The State by Anthony de Jasay (37 page)

may even have an exaggerated idea of its extent, in the nature of the case they will fail to perceive specific marginal additions to it. Nor can they, therefore, be expected to react defensively to the incremental free rider.

1. While the dilution of costs via the vastness and complexity of the state's redistributive machinery attenuates resistance to free riding by groups, free riding within state-oriented interest groups is rendered relatively innocuous by the special nature of the burden group members must carry in order to reap the group reward. A market-oriented group must fully (though not necessarily "equitably" nor "justly") allocate among its members the burden of group action-the cost of running the group bus, the discipline and loss of pay involved in obeying a strike call, the lost profit of restricted sales, the self-denial needed to respect a code of conduct. Unless one of the conditions sketched above in this section (altruism, non-envy and ample surplus of group reward over group cost, and successful restraint of free riding) is met, the free-rider problem will abort that caused by the interest group before it can arise: the group will decay, fall apart or fail to reach its cooperative understanding in the first place.
   
 

2. A state-oriented group, however, typically carries a featherweight burden. It need ask little of its members. It suffices for dairy farmers to exist as such for the state, with the opposition at its heels, to devise a policy for milk (and butter and cheese) which will provide them with better returns than the market, unassisted by a milk policy, could do. In return, the group need not even prove performance of the implicit political contract by "delivering the vote." Dairy farmers have wide latitude to "ride free" in two senses: they can vote for the opposition (which, if known, might simply cause the state to redouble its efforts to devise a more
   

effective butter policy), and they can fail to pay membership dues to help finance dairy industry lobbying.

1. Neither type of free riding is likely greatly, if at all, to reduce its effectiveness in extracting a redistributive reward. Even when an interest group has politically "nowhere else to go," so that the implicit threat of its throwing its support behind the opposition is ineffective because not credible, or when its bargaining strength is for some other reason less unbeatable than that of dairy farmers, so that it does need an effort to get its way, the money it can usefully spend on lobbying, political contributions and the like is generally very small beer compared to the potential pay-off. If all group members do not chip in, a few can (and a few sometimes do) effortlessly cover the necessary costs for the whole group. Much the same is likely to happen when group interest requires its members to wave banners, to march, to link arms or to throw stones. Many free riders might stay at home but the normal group will usually contain enough willing members for the conditions of case (b) (p. 237) to be fulfilled and a nice and loud demonstration to have the required impact. In sum, as political action is on the whole extraordinarily cheap, state-oriented interest groups are very nearly immune to their own free-rider problem.
   
 

2. With the state as a source of reward for interest groups, free riding loses most of its destructive potential as a check on group formation and group survival. In terms of the "ecological" parallel used above, prey, predator and parasite no longer balance each other out. The defensive reactions of the prey are blunted: there is no market mechanism to signal society that a given interest group is raising its claims upon it; its exactions are screened from it by the size and complexity of the state's fiscal and other redistributive apparatus. Moreover, while the mechanism of bilateral contracts
   

between consenting parties works symmetrically, in that it is as efficient in concluding acceptable as in rejecting unacceptable terms, the democratic political process is constructed to work asymmetrically, i.e. to concede a large variety of group claims rather than to deny them. Hence, even if the "prey" were specifically aware of the "predator," it would have no well-adapted defence mechanism for coping with it.

1. Moreover, "predator" groups, in terms of my argument about the relative cheapness of cohesive political action, can survive and feed upon society almost no matter how infested they may be with their own free-rider "parasites." As a corollary of this, the parasite can prosper without adverse effect on the predator's capacity to carry and nourish it. More of one thing does not bring in its train less of another. Any large or small number of free riders can be accommodated in a population of interest groups which, in turn, can all behave as at least partial free riders vis-à-vis the large group that is society.
   
