-friendly policies of the dictatorships, but it seems unlikely that free citizens will choose to reduce their own political freedoms.



Democracies will stay in the game, but, as Arrow showed long ago, their victory is not assured.

What is he getting at with the assertion that "democracies may copy dictatorships" statement? Earlier in the article, he says this:

A government is really just a mechanism that makes collective decisions for a large number of cit­izens who have different preferences. I might want to spend our tax dollars on dog parks; you might prefer more police. The government’s job is to work it out. This job is called “aggregating preferences.” In the U.S., we send signals with voting to help the government aggregate preferences.



Arrow was able to show that no voting scheme can be devised that will create a government that has rational preferences, where rationality is defined precisely by Arrow as meeting a number of condi­tions. Democracy might be a form of government that many prefer to live under, but there is nothing theoretically compelling that suggests that it is the form of government that best reflects the underly­ing preferences of citizens. As a result, democracies will not necessarily outperform other types of mech­anisms for preference aggregation as a route to economic prosperity. Democracies will not always win.

Correct me if I'm wrong, but it seems that the author is making the point that economic growth (i.e., maximizing productivity and profitability) is the most desirable (economic) goal of a government, and therefore may force that government to ignore the will of the people (i.e., building the dog park, which is an "irrational" choice in the framework of economic growth) in order to keep growth tracking faster and faster.



Think this is just speculative bullshit that couldn't possibly have anything to do with our current reality? Think again. In 2005, the Supreme Court ruled in the Kelo v. New London case on a broad application of "eminent domain." "Eminent domain" is the idea that if the government needs your property for the "public good" (whatever that's supposed to mean in each case), then they may take your property legally, with "just compensation" due to you for your troubles. I'll quote Jason Kuznicki from Positive Liberty, one of the most well-respected voices on this topic, to explain more. From a June 23rd, 2005 post:

The U.S. Supreme Court has ruled 5-4 in Kelo v New London, that the Takings Clause of the Fifth Amendment permits state governments to redistribute private property with the aim of maximizing tax revenue. In this case, a handful of homeowners will be evicted against their will to make room for a pharmaceutical plant. Liberals take note: If you really support the common man against big corporations, then you too should be outraged by this case.



While the decision reaffirms a position that has been the status quo for quite some time, still I am puzzled. The Takings Clause reads,

Private property shall not be taken for a public use, without just compensation.

That’s a full stop at the end, with not a word about tax revenue.



As Randy Barnett has argued in Restoring the Lost Constitution, we are certainly not to interpret the adjective “public” here to imply that government takings for private use are ever permitted–with or without just compensation. Such a power was never contemplated at the adoption of the Constitution, except to regard it with horror: The power itself implies strongly that private landowners hold their land only by virtue of a “public” utility, and, ultimately, that the property does not truly belong to them. In the final analysis, all property would then belong to the government.



[snip]



Provided that “just compensation” is given, it seems there is nothing at all preventing any sort of taking, so long as some legislature votes to do it. Let’s also not forget that just compensation is largely in the eye of the beholder. Its very existence in the Constitution is something of a necessary evil: If the compensation truly were just, then governmental “takings” would not exist at all. Instead, the government would simply raise its offer enough to induce the property owners to sell of their own accord.

In summary, a pharmaceutical plant wants to move to a specific piece of land which is currently occupied. A legislative body, ostensibly representing the people (all the people) of the district in question is salivating over the possibility of realizing all this new tax revenue, but must first secure the land for the private interest which desires it. Unfortunately for the legislative body, there are those which refuse to sell.



The Takings Clause has been useful for the public good when it comes to things like roads and the construction of utilities, but when the application turns into one where the governmental interest decides to arbitrate in favor of a potential private entity in competition with an existing one, how is that constitutional under that clause, except for the fact that the Supreme Court has chosen to read that clause broadly, and beyond likely original intent?



Here's where I run into problems in my own head. In the abstract, I believe in free markets, access to those markets for all, the value of competition within, and the need for corporations to be agile enough to compete in a global marketplace. That being said, it's abundantly clear that corporations are powerful enough politically that they aren't stopping at lobbying to be free of legislative restriction, they want to operate in an environment that's protected by legislation (look at our recent history of protectionism of Big Pharmaceutical, as a case study). Since the ruling class in this country is generally made up of people who are both beholden to corporate campaign contributions and have the personal wealth and financial acumen to be participants at some level in our equities markets, their interests inevitably focus on the health of corporate America as a big-picture barometer of progress. Therefore, when faced with the big decisions that may benefit corporations, wouldn't it go to follow that our lawmakers see "progress" in terms of a 14,000 DJIA or in Pfizer's year-over-year increase in ROI?



