Figure 1: The three pillars, their functions and bearers
Many columns on this portal stress, that economic markets can function merely, when they are regulated by the state. The crucial question is how the state can translate all individual needs into a general policy. The present column starts with a recapitulation of the insights, that your columnist has acquired until now. Next these insights are compared with the views of four authors, namely Herman van Erp in Het politiek belang, Johan Graafland in Economics, ethics and the market, Rutger Claassen in Het huis van de vrijheid, and Siep Stuurman in Kapitalisme en burgerlijke staat1. Finally, the new insights are summarized.
This portal has regularly discussed the role of the state within society. The most complete treatment of this theme is the column about the social factors in the economy. There the views of the economists Paul Frijters and Heiner Ganßmann are explained2. For the sake of convenience the sketched picture will again be summarized here. The starting point is the network of all individuals within a certain system. The individuals have interactions or contacts with each other, but otherwise they are emotionally completely isolated. That is to say, the individuals just need to guard their own self-interest. A concrete example is an information network, such as internet. Another example is the trade network, which has an important function for economic transactions and activities.
However, people usually do not undertake economic activities in isolation, but within a group. Therefore the nodes in the trade network consist of various groups. Frijters distinguishes basically between two types of groups, namely the reciprocal group and the hierarchical group. The reciprocal group always needs the approval of all its members for actions, so that she has a democratic character. She can be a family, an association, a church, the legislature within the state, etcetera. On the other hand, the hierarchical group is controlled by a centre, so that the members must obey the directions and commands of the management. Here the examples are the private or public enterprise, the state bureaucracy, etcetera. Individuals benefit from their group memberships, because groups are efficient. A group allows for the division of labour, and learning effects.
Frijters depicts the formation of the state schematically as the condensation of trade networks. In principle all contacts between the nodes of the network are free of values, without any morals. But when entrepreneurs regularly meet on the market, then they discover that they share certain interests. For, when the market would be regulated to some extent, then the transaction costs of all enterprises can be considerably reduced. Therefore the trade network (and incidentally any network) will develop into a group. The nation state is founded by the participants on the market together, and then becomes a reciprocal group. The reciprocity is guaranteed by the representatives of the group, which is the highest authority within the state, and has legislative powers. It is true that the executive apparatus (the government and the bureaucracy) is a hierarchical group, but it remains subordinate to its parliament.
The participants on the markets carefully survey the democratic character of the administration. Namely, although they understand the importance of regulated markets, they yet do not want to be completely gagged by the state and its monopoly of violence. The participants on the markets want to maintain a maximum of economical autonomy. Thanks to the parliament the trade network can always elect the administration, that succeeds best in establishing useful social structures and institutions. A study of the economist Ronald Coase has shown, that a right coordination of markets and the bureaucracy is essential for the social efficiency. A good administration starts with the protection of the fundamental civil rights. Besides, the markets can only function in a durable manner, as long as the state takes care of certain social rights. This is partly the reason, that the state obtains a legitimacy among the whole nation and all its people.
The loyal reader may perhaps remember, that precisely the same idea is formulated in the column about the future of socialism. For, there the inclusion criterion of Acemoglu and Robinson is explained3. They argue that the economic growth can only be durable, when the economic and political institutions are inclusive. Inclusion means, that a relatively broad layer of the population can participate in the political rule and in the economic activities. In a society with a wide participation the people dispose of individual freedom. Therefore the individuals are incited to improve their fate by means of technological innovations. And the capability to innovate is essential for growth. In short, the political autonomy is a condition for welfare. Incidentally, according to Frijters growth is mainly stimulated by abundant contacts.
It must be stressed, that the members of a group, such as the state, can no longer merely pursue their own interests. This is already apparent from the fact, that the state proclaims certain laws and rules, that must be obeyed by all. They submit without complaints, because they appreciate the benefits of the group, and have joined her voluntarily. Frijters calls this phenomenon love. The legislation by the state is only possible, when the individuals mutually agree about shared morals (also called ethics, meaning or sense). The state becomes the defender of the general interest. The ultimate origin of the state ethics is obviously the separate morals of the group members. This transformation is a complex process, which is not addressed by the mentioned previous columns. They result in civil and social rights, which will among others dictate the redistribution of the earned incomes.
