Ill Fares the Land

by Tony Judt

  As to the delusion that globalization will undercut governments, facilitating the rise of corporatist market states where massive international corporations dominate international economic policy-making: the crisis of 2008 revealed this for a mirage. When banks fail, when unemployment rises dramatically, when large-scale corrective action is called for, there is no ‘corporatist market state’. There is just the state as we have known it since the 18th century. That is all we have.

  After decades of relative eclipse, nation-states are poised to reassert their dominant role in international affairs. Populations experiencing increased economic and physical insecurity will retreat to the political symbols, legal resources, and physical barriers that only a territorial state can provide. This is already happening in many countries: note the rising attraction of protectionism in American politics, the appeal of “anti-immigrant” parties across Western Europe, the ubiquitous calls for ‘walls’, ‘barriers’, and ‘tests’.

  International capital flows continue to elude domestic political regulation. But wages, hours, pensions and everything that matters to the working population of a country are still negotiated—and contested—locally. With the strains born of globalization and its attendant crises, the state will be called upon with mounting insistence to resolve the tensions that result. As the only institution standing between individuals and non-state actors like banks or international corporations; as the sole regulatory unit occupying the space between transnational agencies and local interests, the territorial state is likely to grow in political significance. It is revealing that in Germany, Angela Merkel’s Christian Democrats have quietly retreated from their brief market enthusiasms to a popular identification with the social market state as an insurance against the excesses of globalized finance.

  This may appear counterintuitive. Surely the promise of globalization—and more generally, of the internationalization of laws and regulations over the past half century—lay in the prospect of transcending the conventional state? We were supposed to be moving towards a cooperative trans-state era in which the conflicts inherent in territorially-defined political units would be consigned to history.

  But just as the intermediate institutions of society—political parties, trade unions, constitutions and laws—impeded the powers of kings and tyrants, so the state itself may now be the primary ‘intermediate institution’: standing between powerless, insecure citizens and unresponsive, unaccountable corporations or international agencies. And the state—or at least the democratic state—retains a unique legitimacy in the eyes of its citizens. It alone answers to them, and they to it.

  None of this would matter very much if the contradictions of globalization were merely passing: if we were living in a transitional moment between the twilight years of the nation-state and the new dawn of global governance. But are we so sure that globalization is here to stay? That economic internationalization carries in its wake the eclipse of national politics? It would not be the first time that we made a mistake on this count. We should by now have learned that politics remains national, even if economics does not: the history of the 20th century offers copious evidence that even in healthy democracies, bad political choices usually trump ‘rational’ economic calculations.

  THINKING THE STATE

  “The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”

  —JOHN MAYNARD KEYNES

  If we are indeed going to witness a return of the state, an enhanced need for the security and resources that only a government can provide, then we should be paying greater attention to the things states can do. The success of the mixed economies of the past half century has led a younger generation to take stability for granted and demand the elimination of the “impediment” of the taxing, regulating, and generally interfering state. This discounting of the public sector has become the default political language in much of the developed world.

  But only a government can respond on the requisite scale to the dilemmas posed by globalized competition. These are not challenges that can be grasped, much less addressed and resolved, by any one private employer or industry. The most that can be expected of the private sector is short-term lobbying in defense of particular jobs or protection for favored sectors—a recipe for just those pathologies and inefficiencies normally associated with public ownership.

  Late-Victorian reformers and their 20th century liberal successors turned to the state to address the shortcomings of the market. What could not be expected to happen ‘naturally’—quite the contrary, since it was the natural workings of the market that created the ‘social question’ in the first place—would have to be planned, administered and, if necessary, enforced from above.

  We face a similar dilemma today. Having reduced the scale of public ownership and intervention over the course of the past thirty years, we now find ourselves embracing de facto state action on a scale last seen in the Depression. The reaction against unrestrained financial markets—and the grotesquely disproportionate gains of a few contrasted with the losses of so many—has obliged the state to step in everywhere. But since 1989 we have been congratulating ourselves on the final defeat of the over-mighty state and are thus ill-positioned to explain to ourselves just why we need intervention and to what end.

  We need to learn to think the state again. After all, it has always been with us. In the United States of America, the country most given to disparaging the role of government in the affairs of men, Washington has supported and even subsidized selected market actors: railway barons, wheat farmers, car manufacturers, the aircraft industry, steel works and others besides. Whatever Americans fondly believe, their government has always had its fingers in the economic pie. What distinguishes the USA from every other developed country has been the widespread belief to the contrary.

