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The Economist magazine, echoing a theme of mine that has permeated several posts (the evolutionary ecology of human social institutions and technologies ) discussed two unconventional examples of managerial efficiency: Somali pirates (http://www.economist.com/whichmba/somali-pirates) and the North Korean government (http://www.economist.com/blogs/schumpeter/2010/10/succession_planning). Somali pirates provide a purely predatory and parasitic example of how smaller start-ups can break into markets dominated by established behemoths, and North Korea provides an example of successful succession planning (as important in corporations as in governments). While the details of the comparisons are interesting (read the articles), what is most interesting to me is the issue of the balance between productivity and predation that these and other successful strategies are used in service to.
We tend to see the world in absolutes, dividing it into production and predation according to our location and ideological predisposition. Anti-corporatists (mostly on the left) view corporations, and anti-imperialists view powerful nations, as entirely predatory, while those who benefit either directly or indirectly from their activities, and are aware of it, see them as primarily productive. But there are objective measures by which we can untangle the two, such as contribution to global GDP, or to other forms of utility production, versus contributions to global utility reduction. Some enterprises are clearly purely redistributive (such as piracy), producing no new wealth at all, and in fact reducing its production by throwing gravel in the gears of the productive engines of the economy (i.e., increasing transaction costs). This is true even though they are siphoning some of that wealth produced elsewhere to grateful populations, complete with forward and backward linkages from which other enterprising souls might benefit (e.g., outfitting the pirates with equipment, benefiting from their increased spending of their loot, even generating business for security services to defend against them).
The strict Libertarian philosophy places minimal constraints on these processes, differentiating little between production and predation, as long as it occurs within a context of legally defined and protected private property rights. But even within that legal context, there are opportunities for predation constantly arising, such as those that led to the Enron-engineered California energy crisis of 2000-2001 or the 2008 financial sector meltdown. There are many more innocuous activities in the market economy which do not produce wealth, but rather only siphon it off, such as high-volume, high-velocity, extremely short-term stock trading using computer algorithms, or shady personal injury legal services (not to imply that all personal injury legal services are shady) that rely on massive advertising, high volume business with rapid turnover, and quick settlements that may not reflect the clients’ best interests or even outcomes superior than could have been achieved without the lawyers’ assistance. These are perfectly legal forms of what are largely predatory practices.
Economist Mancur Olsen wrote a book titled “The Rise and Decline of Nations” in the 1970’s or 80’s about how nations become wealthy by developing production-oriented economies, and then are weakened by an increasing over-emphasis on distributional struggles, which divert an increasing proportion of people’s time and effort from productive activities. Of course, a nation doesn’t have to be wealthy for too many people to be investing too much in distributional struggles (a common trap of many underdeveloped nations). The point is that what proportion of human effort-hours is invested in productive activity v. redistributive activity is relevant to how much wealth and utility is being produced.
There is nothing wrong with attention paid to distributive implications of policies, as long as that attention is paid in conjunction with attention paid to the balance of productive and redistributive efforts. Given a choice between two equally productive economic models, the one that produces greater distributional equity is preferable. Nor is it wrong for a large market economy to invest some of its resources in consideration of how to divert wealth in economically and socially productive ways. Distributional struggles exist with or without the intentional intervention of government, and government subsidies are often captured by those least in need of distributional assistance. Both government and the public which overseas it has an inescapable challenge in monitoring distributional choices to ensure that they are both efficient and fair.
Indeed, many public investments that are perceived to be primarily redistributive, or predatory against tax-payers on behalf of “special interests,” are in fact primarily productive, addressing social problems, infrastructural maintenance demands, and human capital development demands in ways which increase aggregate utility (both directly, and indirectly through decreased transaction costs) as well as lead to a more equitable distribution of it. But increasing diversion of resources to battles over how to divide the pie ends up shrinking the pie that is divided, and those enterprises (like Somali pirates) that not only divert resources to distributional struggles, but do so through violent predation, decrease the size of the pie even more.