Thus it is sketched how the markets are supplemented with a state bureaucracy. However, this does not yet complete the model of society. For, within the society many reciprocal groups are active, which do not directly participate in the commercial network. Consider associations, that further the interests with regard to religion, art and culture, consumers or workers, nature, etcetera. This collection could be called a community. She is controlled by a plutocracy of leaders. Ganßmann has conveniently integrated these three pillars of society, namely the democracy, the autocracy, and the plutocracy, in a triangle, and in this manner depicts the mutual relationships. The triangle is reproduced once more in the figure 1.
Ganßmann reduces the state ethics to three options, namely liberalism, conservatism and the social-democracy. Each of these ethical currents concentrates the power in two of the pillars, at the cost of the residual pillar. Thus liberalism pleads in favour of markets and of an administration based on the civil society. It prefers a small state machinery. Conservatism will limit the democratic processes, and also rejects active markets. It prefers to protect the status quo. Finally, the social-democracy wants to restrict the power of the plutocracy, because she suspects that the civil society aims at selectively pursuing private interests. Therefore the social-democratic administration always suffers somewhat from a lack of private initiatives. The autocracy of the state must take over this function.
In various columns it has been attempted to gain insights into the procedure, that translates the will of the individuals into the collective will of the state. The happiness economics and the behavioural economics both succeed in supplying certain parts of this puzzle. A single example: in general people feel better in a society, where the inequalities of income and wealth remain limited. In this manner the state ethics could principally be derived from opinion polls and research. This is naturally not realizable in practice, due to the enormous complexity. One is forced to use a planned economic policy, such as has been developed by, among others, the Dutch economist Jan Tinbergen.
The starting point of the theory is that the state (represented by the government) formulates certain economic policy goals. Goals can only be set, when a choice is made about the desired development. The desires can be represented mathematically by the so-called social welfare function. She has the form
(1) W = W(u1, ..., uN)
In the formula 1 it is assumed, that the size of the population is N. Each citizen n has his individual utility function un, with n = 1, ..., N. The value of un is obviously determined by the social position of the concerned individual. Besides, the formula 1 supposes, that the separate utilities un can be mutually weighed in such a manner, that they result in the collective utility function W. Many economist in the presently common economic paradigma deny, that interpersonal comparisons of utility would be possible. Economists dislike especially, that interpersonal comparisons will require morals or a norm of justice. They dislike a normative debate.
Nevertheless, in the daily practice politics must continuously make such judgements. Without interpersonal comparisons the society could not exist. The common view on the function W is that she is translated and made concrete by a democratically elected governement, which in this way expresses the collective will of the voters. Then the government has its own function U. It will try to make the value of U maximal, because the ultimate social goal is the highest possible welfare for all (the general interest). Since U represents that policy goal, it is also called the target function. On the other hand, the collective will can rarely be measured competely and reliably, so that the government and its advisors must use their own interpretation. In its most paternalistic interpretation U represents the utility function of the planning agency.
The function U has the form
(2) U = U(q1, ..., qM)
In the formula 2 it is assumed, that the economy can produce M different goods. The central agency decides, which quantity qm of the good M is required in order to satisfy the needs of the population. Tinbergen formulates five policy goals, which in his view are universally desired: peace, economic growth, redistribution, emancipation, and in addition as much freedom as is possible4. This shows that Tinbergen on his own authority formulates the rough lines of a state ethics. The legitimacy is derived from the autocratic authority of the professional scientist, which suggests a certain objectivity. Nevertheless, the choice of the state tagets (W → U) is the subject of a continuous democratic battle, even when the state autocracy makes useful suggestions.
Whereas Frijters is confident about the universal willingness to compromize, Ganßmann is worried about what he calls the K-game. That is the eternal conflict of interest between the workers and the owners of the enterprises, which used to be called the class struggle5. Ganßmann notably fears, that the plutocracy will be dominated by the capitalists. Besides, he ponders over the possibility, that the plutocracy may become supreme, so that the power of the democracy and of the state would shrink. The workers try to oppose this by joining political people's parties and trade unions, where they form their own plutocracy. Thus society becomes polarized. Although the capitalists and the union leaders meet on the economic markets, their relation is not simply based on an exchange. The reciprocity is continuously in danger - and with it the morals and the social stability6.
