In yesterday’s post, I suggested that American libertarianism both is and ought to be dying. Is and ought are of course two different things. But if there’s one lesson from the history of political thought (my field), it’s that the two are closer together than many realize.
In times of political crisis, people overhaul their institutions, fixing the problems that have most recently arisen. But in turn they must change their understandings of themselves. Institutions are the structures we create to serve our most significant shared ends (and which, in a sort of recursive loop, also create the ends themselves). Our institutions undoubtedly have their origins in myriad political bargains and social innovations too difficult to comprehend all at once – so we justify them by telling ideological stories. In particular, the interested groups which support our institutions become their champions, telling stories which knit their group together and provide some passable justification to the groups outside their coalition. With change in the institutions, the stories must change, and the task of storytelling falls to the coalition that effected that change (doubtless through many bargains and innovations of their own).
I would contend that this is the moment we are in. Taken one by one, the institutional changes we are contemplating are not revolutionary. But taken together they amount to a rejection of American libertarianism, both in the institutional forms it has taken and in the stories its champions have told about the American ideal of liberty.
Take just a few of the questions we are asking about the institutions of American business: How should CEO’s be paid to ensure that they are “incentivized” to direct their companies responsibly? Should securities traders be paid huge bonuses even in those instances when their activities don’t create value for the rest of the economy? More broadly, what is the value created by a corporation, and what are its responsibilities? These are questions of human identity (our motivations, interests, relationship to others), and human purposes (our goals and ends). And ultimately the crisis we are in is forcing us to reassess how the system of capitalism harnesses human identity in the service of human ends.
Here’s just one example of that reassessment: The ideology of “shareholder value” had been a prominent part of the story (of very recent vintage) told in American business schools to justify the role of management in the modern, publicly-owned corporation. The idea is that a corporation is owned by individuals with a desire to maximize self-interest, in this case dividends. The story made decent sense of twentieth-century institutional changes that had arisen to give shareholders more power over corporations, and to bring about more transparency in management. And the story grew out of deep roots in American libertarianism, in particular in the conception of economic activity as a series of contracts between free, self-interested individuals (see for instance, Chapters 1 and 10 of Milton Friedman’s Capitalism and Freedom). Institutional changes occurred, which spawned an ideological story with roots in a peculiar variant of American ideals of freedom – and in turn, the more mainstream that variant became, the more its proponents successfully pushed for further institutional changes, deregulating business to fit the theory’s core assumptions.
But the events of the past few years have called into question precisely this ideological story. Corporate structures designed to maximize current share price (a short-term measure of shareholder value) may indeed have blinded American business to the Potemkin-quality of its own balance sheets. And so the ideology is being rapidly supplanted, not by outside radicals but by business school faculty themselves. Responding to innovations in corporate form and especially in opportunities for business in the developing world, business schools now teach a stakeholder theory alongside the shareholder theory. Numerous popular books offer alternative corporate theories, such as the concepts of sustainable business, bottom-of-the-pyramid” management and social business.
The process of institutional change and ideological rethinking is already underway. Will libertarians be able to control this process, convincing Americans (opinionmakers, policymakers, and ultimately citizens themselves) that their particular variant on the philosophy of freedom is the best way to make sense of the changes that we see, and the best plan of action for future changes? Probably not. Though the American commitment to capitalism will remain unshaken, it doesn’t take too much effort to see that the libertarian ideal itself is what is under assault. It’s assumptions about human motivations are too shallow, and thus the institutional forms they took too narrowly-focused. And it’s obsession with freedom as non-interference too obtuse to notice the other ways in which American-style capitalism was not enhancing the substantive freedoms of people world-wide. Events may have outstripped the ideology—its own presumptive champions in the world of business are developing new interests, creating new institutional forms, and innovating beyond the ability of the ideology to explain.
There’s no doubt that the libertarian version of the American ideal of freedom has become somewhat firmly planted in the American psyche. It still has appeal for many voters. But with the institutional changes being contemplated, we have begun the process of ending its rein in public policy. It is breathing its last gasps, in part because policymakers who speak the language of libertarianism to members of their coalition just won’t find as receptive an audience in the newer, high-tech, sustainable business world that is emerging and altering the political landscape. And luckily there has been a far-flung, 25-year academic movement (a movement often portrayed as conservative, not liberal – for many liberals have their own civil-libertarian ideology, the twin of conservative economic libertarianism) to question libertarianism. This movement has taken various forms: communitarianism, culturalism, pragmatism or behavioralist economics. But what knits all of these disparate academic trends together is the desire to question the rather stark (simplistic) individualism at the core of American libertarianism and libertarian economics. Any of these forms would provide more fertile ground than libertarianism for incubating an ideological “story” through which we can explain to ourselves the institutional changes we are experiencing.
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The cross country criticisms of the American corporate model are easily exaggerated.
If the US model is so bad, and the stakeholder model is so good, then we would expect that US stock markets to strongly under perform the German and Japanese markets. Yet in comparison to global markets, the US if anything outperformed.
“Should securities traders be paid huge bonuses even when their activities don’t create value for the rest of the economy?”
This begs the question of whether there really are huge bonuses paid to traders making no economic value. Given the enormous value of efficiency in the allocation of capital, and the scale of capital in America, it takes a very small improvement of allocation to justify a big bonus.
