Government and Industry

A government that controls industry is necessarily a government that is controlled by industry. Just thought of this as I was reading this review of the movie Food Inc.

I admit my expectations were somewhat low. I was anticipating something more along the lines of a Michael Moore’s emotional yet analytically vapid productions, such as Sicko and Capitalism: A Love Story. This film had quite a few negative things to say. However, it is a bit more sober and interesting, even for a laissez-faire capitalist like me.

To see why, consider a few of its themes:

  1. A negative view of the large size of food industry businesses.
  2. A positive view of government power when it’s used to mandate food industry practice.
  3. A negative view of the control of government by the food industry.
  4. A positive view of small/organic/non-factory farming.

Holding both views 2. and 3. involves a contradiction.

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Superstition and the free market

These days, several local TV channels here in Mumbai show advertisements for trinkets, bracelets, necklaces, armbands and what not with mystical powers. Usually these advertisements are preceded with a disclaimer stating that the channel does not take any responsibility for the claims made in the advertisements. I suppose most rational people would be disgusted by this and would be indignant at the channels and the swindlers who make such “products”. I cannot help feeling disgust myself but this is merely the free market at work and it is all for the good. There is a large number of people who are superstitious and desperate enough to try out these things and it is inevitable that someone will cater to them. The beauty of the free market is that it “works” even when the participants in the market are irrational. Whatever one may think of the swindlers and the channels involved, the free market (in this case) transfers money from superstitious fools to more rational people. That is good. And as more and more such “entrepreneurs” step into the market, the ineffectiveness of their “products” becomes easier to see. That is good too. Perhaps some fools will come to their senses after burning their fingers. That is good too. Those who don’t deserve to lose their money. That is justice. And the free market achieves this without coercion and without the altruism involved in activist efforts to reform people. Leave men free to deal with reality on their own terms and you have freedom, justice, efficiency and progress.

Consider the opposite where a government tries to regulate and restrict the sale of such “products”. Who pays for the government’s efforts? The rational tax payers. Who benefits? The superstitious fools. The net result? Money is transferred from the productive rational people to superstitious fools. Virtue is penalised and stupidity is protected. Can one imagine injustice worse than this? The only thing that can justify this is the miserable doctrine of altruism. Prevent men from dealing with reality on their own terms and you have bureaucracy, injustice and inefficiency.

Independence? day

Another anniversary of India’s independence is approaching. And there are children on the streets, at traffic signals, selling paper flags to anyone who wants to celebrate the occasion. Wonder what they do on other days? They sell a lemon and two (or is it more?) chillies tied with a string to anyone who wants to ward off evil spirits. So what exactly are we supposed to celebrate? Independence? Whose independence? From whom? More than 60 years ago, thousands of people gave their lives to achieve political “independence”. What did they achieve? They replaced British rule with democracy. Some of the British rulers were doubtless oppressing a people willing to be oppressed. But others were rendering a service – the white man’s burden. After “independence”, India’s government was led by men of the second kind – British educated socialists who resented the white man’s burden because they wanted to make it their own. They were men with a “noble” purpose; to teach the uneducated masses how to live – by taking control over their lives. These men had “noble” dreams, but their dreams were not dreams of what they would do with their lives; they were dreams of what they would do with other people’s lives. That meant that no one else would be allowed to dream. This was supposed to be independence. Inevitably, this “independence” has produced the worst kind of dependence imaginable. The politician is dependent on the poor, the uneducated, the superstitious, the irresponsible and the incompetent for their votes. And it is in his interest to let them remain as they are. And these people are dependent on the politician for favors or promises of favors. This dependence is the essential and defining feature of the kind of unchecked democracy that India’s leaders established after independence. The modern intellectuals call this dependence “corruption”. But the manifestation of the essential nature of a system is not corruption. Unchecked democracy is corrupt to begin with.

There is no such thing as political independence. The concept of independence is properly restricted to the realm of a person’s mind. A man’s thoughts, wishes, desires can be independent – of the judgements of other people. Like all virtues independence applies to individuals, not to a collective. And like many other such concepts, this one too has been stolen by collectivists to disguise their true goals. What the Indian political leaders fought for was not independence – of any kind. What they fought for was sovereignty – the state of affairs when a country is governed by people of the same race, religion or culture that have historically occupied it. There is nothing particularly desirable about sovereignty as such. Some of the most oppressive places in the world to live in suffer from sovereignty. It does not matter whether a country is governed by natives or not. What matters is the system of government.

