Monday, 20 November 2017

The Nature of the Political Firm

A theme of Corey Robin's analysis of the conservative tradition is the relationship between the older conception of aristocratic virtue and the newer idea of value arising from judgement in the marketplace. Though the latter crystallises in the late 19th century with the substitution of subjective preference for objective labour as the source of value, Robin shows that its roots lay in the reaction to the French Revolution, notably in Edmund Burke's tentative search for a philosophical justification for the virtue of capitalists as a replacement for the discredited virtue of the ancien regime, a search that put him at odds with Smith, Ricardo and Marx, but which connects him beyond the Marginalists to Friedrich Hayek and the contemporary vulgate of entrepreneurs and "wealth creators". A further link in this chain is Friedrich Nietzsche's equivalence of esteem and value, which both emphasised the idea of personal judgement and restored the importance of rank: the esteem of the superior sort creating a superior value (there's a lot of Nietzsche in Google's Page Rank algorithm). The point that Robin makes in his study of conservatism after 1789 is that it responded to modernity "by turning the market into the realm of great politics and morals", and that it was inching towards this long before the emergence of the Austrian School.

Robin's basic premise is that modern conservatism remains an essentially reactionary movement that seeks to preserve private hierarchies against democracy. It employs both aristocratic virtue (e.g. constitutionalism) and rabid populism (e.g. Trump), despite the inherent antagonism of the two. In practice, the attempt to reconcile elite virtue with the market as a mechanism for determining value has led to an increasingly narrow definition of the virtuous elite as the merely wealthy - i.e. those who have been rewarded by the market - hence the contemporary contempt for "elites" not founded on wealth, such as democratically-elected politicians and professionally-credentialed scientists. An obvious problem for conservatism is the lack of virtue displayed by the modern rich, which is evident not just in disquiet over predatory business practices and tax avoidance, but in the personal "unworthiness" of Donald Trump and the "sociopathic" behaviour of Mark Zuckerberg. Though these critiques are loudly voiced by liberals, they are essentially a conservative demand that rank should reflect conventional ideals of virtue (not unrelatedly, much of the liberal abhorrence of Russia arises from what is seen as Putin's presumption and the vulgarity of his oligarchic supporters).

Friedrich Hayek's importance to the conservative tradition is often reduced to an instrumental borrowing of his defence of markets and the price mechanism, which takes at face value his claim to be a classical liberal rather than a conservative. Though Hayek saw the market as the ultimate arbiter of knowledge, he also believed (as a good neoliberal) that the market was made, and specifically through the guidance of the wealthy as an avant-garde of taste. But while Hayek thought that the rich had to drive society forward through their daring and experimentation, he wasn't a fan of the self-made man, let alone the "disruptor" (Schumpeter's creative destroyer, in older terms). Rather he advocated an aristocracy that benefited from elite education and the productive idleness enabled by freedom from material want: "The grosser pleasures in which the newly rich often indulge have usually no attraction for those who have inherited wealth" (insert your own Trump joke here). Hayek seems to have missed the partial democratisation of taste over the course of the twentieth century: the wealthy may have pioneered the mobile phone, but they didn't pioneer jeans. Contra Hayek, there isn't a single avant-garde and taste is a field of contest not consensus. In his top-down view of taste, Hayek echoes Burke's ideal of a contract between the generations - i.e. the importance of inheritance to values as much as to property.

In this light, Robin's updating of his seminal work The Reactionary Mind to include Trump (the first edition concluded with Sarah Palin) is interesting because of the renewed emphasis he appears to place on the dichotomy of traditional political virtue and the value of the market (I'm judging from press articles as the new edition paperback won't be out until the New Year and the hardback is nearly £50 - that's the market for you). Robin sees Trump as a product of the market realm whose attitude presents a challenge to the more aristocratic tradition of political virtue (that The Donald was criticised as a would-be monarch by the Republican Party's Whig nobility rather supports this view), though he also notes the destabilising scepticism that Trump has himself displayed about the operation of the market, which is clearly part of his populist appeal: "So he is on the one hand very legible as a kind of great man of the economy, but on the other hand he also can be very skeptical of that tradition, and is constantly exposing it as a fraud and a deception. That really is at the heart of what makes Donald Trump new and innovative within the conservative movement and the Republican Party". Trump may not be a complicated man, but he is a political paradox.

