Pseudo-markets versus voluntary networks – libertarian strategies for rolling back the state

broken chain 197Libertarians should not put much faith in the extension of ‘pseudo-markets’ as a means of rolling back government. A more radical strategy is needed.

The pseudo-markets approach involves setting up some kind of market-like structure in a largely government controlled sector. A typical example is education vouchers. Parents receive state-funded vouchers, which they then use to ‘purchase’ education for their children. To the extent such systems facilitate choice, competition and entrepreneurship they may provide benefits for participants. But there are also significant downsides. Pseudo-market structures are often afflicted by high transaction costs (partly because parasitic special interests benefit from artificial complexity). And since state funding is retained, the misallocation of resources remains entrenched and pervasive. Using education once again as an example, this could mean that government would carry on funding the teaching of those children who were gaining little from formal education, or indeed losing out due to the opportunity costs.

Moreover, with government funding comes government control. Under any plausible voucher system, only education providers that met certain politically determined criteria would qualify for state funding. In practice this would mean official control over the curriculum and other key elements such as admission rules. Even if a more flexible system were introduced initially, it would only take a few scandals – renegade schools adopting practices that were deemed unacceptable – for stricter eligibility controls to be instituted.

Another highly regrettable aspect of pseudo-markets is their creation of ‘distributional coalitions’ of groups that depend on government subsidies and regulatory privileges. Given strong financial incentives, private firms providing voucher-funded schooling would likely be far more effective at rent-seeking than the moribund government institutions they replaced. Similar examples abound, from the US ‘prison-industrial complex’ to Britain’s ‘privatised’ rail industry. Indeed rent-seeking activities may actually lead to an expansion in government support, with even more resources appropriated through taxation.

These state-dependent special interests would also have strong incentives to capture the regulatory framework in order to shut out competition and increase their returns. Thus large education firms would inevitably lobby for government protection in the form of stricter licensing of providers. They could also successfully promote expanded services to politicians, as a means of achieving various social objectives. Similarly, potential investors such as state-privileged pension funds favour rigged markets in order to reduce risk and guarantee returns. And parent-voters are likely to resist any attempt to reduce the value of handouts such as education vouchers, particularly given the skewed distribution of the tax burden. Indeed, the relative transparency of vouchers etc. compared with more opaque intra-state funding mechanisms would arguably make it even harder to reduce government spending. It is easy to see how the introduction of pseudo-markets in so-called public services can degenerate into yet another shakedown by special interests.

If pseudo-markets risk being counterproductive in terms of rolling back the state, they do at least provide lessons for the development of more effective strategies. Incentive structures would appear to be a key consideration. Clearly the retention of an element of state funding encourages rent-seeking behaviour that undermines attempts to reduce government involvement. This suggests that instead of attempting to reform ‘public services’, libertarians should focus their efforts on approaches that reject them completely. Accordingly, activists should develop strategies that first bypass and later supplant state institutions entirely.

Samuel Edward Konkin argued that a libertarian society could be achieved through the extension of the counter-economy – non-legal shadow markets that, due to their voluntary nature and greater efficiency, would eventually displace governments. The plausibility of such an outcome may be questioned in the context of modern surveillance states. Nevertheless, a less ambitious ‘quasi-agorist’ or ‘neo-agorist’ approach that sought to extend non-state networks could indeed be an effective strategy for undermining dependence on and support for government services.

Konkin was also highly sceptical about the efficacy of libertarian participation in politics. Yet, to the extent that libertarians do have political influence, it should perhaps be targeted towards removing those regulatory barriers that prevent individuals, families and communities from bypassing state institutions. Looking at education once again, this might for example involve campaigning for the removal of legislation that prevents homeschooling, requires the licensing of non-state schools or mandates education up to a certain age. Many such rules are relatively obscure and have little political salience, suggesting that in some instances concentrated pressure would result in reform.

Of course in some places, such as the UK and in many US states, there are relatively few barriers to methods of opting out such as homeschooling. Effective strategies may then revolve around raising awareness of these possibilities through the dissemination of information and practical methods of implementation. Ivan Illich, for example, advocated the development of ‘learning webs’ which would allow children outside formal state schooling to access appropriate expertise and learning materials. Indeed, contemporary homeschooling networks pool skills and materials to enrich children’s education and capture economies of scale.

Such non-state networks are clearly far superior to pseudo-markets in terms of preserving and extending liberty: Provision is voluntary and does not depend on theft of resources; incentives for rent-seeking are absent because there are no government officials to lobby for funding/special privileges; top-down politicisation and social engineering is extremely difficult to impose on such decentralised structures; and allocative efficiency is likely to be much higher than under state systems, because the investors in education (i.e. parents, extended families and small community groups) possess local, time and place specific knowledge (e.g. the talents of a particular child and local employment opportunities), as well as having strong incentives to control costs.

