Regulated competition is the wellspring of our revolution

The hot new Evonomics site offers some of the best writing about fresh  economics perspectives around. I was one of their first writers and now they have published another piece on "The Fairness Divide" making a clear distinction between equality-of-opportunity vs. equality-of- outcomes.  I think it will set some familiar perplexities in a much clearer light.  

Along related lines, Lawrence Lessig has joined others in questioning one of our laziest assumptions: that capitalism is the same thing as corporate oligarchy, and that the secret to a healthy capitalism is zero regulation.  

Anyone who actually reads Adam Smith - or who knows a thing about the last 6000 years - knows that oligarchy is the worst enemy of flat-open-fair-competitive and creative market enterprise. 

Here's a passage from Lessig's recent review: 
“Theorists and principled souls on the Right are free-market advocates. They are convinced by Hayek and his followers that markets aggregate the will of the public better than governments do. This doesn’t mean that governments are unnecessary. 

"As Rajan and Zingales put it in their very strong pro-free-market book, Saving Capitalism from the Capitalists, 'Markets cannot flourish without the very visible hand of the government, which is needed to set up and maintain the infrastructure that enables participants to trade freely and with confidence.' 

"But it does mean that a society should try to protect free markets, within that essential infrastructure, and ensure that those who would achieve their wealth by corrupting free markets don’t.”

"Rajan and Zingales further describe:

“Capitalism’s biggest political enemies are not the firebrand trade unionists spewing vitriol against the system but the executives in pin-striped suits extolling the virtues of competitive markets with every breath while attempting to extinguish them with every action.”

== Must markets be 'blind'? ==

Way back in the last century, I was pointing out that those proclaiming “Faith in Blind Markets” — or FIBM — mostly ignore those 60 centuries, when lack of market regulation simply meant “those who have, rule.” Across that era, laissez faire inevitably led to feudalism and stunningly stupid governance. The last 200 years have been an exception to that brutally nescient and incompetent span. This was Adam Smith’s foremost complaint.

Does this validate the opponents of FIBM? Those who proclaim Guided Allocation of Resources, or GAR? Surely the examples of Leninism, Maoism and Japan and China show that central control has severe limitations. Without any doubt, the FIBM guys have a point — that there’s such a thing as too much regulation. (Ironically, which U.S. political party actually de-regulates obsolete agencies and loosens regulation, as often as it tightens it? Democrats, by far.)

I go into the tradeoffs of GAR and FIBM elsewhere.  But the outlines are clear.  Both cults want control and allocation by elites. The FIBM crowd (who call themselves “libertarians” but in fact are not) differ only in which elite they would make all-powerful allocators — not bureaucrats, answerable to an electorate, but a secretively-incestuous CEO caste of 5,000 golf buddies.  

That’s not flat-open-fair-creative market competition, and it certainly isn't Hayek. That is hypocrisy. It’s the tired old way: feudalism.

But read the Lessig article.  He's an economist and has lately earned some real cred from us.

== More on Hayek ==

Others are weighing in on Hayek, and the rampant misinterpretation that he favored zero regulation. As economist David Sloan Wilson put it:  "Hayek had two way-ahead-of-his-time insights. First, that economic systems have a distributed intelligence that cannot be located in any individual. Second, that this intelligence evolved by cultural group selection. Contemporary science — complex systems and multilevel evolution — validate those claims. But Hayek fans are mistaken to believe that his insights mean markets should be unregulated."

Or as Evonomics pundit Jag Bhalla says: "Hayek’s right that no “central planner” can know what’s distributed among people in markets. But computer scientists have studied distributed processing’s limits. Many tasks can’t be efficiently distributed. Most still need central coordination. Aren’t market computations similarly limited?" ... and "Effective market regulation should heed biology’s regulatory lessons. Economies, like complex organisms, need distributed reflexes and a central nervous system. They need more than one price-like signal to prioritize and regulate for the whole, and to manage systemic risks. That doesn’t happen automatically."

== Libertarianism and conservatism, redux ==

Let's look at this same issue from another angle.

The real problem with today's versions of libertarianism and conservatism isn't "selfishness" per se. As Adam Smith showed. competitiveness is one wellspring of human creativity and leftists are fools to deny it. 

No, the problem is that conservatives and libertarians almost never mention the word "competition," anymore.  Because they know people sense a contradiction with the modern religion that has taken over libertarianism. Idolatry of unlimited personal property. 

At best, these two concepts - competition and propertarianism - are tense partners, with some genuine property rights necessary, in order to foster competitive drive. But they can become often diametric opposites, even enemies.

