Is The Administrative State Entering Meltdown?

              Keith's thought-provoking piece on the UK's recent anti-EU voter rebellion (American Counterpoint 7/5/16) touches on too many issues to allow a comprehensive response. The section of his essay entitled "Hatred for the EU", however,  I think warrants focused attention because it references the key not only to this particular imbroglio but to the more general existential crisis currently threatening welfare-state capitalism around the world.
          Keith mentions "the nearly universal loathing for the EU’s bureaucracy, which is slow, inflexible, and often incomprehensible." And while he goes on to blame this revulsion on the appeals process, which slows down regulation and makes it appear inefficient (perhaps my friend Keith is tempted by the prospect of authoritarian power which would disallow appeals), the point nonetheless stands that UK resistance to the EU is more fundamental than fear of refugees.   

         Another phrase of Keith's that sticks out, even though I'm about to pull it somewhat out of context, is "the detailed regulation that society needs." Herein, of course, lies the central conceit of the Administrative State, which tends to regard all spheres of human experience, no matter how small,  as perfectible through its agency.
                                         Lessons From The Private Sector

         I read a fair amount of business history, and two histories that have always been of particular interest to me and that I find relevant to the present discussion are those of IBM and Microsoft.
          During the 1960's IBM undertook a massive project to harmonize its convoluted offering of mainframe computers and peripheral devices, which corporate customers were finding increasingly hard to configure and maintain. The project's result was the IBM System/360, which would eventually dominate the computer industry for most of the next two decades. IBM's campaign to create System/360, however, was a make-or-break affair that nearly turned fatally bad. Desperate for success and having plenty of money, management piled ever-more resources into the lagging effort, only to discover that additional resources actually aggravated the problem. Competing agendas emerged among senior engineers,  and technical problem-solving got lost amidst corporate politicking and unfocussed bureaucratic procedure.

         Two decades later Microsoft found itself in similar straights as it pioneered the new industry of personal software for desktop computers. Development of the Windows operating system and related applications became bewilderingly complex, and Microsoft nearly destroyed its young franchise by releasing buggy software into the market. Like IBM before it, Microsoft had plenty of money to throw at the problem but soon found that every fix was introducing multiple new bugs. The development team responsible Microsoft Word coined the depressing phrase "infinite defects" to describe the mire in which they found themselves. The systems were becoming too complex to be viable.
          The notion of "infinite defects" calls to mind the physics of a nuclear chain reaction in which fissioning atoms trigger an accelerating stream of new fissions, potentially approaching infinity. When this process can no longer be controlled, all hell breaks loose in what is known popularly as a "meltdown".

          In the business world, the analogue to meltdown is financial insolvency, and the safety algorithm provided under law is bankruptcy, which relieves pressure and facilitates orderly liquidation of the failing enterprise. In private business, the threat of bankruptcy is a gun to the head of management, since it promises to terminate their  jobs and vaporize the company's share price. When bankruptcy occurs, however, the problem is contained after the responsible parties have been punished. IBM and Microsoft eventually solved their problems because the gun-to-the-head worked. Today decades later both companies are still producing useful products and providing employment.
                                        Governments Are Different

          Governments are different from private companies in that they have no built-in failsafe when their operations run amiss. Even more fundamentally, they generally lack certain knowledge that anything is even wrong. Anti-government zealots usually claim that nothing government ever does works properly,  while government employees and their political backers claim everything would be fine if only the oppositionists would just go away and leave the financial valves open for adequate funding. Opinions abound but there's never any way of proving who's right and who's wrong. There are no independent customers deciding whether or not the services offered to them by government justify the costs.

          Government spending accounts for between 40 and 60 percent of the GDP's of most developed economies today, with European nations tending towards the upper end of this range.( In Greece the ratio was approaching 65% in the years prior to the country's breakdown in 2010.) When governments are responsible for this much of a nation's economy, they quite rightly feel not only entitled but obligated to regulate their investment to ensure taxpayers are getting what they pay for.
          The problem is that the objective is hopelessly impractical. The life-threatening problems that IBM and Microsoft encountered decades ago were child's play compared to what governments face in trying to regulate complex modern economies.  Rules, paperwork and bureaucracy abound everywhere in all spheres of society, yet few people are in position to see clear connection between all this and any economic or social benefit. Everything is too complicated, and suspicions abound that it's all bunk and that government regulators are there primarily in service to their own careers or political agendas.  Because nothing ever seems to be working quite well enough,  there is an incessant demand for more resources which, if granted, may further complicate operations and lead to still more dissatisfaction. The syndrome feeds itself.