The K-game shows that industry and commerce are not always the democratic power, that Frijters sees in them. Incidentally, that also becomes apparent from the column about industrial concentration. There the groups of entrepreneurs turn out to get into conflict with each other. Some may decide to establish a collusion, so that they as a reciprocal group can stifle the free market. On that partial market competition is replaced by a plutocracy, which hurts and damages society. The plutocracy does not further the general interest. Incidentally, the collusion does not directly remove the total network, and even remains a node and contact maker within it. Yet she threatens to secretly undermine the free network. The network generates its own potential grave-digger, due to the push towards concentration. In other words, the state with its own powerful democratic block is really needed in order to guard the civil and social rights (inclusivity).
Your columnist has read Het politiek belang more than twenty years ago, immediately after its publication, without foreseeing that at present it would come in handy. In this book Herman van Erp describes several philosophies about the state. Your columnist selects those arguments, that are relevant for the present column. Van Erp is less concerned with the actual formation of the state than with its tasks. It must represent society as a whole, and therefore is the defender of the general interest. Thus the state can legitimize its reason of existence towards the citizens. According as the social complexity increases, the citizens become more dependent on organizations and institutions. This forces the state to actively intervene in the economy. In the pluralistic society the state has difficulty in acting as the bearer of the morals. A political domain is required, where the opinions are formed. The opinions must prove themselves.
Nevertheless the citizens expect that the state serves justice. Van Erp believes that the general interest can hardly be derived from utilitarianism, which merely maximizes utility. The individual morals of the citizens can not simply be aggregated, contrary to their needs and interests. Nonetheless common rules are indispensable in situations, where the needs of the citizens collide. The state must choose a normative position, also called ideal-regarding. For, the state must inevitably select goals (see the target function U). Nevertheless, Van Erp is confident, that the general interest can be formulated in a universal and objective manner (p.53). In this respect he conforms to the planning approach of Tinbergen. Van Erp calls purely subjective needs, which can not be made objective, wishes. (p.84)7.
An interest emerges from a "good" or valuable need. In the political state external judges (so not the individual, that feels the need) determine on objective grounds when something is valuable. Here the subjective situation of the individual is obviously taken into account (p.86). The general interest includes justice and well-being, and a state ethics is required in order to make the judgements. Van Erp notably remarks, that the values of the individual do not represent an interest. The value of the individual is a preference or wish, which must not necessarily be respected. This holds for instance for religious convictions. For, when the religious morals of groups would be an interest, then a state religion could be dictated by the majority (p.90). To be precise, in pluralism the respect for other people's values will often be lacking. The right to associate in a religious community does deserve respect!
In other words, values are of a different order than interests. Therefore judgements can be made from a perspective of values or interests. The perspective of interests uses an abstract means-goal rationality (p.97). For instance, liberalism prefers the perspective of interests, so that it tries to keep out values from policies. It focuses its policy on individual interests. However, the perspective of values is always present in the background, because it is always necessary to judge fairly (p.93). Incidentally, solidarity is even the basis of the apparently pure liberal human rights. An at the time Adam Smith stated already, that the market has morals of reason, moderation and service! Note however, that the market can not be held accountable (p.122). Notably fundamental decisions must use a perspective of value.
Van Erp sympathizes with the ideas of justice and fairness, that are presented by the philosopher John Rawls. They imply a democratic social or welfare state (say, the social-democracy). According to Van Erp this is even an indispensable condition for the liberal market economy (p.152; Frijters uses the reverse argument). Individual autonomy is merely possible thanks to the state (p.162)8. Economic trade requires a social order (p.200). So politics exercises a coercive power, but this is relative, since it always must search for sufficient support. Since in pluralism the individual values are conflicting, the conflicts must always be solved at the level of interests. For, there compromises can be made. They take place within the existing legal system or constitution, which represents the state morals. That is to say, there is no consensus, but cooperative adjustments do occur, in spite of the clashing morals.
