Do global problems require domestic solutions?

‘Overall the best governments seek to extend the freedom of their citizens; we should not want them to wither away but to maximize individual choice while standing guard over a sturdy infrastructure of institutions and services. What they do within their (permeable) borders is reflected in what they should seek to do outside, increasing the range of free choices that people can make. Far from there being a clear choice between domestic and foreign policy, they are now frequently one and the same’ (Chris Patten, ‘What Next?’, Penguin 2009: 443).

It might seem to be a challenge for me to agree with the sentiments in that quote so soon after writing about the desirability of community self-regulation - governance without government. Those who want more self regulation must want government to ‘wither away’ to some extent to make room for this to happen. Yet I doubt whether it would be possible for people to prosper for long in a self regulating community without some kind of government to organize defence against external predators. I think Chris Pattern is right that we need governments to stand guard. I also think that if we had a government that was seeking to extend the freedom of its citizens, as Patten suggests, it would promote more community self regulation as a substitute for government regulation.

I’m not sure whether or not Patten would agree with me on that last point. Perhaps he would. He was not noted as a fan of statism when he was the last governor of Hong Kong and this book shows that he has retained many views favourable to individual freedom and free markets, despite having served as a European Commissioner.

One of the points that Patten makes in this book is that, despite globalization, nation states remain ‘the principal arbiters of politics’ (p.7). However, he questions how much states can do or achieve on their own:

‘Can they secure the welfare and safety of their citizens, policing borders, regulating economic activity, preventing financial ruin, protecting public health, avoiding environmental catastrophe? As the vocabulary of state aspirations becomes more ambitious, with political leaders promising almost every sort of fulfilled happiness, the capacity of states to deliver on these promises appears to become ever more suspect. A peaceful life, let alone a happy one, often seems more problematic than rhetoric suggests should be the case’ (p.9).

At the end of the book Patten tells us that his intention when he started to write it was ‘to demonstrate that nation states had to work together to cope effectively with the problems that crowd in on us all’. The point he ends up making is that ‘more effective domestic policies and better government at home are often needed to deal with global problems’ (p. 443). Three examples he gives are drugs (domestic policies in rich countries keep warlords in business in Afghanistan), epidemic diseases (breeding grounds in poor countries are sustained by inadequate public health facilities) and global financial crises (bad policies in individual nation states have effects that spread to other countries like an epidemic).

In my view there is another important example that Patten could have given of how domestic and foreign policy are frequently one and the same. This is particularly evident in international trade negotiations in which governments come together to talk about reducing trade barriers without any chance of achieving worthwhile outcomes because they are acting as the agents of the domestic interests which benefit from trade barriers. It is not possible for any government to take a sensible negotiating strategy to international negotiations unless it is supported by public understanding of the damage that its own trade barriers impose on its domestic economy.

However, I must be becoming a grumpy old man to complain that this book should have discussed any issue more thoroughly. This is one of the most perceptive books about global problems that I have ever read. The book shows that it is possible for a politician to acquire wisdom even though the incentives faced by people who choose that profession tend to work in the opposite direction.

Is reasonable regulation compatible with democracy?

Peter Boettke recently wrote a paper entitled: ‘Is the only form of “reasonable regulation” self regulation?’ (GMU Economics Paper 10-05).

This paper draws attention to the potential for self-regulating communities (governance without government) to achieve benefits of social cooperation even in unpromising situations. The subtitle describes the contents of the paper: ‘Lessons from Lin Ostrom on regulating the commons and cultivating citizens’.

Boettke attributes the concept of reasonable regulation to Anne Krueger. He tells us that Krueger got him thinking about the concept when she said at some conference that rather than central planning or unfettered markets we need reasonable regulation – regulation that is not capturable by special interests. Having read some of what Krueger has written about rent-seeking societies I imagine she put forward the concept of reasonable regulation as an ideal worth striving for rather than as something that could easily be achieved.

Boettke argues that self-regulation systems apply reasonable regulation. He suggests that since self-regulating systems are operating outside the formal realm of politics they do not face the problem of protecting against the unwarranted influence of politically empowered special interest groups.

I think that is a good point, but it may be over-stated a little. Community organizations do have to cope with the problem of protecting against the unwarranted influence of special interest groups among their members. They also have to deal with free-rider problems. The main difference is that when decisions are made within such organizations opportunistic behaviour is more easily seen to be opportunistic. It is more difficult for any individual or group to argue for unwarranted preferential treatment when the people who have to pay for this are members of the same community. It is also easier for the opportunistic tendencies of individual members to be restrained by subtle (or not so subtle) threats of retaliation by other members. It would be more defensible to argue that self-regulating systems are able to deal more effectively with the unwarranted influence of special interest groups.

Self-regulation systems seem to have some attractions for everyone opposed to statism, including self-styled commie libertarians and anarcho-capitalists (as well as sensible people like myself :-) . Such systems would presumably also be attractive to Burkean conservatives who emphasize the importance of the ‘little platoons’ i.e. the spontaneous social groups that arise in society.

