Wed Mar 24, 2004

More of the Same

Henry’s post on Microsoft as a monopolist is generating a lively discussion. A side-point popped up that I think is worth discussing. As a libertarian, Micha Gertner doesn’t like Henry’s argument that “sometimes (as here) the maintenance of competition requires vigorous state intervention”. Micha asks,

So the solution to a monopoly is a monopoly? […] Henry’s proposed solutionvigorous state interventionis no solution at all; it merely sweeps the problem under the rug.

Leaving aside the empirical details—Henry isn’t arguing that the State become a manufacturer of operating systems, Micah equivocates in his use of the word “monopoly” and also understates heroically when he says “the only advantage Microsoft has over Mozilla in this respect is that Internet Explorer comes preinstalled with the Windows operating system” —I just want to focus on Micha’s implication that Henry is arguing in a circle. As it turns out, this kind of argument is a mainstay of social theory. And libertarians are the people most likely to make it in other contexts, as with the claim that the solution to a market failure is more markets. That is, when they acknowledge the reality of market failure at all, free-marketeers often want to argue that the problem isn’t that the market has run amok but that it hasn’t been allowed enough room to work its magic. For example, a market failure in one area—say, negative externalities due to pollution—can be remedied by introducing another market—say, for pollution credits.

There are two closely related ideas at work here. The first is the notion that society can be a self-regulating system. The decentralized market is one version, developed in various ways since Adam Smith. There’s also a hierarchical version. In the twentieth century its found in cybernetic theories of feedback-governed systems, but it can also be traced to the organic conception of the social order found in Durkheim, for instance, not to mention even older versions of the corporate, complementary social order that go back to feudalism. There are important differences between these, of course.

The second idea is narrower and stronger—that the cure for what ails you is more of the same. This “hair of the dog” view is found in strong versions of market theory, but it also has a political analogue. DeTocqueville argued that democratic societies, founded as they are on principles of equality, tend to encourage selfishness and indifference to one’s fellows. “Equality places men side by side, unconnected by any common tie … [which] makes general indifference a sort of public virtue.” This encourages despotism, as the despot “easily forgives his subjects for not loving him, provided they do not love each other.” The solution to this problem, DeTocqueville argues, is more democracy rather than less:

The Americans have combated by free institutions the tendency of equality to keep men asunder, and they have subdued it. The legislators of America did not suppose that a general representation of the whole nation would suffice to ward off a disorder at once so natural to the frame of democratic society, and so fatal: they also thought that it would be well to infuse political life into each portion of the territory, in order to multiply to an infinite extent opportunities of acting in concert for all the members of the community, and to make them constantly feel their mutual dependence on each other. The plan was a wise one. The general affairs of a country only engage the attention of leading politicians, who assemble from time to time in the same places; and, as they often lose sight of each other afterwards, no lasting ties are established between them. But if the object be to have the local affairs of a district conducted by the men who reside there, the same persons are always in contact, and they are, in a manner, forced to be acquainted, and to adapt themselves to one another.

Elegance is the attraction of these ideas. Not only does the system heal itself (as in the first version) but the very mechanism that created the problem in the first place will also solve it for us. What’s intriquing here is not just that this harmonious vision is so common across the terrain of social theory, but that self-regulatory and self-remedying processes are so close in principle to negative mechanisms like throwing good money after bad, chasing sunk costs, the gambler’s fallacy, or self-reinforcing policy quagmires. Of the classical social theorists, Marx is the thinker who is most gripped by this negative image of the tendency for the social order to disastrously undermine itself, while Smith—perhaps against his will—has come to represent optimistic self-regulation in its decentralized mode, and Durkheim in its corporate form; whereas many mechanisms of both sorts can be found in DeTocqueville.

I’m not claiming much originality for these observations, by the way. Indeed, as Henry said in this own post, Albert Hirschman is the man to read on these questions. Essays like Rival Views of Market Society or The Passions and the Interests are little masterpieces, the kind of compact, lucid and judicious analysis that you pray might rub off on your own work.