Evidently it can not be denied, that most citizens value social justice. It has just been remarked, that this legitimizes the state. Institutions are required, so that the minimal state is not a realistic option. In the west the welfare state has been established. The control of the private property (say, the capitalists) has been restricted. The market must be embedded in a system of guarantees. Then the state furthers attemps of the citizens to realize their goals, and to become maximally autonomous. Besides the maximization of welfare, this also requires a redistribution of incomes. The degree of redistribution is again determined by the external judges (politicians). Furthermore, the state takes care, that the citizens adopt a moral rationality. For, that strenghtens the social stability, and prevents the disintegration of the state (p.138). Thanks to the ethical formation the state solidifies its own support.
Van Erp mainly cites philosophers from an era, when the modern individualism did not yet exist. Therefore the morals get much attention. Nevertheless, his arguments make clear, that the model of the construction of the state, as presented by Frijters, is very abstract. The state can not emerge from a network, because even networks require some regulation. Networks themselves are merely conceivable within a state with its own morals. Even emerging markets already have morals. The citizen is certainly not the homo economicus, that Frijters describes (albeit gifted with a love "gene"). Besides, pluralism has been established to such a degree, that the all-dominating division due to the K-game of Ganßmann has partly been eliminated. Due to pluralism there now is a multitude of conflicts, which are disputed in innumerable games.
The book Economics, ethics and the market by Johan Graafland has already been discussed in a previous column. In the present paragraph merely his view on the transformation W → U is studied. Graafland rejects utilitarianism, as far as it simply aggregates the utility (satisfaction) of all individuals. This approach, which judges policy merely on the basis of its result, is called consequentialism. It can not be realized in practice, among others because there can exist incommensurability. That is to say, different utilities can be qualitatively incomparable, and thus can not be mutual substitutes. And some groups are satisfied in an apathic and resignated manner. It is fairer that an outsider objectively judges their situation (p.162). Graafland shares the view of Van Erp, that policy makers as external observers can make a reasonably objective judgement of interests. He derives this view from the philosophy of Adam Smith (p.93).
According to Graafland the consequentialism ignores the moral rights (p.160). For, the citizens are not merely interested in the outcome, but also in the ethics of the applied means. For instance, many people want to protect nature against pollution. And the interests of future generations must be taken into account (p.166). At least morals must be integrated in utilitarianism. Therefore Graafland proposes to subject the economy to a state ethics, which formulates rights and duties. Regulation can further a socially responsible entrepreneurship. Moreover, the state must correct the various types of market failure. In addition the operation of markets tends to undermine the social cohesion and to increase the social inequality (p.16, p.242). Too much competition is hurtful for all. She can even eliminate the sense of duty (crowding out).
The state must avert this danger. Society is supported by the institutions of the state and of private groups (p.133). Institutions are useful when coordination is required in order to limit the transaction costs on the market (see also the already mentioned study of Coase). Trade inevitably creates dependencies. The creation of trust (a virtue) is essential for well functioning markets, among others because contracts can not arrange everything (p.104). Therefore trust is a part of the social capital. It furthers the division of labour, and thus the efficiency. Apparently the market is helped by the regulation of the state to function better (see p.242 and further). Incidentally, in some branches the intrinsic motivation of the workers is more important than competition.
Citizens do not act very rational. In general they must be stimulated to engage in long term planning. For that reason, for instance, the compulsory education has been introduced. This is also a social interest, because the poorly educated tend to be expelled by the system (p.120). Incidentally, the reverse is sometimes also true: citizens are exploited with the promise of future wealth as an excuse (p.360)! Emotions such as sympathy, altruism and envy are clearly human. Therefore the (global) citizens will prefer a just (fair) material distribution. See also Van Erp. Graafland advocates positive rights of freedom, that give equal chances to all. He states that the autonomy of the individual is central in ethics (p.253). In conclusion, Graafland believes that both liberalism and communitarism have their bright sides.
Graafland and Van Erp mainly argue in the same vein. They refer to old philosophers such as Kant and Locke, in an era when individualism and pluralism were hardly known. But they also refer to modern thinkers such as Rawls, Nozick and Sen. This philosophical heritage motivates also Graafland to defend different views about the present relation between markets and the emergence of the state than Frijters. According to Frijters the market is the place, where the democratic state is born. However, Graafland argues, that the market furthers the social disintegration. The state is in danger of being taken over and dominated by a plutocracy. Frijters tends to disregard the social frame. Furthermore, it is true that Graafland does not support the theory of Marx, but he does identify a global K-game in the sense of Ganßmann. Incidentally, he couples this to a cultural imperialism (p.361).
