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.
«were often able to reconcile full employment, and low inflation»
That was when full employment was a policy goal. The goal has been the opposite (offshoring, immigration) for decades. After all "inflation" really means just "wage rises" for policy purposes. Stocks and property price rises are a boom, not inflation, for policy purposes (the "wealth effect" is a prized goal, the "wage effect" is not).
«a generous welfare state»
The "Washington Consensus" is that after the defeat of international communism it is no longer useful.
«avoid things like rent seeking»
Rent seeking is a natural yearning and not just for the middle-class. Avoiding it is hard, it may be easier to minimize it or to limit it to less damaging areas.
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.
I’m reminded of something someone once told me that I never really verified: the claim is that the reason infrastructure in Tokyo is so strikingly *nice* was the particular local form of corruption: the council would give no-bid cost-plus contracts to their mates, who’d then spend triple what you would really need, but they’d actually spend the cost and pocket the plus instead of pocketing both. So you got really fantastic overpasses and such.
(This story was told to me after crossing the overpass outside Ueno Station and seeing a guy in a hi-vis vest down on hands and knees scrubbing the grout in the mosaic tiling with a toothbrush)
I’m aware of a start up in London that had plans to take out a ten year lease on a derelict casino it hoped to transform it into an exciting theatre space that would have come with millions of pounds of investment (and didn’t involve gambling). To make it viable, they needed to increase the legal capacity of the venue to a number that, by comparison to other venues of similar size and with far fewer fire exits, seemed entirely reasonable. Informal assurances were provided that this was reasonable.
But the council process dragged on for over a year of reviews and hearings, the council asked more investment in the facility unrelated to fire safety, and the foreign investors patience expired. The company ran out of cash, 40 people lost good jobs, tens of millions in investment didn’t happen, and the casino—years later—remains vacant.
I don’t know all the details, but this looks like a glaring failure for culture and the growth agenda. One wonders how often this happens.
I think to tell this story you’re going to have to introduce some assumptions about norms and even character, annoying as that is. If the guy who draws the plans always does good work and the council members (or whoever) reviewing the plans trust him because his reputation to them is worth more than any particular fee, that’s one thing. If his work’s no better than anyone else’s but it goes through faster because he’s bought a lot of rounds over the years, that’s another. If he can actually get things through that shouldn’t pass muster under the rules, that’s something else entirely. (Of course this is a spectrum, not three distinct buckets.) But of course to an outsider it all looks the same, which is the transparency / legitimacy issue.
I think the other important variable here is scale. Below a certain overall population scale of any given regulatory system (in the Beer sense), all the key players can fit in their own Dunbar group - in terms of the narrative here, actually can frequent the same pub and golf course - and informally regulate one another, such that anyone who starts taking the piss in rent-extraction terms gets quietly sorted out. Once you scale that up, said regulation silently collapses and the sharks inevitably move in.
«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.»
In my naive view the use of generic "we" is fuzzy and also in my simplistic economicism I guess that "does not cost me money" for most people matters more than "predictable and transparent" and "makes me money" more than "flexible and responsive". Perhaps in my reductionism I see systems as primarily made of flows of money and money making opportunities more than flows of signal and decisions based on signals, and I confuse motivation (money) with mechanism (signal).
So when I read "the purpose of the system is what it does" that to me means that whatever the talka about the ostensible purpose of the "level 4" system, its real purpose is what it actually does (making money for some “we” or costing money to their opponents) because otherwise the “we” with agency would smash it or change it, and the cases where there is no “we” with enough agency are rare or happen at a very high level (where perhaps the “we” is a deity).
Then "we" in "we build state capacity" in my limited knowledge is usually people with agency to “build state capacity” to protect, enforce and boost "our" ownership interests, and often therefore those “we” building state capacity are a “nest of rent seekers”, as in the recent event at the CMA where “we” re-built the state capacity of CMA to prevent it from infringing on "our" rent seeking. Or in the older episode at the Casa Rosada where “we” rebuilt the “state capacity” of Chile with tanks and machine guns, which are pretty strong signal attenuators or amplifiers (depending on point of view).
Note: sometimes “we” is a group creating state capacity to further "our" interests for mutual insurance against risks like poverty or illness or disasters but that seems to be a much rarer situation nowadays.
Note: I regard “state capacity” as a long-term group-purchase organization and then “we” as those for whom the group purchases (of ownership protection or mutual insurance, etc.) are made.
«The Casa Rosada is the government building in Buenos Aires. Are you alluding instead to the Moneda - the presidential palace in Santiago de Chile?»
