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A Strong, Smart State Can Create Economic Prosperity for All
Two new books show how Paul Ryan's ideas from Ayn Rand are so wrong. America has always had a 'mixed economy', both market and state. This article helps understand subsidiarity views today.
By Mike Konczal
The Fractured Republic: Renewing America’s Social Contract in the Age of Individualism Yuval Levin Basic Books, $27.50 (cloth)
American Amnesia: How the War on Government Led Us to Forget What Made America Prosper Jacob S. Hacker and Paul Pierson Simon & Schuster, $28 (cloth)
At a speech given to Congressional interns in March, Republican House Speaker Paul Ryan spoke of the fit between his conservative beliefs and the tenets of his Catholic faith, “whether it’s fighting poverty eye to eye or . . . whether it’s making sure that we don’t have a big, arrogant, paternalistic, condescending government that is taking power from our lives, power from our communities.” His guiding principle, he said, is “subsidiarity,” an idea with roots in Catholic social teaching. It is now the subject of a book by Ryan’s informal advisor Yuval Levin, The Fractured Republic.
Levin explains that subsidiarity means “putting power, authority, and significance as close to the level of the interpersonal community as reasonably possible.” The book makes a modern case for dismantling the federal state, imagining a radical overhaul in which virtually all of the major institutions of the federal government built in the twentieth century are rolled down to the state level and shrunk so that local and private entities can take them over.
There is a lot of rhetorical appeal to Levin’s vision of society, which the writer and former George W. Bush speechwriter David Frum sees as “a new kind of conservative politics” that will correct the “toxic and futile” proposals of Donald Trump. Who wouldn’t want stronger communities, healthier engagement in civic institutions, and a more robust public sphere built on “interpersonal relationships in neighborhoods, schools, workplaces, religious communities, fraternal bodies, civic associations, economic enterprises, activist groups, and the work of local governments”? Who calls for investing power in institutions far from where it is best exercised?
Yet Levin’s case for subsidiarity misreads our current situation. An honest assessment shows that the problems of our century require not a rollback but an expansion of the federal government.
• • •
At the heart of Levin’s book is a metaphor. We are asked to imagine the individual as the center of a series of concentric rings. The innermost is the family, the individual’s most intimate community. Next are the institutions of civil society, private enterprise, and local government—the little platoons that constitute our everyday relationships and commitments. The outermost ring is the federal government, the distant entity of centralized programs run by armies of bureaucrats who cannot know us and with whom we only engage as distant, interchangeable statistics.
Drawing on this idea of social relations, Levin argues that the federal government is poorly situated to solve economic insecurity, which affects local communities in different ways. The problem is that the modern economy has become “fractured.” While the mid-century economy consisted largely of powerful consolidated industries, whose size allowed for grand bargains with labor and the state and an expansive regime of regulatory controls and social insurance, today’s economy is more local, diffuse, and ruptured; it has begun to “disperse in all directions, becoming more scattered and individuated.” Thus our economic policies should become more local and diffuse as well. “One-size-fits-all universal programs suited to a consolidating society should give way,” Levin says, “to more narrowly tailored, leaner, local and personal, bottom-up systems of protections and supports suited to a dynamic and diverse society.”
But this is wrong on both the nature of the problem and the proposed solution. In truth, today’s economy is one of increasing consolidation, complexity, and scale. Companies are more concentrated across a variety of industries, a natural consequence of liberalized capital markets and reduced antitrust enforcement in the 1980s. Firms aren’t just more concentrated; they are more consistently profitable. The most profitable in 2003 had an 83 percent chance of still being profitable in 2013, up from 50 percent in previous decades. This consistent profitability reflects the lack of competition in a market overwhelmed by a few large companies. For that same reason, the proportion of newly opened businesses, and the number of employees who work for them, has fallen rapidly. This is new, and studies suggest that it is not the result of government action. This is why economists on the left and right are increasingly looking at rents, or profits divorced from economic value, to understand our major economic problems.
Some, including Levin, point to the “sharing economy” and companies such as Uber to demonstrate the fractured nature of the economy. This is a strange argument because Uber in fact exemplifies economic consolidation, not a move toward locally embedded institutions. The company is replacing locally regulated taxis in many cities. An algorithm tells drivers what to charge, and a mapping program tells them which routes to take. They are subject to sanctions and firing from people they have never met, who work for a company housed in Silicon Valley. Whether or not Uber drivers are legal employees, their relationship with their paymasters is more tenuous and distant than a taxi driver’s ever was.
But even if you think Levin’s economic story is right—that a leaner and more local economy is the challenge of our time—there is no reason to believe that the solution should be local, too. If the local level is precarious, there is good reason to think that security should be built at a higher, more stable level.