Yet self-regulation may appear to be too utopian to play a major role in modern democracies. Everyone can understand that tribal groups were able to self-regulate to ensure that forests and fisheries were sustainable. They can understand that their ancestors were able to run schools and hospitals through local community organisations without help from governments. But I expect that many people would feel that there are powerful reasons why self regulation of many areas of life has been displaced by the regulatory apparatus of the democratic state. Is there something about democracy that leads inevitably to taking decisions out of the hands of local communities and placing them into the hands of governments, and then centralizing those decisions at the highest level of government?

This is a big question that I don’t think I can answer adequately at the moment. But I will make a few relevant points.

First, I think it is inevitable that a lot of people will look to politicians to offer solutions to local problems and that politicians will offer such solutions. Politicians do not win many votes by telling voters that they aren’t interested in local problems.

Second, I think that most people are aware that when a politician offers to solve problems by displacing self regulation, then someone has to pay for the costs involved. When people weigh up the benefits of regulation that will take the trouble out of things (to borrow a phrase from Charles Murray) against the additional taxes involved, there doesn’t seem to be any a priori reason why they should choose regulation. Perhaps the problem is that they think other people will pay – which could stem from confusion over tax incidence.

Third, to borrow another thought from Charles Murray (which he may have borrowed from Friedrich Hayek) I think the tendency for government regulation to displace self regulation is related to a tendency for people to see problems from an engineering perspective rather than a healing perspective. There is a tendency to try to solve problems by designing new systems to replace self regulating systems, rather than to think in terms of solutions that will enable self regulating systems to work better. I don’t think there is any fundamental reason why politicians should see themselves as engineers rather than healers.

These considerations provide grounds for optimism that reasonable regulation might be sustainable in a democracy.

Postscript:

The references to Charles Murray are from his book, ‘In Pursuit of Happiness and Good Government’, which I wrote about here and here.

Are Americans pessimistic about the prospects for the next generation?

Gary Becker has recently written an interesting article on the Becker-Posner blog about polls suggesting that the majority of parents in the United States are not confident that their children will be better off economically than they are. He suggests that the best way to counter such pessimism is to promote faster economic growth.


The article made me feel slightly uneasy because I wrote something a few months ago suggesting that the poll results actually conflict with the view that Americans are pessimistic about the future for their children. Have I mis-read the poll results? How much have the poll results changed over the last year or so?

Scott Winship has recently considered the evidence of a variety of polls on his blog: here and here. In brief, the polls indicate that the proportion of Americans who think that their children will have better standards of living than themselves consistently exceeds the proportion who think their children will have worse standards of living. The margin tends to narrow during recessions but, even this year, the polls suggest that optimism is no lower than in the mid-1990s (see Pew Research Center poll results here).

Rather than trying to explain why Americans have become more pessimistic perhaps researchers should be trying to explain why Americans are still so optimistic.

Is a hung parliament a good election outcome?

It seems that neither Labor nor the Coalition have won a clear majority of seats in the House of Representatives in last week’s federal election, so Australia is to have a hung parliament. This means that a group of independents will decide which of the major parties forms government.


The message that some people are taking from the result, or lack of result, is that the electorate has become disenchanted with the major political parties. There are good reasons for people to be disenchanted with the major parties, but the electorate does not have a single mind that can become disenchanted. Even if a higher proportion of voters have voted for minor parties, it is possible to have a substantial proportion of the vote going to minor parties without a hung parliament. The hung parliament reflects the closeness of the votes for the major parties.

I think a hung parliament is the worst possible outcome we could have obtained. As I explained in an earlier post, it is difficult for electors to hold governments accountable for outcomes when parties go to the polls to seek endorsement of their policies and then, after the election, enter into negotiations to decide what policies the government will actually implement. It is possible that independents will use their power to obtain improvements in parliamentary procedures. It will be surprising, however, if we do not also see policies being adopted to advantage narrow interests – favouring regional groups or groups with particular environmental concerns – at the expense of the wider community.

Fortunately, a hung parliament happens rarely under the system of single member electorates that we have in the House of Representatives. This situation is unlikely to change even if independents take more seats from the National Party in future elections. The National Party – as a regionally based party – chooses to remain in a long-term coalition with the Liberals because it can pursue the objectives of its supporters more effectively that way rather than by exercising the balance of power. Even if the National Party was completely replaced by independents the voters who support them would generally expect their representative to favour the conservative side of politics.

It is normal for minor parties to hold the balance of power in the Senate because of the proportional representation system of voting for that chamber. This does not matter so much because of the strong tradition that governments are formed in the House of Representatives. Although minor parties that hold the balance of power in the Senate may be able to bring down governments by blocking budgets, they usually have reason to be fearful of the electoral consequences of doing this.

There is a fair chance that the next parliament will appear to work reasonably well even though the governing party does not have a clear majority. The independents and party leaders have strong incentives to appear to be trying to work well together to avoid an early election. Even the costly compromises that emerge may seem reasonable under the circumstances.

Some people may even suggest that the political system should be changed to bring about this kind of outcome all the time, as under the MMP system in New Zealand. Don’t be fooled. A hung parliament is like bad weather – it is something we have to put up with from time to time. We don’t have to like it!