 

2. The above might suggest the sort of unstable, weightless indeterminacy where interest groups can, at the drop of a hat, just as soon shrink as multiply. Having no built-in dynamics of their own, it takes stochastic chance to make them do the one rather than the other. Any such suggestion which would, of course, run counter to the bulk of historical evidence (to the effect that more often than not, interest groups increase in number and influence over time), is as good as barred by two further features implicit in the interaction of group and state. First, whether or not the granting of a group reward is successful in winning the support of the group and reinforcing the state's tenure of power, it will generally increase the state's apparatus, the intensity and elaborateness of its activity, for the granting of each group reward
   

requires some matching addition to its supervisory, regulatory and enforcing agencies. By and large, however, the more the state governs, the greater tend to be the potential rewards that can arise from successfully soliciting its assistance and hence the greater the pay-off to group formation. Second, each grant of a group reward shows up the "soft touch" character of the state caught in the competitive predicament. Each grant, then, is a signal to potential groups which consider themselves similarly placed in some respect, improving in their eyes the likelihood of actually managing to obtain a given potential reward if they organize to demand it.

4.3.40
On both these scores, therefore, the bias of the system is to cause interest groups to proliferate. Whether the process is first set off by the state's offer of a favour or by a group's demand, is a chicken-and-egg question of very limited interest. Regardless of the initial impulse, the incentives and resistances appear to be arranged in such ways as to cause redistributive policies and interest group formation mutually to sustain and intensify each other. Interactions between group pressure and redistributive measures need not be confined to matters of narrow self-interest. Groups may form and act to promote the cause of a third party,

e.g.
slaves, mental patients, the "Third World," etc. Such"persuasive lobbies" may not possess enough clout to let them trade their political support directly against policies favouring their cause. However, they may succeed in influencing public opinion to the point where state, opposition or both will consider it good politics to include in their platforms the measure demanded. Once adopted, such a disinterested measure both widens the accepted scope of state action and the apparatus for executing it, and serves as a precedent inciting other persuasive lobbies to organize and promote the next cause.*23

1. Behind every worthy cause there stretches a queue of other causes of comparable worthiness. If cancer research deserves state support, should not the fight against poliomyelitis also be assisted, as well as other vital areas of medical research? And don't the claims of medical research help to establish a case for supporting other valuable sciences, as well as the arts, and physical culture, and so on in ever-widening ripples? It is easy to visualize the rise of successive pressure groups for research, culture, sport, while an avowedly anti-culture or anti-sport pressure group seems simply unthinkable. Once again, the bias of the situation is such that its development will be onward and outward, to embrace more causes, to press home more claims, to redistribute more resources, hence stimulating more new demands-rather than the other way round, backward and inward, to a less pronounced group structure and a less redistributive, more "minimal" state.
   
 

2. Anchored in the subconscious of educated liberal public opinion, there has for long been a sense of distinction between good and bad redistribution, between the honouring of just deserts and the currying of favours. In a recent, thoroughly sensible book, Samuel Brittan has done much to make the distinction explicit.*24 It is on the whole good to redistribute income so as to produce social justice and security, health and education. It is bad to redistribute to favour special interest groups. Farm subsidies, "industrial policy," rent control, accelerated depreciation, tax relief on home-mortgage interest or on retirement saving are on the whole bad, because they distort the allocation of resources-in the sense of making national income lower than it would otherwise be.
   
 

3. Two observations should briefly but urgently be made. One is that (unless we first define "distortion" in the way required to produce
   

the answer we want), nothing really allows us to suppose that taxation to raise revenue for a worthy objective or to dispense distributive justice, does not "distort" the pre-tax allocation of resources. A priori, all taxes (even the one-time Holy Grail of welfare economics, the "neutral" lump-sum tax), all transfers, subsidies, tariffs, price ceilings and floors, etc. must generally change the supplies and demands of interrelated products and factors. When we say that they distort them, all we are really saying is that we do not approve of the change. It is mildly self-delusive to assure ourselves that our approval is much more than the reflection of our prejudices, that it is an informed diagnosis, a function of some "objective" criterion such as allocative efficiency reflected, somehow or other, in national income (rather than in the more controversial "total utility" or "welfare"). Whether the after-tax, after-welfare subsidy, after-tariff, etc. allocation of resources has given rise to a higher or lower national income than the pre-tax, pre-tariff, etc. one would have done, is an index number problem which has no wertfrei "objective solution." It is not a matter of knowledge, but of opinion, which may of course be "sound opinion." Most reasonable men might share the judgement that if all state revenue were raised by, say, a heavy excise tax on a commodity like salt which people simply must have, and all of it were spent to gratify the whims of Madame de Pompadour (an engagingly simple view of the bad old days to which few would own up though many still half-believe in), national income (let alone utility) would be less than under most other redistributive configurations known to history.*25 Less fanciful revenue-expenditure patterns, however, might give rise to genuine perplexity as to their incidence on the national product. Even those least inclined to agnosticism might honestly question the "non-distortive" nature of some revenue-raising tax, however virtuous the cause in which it was levied.