For one thing, the largest problems we face are simply too big to tackle locally. Weak recoveries from recessions; corporate evasion of basic accountability, regulations, and taxation; and the failure to slow carbon emissions won’t be addressed in your community or mine. The income share of the top 1 percent has doubled since the 1980s; income growth for everyday people has fallen or stagnated since 2000, and you need to squint to see growth in the decades before the turn of the century. There are no local, civic solutions to this inequality. Quite the contrary: the dismantling of national policies and an increasing reliance on market solutions is partly to blame for our current economic situation. Abandoning “one-size-fits-all” regulations in the 1980s and ’90s in favor of self-regulation enabled a dangerous level of growth and fraud in the financial sector that led to the Great Recession. The for-profit college sector, seen as a market solution to challenges of education quality and access, was allowed to expand rapidly, only to create a sea of underemployed, heavily indebted graduates and a handful of rich executives.
Consider as well the economic risks produced by globalization and trade. Even if trade has a net economic benefit, it has damaged some local communities. How can we expect those communities that have lost the most to global competition to combat that insecurity? There is no evidence that private and local organizations are able or willing to stand up if the federal government stands down. Charitable giving fell during the Great Recession, both in absolute dollars and as a percentage of GDP, even as need skyrocketed. State-level austerity, reflecting the inability of local communities to respond to downturns on Wall Street and in the global economy at large, only slowed economic recovery.
Food stamps provide a simple reality check. After they were cut by $5 billion in 2013, a survey by Food Bank For New York City found an 80 percent increase in demand for food. In an attempt to reach the larger population now seeking food aid, food banks distributed less food to more people. Sixty percent of food banks reduced the amount of food they gave away in each package. Food banks are good at targeted charity, but they are not prepared to provide a baseline of food security for all. In other words, food stamps provided by the federal government supplement and strengthen, rather than weaken or replace, local institutions such as food banks.
• • •
Subsidiarity’s jaundiced view of the relation between civil society and the federal government—as enemies permanently at war—obscures how the two interact, and how the security provided by the latter allows the former to grow and thrive. As the historian Brian Balogh argues in his excellent new book The Associational State, “Stretching back to the origins of the United States, citizens have benefited individually and collectively through strategic combinations of the state and intermediate institutions. . . . This landscape is the product of an energetic state and active polity.”
There have always been such partnerships, and where they are lacking, regular people suffer. Levin ignores the fact that civil society was never able to sustain economic security before the invention of social insurance. Even in the supposedly laissez-faire nineteenth century, free land, state-sponsored poorhouses, and Civil War pensions show the complicated, interlocking nature of the state and civil society. Voluntaristic societies of the early twentieth century were expansive social institutions, but they never were able to provide much in terms of economic security outside funeral benefits for their members.
When the Great Depression decimated that first wave of voluntaristic, local subsidiary institutions, especially the ones built around insurance and banking, workers demanded the federal government take on these responsibilities instead. The resulting social democratic state is the product of a complex, evolutionary dynamic, with people learning from what has failed and what has worked over time. From this point of view, it is progressives who are the real defenders of civil society; they insist on the structures that will keep it alive. They don’t insist that civil society is capable of things it cannot do and has never done, things it would do poorly and that would prevent it from thriving.
Levin seems motivated more by ideological opposition to federal institutions than by a sober analysis of the ostensible underutilization of civil society. That aversion is most obvious in his discussion of Social Security and Medicare. “The truest models of sclerosis in our time are the public institutions that hail from the era of consolidation,” he writes. Trying to build—or even just retain—the welfare state “is a recipe for gross inefficiency, unpopularity, dysfunction, and failure” because these programs aren’t “responsive, customizable, and adaptable.”
These claims don’t add up. Social Security is adaptable, having been modified dozens of times. It is flexible, offering families and individuals money they can use according to their own choices. It is efficient: Social Security has less overhead than private savings programs, and its administrative costs are an order of magnitude lower than those of private charities. And it is popular. Donald Trump may destroy a 160-year-old political party simply by saying he is willing to protect the program from the privatization fantasies of movement conservatism.
Levin’s claim that the state’s institutions “invade and occupy the middle layers of society,” hollowing out civil arrangements, again gets history wrong. Civic-group participation skyrocketed during the liberal order of the 1940s and ’50s, the same period that saw the greatest empowerment of labor unions in the last century. This phenomenon is not confined to the United States. Scandinavian countries, with their large welfare states, routinely score high on measures of social capital and civic engagement. There has never been convincing evidence that big government crowds out civil society, especially compared to the small-government alternatives. And what leads us to believe these “middle layers” are uniquely situated to solve problems now? In 2000 Robert Putnam estimated that electronic entertainment, notably television, was responsible for a quarter of the collapse of civic groups. Levin asks us to answer twenty-first century economic problems with institutions that have been decimated by The Big Bang Theory and Two Broke Girls.
If you take subsidiarity seriously, it should take you to political positions well outside the mainstream of political debate. You would oppose the big companies in your life mostly incorporated in the small state of Delaware. You would resist international trade agreements that create secret tribunals to make judgments on matters of economic regulation that local courts can’t litigate. You would kick Uber and the like, which ignore local regulations as they build their global brands, out of your town. These tactics are anathema to the concept of subsidiarity; they allow the economic institutions governing daily life to pull even further away from local control. A strict subsidiarist would contrast a locally decided minimum wage, which works right at the point of commerce, with the Earned Income Tax Credit, which is run through the faraway federal tax code and attracts an industry of tax preparers who skim from it. And could there be a better expression of subsidiarity than unconditional welfare payments, a universal basic income? Certainly the family is lower to the ground than states and civil society, and families have direct knowledge of what they need.