Yes, property rights are essential, but they become toxic when overly concentrated. (Just like any other good thing, e.g. water, oxygen and food.) Adam Smith knew this. To him, the true enemy of market enterprise  - across 99% of societies - was feudal owner aristocracy.  And it is true today. 

Let's stick this point: Idolatry of unlimited personal property is the same thing as declaring hatred of flat-open-fair competition.

See my classic essay on this, appealing to all -- especially libertarians -- to get over their voluptuously silly Ayn Rand solipsism kick and actually read Smith, a philosopher who understood so much more than slimplistic left or right credit him with, and who changed the world.

See this recent essay about Ayn Rand's cult of selfishness and the real world cases where it has been put into practice... Sears/KMart and Honduras, both of which were suddenly converted to Randian principles of cut-throat internal competition.

Both are now teetering on bankruptcy.

== A useful innovation that can sour ==

Let's try this from yet another perspective: George Friedman, founder of Stratfor the strategic analysis firm and now working with economist John Mauldin, discusses the modern, limited liability corporation:

“The very idea of a corporation is a political idea. That someone should be able to own part of a company but not be liable for all its debts is a very modern idea. It's also a very radical idea. Many people, including Adam Smith, did not trust the corporation. Smith argued that unless you were an owner of a corporation, you were not committed to its interests. ... It is the state setting liability. 

The notion that there can be limited liability doesn’t flow from the free market. It flows from the state, which says you can have this kind of corporation”

To be clear, Smith was not all-knowing.  The limited liability corporation has definitely had its uses and allowed more bold risk-taking in pursuit of economic dynamism.  But the moral hazards mount up over time.  Not only should LLCs be fundamentally limited to prevent monopoly and conniving duopoly etc, but there are good arguments for assigning them lifespans, so they will not become immortal and toxic.

== A plethora of angles on a problem ==

To be clear, something like a modern political economic system is a lot like the proverbial elephant, being groped by blind pundits, each proclaiming a single, linear metaphor to be THE thing itself. In fact, these perspectives -- like the hoary "left-right axis" - are only useful to the degree that users bear in mind: the map is not the territory.  And our metaphors can lobotomize.

So let's restate "left" and "right" not in obsolete terms from the French Revolution.  Instead, I think conservatism vs progressivism is all about the process of "horizon expansion" that I talk about here and here. Wherein the circle of inclusion in society keeps being pushed outward, a process that gained momentum in our Great Experiment gradually, for the last 250 years.

A process that the left has made their core religion! So much so that they despise and denounce anyone who disagrees even slightly about the pace of tolerance/inclusion expansion and openly question whether old loyalties are still pertinent.

The right, in turn, despises those who push hard on inclusion-expansion and hates to be nagged to do it.  They like their old loyalties.

LIBERALS are a third type, totally different than leftists. They tend to like the general process of inclusion expansion ... but they also like their old loyalties.  They are the only ones conceiving this as a positive sum, win-win process. Again, liberals are neither lefties nor righties. They want new kinds of citizens!  But they also don't mind keeping some older ways around.

You see the same thing when it comes to the concept underlying our great competitive ARENAS... markets, democracy, science, courts and sports ...All five innovative systems achieve positive sum cornucopias of output because they nurse vigorous competition... but regulated in order to minimize cheating and maximize opportunities for creative rivalry.

Leftists despise the word "competition" ignoring (1) that is is the source of fecund wealth we use then to help people and expand inclusion! Moreover - oh the irony - (2) they they are themselves being very very competitive!

Rightists are worse!  They claim to love the word "competition" but hate REGULATION... without which competitive processes are always always always and always ruined by cheaters.  (In fact, enabling cheaters is now the main purpose of the Republican Party.)

Again, liberals are the only ones who see no dichotomy.  Who see the combined word "regulated-competition" as the wellspring of our revolution and bold new way of doing things.

Which brings us full circle.  Sure, regulations - even well-meaning ones - can stifle enterprise. (And dems are better at eliminating those.) But without a regulated marketplace we fall back upon 6000 years of cheating - and FIBM soon becomes just another excuse for GAR.

It's complicated, and not very satisfying to those who want simple prescriptions.  Rather, our role as adults is to accept that it is complicated.  To embrace all this complexity! To keep fine-tuning a role for regulation in enhancing infrastructure and science, education, health etc -- things that increase the overall number of skilled and confident competitors!  But also to back away from those well-meaning regulations that try to impose nit-pickery outcomes.

Militantly moderate, ferociously reasonable, courageously contingent... it is the liberals who seem less passionate, but who have the closest thing to an adult perspective. One that might bring us to even greater heights.