Yes, I meant Moneda, as our Dan Davies makes the bombing of the Moneda and gunning down of Allende etc. as the end point for the political application of cybernetics. But from a cynical point of view it was the *high* point of cybernetics showing how strong and fast are control systems powered by tanks and machine guns. :-(
Anyhow Moneda/Casa Rosada is the same difference as between Pinochet and Galtieri, both (again from a cynical point of view) demonstrated how machine gunning down people who are signal attenuators exerts powerful and prompt feedback. Compared to that even the K-street "level 4" control system in the USA is not as strong and fast, even if it is already highly responsive.
«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.»
So our author does not seems to really be a cybernetics ingenue :-).
«sometimes rich and informal networks between business and government are good and sometimes they’re bad.»
Simplistically I ask myself "for whom?" of many issues, and the use of "good" and "bad" is a bit fuzzy. Part of my simplistic attitude is also that instead of "good" or "bad" I tend to reduction to economicism and add to "for whom?" the concepts "makes money" and "costs money" (and "can't be bothered" if neither).
As to that when looking at “rich and informal networks between business and government” I usually ask myself therefore "for whom that system makes money" and "for whom the system costs money".
In the example the "likely lad" makes money in the “informal networks between business and government” the more the formal networks are slow and awkward, so he will dutifully attend every consultation and suggest ways to make formal processes less risky, more inclusive, and so will all his mates that make money from those “informal networks”. The lad and mates will be a rather effective "level 5" systems making the formal network ever more functional *for them* even if others may regard that as being less functional.
It's right-tipping economic orthodoxy that regulation and growth are inherently, reflexively antithetical, and even the left has more or less acquiesced to the notion that regulation might hamper growth but that it's occasionally worth 'buying' other social outcomes here and there. I've been idly wondering of late if there's some value to be had -in crafting political messaging, in suggesting research avenues, etc.- in just trying on the idea that regulation is sometimes good for above-the-fold econometrics like GDP from time to time.
The 'abundance' crew, left and right, is beating the drum that the reason the US hasn't hit the growth targets it had in 1957 or whatever is that it is over-regulated, the evidence being that somewhere a solar farm got moved a mile to the left to keep from murdering an entire species of toad or something. But the likes of Silicon Valley have essentially handwaved their way past meaningful antitrust enforcement for two generations because of iNnOvAtion, and unions are small and the coal mines are still open. The big payoffs from essentially giving up on any attempt at retail-scale market management is, what, Uber? Good job everyone. Maybe some of those regulations convey poorly-priced information that make markets work better? Maybe disincentivizing managers from vacuuming out their companies with a high marginal tax rate means their companies have more money to do what the company was meant to do?
Obviously the idea that 'regulation is good' is no more or less true than 'regulation is bad'- circumstances and particulars matter, hence the pendulum. But as a simple, one-line idea to get rolling around the republic of letters, I wonder if it might have some organizing value.
I think you will find the last 200 years of academic literature is filled with people making the argument that their regulation is actually good. Regulation is hardly new or poorly advocated for or rarely studied.
Right- but ‘academic’ is the keyword there, right? My point is that there doesn’t seem to be anyone in an empowered, public facing political position who is saying ‘actually, it’s not a bad bet that we would have more growth (as opposed to fair wages or protected consumers or other causes that get smeared as ‘just’ redistributive) if we kept Scrooge McDuck from getting a gold dubloon swimming pool.’ Like, Bernie and AOC and everyone else are making the fine case that, say, a minimum wage hike at the cost of an executive bonus is morally just, or that we should have clean water because it’s good for a civilization to have clean water. I just wonder if there is an opening to articulate an argument for the petit bourgeoisie set that fancies themselves fiscally serious.
Given that regulation has been increasing steadily despite periodic cases of specific push back (airline and trucking deregulation), what makes you think that people in empowered, public facing political positions are not pushing for more regulation? The fact that more regulation tends to be worse for growth has not stopped them one bit.
Indeed your desired claim is exactly the claim made by communist parties across the world: Give us power over the economy and we will get rid of the rich exploiters and everyone will be wealthier and better off. The results are as predictable as they are tragic.
Regulation is great for incumbents and terrible for the smaller and medium sized businesses. The housing regulations in California combined with millions of silly rules make it impossible to do anything irl, which is why all the innovation has escaped to the world of bits, where bureaucrats cant track anyone down.
I did always wonder about the block of council flats named (still) John Poulson House. Though another thing that struck me was differing national patterns when businesses applied for UK service contracts - UK being fairly uptight, US assuming personal deals, Australia in the middle.
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.
«were often able to reconcile full employment, and low inflation»
That was when full employment was a policy goal. The goal has been the opposite (offshoring, immigration) for decades. After all "inflation" really means just "wage rises" for policy purposes. Stocks and property price rises are a boom, not inflation, for policy purposes (the "wealth effect" is a prized goal, the "wage effect" is not).
