Further animadiversions upon inefficiency

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Last Monday I posted The Use and Abuse of Inefficiency, in which I suggested that a society might choose to have an inefficient economic system in order to forestall the economic equivalent of tyranny, just as the inefficiency of parliamentary democracy is sometimes put forward as a mechanism to forestall political tyranny.

In that discussion I several times touched on the issue of popular sovereignty and its place in contemporary political systems. It would not be hyperbole to say that the relation between the state and its people — or, if you prefer (and in the interest of greater precision), between a given nation-state and its population — is not only one of the great political issues of the modern age, but also one of the great moral issues of our time. For while nation-states putatively represent the interests of a given nation, that is, the interests of its people, this de jure concern is not always, not even often, realized in de facto institutions.

France is one of the scenes of the great struggle between people and government, state and population. The French state has been centralized since the middle ages, and this centralization has been strengthened by modern developments. On the other hand, France was the scene of the most radical of the political revolutions that swept away the feudal order and replaced it with a recognizably modern political order. Thus in France we see a strong centralized nation-state, as well as a population that has repeatedly sought political revolution, attempting to overturn the centralized nation-state.

The dialectic of state and people is played out in France in a very concrete way, and often with spectacular violence. It is a little difficult for someone from North America to appreciate it, but even a tourist’s view of France can provide some telling clues. Everyone knows what it is like to try to go to an museum in France only to find that the staff is on strike. The French strike often and strike with gusto. Sometimes, perhaps even often, these strikes turn violent. I recall walking around the base of the Eiffel tower and seeing several police vans parked in the area. I looked in their windows and saw lots of riot gear: helmets, truncheons, and shields.

It was utterly peaceful and quiescent that day at the Eiffel Tower, but the police were ready for a riot to break out nonetheless. The police in France are always ready for a riot to break out, and sometimes one does.

The relation between state and people in France is something like the relation between management and workers in a contested and often violent industry. To use the terminology of that sometime Parisian, Rousseau, this arrangement constitutes something of a social contract. The people of France are accustomed to a strong centralized government that often uses its police power with some brutality, and the government of France is accustomed to a population that sometimes riots violently. Is this an efficient arrangement? Perhaps not, but the French have learned to live with it. It sounds like I’m talking about Italy, where spectacular inefficiencies are often accepted as a matter of course in daily life, but that just goes to show you that societies strike all kinds of deals, and these deals have much more to do with history than with reason or rational planning.

This is the moment, then, when we can assert American Exceptionalism, for in the US, a society created during the Enlightenment, and shaped to reflect Enlightenment values, much is in fact the result of reason, rational planning, and rational compromise. And while the political left likes to remind us of violence of labor history in the US, on the whole life in the US is quite peaceful and orderly, important exceptions noted.

We have, over the past year, seen a financial crisis that has not only destroyed enormous fortunes, but has also devastated the savings and investments of ordinary middle class and working class Americans. Many who have saved a lifetime and have done the responsible thing have suddenly found the value of what they own cut in half. It is a painful experience. But you will notice that there is little or no rioting in the streets. As with the burst of the dot com bubble (or the burst of the Enron bubble), so with the burst of the real estate bubble, Americans accepted their ruin with remarkable equanimity.

Recent financial shenanigans have also included a couple of spectacular pyramid schemes, those of Bernard Madoff and Allen Stanford. The collapse of these enormous schemes devastated fortunes great and small. People were angry, and they shouted their anger to television cameras, but overall, things remained peaceful. A few years ago a pyramid scheme collapsed in Colombia and there were riots. A few years before that, pyramid schemes collapsed in Albania and there were riots in which people were killed.

The upshot of this is that, in the US, there is a different social contract than those which prevail in France, Colombia, or Albania. In each case, observe, there is a formal constitution, but there is also a tacit social contract that involves its own assumptions, expectations, and conventions. Is the tacit social contract more or less important in the life of the nation than the explicit and formal constitution, or vice versa? We all know that there are nation-states that utterly ignore their written constitutions, and others that regularly change their constitutions, and nothing else much seems to change. Thus the life of a nation is much more than its formal constitution.

It is to be expected that the observations concerning the political life of the nation also hold for the economic life of the nation, with similar distinctions between implicit social contracts and formal economic institutions as well as the difference among nation-states between both of these. And it is not only the difference between formal and informal institutions (the fact that these institutions exist in parallel), but the tension between the two, that defines the unique economic climate of a nation-state.

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