Libertarian objectives are also enhanced by the wider effects of extending non-state networks. Reduced dependence on government handouts is likely to undermine political support for predatory politics and the funding of ‘public services’. At the same time, non-state networks that develop in a particular sector can extend into other activities. For example, connections that develop through a homeschooling network can form the basis of counter-economic activities and the voluntary exchange of goods and services outside government regulatory frameworks. Networks could also develop around subcultures that resisted governments on ideological grounds, effectively becoming refuges for political dissidents (e.g. by facilitating escape to a safe location). Thus a strategy of exiting ‘public services’ and developing voluntary alternatives has the potential to snowball into the creation of resilient sanctuaries from the state offering protection from government aggression. The contrast with counterproductive pseudo-markets is stark.

Unless otherwise stated, all articles on this website are written in a personal capacity.


The global assault on stateless societies – and why libertarians should be concerned

War_on_Terror 200x145‘African leaders like to settle nomads. Nomads make it hard to build a modern state, and even harder to build a socialist state. Nomads can’t be taxed, they can’t be drafted, and they can’t be controlled. They also can’t be used to attract foreign aid, unless you can get them to stay in one place.’

Michael Maren, USAID (quoted by Murray Rothbard)

When assessing the effect of their activities, libertarians tend to focus on the West. It is difficult to argue that libertarians have been successful at rolling back Western states. Government remains pervasive and much of the nominally private sector now depends on state-granted privileges. But, more positively, the recent explosion of interest in libertarian ideas, together with the growth of the libertarian youth movement, are grounds for optimism that active opposition to big government will increase in the future.

Looking outside the West, the picture is also mixed. There is little evidence of a genuine libertarian movement of any size, but in many regions political elites have at least adopted models of state capitalism that allow some space for individual ownership and entrepreneurship. Government is still extensive, but the state has arguably retreated somewhat since the height of the communist era, and libertarian-influenced ideas in economics may have played a part in this.

Yet there has been another far more negative development that barely registers in debates over libertarian strategy. This is the ongoing assault on the world’s stateless societies – and in many cases their destruction. The history of this process is of course very long, and includes the conquest of what is now the United States. It continues today in aggressions across the world, actions that in most cases long pre-date the War on Terror.

For example, following decades of colonial rule by France, the territories of the Tuareg tribes of the Sahara are once again occupied by United Nations/African Union troops and other powers. Rather than leaving these groups alone, Western powers have forced them to become part of ‘Frankenstein countries’ such as Mali, Niger and Chad, which straddle one of the planet’s deepest ethno-cultural cleavages. Accordingly, Tuareg resources have been looted by an unholy alliance of corrupt sub-Saharan political elites and Western governments – France, the ex-colonial power, in particular.

Across in Asia, following a long period of Western-instigated destabilisation, the de facto stateless peoples in regions of Afghanistan and North-West Pakistan have been subject to 13 years of Western intervention. Indeed, much of the resistance to this has been from local residents and clans rather than an organised and encompassing ‘Taliban’. Vast amounts of foreign aid money have been pumped into the region to extend the reach of the state in an attempt to breed dependency and allegiance.

Similarly, in Somalia, also a victim of decades of ill-conceived external interference, it would appear that statelessness would not be tolerated by Western elites. This traditionally nomadic society, which has well-established non-state mechanisms for dealing with disputes and crime, could not be allowed to exist without a centralised state subservient to international governance frameworks. The United States and the European Union have paid neighbouring African countries to conquer Somalia and attempt to impose a new government on its people. Unsurprisingly the mercenaries of the Ethiopian, Kenyan and Ugandan armies, under the auspices of the US/EU-funded African Union, have committed atrocities during the ongoing invasion.

The attack on stateless societies is not just being conducted through war and conquest. A more insidious process is underway throughout much of the world. This involves government officials counting and registering individuals in de facto stateless areas and forcing or bribing them onto biometric identity registers (sometimes with compulsory ID cards). The state often gives itself formal title to their land (which may then be sold by corrupt officials to palm oil producers, timber firms, or mining companies), while various subsidised programmes undermine state-free lifestyles through the provision of aid. Traditional means of subsidence that are independent of government are destroyed through the appropriation of land and resources, breeding state dependency and killing off local cultural practices. This is the typical pattern from the forest peoples of India to the tribes of Papua New Guinea. Needless to say, the crackdown on stateless societies, including biometric ID programmes, is to a large extent funded by Western foreign aid.