The concern that isolationists and opponents of global markets tend to have is that when our economy becomes further defined by the economic principles held by those with whom we are trading and competing, the control of our values and policies will tend to slip away from the people and more toward the interest of those on the front line of this global competitive environment - that is, corporations. Since corporations are self-serving entities for whom the bottom line is the only important measure of success, the idea that we will let corporations run roughshod over its workers and our markets in their own interest is a frightening proposition to the middle and lower classes in our democracy.



For some opponents of global markets, it even foreshadows the probable end of democracy. Why? If corporations are hamstrung by things like labor unions, safety regulations and health care costs, they are not operating at maximum efficiency. The middle and lower classes generally don't have a real stake of their net worth in the equities markets, so their only interest is continuing to collect a paycheck every two weeks. Those in the higher classes have a sincere interest in watching their stocks and futures trade with greater profitability, and will use their real capital to buy political capital to attempt to pave the way to an increasing net worth, and an increasing disparity between their own wealth and the wealth of the working class.



Some of these opponents believe the death knell for democracy's public-interest control of corporate malfeasance will come under the guise of "tightening our belts" in the face of global warming. Since corporations will be bearing a significant burden in terms of energy management, pollution, R&D, and selection of raw materials for manufacturing, the suspicion that follows is that they will lobby hard to continue to preserve the profit margins their investors have grown to expect, and in a global marketplace these preservations will inevitably come at the expense of the working class, leading to further economic disparity between the very rich and everyone else. Obviously, the offset of legislative restrictions of corporations is also going to be legislative, which in a "free market" environment will necessitate that the preferred "rational preferences" which are enabled will be those in the self-serving interests of corporations, as opposed to those of the working class.



It's interesting to see these ideas espoused by an American Enterprise Institute publication. At first glance, I wasn't sure how to align this article with Irving Kristol's thoughts on foreign policy, which seem to articulate an interest in spreading democracy around the world. Looking back, however, that's probably not what he meant. As the only true military superpower at this point of history, Kristol couched his "use your strength while you're uniquely strong" theory in terms of our global responsibility. However, his idea of "the national interest" probably doesn't stop at policing genocide and stopping ruthless dictators. Our "national interest" is, at a fundamental level, that of preserving our spot at the top of the mountain - ideologically and, more importantly, economically. This necessitates driving favorable market conditions for the inevitable growth and interconnection of the global marketplace, using our military might to do so, if and when necessary.



I'm not a historian, nor prone to hysterics, but it's difficult to see this point of history as anything but unique. When the Carnegies and Vanderbilts were making money, they weren't competing with Tata India and China to do so. We've been conditioned as a people to accept this global competition, and are further being conditioned by decisions like Kelo and Raich to tacitly accept that what our government is doing is somehow invariably in our "best interests." I'm not so sure, and neither is Kuznicki (from the same post):

(S)omeone just explain to me how our government remains one of limited powers in light of Raich, Kelo, and the indefinite detentions of those who are neither accused of crimes nor are POWs. From where I sit, the circle has finally closed: The enemies of liberty on the left and the right have all come to an agreement in which big government wins no matter what the rationale or the venue. I only hope we will realize what is happening before even more damage is done.

Disclaimer: Let's try not to read this as "OMG NEOCONZ WILL EAT UR BABIEZ" or some such garbage. Think for a minute about the spectrum of governmental interference that corporations could operate under. It ranges from "total interference, to the corporations detriment," to "no interference," to "enabling favorable markets through legislation." Obviously, corporations wish to operate in the most favorable conditions possible, and it does often take explicit "permission" (i.e., legislation) from the government to create this environment. I like to think that government should operate as close to the middle of that spectrum as possible, with legislation only coming for things like OSHA* and FDA approval for drugs. It's also obvious that if corporations could pay you a penny an hour for assembling their product, not have to contribute to your health care costs, and not have any financial burden towards their workers at all, they would absolutely choose to do so. The point is, it is interesting to watch our world continue to unfold at present with government claiming sole responsibility for defining and ensuring the "public good." Even a supposed free-market capitalist such as I profess to be, can see the inherent pitfalls in this approach.



*I'm not an expert on OSHA, so I'm not commenting on the policy as it exists as "good policy," just that government should probably tell companies that ignoring environmental health and safety for their workers comes with a consequence.

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