corporatism with a flat cap
eeh forget it, lad, it’s t’Chinatown
Alright – I’m in a funny mood today so let’s do this week’s post in the form of thinly fictionalised nonfiction. Imagine it’s the 1970s, and we’re looking at a town in the Northwest of England, rugby league country, just at the point in time when the word “post-industrial” is beginning to be coined. The town council isn’t called a Corporation any more, but it still acts like one.
Our main character is a likely lad who works for the environmental health department. He eats for free in every Chinese restaurant in town, and he can tell you which ones to avoid. He’s well liked, plays darts and snooker and rarely misses an opportunity to spend the evening out. Sometimes he’s in the local government union social club, sometimes the rugby club, sometimes the Bridge Inn. If you want to know whether association football is played with the wrong shaped ball, or if there’s something wrong with a kid who can’t get his kicks from a pint of mild ale, he’ll tell you.
There was no real need for our hero to get a degree, so he didn’t; he was once an apprentice in technical drawing at the factory, like everyone else round here. And so, if you’re planning on setting up a restaurant in town, he’s happy to earn a few quid off the books, he’ll draw you up a set of plans. They will be good plans – he knows the rules back to front so there will be no surprises when your planning application comes up before the committee. He knows all the committee members too, from the various clubs and pubs, so if there’s some other problem with your idea, you’ll hear about it.
If your business involves something else, or wants to grow, he can pass you on to one of the other lads, who also does the odd “outsider” for pin money, or to finance a better holiday. The lads down the club help each other out. They take a reasonable amount care to avoid being seen fraternising too much with the electoral representatives, but it’s not that big a town, it only has one golf club and half a dozen snooker clubs. And sometimes a quiet word is all you need. Basically, if you’re having business or regulatory problems at all in this place, chances are you’re going to end up at the corner table in the Bridge Inn, having a quiet pint with someone who one of your mates has introduced you to.
OK, I can’t be bothered with this any more – what’s going on here? It seems to me that I could continue the story in two ways. Either this cosy arrangement of mates, backhanders, off the books work and quiet words is the reason that nothing gets done in this town. Or … it’s the method by which everything gets done. If we want to think of an international analogy, do we look at some post-Soviet backwater where nothing gets done without blat, or some rapidly modernising part of China where everything gets accelerated by guanxi?
Don’t answer that question. Like a lot else in economic geography, the temptation to give a definite answer to a problem that’s posed in abstract terms without a huge amount of institutional and historical detail should be courageously resisted. Like returns to scale, agglomeration effects and so much else, sometimes rich and informal networks between business and government are good and sometimes they’re bad.
In fact, more often they are good and then go bad. People get greedy – the likely lad who was happy to spend his life doing plans for the price of washing machine gets replaced by someone who realises the true potential to extract rent from anyone wanting to set up a restaurant. And people get lazy – they realise that it’s a lot easier to create a problem and ask for a bribe than to solve an actual problem and ask for a fee. Just like the more widely studied kind of elite, the local underground elite has a tendency to stagnate and become rotten – that’s how you get apocryphal stories like the one about Swansea where the local paper reported that “Councillor Hughes, a school caretaker, could not be reached for comment as he was on holiday in the Maldives”.
I think this is the root cause of the well-know “regulatory pendulum” effect, which I’m hoping to write a bit more about over the coming months. When we build state capacity, we are trying to achieve two broadly incompatible goals – we want a predictable and transparent system that’s flexible and responsive. So we build up levels of rich and informal communication and facilitation, until they turn into a sclerotic nest of rent seekers. Then we build up layers of clear and detailed regulation, until they turn into a sclerotic mess of rent seekers of a different kind. The ”problem factory” is not easily dismantled.
Mancur Olson suggested this kind of problem is most prevalent where interests are big enough to inflict damage on society but not encompassing enough to internalize the costs of the damage themselves. Some picked up on this and suggested that's why the neo-corporatist arrangements in some European states - which involved negotiations among the state, and encompassing business, and labour associations - were often able to reconcile full employment, and low inflation before central banks were independent. And as Peter Katzenstein has argued, it was also helpful that most these states were small, and highly dependent on trade, which not only made it easier to communicate, but also created a more or less constant sense of vulnerability, which kept everyone alert and flexible, but firmly committed to cooperation, and the reconciliation of economic competitiveness, and a generous welfare state. I think my broader point though is that the ability to balance predictability, and flexibility, and avoid things like rent seeking, and sclerosis varies a lot across countries, and policy areas - even if this stuff's getting harder to manage in general.
Another reason mateocracy fails is when it gets scaled up (as do many other things). Working at the one high street level of planning is one thing, T Dan Smith’s Newcastle or post-steelworks Corby (as in the Netflix series Toxic Town) quite something else.