  Instead, the state has been vilified as the source of economic dysfunction. By the 1990s, this rhetorical trope was widely imitated in Ireland, Poland and parts of Latin America, as well as the United Kingdom: conventional opinion was for confining the public sector, wherever possible, to administrative and security functions. In a delicious irony, the ideological enemies of the state, from Margaret Thatcher to the contemporary Republican Party, thus effectively adopted the view of Sidney Webb, the founder of Fabian Socialism, who never tired of asserting that “[t]he future belong[s] to the great administrative nations, where the officials govern and the police keep order.”

  How, in the face of this powerful negative myth, are we to describe the proper role of the state? We should begin by acknowledging, more than the Left has been disposed to concede, the real harm that was done and could still be done by over-mighty sovereigns. There are two legitimate concerns.

  Coercion is the first. Political freedom does not primarily consist in being left alone by the state: no modern administration can or should ignore its subjects altogether. Freedom, rather, consists in retaining our right to disagree with the state’s purposes and express our own objections and goals without fear of retribution. This is more complicated than it may sound: even well-intentioned states and governments may not be pleased to encounter firms, communities or individuals recalcitrant in the face of majority desires. Efficiency should not be adduced to justify gross inequality; nor may it be invoked to suppress dissent in the name of social justice. It is better to be free than to live in an efficient state of any political colour if efficiency comes at such a price.

  The second objection to activist states is that they can get things wrong. And when the state errs, it is likely to do so on a dramatic scale: the history of English secondary education since the 1960s is a case in point. The American sociologist James Scott has written wisely of the benefits of what he calls ‘local knowledge’. The more variegated and complicated a society, the greater the chance that those at the top will be ignorant of the realities at the bottom. Th
ere are limits, he writes, “. . . in principle of what we are likely to know about a complex functioning order.”31 The benefits of state intervention on the public behalf must always be weighed against this simple truth.

  This objection is different from that of Hayek and his Aus-trian colleagues, who opposed all top-down planning on general principles. But planning may or may not be the most efficient means to achieve economic objectives: the benefits of public action must be weighed against the risks of suppressing individual knowledge and initiative. The answers will vary by circumstance and should not be dogmatically pre-ordained.

  We have freed ourselves of the mid-20th century assumption—never universal but certainly widespread—that the state is likely to be the best solution to any given problem. We now need to liberate ourselves from the opposite notion: that the state is—by definition and always—the worst available option.

  The idea that there are certain areas in which the state not only may but should intervene was by no means anathema to conservatives: Hayek himself saw no incompatibility between economic competition (by which he meant the market) and “. . . an extensive system of social services—so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.”32

  But just what is it about state services that, if poorly designed, renders competition ‘ineffective’? There is no general answer: it depends on the service in question and on just how effective we require competition to be. Michael Oakeshott, who regarded inefficient or distorted competition as the worst of all possible outcomes, proposed that “[u]ndertakings in which competition cannot be made to work as the agency of control must be transferred to public operation.”33 The place of the state in economic life was an essentially pragmatic question.

  Keynes, characteristically, went further. The chief task of economists, he wrote in 1926, is “. . . to distinguish afresh the Agenda of Government from the Non-Agenda . . .”34 Obviously the agenda in question varies with the politics of those pursuing it. Liberals might confine themselves to the alleviation of poverty, extreme inequality and disadvantage. Conservatives would restrict the agenda to legislation favoring a well-regulated competitive market. But that the state needs an agenda and a way of carrying it out is uncontentious.

  What, then, of the contemporary belief that we can either have benevolent social service states or efficient, growth-generating free markets but not both? On this, Karl Popper, Hayek’s fellow Austrian, had something to say: “[a] free market is paradoxical. If the state does not interfere, then other semi-political organizations, such as monopolies, trusts, unions, etc. may interfere, reducing the freedom of the market to a fiction.”35 This paradox is crucial. The market is always at risk of being distorted by over-mighty participants, whose behavior eventually constrains the government to interfere in order to protect its workings.

  The market, over time, is its own worst enemy. Indeed, the valiant and ultimately successful efforts of New Dealers to set American capitalism back on its feet were most vigorously opposed by many of their eventual beneficiaries. But although market failure may be catastrophic, market success is just as politically dangerous. The task of the state is not just to pick up the pieces when an under-regulated economy bursts. It is also to contain the effects of immoderate gains. After all, many Western industrial countries were doing extraordinarily well in the era of Edwardian social reform: in the aggregate, they were growing fast and wealth was multiplying. But the proceeds were ill-distributed and it was this more than anything which led to calls for reform and regulation.