The most recent book from the present selection is Het huis van de vrijheid by Rutger Claassen. He assumes as a given fact, that the individual freedom is bounded, because the existence of the state requires norms and values. In this book, Claassen advocates to strive for a positive freedom, where the citizens get chances to manage themselves, so that they become autonomous (p.23). Therefore he is sceptical about the welfare ideal, that is symbolized in W → U, because it carries a danger of paternalism. Just lik Graafland, Claassen tries to find the right balance between the liberal ideal and the welfare ideal. Autonomy is a good life with maximal freedom. She requires the presence of a personality and skills. Sometimes these properties must yet be appropriated in a process of emancipation. Thus inclusion can be realized.
Here the state must offer support. He must include security and equality as goals in its policy. The equality is ethical, but also material, and then guarantees certain fundamental social rights. Together they must provide equal chances for all citizens (p.45). Now Claassen studies the concrete task of the state (say, the target function U). He states that the state can not fill in the well-being by itself, but must offer the opportunity to citizens to make their own life plan (p.56)9. The state can dictate a process of formation, as long as it does not degenerate into indoctrination. Therefore the state must be pluralistic. Incidentally, this does not mean that groups ought to respect each other10. And the majority can dictate a certain idea of well-being, when the circumstances require this. However, this should not seriously hurt the minority (p.85).
Paternalism is justified against individuals, who are not autonomous. Consider children. Indeed the adult citizens do not always act completely rational, and sometimes they hurt their own well-being. However, autonomous individuals have that right. The state can at most dissuade from the undesirable actions11. Reversely, the state can offer incitations for personal formation12. Claassen is confident, that the urge to unfold oneself is innate (p.122). With respect to labour, Claassen advocates self-determination, but not self-realization (p.179). That is called labour-autonomy. Individuals can unfold themselves also outside of work. The quality of labour must be such, that the autonomous skills are preserved.
According to Claassen the realization of autonomy is neutral with respect to economic growth (p.160). Besides, growth can limit the ecological space, and thus restrict the freedom of future generations. This is wrong (p.211). Incidentally, the maintenance of the human kind gives meaning to life. He also warns against the meritocracy, because she can affect the self-respect. Positional competition (the pursuit of luxury goods) can be democratically controlled. He calls that auto-paternalism (p.165). Similarly, the unrestricted operation of markets is wrong. The economy must realize the goal of maximizing the growth of welfare (the social welfare function W), and not the economic growth. It is clear that Claassen prefers a relaxed economy.
Claassen sketches a fascinating picture of the social pluralism. The controversies mainly concern the cultural sphere, and less the economy (the K-game). The state must treat all cultures in the same manner, as long as they are open with respect to other cultures. Within the cultural group the autonomy is allowed to develop itself. Thus Claassen reaches the surprising conclusion, that the state must further the national identity. She is needed in order to stabilize the state, and to prevent its disintegration (p.264). The autonomy can only be realized with a "house". The citizens within the state have mutually engaged in various concrete duties, and that stimulates coherence. Therefore it is obvious, that migrants have the duty to integrate themselves (p.292). Nowadays parallel societies are no longer an option. The state must actively stimulate the integration of the migrants within their new home.
The whole argument of Claassen is precisely so interesting, because he tests the state morals by means of political experiences. He unmistakably sees the political state (parliament and administration) as the leading player within society. The economy is almost absent in his story. In this manner he opposes Frijters. There is more similarity with Ganßmann, but also then Claassen goes his own way, because he attaches more importance to the cultural struggle than to the economic conflicts.
On this portal the Leninist view about the structure of the state has been explained many times. However, since the sixties of the last century neo-marxism becomes popular in the west, and introduces nuances in the Leninist dogma. Siep Stuurman gives in Kapitalisme en de burgerlijke staat a sketch of the neomarxist ideas (which incidentally nowadays has been reduced to a sectarian ideology)13. According to Stuurman the modern state is still built on a class society, which by nature has internal conflicts. Although a temporary class compromise has been found in the form of the welfare state, the capitalist society remains unstable. The reader may recognize in this view the K-game of Ganßmann. Besides, Stuurman remains loyal to marxist concepts, such as the concentration of capital (with as a consequence the socialization of the production), and the capitalist anarchy.
