Mission-Driven vs. Philanthropic

Peter Thiel says,

mission-oriented companies are often defined by a unique mission that maybe others don’t think is important, whereas a lot of the social entrepreneurship efforts gravitate towards things where you have many copycats doing relatively similar things.

From an interview with Ezra Klein. Pointer from Tyler Cowen.

One of the main recommendations of the Colander-Kupers book is to expand what they call the “for-benefit” sector. By that, they mean corporations that seek both profits and social benefits. To be fair, they tout this more as an alternative to government programs than as an alternative to profit-maximizing firms. As you know, I have been given to ranting against non-profits, on more than one occasion.

Sentences I Might Have Written

A tropical forest is a complex system, but a suburban garden is not. The reason is the the former is deeply interconnected, and it is the interconnected links that define it. A tropical forest will likely collapse if you disturb the natural balance too much, while in a suburban garden you can generally safely remove entire flower beds without affecting its overall health or integrity.

The standard way of doing policy considers our social system as a suburban garden. It tills, plans, and cultivates as if the parts are not interrelated.

That is David Colander and Roland Kupers, writing in Complexity and the Art of Public Policy: Solving Society’s Problems from the Bottom Up.

I am only part way through the book (by the time this post goes up I may be nearly finished). My initial reaction is that it is either more or less Austrian economics. It could be more if I decide that the explicit complexity theory really adds something to what otherwise is a very Austrian critique of mainstream economics. It could be less if I decide that I am disappointed by what I fear will be a treatment of government that I find unsatisfying.

In any case, it looks like one of the better books of 2014. In fact, relative to a very weak 2014 crop, so far this is looking like the best. I first became aware of the book here, but Tyler Cowen never gave it more than an “arrived in my pile” mention, which suggests that he did not find it worthwhile.

Coincidentally, Jason Collins points to an essay by Brian Arthur, who coined the term complexity economics. Arthur also has some sentences that I might have written.

think of the agents in the economy – consumers, firms, banks, investors – as buying and selling, producing, strategizing, and forecasting. From all this behavior markets form, prices form, trading patterns form: aggregate patterns form. Complexity economics asks how individual behaviors in a situation might react to the pattern they together create, and how that pattern would alter itself as a result, causing the agents to react anew.

…It views the economy not as machine-like, perfectly rational, and essentially static, but as organic, always exploring, and always evolving – always constructing itself.

Herbert Spencer on Exit and Voice

In 1850 or 1851, he wrote,

If every man has equal freedom to do all that he wills, provided he infringes not the equal freedom of any other man, then he is free to drop connection with the state–to relinquish its protection, and to refuse to pay toward its support…

Let men learn that a legislature is not “our God upon earth,” though, by the authority they ascribe to it , and the things they expect from it, they would seem to think it is.

These are selections from chapter 19 of Social Statics, reprinted in a new volume of readings from the Adam Smith Society, edited by James R. Otteson. The title of the volume is What Adam Smith Knew: Moral Lessons on Capitalism from Its Greatest Champions and Fiercest Opponents. This looks like an excellent collection of readings for a course in social and political philosophy.

What strikes me about Spencer’s chapter is how clearly he makes the case that exit is more legitimate than voice.

I think that my counter to Spencer would be this:

1. In modern society, we must interact, both directly and indirectly, with many strangers.

2. If we had competitive government, in which each person could choose which set of rules to obey, the cost of interacting with strangers might increase. When you sell me food, how do I know that you submit to a quality-assurance regime that gives me confidence that you are not cheating or poisoning me? Today, I can assume that the simple fact that you live in the United States makes you automatically subject to its rules. With competitive government, I would need some sort of signal.

3. As we expand the list of interactions, the signaling costs may mount up.

I do not think that this signaling-cost story is sufficient to explain and to justify the existence of government. I do not think that government emerged because people got together and said, “Sigh. Yes, government is a really problematic institution, but without it we would have to waste a lot of resources on signaling that we are going to treat strangers decently.”

I do think that there is something to a Hansonian view that we tend to want to affiliate with high-status people, and that certainly includes people with power. And I think that this view accounts for a lot of the support that the state receives. Spencer strikes me as anticipating this view, or coming close to anticipating it, for he complains of

that sentiment of power-worship which still misleads us by magnifying the prerogatives of constitutional governments as it once did those monarchs.

George H. Smith gives a quite different Spencer. In a footnote, Smith writes,

he insists, in Social Statics (1850), that ethics, including the Law of Equal Freedom, applies only to the “ideal man,” i.e., to a future society populated by people with highly evolved moral sentiments.

Pointer from Alberto Mingardi, who himself has written a book on Spencer.

In another essay, Smith writes,

When this remarkable man moved from an early optimism (during the 1840s and 50s) to an extreme pessimism (beginning roughly in the 1880s) about the prospects for individual liberty, when he predicted the rise of militarism and total war in the twentieth century and the political centralization and regimentation that such militarism would bring in its wake, he let it be known that classical liberalism was dead for the foreseeable future. And he was right.

Francis Fukuyama on Big Banks

In his latest book, Political Order and Political Decay, he writes,

Though no one will ever find a smoking gun linking bank campaign contributions to the votes of specific congressmen, it defies belief that the banking industry’s legions of lobbyists did not have a major impact in preventing the simpler solution of simply breaking up the big banks or subjecting them to stringent capital requirements.