So, why should libertarians be worried about the assault on stateless societies? Perhaps the main reason is the importance of these and other sanctuaries from the state in acting as a check on government tyranny. Individuals and groups may wish to exit in order to preserve their traditional religious and cultural practices, or to avoid losing their freedom in other ways such as slavery (either directly or indirectly via punitive taxation and other takings). In The Art of Not Being Governed, James C. Scott describes some of the strategies used by stateless peoples in SE Asia to avoid the various predations of nearby states. The existence of ungoverned territory was absolutely crucial to their success.

Stateless zones also offer the possibility of exit for political dissidents. For example, de facto stateless regions of central Asia provided refuge for opponents of the kleptocracies of the Persian Gulf. Without such sanctuary they faced kidnap, torture, extended imprisonment and execution as a result of their views. (Whether or not one finds the opinions of such individuals objectionable is beside the point.) Transnational institutions, international arrest warrants and extradition treaties arguably increase the importance of such refuges.

The exit option has the further benefit of acting as a restraint on the behaviour of states themselves. If political elites steal too much they risk generating a vicious circle as their subjects decide to leave and the returns from taxation and/or serfdom decline. Indeed, it is often the most entrepreneurial and talented who have the strongest incentives to move out. While attempts may be made to prevent exit, these also raise the costs of predation. Thus the presence of sanctuaries from the state will tend to reduce the extent of government in other areas by acting as a check on states’ ability to seize resources.

Ungoverned territories also serve as bases for counter-economic enterprises that circumvent the prohibitions on trade imposed by governments. For example, the Darien Gap and the western fringes of the Amazon rainforest play key roles in the cocaine trade; North-West Pakistan and Afghanistan in hashish and heroin. Whatever the pros and the cons of such activities, these sanctuaries help ensure freedom to choose rests with the individual rather than the state.

Finally, it is worth remembering that the ongoing aggression against stateless societies is very costly in itself, inflicting violence and suffering in the targeted regions, while at the same time requiring large increases to the tax burden and government debt in the West and the misallocation of economic resources on a grand scale. The negative impact of overseas conflicts on domestic liberties is also well established.

But what of the argument that stateless societies are very far from free, that they are frequently characterised by cultural practices that severely restrict the liberty of women and other groups? While traditions vary enormously, and some do indeed seem abhorrent according to Western mores, groups within stateless societies typically do not have the capacity to aggress against individuals on anything like the same scale as states. Compare, for example, the relatively tolerant attitudes (by regional standards) of Bedouin towards homosexuality with the brutal legal prohibitions by various Arab states; or the matriarchies of Zomia with the forced abortions and labour camps of China. One should also take into account levels of development and the logistics of surviving in the often very harsh and sparsely populated mountain/desert/jungle environments where stateless arrangements still exist. Even if desirable in principle, imported ideas such as ‘liberal democracy’ may be difficult or impossible to introduce under such conditions.

It is also incorrect to assume that economic development is impossible in stateless societies. This misconception partly results from the difficulty of measuring and incorporating their economic activity in standard GDP statistics. Trade with surrounding areas means such zones – when unmolested – have typically enjoyed significant improvements in living standards. Indeed this even appears to have been the case in the recent period of ‘anarchy’ in Somalia, despite the endless interference of outside powers.

Western politicians wishing to ‘free’ stateless societies should first explain how they would do so without violating the non-aggression principle. Would they use force to change cultural practices they abhorred? Would they appropriate resources from individuals in the West to fund their mission? And could they be sure their intervention would be successful and not counterproductive? For example, might it make target groups even more hostile to interactions with outsiders and their ideas, or alternatively incentivise them to become dependent on foreign aid handouts? The record of such initiatives does not augur well.

In conclusion, stateless societies still have a valuable role to play in the preservation and expansion of liberty. They comprise an important sanctuary from government and may bolster other sanctuaries within state-governed territories, including the counter-economy and various sub-cultures. In terms of libertarian goals, exit strategies that build up such pockets of resistance may well prove more effective in extending liberty than attempts to roll back the state through politics. This also implies that to the extent libertarians do have political influence a focus on opposing the assault on enclaves of statelessness would pay large dividends (for example, criticism of policies such as foreign aid and military intervention).

Those who hope liberty will be delivered by extending international institutions are surely terminally naive, as well as inconsistent (what about the force required to impose such a framework on the unwilling?). Such governance structures will inevitably be captured by special interests and, as with any major concentration of political power, there is a significant risk tyranny will follow. At that point, defenders of liberty will need an escape route. The importance of competition and the possibility of exit cannot be overstated.