In a blog post, Robin maps Trump onto another revealing dichotomy: "In his classic article 'The Nature of the Firm' ... the economist R.H. Coase divides the economic world into two modes of action: deal-making, which happens between firms, and giving orders, which happens within firms ... When it comes to wielding power in the political sphere - I'm not talking about executive orders, of which Trump has issued many, and which are a sign of his weakness, not his strength; I'm talking about exercising power that requires the assent and cooperation of other political actors - he's completely out of his league. There's a reason for that: the conception of power he has - such as it is and however bad he is at it - is drawn from the Coasian world of the firm". This is true, but it also highlights that Trump is a product of inherited wealth more than business school. His corporate experience has been characterised by fealty and whim, hence his ease with mobsters and his attractiveness to small business owners everywhere. He has bullied politicians and threatened bankers ("too big to fail" was a feature of New York real estate long before financial services). He has rarely had to persuade employees or shareholders beyond bluster. Revealingly, he entered national politics as a "birther" (questioning Obama's legitimacy to serve as President) and has gone out of his way to appoint family members to key positions on the basis of little more than birthright. He may be a yahoo in liberal eyes, but in his own mind he is an aristocrat.

Robin sees this dichotomy - the reduction of politics to giving orders and making deals - as another example of neoliberalism's colonisation of politics with economic modes of reason. That is certainly plausible if we think of the operation of politics within the domestic sphere (Coase obviously influenced the discourse of privatisation and the extension of transactional management to the public sector), however there is a dimension of politics in which the Coasian dichotomy is perhaps more legitimate, rather than simply an ideological imposition, and that is the distinction between internal and external sovereignty: who ultimately decides and what compromises must be made with other states. While the former has become symbolically both more demotic and economic during the democratic era (think of the prominence of the household budget trope today), the latter has retained an aristocratic tone, however squalid the reality of foreign affairs. This has thrown Trump's more vulgar approach - ranting about unfair competition and promising "great deals" rather than diplomacy - into sharper relief and encouraged the hyperbolic accusations of a lack of competence and integrity.

The distinction between internal and external sovereignty is a fundamental attribute of all organisations, which might make it seem a rather banal observation, but it also allows us to think of politics in terms of transaction costs, which is particularly relevant to the current Brexit negotiations because those centre on the redrawing of the boundary between the two realms. In Coase's conception, a firm will take on the overhead of dealing with an external supplier when the cost of doing so is lower than the cost of making provision inhouse - i.e. when outsourcing is cheaper than insourcing. Rather than a federal superstate or a bureaucratic imposition, the EU can be thought of as a series of outsourcing arrangements, from the regulation of medicines to the control of borders. The separate cases for joining the Common Market and quitting the European Union that bookended our membership focused on the benefits of trade, but the reality was a reform of the scope of the state (which was misleadingly interpreted by europhiles as an attack on internal sovereignty) and choices about what was and was not a "core competence" of "UK Plc". This rational (if often covert) discourse has now been replaced with irrational theatre.

In Coasian terms, what recent months have shown is that UK government ministers aren't very good at doing deals, even allowing for the unhelpful barracking of the Brexit ultras and the Tory press. Where their ability to secure an external deal has been constrained by circumstance, that has often been the consequence of the self-defeating issue of orders internally, such as the premature invocation of Article 50 and the calling of a general election. But this seems all the more baffling when you consider just how successful the UK was in doing deals with the rest of the EU over the last 40 years, from the famous rebate to exemption from the euro and the Schengen Agreement. To put this in terms of the conservative tradition described by Corey Robin, if the US is led by an instinctive aristocrat who lacks aristocratic virtue (a Hayekian without taste), the UK is plagued by inadequate Nietzscheans, such as Boris Johnson and Michael Gove: monsters of self-regard who can barely hide their contempt for the herd and have only a dilettantish understanding of matters "economicky". If the UK really is a firm, then we unquestionably have the wrong management team.