The proper socio-political goal is freedom, not some meaningless independence or a tyrannical sovereignty. Freedom to believe and express one’s ideas – without being censored by the government or by thugs (M.F. Hussain); freedom to marry the person of one’s choice – without being murdered by one’s family or community (honor killings); freedom to develop a technology and market it – without having to buy the rights to do so (3g auction); freedom to buy land and use it for any purpose – without having to rely on the government (Tata Nano); freedom to contract with people on mutually agreeable terms – without being tied by labor laws; freedom to spend one’s money as one chooses – without having it confiscated for subsidies and hand-outs; freedom to run a school – without having to declare it as a non-profit; freedom to start a political party – without having to swear by socialism…

When will India become free? I am not holding my breath (remember the lemon and chillies?). And I am not going to celebrate “independence” day either.

Democracy and anarchism

Aristotle The Geek has written a partial response to the debate on my previous post. He writes

What is an “unfree” market? Let me ask the question the other way round – what is a “free” market? It is a market in which the State does not interfere (the only “interference” would be of the enforcement of contracts kind). Political/ economic freedom is always defined in terms of the State, not in terms of non-State actors. The latter don’t lay any claim to morality when they engage in fraud, theft, murder, confinement etc. It is the State which does that. So, an “unfree” market would be one with State interference.

At this point I would ask “What is the State?” Ayn Rand defines government (which I will use interchangeably with State) as
A government is an institution that holds the exclusive power to enforce certain rules of social conduct in a given geographical area. (emphasis in original)

I will modify it to make one aspect of it more explicit
A government is an institution whose exclusive power to enforce certain rules of social conduct in a given geographical area is generally accepted.

Compare that to a modern democracy. Modern democracies are characterized by the lack of acceptance of any fundamental rule for social conduct. Any rule or law (no matter how fundamental) passed by a legislature may be repealed, completely modified or contradicted in its next session. Read this very illuminating article about how Oliver Wendell Holmes’ dissent in a famous case has served to create a legal orthodoxy that believes that the American constitution does not contain any fundamental principle. In a modern democracy, there is no inviolate fundamental principle that the state or its members are bound by. This means that the modern state lacks an identity. The state is a collective and the identity of a collective is determined by the identity of its constituents. But the modern democratic state is highly disparate. The only thing that is generally accepted is that there are no fixed rules.

The state in a modern democracy is an ever-changing group of men who enforce certain ever-changing rules of social conduct in a given geographical area.

This is about as close to anarchism as I think (and hope) we will ever get. Anarcho-capitalists such as Rothbard (based on some quotes by ATG) write of competing (while also cooperating with each other) private defence agencies. If these competing-yet-cooperating private agencies bind themselves by fundamental principles and refuse to allow other private agencies that do not accept those principles, then they together form an entity which is remarkably similar to a state. If they do not bind themselves by any fundamental principles but still cooperate among themselves, then they are remarkably similar to a modern democracy – a disparate set of power wielders that manages to avoid open warfare.

The only difference between anarchism and modern democracy is the issue of the size of government. But the size of the government is an inessential characteristic. What is essential is the principles that make up its identity. Modern democracies are constantly increasing the size of government and at the same time destroying its identity. But no entity can last long without an identity, especially large ones. A large government devoid of any fundamental identity is just waiting for some autocratic group to seize it (something that seems to be beginning in the U.S.). Anarchists want to do away with government altogether. But that is something that can never happen. Anarchy must degenerate into smaller states (waiting to be conquered by a more powerful state intent on conquest) or into a democracy for the reasons in the paragraph above.

Deep rooted altruism

Plenty of work coupled with a lack of motivation to spend time on editing has meant that its been quite a while since I last wrote a proper,  thought-out post although I do have plenty of accumulated material to write about. While the lack of motivation hasn’t changed, I thought I should just put this down.

In a short conversation over lunch, one of my colleagues talked about how hedge funds are now back in business after all the losses they made recently (probably based on a report from bloomberg.com). He then went on to say that there should be some protection – government regulation – for the consumers. As I resisted, the discussion went on to the food and drug industries. I mentioned how regulations against drugs prevents people from using new drugs even if they sorely need them and are willing to take the risk. He countered by saying that it is not possible for any individual to take responsibility for evaluating all the available goods (be they drugs or foods) and so a government agency is needed. I replied that doctors should certainly be capable of doing the required evaluation. He replied “saare doctors bike hue hain” – all the doctors are mercenaries and have been bought over (presumably by drug companies). I asked “And how about the employees in the government?” and that was the end of the conversation.