This essay is based on the first part of a presentation on ‘Rothbard versus Konkin on Libertarian Strategy’ given to the Libertarian Alliance in October 2013.

Unless otherwise stated, all articles on this website are written in a personal capacity.

Why libertarian groups should not take government money

EU_enlargements_map 150x150 It is difficult to think of anything more hypocritical than libertarian groups taking state money. But worryingly the vast majority of organisations in continental Europe that style themselves as ‘free-market’, ‘libertarian’ and ‘classical liberal’ are funded with money appropriated from taxpayers. And given that libertarians in the US and UK spend a great deal of time arguing against foreign aid, it is rather ironic, to say the least, that many of these groups have been willing recipients of aid money from the US, EU and other governments.

This is not just a matter of principle. The government money has typically been tied to particular research projects and events programmes. These have promoted policy agendas that a high proportion of libertarians would find deeply objectionable and that bear little relation to genuine free markets.

Unsurprisingly there is a close correlation between such output and key priorities of the European Commission and US economic/foreign policy. Thus one observes a plethora of reports and events on deepening European integration and harmonisation; on strengthening the protection of ‘intellectual property rights’ – a particular focus of US lobbying; on cracking down on the informal economy (Konkin must be turning in his grave); on introducing pseudo-markets, coercive welfare systems and sham privatisations; and on entrenching the special privileges of large corporations through rigged-trade agreements such as TTIP.

Needless to say, senior figures at these organisations have frequently been prominent apologists for US foreign policy, even if this has meant completely betraying basic libertarian principles. Many of these state-funded bodies have also enjoyed an unhealthily close relationship with political elites, particularly in some of the smaller central and eastern European countries. Staff have often gone on to assume senior positions within governments, while some organisations have engaged in detailed policy engineering in cooperation with state bureaucracies.

Such politicisation is tempting – concrete examples of political influence make it easier to attract donations from special interests. But it’s also very dangerous. It increases the temptation to sell-out on principle and distorts research priorities towards those areas most helpful to political elites, while deterring organisations from criticising their political patrons. Worse still, it can do serious long-term damage to the libertarian/free-market movement when initially sensible policies are captured, distorted and rendered dysfunctional by state agencies, politicians and vested interests. Take the numerous botched privatisation programmes that resulted in crony capitalism and/or inefficient rigged markets. Fed through the government grinder, they have brought immense discredit on libertarian ideas.

This is not to say that the overall impact of these government-funded groups has necessarily been negative. Often they have been effective at raising awareness of the dangers of heavy taxation and high inflation, for example. Their agenda may well be preferable to many of the other statist traditions in the region. Perhaps the main objection is therefore their use of terminology – how they describe themselves as libertarian and free-market, pepper their literature with the words ‘freedom’ and ‘liberty’, when in reality they are promoting a particular model of state-capitalism that largely serves certain special interests in the West. And given their prominence, there must be a danger that potential libertarians in Europe will be led astray. Students may not realise that the ‘libertarian’ events they attend or websites they visit are funded by the EU, German government or USAID, and accordingly promote worldviews that differ markedly from genuine libertarianism.

Finally, it should be noted that it is unlikely to be in these organisations’ own interest to continue taking government money. Their dependence on state funds undermines their credibility, not only with the wider libertarian/free-market movement, but also among ‘opinion formers’ in their own countries. At worst, they risk being viewed as sock puppets for the US and EU, particularly as the rise of the internet and social networking makes it increasingly difficult for them to keep their state-funding secret.

These groups have important lessons to learn from organisations that have enjoyed sustained, long-term success in the US and the UK: don’t take government money, stick to your principles, and keep politicians at arm’s length.

Unless otherwise stated, all articles on this website are written in a personal capacity.

Opportunity Cost is the Achilles Heel of High Speed 2

An economically rational transport investment policy would allocate scarce resources to those projects with the highest returns.

Yet even if one accepts the official estimates – and in reality there are major doubts as to whether the benefits will actually outweigh the costs – it is clear that High Speed 2 offers poor value for money compared with alternative transport schemes (data on rates of return on transport schemes here).

The issue of Opportunity Cost is therefore the Achilles Heel of HS2. Clearly the vast resources required would be far better deployed elsewhere.

If the aim is to cut journey times, then other schemes would deliver more valuable savings for less expenditure.

If the objective is to address overcrowding then there are far more cost-effective ways of increasing capacity and making more efficient use of existing links.

And if regeneration of the North is the priority, then greater gains would come from investing in local schemes that would deliver substantial agglomeration benefits.

In summary, High Speed 2 fails the test of economic logic. It is being driven by a mixture of politics and special-interest pressure rather than rational economic analysis.