Stuurman retains the hypothesis of Marx, that the instability is fed mainly by the conflict between the social production and the private accumulation (in other words, property). The private property is able to block the central planning, because the industry and commerce (as the dominating forces within the plutocracy) are interwoven with the administration of the state. The state tries to yet integrate the rebelling groups in the existing order, by means of a combination of seduction and threats. Incidentally, the state autocracy does not act as the toy of the industry, but she maintains her own autonomy. She does not shrink from economic interventions. Precisely in this respect neomarxism introduces nuances in the theory of Marx, among others due to the rise of the Kaleckian-Keynesians ideas (p.100). According to Stuurman this is hopeful, because it is conceivable that the labour movement (political parties and trade unions) will seize power in the state.
In short, neomarxism advocates an agenda of policy reform by means of political participation and extra-parliamentary action, and it abolishes the revolutionary struggle. Thanks to the agenda the present class struggle has become institutionalized (p.130). The neomarxism pleads in favour of the economic coordination by the state, which includes the nationalization of the cartels and trusts. The state must obtain the control of the investments. The neomarxism differs fromn the social-democracy, because it reduces the social pluralism to the K-game, and thus abstracts from the various other conflicts, for instance between rivaling cultures. It does acknowledge the controversies between the various associations of entrepreneurs. It even states that the labour movement can profit politically from this discord, because it allows for opportunist coalitions. Thanks to the growing consciousness and emancipation the movement has become an autonomous power. Therefore in capitalism the state itself is unstable14.
In the ideological class struggle of the K-game the aim is to conquer the ideological hegemony (a term originating from the then popular Italian thinker Antonio Gramsci). Just like the figure 1, Stuurman identifies followers of corporatism, liberalism and socialism, even within each popular party (p.163). Precisely due to the political struggle for power the vision of the future is not purely materialistic (as proposed by Marx), but it becomes ideological. The state does not die, as Marx assumes, but can become the centre of power. However, on p.200 Stuurman is worried, because the state bureaucracy might find its own way, independent of parliament. He is also distrustful of the legal system. He identifies the working class with the general interest (p.207) and with democracy (p.208, however see also the opinion of Frijters). In conclusion Stuurman fears a loss of democracy, if the working class fails to conquer the ideological hegemony (p.382).
Your columnist has included the arguments of Stuurman, because they were popular forty years ago, mainly among young intellectuals. Besides, the reformism is an improvement with respect to Leninism, which has remained revolutionary. Nevertheless, neomarxism with its stamokap theory is utterly unsound. For, there is no all encompassing structural industrial concentration. And the universal central planning turns out to perform much worse than the free markets. Therefore this model does not offer a real alternative, not even in states where the democracy and welfare state are still missing. There is no need to mourn over the demise of neomarxism. Forget it!
After studying the views of Van Erp, Graafland, Claassen and Stuurman it must be concluded, that in previous columns the position of the state has been valued with insufficient accuracy. They seemed to suggest that the society is the product of the economy15. However, the present column describes a picture, where the society is united by the political state. It is obvious that the economy still produces the wealth, but she can merely do this due to the regulation of the state. The economy is even a potential threat to the social cohesion. The state opposes this tendency by propagating its own ethics, which emotionally bind the citizens to their society. It furthers and guarantees their personal liberty. Certainly within the rich states the political debate is no longer dominated by the economy, but by the competition between morals. That competition can be fierce.
Van Erp, Graafland, and Claassen are convinced, that the state can choose its policies in a fairly objective manner. It can develop a target function U, without engaging in despotism or paternalism. It is the source of positive freedom rights. The state can approximately distinguish between "good" and "evil", even in the case of pluralism. Besides, the state is the only institution, that develops a long-term vision on society. In this manner the three authors support the planning idea of Tinbergen, albeit in a modernized form. And although the democratic people are the highest authority within the state, the state yet also exerts influence by educating its citizens. It gives the citizens the opportunity to acquire a true autonomy. Thus the ethically hopelessly divided citizens yet become emotionally attached to their common house.