One of our collective challenges as we continue to refine our social institutional landscape is to create regulatory regimes that increase the amount of productive praxis, and decrease the amount of non-productive predation, in both our market and non-market activities. Just as ecosystems can be ravaged by locusts, or overly extractive human beings, so to human economic systems can be ravaged by those actors that swoop in and ravenously extract wealth without producing any. The fact that it can be accomplished in the context of well-defined and well-enforced private property rights is just one more argument why a regime of well-defined and well-enforced private property rights, and no more, is not the ultimate culmination of political economic development. Private property rights are just one thread in a more complex tapestry, a tapestry which we are continuing to learn to weave.
Libertarians rely on the assumption that government is predatory, and that private corporations aren’t, but, in reality, either or both can be, and our challenge is to prevent either and both from being so. Crippling the one that is organized to serve the public interest (and is designed, with limited success, to be answerable to the populace as a whole), in order to leave the field clear for the one that is organized to serve only private interests (and is organized comparatively efficiently to do so) is not a recipe for reducing predation. Rather, it is a recipe for increasing it, and reducing only our means for reining it in.
As I was reading today’s Denver Post article (http://www.denverpost.com/news/marijuana/ci_16239152) on the journey of Medical Marijuana legalization in California, Colorado, and elsewhere, and the journey of Proposition 19, to outright legalize and tax small quantities of marijuana possession or growth, on this year’s ballot in California, I was struck by one surprising parallel: That between the current illegal growers, and the 18th century American colonial tea smugglers who were major catalysts of the original “tea parties” in major cities up and down the Eastern Seaboard. You see, many illegal growers (particularly those in Humbolt County in the north, long a major haven of illegal pot cultivation) oppose Proposition 19, because, though it serves everyone’s interests but their own, it promises to cut into their profits and alter their familiar and preferred way of life. And that’s exactly what motivated the smugglers (closely intertwined with the original “pirates of the Caribbean”), who happily smuggled Dutch East India Tea Company (“Dutch”) tea to the colonies, in order to avoid the taxes and mark-ups that accumulated on British East India Tea Company (“British”) tea on its journey from India to London, and from London to America, passing through various brokers’ hands. It was when the British cut out the London middlemen, and lowered (not raised) the taxes on British tea (which the colonists had always been legally obligated to buy), that the smugglers helped stir up the more idealistic rebels (like Sam Adams), and whip the coastal elites, with which the smugglers had close ties, into a frenzy.
I doubt that the Humboldt County growers will have quite the same impact, but the similarities are striking.
That’s not the only thing I noticed about the article. I also noticed another example of the ecology of human social institutional change (see “The Evolutionary Ecology of Audio-Visual Entertainment (& the nested & overlapping subsystems of Gaia”). You see, once medical marijuana became legalized, it became big business, creating “money and friends,” as the Post article put it. And once it became big business, it meant jobs, creating union friends. And the promise of profits and jobs while still mired in “the worst economic crisis since The Great Depression” means hope, political hay, and a lot of others saying “what the hey.” On top of that, the NAACP got on board, reasonably enough seeing the unnecessary and destructive incarceration of (often African American) youths for a crime that shouldn’t be a crime as an afront to civil rights and the creation rather than deprivation of opportunity. With a “budding” industry promising profits and jobs, a growing familiarity with legal marijuana in more and more communities, and a potentially robust economic activity and public revenue generator, what seemed very distant in the mid-90’s became close-at-hand at the end of the 00’s. Such is the nature of realignments; dominoes falling in branching succession, as more and more people find change to be in their own interests.
But such ecosystems of mutual reinforcing interests aren’t without predators and prey, and other conflicting interests in competition. And so we come back to our Humboldt County growers, who are concerned that legalization will put them out of business, or at the very least depress prices and reduce profits. Like the real interests behind those face-painted Sons of Liberty before them, their fortunes lie with the illegal and untaxed T, not with the legal and taxed variety.
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