It is taking me a long time to finish Fukuyama’s book. It is long and repetitive. I think that every time I read something from him, my temptation is to condense it to something much shorter. If I post a review, I will let you know, and my guess is that if you read my review you will not need to read the book.

He favors a combination of state capacity, rule of law, and democracy. In terms of our three branches of government, the executive branch is responsible for state capacity, the courts are responsible for the rule of law, and legislatures are to respond to democracy.

(Bryan Caplan is not happy with the concept of state capacity. He suspects that it is a meaningless yay-word. If nothing else, Fukuyama seems to me to endow the word with meaning. It means that bureaucrats are effective and ethical, as in Singapore, rather than ineffective and corrupt, as in India.)

Many on the right consider the administrative state, meaning government agencies operating independently, to be a bug. For Fukuyama, it is a feature. In his view, one main reason that these agencies function poorly in this country is that they face too much interference from Congress and from the courts. In my view, agencies are as easily captured by special interests as are legislators.

If David Brooks ever gets around to reading this book, he will heart it. Like Brooks, Fukuyama longs for a political system in which an autonomous elite governs on behalf of the public good. In Fukuyama’s view, the libertarian efforts to constrain government, including checks and balances as well as federalism, end up backfiring. They make government less effective while not constraining its growth.

The ideas are worth chewing on. Do I believe that the elites would, for example, fix the unsustainable entitlements promises if we had a parliamentary system? Or do I believe that a stronger government would be worse rather than better? It’s a tough call.

Political Order and Political Decay

That is the title of Francis Fukuyama’s latest book. I have started reading it. So far, I would summarize it as saying that government must overcome both market failure and government failure. That is, it needs to be effective at providing public goods while serving everyone equally (not succumbing to the problems of public choice). I might summarize this as follows:

Public Goods Provided Public Goods Not Provided
Treats People Equally good government weak government
Privileges Elites crony government predatory government

Think of Denmark as good government, China as crony government, Zaire under Mobutu as predatory government, and Afghanistan as weak government. I assume that “political decay” will mean the movement from good government toward either weak government or crony government.

For a review by someone who has finished the book, see Michael Barone.

What I’m Reading

The Making of the Modern World: Encounters, by Alan MacFarlane. He has an almost infinite list of books on Amazon, many of them with “Modern World” in the title. This is a Kindle edition, very garbled, but with much interesting material. An attempt to summarize:

1. “Modernity” is different and important. One way to think of it is that in modern societies, there is separation and balance among power, economic activity, religion, and kinship.

2. In pre-modern societies, whether tribal or imperial, these forces are fused, into the tribe or the state, respectively.

3. The 18th century was when thinkers such as Adam Smith began to notice a cultural break with the past. 19th-century legal historian Henry Maine called this the transition from a society of status in which social relationships are determined at birth to a society of contract, in which social relationships are more egalitarian and formal.

4. Maine notwithstanding, modernity reflects a balance of status and contract. We are not so atomistic that we live in a world of arms-length contracts. We belong to various types of associations (MacFarlane notes that many more team sports were invented in England than in other countries) which are bound by more than self-interest, but we do not belong to one single encompassing tribe or theocratic state.

5. The smaller, more fluid units of civil society are key to keeping modern states from reverting to tribalism or all-powerful states. This idea goes back to Tocqueville, of course. Nowadays, I would note that Yuval Levin is one of its leading champions, and he often cites Burke.

6. Modernity is not necessarily robust. Modern societies have managed to make production more rewarding than predation, and consequently they are wealthier and more powerful than pre-modern states. But humans remain attracted by encompassing ideologies, such as Communism or radical Islam. In fact, MacFarlane cites several scholars who wrote over 100 years ago that Islam did not adapt to modernity as did Christianity, and Islam still calls for a pre-modern unity of all spheres.

7. The Industrial Revolution combines modernity with the scientific/technological revolution. Neither alone is sufficient.

I highlighted numerous passages in the book. A few are given below the fold. Continue reading

My Take on the Piketty Poll

1. The poll asked whether the post-1970s increase in inequality in the U.S. is due to r>g. No one* agreed with that statement. Piketty does not agree with that statement.

2. What this makes clear is that Piketty is making a claim about the future. That is, in the future, we will have rising inequality because r>g.

3. Supporters of Piketty can say that the poll asked the wrong question, and those of us who jumped on the poll should have known that.

4. Still, in my opinion, the poll serves to highlight that there is no necessary link between (i) rising inequality and (ii) r>g. You can have (i) without (ii), and you can have (ii) without (i). Yes, we already knew that. You can argue that it does not refute Piketty, because he would never come out and insist that (i) entails (ii) or that (ii) entails (i). However, his book is making a rhetorical attempt to link the two propositions (he would hardly have written it otherwise). I think that the poll illustrates that the rhetoric cannot overcome the economics.

*except for Hilary Hoynes

Isabel Sawhill’s New Book

Generation Unbound. I am reading it–may have finished by the time this is posted. In short, her thesis is that many twenty-somethings are having unplanned children out of wedlock, with detrimental consequences, particularly for the children.

Possibly related: This chart from Frances Woolley, showing Canadians’ intentions to have children, sorted by gender and age. What stands out is that among 15-24 year-olds, females are much keener on children than males.

Certainly related: Ben Casselman on a recent Pew survey of marriage patterns. Pointer from Jason Collins.