Can the GOP Defend Capitalism?

No doubt like many non-Americans, I too have been caught up in the drama — farce? — of the Republican party’s race to select a presidential candidate to face Barack Obama in November.

Many political issues are of especial concern for conservatives: limited government and fealty to the, respect for States’ and individual rights, and defence of the Republic. One of America’s more immediate (and seemingly more intractable) problems concerns its growing debt burden, a situation made worse by continuing billion-dollar deficits, high unemployment numbers, and unfunded liabilities (principally Medicare, Medicaid, and Social Security).

On all of these issues, though, the Republican presidential contenders — save for one individual (with some candidates better or worse, depending on the issue) — are showing themselves woefully inadequate. Recent debate on reviving America’s economy highlights the GOP’s weakness in understanding the philosophy of capitalism, let alone crafting a pro-marketplace campaign that will resonate with voters.

Click here for my full argument at the Adam Smith Institute. (My appreciation to Sam Bowman, Director of Research.)

Mapping the Dangers of Competitive Harm

Last week a Cato Institute report caught my eye, about a French commercial court awarding damages to a map-maker for losses incurred through potential customers’ use of Google Maps.

Serendipitously, at the time I was reading Richard Epstein’s Free Markets Under Siege, where he examines ‘competitive markets and compensation for competitive harms’. In the free market system, sellers compete for buyers, who base their purchases on such qualities as price and quality. If the seller can meet consumer demands, free exchange will occur; if not, consumers will go elsewhere and the seller must either improve his business model or close up shop.

Yet the practice of competitive harm means that successful businesses must compensate businesses that are unable to attract trade — a practice that, if followed to its logical conclusion, means that the dynamic free market must ultimately succumb to the deadened economics of socialism.

Click here for my full argument at the Institute of Economic Affairs.

Canada Sidesteps the Bureaucrats

Students of public choice theory will recognise the rationale behind the Canadian government’s recent effort to cut waste.

In response to an access-to-information request, the Treasury Board released a ‘Statement of Work’ announcing that a private consulting firm was hired to recommend ways to eliminate the federal deficit by 2014-15 (currently between CAN $32-36 billion); specifically to ‘advise the government on the Strategic and Operating Review ... that will eventually trim $4 billion from $80 billion in annual program spending.’

In a contract that began 15 August and will run to the end of March, the firm will be paid $19.8 million — on average $90,000 a day.

Replying in the House of Commons, Jim Flaherty, Minister of Finance, said that ‘there actually is some waste in government. Governments can actually reduce their expenses. We should not do it ourselves solely. We should get advice and expertise from the private sector. For every $1 of spending on experts, we expect $200 of savings, which is a pretty good deal.’

Criticism has taken two recognisable forms. First among them are the Keynesian defenders of public spending — and for government economic intervention regardless — especially at a time of chronic unemployment.

The second tranche of critics, however, has clear implications for public choice: Why, it is argued, with a cache of experienced and knowledgeable civil servants, is the government hiring a private firm to advise it?

‘If bureaucrats are ordinary men, they will make most of (not all) their decisions in terms of what benefits them, not society as a whole,’ was Gordon Tullock’s response in the public choice classic, The Vote Motive. ‘As a general rule, a bureaucrat will find that his possibilities for promotion increase, his power, influence, and public respect improve, and even the physical conditions of his office improve, if the bureaucracy in which he works expands.’

Relying on the public sector alone may not suit a government committed to reduction, but does it have the right to sidestep the civil service? It does, for as Ludwig von Mises argued in Bureaucracy, ‘It is not for the personnel of the administration and for the judges to inquire what should be done for the public welfare and how the public funds should be spent. This is the task of the sovereign, the people, and their representatives.’

But von Mises’s endorsement comes with a caveat: While the objectives of profit management are easy to calculate — ‘profit’, the criterion for which the consultants were ostensibly hired — those of bureaucratic management are far less so.

They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found. A detailed scrutiny of all the difficulties involved may convince an honest investigator that, given the general state of political forces, he himself would not have known how to deal with the matter in a less objectionable way.