  There are things that the state can accomplish that no one person or group could do alone. Thus while a man can build a path around his garden by his own efforts, he can hardly build a freeway to the next city—nor would he go to the expense of doing so, since he would never recoup the benefits. This is not news. It will be familiar to readers of Adam Smith’s Wealth of Nations, where he writes that there are certain public institutions a society needs and of which “. . . the profit could never repay the expense to any individual or small number of individuals”.36

  Even the most altruistic among us cannot act alone. Nor can we pursue public goods by voluntary association: ‘faith-based initiatives’. Suppose that a group of people got together and agreed to build and maintain a playing field, for their own use above all but in the middle of their village and open to everyone. Even if these great-hearted volunteers could raise among themselves sufficient funds to do the work, problems arise.

  How do they keep other people—free riders—from benefiting from their efforts without making any contribution? By fencing the field and keeping it exclusively for their own use? By charging others a fee to rent it? But in that case the field becomes private. Public goods—if they are to remain public—need to be provided at public expense. Could the market do the job better? Why should someone not build a private playing field and charge for it? With enough takers, he could reduce his fees to the point where almost everyone could afford to benefit from the facility. The problem here is that the market cannot cater to every case of what economists call ‘option demand’: the amount that any one individual would be willing to pay to have a facility to hand for those infrequent occasions when he wants to use it.

  We would all like a nice playing field in our village, just as we would all like a good rail service to the nearest town, a range of shops carrying the goods we need, a conveniently-sited post office and so forth. But the only way we can be made to pay for such things—including the free riders among us—is by general taxation. No one has come up with a better way of aggregating individual desires to collective advantage.

  It would seem to follow that the ‘invisible hand’ is not much help when it comes to practical legislation. There are too many areas of life where we cannot be relied upon to advance our collective interests merely by doing what we think is best for each of us. Today, when the market and the free play of private interests so obviously do not come together to collective advantage, we need to know when to intervene.

  RAILROADS: A CASE STUDY

  “[R]ailway stations . . . do not constitute, so to speak, a part of the surrounding town but contain the essence of its personality just as upon their signboards they bear its painted name.”

  —MARCEL PROUST

  Imagine a classic railway station: Waterloo Station in London, for example, or the Gare de l’Est in Paris—Mumbai’s dramatic Victoria Terminus, or Berlin’s magnificent new Hauptbahnhof. In these cathedrals of modern life, the private sector has its place: there is no reason why newsstands or coffee bars should be run by the state. Anyone who can recall the desiccated, plastic-wrapped sandwiches of British Railway’s cafés will readily concede that competition in this arena is to be encouraged.

  But you cannot run trains competitively. Railways—like agriculture or the mails—are at one and the same time an economic activity and an essential public good. Moreover, you cannot render a railway system more efficient by placing two trains on a track and waiting to see which performs better, like two brands of butter on a supermarket shelf. Passengers do not choose which of two simultaneous trains to board, based on appearance, comfort or price. They take the train that comes. Railways are a natural monopoly.

  This is not to say that railways cannot be privatized. They have been in many places. But the consequences are usually perverse. Let us suppose that the government authorized Safeway to exercise a five-year monopoly on supermarket sales for the region extending from Boston to Providence, or London to Bristol. Allow further that the government guaranteed Safeway against a loss on its business. Finally, Safeway are issued with copious written instructions on what to sell, the price range within which they could sell it and the times and days when they were to be open for business.

  Obviously, no self-respecting supermarket chain would take up the offer—nor would any sane politician make it. But these, in effect, are the terms under which private companies have bee
n operating trains in the UK since the mid-1990s: combining the very worst of monopolistic market control, state interference and moral hazard. The reason we find the supermarket analogy absurd, of course, is that competition among grocery stores makes good economic sense. But competition among rail companies along one set of existing tracks is simply not possible. In that case, the monopoly should be maintained in public hands.

  Arguments from efficiency, conventionally invoked to justify private enterprise over public service, do not apply in the case of public transportation. The paradox of public transport is quite simply that the better it does its job, the less ‘efficient’ it may be. Thus, a private company that offers an express bus service for those who can afford it and avoids remote villages where it would be boarded only by the occasional pensioner will make more money for its owner. In this sense it is efficient. But someone—the state or the local municipality—must still provide the unprofitable, ‘inefficient’ local service to those pensioners.

  In the absence of such a service, there may certainly be short-term economic benefits. But these will be offset by long-term damage to the community at large—difficult to quantify but unquestionably real: the example of privatization in British bus services may be taken as a case in point. Predictably, the consequences of ‘competitive’ buses—except in London, where there is a superfluity of demand—have been a reduction in services; an increase in costs assigned to the public sector; a sharp rise in fares to the level that the market can bear—and attractive profits for the express bus companies.