Rules On Top Of Rules In Europe
          Every developed nation in Europe evolved its own system of economic control during the twentieth century. The gradual advent of the European Union following World War II starting superimposing yet another set of strictures on top of what was already there. Discomfort with the EU grew particularly acute in the United Kingdom because of its island history and deep-seated mistrust of anything emanating from continental Europe. The result of the June 23 referendum  should not really have been a big surprise to anyone who had been watching the poll numbers move back and forth in the weeks leading up to it.

          Even more troubling to the EU's defenders should be the fact that, according to polls, most of the other developed nations of Europe, including France,  show a degree of EU-aversion that is equal to or even greater than that of the UK prior to the referendum. As always, factional elites have been quick to impose their own favored interpretations on voter data and usually blame inconvenient results on cynical manipulations perpetuated by the other side. The refugee crisis is the easiest explanation but, again, not the most fundamental.
          It's my own observation that the collective behavior of voters might best be understood as resembling the expressions of a pre-verbal child. Such a child experiencing pain can communicate its existence plain as day without being able to articulate the nature or location. The June 23 vote in the UK was, however we want to interpret it, a cry of blind pain about their nation's continued political affiliation with Europe.

Common Political Dynamics In Europe And The U.S.
          Many observers have noted the similarities between the anti-EU agitation in the UK and Europe and the anti-government sentiment that has been a staple of American politics since the rise of Ronald Reagan, when he campaigned on the promise of "getting government off our backs." In the U.S., this slogan found resonance with, among others,  small and medium-sized businesses and their employees, who felt suffocated by taxes, rules that often created more problems than they solved,  and the constant threat of nickel-and-dime litigation. These were all perceived as part of a control-obsessed welfare-state mentality emanating from Washington.

          This sentiment went on powering the Republican Party for two decades after Reagan's retirement. Bill Clinton even grafted some of Reagan's ideology onto the  Democratic Party's program, successfully fighting the Republicans at their own game and facilitating his own rise to power.
          The old rhetoric of economic independence started going stale during the presidency of George W. Bush, however, and the Democrats capitalized on the 2008 financial crisis to revert to form with a vengeance. Resurgent welfare state economics combined with high-handed enforcement of regulatory diktats under the Obama administration took the country further to the left that anything seen since Franklin Roosevelt's presidency. The ongoing carping of the "far right",  as even relatively moderate critics of big government came to be branded in the liberal blogosphere was, in the U.S., marginalized in same much as way was anti-EU sentiment in Europe and the UK. It was all seen as coming from ill-informed rubes financed by Big Money or manipulated behind the scenes by neo-fascist isolationists.

The Transmogrification Of Rational Dissent
          Yet marginalizing criticism without addressing it rarely makes it go away. Opposition tends to disappear underground only to re-emerge later in more virulent and less rational form. The growing and seemingly universal unhappiness with the current state of things is turning democratic political contests into dark and inexplicable carnivals. In the UK, a conservative prime minister has been forced to resign in the wake of June 23, unable to re-bottle the genie he himself released on the voting public. His opposite number in Britain's Labor Party, obviously reading the same tea leaves with equivalent ineptitude,  has faced a virtual coup-d'état within in his party as a result of the same phenomenon. Where were the adults in the room here?

          In the U.S. presidential primaries, Trump and Sanders supporters throughout the early months of 2016 vied constantly to outdo one another in their expressions of contempt for the status quo. Even though neither of their champions advanced programs that went much beyond slogans and symbols, the true-believers exuded an enthusiasm that made political extremists of every stripe right and left begin to take note and to consider perhaps slowly inching their way out of the background.  To nearly everyone's astonishment,  Trump actually succeeded in outmaneuvering every one of the sixteen rivals he faced at the beginning of the primary season, most of them establishment figures. Sanders for his part, the avowed Socialist, never intended to win the Democratic nomination, but he has succeeded in his real objective, which was to pull the Democratic Party so far to the left that a new Clinton Administration will be almost indistinguishable from anything Sanders himself would have put in place.
          Rational debate has virtually disappeared from the arena, which has degenerated into little more than a grim miasma of conflicting symbols. No one knows what the next president of the United States is actually going to do.

The Meltdown
          The problem, of course, is not confined the Europe and the United States. China, Japan and the rest of Asia are experiencing their own versions of what happens when economic complexity outruns the capacity of the centralized administrative/welfare state to control it. Governments have pulled out every weapon at their command to revitalize stagnant economies, but efforts are coming up short and everybody seems dissatisfied. Political factions blame their rivals' malfeasance, but the real problem is systemic. More is demanded yet more cannot be delivering without triggering worse problems. Governments have seemingly entered the realm of infinite defects where every action they take creates multiple new problems. This situaiton threatens to transform itself into meltdown without anything akin to bankruptcy available to relieve the pressure.  Economic dysfunction is often largely hidden from public view in the beginning, but people feel it nonetheless and these visceral sensations are finding their way into bizarre forms of  political conflict. Hence our current situation.