They must conform to laws and regulations — in particular, they must adapt to political considerations which require a high degree of skill to master. (In Canada, for example, the governing ministry must balance regional and linguistic concerns, nowhere more so than with respect to Québec.)

The ideal outcome is a compromise, consisting of public servants, private consultants, and elected officials, all working together to realise best practices that eliminate government waste, while safeguarding government programmes that are demonstrably in the public interest.

In The Vote Motive, for instance, Tullock promotes competition ‘within bureaus’ and ‘between bureaus’ for cost-saving measures, while a columnist for the National Post presents a helpful suggestion:

Make the fee a percentage of the savings found and open the process to everyone — consultants, academics, members of the public, even civil servants. [...] Many bureaucrats, too, know how to make their departments more efficient, but are stymied by institutional inertia or internal politics. But if the budget-cutting process is opened up to all comers and if everyone proposing a useful solution is awarded 10% or even 5% of the savings their ideas generate, then sit back and watch the good ideas come from inside the public service itself.

Are civil servants up to the challenge and willing to call public choice theory’s bluff?


UPDATE: There have been developments since this essay was written in late September (and not posted until now due to ancillary difficulties): The Government of Canada has decided to incentivise the public service by linking bonuses to programme cuts. According to CBC News, Treasury Board president Tony Clement announced ‘that 40 per cent of “at risk” pay for senior managers would be tied to their ability to find the $4 billion in permanent savings the government is looking for in the next budget.’

America’s Sublime Debt Ceiling Crisis

For many watching the ongoing debate in American politics about raising the level of the debt ceiling, the experience has been sublime — to use Edmund Burke’s definition to describe ‘whatever is in any sort terrible, or is conversant about terrible objects, or operates in a manner analogous to terror’.

At the heart of the debate are fundamental questions of politics: How much government do Americans want? Are they willing to pay for it? What are the socio-economic repercussions of the Welfare State?

Democrats see more government as an aid to individual freedom and self-realisation, whereas Republicans argue that more government is a detriment to those ends and will benefit primarily the political class alone. It becomes an existential contest between equality and liberty, respectively.

In the short term, the issue of increasing the federal government’s borrowing limits has been an opportunity for partisans to mount their favourite hobby horses, whether it’s spending cuts to grow the economy or in taxing the rich to make them pay their fair share — rationalising expenditure priorities and the possibility of the U.S. defaulting on its debt obligations have been relegated to the periphery.

One side only, I offer, has economic fundamentals in its favour, and they manifest themselves in the long-term consequences for capitalism and the free economy.

Click here for my full argument at the Institute of Economic Affairs.

ADDENDUM: The negative impact of tax rises beyond the ‘governing optimum’ of the Rahn curve — and more specifically, the ‘tax burden’ of the Laffer curve — has been brilliantly summarised by Harvard economist Jeffrey A. Miron: ‘By reducing the income of households and the profits of businesses, higher tax rates discourage consumption and investment, slowing the economy in the short run. By reducing hiring, savings, and investment, they reduce economic growth in the long run. And higher tax rates are undermined by tax evasion and avoidance, making them an inefficient way to raise revenues.’

Will the Canadian Crown Go the Way of Dominion Day?

To-day, the anniversary of 144 years of Confederation, is to be a day of national celebration and joyous good cheer. Far be it for me to introduce a note of gloom into the Canadian visit by their royal highnesses the Duke and Duchess of Cambridge. Yet for those who steadfastly persist in marking the occasion as Dominion Day, there is an underlying sombre message for Canada’s monarchical heritage.

For this far-flung northern country was once known as the ‘Dominion of Canada’, another testament to our propensity for compromise. The initial choice by the Fathers of Confederation was ‘Kingdom of Canada’, a fierce acknowledgement of our British connexion and, we may assume, a way of distinguishing ourselves from the Republic (and indigenous republican sentiments) to the south.