Note the reason given to justify the existence of regulation – the people who are competent to evaluate are mercenaries and so, will not act in the interests of consumers, whereas a neutral government body not motivated by profit, will. There is plenty of evidence – living in India, I will not bother to write about it – about how “neutral” government bureaucrats – known, not so fondly as babus – act. How then does an intelligent guy offer such a reason? The short answer is altruism. Just a week back we had a discussion about altruism in which I argued that it is for moral reasons and not economic ones that people accept socialist ideas. My colleague is well aware of my views and probably does not explicitly believe in altruism himself. But he has not explicitly rejected it as evil either. The deeply rooted morality of altruism makes him look with implicit suspicion at the profit motive and – by extension – at all private activity. It seems safer to trust a faceless bureaucrat working in a non-profit organization than to trust a doctor who stands to profit by selling you unproven drugs regardless of all the corruption that the bureaucracy is famous for. After all, by the altruist morality, the non-profit government organization has a noble aim – to serve others. The private doctor is just a lowly human driven by his own profit (which tends to morph into greed). According to the altruist morality, the doctor would have to make a sacrifice to forego the quick cash that he could make by being unscrupulous. And as everyone knows, very few people make sacrifices. So the altruist morality implicitly implies that private individuals will tend be more unscrupulous than public organizations. The facts do not bear this out. And it is simple to see why. Once one assigns a face to a bureaucrat instead of referring to a convenient collective called the government, it is clear that the bureaucrat is also working for profit. And unlike the doctor, whose career depends on his reputation, his career depends on – as Ayn Rand eloquently described in Atlas Shrugged – the aristocracy of pull. If a doctor makes a mistake or even if he is simply thought to have made a mistake by the public, his career is ruined. The faceless bureaucrat has no such responsibility. The profit motive cannot be abolished just by choosing to think of a certain group of individuals in terms of a collective – government. Within a framework of voluntary trade, the profit motive is not evil but good. It is what makes individuals want to prosper. It is what motivates them to work. Within a coercive framework of government regulation, the profit motive produces what is called “corruption”. A bureaucrat has nothing to gain by being scrupulous and a lot to gain by being unscrupulous at little risk. So he chooses to be unscrupulous. If his actions ever get traced back to him, the altruists have a field day damning his greed and the profit motive. But what is it that is corrupt? An unthinking bureaucrat doing what everyone around him does? Or the ethical system that invariably sets up men in situations where they stand to gain by duping others?

One should also look at the secondary consequences of oppressive regulations (take a look at other pages on FA/RM too). Regulations enormously raise the cost of compliance to standards – both directly in terms of the costs of running a regulatory agency and indirectly through the aristocracy of pull (lobbying is a nice euphemism). This effectively puts local small-scale industry at an enormous disadvantage and gives an unfair advantage to the bigger players. It also converts local, easily correctable problems such as occasional food poisoning into large systemic problems (in the same way as centrally controlled money supply creates systemic problems in the financial sector). The first strengthens the aristocracy of pull. The second creates even more demands for its continued existence.

At the end of the discussion, another colleague with whom I recently had a long discussion about the concept of sacrifice (note the reference to sacrifice above) mentioned that it will take another 50 years for people to reject socialist ideas. Today people look to the government for a solution to every problem. That is true. But socialist ideas will never be rejected until one first rejects their basis – the altruist morality – and discovers the alternative – egoism. The history of the U.S. which is now descending into just the sort of socialism that India is coming out of is proof of this fact.

Where is the U.S. heading?

This post (via Gus Van Horn) shows how the government operates in the U.S. these days. There doesn’t seem to be much difference between it and a criminal gang. Except that unlike a criminal gang, it has the entire coercive apparatus of the state behind it. Scary.

Is TARP criminal?

Donald Luskin asks “Is TARP a criminal enterprise?” and goes on to describe a number of dubious details such as:

…it was disclosed that “nearly 20 preliminary and full criminal investigations” are underway, including “large corporate and securities fraud matters affecting TARP investments, tax matters, insider trading, public corruption, and mortgage-modification fraud.”

…Perhaps this refers to the controversy that surfaced last January when it was said that Barney Frank (D., Mass.), the powerful head of the House Financial Services Committee, intervened to get TARP funding for a favored constituent, Boston’s OneUnited Bank.

…It’s easy to guess that Barofsky is looking into the possibility that Treasury Secretary Henry Paulson coerced the CEOs of the nine largest banks to accept capital investments from TARP, even though several of them didn’t want the government as a stakeholder.

…Cuomo writes that according to a deposition by CEO Lewis, “Bank of America did not disclose Merrill Lynch’s devastating losses . . . and would have done so but for the intervention of the Treasury Department and the Federal Reserve.”

But the important question to ask is not “Is TARP (or any other particular program) a criminal enterprise?”. The important question is “Could it have been otherwise?” The government is nothing more than an organization of people. A private organization does not have the authority to confiscate people’s property and use it for its own purposes, whatever those purposes may be. Neither does a government. The proper term for such confiscated property is loot. Is there a non-criminal way to acquire or distribute loot? I think not.

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