Where Does This Leave Me
          Despite everything I've said here, I'm probably as horrified as Keith is by the result of June 23 referendum in the UK. Even though I sympathize with the grievances of the "Leave" campaigners, the reality is that the European Union is one of democratic capitalism's  backbone institutions. The UK's vote to exit the Union has already re-energized the Scottish independence movement,  and the dissolution of the UK itself seems again potentially in the cards. The vote has also re-energized exit supporters in other European countries. Should the Union itself start showing real signs of cracking, the common currency - which has never been on entirely sound footing anyway - would come under renewed attack. Collapse of the Euro would have disastrous implications for the global economy, and add another layer of self-fueling destruction on top of existing woes.

          And as for the rise of Mr. Trump, I'm probably even more concerned than Keith, since it's my party the man is in the process of eviscerating. Yet in depriving the Democrats of rational opposition, the Trump phenomenon may be encouraging them towards their ruin as well. The Democrats represent a far more fragile coalition than might now be apparent, and they have proved in the past that they can be their own worst enemies when their native inclinations are left unconstrained.
          Like the European Union, America's two mainstream political parties are part of the firmament of democratic capitalism in the world. We need all of these institutions in sound working order if democratic values to hold their own in a world threatened by so many violent centrifugal forces.  


  1. I agree with Mark and the rational conservatives that regulation can and does stifle business. I also agree with his implicit message that even if the goal of regulation is laudable, and the need for it is great, the opportunity cost can outweigh its potential benefits. That is why I would like to see more of a common law approach to regulation than now prevails. By this I mean a system in which the regulatory goals are broadly and generally specified in enabling legislation, and the specifics get worked out on a case-by-case basis through a judicial-style system with reviews and ultimate decision-makers who can reconcile conflicts. Although not perfect, as witness the state of antitrust regulation through this common law system, this approach has the great virtue of reducing or perhaps eliminating the vast regulatory overhead created by the prevailing system of detailed rules promulgated and upheld after years of review and appeal. It channels lobbying into a highly structured format aimed at legal interpretation, rather than a contest of political power.

  2. Let me elaborate by discussing the case of antitrust. The antitrust laws of the US take up a page or so, and basically prohibit business practices with the aim or effect of restraining trade or competing unfairly. Prior to 1970 or so, the courts--mainly the US Supreme Court--developed a body of rulings to carry out this legislation. Unfortunately, in many situations the rulings were inconsistent, and lawyers had trouble advising their corporate clients on what would, or would not violate these laws. Since violation could carry severe penalties, this was a big problem.

    By 1970, a legal and economic analysis centered on the U. of Chicago had emerged. Its approach was to claim that the basic purpose of the antitrust laws was to keep business from raising consumer prices. Using this touchstone, the Chicago School argued that most claims of antitrust violation should be judged on whether prices would rise as a result of the questioned activity. If not, no problem. If perhaps yes, then further inquiry was necessary because sometimes the activity might nevertheless be justified.

    Liberals look at the Chicago doctrines with grave suspicion, because in practice most of the activities that had been forbidden were allowed under these doctrines, and so the Reagan and Bush courts held. I agree that the doctrine went too far, and that other important considerations, ones manifested in the legislative history of the antitrust laws, were improperly ignored in the cases that followed. But I do not agree that this doctrinal development resulted from an academic or political intent to achieve the outcome of industrial consolidation that has resulted. Those attempting to grapple honestly with difficult situations will normally make mistakes, fail to take all factors into account, and suffer unintended consequences.

    But the antitrust approach, unlike that of regulation, allows for correction when error appears. It is an approach based on incremental learning, adaptation to new conditions, and the application of keen intelligence to highly specific factual situations that have arisen in the real world. By contrast, regulation not only responds to real world issues, but attempts to foresee new conditions. It takes so long to develop, is so hard to get formulated, and represents so many politically potent interest groups that it can easily serve as a straitjacket long after conditions have greatly changed.

  3. These remarks strike me as suggesting a genuinely innovative approach to the problems of regulation. Regulation fails for numerous reasons, but the most fundamental of them are: (a) ill-defined or overly-broad regulatory mandates and (b) politicization of the process. These problems tend to feed one another. The "common law" approach Keith alludes to might indeed potentially alleviate some of this by turning the process it over to qualified pragmatists who could agree on the nature of the regulatory problems and follow common-sense heuristic methods in solving them.

    There's no silver bullet here, of course, but there is the germ of a new idea. It would be interesting to see it explored further.