Yet a British official at the time — and remember, this was soon after the end of the American Civil War and during continuing Fenian raids across the border — thought this was needlessly provocative, and so an alternative nomenclature was called for:

It was desired to call the confederation the Kingdom of Canada, and thus fix the monarchical basis of the constitution. The French were especially attached to this idea. The word Kingdom appeared in an early draft of the bill as it came from the conference. But it was vetoed by the foreign secretary, Lord Stanley, who thought that the republican sensibilities of the United States would be wounded. [...] There is a story, probably invented, that when ‘Dominion’ was under consideration, a member of the conference, well versed in the Scriptures, found a verse which, as a piece of descriptive prophecy, at once clinched the matter: ‘And his dominion shall be from sea even to sea, and from the river even to the ends of the earth.’¹

And so, every July 1^st became ‘Dominion Day’ in honour of the Dominion of Canada. That is, until 1982, when a private member’s bill was passed in the House of Commons, under dubious circumstances, changing the name to ‘Canada Day’. It appears innocuous enough, except if seen in the context of a concerted effort to deny and rewrite Canadian history. Witness other egregious examples, the Red Ensign making way for ‘Pearson’s pennant’ and the renaming of the British North America Act, 1867 to the Constitution Act, 1867.

A distinctly Canadian designation, crafted on these shores (and not engineered specifically from Westminster and Whitehall) succumbed to bland political correctness. It is an inconceivable patriotic sabotage in other countries, proud of their national heritage. Try to imagine ‘Independence Day’ giving way to ‘America Day’, or ‘Bastille Day’ becoming ‘France Day’.

This blatant exercise of historical social engineering at the hands of government fiat was resolutely fought by Canadians proud of their unique heritage, but protests and umbrage faded with the passing of years. The Globe and Mail’s editorial board was one of the last hold-outs, but even it too succumbed to what it considered the inevitability of progress.

David Warren, columnist for The Ottawa Citizen, is among the last public personalities who will take a stand. In 2006 he wrote,

I like to start all Dominion Day columns with a renewed expression of outrage for how the Trudeau government did in this fine proud word, ‘Dominion’, in 1982, as part of a longer-running Liberal Party effort to flush our national heritage ... I remain, as I was born, a native of the Dominion of Canada, and this is our Dominion Day, to which there is so much more than paper Pearson flags, and picnic faces painted in red maple lipstick.

‘I will not, and vow I will never, call it “Canada Day” without inverted commas,’ Warren asserted again in 2009. ‘It would not matter to me if every other living Canadian called it that without further thought. It continues to be Dominion Day, in my view: the patriotic anniversary of my own country. God Himself cannot rewrite history; I recognize no Act of Parliament that attempts to do so.’

Now, it may be wondered, what does all this have to do with the 2011 Royal Tour and the continuing relevance of the Crown to Canada’s constitutional stability? Didn’t the warm, jubilant crowds that flocked to the arrival of Prince William and his bride demonstrate our enduring love and respect for monarchy? Didn’t the celebrations on Parliament Hill put to rest any continuing fears about the Crown’s role in Canadian politics and culture?

Well, Dominion Day itself was once proclaimed and cheered by the Canadian people and, by a simple Act of Parliament and a deluge of government propaganda, all that changed. The future of the royal tradition in Canada rests upon equally uncertain foundations. At best, only half favour the Crown’s continuing role in Canada, and support at the time of the succession of the next crowned monarch does not look promising. When interviewed yesterday by roving reporters, spectators who had turned out to watch the arrival of the Duke and Duchess most often alluded to the celebrity nature of the royal couple — their glamour, their youthfulness, their fashion sense — with few acknowledging the constitutional ties and imperatives. Behind the façade of enthusiasm lies disquieting complacency.

Constitutional monarchists must be ever vigilant, especially since the Crown is more than the Head of State, but is at the apex of a governing system that guarantees the personal liberties and natural rights of all Canadians.

God Save the Queen! Happy Dominion Day!

ENDNOTES
1. A.H.U. Colquhoun, The Fathers of Confederation: A Chronicle of the Birth of the Dominion (Toronto: Glasgow, Brook & Co., 1920), 128-29. The Father of Confederation in question was Samuel Leonard Tilley, premier of New Brunswick. This Biblical passage is also the obvious source of the Canadian motto, ‘a mari usque ad mare (Zechariah, 9:10)’.