OneEyedMan: the proper question is what relation the numbers shown on the stock market have to actual value, in terms of the long-term strength of the companies involved. The string of cases here where huge numbers came crashing down the moment anyone questioned them isn’t getting any shorter…
It seems plausible that there are large agency problems which result in CEOs and others being overpaid. This means that it is the shareholders who are being ripped off (or to be more precise, there is deadweight loss due to investments never made because potential shareholders were deterred by agency costs). I don’t see how it suggests that a “stakeholder” view is preferable. Defining just who a “stakeholder” is seems tricky, and looking out for their interests introduces agency problems that make existing ones pale in comparison. I admit to not knowing much about stakeholder theory, so I am basically guessing here.
I personally don’t care much for normative political philosophy and wish Jeffrey Friedman would focus more on empirical data, but he’s an interesting writer you might want to check out who wrote his dissertation on communitarianism.
http://www.criticalreview.com/crf/jeffreyfriedman.html
One more thing: Over at The Public Philosopher Sam Gill asks whether the “center of gravity” of American politics has shifted so far since the Reagan presidency that libertarianism will continue to control policy thinking even if libertarians are gone (for instance, making “cap-and-trade” the only acceptable policy solution even to Democrats, rather than a carbon tax, etc.).
Here’s how I responded to him by email this morning:
“I think you’re right about the origins of cap-and-trade, etc. Those things made their way into American politics in part because of the influence of libertarians. But we might be able to separate the “policy mechanisms” that libertarians recommend from their “ideology.” Economics as a field has a decent grasp on how a capitalist economy works, and it would be foolish for anyone who supports that system to ignore those findings. Thus, even non-libertarians have some confidence that cap-and-trade policies will work to reduce emissions, the earned income tax credit (negative income tax) will work to improve living conditions (perhaps better than the minimum wage), and etc.
Where they will differ from libertarians on these issues will be on the results — a libertarian in the grips of ideological fervor will see the need for markets wherever he looks (like the child who has a hammer, to whom everything looks like a nail). But someone who is more flexible ideologically will support individualistic-market approaches where they will work to produce valuable civic goals, but oppose them where they will not support those goals (“cost effective medicine” studies, and other components of the centrist approach to health care, could hardly be called market-based approaches).”
Libertarian assumptions about human motivations are not “too shallow” — they are simply wrong. Demonstrably false. Tried and failed. Disproven.
You’ve got a sensitive spam-filter. Just adding the url for Jeffrey Friedman’s papers page was enough to set it off.
The economic focus of this post has me wondering if the “death” theme/hope driving these posts as a whole is narrower than the title suggests: i.e. is specific to libertarianism in regard to economic issues. Libertarianism has lots to say on other topics of contemporary debate: drug laws, gay marriage, government wiretapping, etc. On all those topics I think/hope libertarian attitudes are alive and well!
I’d reply but it would seem criticism isn’t welcome here. It’s a shame, Monkey Change, a shame.
One more thing: Over at The Public Philosopher Sam Gill asks whether the “center of gravity” of American politics has shifted so far since the Reagan presidency that libertarianism will continue to control policy thinking even if libertarians are gone (for instance, making “cap-and-trade” the only acceptable policy solution even to Democrats, rather than a carbon tax, etc.).
Here’s how I responded to him by email this morning:
“I think you’re right about the origins of cap-and-trade, etc. Those things made their way into American politics in part because of the influence of libertarians. But we might be able to separate the “policy mechanisms” that libertarians recommend from their “ideology.” Economics as a field has a decent grasp on how a capitalist economy works, and it would be foolish for anyone who supports that system to ignore those findings. Thus, even non-libertarians have some confidence that cap-and-trade policies will work to reduce emissions, the earned income tax credit (negative income tax) will work to improve living conditions (perhaps better than the minimum wage), and etc.
Where they will differ from libertarians on these issues will be on the results — a libertarian in the grips of ideological fervor will see the need for markets wherever he looks (like the child who has a hammer, to whom everything looks like a nail). But someone who is more flexible ideologically will support individualistic-market approaches where they will work to produce valuable civic goals, but oppose them where they will not support those goals (“cost effective medicine” studies, and other components of the centrist approach to health care, could hardly be called market-based approaches).”
I have to confess, while I’m no fan of libertarianism the idea of “communitarianism” makes me a bit nervous…how different is it from social conservatism? How would you prevent it from turning into a de facto majoritarian dictatorship?
The economic focus of this post has me wondering if the “death” theme/hope driving these posts… is specific to libertarianism in regard to economic issues.
“Libertarianism” is a label that makes the most sense (in the US) in an economic context. Protection of civil liberties is a goal “libertarianism” shares with the Left, and self-declared “libertarians” tend to be spotty with regard to this goal in any case. For that matter, “libertarians” are also pretty spotty on their opposition to corp[orate welfare. The one thing self-styled “libertarians” seem to have universally in common is the idea that government regulation of trade and the welfare state (when the welfare of humans, not coporations, is at stake) are evil.
(I put “libertarian” in quotes because there have been a number of comments here declaring “libertarianism” to be something other than what most people who call themselves “libertarians” actually advocate. But of course, the only workable definition of “libertarianism” is the movement consisting of those people who call themselves “libertarians”.)
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