  1. "In Coasian terms, what recent months have shown is that UK government ministers aren't very good at doing deals, even allowing for the unhelpful barracking of the Brexit ultras and the Tory press. Where their ability to secure an external deal has been constrained by circumstance, that has often been the consequence of the self-defeating issue of orders internally, such as the premature invocation of Article 50 and the calling of a general election. But this seems all the more baffling when you consider just how successful the UK was in doing deals with the rest of the EU over the last 40 years, from the famous rebate to exemption from the euro and the Schengen Agreement."

    To obtain these concessions in the past UK governments certainly engaged in brinkmanship, but ultimately acknowledged that this had to ultimately be followed up with negotiation and some concessions. Now it seems to be all-or-nothing statements and assertions of national martyrdom.

    I'm not sure why this has become the case. Possibly the media influence had become more pervasive, corrupting public opinion in turn? Or the increasing reluctance to relate to the EU as anything but a scapegoat took its toll? Or Tories in the 80s and early 90s at least retained some diplomatic skills from the days when a powerful labour movement made negotiating a necessity? Or is narcissism becoming omnipresent in modern politics? (or modern life in general?)

    1. Perhaps it was as Alex Harrowell argued – that rising inequality has meant that the Tories are no longer representative of British capitalism, and instead are hostage to the whims of weirdo billionaires...

    2. The "weirdo billionaire" thesis has merit, but I don't think it fully explains the situation, not least because of the emphasis on "weirdo". Though Alex Harrowell makes the point that modern capitalism has often rewarded crazies, their disproportionate influence is no greater than the nut-jobs of an earlier era (think Howard Hughes or James Goldsmith), while the same dynamic has given prominence to soi-disant liberals like Richard Branson or George Soros, not to mention the Wall Street types who supported Hillary Clinton.

      Where the idea has merit is in respect of the changing rationale for the toleration of political funding by private interests. Despite the appeals to free speech, this is ultimately the result of a choice to treat politics as a market in which producers respond to the preferences of rich consumers, so it is very much a product of neoliberalism. In other words, it is a commitment to pay heed to billionaires as a class, rather than just the necessity of humouring the fruit-loops.

      While the UK hasn't gone anywhere near as far as the US in this regard, the ideological atmosphere has changed, with the result that British politicians increasingly defer to the idea that the judgement of the rich is of superior value (if the market has made them rich, then surely the market is telling us something). This is the tendency whose emergence Robin traces through Burke, Nietzsche and Hayek, and which had become hegemonic by the mid-90s and New Labour.

      The problem today is that the rich as a class are divided, hence the rabbit-in-the-headlights behaviour of the government. This is not just a big vs small capital split, nor does it straightforwardly map onto globalists vs nationalists (cf James Dyson). It appears to be a fracture within the neoliberal tradition, essentially between Ordoliberals and classical liberals, which means it turns on the role and extent of the state.

      This, I think, is a direct consequence of the aftermath of 2008-9, which revealed both that the state was always behind the curtain and that it commanded real power. Though they were protected and then further rewarded (e.g. QE) by the political class from 2009 onwards, the rich found the experience humiliating because it called into question not only their value (the judgement of the market was shown to be rigged) but their justification for dominance in public policy.

      I think this has boosted the influence of the classical liberals to the point that it has become destabilising. While small-state rhetoric has been employed instrumentally by conservatives of all stripes, most have been insincere, hence the state never shrank. The Tories' problem is that they're now being driven not only to decouple from the EU but to radically prune the national state as well (hence the gleeful vandalism), which is actually anathema to many of them.