«a generous welfare state»
The "Washington Consensus" is that after the defeat of international communism it is no longer useful.
«avoid things like rent seeking»
Rent seeking is a natural yearning and not just for the middle-class. Avoiding it is hard, it may be easier to minimize it or to limit it to less damaging areas.
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.
I feel like this article needs to be pinned somewhere. Excellent piece.
I’m reminded of something someone once told me that I never really verified: the claim is that the reason infrastructure in Tokyo is so strikingly *nice* was the particular local form of corruption: the council would give no-bid cost-plus contracts to their mates, who’d then spend triple what you would really need, but they’d actually spend the cost and pocket the plus instead of pocketing both. So you got really fantastic overpasses and such.
(This story was told to me after crossing the overpass outside Ueno Station and seeing a guy in a hi-vis vest down on hands and knees scrubbing the grout in the mosaic tiling with a toothbrush)
(Presumably the failure case of this pattern is those subway stations in Moscow and Pyongyang with gilded ceilings and chandeliers)
I’m aware of a start up in London that had plans to take out a ten year lease on a derelict casino it hoped to transform it into an exciting theatre space that would have come with millions of pounds of investment (and didn’t involve gambling). To make it viable, they needed to increase the legal capacity of the venue to a number that, by comparison to other venues of similar size and with far fewer fire exits, seemed entirely reasonable. Informal assurances were provided that this was reasonable.
But the council process dragged on for over a year of reviews and hearings, the council asked more investment in the facility unrelated to fire safety, and the foreign investors patience expired. The company ran out of cash, 40 people lost good jobs, tens of millions in investment didn’t happen, and the casino—years later—remains vacant.
I don’t know all the details, but this looks like a glaring failure for culture and the growth agenda. One wonders how often this happens.
Interesting- thanks Dan.
I think the same pendulum is at play with unions Vs employers too.
I think to tell this story you’re going to have to introduce some assumptions about norms and even character, annoying as that is. If the guy who draws the plans always does good work and the council members (or whoever) reviewing the plans trust him because his reputation to them is worth more than any particular fee, that’s one thing. If his work’s no better than anyone else’s but it goes through faster because he’s bought a lot of rounds over the years, that’s another. If he can actually get things through that shouldn’t pass muster under the rules, that’s something else entirely. (Of course this is a spectrum, not three distinct buckets.) But of course to an outsider it all looks the same, which is the transparency / legitimacy issue.
I think the other important variable here is scale. Below a certain overall population scale of any given regulatory system (in the Beer sense), all the key players can fit in their own Dunbar group - in terms of the narrative here, actually can frequent the same pub and golf course - and informally regulate one another, such that anyone who starts taking the piss in rent-extraction terms gets quietly sorted out. Once you scale that up, said regulation silently collapses and the sharks inevitably move in.
«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.»
In my naive view the use of generic "we" is fuzzy and also in my simplistic economicism I guess that "does not cost me money" for most people matters more than "predictable and transparent" and "makes me money" more than "flexible and responsive". Perhaps in my reductionism I see systems as primarily made of flows of money and money making opportunities more than flows of signal and decisions based on signals, and I confuse motivation (money) with mechanism (signal).
So when I read "the purpose of the system is what it does" that to me means that whatever the talka about the ostensible purpose of the "level 4" system, its real purpose is what it actually does (making money for some “we” or costing money to their opponents) because otherwise the “we” with agency would smash it or change it, and the cases where there is no “we” with enough agency are rare or happen at a very high level (where perhaps the “we” is a deity).
Then "we" in "we build state capacity" in my limited knowledge is usually people with agency to “build state capacity” to protect, enforce and boost "our" ownership interests, and often therefore those “we” building state capacity are a “nest of rent seekers”, as in the recent event at the CMA where “we” re-built the state capacity of CMA to prevent it from infringing on "our" rent seeking. Or in the older episode at the Casa Rosada where “we” rebuilt the “state capacity” of Chile with tanks and machine guns, which are pretty strong signal attenuators or amplifiers (depending on point of view).
Note: sometimes “we” is a group creating state capacity to further "our" interests for mutual insurance against risks like poverty or illness or disasters but that seems to be a much rarer situation nowadays.
Note: I regard “state capacity” as a long-term group-purchase organization and then “we” as those for whom the group purchases (of ownership protection or mutual insurance, etc.) are made.
The Casa Rosada is the government building in Buenos Aires. Are you alluding instead to the Moneda - the presidential palace in Santiago de Chile?
