We must resist the temptation to believe that a meddling, paternalistic state is the way of the future. Not only business, but also society as a whole, would lose out if we moved in that direction. Or, as has been said by many: “A government big enough to give you everything you want is strong enough to take everything you have.”
Now, what are possible losses from the emergence of the state? That is, while the protected in a paternalist state may perceive short run gains to centralized, collectivism, what are costs?
Movement from dynamic society to a more static society
Change in the nature of entrepreneurial activity
Moral code that evolves way from individual calculus to collective calculus
Change in the nature of tolerance
While the list goes on and on, I think it is very important to consider the perceived benefit. If we assume that individuals in society have perception about the costs above, then what is the assumed benefit of the emergence of the welfare state?
Above all else, it is the perception that the state will increase security. That is, fear of insecurity drives the calculation of costs and benefits - and the benefit of security is assumed to be so great that forfeiting a dynamic, wealth creating environment rooted in personal choice and responsibility shaped by a toleration of difference appears to be a decision that "makes sense".
Boyes raised this very issue in a post last month on democracy when he asks:
IF democracy inevitably leads to big government, either in the form of crony capitalism or socialism or elements of both, is there a way to change direction?
History shows examples of just this calculus - the democratic system or tyranny of the majority actually expedites this process.
Boyes hints at an optimism in his IF above. I mentioned early my reading project over the summer - Democracy in America. I do think that this IF is important, so important that it is worthy of both review and debate.
I can't help but think of the current uproar over Arizona's recent immigration policy. Those who supported Healthcare reform, the upcoming Financial System reform, are outraged at the immigration reform in Arizona.
Clearly all are examples of a welfare state - the differing reactions to each example are instructive - once the welfare state expands, the rule of law is replaced by legislation and executive branch agency with the inevitable result - arbitrary application of coercion. By definition, state action must be arbitrary if it is based upon legislation rather than law.
This essential element of centralized state power - arbitrary application of coercion has a number of destructive consequences - perhaps the most significant is the increase in uncertainty that is inherent in arbitrary use of power. To the extent that Hayek is correct and the economic problem is the use of knowledge in an uncertain environment that is characterized by change - the negative consequences of endemic uncertainty resulting from state power exercised in an arbitrary manner can be seen in history (USSR, Nazi Germany, US during war [and the Great Depression]) and currently in Venezuela, China and the US. Megan McArdle has a must read on that illustrates this using the recent Az immigration law - Arizona on My Mind.
I'd be a lot more sympathetic to this law, in fact, if it required the police to check the immigration status of every single person they pulled over, without any gauzy "reason to believe" fig leaf to cover up what's really going on.
Raise your hand if you think that law could have passed in Arizona.
Now, anyone whose hand is raised, contact your psychiatrist immediately. You need to check the dosage on those meds.
It is relatively easy to see the arbitrary nature of centralized state power in Health care reform, financial services reform and immigration reform. Considering my post yesterday about the ubiquitous nature of failure and the alternative reactions to failure offered by market and collectivist orders, the pessimism that Boyes and I express seems to be justified.