Fractured Republic doesn’t go anywhere near these views. If there is concrete policy here, it is simply a rehashing of Ryan’s call to cut taxes and privatize major social programs or else have states administer them through block grants. One suspects that subsidiarity is just a clever marketing solution to a branding crisis: it wraps the harsh prescriptions of an Ayn Rand–style morality play in kinder, gentler terms. Rather than exalt industrious winners and condemn idle leeches, proponents of federal-benefit slashing and top-bracket tax cuts deploy friendlier buzzwords such as “community,” “civil society,” and “voluntarism.” Ryan’s recent embrace of subsidiarity casts the GOP as the party with the answers to poverty, but it hasn’t changed a single component of his plan. (A plan that, despite its supposedly Catholic foundation, is opposed by the United States Conference of Catholic Bishops.) Levin, at least, is not deluding himself. “Today’s decentralizing ‘reform conservatism’ is, if anything, well to the right of the nostalgic Republican agenda it seeks to replace,” he writes.
• • •
Where Levin sees the government crowding out more worthwhile enterprises, Jacob Hacker and Paul Pierson argue in American Amnesia that the state is central to the success of our economy. In fact, it is impossible to separate them, and you wouldn’t want to anyway.
Recovering a phrase that had gone out of fashion, Hacker and Pierson use the term “mixed economy” to describe a set of practices and functions designed “to overcome failure of the market and to translate economic growth into broad advances in human well-being—from better health and education to greater knowledge and opportunity.” It is this mixed economy, the authors contend, that made the United States rich and built the middle class.
Many, even on the left, have come to see the government as a giant redistribution machine. Taxes are collected on one side; income support and social insurance go out the other. But this impoverished view of the state reflects just one function of government, and Hacker and Pierson are out to reclaim the role of the state in the market economy through its role in fixing market failures, advancing science, safeguarding markets, and ensuring “that economic gains bec[o]me social gains.”
There is a lot of history to unpack. Since the federal government was founded, it has taken the lead in internal development, monetary policy, corporate chartering, bankruptcy law, land grants, communications law, regulation, public education, and other arenas of major economic importance. The federal government has also been a major agent in reducing incidence of communicable disease, a problem that peaked even amid the economic gains of the late nineteenth century. Not just wealth but public action was needed. Cleaner water and better infrastructure rapidly extended lifespans. Reviving this long story of the role of the federal government has been a major achievement of recent historiography, and American Amnesia puts it on display.
By focusing on the many federal activities taken for granted, Hacker and Pierson show the holes underlying libertarian logic. Milton Friedman famously saw the power of free markets at work in a single lead pencil. No one person knows how to make it, he said. Instead the magic of prices coordinates the action of people in diverse industries around the world. But while Friedman may have been right about the coordinating effect of prices, he ignored the deep network of education, infrastructure, property rights, corporate charters, and other government-enforced legal structures that make private enterprise possible. In a telling illustration, Hacker and Pierson draw on Mariana Mazzucato’s The Entrepreneurial State (2011), which shows how smartphone components—GPS, advanced batteries, cellular technology, touch-screen and LCD displays—were built on a foundation of research that was not just publicly funded but sometimes carried out by the government itself.
American Amnesia extends its authors’ earlier work on inequality, Winner-Take-All Politics (2010). The history of the rise of the conservative movement and the move of Democrats to the center has been told many times. But Hacker and Pierson successfully raise the stakes by showing how these two movements didn’t just dismantle the mixed economy; they made the idea of it disappear from normal conversation. The losses aren’t just material, to be measured in terms of decaying infrastructure and poorly governed markets. They are ideological too, with a central function of the state disappearing from our worldview.
Where the right sees subsidiarity in Manichaean terms—either you get big government or local control—Hacker and Pierson recognize that the former is not antithetical to the latter. Building on a description by political economist Charles Lindblom, they argue that markets are like fingers, “nimble and dexterous,” and governments are like thumbs, providing “countervailing power, constraint and adjustment to get the best out of those nimble fingers.” They don’t imagine a hand that is all thumbs or all fingers but instead strive to understand the balance between the two. The principles of subsidiarity are not violated if more thumbs push back against an increasingly unequal, precarious, concentrated, and stagnating economy. Such a move would strengthen, rather than replace, the essential components of civil society.
Hacker and Pierson conclude that “the richer we get, the more government we need.” As the economy evolves, it becomes both more complex and more interdependent. A small, simple economy centered on local activities can be regulated socially in communities, but the scale of global corporations requires something more: a large state capable of effective regulation and investment, with the legal and bureaucratic tools to ensure that trillion-dollar markets can function. Not only is such a state appropriate, but it is dangerous to pretend otherwise.
Mike Konczal is a fellow at the Roosevelt Institute. His work has appeared in The Nation, Slate, and The American Prospect. He blogs at Rortybomb. This appeared at the Boston Review.
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