Corporate Power vs The Free Market

The Left and Public Choice Theory

by mark pennington

The mention of public choice theory to those on ‘the left’ of politics can prompt a variety of reactions. Some are based on ignorance about the very existence of public choice economics as a theoretical perspective. This reaction was demonstrated to me following one of the first lectures I gave in my academic career. Having listened to me speak for an hour on the power of incumbent firms to ‘capture’ regulatory agencies an attending student who was an activist in the Socialist Workers Party asked me, ‘when did you become a Marxist?’ Needless to say, for someone who considers himself a radical ‘anti-Marxist’ I was taken aback by this approach! What the question exemplifies though is an attitude that is widespread in academic circles – the assumption that an interest in power imbalances that favour business interests must equate with one having leftist or socialist sympathies. The idea that there might be a classical liberal/free market understanding of ‘power relations’ as exemplified by public choice theory is a possibility that simply hasn’t occurred to this particular species of left-winger.

A second reaction is based on ‘avoidance’. This strategy is adopted by those who are aware of public choice arguments but see them as a direct threat to their most cherished ideas. So why is public choice theory such a threat? I think in part because it offers a more plausible account of ‘power relations’ than its neo-Marxist competitors. Public choice rejects the naive pluralist view that power is evenly distributed across interest groups by offering a non-Marxist account of elite power. Instead of assuming that large ‘classes’ such as ‘capital’ and ‘labour’ are the primary power players on the political stage public choice focuses on how individual incentives affect the capacity of different groups to organise and hence to wield power over others. Yes, business interests can be powerful – but not because they are businesses or because we live in a ‘capitalist’ society. Instead, they exercise power because in some sectors where there are a relatively small number of big players business interests may find it easier to overcome collective action/free-rider problems than other groups such as taxpayers and consumers-who find it much harder to form a cohesive political force. In more fragmented and diverse sectors by contrast ‘business interests’ often lack political clout – and may be less favoured than say labour unions or public bureaucrats with a monopolistic position in the state sector. From a public choice perspective there is no such thing as ‘business’ and ‘labour’ per se. Rather, there are different types of business and labour interest the political success of which depends on the specific incentives and organisational problems facing the actors concerned. As such, public choice offers a more empirically compelling account of the varied special interest outcomes we observe in democratic polities than simplistic theories of ‘class rule’.

A further reason why many on the left see public choice as a threat to their ideals relates to its’ solution to the problem of special interest power. If the interventions of the state are often captured by corporate special interests -as many left-wingers seem to think they are – then how will social democratic efforts to give the state even more discretionary powers to intervene in markets do anything to undermine the power of these interests. Marxists would, of course, make the even less plausible claim that the only solution to ‘power relations’ is the abolition of private wealth and the monopolisation of all decision-making power in some unspecified public body. From a public choice standpoint, however, if the modern social democratic state is the major source of special interest power then by far the most effective way to reduce this power would be to dismantle the apparatus of anti-competitive intervention in markets. This does not require an egalitarian fantasy land where all inequality is abolished. Rather, it requires a framework of limited government where inequalities which reflect superior performance and entrepreneurial ingenuity are welcomed but where those that reflect the power of crony capitalists, crony union bosses and public sector bureaucrats are reduced to a minimum.

The third type of reaction to public choice sometimes encountered is one of denial. Faced with the argument that politics is a game where self-interested businesses, labour unions and government bureaucrats use the state to enrich themselves at public expense, some left-wingers respond by denying that this is so. Politics they say is motivated by ‘values’ and this is something that the economistic focus of public choice theory simply doesn’t take account of. I for one have a good deal of sympathy with this line of argument. It seems far too simplistic to maintain that every public policy that exists is there because of special interest forces. To suggest otherwise is to be guilty of a sort of ‘right-wing Marxism’. The problem for left-wingers who make this sort of response to public choice, however, is that it implies that many of the quasi- conspiracy theories that are often their most important mobilisation tactic have to be abandoned as well. Might it just be that that central banks and financial regulators who pursued a policy of loose money and the lowering of lending standards did so because they believed it was the ‘right thing to do’ and not because they were in the pockets of corporate bankers? If politics is really about values and ideas then perhaps we should look to the power of ‘mistaken theories’ (such as Keynesianism and Monetarism) as the cause of government failure rather than the corrupt dealings of the ‘top 1%’.

So, public choice theory poses some difficult questions for ‘the left’. If one takes an ‘interest-based’ view of politics then public choice offers a more plausible account of the way special interests seek and gain power than its leftist rivals – and of how to minimise the threat presented by such interests. If on the other hand one takes the view that ideas matter more than interests then the left is robbed of much of the ‘them versus us’ rhetoric which historically has been one of its most important vehicles of political recruitment.