4.3.4
4

The other observation is plainer and more important. It is simply that it really makes no practical difference whether we are able "objectively" to tell good from bad redistribution. If we have one, we will have the other, too. A political system which, by virtue of competitive bidding for consent, produces redistribution we regard as conducive to equality or justice, will also produce redistribution we will regard as pandering to interest groups. By no means is it clear that there are "objective" criteria for telling which is which. Still less evident are the means which could possibly constrain or stop the one while letting through the other.

1. To sum up. While in a political system requiring consent and allowing competition the state seems logically bound to engender redistribution, it does not in the everyday sense "determine" its scope and scale. Once begun, the addictive nature of redistribution sets in motion unintended changes in individual character and the family and group structure of society. Though some may be regarded good and others bad, no selective control over them appears practicable. These changes react back upon the kind and extent of redistribution the state is obliged to undertake. Probabilities increase that a variety of cumulative processes may be set in motion. In each such process, redistribution and some social change mutually drive each other. The internal dynamics of these processes point ever onward; they do not seem to contain limiting, equilibrating mechanisms. Attempts by the state to limit them provoke withdrawal symptoms and may be incompatible with political survival in democratic settings.
   
 

Author: Jasay, Anthony de Title: The State

Anthony de Jasay

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4.
RedistributionRising Prices

Inflation is either a cure or an endemic condition. Which it is depends on whether it can inflict the losses required to accommodate gains elsewhere.

1. Governing them helps to make the governed ungovernable.
   
 

2. No phenomenon has more than one complete explanation. A complete explanation, however, can be encoded in more than one system of expressions. Yet in English, Japanese or Spanish, it must remain much the same explanation. Alternative theories explaining a properly identified social or economic phenomenon are often fiercely competitive and insist on mutual exclusiveness. Yet they are either incomplete and wrong, or complete and identical in content to each other. If the latter, they must lend themselves to translation into each other's system of terms.
   
3. Alternative theories of inflation are a case in point. They are notoriously competitive. One conducts its argument in terms of excess demands for goods, summing it up as a shortfall of intended saving relative to intended investment. This is in turn linked to an excess of the expected return on capital over the interest rate, or words to that effect. Another posits some relation between present and expected future prices and interest rates on the one hand, and attempts by people to reduce (or increase) their cash balances on the other, the attempts driving up present prices. For those who like a dose of physics in their economics, the "velocity" of some suitable variant of the "quantity" of money will rise, or perhaps a broader variant of money will prove to be more suitable to which to apply a constant velocity. Whichever way it is put, the idea of people adjusting the real value of the money they hold to what they think they had better hold, expresses in terms of the excess supply of money what other theories put in the form of the excess demand for goods. Yet another theory would make the distribution of real income between high-saving capitalists (or the corporations they own) and low-saving workers, conform to whatever distribution is needed to provide just the amount of saving that will match investment. Inflation is to reduce consumption and boost profits by devaluing wages while, if cost-of-living indexation or agile wage bargaining prevents it from doing so, inflation will just go on running round in circles and accomplish nothing. The translation of this theory into the language of either of the others is perhaps a little less straightforward, but well within the capacity of the economically literate. (He may need some nudging. He is likely to have his favourite "language," and may detest translating.)