«The Casa Rosada is the government building in Buenos Aires. Are you alluding instead to the Moneda - the presidential palace in Santiago de Chile?»
Yes, I meant Moneda, as our Dan Davies makes the bombing of the Moneda and gunning down of Allende etc. as the end point for the political application of cybernetics. But from a cynical point of view it was the *high* point of cybernetics showing how strong and fast are control systems powered by tanks and machine guns. :-(
Anyhow Moneda/Casa Rosada is the same difference as between Pinochet and Galtieri, both (again from a cynical point of view) demonstrated how machine gunning down people who are signal attenuators exerts powerful and prompt feedback. Compared to that even the K-street "level 4" control system in the USA is not as strong and fast, even if it is already highly responsive.
«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.»
So our author does not seems to really be a cybernetics ingenue :-).
«sometimes rich and informal networks between business and government are good and sometimes they’re bad.»
Simplistically I ask myself "for whom?" of many issues, and the use of "good" and "bad" is a bit fuzzy. Part of my simplistic attitude is also that instead of "good" or "bad" I tend to reduction to economicism and add to "for whom?" the concepts "makes money" and "costs money" (and "can't be bothered" if neither).
As to that when looking at “rich and informal networks between business and government” I usually ask myself therefore "for whom that system makes money" and "for whom the system costs money".
In the example the "likely lad" makes money in the “informal networks between business and government” the more the formal networks are slow and awkward, so he will dutifully attend every consultation and suggest ways to make formal processes less risky, more inclusive, and so will all his mates that make money from those “informal networks”. The lad and mates will be a rather effective "level 5" systems making the formal network ever more functional *for them* even if others may regard that as being less functional.
It's right-tipping economic orthodoxy that regulation and growth are inherently, reflexively antithetical, and even the left has more or less acquiesced to the notion that regulation might hamper growth but that it's occasionally worth 'buying' other social outcomes here and there. I've been idly wondering of late if there's some value to be had -in crafting political messaging, in suggesting research avenues, etc.- in just trying on the idea that regulation is sometimes good for above-the-fold econometrics like GDP from time to time.
The 'abundance' crew, left and right, is beating the drum that the reason the US hasn't hit the growth targets it had in 1957 or whatever is that it is over-regulated, the evidence being that somewhere a solar farm got moved a mile to the left to keep from murdering an entire species of toad or something. But the likes of Silicon Valley have essentially handwaved their way past meaningful antitrust enforcement for two generations because of iNnOvAtion, and unions are small and the coal mines are still open. The big payoffs from essentially giving up on any attempt at retail-scale market management is, what, Uber? Good job everyone. Maybe some of those regulations convey poorly-priced information that make markets work better? Maybe disincentivizing managers from vacuuming out their companies with a high marginal tax rate means their companies have more money to do what the company was meant to do?
Obviously the idea that 'regulation is good' is no more or less true than 'regulation is bad'- circumstances and particulars matter, hence the pendulum. But as a simple, one-line idea to get rolling around the republic of letters, I wonder if it might have some organizing value.
I think you will find the last 200 years of academic literature is filled with people making the argument that their regulation is actually good. Regulation is hardly new or poorly advocated for or rarely studied.
Right- but ‘academic’ is the keyword there, right? My point is that there doesn’t seem to be anyone in an empowered, public facing political position who is saying ‘actually, it’s not a bad bet that we would have more growth (as opposed to fair wages or protected consumers or other causes that get smeared as ‘just’ redistributive) if we kept Scrooge McDuck from getting a gold dubloon swimming pool.’ Like, Bernie and AOC and everyone else are making the fine case that, say, a minimum wage hike at the cost of an executive bonus is morally just, or that we should have clean water because it’s good for a civilization to have clean water. I just wonder if there is an opening to articulate an argument for the petit bourgeoisie set that fancies themselves fiscally serious.
Given that regulation has been increasing steadily despite periodic cases of specific push back (airline and trucking deregulation), what makes you think that people in empowered, public facing political positions are not pushing for more regulation? The fact that more regulation tends to be worse for growth has not stopped them one bit.
Indeed your desired claim is exactly the claim made by communist parties across the world: Give us power over the economy and we will get rid of the rich exploiters and everyone will be wealthier and better off. The results are as predictable as they are tragic.
Regulation is great for incumbents and terrible for the smaller and medium sized businesses. The housing regulations in California combined with millions of silly rules make it impossible to do anything irl, which is why all the innovation has escaped to the world of bits, where bureaucrats cant track anyone down.
I did always wonder about the block of council flats named (still) John Poulson House. Though another thing that struck me was differing national patterns when businesses applied for UK service contracts - UK being fairly uptight, US assuming personal deals, Australia in the middle.